Q4 2019 Earnings Call
Good afternoon, and welcome to the equity next fourth quarter earnings Conference call all lines will be able to listen only until we open up for questions also today's call is being recorded.
There's anyone that has objections. Please disconnect at this time I'd now like to turn the call over too.
Katrina.
I know.
Vice President of Investor Relations you may begin thank you.
Thank you good afternoon, and welcome to todays conference call before we get sorry, I like to remind everyone that some of the statements will be making today are forward looking nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the rest of identified in today's press release and those identified in our filings with the FCC.
During our most recent form 10-K filed on February 22nd between 19 entering Q filed on November 1st we 19.
Equinix assumes no obligation and does not intend to update or comment on forward looking statements made on this call. In addition in light of regulation for disclosure is economics is policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.
In addition, we will provide non-GAAP measures on todays conference call.
We provide a reconciliation of those measures to the most directly comparable GAAP measures and the list of the reasons why the company uses these measures in today's press release on the Equinix IR page at Www Dot Equinix Dot com.
We have made available on the IR page of our website a presentation designed to accompany this discussion along with certain supplemental financial information and other data.
Also like to remind you the repos important information about Equinix, an IR page from time to time and encourage you to root checker website regularly for the 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 sell side analysts.
In the interest wrapping this call up in our we'd like to ask is balanced eliminate any follow on questions or just one at this time I'll turn the call to Charles Thanks Kathy.
Good afternoon, and welcome to our fourth quarter earnings call. We had a strong finish to 2019 and the momentum within the team and across the business is clearly evident.
Looking solid execution of our strategy and indicative of the tremendous opportunity in front of us.
Closed over 17000 deals in 2019, demonstrating the extraordinary scale of our retail go to market engine and a differentiated nature of the equinix value proposition.
The basin digital transformation continues to accelerate creating seismic shifts across industries as businesses embrace interconnection as critical to their infrastructure strategy and adopt hybrid a multi cloud as a clear architecture of choice.
Secular forces driving demand for digital infrastructure are as strong as ever data is being created mood analyzed and stored at unprecedented levels.
These dynamics are expanding their clinics addressable market as customers seek to distribute infrastructure globally.
Spawning to increasingly demanding workloads and the need to locate and interconnect private infrastructure in close proximity to a rapidly expanding universe of cloud based resources.
Against this backdrop, we continue to focus on for critical vectors to position the business for significant value creation in 2020 and beyond.
Always does it starts with our people will continue to invest first in our people our organization in our culture in order to attract and inspire market leading talent in service to one another enabling us collectively to be in service to our customers to our shareholders into the communities in which we operate.
Second we will continue to evolve and grow our go to market engine targeting the right customers with the right workloads in the right locations amplifying our reach via the channel and ensuring that our sales and service delivery capabilities continue to be globally aligned and locally responses.
Third we will continue to invest in platform Equinix, expanding our global reach while also adding new services and capabilities will allow customers to more flexibly combined equity value with that of our partners to work quickly implement hybrid and multi cloud architectures app and digital edge.
And fourth we will focus on simplifying and scaling our business implementing our own targeted digital transformation initiatives focused on increasing operating leverage and enhancing our customer experience.
These areas of focus in our long term orientation will allow us to widen the mode around our business enhance our yields and increased service attach rates, enabling us to deliver durable revenue growth and attractive AFFO per share.
Expanding our reach remains a core 10, it and we now operate across 55 metres in 26 countries. As we recently closed our Mexico acquisition, and we'll open new markets this year, including Humburg and Muscat.
The benefit of on our unparalleled reach as reflecting strong success cross regional activity, which continues to trend positively with multi metro customer revenues ticking up to 87%.
We also continue to make significant progress with our Hyperscale strategy with six announced projects underway across all three regions and a strong pipeline of customer demand.
We are already looking to expand our European JV and advancing additional JV conversations in Japan and other targeted geographies. This strategy will enable us overtime to extend our leadership in the cloud ecosystem, while mitigating strain on our balance sheet and maintaining market leading returns.
Turning to our results as depicted on slide three revenues for the full full year were 5.6 billion up 9% year over year adjusted EBITDA was up 10% year over year, an Apple FFO was meaningfully ahead of our expectations for the year.
Interconnection revenues grew 14% year over year, driven by strong customer response to that clinics cloud exchange fabric. Good traction in our new Internet exchange markets and solid interconnection ads. These growth rates are all on a normalized and constant currency basis.
Our interconnection differentiation continues to pay dividends as we expand our product set driving growth in customer value. We now have over 363000, interconnections and delivered our twelveth consecutive quarter of adding more interconnections and the rest of the top 10 pet 10 competitors combined.
Q4, we added an incremental 7400 interconnections fueled by high gross adds to support new streaming services, expanding intermetro connections and seasonably lower churn.
Peak Internet exchange traffic grew by 10%. This quarter also helped by these new LGT video offerings.
Yes fabric is diversifying well as an exchange platform with over 2000 customers now conducting their own deployments to over 600 other participants on the platform.
Our longer term vision for platform Equinix continues to take shape influenced by direct feedback from our customers and partners.
Our network edge, offering which provides customers access to a number of different virtual network functions Parisian provision to reshape fabric is tracking ahead of plan.
In our announced acquisition of packet represents a bold move to accelerate our strategy to help enterprises quickly and seamlessly deployed hybrid multi cloud architectures on platform Equinix.
By compliant combining packets market, leading hardware automation cap capabilities with our platforms and integrating directly with ACX fabric, we intend to create a world class enterprise grade bare metal offering that allows customers to rapidly deploy digital infrastructure at the edge with differentiated performance and robust integration to the public cloud.
