Q1 2020 Earnings Call
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Good morning, and welcome to the qtest q1 earnings conference call. All participants are will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions ask you a question. You may press * then 1 on your touchtone phone withdraw your question, please press * 2.
Please note. This event is being recorded. I would like to turn the conference over to Stephen Douglas head of investor relations, please go ahead.
Thank you operator. Hello, everyone and welcome to qts. His first quarter 2020 earnings conference call Stephen Douglas head of investor relations and qts and I'm joined today by Chad Williams our chairman and chief executive officer of person our Chief Financial Officer. We also are joined by additional members of our executive team who are participating Q&A our earnings release and supplemental financial information are posted in the investor relations section of our website also provided slides and made them available with the webcast and on our website to make it easier to follow our presentation today before we start let me remind you that some information provided during this call may include forward-looking statements that are based on a certain assumptions and are subject to a number of risks and uncertainties including those related the effects of the ongoing covid-19 pandemic as described in our SEC filings and actual future results May Vary materially moved forward looking statements in the press release that we issued yesterday along with our remarks today are made as of today and we undertake no duty to update them as actual events unfold.
Today's remarks are also include.
Certain non-gaap measures including Noy ffo operating ffo adjusted operating ffo monthly recurring Revenue r o i c e p r e and adjusted ebitda. We welcome you to our press release that we issued yesterday and our periodic reports furnished or filed with the SEC for further information regarding our use of these non-gaap Financial measures and a Reconciliation of them to our gaap results and I turn the call over to Chad.
Thanks, Steven. Hello, and welcome to qts is first quarter 2020 earnings call before we reviewing the operating and financial results of another strong quarter for qts. I'd like to begin my comments by providing an overview of the key business continuity initiatives. We have activated in response to the covid-19 pandemic.
Turning to slide three, we continue elements with respect to covid-19 while we will share what we have observed us far and how we plan to continue to Monitor and operate as a situation further unfolds. We are obviously not in a position to predict the ongoing magnitude or lean of the impact of This Global pandemic the safety and wellness of our cutie essers partners and customers combined with Iraq to resilient Data Center Performance are and Will Remain the highest priorities at first like to thank each of our qts is for their dedication resiliency wage flexibility during a time of unprecedented disruption across the economy and in many of our personal lives and yet despite this disruption, our customers need for continued uninterrupted world-class Data Center Performance did not change. And in fact it increased qts is truly powered by our people and when tested yep,
Times like this. I'm proud that our qts others have stepped up to the challenge and delivered for each other our customers and our communities demonstrating their commitment to our culture of service.
We have taken multiple actions to reduce the risk based on our pre-established pandemic response plan to safeguard our employees partners and customers and we continue to adjust our lives in response to what remains a dynamic situation related to covid-19 these actions include educating our employees and customers on mitigation strategies 9 a.m. Central travel restrictions for employees and acting our remote work policy for all non-essential data center operations Personnel daily monitoring of all on-site staff for symptoms and implementation of strict visitor guidelines for those coming into the data centers in the US and Europe.
In addition, we've activated long-standing pre-established business continuity emergency response and pandemic response plans that provide for resiliency against unpredictable events with these plans collectively address how qts mitigates the spread of the illness and maintains business continuity across our operations it security Construction Supply life in general business support functions, as a result of strong execution of our business continuity plans, each of our data centers in North America and Europe remains fully operational across each of the jurisdictions locally in which we operate qts has been deemed to operate essential infrastructure, which allows us to remain fully staffed with critical in place and we remain confident in our ability to continue to provide comprehensive 24 x 7 service and support for our customers.
But supply chain perspective given the long lead time generally associated with the larger components in a data center such as generators UPS systems and chillers. We've already secured the vast majority of jobs that needed to complete our twenty-twenty development activity in response to the continued uncertainty related to impact of covid-19. We've also accelerated the acquisition of additional infrastructure equipment to support our early twenty Twenty-One expected development activity around our customers continued growth expectations.
We have seen modest delays in construction activity in a few of our markets primarily as a result of availability of contractors and slower permitting. However, these delays are measured in days or weeks and not none of these delays at this time are expected to create a material impact in our anticipated infrastructure delivery to customers
Next on slide for during 2019 qts successfully accomplished our goal of digitizing our internal and external systems in to end this with the integration of an industry-leading software platforms, including sales force service now and work day in 2 qts is Service delivery platform or sdp too inhospitable enable enhanced internal operating capability for qts employees. These initiatives have accelerated our efficiency and have been critical. I believe in enabling our business to continue to operate effectively in the current expanded remote work environment.
Sdp remains a powerful differentiator for us as well as in the marketplace the Investments we've made to enable software to find data center platform and Powers our customer remotely interact with our data centers and qts services with digitized orchestration capability that largely has not existed in the data center industry before.
Examples of remote access and capability include provisioning multi-cloud and site-to-site connectivity and real-time bandwidth management viewing and managing real-time power utilization a full visibility of customers inventory of assets within the data center and executing online ordering sdp has been a key contributor to qts is market share growth over the last several years and it's differentiation and value to customers has only accelerated in the current expanding remote workplace.
Today we have over seventeen thousand users on SVP across the base of 1200 + customers since the beginning of March the number of new and unique logins to STP has increased approximately 40% In addition SCP session times across all users is now averaging approximately thirty minutes, which is approximately fifty percent since the beginning of March over the same time. The top STP users are spending nearly twice the amount of time on the platform with session times now averaging approximately an hour for our customers Data Center and it managers whose primary role is to ensure the performance of their critical business applications and infrastructure sdp has become an essential tool to performing their daily jobs.
with customers
Remaining there on site access to the data center infrastructure as a result of covid-19. Our customers are relying on sdp to provide them with the data. They need to effectively manage their data boost their deployments.
