Q4 2019 Earnings Call

Thursday

Good day, and welcome to the cyrusone LLC fourth quarter 2019 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance on a signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two. Please note this event is being recorded. I would now like to turn the conference over to mister Michael Schaffer vice president job markets and investor relations, please go ahead. Thank you Shawn. Good morning everyone and welcome to Cyrus ones fourth quarter 2019 earnings call today. I am joined by tester Masala Club president and CEO and Diane Moorefield CFO before we begin I would like to remind you that our fourth quarter earnings release along with the fourth quarter Financial tables are available on the investor relations section of

our website at Cyrus One.

I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward-looking statements related to cyrusone and are subject to risks and uncertainties factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC which you may access on the website or on Cyrus 1,000 undertake no obligation to revise these statements following the date of this conference call except as required by law in addition. Some of the companies remarks this morning contained non-gaap Financial measures. You can find a conciliation of those measures to the most comparable gaap measures in the earnings release, which is posted on the investor section of the company's website. I would now like to turn the call over to our president and CEO test-drove Osceola.

Thanks, Michael. Good morning everyone and welcome to cyrusone fourth-quarter earnings call as we announced this morning our longtime CEO and my good friend and Mentor Gary which has a key is separating from cyrusone.

Let me pull.

For a moment words cannot describe Gary's contributions and accomplishments for this company. He has had a tremendous Vision in building Cyrus taking it public over seven years and expanding a global life to become the third largest largest data center read on on behalf of our board of directors and the entire cyrusone family and team. We thank Gary for the company and culture he proudly khong

Also, I'm both humbled and Incredibly excited to take the role of president and CEO on an interim basis. I'm fully focused on continuing to execute on our strategic Vision package. We had an outstanding Financial results in 2019 and a number of significant accomplishments that put us in a very good position as we begin twenty-twenty beginning with slides 4 and 5. We closed out the year with strong financial performance, including High Revenue adjusted ebitda and ffo per share growth the hundred and five million in leasing for the year was Diversified across markets and product types. We had significant contributions from Europe and Enterprises and the $52 billion dollar backlog our 2020 Outlook while also contributing to our 2021 growth. We do offer a hundred megawatts of capacity in 2019, including nearly 30 megawatts in Europe, and we recently execute an agreement to acquire land in Frankfurt to support our growth in what has been our strongest wage.

European market

Are you ready development pipeline of 92 megawatts includes projects in both in Europe and is nearly fifty percent pre-leased. We significantly decreased interest expense by refining financing are us Bonds in the investment-grade market and in January, we closed our inaugural Euro operate. We also raise two hundred million in equity including a hundred million in forward Equity to five or Twenty twenty requirements.

Turning to slide six the average pricing on the 13 million annualized Revenue signed in Q4 was $226 per kilowatt, which is our third highest pricing quarter of going public consistent with the trend in recent quarters. The leasing again was very Diversified with significant contributions from Enterprises, and we added three new Fortune 1000 logos.

I have urine our late-stage sales funnel was approximately 7% compared to Q3 nineteen after having declined in each of the prior 2 quarters. Furthermore since January 4th. We've been we've seen increased activity across all markets, which is a really positive sign as we head into the new year.

The full year we signed 61 megawatts totaling $105 million annualized Revenue above the eighty to a hundred million that we guided to at the beginning of the year pricing for the year was $142 per kilowatt 15% compared to 2018 driven primarily by the customer mix the weighted average lease term was approximately seven years and the average annual escalation was the only time a half percent Europe accounted for 36% of the revenue signed. The Enterprise is represented nearly 50% with some 500kw contributing significant.

Moving to slide seven our interconnection Revenue grew 20% in the fourth quarter, which I believe is still the fastest growing interconnection business in the industry by a fairly wide. Margin. We have mentioned Faith. There's been a change in the network topology. The hyper scalars are creating tremendous value around their compute and storage nodes since building. These scale data centers is our core competency. We will continue to benefit from this trend in the coming years.

Ten million dollars in annualized gap revenue for the year implying continued strong growth in 2020 as of the end of the year. We had more than 22,000 cross-connects across the court.