We expect factor transaction to close in Q1 and look forward to updating you further on progress of our platform strategy.
Now, let me cover highlights from our verticals.
Our network vertical achieve solid bookings with robust reseller activity from our global NSP partners as well as continued expansion activity across various network sub segments.
New wins include Archie I connectivity, a leading subsea cable operator, extending their solutions in Tokyo in Sydney. We also launched an expanded partnership with Telstra, enabling full apiay integration with TCX fabric, giving enterprise customers on demand access to Telstra services across 38 Metro's.
Good example of how we're automating connectivity with key partners to their last mile networks via the easy ex fabrics are.
Our financial services vertical achieved just third highest bookings led by capital markets providers and large multinationals as cloud adoption accelerates new wins included a top three Nordic Bank re architecting their global network for digital payments and a fortune 500 financial advisory firm transforming their network topology.
Our content digital media vertical saw record bookings led by APAC and strengthen gaming publishing and E. Commerce as cloud adoption continues to shape. This vertical expansions included a fortune 500 media company expanding to launch new OTG delivery services and a multinational conglomerate building out its edge to support growing multiplier.
Our online gaming in South America.
Our cloud and I see vertical saw strong bookings led by a pack and double digit growth in services and infrastructure as cloud customers diversify that clinics continues to be the clear global leader in cloud connectivity with over 40% share of total cloud Onramps and 15, New Onramps added in 2019 five times the nearest competitor.
Our enterprise vertical saw healthy and high quality, new logo ads with continued strength in manufacturing healthcare and retail as enterprises Buildout hybrid architectures, new wins included a fortune 150 retailer building out infrastructure to support digital transformation and a global life sciences from enabling multi cloud capabilities.
Our channel accounted for more than 27% of bookings and we're very pleased with the progress. We made in building. This important go to market vector two thirds of our channel bookings are now driven by resellers with integrated solutions like performance hub in echecks fabric, delivering faster and more predictable order flow.
We're working together with these resellers to more effectively prioritize joint offerings to bring mutual customers the benefits of platform equinix enhanced by our partner services.
New channel wins this quarter included a win with to lend us for the city of Amsterdam, as well as a win with Optus to support children's Cancer Institute of Australia with data analytics for genomics research highlighting how with partners, we are truly better together and reminding us of the far reaching impact I format clinics in helping make the world a better and.
Healthier place.
Now, let me turn call over Keith cover the results for the quarter.
Thanks, Charles good afternoon to everyone.
As highlighted by Charles what a great way to end the year, an even better way to start a new one very similar to last year.
We delivered 5.6 billion of revenues and as reported increase of slightly under 500 million compared to last year, where a 9% year over year growth rate on a normalized and constant currency basis.
Dan AFFO per share scaled to $22.81.
And as reported year over year increase of greater than 10%.
Given our expectations as we drive value on both the topline and at the per share level.
Our core strategy, our go to market engine and our team for delivering performance at a very high level as we continue to separate ourselves from our competitors.
And your strong fourth quarter performance sets us up nicely to invest in growing and scaling the business in 2020.
We continue to fund organic expansion and new products and services initiatives, while also scaling our go to market efforts.
These investments are directly attributable to the volume of high quality interconnection rich wins across both our direct and indirect channels.
RAMAR per cabinet metric remained strong largely due to solid pricing discipline favorable deal mix and positive interconnection momentum.
We have an active construction pipeline you spend your global platform with 32 projects currently underway across 23 Metro's in 15 countries.
We will leverage our recently achieved investment grade credit rating to reduce our future debt service burden has initially demonstrated by our fourth quarter 2.8 billion dollar debt raise to Favourably refinance a portion of our outstanding high yield debt.
Our financial strength remains a significant and strategic advantage.
Now let me cover the quarterly highlights no that all growth rates in this section or on a normalized and constant currency basis.
As depicted on slide for the global Q4 revenues were 1.417 billion up 8% over the same quarter last year, our 17th year of consecutive quarterly revenue growth a trend that we expect to continue as we look into 2020.
We had or second best gross and net booking quarter largely due to strong organic performance coupled with net positive pricing actions again, and then some to lead churn.
Q4 revenues net of our FX hedges included a $4 million positive FX benefit due to the stronger euro and British pound in the quarter when compared to our prior guidance rates.
Global Q4, adjusted EBITDA was $676 million up 9% over the same quarter last year and better than expected due to lower than anticipated employee costs and utilities expense.
Our Q4 adjusted EBITDA performance net of our FX hedges included a positive 1 million dollar FX benefit when compared to our prior guidance rates.
Global Q4, AFFO was 473 million above our expectations on a constant currency basis, while absorbing the seasonally higher recurring capex investments similar to last year.
Interconnection revenues were very strong across all three regions this quarter, reflecting the benefit of our global platform and diversified product portfolio.
Interconnection revenues now represent 18% of recurring revenues a significant quarter over quarter step up.
The Americas in EMEA interconnection revenues are now, 24% and 10% of recurring revenues, respectively, while apacs stepped up to 15% a meaningful increase throughout the year.
Turning to regional highlights was full results are covered on slides five through seven.
Hey, APAC and EMEA, where the fastest them are growing regions at 13 in 12% respectively on a year over year normalized basis, followed by the Americas region at 4%.
The Americas region saw continued strong bookings, both local and export with a high mix of small deals and healthy pricing.
And the Dallas market has been a highlight for the Americas business, we're seeing healthy performance, where their existing import asset and we're eager to complete or new build adjacent to the improvement which will be known as Dallas 11.