SCP also proved to be powerful tool for our sales force given more limited ability to currently to provide physical in-person tours of our data center facilities, since the beginning of March our sales team has conducted almost two hundred unique sdp demos which represents a nearly 800% increase in activity.
Through new functionality including our 3D map or tool which provides a high resolution map of each of our data centers in individual proposed customer Footprints. We have been able to virtually provide access to our data centers to both existing and prospective customers in addition as mentioned. Our data center. Remain fully staffed with critical Personnel in place through Thursday customers are able to remotely provision additional services including remote hands and eyes facilitated by our on-site data center operations Personnel, since the beginning of March 50s is realized the Seventeen percent increase in incremental signed Revenue associated with remote hands and I Services over the same period a year ago while relatively small and absolute dollar terms our ability to effectively stand in for our customers during their time of need with critical services such as remote hands and eyes further strengthens our customers. Yep.
Bishops and long-term retention
we expect to continue to invest in RSVP platform to accelerate our differentiation and capitalize on the increasing value that our customers continue to drive from our software to find approach to Data Center infrastructure with increased customer usage over the past several weeks sdp is providing critical management ability and peace of mind for customers as well as the qtest Min managing our infrastructure.
Now moving onto financial performance on Slide Five GTS delivered another strong performance during the first quarter continuing a trend of consistent growth in financial and operating results during the first quarter qts generated total revenue and adjusted ebitda of approximately 126 million and 67 million respectively representing a year-over-year growth of approximately 12% and 13.5% respectively are adjusted ebitda margin during the first quarter of 2020 was 52.9% representing a year-over-year margin expansion wage only 70 basis points, which reflects continued operating leverage in our business as it scales combined with our own growing efficiencies. We're seeing from our various digitization initiatives.
Importantly as we've been the case over the last several quarters are consistent performance has been driven by contributions from each of our customer verticals hybrid colocation, hyperscale life in Fayetteville, the diversity of our sources of growth enables our business to perform. We believe in a variety of different demand Cycles including during periods of economic disruption life present one related to covid-19 next on the slide 6 during the first quarter kitchi SI new and modified leases representing approximately $22 million of incremental annualized Revenue, which is approximately double are reported leasing in the first quarter a year ago. We experience consistent leasing performance over the course of the first quarter this includes during the month of March in the midst of the ramping covid-19 related concerns in the market when we signed approximately a third of our quarterly leasing volume.
our first
Releasing performance reflected continued strength in our hyperscale business combined with steady Enterprise demand during the quarter are hyperscale vertical contributed approximately two-thirds of qts wage overall leasing performance, and we're pleased that the majority of those leases were signed at the higher end of our nine to eleven percent Target hyperscale return on invested Capital range. Am leasing included a five megawatt expansion in Ashburn with a customer who was a new logo for qts in 2019, including their initial 10 megawatts signed lease last year in a subsequent five megawatt expansion in the first quarter of 2020. We have now sold more than 75% of our available capacity in our Ashburn data center. We officially opened our Ashburn. T a little over a year ago. And in the midst of a competitive market in Northern Virginia now see a potential path to fully leasing the entire 32 megawatt Facility by the end of this year a Thursday.
In the current trends continue, which is tremendous accomplishment for our team.
Our q1 hyperscale leasing performance also included a significant incremental expansion with an existing customer across to qts sites in conjunction with our fourth quarter 2019 earnings call. We announced the commenced development on a new facility in Hillsboro Oregon anchored by an approximate 4 and 1/2 megawatt lease with this customer the majority of which was signed during q1 in addition to the lease sign in signing in Hillsborough. This customer also signed in approximately 4 and 1/2 megawatt lease during the first quarter in our new downtown Atlanta facility currently under construction together with the previously-announced 12 megawatt lease signing with the separate existing hyperscale customer we have now pre-leased more than sixteen Meg of the new downtown Atlanta development, which is set to open in mid 2020. We are pleased to continue to demonstrate strong momentum in the Atlanta Market driven by our 5 a.m.
Plus embedded customer base ongoing operating and power cost advantage and dents built out interconnectivity ecosystem.
During the first quarter or hybrid co-location vertical continued to deliver consistent performance as a result of the ongoing covid-19 pandemic. We have seen a number of existing Enterprise customer accelerate their infrastructure investments just support the broader remote workplace environment since the beginning of March kts is signed IP bandwidth upgrades representing a 700% increase over the same period a year ago while the overall Financial impact from The increased brand with this relatively small at less than a million dollars of annualized Revenue. It demonstrates the in Chrome critical role that qts is serving for our customers during their time of need in addition. The first quarter we saw a 42% increase in reoccurring Revenue signs associated with incremental off today interconnection represents. 8% of qts is overall reoccurring revenue and we expect that to continue to drive that percentage hire overtime as customer.
Accelerate their infrastructure, too.
Appointments the ability to further monetize our data center infrastructure through incremental services, like cross-connects and remote hands and eyes remains a core strategic Focus 4 qts found was a key contributor to our positive renewal pricing for the quarter.
Turning to our federal vertical why we did not sign any leases during the first quarter in federal continues to build and we look forward to executing on our strong funnel in future quarters with the needs from the federal government continuing to grow combined with an increased focused on Outsourcing qts is very well positioned to accelerate this vertical with attractive return on Capital opportunities. We are pleased to have started off with strong leasing performance ahead of our leasing Target. But in fact, we're already off to a strong start in Q2 based on our side leasing performance so far in the second quarter and pipeline visibility assuming current trends continue to outperform our quarterly net leasing Target again in Q2 which provides incremental confidence in achieving our financial growth and performance objectives.
