Q3 2019 Earnings Call
Good afternoon, and welcome to the Economics third quarter earnings Conference call all lines will be able to listen only until we open for questions.
Also today's conference is being recorded if anyone has objections. Please disconnect at this time.
I'd now like to turn the call over to Katrina Rymill.
Vice President Investor Relations you may begin.
Thank you good afternoon, and welcome to todays conference call before we get started I'd like to remind everyone that some of the statements will be making today are forward looking in nature and involve risks and uncertainties. Actual results may vary significantly from the statements may be affected by the rest of identified in today's press release and those identified in our filings with the FCC, including our most.
Recent Form 10-K filed on February 22nd 29 team and 10-Q filed on August 2nd 2019.
Equinix assumes no obligation and does not intend to update or common on forward looking statements made on this call.
In addition in light of regulation fair disclosure is that going this is policy not to comment on its financial guidance during the quarter unless it is done doing explicit public disclosure.
In addition, we will provide non-GAAP measures on today's conference call. We provided a reconciliation of those measures to the most directly comparable GAAP measures analysts for the reasons why the company uses these measures in today's press release on the Equinix IR paid at Www Dot Equinix Dot com.
We have made available on the IR Pedro website presentation designed to accompany this discussion along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about that clinics in the IR page from time to time and encourage you to check or website regularly but most current available information.
With us today, our Charles Myers, Equinix, as CEO , and President and keep Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions from self idealists.
Interest wrapping this called an hour we'd love to ask you, Finland the limit any follow on question suggests one.
This time I'll turn the call a bit Charles.
Thank you Katrina good afternoon, and welcome to our third quarter earnings call, we had our best ever third quarter bookings, reflecting strong execution of our strategy and demonstrating our ability to deliver clear unquantifiable value to our customers as they pursue their digital transformation agenda.
Our retail business continues to thrive generating over 4400 deals in the quarter across 3100 customers with the majority of our bookings comprised of a small to midsize multi metro deals fueling one of the strongest inertia interconnection quarters in our history.
Executing effectively on our commitment to unlock the power platform equinix for our customers expanding our geographic reach enhancing our market, leading interconnection portfolio and responding to evolving customer needs with the launch of new and innovative edge services offerings by focusing on driving enhanced operating leverage in the business, we're enabling investment across our.
Traditional retail business, while layering in incremental capabilities, which together will drive higher attach rates reduced churn and sustain enhance kevan yields over the coming years, allowing us to continue to deliver industry leading returns.
We are aggressively activating our channel combining the value apply for mechanize with partner solutions to accelerate our customers journey to hybrid and multi cloud as a clear architecture of choice, we outgrew the market globally with notable momentum in EMEA and Equinix now holds the number one position in 18 of the 25 countries in which we operate.
We continue to extend our global reach announcing our plans to entering Mexico. The second largest economy in Latin America with two new market, serving Mexico city in Monterrey.
In tandem with our strong operating performance, we're advancing a bold sustainability agenda with meaningful progress across environmental social and governance aspects. We made significant progress on our goal to you is 100% clean renewable energy for our Datacenters with over 90% of our energy consumption today now covered by renewable sources were a record.
Nice by the U.S. EPA for our leading green power use ranking number for on the EPA is national Top 100 partners list and receiving the Green Power leadership award for the third consecutive year, recognizing our contribution in advancing the development of the nation's voluntary green power market.
During the quarter. We also announced the addition of standard era to our board of directors and the hiring of Justin just today as our new CTO, we're thrilled to add their deep and diverse experience as world class technology leaders as we continue to refine and expand our vision for the future a platform equinix.
Turning to the quarter as depicted on slide three revenues for Q3 were 1.397 billion up 8% year over year adjusted EBITDA was up 9% year over year and AFFO was ahead of our expectations, including excluding FX and FX related impacts interconnection growth again outpaced colocation revenues growing 13%.
Year over year, driven by solid traction across all their session products, and particularly strong momentum across our cloud exchange fabric.
Growth rates are all on a normalized and constant currency basis.
However, we closed our first Hyperscale JV, a greater than 1 billion dollar deal with GE IC Singaporean sovereign wealth funds.
Just a strategic milestone frac onex, enhancing our ability to respond to the rapidly expanding needs of the world's largest cloud and hyperscale companies, while strengthening our leadership in the cloud ecosystem.
We look forward to launching similar jvs and other operating regions and believe these efforts will continue to further differentiate equinix as a trusted center of the cloud first world.
We now have over 356000, interconnections, adding more per quarter than our top 10 competitors combined in Q3, we added an incremental 8500 interconnections with high gross adds from both enterprise and network segments, accompanied by lower than expected churn.
We also surpassed 20000 virtual connections more than 5% of our overall count and we expect these connections which are dynamic and operationally efficient to accelerate as customers leverage the capabilities on our SDN SDN enabled X fabric.
With over 80 latter customers now any shifts fabric, we're seeing the strong ecosystem effects driven by expanding use cases, including when we architecture distributed data and rapid adoption of hybrid cloud across an increasingly rich range of cloud destinations. We all saw so gross growth of our internet exchange in existing and new markets with 20.
7% year over year increase in I ex provision capacity.
Our newly launched network edge product is generating strong market interest with a robust pipeline.
This offer provides enterprises, a faster and more efficient way to deploy virtual network services that equinix, including routers firewalls and load balancers from their technology providers of choice, including Cisco Juniper and Palo Alto networks.
Now, let me cover highlights from our verticals our network vertical experienced record bookings led by the major telco sub segment and significant global NSP reseller activity as we partner with global providers to evolve their architectures and serve rapidly expanding enterprise demand, new wins and expansions, including silicon networks, a leading fiber optic provider after.