Just about every quarter we show keep portfolio metrics as we have done here while the credit quality of our customer base has been very high for a long time particularly compared to other reads the message that have continued to improve nearly 80% of our revenue is from Fortune 1000 customers and a weighted average remaining lease term of our top 20 customers is 5 and 1/2 years 76% of the portfolio now includes escalation, which is up approximately 10% ten percentage points from a year year ago. Excuse me.

Turning to slide eight. As you know, I've had the privilege of leading the European team and operations for the past 18 months and that business continues to perform very well fourth-quarter annualized Revenue off $87 million was up 80% compared to the prior-year and adjusted ebitda growth was nearly 95% as we anticipated demand in Europe has been robust particularly for larger footprint deals for the full year. We signed thirty-eight million in annualized Revenue implying continued strong growth in 2020. We have projects underway in Frankfurt am Amsterdam and Dublin and our future footprint taking into account. These projects is nearly a hundred and fifty megawatts, which will represent nearly 20% of our overall portfolio.

We also have sites.

To control that would allow us to deliver an additional 210 megawatts giving us a total perspective capacity of over 350 megawatts. This will position us as one of the largest database portfolios in Europe.

moving to slide 9

let me pause again. The coronavirus that has impacted. The region is a horrible development We wish all of our friends at health and safety as they deal with this crisis regardless of those events GDs continues to grow rapidly, even though they are much bigger company now even. Has grown over 60% of third-quarter and they're backlogged represents growth of 76% compared to their existing footprint Thursday. We at least another two megawatts with Chinese hyperscale Ur in the fourth quarter and have leased nearly twenty seven megawatts in total as a direct result of our unique partnership with GDs.

Our remaining investment is currently valued at nearly a hundred and forty million dollars, which is almost 40% higher than our original hundred million dollar investment. And as you may recall we monetized an additional two hundred million thousand last year. There's share price has risen by nearly five times since our initial investment almost two and half years ago.

No data is also growing quickly and their Latin America print now consists of more than 80 megawatts including one of the largest data center campuses in Brazil. This is up from 12 megawatts at the time of our original investment 16 months ago. They had tremendous leasing success particularly in the US hyperscale companies given their ability to deliver large-scale bills. Also there is significant upside to our $60,000 investment as they continued expand in Latin America.

Flight head, so I can't summarize it's key steps we have taken to position the company to continue to grow as efficiently as possible while improving profitability. We have powered Chef land across our key markets in both the US and Europe our speed-to-market in building out data data Halls continues to provide a competitive competitive advantage to meet Rising customer demands met

We continue to be very focused on our cost structure and have been proactive in identifying opportunities to create efficiencies.

It was very difficult the recent actions to right-size our Workforce and answers our margins and our full year 2020 guidance. May point is a half a percentage Point higher than our 2019 margins with Cox you gross particularly in the business scale at the business scales in Europe. We anticipate further margin expansion. We are off. We also have a very strong balance sheet with significant capacity to support our growth.

Like 11:00.

Flight eleven summarizes some of our key accomplishments for the year. We are now one of the just a handful of reeds that have a 1 billion dollars in Revenue in international footprint and investment-grade credit ratings The secular demand trends that have driven growth for cyrusone and the industry are expected to continue in the coming years data is continuing to grow at a very high rep. Enterprises are Outsourcing their data centers to third-party providers and companies are migrating applications to the cloud as part of a hybrid solution as we continue to scale and expand our platform currently spans four continents inclusive of our Partnerships. We are positioning the company to maximize this opportunity particularly as our customers further reduce the number of suppliers, they rely on overnight.

in closing

2019 Play-Doh pretty much in line with how we thought it would with leasing volumes down from the record levels. We saw in 2018. We had been laser focused on ensuring the company as best position to grow efficiently and profitably while maintaining maximum flexibility to capitalize on opportunities has mentioned earlier on the demand front. We are very encouraged that what we've been hearing recently from our discussions with our customers wage by what we've been observing in the marketplace. We remain very excited about Europe and now you can see why we made those investments in those markets.

With our current development plus the additional capacity that we can bring online we expect to do very well in the coming years.

