Good day, and welcome to the Switch Fourth Quarter and Full Year 2018 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Matt Heinz. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to Switch's Fourth Quarter and Full Year 2018 Conference Call. On the call today are Thomas Morton, Switch's President; and Gabe Nacht, Switch's CFO. Today's call may include forward-looking statements, including references to expectations, projections or other characterizations of future events or market conditions. Actual results may differ materially from those expressed in our forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Our statements are made as of today, and we assume no obligation to update our disclosures. We describe some of these risks in our SEC filings, specifically on our Form 10-K, particularly in the section entitled Risk Factors. In addition, today's call includes a discussion of non-GAAP financial measures, which should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Please refer to today's press release and supplemental package for further information, including a reconciliation of non-GAAP measures. Our fourth quarter 2018 press release has been furnished to the SEC as part of our Form 8-K and is available on our investor website at investors.switch.com. I will now turn the call over to Thomas Morton, Switch's President.

Thank you, Matt, and good afternoon, everyone. Thank you for joining us today. During 2018, we opened one sector at our Core Campus and two sectors at our Citadel Campus. We also significantly expanded the land footprint of The Citadel Campus with the acquisition of 722 acres of land. An additional sector in The Pyramid Campus was also opened in 2018. Most importantly, we advanced construction on The Keep Campus in Atlanta. The walls of the first data center are up, and it is on schedule to be opened for customer deployments in late Q4 2019. We also secured the Switch Bill in Atlanta, which provides for zero sales and personal property taxes to customers who deploy at our Keep Campus. In all, we made significant progress towards establishing the Switch PRIMEs as hyperscale technology ecosystems while focusing our sales strategy on becoming the colocation provider of choice for mission-critical enterprise workloads. Executing this strategy involves expanding upon our approach to our customer relationships in which we have invested more time and effort than ever before in order to ensure that customers truly understand the full range of capabilities that Switch can offer, leading to a larger and more meaningful long-term business relationship with those customers. As we have discussed in prior earnings calls, this effort has led to lengthening sales cycles and deployment time lines, which impacted our 2018 bookings and revenue growth. We firmly believe that this was a prudent investment designed to optimally position Switch to be a leader in enterprise hybrid cloud transformation. In 2019, we remain focused on supporting the continued growth of Switch's Enterprise Elite Hybrid Cloud Ecosystems, including both Fortune 1000 enterprise and leading cloud service provider deployment. On that note, we continue to work closely with major public cloud platforms as we…

Thanks, Thomas. Today, I'm going to review our financial results for the fourth quarter and full year of 2018. I will then provide our outlook for 2019. In the fourth quarter of 2018, we achieved quarterly revenue of $103.2 million, an increase of $3.9 million from the fourth quarter of 2017. This is primarily attributable to a $3.1 million increase in colocation revenue and a $0.7 million increase in connectivity revenue. For the full year 2018, we achieved revenue of $405.9 million, an increase of $27.6 million from 2017. This is primarily attributable to a $19.5 million increase in colocation revenue and a $6.3 million increase in connectivity revenue. 30% of the revenue increase resulted from new customers initiating service during the past year, while 70% of the revenue growth came from customers who have been with Switch longer than one year. In the fourth quarter and for the full year of 2018, more than 95% of our revenue was recurring, consisting primarily of colocation, which includes the licensing and leasing of cabinet space and power; and connectivity services, which include cross-connects, broadband services and external connectivity. Colocation revenue for the fourth quarter of 2018 was $82.9 million compared to $79.8 million reported in Q4 of 2017. Connectivity revenue in Q4 of 2018 was $18.4 million compared to $17.7 million in the same period of 2017. Other revenue including professional services accounted for $1.9 million in Q4 of 2018, essentially unchanged compared to the same period in 2017. For the full year, colocation revenue was $324.2 million compared to $304.7 million reported in 2017. Connectivity revenue for 2018 was $74 million compared to $67.7 million in 2017. Other revenue, including professional services, accounted for $7.6 million during 2018, up from $5.9 million in 2017. Switch has become a strategic partner…