Amazing network to support growing customer demand and Celia Nordic provider extending coverage with regional edge deployments.
Our financial services vertical achieved robust bookings and strong new logo growth with an uptick in the banking sub segment as firms continue to embrace digital transformation key new wins included Sterling Bancorp re Architecting network to securely connect partners and the U.S. exchange startup leveraging the depth and reach of our expansion electronic trading ecosystem.
Our content and digital media vertical produced solid bookings led by strong growth in publishing advertising and video sub segments, new wins and expansions included a global social media from upgrading infrastructure to support their growing product line as well as a leading global AD tech firms transforming network topology to distribute and analyze data.
Cloud Nike vertical continues to over index with strength in the security sub vertical as well as a strong increase in echecks fabric participants as cloud consumers diversified towards hybrid and multi cloud architectures.
We continue to leading cloud connectivity with over three times as many metro's with multi cloud on ramps as our nearest competitor.
Our enterprise vertical experienced diversified growth across professional services retail as well as notable strength in government.
New wins included Pruitt health deploying on platform Equinix to support its growing health care ecosystem, Steve Madden re architecting networks and connecting to multi cloud to better enable digital business. The Myers Briggs company optimizing networks and interconnect into business partners to support data management requirements as well as further expansions from Walmart deploy.
And distributed infrastructure to support AI use cases.
Our channel team had another great quarter accounting for more than 30% of bookings with 60% of this activity going into our enterprise vertical as we used the reach and relationship our partners to efficiently expand our addressable market. We saw partner wins across all end user types, including insurance federal government banking public utilities and pharma with.
Our work optimization and hybrid mouth multi cloud as key use cases.
New channel this new channel wins this quarter included a multi partner win with Presidio five Microsoft and Oracle for a large U.S. energy company supporting their datacenter consolidation and implementations of hybrid and multi cloud access now let me turn the call or acute cover the results for the quarter.
Thanks, Charles and good afternoon to everyone.
Let me start my prepared remarks by saying, we remain very pleased with the performance of our business and how platform at clinics is differentiating us from others in our space.
Pardon me, we continue to successfully scaled the core business, while simultaneously investing in our future both as it relates to our operating structure.
At our new products and services.
We continue to invest and sustainability and diversity inclusion and belonging initiatives to areas that are very dear to our communities our customers and our employees.
We had another solid quarter with our operating results consistent with our expectations, although impacted by FX and FX related items.
From a bookings bookings perspective, we had our best ever Q3, gross bookings performance, including very attractive deal mix and strong pricing.
Interconnection activity was very strong both at the physical and virtual level, we're making good progress across our new edge services.
Again, we had net positive pricing actions this quarter.
As a result RMR per cabin metrics remained from both on an as reported and FX neutral basis.
In early October we closed our first Hyperscale joint venture in EMEA and trends for two of our operating assets into the JV, London, 10, and Paris eight.
As a result.
A joint venture distributed a net $355 million of cash to Equinix and we expect an additional 60 million euros over the next four quarters as certain contingent milestones are met.
And we continue to expand our global platform with 28 projects underway across 21, Metro's and 16 different countries. Another critical points of separation compared to other companies in our space.
Now, let me cover the quarterly highlights and know that all growth rates and this section or on a normalized and constant currency basis.
As depicted on slide four global Q3 revenues were 1.397 billion or 67 straight quarter of topline growth.
8% over the same quarter last year and at the midpoint in our guidance range on an FX neutral basis.
In the quarter, we experienced an unusually high level of FX volatility largely derived from the Brexit implications to both the British pound and the euro.
Also the Brazilian real weakened considerably currency this typically too expensive to hedge.
As previously guided there were a number of one off events that impacted the quarter over quarter over quarter revenue step up including lower tenant recoveries from a favorable tax decision in Q3 related to our simple mark and promote sorry pardon me impart Dallas assets.
And then lower than expected nonrecurring revenues.
Q3 revenues net of FX hedges included an 8 million dollar negative FX impact due to the stronger us dollar in the quarter when compared to the prior guidance rates.
Global Q3, adjusted EBITDA was $675 million up 9% over the same quarter last year, despite higher seasonal utility costs and the expansion drag Q3, adjusted EBITDA was better than expected primarily due to lower maintenance costs.
Q3, adjusted EBITDA performance never FX hedges included a negative 4 million dollar FX impact when compared to prior guidance rates.
Global Q3, AFFO was 473 million, an 18% increase over the same quarter last year above our expectations on a constant currency basis, while still absorbing the higher than anticipated increase in a recurring capex.
Also in AFFO on a as reported basis absorbs a net 16 million dollar higher than planned income tax expense.
Attribute attributed to FX related tax gains from our hedging program.
Based on the current FX exchange rate through October we expect a significant portion of this tax expense to reverse in Q4, and accordingly has been reflected in our AFFO and AFFO per share guidance.
Q3, global AMR churn was 2.3% consistent with our targeted range for Q4, we expect them our churn to remain in our guided range of 2% to 2.5%.
Interconnection revenues increased significantly over the prior quarter with momentum in each of our regions.
Interconnection revenues now represent greater than 17% of our recurring revenues a significant quarter over quarter step up.
Connection our interconnection portfolio grew at a healthy pace driven by strong net adds from both the physical and virtual connections, while also provisioning significant incremental port capacity.
The Americas EMEA interconnection revenue stepped up to 24 and 10% of recurring revenues, respectively, while APAC was 14%.
Turning to regional highlights was full results are covered on slides five through seven.
Apacs, EMEA, where fastest MMR growing regions that 13, and 12% respectively on a year over year normalized basis, followed by the Americas region at 4%.
The Americas region saw US continued strong bookings with a high mix of small deals healthy pricing and the strong new logo adds.