Well, our growth will be slower in twenty-twenty adjusting for some one-time items in the fourth quarter, which died will cover we expect to generate attractive ffo per share growth relative to most other reads. We are very bullish on the business over the next five to ten years and have a strong balance sheet to fund our growth. We believe we offer one of the most compelling investment propositions and we have a great opportunity to create significant value for our shareholders given the underlying fundamentals our capabilities and our position in the marketplace. I will now turn the call over to Diane will provide more Colorado's financial performance for the quarter and discuss our guidance for 2020. Thank you. Everyone. Thanks Josh. Good morning. Everyone would just like to take a minute to recognize Gary for his amazing vision and leading Cyrus one since its Inception. It was a pleasure and quite frankly a lot of fun to be a CFO partner since joining the company in 2016.

I now look forward to partnering.

partnering with cash in the future

It's touch brunch and we are very pleased with our 2019 results and achieved a number of key strategic objectives as Five Thirteen shows in the fourth quarter. We maintained high growth rate of us are all of our chief financial metrics Sharon was low at .7% and our full-year churn finished at 4.4% and was our second lowest annual total for this year. We do expect him to be in the five to seven percent range and as is our practice in addition determinations, we also include the impact of rate reductions in our total term metrics. Her name is like fourteen noi growth grew 15% on an adjusted basis and the margin was essentially flat year-over-year wage adjusted ebitda remind the phone and the increase in normalized ffo was driven primarily by the increase in adjusted ebitda and lower interest expense.

like fifteen shows

Good level Revenue contribution, which is relatively balanced across the portfolio. Our European portfolio is up nearly 50% compared to the end of 2018 and the revenue contribution from the market will increase with pre-release development projects are put in service representative leads for the stabilized properties was down slightly year-over-year but remains at a healthy 88. So despite an eleven percent increase in capacity shows our development pipeline at the end of 2019, but nearly a hundred megawatts of capacity expected to be delivered this year. The construction pipeline is slightly weighted towards our for European market and the overall pipeline is nearly fifty percent pre-leased on a square footage basis with significant sales pipeline activity in the activity currently in these markets.

Upon completion of these projects the size of our footprint will be 20% bigger with more than four point five million co-location square feet. We also have nearly 1 million square feet of power shell under development costs seven markets both domestically and internationally and combined with their existing power shell. This will give us nearly three million square feet of shale capacity position up to deliver data off in response to the demand from our customers 517 provides a snapshot of our balance sheet as of the end of the year and as you can see our credit metrics remain strong, we have been active in the bottom marker over the last few months, which I'll discuss shortly or lever to remains low at five times including the impact of the forward providing the sample room to fund Iraq development Pipeline with. In addition. We had one point two five billion of available liquidity as of your end.

Issued approximately 100 million of equity under ratm program in the fourth quarter and we have the additional hundred million available pursuant to a forward sale under the ATM which can be drawn anytime November as needed to fund or development in manager leverage 518 Recaps are recent and argue investment-grade dollar and Euro operate late last year. We issued 600 million month 9% 5 year note and 600 million of 3.45% 10 year note to refinance our previously outstanding one point two billion of bonds as a result of the offering we decrease the Blended coupon by approximately 200 basis-point additionally last month. We issued 500 million-euro of 1.45% 7-year notes. The whole proteins were used to settle cross-currency swabs repay euro-denominated revolver borrowings and fun continued to vomit in Europe.

As a result of the offerings, we have smoothed out and extended our maturity schedule on a pro-forma basis inclusive of the impact of the Euro operating our year-end weighted average remaining determination. Jenelly six years and the weighted average interest rate on our debt decreased approximately 2.4% are percent of percentage of fixed rate debt is now nearly seventy percent of approximately 15 percentage points from the end of the third quarter significantly decreasing our exposure to floating-rate interests.

And the last service called we also plan to recast our credit facility in the common month in order to renegotiate terms to current market and extend the tenor. This will further reduce our 2012 maturities decrease are weighted average interest rate and extended a weighted-average remaining term on all of our debt moving to 5:19 our backlog as of the end of the year with approximately $52 off the estimated commencement timing for a few large deal signed in the third quarter has been pushed back and there was a much more significant proportion of Revenue expected to command the second half of the year off this ship reduces the full year Revenue impact in twenty-twenty, but we'll have a very positive impact on next year's growth rate.

520 shows our initial outlook for the year the guidance midpoints for revenue and adjusted ebitda each reflect a 6% increase compared to 2019 results based on a mid-point. The implied adjusted ebitda. Margin is 52.7% half a percentage Point higher than the 2019 adjusted ebitda. Margin we expect at the margin the second half the year will be slightly higher than the margin than the first half of the year as a result of Revenue growth with no material incremental overhead. We expect normalized ffo for sheer to get online is revenue and adjusted ebitda with the guidance employee representing a 5% increase.