In conclusion, we firmly believe that Switch is well aligned with industry dynamics and competitively positioned to jump-start enterprise migration into a hybrid cloud environment. We continue to execute on our large enterprise retail colocation opportunities, which remain the strongest that we have ever seen. We look forward to announcing these transactions in due course. We would once again like to take this opportunity on behalf of our management team to thank our fellow employees, customers and our partners for their continued support of Switch. We would now like to open the line for questions.

[Operator Instructions]. Our first question will come from James Breen with William Blair.

Can you just talk about some of the color around the individual builds at each of the campuses and then how you see the CapEx getting spent there and then what penetration levels are looking like in The Core Vegas campus versus the Tahoe?

I may not have caught the last part of your question, Jim. But you're asking about the age of the campuses? Las Vegas has been in business for 18 years. The East campus, the East side of Las Vegas is where we started, and we did, as I mentioned on my remarks, we did spend some maintenance CapEx to upgrade the power infrastructure on the East side of Las Vegas. But the larger buildings that you've seen are on the west side of Las Vegas on our West campus. And Las Vegas 7, which was the first of those buildings, is about 10 years old, and we've been building ever since. The Citadel Campus in Tahoe Reno has been open for about two years as has the Pyramid in Michigan. And we are still under construction in Atlanta, as you know. Did I -- I didn't catch the last part.

Yes. I was asking about the penetration levels you're seeing there, where you're seeing the growth coming from across campuses. Obviously, Atlanta not open, but -- and then how the spending that you've got targeted for this year translates into each of those individual campuses.

Sure. The penetration in Las Vegas is always in the high 80s, low 90s because we're usually 1 to 2 sectors ahead of customer demand, and we have 2 million square feet that is essentially built. So the denominator is already, for the most part, built. So that penetration level doesn't jump around too much. As we open up a sector, it will move around a couple of percentage points. In The Citadel Campus in Reno, we have four sectors open out of the 11 that are currently slated for that first building, and our penetration is in the mid-50s, and it rises. It's been rising the last couple of quarters but, of course, it dropped when we went from 2 sectors to 4 sectors because we doubled the available space.

Jim, to give you one thought -- this is Thomas. We -- though we built these buildings and they're built out, they're necessarily completely full or built out completely when they first opened. We build out sectors, as Gabe said, within a building. So for example, in Tahoe Reno, we have more than -- we have 11 sectors inside that building. And as we start to fill up a sector, we build out another sector inside the same building. So we continue to build out buildings on campuses as well as fill existing buildings. And then even once a building is full, unlike most providers, we can go back and add additional power and additional cooling to that building. And the example that we often give is that NAP 7 has been full for several years, but it's -- that building is equipped to provide 100 megawatts of power. It currently is running around 60 megawatts of power, so we can still put 40 more megawatts of power and cooling inside that facility. So as our customers refresh and dense up their gear, we can continue to monetize those customers both in terms of power and cooling as well as telecommunications revenue.

And then in The Pyramid Campus, we're currently at 88% of committed available space, and we'll be opening up another sector in that building as well next year. But the interesting thing here, you asked about how does that translate the spending. We've been expanding from one PRIME campus to four PRIME campuses over the last several years. And our CapEx has gone over $400 million in 2017 down to $276 million this year. And you've seen our guidance for next year which will bring that CapEx down even lower because all of the infrastructure build that goes into opening a campus is essentially done other than in Atlanta where we're under construction, and that will open at the end of 2019. All of the other infrastructure is done, and now building will be based on customer demand. And unlike some of the peers in our space, we're entering 2019 with a very healthy backlog of available space to sell because we've been investing for the past several years. So we're very comfortable with our position going into '19.

Our next question will come from Frank Louthan with Raymond James.