We closed the Axtel acquisition in Mexico in January and have already received favorable inbound inquiries from multinational in carrier communities.
Eager to start or expansion efforts in Mexico, thereby enhancing our interconnection opportunities between north Central and South America.
Looking forward, we expect Americas revenue growth to trend upwards of 5% or greater as we progress through 2020.
Our EMEA region saw continued growth throughout 2019, largely driven by our four largest markets Amsterdam, Frankfurt, London and pairs as multinationals deploy their infrastructure across these major regional hubs.
EMEA again had robust billable cabinets additions and from deal pricing as reflected in our solid MMR per cabinet metric.
Export bookings continue to remain high across the region for the first time ever.
EMEA export bookings were greater than the import bookings a reflection of the continued globalization of our go to market activities.
And Asia Pacific region saw record bookings with an uptick in small deal activity and strengthen our Australian markets.
Also our investments in new markets like solar progressing well and we're starting to see the finance of a new ecosystem developing as key domestic NSP is deploying their infrastructure into these assets.
And now looking at the capital structure, please refer to slide eight.
At year end, our unrestricted cash balance was approximately 1.9 billion, which included about 344 million of cash that was used in January to redeem the remaining portion of the debt refinance in November 2019.
Net debt leverage ratio was 3.7 times at Q4 annualized adjusted EBITDA within our targeted range.
We continue to expect to drive substantial interest savings into our AFFO per share metric as we refinanced our currently outstanding debt over the next 12 months, taking advantage of current market conditions.
As you would expect the national trade off will be the costs attributed to the call premium or make whole provisions offset by the present value of the future interest savings.
Of course, we want to make each of these transactions net present value positive while negotiating the best terms and conditions for the business.
To be clear there is no benefit attributed from a future refinancings in the current air for four per share guidance.
Turning to slide nine for the quarter capital expenditures were approximately $715 million, including recurring Capex of 81 million.
We opened nine new expansion projects in the fourth quarter, including including New Ibxs in Melbourne, Singapore, and Sydney, while we added another 13 projects for expansion tracking sheet.
This gives you a sense of the level of activity in the business and the speed that we're building in filling capacity.
We continue to expand our ownership acquiring additional land for development Frankfurt.
Purchasing and we purchased our Toronto to IBX.
Revenues from owned assets increased to 55%.
Our capital investments delivered strong returns as shown on slide 10.
For one our 136 stabilized assets increased recurring revenues by 3% year over year on a constant currency basis.
While total stabilized asset revenue grew 2% due to lower nonrecurring revenues this quarter versus the prior year.
We expect our stabilized asset growth rate to trend up to 3% to 4% in 2020.
And similar to prior years, we'll update the stabilized assets summary on the Q1 earnings call.
Our stabilized assets are collectively 84% utilize in January to 30% cash on cash return on the gross PPD invested.
Please refer to slides 11 through 15 for our summary of 2020 guidance and bridges.
Do note a 2020 guidance includes the anticipated financial results from the actual acquisition, but does not include any financial results related to the pending patent acquisition.
Starting with revenues, we expect to deliver on 8% to 9% growth rate for 2020.
Delivering over $6 billion in revenue a reflection of the continued momentum in the business on the opportunity that we see in front of us.
Our 2020 revenue guidance includes 18 to 22 million to revenue attributed to Axtel.
And EMR churn is expected to remain in our targeted range of 2% to 2.5% per quarter for the year.
Pardon me.
We expect 2020, adjusted EBITDA margins of 48%, including integration concerned excluding integration costs. The results of strong operating leverage in the business offset in part by expected higher utilities and property tax expense on a meaningful investment in our go to market and product organizations.
Also we expect incurred 10 million of integration costs in 2020 to finalize the integration of the various acquisitions.
2020, AFFO is expected to grow 11% to 14% compared to previous year.
And our AFFO per share will grow 9% to 11%, excluding any benefit attributed to future refinancing activities.
And we expect our 2020 cash dividends to increased to approximately $912 million, a 10% increase over the prior year or an 8% increase on a per share basis.
Let me stop here I'll turn the call back to Charles Thanks, Keith.
In closing 2019 was a great year for Equifax, we took significant strides and continue to execute effectively on the ambition agenda, we outlined to you at our analyst day in 2018.
Positioning the business to effectively scale and capture the enormous opportunity ahead.
We dramatically scaled our go to market machine to capture the rapidly growing enterprise opportunity, we embarked on a broad change agenda to drive consistent global execution, we added significant talent to respond to the technology shift shaping our industry, including two outstanding additions to our board in center Rivera from Intel and Adair Fox Martin from S&P.
And as we undertook these changes we communicated tirelessly and engaged our teams around the globe to be part of re architecting, our collective future together.
Achieving record levels employee engagement market, leading organizational health scores and being recognized as a global leader and sustainability.
We aggressively work to balance sheet side of the business raising more than $4.5 billion in debt and equity and achieved an investment grade credit status.
We delivered on our commitment to form a hyperscale JV joining forces with a world class partner to advance our cloud aspirations, while avoiding undue strain on our balance sheet.
And the markets taking notice as we were recently recognized by IC Marketscape as the top leader in their inaugural worldwide Colocation and interconnection vendor assessment.
In 2020, we will continue our focus on evolving platform equinix, adding new capabilities and service offerings to better meet the digital transformation needs of our customers. We will continue to scale, our global multichannel sales engine to support growing bookings and we'll focus on providing a more seamless and globally consistent digital experience for our customers to improve.
Through the adoption and consumption of platform Equinix.
I'm as excited as ever about the future of Equinix and honor to work with our dedicated teams around the world in service to our customers to our communities and to our shareholders. So let me stop there and open it up questions.