Continued strengthen our overall leasing volume resulted in a backlog of sign but not yet commenced annualized reoccurring revenue of approximately $101 million at the end of this one. This is the first time in our company's history that our backlog has exceeded 100 million and we're obviously very pleased with the tremendous visibility. It provides in a growth in 2020 and 2021 overall. We're very pleased with our financial and operating performance in the first quarter the strength of our leasing funnel and diversified business model sets the stage We Believe for continued strong performance this year and we look forward to executing on our strategic objectives with that. I'll turn it over to Jefferson County Chief Financial Officer Jeff.
Thanks, Chad and good morning turning to slide 8 qts Diversified business model supports a base of over 1,200 customers across a variety of Industry verticals wage than 50% of our employees recurring revenue is generated from customers within the content and digital media and cloud and IT Services Industries. Although the covid-19 pandemic has created far-reaching disruption across many Industries our customers within the technology vertical in many instances are seeing accelerating demand for data center infrastructure. In fact, I've seen several of our larger hyperscale customers looking to potentially accelerate their deployments in part related to D risking future data center infrastructure needs in light of continued uncertainty created covid-19.
GTS is exposure to some of the industry's more directly impacted by covid-19, including Retail transportation oil and gas and Hospitality today represents less than 6% of in place recurring Revenue.
given the
Economic disruption from covid-19. We've experienced a modest amount of customer requests for payment relief concentrated in these industry verticals in total the revenue associated with customer requesting some form of payment relief represents less than 5% of overall Revenue importantly of the small number of customers requesting some form of payment relief the large majority off today on their rental payments and while qts has not reduced their future payments we have in certain circumstances provided additional flexibility in the form of extended payment terms que tienes committed to continuing to support our customers during this time of need.
In spite of the evolving economic environment within our embedded customer base remain healthy.
Same space renewal rates during the first quarter represented an increase of 5% which is consistent with our general expectation of renewal rates increasing in the low-to-mid single-digit percentage range in addition sure within our customer base has remained consistent with historical Trends during during the first quarter was 0.6% and we are reiterating our full-year chair and guidance of 3 to 6%
Now moving to our Equity funding activity.
As of our Q4 earnings release on February 18th qts had access to approximately $220 million of net proceeds through Ford stock issuance has during the first quarter of 2026 qts settled 1.9 million shares of forward equity for net proceeds of approximately 83 million dollars to support our ongoing development activity subsequent to our fourth quarter 2019 earnings call to ratm program approximately 3.8 million of incremental shares of common stock have been sold at an average gross price above $55 per share which represents approximately $200 million of net Equity proceeds on a forward basis. This results in net proceeds through forward stock issuance available to qts of a approximately 350 million dollars as of yesterday's earnings release.
Based on qts is current 2020 capex guidance forecasted growth and adjusted ebitda and retained cash flow these available Equity proceeds represent funding sufficient to support his Capital development plan for the full year twenty-twenty and into twenty twenty-one.
UTSA is typical funding approach. It's focused on accepting Capital to support our development activity two to three quarters in advance of the capital need however in light of continued Capital Market volatility as a result of covid-19, we believe it is prudent to shift our strategy to secure funding for our business three to four quarters or more in advance of the capital need.
Next on slide ten. I'd like to review our current balance sheet and liquidity position as of the end of the first quarter pro forma for the $342 million of available Ford Equity proceeds. We had available liquidity of approximately $900. We currently have no significant debt maturities until 2023 and Beyond and approximately 70% of our indebtedness subject to a fixed rate including a series of interest rate swap agreements. We ended the first quarter with approximately $172 of cash sitting on our balance sheet, which is well in excess of the ten to Fifteen million. We typically hold at any given time as a result of heightened volatility in the capital markets. We made the decision in the beginning of March to bolster our cash position and increase our bad debt Reserve. We ascends reduced our cash position to a more typical level as capital markets have begun to normalize, but will continue to closely monitor the situation
We ended the quarter with.
Pro-forma leverage of approximately 4.5 times net debt to annualized adjusted ebitda, including the $340 million of available forward Equity proceeds excluding forward Equity off. These are leveraged at the end of the first quarter was approximately 5.8 times. We remain comfortable with our current leverage profile, which is supported by our significant book not build backlog and dearest activity funded. We currently expect to draw down our forward Equity proceeds over the coming quarters to fund our future development plan while maintaining leverage at a level consistent with where we have historically operated.
Turning now to our financial guidance on slide 11:00. We are reiterating our guidance for the full year twenty-twenty. We continue to expect reported total revenue of between 523 million and 536 million and adjusted ebitda between $275 and $285 million for o f f o Bashar we expect a range of between $2.69 and $2.83 a month and lastly our capex guidance range is unchanged at 550 to 600 million excluding Acquisitions against the dynamic economic backdrop. We are pleased with the consistency of a performance supported by the diversification of our business model and healthy customer base with continued strength in our leasing activity and a development plan that is fully funded for the full year twenty-twenty and into twenty one. We are focused on delivering predictable financial and operating results. In addition. We will continue to monitor Capital Market activity for opportunities to drive incremental efficiencies in our balance sheet.
And further de-risk our growth initiatives going forward. I'll now turn the call back over to chat.