Can you give us a little bit of an update on the status of some of the larger deals that are potentially getting pushed out? And then also, to what extent is the margin improvement coming from the new energy deal in Nevada? And will that go backwards a little bit as Michigan and Georgia campuses ramp up?

All right. Frank, thank you very much. Always good to hear your voice. The first thing is the larger deals that we've been talking about are working themselves inexorably close to the closure, and there are several that are very close, and we hope to do announcements on them in the near term. They did not close in the first quarter, so we'll -- well, they may close in the first quarter, sorry. They didn't close by the end of the year. So we'll be looking to have them closed, hopefully, but they continue to progress, and none of them have fallen off. So that continues to be something that we look positively towards and look at like it's growing. In terms of power margins, I don't expect significant change in power margins. And the amount that we are saving on our power, we've saved a lot on our power by being an independent procurer, and we expect that to continue, but Gabe has some specific stats to provide you.

Well, to date, we've saved about $20 million since we became an independent purchaser of power, and most of that in terms of margin pickup happened in 2017, particularly in the third quarter of 2017. We became an independent purchaser of power in June of 2017. And historically, that third quarter was always our weakest EBITDA quarter because we were impacted by peak power pricing in Las Vegas. And so as we moved into '17 third quarter, we really saw a very significant change in that margin. But as we moved into '18, we've been a buyer for the entire year so there really hasn't been a significant improvement in the margins throughout '18, but we expect margins to continue to be favorably impacted -- or our power purchasing to be favorably impacted by being an independent purchaser. And in Michigan, I wasn't quite sure what you were getting at in Michigan because we actually have a very good contract with Consumers Energy in Michigan to provide power at very competitive rates. It's 100% great.

But I just wondered, I just wanted the -- just curious if the rates in Michigan and Georgia you're forecasting to be at or better than Nevada or as those ramp up, might we see a little bit of a margin contraction order but sounds probably not the case.

Yes, they won't be at or better than the ones we've been able to achieve in Nevada, but they will not impact margin.

Got it. And as a follow-up to my first question, it sounds like your -- maybe your guidance is a little conservative. As some of these larger deals come through, can we see an update to the guidance? Or how much of these deals you're looking at are you already baking in, in the guidance to close?

Well, when we look at next year, our guidance is realistic. We want to make sure that we are achieving the numbers that we've put forth if some of these larger deals close and, more importantly, deploy. We can always adjust our guidance at that point in time. The guidance that we put out there is about 30 -- at the midpoint, about 8.5% growth; at the midpoint, about $36 million in total growth. About $15 million of that is coming from our current backlog of booked not billed, but the rest means we've got to sell cabinets. We got to sell circuits and so it still requires work.

Frank, it still -- what we wanted to do is we put a lot of thought into our guidance, and we wanted to put guidance out there that we felt we could achieve and that wasn't overreaching so that we were providing the market with as accurate a picture as we felt we had into what the growth will be next year. Certainly, if we exceed those numbers, we will adjust later on. But at the current state, looking at what we have on our plate and looking at that we have available, we felt that this was a very reasonable picture of where the company can be expected to produce in 2019.

Our next question will come from Richard Choe with JPMorgan.

I wanted to ask, is the 8.5%, kind of the high single-digit range, the new normal for revenue growth? Or can we see that accelerate as the other campuses kind of ramp up and see a higher growth rate? And then also, I wanted to ask about the connectivity revenue has been pretty flat for the past two quarters. Should that start to reaccelerate at some point? Or is the $18.5 million kind of what -- how we should think about that?

Thanks for the question. As far as the new normal, we don't know what the new normal is. We certainly don't believe it should stay in the single digits. The idea of having four campus locations and four PRIMEs is they're all adding recurring revenue over time, and that should help accelerate growth over time. But in order to see growth accelerate, not only do we need to close transactions, and we've talked about the lengthening the sales cycles on some of these larger deals, but then they need to deploy. And once only after they deploy are they billable. So we wanted to make sure that we are putting forth guidance that we are comfortable with, particularly going into '18. If some of these deals signed and then deployed faster than we expect, we will certainly adjust. But as we look forward to 2020, '21 and beyond, we would certainly want to see accelerated growth. And the second part of your question?