Take your models. There are a few fourth-quarter items. I want to highlight for your consideration first three received approximately 5 million and lease termination fee. And also a property tax accrual was reversed resulting in the non-recurring expense reduction of approximately 2 Millions adjusting the fourth quarter for these items are twenty-twenty normalized ffo for sure guys offered would represent a 7% increase over 2019. Additionally. We only had a partial quarter impact associated with the 1.6 million shares of common stock that were issued and we will add an additional 1.6 million shares this year when we draw down the hundred million in proceeds associated with the forward sales, finally, although we realize we will realize interest expense am following the refinancing of fun.

But keep in mind that those savings are partially offset by the application of a lower weighted average interest rate and are capitalized interest calculation and closing 2019 was really dead a great year for us and we are well-positioned as we begin 2020 with a very healthy and improving sales funnel funnel capacity across all our key markets a strong balance sheet wage is Angela quantity and forward Equity to fund development requirements. We appreciate everyone participating on our call. We are going to go we are going to open the call for questions and given the choice of our earnings last night and the announcements this morning. We are limiting their call to 1 hours. We always do the best. We will limit each analyst to one question. I'm sure that all of your questions will be ultimately asked and answered but do ask you to respect others to have an opportunity for their question with that operator. Please open the line. Thank you. We will now begin the question-and-answer wage.

To ask a question.

You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at anytime your question has been addressed and you would like to withdraw your question, please press star then to our first question today will come from Eric Rasmussen with stifel, please go ahead yeah, thank you just on your guidance down towards the end of your prepared remarks. You talked about timing a few large deals being pushed back the obviously, you know, you know five and half percent on the top line was a little bit of a surprise, but what sort of impact is that having and then just also talking about, you know demand in general and hyperscale. We we still sort of being pretty conservative and expectations for hyperscale leasing, especially in the US markets. Thanks.

Sure. Thanks Eric. I'll let Josh address demand from the hyper scalars. But if you compare a third-quarter backlog commencement and then our fourth-quarter disclosure that you know, we just put out last night you will see there were there was a push back and most of those deals that got pushed back more from the first day after the year off to the third and fourth quarter our European construction project, you know, it just takes longer to develop in Europe and I think what we might have been a bit optimistic of when those would be initially put them in backlog so that that's the largest portion but as you know, as Revenue recognition gets pushed back and affects our 2020 Revenue growth, but she'll be you know, a full year impact in twenty twenty-one.

Hey, Eric.

Cashier, how are you?

Yeah, so I think I think the just to follow up on the on on dice comment. We have definitely seen having spent the last eighteen months over there. We saw a lot of movement in the market wage of construction and and zoning and lots of people making different commentary on what you can and cannot do so we've we've done really well in in working through those those environmental situations across across Europe, you know, we just we need to push some of these things out a little bit on that overall demanded hyperscale is I think it's I think it's right when you said still a conservative Outlaw we've we've seen you know, some some more activity. Like I said in my comments early in the year around some bigger footprints that are being talked about but as we know these things can take months quarters sometimes years to actually get fulfilled are, you know, even though we're dealing with the world's greatest companies dead.

They don't always act at the speed. We want them to act that and so

So but we have seen we've seen some like I said early in the year. We've seen some bigger bigger size Footprints being requested across some of our key markets.

Thank you.

Our next question will come from Frank Lawson with Raymond James, please go ahead great. Thank you. So test the sales effort has been a little weaker since you moved out of that role and you know going forward for this year clearly down a bit. What what do you plan to do to kind of revive that and now you have a little bit more operational control?

Well Frank first, good morning. Good to talk to you. I've been commercial since since I was born. So I think that we're we're looking forward to a 2020 that has some really interesting announcements. Like I said earlier in our comments. We've seen some interesting picked up in in some of the hyper hyper stuff but more importantly we've seen it across all of our markets and all of our customer types. So I think both Enterprise is what always made or separated I think Cyrus from home from a lot of our competitors and what we've been able to do is the way we go the way we attack all of the fortune one thousand, you know, the hyperscale is were just happened to be bigger Fortune 1000 that just bought bigger chunks whether you're an insurance company a pharmaceutical and financial services company. We we treat them all with the same kind of care and feeding so I'm expecting birth.