Thanks, Jeff. We're pleased to kick-off twenty-twenty with strong performance in the first quarter with visibility for continued leasing execution in Q2. We have leveraged our core differentiators to drive continued market share growth including leadership and sustainability initiatives cost Advantage mega-scale infrastructure, operational capability and track record in the Federal Business in our continued strong commitment to fully digitized premium customer experience through qts is software to find data center platform. We are convinced the growth opportunity for qts remains robust in twenty-twenty and we're focused on maintaining a consistent level of performance through the year.
Over the course of the next several weeks and months. We will remain diligent in safeguarding our employees customers and critical infrastructure to the best of our ability while continuing to monitor the developments related to covid-19.
I'd like to close by thanking our qts others for their resiliency and commitment during our customers and communities critical time of need. In addition. I like to recognize and express our deep appreciation for the nurses doctors, please fire and National Guard organizations for their dedication to public service. That's enabling our safety.
as always
Like to thank our customers shareholders for their continued trust and confidence in qts with that. I'd be glad to take your questions operator.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press start them to this time. We will pause momentarily to assemble our roster.
Our first question will come from John Atkin with RBC, please go ahead.
Thank you. Good morning. I guess I got two questions one about the backlog and then one about maybe commercial Trends and I'm just interested in whether there's any sort of a push out from 4000 to 1 Q in terms of or any of the back of all that got shifted from one huge twenty, you know into the balance of the year. And if I look at your leasing performance and then Thursday just quarter and then compared to your backlog going forward seems like there's a little bit of a differential. I wonder if you can comment on that and then on the commercial Trends you sounded quite positive about um, you know, the quarter-to-date rebounds and and the prospects for getting the kind of the 15 million plus any way to quantify, you know, either a megawatts or dollars what you've seen quarter-to-date and the confidence you had around Ashburn if you could maybe pulled in any sort of commentary about Jedi and what role that plays in your in your thinking going forward. Thanks. Hey Jonathan, this is Chad. I'll take the commercial part off.
You know, we we feel confident about two q and that's it's just you know, we've gotten some work done already in April. I'm not going to get into specifics about that. But we feel very confident about our 15 plus net leasing Target for twenty twenty and and you know, we've just seen good Trends we seen good Trends across hyperscale. We've seen good Trends in a Enterprise and in federal we continue to see things that make us feel like there's great opportunity ahead for sin that so ask for it specifically. It's just been a great accomplishment of the team were one of the most concentrated data center markets, but obviously one of the strongest data center markets in the world continues to be a great place for data centers and ours is differentiated. And I think it's a great accomplishment in the short time that we've been open to have it 75% leased and in a path that we feel like that by the end of the year. We should have the aspirin facade.
And that's just a great accomplishment for our team Jeff. You want to talk about the book but not billed backlog sure John. So do your question as to whether we had deal shift and I wasn't sure if that was from Q4 1920 or q1 20 and two Q too. But the answer regardless is that you know, we always have different circumstances where some deals May shift and some deals May accelerate. I tell you there was nothing unusual in terms of movement and Deals between Q4 of last year and q1 of this year and and and nothing unusual in terms of any Q. One deal slipping into Q2 that being said Point even as we're still ending just the first month of Q2. We do feel good about the visibility. We've gotten the leasing Pipeline and Q2 and and again, so nothing unusual as it relates to the current market environment around any of that from a book not Bill backlog to chance Point our our our Target for average quarterly leasing in 2020 is 15 plus million per quarter. We love the fact that we are dead.
See one well above that and we've got a Target towards Q2 that could track assuming things continue the way we see it to be above that as well. All of that should drive increase book not build backlog. But at the same time as wage Livery not some of these larger deals that we've signed and bring you that in to service it wouldn't be a typical to see that backlog also come back down to a more normalized level and Jonathan specifically on the Jedi questions come back to Federal. You know, I know Jedi gets a lot of attention in the Press, but there's a much broader market for federal data center bulb. Tuna T's than just Jedi. So I think Jedi continues to be in the news, but I wouldn't read that into anything from our standpoint. We're just working hard and developing kind of our busy around that that part of the business and feel very good about the federal government. They continue to create a lot of data and continue to be more and more open to Outsourcing and I think those are just good trends that we bought
We feel good about.
Quick follow-up on Ashburn and then and then cross connect. Someone asked for the 5 megawatts. Is it fair to assume that might have been signed in the early part of the quarter pre pre pandemic and then I asked activity just you know, you mentioned 8% of recurring revenues from any any kind of color on on Cloud on ramp business, you know, AWS Direct Connect that you've got in Chicago and then a lot of the STM ships how many of your cloths connects are coming through those sorts of Partnerships versus just direct, you know customer to customer on the first question the quarter ended strong. So March got a lot of activity as we talked about so I wouldn't read into it that it was all waited at the beginning which was a good sign for us. It was it remained strong through consistent through the quarter John. Do you want to jump in on John Greaves on cross-connects and and will we see it in the sdn network?
Yeah, absolutely, Jeff and John what we've been.
See a news that you might imagine customers looking for ways to dynamically increase capacity to cover both remote working and and frankly has there been trying to change and modify their own business and bring a new age products and service to business and the cloud on-ramps have been great supporting that and we've been seeing again increased use of those either directly through our own Direct Connect nodes or through our partners that we work with in terms of sdn world as well. So I think you're you're exactly right in your commentary that
the completely booked
thank you.
In the interest of time. We ask that you limit your questions to one question and one follow-up. Our next question will come from Jordan silver with KeyBank, please go ahead.
Good morning, and thank you. So relative to the executions and and some, I'm curious for the customer case. It might this is it just is it true or the like the exceed the 1-2-3 hyperscale, you know this year to me and then sort of what do you seeing from these customers, you know in there in terms of their case towards based in in life and you believe that this is a pull cord of future demand that we're starting to a. Would you characterize this is Courtney record regular wage?