Telecom.

Oh, on the telecom. On the telecom side, there was a -- the flat revenue that you're seeing from 3 to 4 that we talked about on the last quarterly call that we did have a couple of large telecom renewals that impacted that number because telecom, as it renews, is typically a declining price point. If somebody renews a 10-gigawatt circuit today, they're inevitably going to pay less than they did three years ago. Typically, what we see clients do is either upgrade their capacity for the same dollars or you'll see a slight decrease in the pricing. It just so happens that in Q3, we had two large telecom renewals hit, and they saw price declines given that they were three year deals, and that's what's impacting that flatness. But we -- telecom has been growing faster than colocation, and we expect that to continue into 2019, not tremendously faster because we want to make sure we're balancing the margins from telecom and the margins from colocation but certainly 1 point or 2 higher.

Erik Rasmussen from Stifel has our next question.

First, bookings in looking at that chart that you provided in your PowerPoint presentation, bookings have decelerated. I think you mentioned in the prepared remarks about greater than $20 million. Is this more related to timing? And then can you just walk us through what -- maybe what drove that? And then as we look at your guidance for '19, is there a target range that we can -- that you can provide that we can expect so we can start marking that? And then I have a follow-up.

Sure. As far as bookings go, Erik, the fourth quarter is typically a slower bookings and deployment quarter simply because of the holidays. So our clients, even if they signed deals, they're not necessarily moving cabinets in during the holiday period because their staff is on holiday. Unlike software companies where there's quarterly pressure to sign deals, we don't experience that. And given the holidays, it just -- it tends to be a slower contractual quarter. I don't think that's necessarily true just for Switch. I think you see that across the entire industry. So I wouldn't read too much into that number. And then as far as the range, I guess, maybe I'm not following where you're going, but we did provide a range in our guidance.

No, that's helpful. No, I guess, I could back into that number, but -- and it seems there's a lot of variability around that from quarter-to-quarter from your explanation now. No, that's fine. And then maybe as my follow-up, looking at your plans for bringing on new capacity, it seemed like there've been some pushouts into 2020. Can you just elaborate on what's going on there? And then you reiterated Atlanta opening in Q4, maybe just talk about that market because it's obviously a lot of development there, and it seems like there's a lot of new players coming into the space, including a lot of the already established players in the market. Just some thoughts on the Atlanta market.

So real quick, Erik, I don't know of any pushout until 2020. We don't have any that I know of, but Gabe can elaborate if there are any that he's seeing. But as to Atlanta and new players coming into the market, we've seen a series of new announcements in the Atlanta market, but we haven't seen much in the way of new constructions in the Atlanta market, and we certainly haven't seen anything of our size and our breadth in terms of what that construction is. And so those that have announced haven't built, but there are -- there's always some people that are doing much smaller construction in the area. So we're looking forward to coming online. We are online -- we are on time to do the deployment in Q4. The only thing that would slow us down from that time line is mother nature. If anybody looks at the weather forecast down there in Atlanta, they have received epic amounts of rain, and they continue to receive that. And once we get the roof over the buildings, then the rain will be less impactful. But certainly, when you're getting ready to pour foundation, you're pouring foundation, rain has a significant impact on your time line. So that rain can continue, but it will have a diminishing impact in our ability to open on time with our new customers there. So we're looking forward to the growth there, and then we're looking forward to building out the latest sector in The Pyramid. And we're also continuing to build out the data center in Reno and opening buildings in Las Vegas as well. So the growth is continuing in all four campuses, and we look forward very much to bringing Atlanta online.