To be able to continue that.

Is that implies the the range of guidance is is conservative?

No the range of

Okay, great. Thank you very much.

Our next question will come from Simon Flannery with Morgan Stanley, please go ahead great. Thank you very much. Good morning. I'm Josh. Congratulations on the new role. I wonder if you could share a little bit with I know there's a a search on going but in in your interim bro, what are the priorities that the board has set out for you and your priorities and and I'm not particularly as it regards any strategic options. Thanks. So Simon. Thank you. You're the first one to say congratulations. I really appreciate that 30-second, you know, well, I look forward to seeing you again in at your conference, but great in terms of our strategy is the same the the board is off to execute what we've started the foundational elements that Gary put in place our sound and it's it's our opportunity. You know, me and the team to continue to call

on that opportunity

We we talked about how excited we are about Europe. I think that'll continue to be a major theme as we execute in twenty-twenty. And and that's that's the way I think that's why I think about it in terms of the the the the the interim status. I think it's common for all boards and this type of transition to want to conduct a search, but I think you know that I'm a candidate for that. So, you know, we'll we'll put up a good fight for it.

Good. Thank you.

Our next question will come from Sammy battery with Credit Suisse, please go ahead.

Hi, thank you very much. Also, congratulations that makes me the second person to congratulate you on this conference call now now I wanted to focus in on Texas and I see that you're underneath incapacities at 9 megawatts and historically major Cloud providers and other internet companies have actually come in and taken large capacities at a time. And obviously Cyrus one has done very well is is there a reason why the under development capacity of Texas from where we're standing today is relatively low. Is this a read-across into where demand is flowing into is it going in to latam and Page Arizona Vegas instead of Texas or maybe you could just give us more color on why the under development is relatively low to wear a market like taxes should be no. We have a we have a fully built-out. Yep and Allan but it's not showing under development cuz that data Hall is finished. So we have inventory and Alan we've also completed the last two day two halls in Carrollton, Georgia.

they're still

It's not a lot better. I think a couple of megawatts available in Carrollton. So once once once it's not in the active development, and it's finished, it goes into CIP. So we definitely have adequate inventory and in in L and I think in total we can build out like six or seven data hauled and we've only Built out once a month of plenty of capacity for hyperscale between actual inventory and she'll and the Dallas Market.

Got it. Thank you. I'll stick to one question. Thank you. Our next question will come from Nick please. Go ahead.

Hey, actually my question and congratulations Tash because like, you know in in the past you guys are a little skeptical of our side obviously digital is recently sold some stabilized ask that the pretty appealing cab rates as the market for stabilized facilities shifted such that asset sales are might make more sense than they wanted Dead.

No.

Look, we've we've talked about jv's and some of us at the company come from a you know, read background. We've done that other places. So I think you know if the right after birth tunity for particularly for a stabilized, you know came up were always you going to consider that we just, you know, haven't had anything to announce today. So it's nothing it's it's certainly something we would consider and not rule out.

Okay. Thank you.

Our next question will come from with Wells Fargo, please go ahead. All right. Thank you for taking it to question and congrats. I just wanted to check in on June the European demand environment, since you spend a lot of time over there, you know, it seemed fairly concentrated in Frankfurt this year, but maybe you could give us an outlook on what the leasing environmental look like in 20 20 in terms of a you know, what kind of deal size requirements were seeing and and in addition are there any other markets in Europe where you might want to establish a footprint? I believe Paris was one where you had indicated some interest. Thanks. Thanks Eric. Appreciate the question.

Europe Europe has been tremendous for us. I think like we said, like I said my comments 36% and 38 million. It really was, you know, a we did better there than I think we even anticipated when we walked in. I think there's two things for us in particular one. We as you recall, we kind of got delayed with the regulatory filings. And so we we have to wait to get our team kind of our in our brand out there in our momentum and and do what we do really really well after the full-year got got going home, you know, then there was there was a challenge with you know with brexit in one market hailed Boris. Now we've seem to have got that solved and let's see if we if that'll it'll take care of some more, you know activity in in London, but Frankfurt has been extremely strong. We've got a lot of interest in Amsterdam and dumplings. So all four markets right now our birth