Hey Jordan, I think that what we're seeing is just continued opportunities within hyper school. Yes, you know from from a strong start with hyperscale a a couple deals in first quarter. I don't you know, we're not changing our 1 2 3 deals, uh, you know, but it does give us good confidence to start the year off with with a couple strong additions to hyperscale. I think you know, it continues to be a lumpy business right that the the strength I think from my perspective on qts is that we have, you know, a strong Enterprise business that consistently provides results. We have Federal opportunities to accelerate and hyperscale continues to be an accelerant to our business. So, you know, we're fairly particular about the type of deals that were going to do they're going to have to work in the facilities that we have where we have the right returns and overall value to our business. But you know, I think you're going to see the tech companies are growing dead.
And I think they're going to be active this year, but it's still a lumpy business.
in in terms of your characterization of it you would think call this more of
Regular way or you call this more of an acceleration or pull forward of of some future demands in sort of digital transformation. Everybody's life. I think it's hard to talk about anything normal right now. I obviously feel like the digitization has accelerated and lots of companies are experiencing that I'm just glad that we met positioned for it. And I think the hyperscale hours are going to be pretty active and making sure that they're ready to take on their customers demand. So I think they're you know going to continue to be focused on making sure they've got faith in power and the right locations.
okay, and
Follow up is on on bad debt, uh the reserve look in the quarter. Could you quantify that for us and maybe give some context relative to relative the affected customers asking for Relief off and then any update April collections date? Yeah. Sure Jordan. So in general we we as we look at where we stand with our customers. We still feel very good about the strength of our customer base as evidenced by you know, not only the performance you do it, you know towards the end of Q3. Sorry towards the end of q1, but also wage from a guidance standpoint for the rest of 2020, you know, again, given that less than 10% of our total revenue is from an aggregate customer base within Hospitality Transportation oil and gas retail and we've got some great customers in those verticals. Those are just verticals where there's some volatility but we've got some great and strong customers. There's good diversification within that list the customers that have asked for 4:00 a.m.
Tensions again, it's far less than 3% of our total customer count. It's less than 5% of our total revenue in place. And the majority of those customers are all in good standing with us today though. The extensions them offered those customers. First of all, we're not offering relief in payment but extensions from those extensions or one to two months generally. So, you know, nothing very extreme to your point Jordan from all of that. We had seen cash collections through April that are still consistent with where we've been in the past. So we haven't seen you know, drastic changes there. We've seen receivable and receivables through last week consistent with where we were in the first half of the Year pre
Thank you. Thank you.
Next question will come from Colby synesael with Cohen, please. Go ahead.
Q I'm just curious if when you think about your leasing expectations for the second quarter, you're noting north of $15 your expectation. Just curious what your thoughts are on hybrid. Um Cloud demand and in what I guess maybe Enterprise and whether or not your expectation is at 4 to remain at the level that you saw in the first quarter off or if that's expected to you know, modestly dip but effectively be made up with hyperscale and then secondly as it relates to pricing on the on the leasing that you did the pricing of the number that you guys give us seemed a little low at least relative to what we've seen the last few years. I know you mentioned two thirds of the the leasing in the quarter came from hyperscale, but you also mentioned that page you're towards the higher end of your return threshold. Just wondering if you can get a little more College kind of uh, see how you got there. Thank you. Sure Colby. Let me let me first hit on the leasing and let me let me be very clear. So there's not a midsummer.
standing in terms of leasing expectation
Thanks for the quarter. So our model and the way we look at our business in 2019 was at the model worked if we had average quarterly leasing of about fourteen million dollars per quarter am very pleased that over the course of nineteen. We did far better than that and actually put up leasing that average closer to 19 million per quarter the 15 million of quarterly leasing for this year is is less of an expectation and more of as we modeled our business. If we if the model work at fourteen million of average quarterly leasing in 2019, we want to grow our business business at double-digits. We clearly need to be at 15 plus I'm leasing 420 and so we've used sort of 15 plus as a basis under which the model still works and we continue to put up the growth that we think is leading the market and so that's really that what that fifteen means the fact that we started it almost twenty-two the fact that we have visibility going into Q2 of higher than that 15 gives us great confidence in the business. So what we're not trying to imply is that we expect we see Jeff
Not materially in the second half but that if our model works at a 15 million average and we start the first half of the year Well above that. We're just in a good position in terms of again some some evidence as to why we're reaffirming our guidance on the pricing side a little bit of color around the pricing. So the pricing that we're showing there is on a per square foot basis. And so you see a little bit of shift in terms of some of the higher pricing that you saw during Q4 last year and the pricing of q1, but it's really more about the density of those customers. So we did a big hyperscale deal in Q4 that was a much denser customer infrastructure that they developed their and so the pricing per square foot because they were taking more power relative to their square footage was significantly higher than what you saw in q1 in q1, the remote turns around that are still the majority of the returns and the hyperscale we get in q1 are at the high end of that 9 to 11. It's just a lower density. And so that's why the pricing per square foot looks a bit lower. She had you dead.
And can you sorry go ahead and Kobe know that was so go ahead please. Sorry.
The point you know, the hybrid Enterprise.
The engine of qts. It just is consistent and reliable and and that team can it continues to perform so, you know, we where you might see some parts of the Enterprise to Jeff point on some of the industries that are having, you know more of a more of a tough time with the with the whole pandemic. You've got other parts Healthcare financial and not many others that are just accelerating their Enterprise business. So we think that there's a great balance and it continues to be a consistent reliable Performance Engine for us.