Thank you at this time, we will begin today's question and answer session at the conference.
Our first question will come from John Atkinson with RBC. Your line is now open.
Thanks, very much I wanted to ask and operational question and then a question about X scale. So on the operational side I wondered if you could call out any trends that you saw around sales cycles lengthening or short name.
Closing rates any different than what you've seen in book to bill that debt.
As any different from what you've seen historically.
Sure John ill take the first one and maybe first couple and maybe you can comment on book to Bill.
The.
In terms of.
When rates in sales cycles, I wouldn't say any meaningful change I do think maybe we're getting a bit better I think that are are are targeting of the enterprise in the enterprise space. In particular continues to improve and I think we're probably seeing perhaps some shortening of sales cycles, but.
They are still I think we're still fairly early in terms of.
Customers thinking through their long term hybrid multi cloud architectures and so oftentimes. They are you continue to be longer sales cycles. Once landed I definitely think we're seeing a shortening in terms of their ability to expand their wallet share or us expand wallet share with the customers.
And then when rates I think are probably.
Pretty stable if anything I think going up we are.
We're again, we're going to and really nice job I think targeting I think our value proposition continues to resonate with customers and overall and we've been very pleased with with performance I will go to market engine.
George and risk on that too so John just want to make up I mention of the book to Bill, Yes, no meaningful change in or book to Bill in fact, there was Charles said.
When once we lend them, we tend we tend to move very fast to install the customer, but what I would tell you is no surprise when you look at arc with this quarter relative relative to Q2 Q4 relative to Q1, the timing of different events cause us to cause us to reported revenue slightly differently. So the timing of when you book something versus when you.
When you might churn and and so.
As an organization I think where we're seeing exactly as we work is happening exactly as we plan, but theres no meaningful shift in clinical book to Bill interval in the business.
And then one more operational question just in terms of churn and as you look at 2020 or the ready influences is coming year different than we saw in 2019 related to customer migrations are really anything else.
No I would say it's pretty.
Pretty pretty linear sort of extrapolation of what we saw last year.
I think some of the pressure for example on stabilized asset growth is coming from.
From the fact that there is some level of cloud substitution that something I've talked about before but it's really a matter of I think people kind of really figuring out what their workload sort of distribution is going to be between private and public infrastructure.
And making those adjustments, but as we said we've been we've been able to comfortably kind of live within the 2% to 2.5% range and and we continue to feel comfortable with that going forward.
And that might Exco question is just any sense around timing around around JV arrangements outside of Europe, and how they might differ structurally from what you have in place already and then for X scaled Europe JV that's already in place how do we think about the impact on AFFO per share.
Yes, I'll, let you take the latter but the in terms of timing, we we've learned not to.
Dry too bright line because the complexities associated with started getting these things closed out from a attacks and treasury and reach that read standpoint, and various other factors always seems to be more than more than we think but I would say that I think we're making really good progress.
Jim and Eric and the and the whole ex scale team along with a lot of.
EMEA people on our tax and treasury teams and and various other elements within the organization are working hard on getting those things going I think you're going to see good momentum during the course at 2020 for us on the upscale side.
And then as it relates to the impact on the quarter on X Hilton the largest impact you really saw was the amount of cash that came into the business as you recall in the from the Q3 earnings call, we had $355 million of cash come onto our balance sheet and there is roughly 60 million euros of what we refer to as milestone payments.
It would come over the next 12 to 24 months.
In the business as it relates to the operating performance. We're just really getting started and this is going to be I think at appropriate a really good discussion that at the June analyst day, just giving everybody an update on how we're performing but it's it's as good if not better than we anticipated in the momentum that Jim and his team C C in the marketplace.
The substantial so from our perspective, there is no theres, no surprises and nothing meaningful running through the fourth quarter results.
Our next question will come from Phil Cusick with JP and see your line is now open.
Hi, guys. Thanks.
Can you dig into what gives you the confidence in the 2021 expansion in development after what looks like a robust 2020 plan as well thanks.
Yes, I mean, I think it's just if you look at multiyear view on the business, we probably I think right now we have a better multi sort of longer term view of the customer opportunity in the funnel than we've ever had.
But.
And so I think the if you look at fill rates and the trajectory on our fill rates. If you look at sort of any I think underlying industry drivers in terms of the pace of adoption of cloud.
Look at what's happening in turn as overall data volumes, you look at the impact and influence or things like AI and.
And I would see anything I think you start to see the front edge potentially of fiveg, increasing sort of both both traffic and overall.
The data volumes and side.
I continue to think that the secular forces driving this to be the overall demand for infrastructure are strong we're hearing that from our customers and we're hearing that would be very very responsive to our sort of long term vision for the platform and that includes the expansion of capabilities and services as well as are our plans for geographic expansion overtime. So.
The combination of all those things continue obviously.
21 is a bit far out but.
We feel very good at about the projects that we have underway right now and that fill rates that we're going to that are supporting those investment decisions and and I am.
Super optimistic that 21 will will be just as exciting.
Phil if I can that you said you listen to what Charles said is the beauty of our plan to as we've got 30 32 projects underway across 23 different markets. So the diversity of our investment in Europe, the coming in different shapes and sizes based on the demand profile of given market.
So we feel we have that visibility it is a little bit far out as Charles referred to but given the strength of our pipeline momentum that we saw in 2019 coming into 2020, the depth of our pipeline and the opportunity set that's what gives us confidence to continue to build particularly in some of the markets where one of the few that is building.
Thank you thanks.
Our next question will come from Erik Rasmussen with Stifel. Your line is now open.
Yes. Thank you.