coming coming together

A nicely and it just takes so long to do stuff that I think our patients and our patients and our speed and that's those sound like they're on the opposite side of the spectrum but it's our ability to you know, kind of deliver our product once we get the permits but our patience to work through all of the issues that you need to work through and their individual issues with each market have them I think they're going to pay off really well in twenty-twenty in terms of new markets. I think those are right. I think out of the you know, the traditional flat markets we we Paris is not on our home don't have power. So that might be a nice thing to to look at in the future. We've seen some activity in Zurich. We've had some customers ask us above some Madrid and Thursday in Warsaw, but I think at the end of the day, you know, we've got plenty in our plenty in our in our portfolio and if we focus on that will be will do just fine.

our next question

We'll come from Richard Cho with JPMorgan, please go ahead hi. I just wanted to go through the guidance again. You talked about how things are back in loaded, but like in terms of the pipeline and development both the the development is still aggressive and you talk positively about the pipeline. How should we think about the exiting off as we go through the year? I think the lease termination might make for a tough comp, but overall, you know going from this 5 and 1/2 6% Do you think we can return the dead it's going into next year and exiting twenty-twenty. Thank you.

Well, thanks Richard for asking for twenty twenty one guy. We just why not? I am just trying to get through the day actually, but you know, that's why I kind of gave you know, some of the bridge for the June 4th quarter and ffo the least term fees are probably worth about $0.04 that property tax accrual that we you know reduced or reverse rather with a couple times and you know, and then it's probably another full Penny impact when you if you would have assumed the equity 205 million of equity was that the whole quarter so there was a number of things that you're on the margin inflated fourth quarter. So, you know going into the year if you backed us out it's you know, it would be a lower run rate but again birth

Two if you look at the back.

Table that you know supplemental there's you know some significant backlog coming on his last half of the year, which really will be a benefit to 20 21 month and a lot of the development table again particularly in Europe is back-ended as well. As I want to point out San Antonio hasn't shown up on our our development table yet. I'm I'm sorry Santa Clara. Thanks for the correction time. I meant Santa Clara has not shown up on the development table. Cuz right now it's just basically moving dirt. So once the actual shelf starts coming on the ground out of the ground that will be on the development table, but it's a you know, definitely end of the year delivery of the shell and any time we have any pre-leasing so you combine all those factors that really does points certainly to a healthier 20-21 regarding more like.

Revenue recognition from a lot of these developments

Our next question will come from Colby with Cowen and Company, please go ahead great. Also, congratulations to hopefully it's a permanent appointment. Secondly, I guess my question, you know last year you had suggested that you still expect twenty to twenty-five million in our Leasing and you needed the 105 for the full year. Just curious what the guidance or what your expectations are for 2028 and if that's what's assumed in the 2020 Revenue guidance. Thanks.

Yeah, again, you know we kind of got locked into that, you know guidance number but don't really guide 2/4 releasing. We're just saying over, you know, sort of birth year averages is as was evident last year we have you know, leasing is Lumpy and and it's you know larger if we do some large Cloud deals and more muted one, that's more than the price. But yeah over the course of the last four quarters. It's it's definitely averaged in that 20. Let me ask you differently than do you think based on the commentary track you made that you're seeing an uptick in demand or at least conversations already. Now the first quarter of twenty based on what you're seeing. Would you guys expect to see great early spring in 2020 versus 2019. Yeah, like like I said, well first call be thank you appreciate the regulations and and the well wishes towards permanent birth.

got it. Thank you.

Kobe like I said

You know just because there's interest which I believe that was really really nice to see it coming out of the year. They don't always operate at the same time line we do so my guess is some of these things can take quarters and some of them take years to get done especially as they get bigger and if they're in Europe, they can even be more complicated when you think about all the unique laws around different package that you have to accommodate for especially something that's bigger and multi-year and just generally larger. So it's like I said, we're we're we're real happy about the the new interest, but we're not ready to comment on what it's going to translate to 2020 yet.

Great. Thanks. Thank you.

Our next question will come from Michael Funk with Bank of America, please go ahead. Thank you for the question. What if you test and once again congratulations on the new role back together the kind of the comments in the 8K earlier this year talking about it more prolonged downturn in the hyperscale, you know some of your comments and the call where I think you were referring to cutting, you know, hyperscale in the past tense. Just wondering if your strategic vision is more of a repositioning of the sales force, you know towards Enterprise, you know less hyperscale customers and 20 20 26 and if that's potentially maybe what we're seeing here in the you know in in in the leasing as well as the the revenue guide as well.