So Chad, I guess from our perspective and we're thinking about modeling it mean, you know, lots of puts and takes, you know, no promises being made but generally speaking. It sounds like your expectation would be that for hybrid demand in terms of a get dollars associated with leasing should be relatively consistent with what we've been seeing the last few quarters. Yeah. We feel good about it.
Great. Thanks.
Yep.
Our next question will come from Nick cross it with berenberg, please go ahead.
On Enterprise accelerating investment, but then you kind of give us a gauge of the percentages there. How many customers are accelerating versus say, you know kind of wait-and-see mode and are there any verticals that are showing acceleration that have surprised you? Yeah, I mean as I said on the previous question, you know, you're seeing certain industries Financial Services Healthcare, you know a number of of those type of you know cloud and I T and infrastructure SAS base companies They're All Dead, you know focus on accelerating their opportunity. So we feel like there's a you know Enterprise. It's it's one of the great things about Enterprise with hybrid, right? It's it's not it's not twenty-five or Thirty hyperscale companies. It's hundreds of Fortune one thousand companies that are you know, in the midst of the biggest remote work wage.
Experience they've ever had so you just it just absolutely gives you the opportunity to have conversations. I mean for us the ability to take that money buys software platform and fdp Service delivery platform and be able to still show them the ability to operate in a digitized world, even at the point of sale and tours is a powerful differentiator. So we continue to feel like the team is seeing good demand Trends and we feel good about the opportunity to be consistent with our hybrid Enterprise business office.
Okay, and just one on sourcing materials for development. Could you give us some color on Supply chains at the moment? And then I'm pricing has it been Harder To Source material and as raw material pricing gone up or
no, I mean in some cases the The Source material, you know, obviously you've seen things like oil and and different things going down. So, you know some of your raw material have actually gone down our supply chain is stable. We've secured the inventory and parts and pieces that we need to deliver the majority of our twenty-twenty. We've even leaned forward with some of the 20 21, you know, you should think about supply chain disruption in days or weeks and nothing that we feel like a substantial and we'll keep the market posted but we thought we haven't, you know, I've been on phones with with with our supply chain at the CEO level and people feel like that. They've got got a handle on it will continue to monitor it but I know huge or disruptive interruptions to date.
Okay. Thanks.
Our next question will come from Michael Funk with Bank of America, please go ahead.
Yeah, thank you for taking the question this morning a couple of I could so you're first on Ashburn appreciate the comments about the 75% occupancy and potentially getting full occupancy by year-end. How are you thinking about getting too full occupancy and balancing that versus kind of increasing the return invested Capital meeting Holding Out for higher pricing and kind of related same question. You know, what are you seeing in terms of price ranges in that Market Nashville room kids distant pricing. I mean, you know hybrid Enterprise is a little different in federal and federal is a little different than hyperscale. So we've got a good balance and and Michael I think the the point is is that we are making choices. We we said no to some deals in first quarter. So we're not we're not doing every deal not every deal is the right fit. We're being disciplined on our return on invested capital and that's why you're seeing that we're comfortable in the deals that we're talking about birth.
In the range in in some cases at the high end of our range for hyperscale. We're not seeing any huge disruptions and we feel confident about you know the pace of the business.
Then what follow-up I could so I appreciate the comments on on cross-connect growth this quarter, you know, do you do you anticipate or believe that's going to be durable or do you expect some the airplanes customers might pull back or dial that back as we move out of the current work from home environment? I think that just my personal opinion is is that when people and we will get through this event, I don't I I think the chances that people pull back and and don't take on the remote work of the future conversation. I think it's going to be the opposite. I think people are going to try to prepare for what you know, obviously could happen again in some form or fashion. So I think people are going to learn from this and they're going to try to be better prepared in the future. I think all of us have got Lessons Learned From This unique time and I don't see too many Fortune 1000 that's going to not try to be better prepared the next time
Great. Thank you all very much.
In the interest of time. We ask that you please limit yourself to one question and one follow-up.
Our next question will come from Simon Flannery with Morgan Stanley, please go ahead. Thanks very much. I'm just continuing in that Vein on what are you seeing on new logos? Maybe you just characterized the conversation with you having some new people come to you now with new interest in doing a broader hybrid type deployments. Are you seeing maybe people look more to the more established players rather than maybe some of the newer entrants in the space any color there be great. Thanks. Yeah, I think you know the indicator for us is just need a Moe's and as we talked about on the call, you know our demos of a couple hundred demos feels like we got good good visibility across our verticals and we're just doing demos for one part of our business. We're doing them for all so there's a good consistency and reliability as far as the established players go, you know dead.
I think from our standpoint.
It it does it always helps to be established have operational maturity. We hear that quite often for our customers. It is a time where customers are focused on the strength of your balance sheet or operational maturity and more importantly your differentiation and we're just very strong in all three of those. So we continue to see that that broader demand in in in all of our Lounge areas and just follow up on ice cream. So do you think there's a sense here that you know from your comments? It seems like the the the demand-supply the competitive environment is rationalizing, um wage over the course of the last couple of quarters. Yeah, I do I think aspirins been good for us and others
Great. Thank you.
We now ask but if you have an inquiry you limit yourself to one question in the interest of time or next question will come from Frank Lawson with Raymond James, please go ahead I'm great just the one question. So I guess my question is back on the Enterprise. I I can appreciate that, you know the commentary around, you know less than 10% of your bases and a highly impact factor. But you know, how do how do you think about that as far as impacting growth and what happens? You know when that is as the the the growth from least that 10% slows down is non-existent or other businesses, uh other businesses make decisions differently than in a recessionary environment they have in the past and how did that affect your ability to hit with the midpoint are better of guidance, or should we consider that more a wider range this year Well Frank on the first part, I mean we are seeing you know, obviously there are some Industries hit far harder than I thought.