So as it relates to your 2020 guidance.
I was sort of like a two part question, but have you turned the corner with the Verizon assets and is this year you starting to see growth and then within that you. It sounds like you little bit more confident in the Americas.
5% or greater what's driving this sort of positive dynamic and then what sort of the long term growth rate that you see or sustain rate on that business or region.
Yes, I do think we have.
That one of the factors certainly by Verizon has been one of the factors that has been.
Delaying I think the grow our is sort of them a bit of a growth headwind to the region now that's been a net economic benefit to the company. So we're not complaining about it.
But it has been a bit of a turn because that are a bit of a headwind as that churn continues to drive through.
But again, we feel we feel like we're going to be able to see a return to growth as as Keith indicated in the script I think that we feel like as we move towards the end of the year, we're going to be looking at a greater than 5%.
And the and I think the strength of the of the go to market engine in the Americas selling across the world continues to be substantial and so.
I think that I think I do think the Americas business, we feel a level of optimism there that we're going to certain get through some of the remainder of the of the churn tail on on Verizon.
And and really see that business.
Picked up a bit in growth and Eric will always said this certainly in the investor conferences that Charles and I and others go too we always can grow the business faster if we want but it's it's what we do as the pricing discipline in Charles referred to going after the right customer rate application in the right IBX and and being disciplined and going after those into interconnection rich.
Opportunities that really cause us to feel very comfortable on what our guide us and recognizing yet we could certainly can go do a lot of very substantial hyperscale to deals in the in the Americas, but we think I would be value destructive for our business and so we focus that opportunity in our Hyperscale initiative with a JV.
Partner and other parts of the World, where we can get an appropriate return alongside our partners, but I think is to defer discipline that we bring the Americas region that gives us the confidence that we don't have to go stretch ourselves here. We're it's a very good and very successful business and we want to keep on doing what we're doing one last comment I'd make Eric is that we we noted in the scrip.
[music].
The continued globalization of the selling engine is is it really important thing in some of the Carl and Mike and team have really focused on in terms of making sure that we're as I always say were picture that ever rep sell in every datacenter everyday right now and that they're out there positioning the full global platform, we saw EMEA have for.
The first time sell more out outbound and they got inbound.
And that's that's a really positive step for us really shows the strength in those are the things that when you have the global platform and companies large companies, perhaps that are headquartered elsewhere sort of.
With that that are driving.
Manned into it all our regions, including the Americas, I think thats going to as can be a contributor to growth.
Great maybe just as my follow up this is more of a maybe a bigger picture theme, but are you seeing any shifts in the underlying trends in the industry.
That that are giving you increased confidence and sort of how you're positioned and your ability to achieve your current long term growth objectives.
Yes, I am I mentioned, a number of them I think I think I.
I guess I would put a sort of an overall umbrella frame or overall frame around in the context of digital transformation digital transformation is an absolute priority at a at a board and senior executive team level in you know in virtually every company that we're talking to and targeting.
And so it matters a lot to them, they're thinking hard about how to how to drive digital transformation in their business and how to deploy infrastructure to support that and so I think one that focus on digital transformation and thats happening because of these various trends people for example, seeing AI is central to their ability to create.
Competitive advantage when they're using their viewing data as central to their ability to create competitive advantage and theyre, they're just they're investing behind a lot of these trends and there are needing to deploy infrastructure globally to have their infrastructure work in anbar applications to operate as their design and so.
I think those that sort of the secular backdrop and then you you bounce against that sort of the equinix position, which was we have this unique position I think in terms of being able to really promote and accelerate the hybrid and multi cloud as the architecture of choice. There. Many customers are in fact, using us as and as an add.
Avenue to you know to access the cloud to move workloads between cloud resources.
And then to place their private infrastructure unit that private infrastructure may be getting smaller than it used to once be when it was living inside their enterprise datacenters, they're taking what remains is private infrastructure and they want to place it indirect proximity to the cloud and that's that's really what I think analytics does better than anybody else in the world then so.
So I think those are there's a variety of both secular trends as well as sort of our own market position that combined to give you a sense of optimism for the road ahead, which is exactly why we're continue invest behind the platform invest behind the go to market engine.
And and excited about the what lies ahead.
Your next question will come from Ari Klein with fee ammo capital markets.
Your line is now open.
Thanks, It looks like EBITDA margins are coming in a bit in 2020, Keith can you maybe parse through the impacts of in a bit more detail how much higher utility expenses taxes, and then the meaningful investments in the go to market strategy never alluded too can you talk to where those investments are being made.
Alright, I made this Charles maybe I'll jump in and just give you the the broader context for I think our decision in terms of how we're guiding on the margin than than that Keith can add any color there, but if you look in 2020, it's pretty similar to what happened in 19 in both years, we showed significant operating leverage but we saw some specific items that impacted our.
Ability to drop that through to the bottom line.
19, it was projections on utility costs combined with some pretty significant expansion drag that last year that led us to guide to a roughly flat margin line. As you know we ended up delivering expansion in 2019, finishing at about 48 and a half because the utility trend was frankly, a bit better than we projected.
But we are seeing those utility increases materialize not just in EMEA, but in some or other markets as well.
And those combined with the property tax increases compared to 19.
Those things together consume most of the operating leverage so we're kind of left in the position of either offering up some modest margin growth and not investing the business or finding the key investments in guiding to a flatter margin and we did data Thats, obviously, we chose a ladder.
We feel like it's our job to maximize long term value creation, and we're confident that freeing up the dollars to invest in the platform evolution growing the go to market engine driving our own digital transformation are all things that are going to help us sustain AFFO per share growth and frankly, that's our lighthouse metric and we feel like it'd be irresponsible not to invest behind them.