An export bookings to the other two regions continues to remain at a high as the Americas region does an excellent Java selling across our global platform.
And our new Federal segment had a stellar quarter, we remain very excited about the pen potential opportunities we see across this customer set.
Our EMEA region had another very strong quarter led by our German French businesses, including strong network service provider activity.
I had a robust increasing billable cabinets.
Deal pricing, while experiencing as best ever net cross connect ads in the quarter.
We opened up capacity in three new markets in EMEA, Helsinki, London and stockholders.
In Asia Pacific Region showed continued momentum over the quarter. Despite us trade dispute dispute with China on the unrest that we see in in Hong Kong, We enjoyed strong bookings in both our Hong Kong and Singapore businesses. We opened our first datacenter in Seoul, South Korea entering into one of the most vibrant digital economies in the world our 25th country.
To operate from to date the sole business is tracking ahead of its bookings plant.
And now looking the capital structure, please refer to slide eight.
Our unrestricted cash balance is approximately $1.4 billion lower than the prior quarter as the operating cash flow and proceeds from ATM program were more than offset by our quarterly capital expenditures and our cash dividend.
Our net debt our net debt leverage ratio was 3.5 times, a Q3 annualized adjusted EBITDA.
Slightly due to vote due to the lower cash balance yet still well within our targeted range.
As a new investment grade rated company and given the current interest rate environment, we expect to drive substantial interest rate savings through the refinancing of our currently outstanding debt as well as enjoy a lower cost of rural on any new incremental capital raised to fund our future initiatives.
At the end of Q3, our liquidity position alongside the the strong balance sheet.
Continues to provide as a strategic an unmatched business advantage.
Turning to slide nine for the quarter of capital expenditures were approximately 557 million, including a recurring capex of 47 million.
Q3 had six new expansion projects completed, adding 2800 cabinets of capacity, including new Ibxs in Helsinki and so.
We continue to expand our land bank acquiring land for development in Tokyo in Warsaw.
Our capital investments delivered strong returns as shown on slide 10.
Or 136 stabilized assets increased revenues, 3% year over year on a constant currency basis similar to last quarter.
Our stabilized assets are collectively 85% utilized and generate a 30% cash on cash return on the gross PPD invested.
And now please refer to slides 11 through 15 for updated summary of 2019 guidance and the bridges.
For the full year of 29 team on a constant currency basis, we're maintaining our full year revenue guidance, while raising our adjusted EBITDA guidance by 6 million due to strong operating performance.
This guidance applies implies a revenue growth rate of 9% over the prior year and a healthy adjusted EBITDA margin of approximately 48%.
Also we are reducing our 2019 integration cost to now being $9 million.
And given the strong operating performance. We're also raising our 2019 AFFO by 8 million.
For our growth rate that will range between 13, and 14% compared to the previous year on a normalized and constant currency basis.
We do expect slightly lower net interest expense in Q4.
Hey, AFFO per share is expected to grow 8%, including the dilutive impact of both our Q1 equity raise and the effects of the ATM program activity.
We have assumed a weighted average 84.8 million common shares outstanding on a fully diluted basis.
And finally, we expect our 2019 cash dividend to now approximate $825 million, a 13% increase over the prior year and reflects an 8% year over year increase on a per share basis, so that I'm going to stop and I'm going to pass it back to Charles Thanks, Keith.
In closing we had another great quarter building on our unique sources of competitive advantage and demonstrating the underlying strength of our business. We continue to separate ourselves from the competition using our diverse go to market channels and our expansive balance sheet as tools to extend the scope scale and velocity of our flywheel business, while partnering with world class players like GE I see two and.
Able us to simultaneously capture strategic but France and deliver attractive returns in the hyperscaler market.
We also continue to build new capabilities that will allow us to achieve our vision for the future of platform Equinix future that will allow our customers to reach everywhere connected with everyone and integrate everything on their digital transformation journey.
I'm extremely pleased and privilege to work with our team of over 10000 focused on building out our products and platform and executing against an ambitious set of priorities in service to our customers all while steadfastly ensuring that our culture continues to thrive, making sure that we have the right people in the right roles at the right time building company.
Positively impacting our world and wherever employee can confidently say I'm safe I belong and I matter. So let me start stop there and open it up questions.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one please record your first and last name as well as your immediate affiliation when prompted to withdraw. Your question you may prostar to once again at this time, if you will like to ask a question. Please press star one.
First question is from Philip Cusick with J. PMC. Your line is open.
Hey, guys. Thanks, a couple if I can.
First maybe you can dig into the tax issue in the until March and if that impacted the Americas Colo revenue and then second.
What are the incremental costs keys of the green initiatives that we should expect from here thanks very much.
Okay.
Yes.
A question that you asked visa the tax implications, we've talked about to sort of.
Currency or tax matters.
In our prepared remarks, this quarter first and foremost as it relates to the revenue side of equation, because we when we bought Imphal Mark there was a.
Shall we say in a negotiation with the local taxing authorities and the value that gets ascribe to that building and we came to a resolution in Q3, but prior to that there was a very large assessment that basically was was charged to of course to to the tenants of them from art building.
And so we absorb that the cost in the tenants absorbed if you will have a pass through of some of those costs in Q3 once we settled.
The arrangement with the tax authorities there is a meaningful step down in the amount of taxes that we collectively we're going to pay and as a result for those tenants that were.
We're part of inform our they affect they are going to get a reduction on there.
Of the taxes and that affects those directly on our recoveries. If you will the revenues attached to that but bottom line as you've got to step back and say, okay. The revenues come down but economically. This was good for normally our our tenants, but it was even better for equifax because of the because were won a large tenant in the facility and we also absorb a lot of the.