But I don't I think that's why you know, we we've tried to be pretty clear about feeling good about the 15 plus million dollar Target per quarter and that's why you know, we're seeing other areas in a business which fifty plus percent of our business comes from existing clients expanding and in a big chunk of that is in cloud and I T and Faith these that are growing so, you know the small area of concentration within the areas that maybe have a harder impact economically. I think the gross side of it off we still feel good about, you know, the numbers and the areas of of the leasing performance for the rest of this year Jeff you and take the guidance Frank. I mean, I think we're still comfortable with the guidance office. I'm not looking to narrow within that but we feel very good particularly in light of, you know, having some incremental bad debt accruals and some of the costs related to covid-19 wage.
You're across the business and across the industry, whether that's just cleaning cost maintenance and monitoring cost even with that. We obviously have a lot of confidence in terms of customer growth given that we're maintaining the guidance. I feel very comfortable at that level.
All right, great. Thank you.
Our next question will come from Brett Feldman with Goldman Sachs, please go ahead.
Yeah, I just a quick follow-up and one other. Can you give us any colors to what portion of your book not filled backlog is exposed to the same vertical was just want a sanity check off whether the mix has changed a lot and then your commentary around your Capital plan being funded through next year based on the steps. You took this quarter. Does that also include anything? You might be doing with your life JV partner Linda or is that just addressed separately? Thank you. Sure. I mean in terms of the backlog. We haven't done the specifics of breakout of the backlog by those verticals, but look at the backlog we look at the customers that are representing those backlogs. They are very large very established. You know, the backlog is always going to be weighted more towards hyperscale cuz there's a longer book-to-bill lag wage so we can look at that backlog and the vast majority of that is coming down to a small handful of hyperscale customers. We've got very good visibility there and feel very confident around the nature of those customers and their growth. Uh,
A lot of those are driven by technology and Cloud related Industries. And so, you know, we don't see any concern as a relate to those backlog. In fact a number of customers in that backlog are actually reaching out seeing if we can accelerate delivery time. We haven't had any request from those customers to slow them down in terms of the funding plans with a JV partner. We do not have a JV partner built into our funding plan. Is this the $342 million dollars that gets us funded through this year and into next will happen without the need for any JVS. That doesn't mean we're not open to doing more jv's we're in conversation on a regular basis with Olinda wheel of that partnership and there's additional Capital out there as well. But what we look for in the JV is the right circumstances taking a a partially off utilize facility that still got more growth. We'd like to maintain a lot of that growth for existing shareholders and and managing those returns. So to the extent that we do ultimately engage in, New Jersey.
That would either enable us to accelerate our capex or shift some of this Equity Capital towards the JV partner and just provide more upside.
Thank you.
Next question would come from Rasmussen, please. Go ahead.
Yeah. Hi. Thanks for taking my question and nice execution and challenging environment. So my one question I will Circle back to Ashburn again. It sounds like you may have seen an ice pick up there. What we're hearing also is that uh, you know, some several providers are out of our starting to get get out of a uh available Powersports to be a little more challenging. Are you seeing that as well where there's an opportunity even for some of the public operators who do have capacity to sort of, you know, committed a pack or favorable Market dynamic in relation to what we've seen in the past six-plus quarters. Just some thoughts on on the aspirin Market.
Yeah. Thanks. Eric is Chad.
You know ask for it's been one of those it's a defining global data center market and you know, it certainly has a capacity but it's also got a lot of demand and I look for demand to be healthy this year in Ashburn. So I think you know, it continues to be a trend and it's a lumpy business as we all know and hyperscale off but but I do think the cloud and IT services companies are going to be active over the next, you know, twelve to fourteen fifteen months.
Great. Thank you.
Our next question will come from Richard Cho JPMorgan, please go ahead. I had two questions, but I'll have to get as one. Can you give us a little more color on how the existing customers are using sdp and the feedback from new customers and then Jeff, what's the velocity of STP in terms of going from new log-ins new users to actual Revenue? Hey, I'm going to Rich a good to talk to you John Greaves. Do you want to take the first part of that question? I think that's well suited for you.
Absolutely Richard could speak to you. So I think what we're seeing is a lot of folks leaning more heavily to kind of balance their workloads with inside the data center and manage the connectivity portfolio month and that includes both the the physical portion of that where they're leaning more on CTS provide remote and services but also the virtual portion at providing you connectivity options and then moving workloads in the data center. If you actually look at the applications and FTP that are getting the heaviest use Now power is definitely one of them where customers are spending a lot of time analyzing how they can distribute workloads with their environment to maximize the utilization and also the connectivity tools both in terms of IT band with but also in cross-connects and virtual cross-connects internally, we're using SP into new ways as well which are a pretty interesting helping us from an operational efficiency point of view. So things like understanding movement with inside the data center so we can help maintain zones the separate person.
Inside the Datacenter even small things which become very critical of Life understanding which is the biometric devices are being most used and we have real-time visibility to that across the entire platform and Richard, you know, just from my point of view on this right now. We're seeing the acceleration of our business the differentiation of the offering that we have being a substantial driver of that value equation. Could there be a day that we have some form of premium service vs. Standard service it's possible. But right now we feel very comfortable about just the sheer demand and openness as we you know, every 60 to 90 days is John and the team say we upgrade our data center. Right software is constantly being upgraded. So the ability for us to drive that and really be a value equation to our customers is differentiating the ability to outgrow and I think the point John makes about we continue to number
Focused and as we continue to see cost and margin expansion because the efficiencies that platforms giving us. It's just a powerful combination and that's where we're focused on it, but maybe someday and we are seeing that in selling a remote hands in connectivity is John said driving some Revenue even though it's you know, not been material. It's still parts of the business that's continuing to see acceleration because of it.