Yes, we actually haven't pushed anything to 2020. We've actually accelerated some of our building plans. And we entered the year with very, very healthy inventory of sellable space. At The Citadel Campus have two sectors that are sellable today that are essentially filling up. We're 56% committed on four sectors, which means we essentially have two sectors that are ready to be sold. At The Core Campus, we just opened up our Las Vegas 11 facility, which is 340,000 square feet, three sector design. The building is open. The power system's on. And the sector is -- the first sector of that building is waiting for the last sector of Las Vegas 10 to be full. So we entered '19 with a very healthy inventory in Vegas. At The Pyramid Campus, we're 88% committed, but we'll open up the next sector in Q1 of this year. And then the last piece of that Pyramid will open in Q4 of 2019. So we feel very good about our inventory and our sellable capacity, and we really haven't pushed out any CapEx. We have the ability to accelerate if the customer demand is there.

Next, we'll take a question from Brett Feldman with Goldman Sachs.

Thanks for some of the color you provided on your outlook. If I could just follow up on that a little bit, specifically with regards to revenue, it would seem like based on the way you framed the guidance that you're probably expecting some degree of acceleration in the business as you move through the year. I just want to make sure I'm interpreting that correctly. And then also, I apologize if I missed this earlier, but in the past, you'd noted you had a large customer who was looking for financing before they went ahead and commenced. I'm wondering if there's any update on that and if any of that business is captured in your 2019 revenue guidance.

So thank you very much, Brett. Let me answer the second question first, which is as to the customer who's looking for financing. There's been no advancement on their part. Their numbers, we took out of all forecasts last year, about halfway through the year, which is part of the reason for our adjustment in guidance. They are not in our 2019 guidance at all so that is not a moment that we have financially in here. The second thing as to guidance and it accelerating, yes, we believe the company's going to continue to grow. Gabe gave the numbers that we have already in our booked but not billed for this year. And we believe that we are in a trajectory to continue to grow and expand this company. And when we bring Atlanta online next year, we believe that, that will also continue to accelerate the growth of this company. So we are bullish on our opportunities for the future and our ability to sell. And as Gabe said, we have spent money and time building up inventory, and so we do have inventory to sell to customers. It's readily available to them, and they are looking for that space from us.

If you don't mind, as one quick follow-up, it sounds like you'll be bringing Atlanta online very late this year. Should we expect that by the fourth quarter, the total contract value that you're reporting would include sales in Atlanta? Or is that something we're not probably going to actually see until we get into next year?

It really simply depends on when that contract signs, Brett. When it signs, we'll report it as total contract value.

Yes, we very much would like to give you that news, and we'll be working towards doing that.

Have you started trying to sell in the market? Or is that just way too early to try that right now?

We are absolutely starting to sell in that market, and we have -- actually have a group there this week working on local customers in and around that area. So we are actively targeting the Atlanta market and sales in that market.

Our next question will come from Sami Badri with Credit Suisse.

So I'm looking at your midpoint of your growth rate at 8.5% for 2019. And the 8.5% growth rate is actually directly in line with the overall market growth rate about for the sector, and I hear the confidence you guys are saying in your guidance and the build plans, et cetera. I mean, these all sound great. Now are there some things we should really be cognizant about as we think about your transitory performance through 2019? Are there churn events? Are there anything that we should really be looking at to keep us really like in check because we've gone through a couple of fluctuations over the last couple of quarters? We just want to be prepared on how we look at 2019 and as we segue into 2020.

Yes. With regard to -- Sami, thank you. With regard to churn events, there are none that we know about that would be unusual. But of course, we don't control that. With regard to the midpoint of the guidance, as I mentioned, it's not a slam dunk. It does require that we have to sell cabinets and circuits. So there's about a $36 million increased forecast, and out of that, there's about $15 million that is coming out of our booked not billed backlog. So we do have to continue to sell to our existing customers, bring on new customers, and more importantly, customers have to deploy on a time line that allows us to bill and record revenue. So we think we're comfortable with that number. Otherwise, we wouldn't have put it forward. And depending on the timing of some of these other deals that Thomas mentioned, we may or may not revisit that number. But for now, that's the best look that we have going forward.