A lot of the.
Yes.
Unused capacity, if you will in that space and that tax gets burden onto us. So that was the first what the second the second matter I just want to raise because the thing is important just to make sure that was a property tax issue and it.
All is attached to recoveries the second issue for us vis-a-vis taxes income tax attached to.
Very favorable.
Hedge gains that we had on our hedges and as a result, our income tax provision went up.
In Q in Q3, because of how weak both the sterling and euro where relative to the U.S. dollar as you know a lot of that is reverse already in Q4.
But we had to books and provision in Q3 and Thats why you see you see the effects of that and the bridge.
And then.
Go back then to your last question relinquished was on the Green initiatives suffice it to say Charles has been made comments as did died we're very very very focused on U.S.G. as as a corporation and our green initiatives and those green initiatives of course come in many different.
Shapes and sizes, if you will from how we procure our power to offset to variable indirect purchase.
Power purchase arrangement, but there is I would tell you had somewhere right now we spend somewhere between 10 and $20 million that we absorb to become a 100%.
Sort of if you will green oriented and and hundreds hundreds.
100% focus on on driving driving our power consumption through through any green initiatives and so we're highly focused on that is a 10 to 20 million dollar cost to the business.
But we recognize it's important to not only the constituents in the company, but certainly to our communities and very important to our customers.
Given that we're in their supply chain.
But important to note Phil is there thats basically we've been doing that for a while and so thats been and already baked into our operating results and it's fully at time accommodated in our guide yes.
Okay I heard on the call I thought I heard something that was incremental costs you observe it sounds like that's mostly done yes.
Okay, and then on the just follow up and from our side can you give us an idea of the net impact on revenue from that or maybe what the sort of underlying trend of the business would have been without them.
Yes, basically would have taken as the top end of our guidance range.
On an FX neutral the normalized basis so.
This is formula It was 4 million Bucks.
Okay. Thanks, guys.
Our next question is from Simon Flannery with Morgan Stanley . Your line is open.
Thank you very much good afternoon. So.
Obviously had a large out acquisition or merger in the industry last night I was wondering if.
What your thoughts would be on how that might change the industry dynamics do you have any extra any perspective on what the European market like might look like after that and.
Where does that clinics down today in terms of looking at additional.
Either acquisitions or on the Jvs, you've talked about doing those are those that anything we'll see in the near term. Thank you Sir.
Sure, Yes, we fully expected that question would surface, obviously, a big transaction in our industry for sure. So I'll start with this that we've got tremendous respect for most of those companies.
It's not too difficult I think to see why each of those parties might be interested in this combination.
Interaction has always been a vigorous competitor of ours in Europe , and I'm sure they'll remain as such.
As for DLR as I've said in many of public Forum is my experience at the event overlap between our business in the large business is actually fairly small.
I will probably not be the case with our Xcl joint venture, where we're likely to be more consistently head to head, but in our core retail business, we only see them sort of selectively as a committee as a competitor.
And just to put it into context. According to synergy research deal ours entire retail business outside of Europe , and other is what we would be a pending from retail perspective onto the interaction business.
That entire retail business outside of Europe has about a TENX the size of Equinix overall.
So in reality your your I think combination represents the bringing together two very different businesses, a strong European retailers and a strong global wholesalers. So I think theres, probably merit in the deal and then and an industrial logic to it I think it's it's a bit of a stress to say this combination really meaningfully closes the gap in terms of try.
Ryan to replicate the scope scale and value of platform Equinix. So.
And I would say I think the challenges in combining those businesses just mechanically.
Let alone operationally financially and culturally will certainly be non trivial and.
And even if and when that's done successfully I think will what comes out the other end as a company will feel pretty comfortable competing against certainly in Europe , which we've been doing.
No.
Obviously for years and and in particular on a global basis. So.
I think.
It's understandable, but I think we're going to continue to.
Sell the strengthening of our value proposition globally and feel like we're going to have.
Great success with our customers.
From a from.
The answer the second question in terms our own M&A.
We've we've said that we're we're going to continue to be will we continue to believe that's an appropriate tool at the same time, we're going to be pretty disciplined about that and we're not going to chase valuations. If we think they don't make sense for the business.
Obviously, we feel really good about the transaction, we recently announced in Mexico to enter that market.
I'd like it was really sized right and priced right and gives us a really nice entry strategy into a very important market for us.
There is few other markets that I think we would.
Entertain as M&A opportunities to enter.
And but again, we're going to we're going to make sure that we do that discipline basis. So.
I will allow we feel like it's it's an appropriate tool in the bag, but but one that we're going to use with with real disciplined.
And on.
Hyperscale JV timing for new markets.
We havent really we're actively working on that as we had said previously were in engaged.
In Japan actively.
The exact timing on those just given the complexity of of the transactions is hard to fully predict but I think if you look out over the next couple of years, we would expect to add several more jvs to the mix in terms of being able to offer the ex scale.
The portfolio in in key markets around the world.
Thanks to a color.
Our next question is from Jonathan Atkin with RBC. Your line is open.
Thanks.
So Charles in your prepared remarks, you talked about edge products and.
Got me thinking about.
Sort of trends that you're seeing in your cabinet ads in the Americas and the mix shift between tier one markets and slightly smaller markets are you noticing any changes as you sort of develop new capabilities and could that may be informed your appetite to enter into say minor league cities, rather than just matrix cities.
Yeah, we're we're not seeing any significant shifts in trends, obviously, our major metro's continue to drive the lions share of both cabinet ads and revenue growth, but were we do see real health in.
In our other in our other markets I would say that we're going to start by offering our edge services in probably the more logical major metros, but to the extent, we see momentum I do think consistent with those will represent an opportunity for us to deploy infrastructure and drive.