Thanks, Michael for the question and in the well wishes. Yeah, so we we've always had a strong Enterprise sales force it it's what we pride ourselves on whether it was an oil and energy or large Financial Services. We've always been focused on that and if you look at if you kind of look back on 2019, like I said in my, if it weren't for strong Enterprise demand and our ability to sell into the Enterprise market across multiple markets, we would not have or not have had that hundred and a hundred million dollar a year. So we're we're going to continue to focus on that and always have focused on it. Like I said, we probably the ones I don't know anything else who reports Fortune 1000 logos. We're the ones who constantly talk about that. It's something that we pride ourselves on. It's a metric that our sales force takes great pride in and and they've done a great job.

of

Of of having success in that in in that in terms of hyperscale.

It's so difficult to determine, you know, when that is going to one that's going to start getting back up. I mean 2018 was such a such a big year for everybody globally that you know, they hit those types of levels again, you know might not happen right away. But like I said in in my comments, we have see some really good activity and interest around many of our key markets. We've seen some really good activity and interest in our European markets typically, so I feel you know, what we did and what the company did to expand into Europe in in 1788, you know eighteen and and then an operating they're all nineteen months I think was exactly what we needed to do from a strategic Vision perspective. And I think we'll be able to do well on both hyperscale in Enterprise long-term.

Okay.

Thank you, and good luck. Thank you. Our next question will come from David with Green Street advisors, please go ahead.

hey guys question for you on the full-year turn guidance elevated is that maybe you can give a breakdown on if that's being driven more by tenant departures or rent roll downs and then if that's maybe a current in one particular market and that'd be great, you know turn is

generally

year roughly half comes from just non-renewals and about half from rent reductions. So I don't think the transition will be materially different than that, Do you know first of all, we have an account management team that all they work on is renewals that are coming to over you know, the next 12-18 months. And we do bottoms up if we are aware of specific customers that will be turning in some manner at the other thing is just reduced faith in power like they say with a customer but if they're not fully utilizing their space and power they met on the margin reduce it so, you know, we're always in front of all of our customers and particularly again this account management page in front of all the renewals that are that are coming up and again based on their bottoms up we fail will be in the 5 to 7% range again this year and you know off

half a gun

Nine renewals and some type of you know rate reduction. The other thing the only talked about this before and it's true at times they'll do a rate reduction, but actually it's because they're going to take space at another Data Center and or you know, some other concessions that were willing, you know to give a break on rate if there's additional business, you know associated with the overall negotiations.

Paintings. You're welcome. Our next question will come from John Peterson, please go ahead feel like I should say but I'll say congratulations. Anyway glad to see that you're still part of the the Cyrus one team. It's have a bit of a housekeeping question on G&A. Obviously you guys announced the the workforce reductions and I assume there was going to be some Severance costs associated with that. And now I assume there will be some related to Gary. Can you give us some indication on the timing and amount that we should expect out the year?

Well any Severance anything that's pure Severance costs, you know, doesn't it gets added back to n f f o which is common, you know it all the rebates so that wouldn't affect you know, the run-rate sg&a, you know run rate sg&a we do.

Will be going down this year compared to last year as a result of the reduction of force that we took earlier this year the agreements for both Gary and Tom will be filed as an 8K sometime in the next you know, 48 Hours, basically, okay. We'll watch that. Thank you. Our next question will come from Jordan Sadler with keybanc capital markets, please. Go ahead.

Thanks, and thanks for having me on I guess cash. I do want to offer congratulations on the position but also really on the ability to wage step up on a moment's notice for a call like this your first public company CEO speaking gig on a quarterly call. So congrats on that needs to be fair and Schaefer really prepped them a lot. Well, I was going to say most of the credit was probably was probably due to to die here. But but I do hear a lot of scaffolding here around the I my question really is what's going on here Gary's leaving. We're leaving a month ago. Now you're staying there's speculation that there's you know renewed m&a talks. Can you can you guys maybe give us a little bit more color on dead?

What?