Great. Thank you. Thank you.
Our next question will come from Eric loop trail with Wells Fargo, please go ahead.
Hi guys. Thanks for squeezing me in I know there's a lot of focus on Ashburn but wondering markets outside of Ashburn where you're seeing increased activity from your hyperscale customers and what your hyperscale box like in some of those other markets. So for instance, you know Phoenix, we understand had a pretty strong start to the year at an industry level or what kind of activity you've seen in Europe and you're relatively new Netherlands facility as wage would be helpful. Thanks. Thanks, Eric. I'm glad you asked it because we are seeing a broad pipeline of opportunity. So it's not just Ashburn Ashburn. It's been a really strong success case and I know why people are focused on and maybe maybe the success case that people will start to talk about Atlanta to downtown Metro is not open yet. It opens this summer and we've booked 16 megawatts of clients into that building already before it's open. So those are existing relationships continued hyperscale off.
Opportunities that continue to grow we've announced those deals at the high end of our nine to eleven percent range partly because of our just advantage on scale and price and cost in that market. So we're we're connecting you to be enthusiastic about the opportunity to get Atlanta open with such a strong opening and we're seeing good diversification and we talked about you know, last quarter with the Hillsborough. Yep. That's exciting. The Netherlands will open late this summer, you know, probably from that standpoint. We just seen consistent and reliable growth and the high beam location facility and we're building pipeline for the hyperscale facility in EM shopping. So we see a good balance across the portfolio. It's nice to have data center of people are interested in having conversations, and we see that across the portfolio.
Our next question will come from John Peterson with Jeffries, please go ahead.
Great. Thanks. So Chad. You mentioned IP bandwidth upgrade requests were up 700% I think from what you said a year ago. If you can give us some context on home, you know, the different regions where that demand is is dispersed and more specifically. I'm curious about Richmond given that the subsequent cable lands. There are you seeing is that is that one of the facility where you're seeing, you know significant bandwidth demand. Thanks John John. I may have you take on some connectivity conversation there and I'll close out.
Yeah, absolutely.
Yeah, it's really across the portfolio John. So we see kind of all of the usual suspect markets are all increasing from a connectivity point of view recently. There's certainly been a very interesting Market with a lot of logos in the money over the last twelve months and both new logos is they benefit in and they transfer more to this digital workplace for right now. We do definitely see connectivity increase in that market as well.
Okay, great. Thank you.
Our next question will come from Sammy battery with Credit Suisse, please go ahead.
Hi, thank you. I have a two-part question. The first question is given the covid-19 Dynamics and just given what you've seen with Enterprise customers and both hyperscale Club. Do you think the likelihood of Outsourcing to really take off take full president over most of these customers predominantly in sourcing I know for hybrid or any issues customers things have already started to move to the Outsourcing model, but for hyperscale, there's a seems to always be about a fifty-fifty, you know split but given the Dynamics we've seen do you see the Outsourcing bucket be gaining traction?
I think it has traction and I think Sammy to your point. It's going to continue to get more traction. So I think both in hybrid and hyperscale just the need for space and power and the right locations is going to be a continuing Trend and I think that enterprises are continuing to unlock the Outsourcing mindset as being a primary focus versus the in swordburst maybe of of yesterday. So I think this event just accelerates it
On it and then one quick follow-up is are there any Industries in the Enterprise side that have now started to move faster to adopt Outsource capacity versus before or have things really been off line with your expectations. Even from back in for q19 all the way up to this point today. You know, what one I think financial services and Healthcare have been something that I would not be surprised to see even further acceleration in the Outsourcing in those two areas.
Got it. Thank you. Thank you.
Our last question will come from Nick filled with lots, please. Go ahead. Hey, thanks for fitting me in you guys have a history of engaging in a variety of unconventional Acquisitions. Are you seeing an increase in the number of opportunities out there whether corporate sale-leaseback sore facility conversions, you know over leopard data center operators looking to get off anything. We should expect on that front.
You know Nick it's we have had infrastructure Richelieu basis assets. That's been a foundational both great for sustainability initiatives that we have. You should be good stewards, but also great for our returns profile and return on invested Capital which is the risk higher return Focus that we have in the business, you know, could you see same opportunities right now? We feel really good about the US footprint. We feel great about the opportunity to start in Europe and the Netherlands, I think right now we can more than double our square footage with just the power we have today and we own some of the most unique ground adjacent to all of our new Mega data centers in the country. So, you know, we've made Investments over the years. We've got a bought a big footprint that can expand and I think the opportunities that we have in the locations we are we don't feel like there's a lot of gaps. So you always kind of stay consistent and looking it's the fabric of creativity.
We haven't built this company on you know.
Of other companies we built this company by going and creating the value with our team in our Capital. So that's going to be an inherent DNA of this company, but we're we off is we'll take calls. But right now we feel very good about the footprint we have and the opportunity expand. It's in front of us.
All right. Thank you Chad. Thank you.
Well, I'm includes our question-and-answer session. I would like to turn the conference back over to Chad Williams for any closing remarks. Well, thank you. And we hope that all of you are healthy and safe a safe. We appreciate the hard work that everyone's doing in this remote work environment. I especially want to thank our cutie answers that continue to provide world-class service to our customers a culture of service and serving others. That is who qts is I want to thank you for that and stay safe. Look forward to talking to you next quarter and thank you for your time today. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.