Cabinet cabinet yields into into those markets as well.
And then and again, depending on I think how use cases evolve.
Whether or not we would need to continue to look at expanding that reach beyond our current footprint I think it's something we're we're actively looking that we have we have a team that we refer to as evolving edge team and we are actively looking at at how we would do that but I would say right now the bolt the bulk of the use cases that we see our.
Well, Matt by by the current footprint that we have and so being able to deploy our edge services, whether that be network edge or or some of the others, we might contemplate into our very expansive aggregated edge footprint. Today, we think meets most of the needs of the market and we'll just continue to evolve or adapt.
As a as used cases might might dictate that.
Okay, and then on on sole just interested or our business is going to you for the very first going with you for the first time into that market or are they already in market and then there are kind of use new for further expansion needs.
It's more typically our existing.
Existing customers wanting to expand extend their infrastructure into sole although we do have a team on the ground that is sort of cultivating local business as well but.
We said they are our bookings are ahead of plan, thus far and Thats driven by the strength of a couple of key deals where.
Some of our.
Cloud 90 service customers.
We're looking to expand their footprint into that market with a producing significant deal that we landed insult.
And then let lastly, just on shore are there any differences you're seeing in what's driving it in any reason to think that you would gravitate towards the low end to the high end of your traditional range going forward.
No it depends more on I think it's more timing issues in terms of shifts between quarters, but no substantive shifts as I said, we've talked about the fact that we are continuing to work through the last bits of the of the turn turn tail in the Verizon assets.
And I think that we're now feel like we're positioned to get back to growth.
In 2020 on those assets.
And.
But no no meaningful shifts what we have seen is theirs.
There's.
Yes, theres not a lot of our churn is driven mostly by frictional churn.
And to some degree by things like bankruptcies, and those kind of things.
We see the occasional shift in terms of moving selective workloads to the cloud, but thats typically.
Turning a portion of an implementation rather than the whole thing because again, what we're seeing is people are very much committed to sort of hybrid and multi cloud and southern maintaining private infrastructure and integrating that with with cloud assets publicly public cloud assets and so so no no meaningful shifts that we're seeing.
Right now for in term perspective.
I will say over time, though I would hope that we're going to be able to one of the things that you are seeing in our in our bookings mix is a very clear discipline around.
Around these sort of sweet spot deals well interconnected that's so you're seeing that show up in terms of cat.
Volume of transactions and number of deals done as well as levels on the interconnection and so those are really encouraging.
Signals for me in terms of execution of the strategy and over time, I actually think that will help us hopefully trend towards the lower end of our our range in terms of churn. So that is because as I've always said the best.
Divest defense against churn is getting the right the right deployments and to begin with and so as we look at that I think some of maybe larger footprints that were more susceptible to longer term churn are things that we're not going to be doing we will probably.
It will be pushing those at particularly a very large footprints off to our into our into the ex scale sort of entity, which is more equipped to deal deal with those dynamics and I do hope that will improve our.
Our term position over time.
Our next question is from Frank Louthan with Raymond James Your line is open.
Great. Thank you very much.
Can you give us a little a little color on you mentioned that multi partner when with that.
The only data center a company on that deal and what was done in particular anything special about that.
With that and then I've got to follow.
Yeah. It was.
We were I believe the.
The only datacenter involved in that particular transaction it was a datacenter consolidation.
Activity and non also sort of integrating.
No.
A into into a hybrid cloud architecture, and so they were really utilizing cloud exchange fabric as their mechanism to integrate there, but their network and there and their cloud connectivity.
Between with their private infrastructure, and so really good multi partner win and and one we were we're really excited about in the quarter.
Okay, and looking at Americas growth.
Just curious what you might be able to do that maybe accelerate that going forward and in particular, maybe give us an update on the additional land that was around the infill markets you could expand and then what sort of where you are in NAFTA the Americas to build to.
Finished filling out that facility and how that might help improve the growth in Americas.
Yes, we I think the Americas business continues to perform well, particularly in terms of mix of business.
I think we are probably the biggest driver is going to be sort of getting us through the through the the last of the churn activity, that's been sort of above above the above prior levels, which is creating a.
Drag in terms of what was essentially a $500 million business, which has not had any growth in that impacts the the overall America's growth rate and so I think as that.
Thats some size I think we'll start to see some growth there I do think we have opportunities to add in some of our key markets. We've already added capacity, which were filling at a nice rate in NAFTA the Americas.
The deal or the Dallas campus expansion is underway.
Overtime, we will probably add both large footprint capability, there as well as increasing retail so that will probably be an opportunity for us to get some additional growth from that market.
But I think the bigger things that I'm excited about longer term as us continuing to one continuing to drive additional quota bearing head count into the market.
To capture the significant enterprise opportunity, we see our gross bookings engine is performing very well.
The Americas.
And and not only in terms of landing bookings in the Americas assets, but also delivering those globally across the platform and so so I think being able to continue to expand both our channel as well as our direct selling efforts in the region.
And then and then over time as we add new services I think we're also going to be able to continue to.
Enhance cabinet yields, but thats going to that's going to take some time for those new new edge services to really mature.
Our next question is from Cobi Sunless, all with Cowen and company. Your line is open.
Great. Thank you maybe just following up on on the growth.
Stabilized growth I think was 3% you said in the quarter and I thought at least a few quarters ago. There was talk about.
Getting that number back up to 5% just curious what you think the longer term growth rate for stabilized growth.
Hi, good D. and what are that the part that potentially getting a bit higher maybe the improvement in the bride and asset that you mentioned and then secondly.
I think in your previous guidance from last quarter, you would assume that the JV. The D. I gave you would close and I think in August and closing in October .