And with the momentum that we have right now.
Got it any color you want to.
No I mean, I think you hit it Scrillions square on the heads so.
All right, maybe shifting gears a bit does the packet acquisition reflect a shift in M&A strategy in any way should we expect future acquisitions to be more focused on the services front versus maybe new markets given how many are ready and I wouldn't I wouldn't call a shift I call it and augment.
It's a look we're we're going to continue to view.
Geographic expansion of the platform as.
As a strategic priority for us and where that can be done.
In a value creating way via M&A.
And we certainly will we'll think about doing that so we've talked about the fact that we still have.
No additional additions to our platform from geography geographic coverage standpoint that we'd like to make Anna and I think M&A will be a vehicle for us in that regard having said that I also I do think that's an augment your saw a packet as really the first of a really a capabilities.
Type of acquisition.
We're super excited about what they bring to the table what that is going to allow for us in terms of bringing a enterprise grade bare metal offering to the table.
That is really going to be responsive to customer needs and will help animate our core value proposition and really compelling ways in ways that our customers are asking for so.
And as for whether or not you we might see other things. It looked like that that are more capabilities oriented I would certainly say that's a possibility for us we're going to we're going to continue to.
Build buyer partner as we need to to execute on the strategy and to make sure that we can capture the opportunity in front of us.
Very well one thing I'd just add add on.
Maybe just making one other comment just about EBITDA margins because one of the things as we do recognize you recognize that there are these higher costs are going through the financials, but if you look at on a quarterly basis Q1, theoretically will be or lose guide and then as each quarter goes by through through the year you see an improving EBITDA margin. That's what gives you a sense.
And with the with the operating leverage the business that we're realizing plus the Ricky plus recognizing these cause but for the momentum of the we foresee will cause our margins to continue go up so when we enter 2000 2021.
And obviously, we're not we'd be in a better positioned than we are coming out of Q1.
Our next question will come from Colby Synesael with Cowen and company. Your line is open.
Great maybe just a few housekeeping items just to start off.
First off on the greater than 5% and there has got that should be time is like a fourth quarter 2020.
Growth number right not a full 2020 over 2019 number correct.
Yes, we see a growing throughout the year.
We are trying to say sourcing is more second half than first half.
Okay.
And then the next question.
You mentioned I think 3% to 4% stabilize growth, yes is that.
Recurring stabilized or is that total stabilized growth and recurring.
Okay return.
And then.
You had previously guided to greater than 50% EBITDA margins by 2022 at your 2018 analyst day, that's the expectation.
Well since that time Colby I, we had sort of so you could put more perhaps uncertainty around the exact timing I think our posture over the past year and a half or so has really been that we believe the 50% is achievable, but that we're not willing to trade off sort of long term value creation for achievement of a have a near.
Our term margin objective and so I think that we still believe it is achievable I think our primary focus as a team is going to continue to be long term value creation and and by the way that does not mean, we have in any way shape or form lost focus on driving operating leverage.
As a key priority for us to allow us to invest in the business and still deliver the financial results, we need but right now I wouldn't want to put a particular timeline on the on the 50% and then just my last one.
Cabinet ads so Kevin it adds in 2019 were lower.
In aggregate cost all regions total versus 2018.
And in this most recent quarter you added a decent amount of cabs to your inventory and we really didn't see any meaningful acceleration in.
Installs and new utilization rate actually came down again, and I think now slightly below 80%.
What's your expectation for cabinet adds you mentioned 32 expansions that are ongoing.
How should we think about that number maybe any year over year basis in 20 versus 19, and how big of a focus is that metric for you guys. In you when you look at the.
The performance of the business. Thank you yeah, I mean, I think theres a couple of things one there's always some level of volatility in it and Thats why weve always encourage people to look at the at the rolling four quarter, having said that even when you look at a rolling four quarter I think you're seeing some downward pressure I think that is primarily a factor.
A couple of things one it's it's really a factor of execution as a reflection of execution of the strategy frankly.
And by going to they.
Going to the ex scale product that is going to take some really lumpy things out of the mix. If you look at the non financial metric sheet and you look at Asia, which was I think Q1 of last year. It was like if memory serves 5700 cabs for something crazy.
And a lot of that was stuff that we would be pushing off into index scale and so I think that I think the mix of business is going to shift probably to put a little downward pressure on Kevin as I think by the way we have sized our our capacity investments and all of our.
New builds reflect to reflect that strategy. So we didn't overbuilding in Angola shit, while we didnt and now we got too much. We we had that was always our plan and so so I think you're going to see a little bit of a movement in utilization as new capacity comes online, but I think you know the if you take the last few quarters, you're probably average them your pro.
Probably seeing a reasonable reflection of what we're going to do from a cabinet as perspective, and again, you'll always see a little bit a little bit of lumpiness in that but but I do think there's a little bit of downward pressure, but I think that should not be viewed as a negative it should be viewed as a really a reflection of the strength of the of the core strategy and how we're delivering against it.
Thank you.
Thanks going.
Our next question will come from Michael Rollins with Citi. Your line is now open.
Thanks, and good afternoon.
First can you give us an update on where are your customers are from a grooming perspective for interconnection and how that could play over the course of the year and then just taking a step back are you seeing any change in demand for that market and data center is kind of below the original.
Primary inter connection points that had been part of the heritage Equinix story for for a long time and.
I'm just curious given.
The trends that you talked about if there is just an expansion of interest in where customers want to locate their infrastructure. Thanks.
Mike what was the first part again I'm sorry.
I was thinking about secondly on the grooming.