When we have a customer start to talk to us about a sale, there's three things that we have as considerations. The first is when are they going to close and what's the size of the closing. The second is when are they going to start their installation. And third, what is the ramp that they have as they start to deploy. And so even though we may sell a customer with very high TCV, the question is how quickly is that total contract value realized as we ramp into the deployment there because as they fully deploy, obviously, that's the largest expense load and the largest revenue load for us. So the faster we can get them to full deployment, the better the deal is for us, but we just don't know what that deploy is until they come to us to and do Phase 1 and 2, sign and close.

Got it. And then I just have a follow on regarding Vertiv and some of the other licensing agreements you guys are talking about. Could you give us an idea on the volume of revenues that you guys are referring to, specifically in this kind of business or this kind of licensing? And where do you see this going probably over the next 2 to 3 years? Is the entire IP of the company essentially licensable? Or just give us some guiding views and hopefully like maybe a revenue number so we can understand what's going on.

Yes. So the revenue isn't that significant. It will be a couple of million dollars, but it's not -- that's not the reason -- the main reason that we're doing this. The main reason that we're doing this is a protective measure. Each of these manufacturers have agreed they will not use our IP for products that are going to be deployed in facilities that have the capacity to compete with us. So it is a way for us to protect our unique advantage strategically with companies as much as it is or more than it is a revenue source. So by having Munters, Vertiv, Schneider and others agree that they will not supply product into the market, we are limiting the access that would-be competitors would have to our technology and the ability to deploy our technology in competition with us. So there's a strategic reason for doing these licenses that is more important to us than the actual revenue. The revenue, as I said, at a couple of million dollars is not going to be a needle mover for us, but it will be a strategic protective. Now it also allows us to work with people like Vertiv that we are working with Vertiv to make innovative designs and to do some advancements on new products that we look to offer into the market. So by licensing our technology to them, allowing us to play with it and collaborating with them on enhancements, we are working toward advancing our data centers and keeping them at the forefront of data center technology for the industry.

[Operator Instructions]. Our next question will come from Michael Rollins from Citi.

A couple of questions if I could. First, can you share with us the pricing changes on renewals on average that you were able to achieve in the quarter? The other thing I was curious about is if you look at just the aggregate revenue growth year-on-year in the quarter, which I think was 3.9%, how does The Core Las Vegas campus compare to that? And what should we take from that in terms of like the longer-term implications of growth in the Las Vegas footprint?

Sure. In terms of the pricing of renewals, Mike, as I think you know, our renewals are rarely straightforward renewals. We -- typically, when a customer renews, they don't simply renew their 10 cabinets and say sign us up again. They're either changing their densities, they're changing their circuits, they're adding, they're adjusting their footprint in one way, shape or form. So on our renewals, it's about -- if we were to look at our straight renewals, it's probably about 2% in terms of, in terms of the pricing growth. But one of the encouraging things this quarter is if you look at our $20 million of MRC, about $7 million of that was incremental. And so those were renewals with changes. The vast majority -- the new deals that we signed, we signed 26 new logos. But if you look at our chart, you'll see that they were relatively small, they didn't add a lot of total contract value. So most of that contract value that we signed this quarter was renewal and adjustments within renewals, and we have done $7 million of incremental revenue there. So that's an encouraging sign.

One important thing, Mike, to bring up is, as Gabe said, that we got about 2% increase. We have a lift that we do in March of each year. We have a lift that we do for the billing. However, we do not lift power unless there's a corresponding increase in power cost. So it doesn't mean that our entire revenue is going to go up 2%. The net impact of that lift is actually closer to 1% all-in because there are certain aspects of the business that we don't do annual raises on.