Against what the benefit to guidance is.
In terms of the update you just made for 2019 as a result, but that delayed close thank you.
Let me, let me take first I'll ask you to address the the timing in the GRC transaction relative to stabilize asset growth, yes, we've been kind of hovering around that 3% to 4% Mark Colby.
And.
I think the catalysts for.
Getting back into that 5% kind of range would be one as these as you noted and as I noted in the commentary on getting the Verizon assets sort it through the through the not hole I do also think that tend to 100 gig migrations have impacted those to some degree we did see.
Good quarter in that we actually saw a reduction in interconnection churn I don't think we're all the way through that though so I think we're it's going to sort of continue to go in waves. Although the biggest thing the biggest players who I think have.
Who were going to make that change have largely made in the Americas, but there are probably will be some more of that that I think will create some.
Downdraft on the stabilized asset growth and we talked about there. There are also being a few assets that we were actively migrating sort of business out of.
And in those kind of impacted as well so there's a variety of factors I am encouraged by what we can do both with our network edge offer as wells with what we see on the horizon in terms of some of the additional edge services, because we can deploy infrastructure shared infrastructure into some of those kind of facilities and get kind of.
Meaningful returns on that and and maybe drive some additional growth and cabinet yields into those but I think thats going to be on a longer term proposition and we'll probably really stay in that three four.
Percent range for for a bit.
And Colby as it relates to the second question.
For Q4 for Q3, there's really no meaningful movement as you know for the Q3 quarter and when we offered our prior guidance. It was really more of the influence it was going to take place in Q4.
And just to remind you and everybody else and how this is going to get accounted for recognizing that there is fee income that will come with the joint ventures and as we continue to scale them up those fees that get attached to it the fees come come in through the topline through revenue the equity ownership to 20% ownership of FX. It comes through.
Below the line will be an AFFO, but below EBITDA in the form of income from affiliated entities and so thats, how it sort of will present itself and our financials.
Places to say this this quarter for Q4, and our guidance and implications on Q3 was negligible thinks about $2 million on either side.
And the reason for that is all about timing as to timing of the cost timing of the fees.
Timing of income stream associated with.
How those customers in Seoul and environment.
And those two asset so we have and as we continue to scale them. So.
Overall for we'll try and do is continue to keep everybody fully abreast of not only this JV, but the ongoing jvs on what though what the the if you will the funds Lois but for this year as we said theres really never going to meaning meaningful any meaningful impact to our financial results and full intensive intensive purposes. It's just.
Absorbed into into the ongoing.
Okay. Thank you.
Our next question is from Michael Rollins with Citi. Your line is open.
Hi, Thanks.
Two questions.
Just curious how you're looking at the opportunities to recycle capital for needs.
That's whether it's the market that you may not think of as or.
Folio or.
Situations, where.
It might be just opportunity advantage of.
The private market and then.
The second question is just the ATM program is there a framework or.
Allocation strategy that investors should think about in terms of the timing or ways. You may access that program in the future. Thanks.
[laughter] for Charles and are looking at each of which one was to ensure the.
Question I think.
The first I'll, let just touched base on that first and foremost.
Overall as you do you hear us continually to say in talked about we're really referred to equity acts as a platform periodically their assets that would be disposed off not so much because we're trying to recycle capital that is more because when you look at the strategic value of that asset relative to what we're doing with our platform.
Where we want to invest or dollars, we choose occasionally to turned down a site like we've recently done or sale of small asset when it came with an acquisition and we did that with switching data.
We just recently sold one of Verizon small assets, we referred to are as our New York 12.
Solar is stumble one asset which came was part of Telecity.
It is not really about recycling is more about making sure. We we create the momentum and the right assets for ourselves.
And again I think is really important Michael for for you and for the for all the listeners on the call today.
We sell across this platform every asset as is highly important to us and so thats why thats why were not probably as traditional as some of the others and thinking about recycling because it is the platform.
As we get them into the discussion around ATM ATM thing it ties into a much more broader discussion on how we will fund ourselves on a go forward basis.
Well go back to the June 22018 Analyst day, we talked about how we could grow the business over the five year period in 18 through 22, and what that would mean from capital dollar spent.
And if you will the scale of the dividends the light.
As a result, we knew at that point in time that we still there was going to be funding in the business funding needed for the business and it was going to come in the form of both debt and equity and so what I would tell you is that Theres no I Wouldnt Theres no.
Theres no perfect way to describe how we use the ATM other than what we're trying to do as take advantage of it when it makes sense for the shareholders.
And stay away from it when it doesn't make sense for the shareholder at a perfect example would be in December of last year. When we're at a 52 week low we were not in the ATM program. When we're reaching some or all time highs, we occasionally pulled down a little bit of equity to fund the business because we know that between now and 2022 there is still some cap.
Well the will need to fund all that we have in front of us, including some of the M&A activities.
I've said on the last call during this year's do more and more of debt because what I think the cost of debt is going down but to have brought some real balance into our capital structure. We've got are investment grade rating and we're at a point where were well within our our targeted leverage range. So it's a long winded way that saying that we're going to moderate we'll do it why.
It is a cheaper source of.
That cheaper way to go to the equity markets and doing a follow on offering.
Think about 50 basis points versus something ranging from one to one and a half basis points to to do those transactions and we use that we do it at our discretion based on market conditions and targets and so bottom line is though we'll continue to monitor it right now we have roughly $300 million left on the program.
We approve last December .
We've got a lot of cash on our balance sheet 1.4 billion as I said at the end of Q3 and then you heard me also say with the October closing of the JV that brought in another 355 million. So we're going to be really prudent about how we how how we refinance or debt, how we raise new debt and how we use or ATM and a goal for.