Okay got it interconnection grooming, thanks, Yep by the way it sounds like called got you. So if you feel better.
Thank you.
The.
The grooming I would say that.
Were again, particularly as it relates the biggest interconnection growing tends to come either in the form of 10 to 100 migration for really large interconnection consumers.
And as I guess as I've said, I think that Theyre really big ones are already come through the process.
Particularly in the U.S. and when I say, the U.S., they're really us based companies, but they really sort of largely embarked on their global grooming already. So I think we're you know I used the words that we were going to probably see it tapering through 2020, I think thats still the case, we we saw we saw fourth call.
Order was we did not see what we thought we might see which was.
Something that happened fourth quarter last year of 18, which was we felt like the network moratoriums really kept people from we saw US really a Q3 Q4 that was roughly.
A linear roughly flat.
But bottom line I think that.
We'll see some tapering of that I think is there a lot of our customers are very advanced and then the other major form of grooming you see is and when carrier consolidation occurs.
And we see we've seen some of that overtime, but I wouldn't say that we're seeing any any sort of acute levels of that so I think that a on balance over the course of 2020, that's something that we'll see improve and I think we're going to see we've kind of guided to the 79000 on interconnections that typically has made up of sort of five to 7000 on.
On physical cross connects and then call. It in the couple of thousand range on virtual I think we're going to see virtual continue to climb although theres a bit of.
Mix there in terms of how people what speeds, they're buying at and those kind of things, but but overall I think it will taper off and we will see a really I think we'll see a strong interconnection year. I mean this last quarter was a really strong interconnection quarter were really really pleased with with the performance of the business.
Then your second question as to.
The mix of demand from sort of first tier interconnection rich campuses verse and locations versus others.
I do think that there is one of the things that has really helped US Mike is that we we extended the X fabric and interconnected all of our facilities and so now people still have the ability to onramp to the to the broader ecosystem from any of our facilities and that our people our teams have really be able been able.
The work that into the selling and so.
Let's face it the it's the Ashfords in Silicon Valley's in Frankfurt's in London's and Amsterdam's that continue to drive big investment and really big growth.
But some of these.
Some of the second markets or even the second.
For the second tier facilities within primary markets.
I think that the fabric has been a help for us in terms of making sure that we're monetizing those effectively.
Our next question will come from Frank Loosen.
Raymond James Your line is open.
Great. Thank you follow up on the packet question are there any other products that you think that need to have in your in your in your.
Arsenal their Q to service to customers and yet in the past you sort of the skewed things that might compete with your customers are you rethinking that was certainly that may with network or other things. Thanks, Yes, well you know we wait we had talked in.
And as we as we've sort of laid out our platform are evolving platform strategy in the past we've talked about this edge services layer and we talked about network edge compute edge edge data.
Just curious et cetera, we think theres opportunities for us in all of those in and it will be a mix of things that we will deliver ourselves, which we did with network edge and which we did.
With which we now are facilitating.
The packet acquisition with that with some level of edge compute.
But we also think there will be perhaps even more of those that are edge based services that represent combinations of our value with third party value in partner value and so.
Which gets me to sort of the second part of your question, which is are we kind of.
We have we typically have had a position where we are a bit of a neutral player.
And and I think that serves us well and and we've always been about choice and Optionality and making sure customers can select from the providers that they want.
And I don't think that from a philosophy standpoint changes a bit for us and so we're going to continue to embrace that we're going to continue invite partners and to deliver value in some cases, if customers are pressing us to deliver services.
They want to see from US then we're going to seriously consider that if we think those are areas, where we have the capability to play the permission to play in that they'll deliver they vary kinds of returns and so it's going to be it's going to be an evolution of our strategy, but I think that we're.
We're going to continue to be about building ecosystems, where people can bring bring value combined with what we do in solve customer problems. So I'd add to encourage you to come to analyst day, which I'm sure. We'll see you there and in June and I think we'll probably have a little bit more.
Meet on that bone that we can share with you.
Alright, great. Thank you.
Our next question will come from Simon Flannery with Morgan Stanley. Your line is now open.
Great. Thank you good evening, Keith just on the leverage you've obviously done a nice job, bringing that down how are you thinking I know the three to four range, but given where interest rates are.
Is it more optimal to stay on the upper half of that range and are you seeing any opportunities to build and Brian more of your real estate and then for Charles on the Bill timing.
The point on funnel visibility was very helpful. But there's a lot of stuff 18, plus even 24 months out.
What's the thought process around that as any of that driven by.
Construction or other complications or is it really just stem phasing the buildings out there and I'm thinking of some of the stuff like the Amsterdam moratorium and stuff that you're seeing any other.
So apologies looking at some of those issues. Thanks sure.
Simon So let me take the first part and that will push it to Charles for the second part first on leverage right now with three 3.7 times Levered.
Clearly, that's well within or guided range and.
His two historically, we said three to four but after we got a credit.
Credit rating upgrade we always felt that we probably play at the higher end of that range, but truthfully. When you just look at the operating leverage in the business as you look forward over a number of years, although it's being equal you're going to be in the de leveraging scenario or said differently is going to give you the flexibility to choose how you deploy that capital and keep leverage at an appropriate level. So we feel very very.
Confident that that we were appropriately levered, we think through just the growth the business that we will.
I would otherwise de lever again, all else being equal.
And we know that we can borrow money, we can borrow money today.
In all likelihood tomorrow at a much more costs that were incurring today and that's what gives his.
Again, we're trying to be very clear with three AFFO per share that the interest burden that we're bidding today relative to what we will bear tomorrow is.