Going on here. And and you know why maybe Gary wouldn't be on this call? Sure. So let me are set out into all of those questions individually first. Thank you. We would appreciate that and it was a team effort. So we've been we worked very very hard last night to make sure that we got got ready for for for you guys in terms of Gary Gary in the board came to a mutual decision. And that's that's between Gary and the board on on on me. I was fulfilling all of my duties and had lots of transition duties between now and and if you've read the original release it was I was always going to be you know on board to consult through basically mid mid mid way through the year. I think July first so I was you know still here if if you will it wasn't life.

I would

So it was it was I think it was an easy pick. I think my mom thinks it was an easy pick for the board. So it was really nice that the board afford the name that the board saw it the same way. And so, uh, so that makes that makes sense. I mean and then from, you know, just to continue on that perspective been here eight years alongside Gary for since the IPO off, you know to start it into markets expanded across North America spent the last fourteen eighteen months in Europe expanding across Europe and globally and internationally so forth in terms of understanding both what we do as a business and was involved in three out of the four Acquisitions. So when you think about what we've done is a business office who our customers are what we're trying to do with with our strategy it I think it made sense that wage.

That was you know.

I was chosen.

In terms of I think the last question was Market speculation of what was going on and and you know, we know you know that we don't comment on Market speculation and rumors.

Well, I guess last quarter it seemed like I mean this is going on for a couple of quarters now and I think last quarter was I didn't Gary said the company is not for sale or at least not running a process. Can you can you confirm that I can definitely confirm that if you look at the transcript from last quarter, he said that yes, ma'am. But what are you can't yeah, you you're not dismissing a process at this point.

And on Market speculation or rumors. Okay. Well done die. Sorry. I think I had a scan. It was the elephant in the room so apologies, but that is what everybody wants to know. Um, so so I appreciate you guys taking a minute with me. Thank you. Thanks.

Next question will come from Ari Klein with BMO Capital markets, please go ahead. Thanks and congrats again. Can you can you maybe talk a little bit about the 12% headcount reduction that was announced around the month ago and how that juxtaposes with your vision for growth of the company. And is there any sense that maybe you actually need to increase investments in sales and marketing potential increased the leasing momentum. Let me address the reduction-in-force first and then we can take it from there. But you know, it was really it was a right-sizing and the girl had come off double-digit growth. We clearly were working on our 22 plan and a new what was going to be in line with the guidance that we just, you know provided last night and today and so with slower growth. We've we probably were a little bit over our skis on our total headcount and so on the margin, you know, we did.

reduction of roughly 12%

But you know, we're still well-staffed to run the business to continue to grow again test can can address to Salesforce but it you know, look all companies from time to time go through a right side. They just we've all worked at companies that do it and it's it's a pretty common thing and it we never had to do it as Cyrus one. So that's always painful but we feel we're really in good shape now with with our head count and to continue to be able to grow and support the business. Yeah. All right. Thanks for the question. So we already started Shifting the sales force several years ago, like three and a half four years ago where we had a you know, a focus type of scale division cloudy vision. We created West Coast offices and you know at the time when our farthest west coast presents from a data center perspective was Phoenix so dead.

We'd already done all of the heavy lifting on that front.

Like I said three and half four years ago and since then it's just making sure that we've got the other markets covered in the most important market now would would would be Europe we've had you know, when we took over there was effectively one salesperson in in the in the organization in the European and the Legacy business, you know, since then we've added people and that funnel is not contributing to about 40% almost more than 40% of the overall funnel for the business. So I see that you've got now you've got a really good balance of people in North America and in our goal becoming Market Europe, we've got coverage will have a full year of operations. A lot of those people did not come on, you know, January 1st 2019, they came on and April May and June. So we're going to get a month your productivity out of them for a full year of prospecting for you. Have a marketing getting our our our name out there. So and with the footprint that we have and that we're expand that we're dead.

And and have the capability of building. I think we've got a really good message for both Enterprises and Hyper scalars who are looking for North America and Europe.

Thanks. Appreciate the color. Thank you.

This will conclude today's question-and-answer session. I would like to turn the conference back over to mr. Testarossa for any closing remarks. Thank you everyone as a maiden voyage. It was really nice. I said to quote some advice. I gotta avoid the iceberg. So I think we did that. So have a nice day. Everyone will look forward to the follow-up calls. Thank you.

The conference has now concluded thank you for attending today's presentation and you may now disconnect.

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