Base was to make sure we maximize the return for for investors.
Charles anything else you want out or.
Okay.
Michael anything else.
Thank you.
Our next question is from Jordan Sadler with Keybanc capital markets. Your line is open.
Thank you.
Moving back to sort of the drivers during the quarter and Mayo is called out is a powerful driver for the quarter can you give us a little bit of an update in terms of where we stand vis-a-vis the accelerated demand you're seeing in the region or maybe the catch up versus the Americas, and then I've a follow up.
Yes.
I think we've seen relatively broad based sort of demand and in strength in the in the European market. So.
Yeah.
Honestly, our our UK market continues to be strong despite sort of Brexit uncertainty et cetera.
I think that.
We have the we have the luxury ever really broad based business on the continent, and so I think it's.
It continues to perform.
Very well worth I do think where we are still seeing.
The movement of cloud providers into that market more comprehensively and so that has that has driven both are direct business with us in terms of there.
Their network nodes in their private interconnection nodes and I think now will fuel to the Jvs business in a significant way associated with the large footprint and then you're seeing the enterprise unit, the enterprise movement to hybrid and multi cloud.
Really start to catch up I think with with where the Americans have been as well so.
So overall, it's been a pretty broad based.
Strong market for us and I think.
The breadth of our business there is.
His is showing up nicely and and the teams I think I think teams are doing a great job, we're seeing strong channel activity in that business as well.
I would say, both Europe , and Asia were a little bit.
Sort of.
A little later in terms of the adoption of the channel, but we're seeing really strong channel uptake there as well so so I wouldnt and that point into necessarily anything in particular, but it definitely is a strong market overall.
And the outlook continues to be good right. It sounds like still has legs does yeah. We're not we're definitely not seeing softening there were where we have the luxury of when we look at new projects and the fill rates that go with them, we have deep visibility into our pipeline, we have really clear understanding of.
What our fill rates have been.
And so we're continuing to allocate capital, we probably had a bit of.
A peak of or a bubble of capital that came through over the last couple of years in Europe , but definitely there sustained demand there and so we'll continue to invest in that market as well.
With that was there incremental hyperscale leasing volume.
During the quarter that you could speak too.
No. We're we're still working through in term, but I would say that we have a very strong pipeline.
And so we're we're relatively fresh off closing, the JV and and really getting our our pipeline in forecasting.
Processes really refined between ourselves and our partner.
But I, but I would say that we have had really productive discussions with.
With the 12 or so companies that we see as the primary drivers of Hyperscale demand and so I feel like we've got plenty of pipeline to.
To support the JV aspirations.
And then just lastly, if I may move for Keith I think you've talked about overall customer bookings.
You'll mix and pricing can you elaborate elaborate on the pricing strength that you're seeing is that a function of sort of escalators renewal spreads that you're seeing where is this just you is either.
What I have no Jordan.
So just I just want to make sure. This was one of our.
Talk.
Top performing quarters, when we look at it.
Across the whole all year that it was our best ever Q3.
Theres always a little bit of seasonality that comes into play no surprise in our business I did hear that Greg I'm sorry.
And but the the real drivers behind that are threefold number one is in your Charles referred to it is the deal mix is very very positive. So the average deal sizes, a lot smaller and that allows us to enjoy a better return on a per cabinet basis than we otherwise see with a larger deal for volume no. So.
Prize second you've got add to that the interconnection revenues and the opportunities that presents itself, but we do a very good job have done a very good job of of selling the this platform and then you add to that the ancillary services that are.
Clearly there they are just.
Just starting out if you will the attach rate that we would see too.
Revenues on a go forward basis could be very very very attractive and again Charles referred to that for the third pieces.
I hope it isn't lost and people when we think the but look we're always having to live within.
The environment that we operate in end market conditions at times.
Make it very competitive, but when we renegotiate with our customers and extend their our price adjustments and downwards.
I think what you should draw great comfort for is that coupon hearing us talk about positive pricing actions that means those are the price escalators that are pushing pricing upwards and so we tend to be very net positive position and so as early as a result, you've got three things that are working through advantage in hands.
You see the firmness across all three regions of the world. Despite the currency impact that we're seeing as we report all of this and you as the as you know, but despite all of that you see very very firm pricing and I think it's a reflection of who we are what we do and where we're taking the business.
Can't lose sight of the fact of what what Charles and all of US believe right customer with a REIT application and the right data center makes a huge difference and if we can mitigate some of that churn.
By all the incremental services, you're going to continue to see I would argue vary from pricing on a go forward basis.
Yeah, just reinforce that Jordan I think that you when you look at that's one of the reasons why.
Disciplined execution of the strategy, even though it's hard to drive the growth using.
With that with a smaller deal sizes. It requires significant volume and you got to really drive the selling machine.
No. It's the right thing to do we think in terms of generating long term returns.
And and value for our customers and so so we're really committed to that and and and when we look at the broader industry.
In terms of what people are seeing in terms of release spreads, particularly people who are exposed to the wholesale primarily the wholesale or even the hyperscale market and what sort of pricing looks like current current pricing versus what that maybe the entry was and what therefore that implies for releasing spreads its not a I think it's not always a pretty picture.
So.
Luckily I think we have limited exposure to that.
On a relative basis for sure.
And and again, what we're seeing is essentially positive spreads because we're able to get.
The cumulative effect.
Hi, guys, which were very successful in implementing in our contract across huge number of contracts that are sort of rolling through the system.
And even if that means that we do a.
Price adjustment on a single contract on a net basis in a quarter, we're continuing to actually.
Deliver deliver more than sort of apart on overall positive price action. So that's really important dynamic in our business that I think is quite unique.
Our next question is from our client with BMO capital markets. Your line is open.