It is more substantial and you just can do the math on the 3 billion dollars' worth of euro debt or the $2 billion of high yield debt is yet to be refinance the substantial savings that can be realized from just refinancing those today at current rates versus where the rates may may eventually go is substantial too they afford it before.
For sure as it relates to buying some of our real estate, we're always looking at it but it's it's a buy versus leased decision and it's really about economic control the asset, but absolutely to the extent of something out there that makes sense, we'll we'll be active.
Particularly when we look at least cost so far.
At least costs that were bearing in contact with our landlord and so thats just.
Let me just assure you that somebody that we'll continue to look out we have a very strong real estate organization inside our company.
And we remain active at looking at or properties.
Thanks, and then on.
On the build out yeah, I get that I get to just to that question. Obviously some of those are a little bit more protracted in terms of their delivery time frames. Some of that is just markets where for a variety of reasons.
It's more difficult to get things done from a permeating perspective from a power perspective, it's often times power that is the and the availability of power the dictate the timeline on these things.
But but generally we are building phase.
Phased projects.
We we have a level of confidence in terms of not putting too much capacity into the market.
Our for in the get go and less those are at scale that are fully pre sold in which case, obviously, if we if we if there was a pre sold we like get them.
Built out as quickly as possible.
I would say that from a construction standpoint, it's a it's a robust market and so there are I do think part of it is just macro forces, which is the demand for labor for example in these markets.
As you know is high and so that is an area, where I actually think we end up being differentiated because we kind of often can get to the front of the line because we have a history of having done four or five or eight or 10 projects with somebody and when we say we need your best teams, we often get them and so but there are some parts.
Cracked and timelines, it's something that I think Ralph in our construction teams globally are continuing to work on.
There are also sometimes where other specific circumstances, whether that will be for example Olympics.
That is often something that sort of changes the you know the circumstances of a particular belt, but.
I wouldn't say right now it's anything in terms of extending.
Extending project timelines due to.
Supply chain.
Challenges or anything like that but there are some that are further definitely further out there in time.
Thanks, a lot.
Our next question will come from Jon Petersen with Jefferies. Your line is now open.
Great. Thanks.
In the press release, you you're talking about cross connect add you guys called out.
New streaming services are the big demand driver.
I'm curious with your experience with.
Some of the streaming services that had been around for a few years.
That I'm sure you have as customers kind of what the ramp is in terms of how they add crossconnects is it are you guys kind of expecting is one big.
When they launch the product or it is it kind of a steady stream of demand going forward.
Well, we you're right. We have do we do have experienced in this area, but I would say the dynamics of those and also.
Potentially the market power of the players involved or are different.
And.
I think if you look at public information in terms of what some of these services have done they have been exceptionally successful in terms of subscriber acquisition. So I'm not sure I would.
I would apply any you know.
Any prior experienced necessarily to these things.
But they're very thoughtful organizations, we worked very closely with them in terms of capacity planning.
And and we're we're excited about what they what we think those could imply in terms of continued.
Sort of.
Tailwinds really for the interconnection business.
Okay, and then maybe to kind of come back to the leverage and equity needs potentially.
It looks like the 2020 guidance assumes no equity issuance I think last year. You initially gave guidance that didn't assume equity issuance and then.
And then you did and so I'm kind of curious.
What you what your sources.
Of capital needs are for equity throughout the year should we expect you guys did dribble out through the ATM.
Or any other anything else.
In 2019, we really we sort of front run the process as far as raising equity sooner than the year than we than we originally anticipated and then as you know the back into the year, we raise a little bit more debt than we needed to.
Went to refinance the debt, we're taking out but it puts some cash on the balance sheet, which was really a precursor to funding.
For 2020.
And so were obviously a very good position from.
From a cash and liquidity perspective.
And you were going to take this posture is always about creating long term shareholder value and.
We also believe it is a combination of debt and equity that's gone as to where we need to be obviously.
Pardon me debt is the cheapest form of of capital today, and we're going to continue looked at the markets on that basis, there's nothing nothing imminent and as you also know we have an ATM program that still has capacity on a 300 million.
With the current ATM program still has or availability. So if if we were to drawn capital for any any purpose. There will be a combination of both and we're going to be very strategic about those decisions and as we have in the past.
Okay. Thank you for the color.
Our last question will come from Nick the Lido with.
Any Nathan your line is open.
Hi, Thanks for letting me and.
Packet to start I think people generally understand where the sustainable competitive advantage for correct. When it comes from.
How would you describe the source and durability of the competitive advantage for Pat.
Great question, Nick Nick.
And because the great answer to it I think is that it's actually the equinix value proposition if you look at it.
Packet is really a reflection of shifts in how people want to consume our value proposition our core value proposition is it continues to be what it has been superior global reach advantage to access to scale digital ecosystems to drive cost and performance.
The most comprehensive interconnection portfolio in the business and then.
On an unparallel track record of service excellence and we have for 20 years been animating that value proposition with Colo.
But but what packet allows is for us to essentially animate that saying those same value propositions.
A a different consumption vehicle for our customers and so with the durable advantage still realized is still resides very much in what would what core platform equinix delivers and the bare metal service, obviously, we're going to need to deliver a yet from a usability perspective and from a.
If you guide integration perspective and.
The efforts and capabilities that packet has too.
For automation and integration with the software ecosystem with the likes of Vmware et cetera. Those are all things were going to lever to leverage to make sure that thats, a really competitive detrimental offer but it's the powerful part about this is unlocking and extending and increasing the addressable market for the core equity value proposition.
Okay, that's great given the time I'll just leave it at that thanks, Charles Thanks.
Great that concludes our Q4 call. Thank you for joining us.
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