That's helpful. And if you can talk about The Core Campus performance relative to aggregate revenue growth.

Yes. The Core Campus actually grew faster than the other campuses when you look at quarter-over-quarter, year-over-year growth. If you recall, Mike, Q4 was really the peak quarter of eBay's contribution to Reno last year prior to their signing their new expansion with us this year. And so in terms of year-over-year comparisons, Reno actually had a much tougher comp than The Core Campus or The Pyramid Campus. So overall, we grew 3.9%. Core Campus grew a bit higher than that. Reno had a tougher comp.

And going forward, what's the right rate of growth to think about in The Core Campus? Is it the same kind of ballpark of what you're achieving now?

As I said earlier in the call, our midpoint of the guidance is 8.5% for 2019 over the longer term when we look out to 2020, 2021 and beyond. We certainly would hope that, that would accelerate.

Our next question will come from Jennifer Fritzsche with Wells Fargo.

If I could ask just a bigger picture one, if I may. Just your opinion on, one, the competitive environment you're seeing out there; and then secondly, the length of the sales cycle. If you had to think like back, I don't know, 2 to 3 years, has the customer gotten, I don't know, more sophisticated in their ask, might be the right word which I would think fits into your business plan? But are you seeing a change in the customer and the change in sales cycle -- or the length of the sales cycle as the customer grapples with the questions of hyper -- hybrid cloud, et cetera?

Yes, Jennifer, great questions. And the first thing is to the competitive environment. The one thing that we've all seen that's very interesting is you have a large amount of newbies or new entrants into the industry, and some of those are funded by, whether they be sovereign funds or some sort of a longer-term fund that could take a return, so you're starting to see smaller operators with a significant amount of product they have available and the ability to or the willingness to accept a lower return. So on some people, especially when you go to Tier 2 type data centers, they're beginning to see some compression in that deal with that level of data center. Not so much affecting the type of customer that we do, but we are seeing that competitive shift in the environment with the Tier 2 or the cloud-type spaces. And the second thing is as to the sophistication of the customers. What we are seeing is we have a number of customers that had a data center, say, at 100,000 square feet that wasn't incredibly efficient for them as their enterprise data center. They've given up 1/3 of that data center by moving equipment to the cloud. So now they have a data center that wasn't efficient to begin with, and now it's even 1/3 less full, so the economics are driving them towards the colocation environment, but they've never done colocation before and so they don't have mechanisms or they don't have a procedure for lifting all their gear and getting it into a colo environment. Those customers have a longer curve of figuring out what their protocol and procedures are going to be from moving their gear from their enterprise data center into a colocation environment. They are also much more sensitive as to the quality and nature of that environment. So they are not going to move from their Tier 4 facility into a Tier 2 or Tier 3 minus facility. They're going to want to move into something that's more sophisticated. So we are talking to a lot of those customers, but because they are not used to or as comfortable with doing those types of lift and shifts, they are slower in the process of doing that. They really want to do it. They see the advantage of doing it. They just need more time to figure out how in their enterprise they can make that happen.

And the interesting thing, Jennifer, is I think your premise is exactly right. They are getting more sophisticated in their ask because they're thinking more strategically over how they're going to run their tech stack over the next decade or more. And it really is more of a consultative kind of the sale. It isn't a real estate transaction where it's x amount of square feet and they're just going to load in their cabinets. We're really trying to help the customers understand how they're going to deal with their connectivity structure, how they're going to deal with their densities going forward, where they can buy their servers and the right chipsets to run their computer stack. So it's really a much more consultative type of approach, and therefore, it has lengthened the sale cycle. But we are very comfortable with that approach. We're used to providing that type of consultation. And once you get the customer to move, you really are married to that customer for a very significant amount of time.

And that does conclude our question-and-answer session at this time. It also concludes our conference call for today. Thank you all for attending. Please enjoy the rest of your day. You may now disconnect.

Thank you all.