Thanks, maybe related to the channel shrank, how broad based is that geographically and is there an opportunity to further build out those relationships in new markets and then separately you are adding some meaningful new capacity next year in Americas would you expect that to drive an acceleration in net cabinet, Kevin and adds in that market.
Yes, great questions.
The answer to both is probably a simple yes, but let me give me a little more color.
Think channel multichannel wise I do think we are we were able to continue to add both geographic coverage and coverage in terms of additional partner types.
That I think are going to be able to give us.
Increase in both increased reach we like many channel program see.
A bit of sort of 80, 20 rule, which is.
We see our 20% of our partner delivering a big chunk of our bookings, although it's mentioned, we're seeing greater productivity across the other pull base. So we're starting to really get more breadth in the channel. So I do think both from a geographic geographic standpoint, and a partner type standpoint.
Going to continue to add but our our focus is less on adding new partners as it is making our existing partners more productive and so that's really in our team is really doing a great job of that I'm Super excited about some of the some of our key channel partners. If you look at two of the major partners here in the us.
And.
With 18 team with Verizon both has really critical strategic partners of ours.
And now really their leaning on our our datacenter portfolio as the key way to deliver into their customers and so we're super excited about that and then saw seen a lot of momentum and then also working with the hyperscalers themselves.
And.
Most of them are really seeing that their customers are saying, yes, we want to continue to consume more and more your services, but we're doing it.
We are integrating with private infrastructure, and we want that private infrastructure to be immediate immediately proximate to the cloud and so that's really driving joint selling with with the Hyperscalers.
And then the relative to your second question in the Americas.
Yeah, I do think anytime you add new capacity I think you tend to see a little bit of uplift and so hopefully we'll see some some we typically contemplate some some anchor customers inside of larger phases, and so you might see some lift there, but again were I do think that we'll we'll be able again.
Bill lift on that but what you're seeing I think in terms of cabinet ads is really just really.
The the really tight discipline on the business and and I really attractive mix profile.
Great. Thanks for the color you bet.
Our last question is from Sammy Baldry with credit Suisse. Your line is open.
Great. Thank you and I just wanted to follow up on the prior question. If you could just rank the regions that contributed or maybe basically hit over the 30% hurdle rate that you guys reported this quarter from bookings, which regions were above 30%, which ones were below and then I've a follow up.
I don't I don't know if I have that right off the top of my head I expected the Americas was.
Simply above that and and I'm not sure if the others were.
We were at or below the 30 in terms of their indexing, but I would say that from a trajectory standpoint, both a pack in Europe are really meaningfully increasing their percentage.
Bookings I would expect they probably were both lower than 30 and that and that you asked was the over indexed piece, there, but I'd have to I I'd have to go back and confirm it but I.
But I would tell you that I think all three regions continue to trend positively in terms of channel bookings as a percentage of overall.
Got it and then at what point do you think would be the the limit or the ceiling to this contribution right from this kind of sales motion would it would you throw out like 40%, 50% of bookings any given quarter is that where this is going to top out or.
Maybe you could give me any kind of idea on where we can expect this thing to top out in the future. Yeah, I think it's going to depend a little bit on on how our business mix and new product portfolio continues to perform overtime I think that we work we're delivering digitally enabled services in some cases like network edge. If you look at that.
That service it is one that should be able to be consumed by our customers.
No it directly in via channel partners with relatively limited friction and I think that will enable us to.
Increase the percentage of bookings that are done through our channel I would say that we're still at this point more of a cell with.
You know sort of motion in our channel and we're fine with that we still get in the expanded reach in relationship that those partners are giving us.
And is very attractive economics.
But I think that over time, I think we'll have a combination where we're really getting sell through activity on a broader portfolio and I've said in the past that Theres no reason it can't be north of 15 for sure.
And so I don't know what the timing of that as I think it'll depend on a variety of factors, but what we're really encouraged by the by the trajectory. We're seeing there because at the end of the day that customer is trying to solve a problem and very often almost always that problem means combining the value out of another player with the compelling value prop.
Position of global reach ecosystems, interconnection and service excellence that Equifax brings to the table and combining those in solving the needs of a customer is.
As what fuels the business and so so we're really excited about that I think theres a lot of upside potential for it.
Great. Thank you and then one last question sorry to keep everybody on this call.
But on stock based compensation Keith could you, probably just give us a little bit more color on how come stock based comp grew 34% year on year and now makes up about 4.5% of revenues, whereas the same time last year is more around 3.5% or above that just give any color on the recent increase in intensity, it's about the second.
Quarter. This happens so just.
For this quarter and how Thats want us talk stock price to us.
You can appreciate so.
Think about where the stock was on December of last year, and where it is today and.
So I think the most important part as we look at.
Not only our compensation committee bus relate Charles and myself and.
And branding who runs HR with us we're always looking at basing the burn and is very important number one that we look at compensation.
We look at on a relative basis to what we need to do to attract right people into the organization, but we also look at the burn and how that affects.
How that affects our financial results and then what a more referring to here is the FFO AFFO on a per share basis.
And so all of these things are considered as we figure out how to to fund or business and drive value into the into the share but no surprise to you when the stock performed exceedingly well and you're growing in business stock based comp as a percent of revenue does go up.
But that does not mean that dilution that were diluting our stockholders anymore as just as a reflection of what takes place and as you look forward of course with the stock where it is.
Is all about delivering value to an employee and although it's being equal.
Issue less shares next year because of the value of the stock.
As it isn't as president form so those are those the thoughts I have happy to take it offline with you a little bit further, but there should be no surprise that are stock based comp has been going up.
Absolutely. Thank you.
Great that concludes our Q3 call. Thank you for joining us.
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