Q1 2020 Earnings Call
Okay.
Okay.
Okay.
[music].
Good afternoon, and welcome to the Equinix first quarter earnings conference call all lines will be able to listen only until we open for questions.
So today's conference is being recorded.
Anyone have any objections. Please disconnect at this time.
I'd now like to turn the call over to Katrina Rymill Vice President of relations. Thank you.
Good afternoon, and welcome to todays conference call before we get started I'd like to remind everyone that some of the statements will be making today are forward looking in nature and involve risks and uncertainties. Actual results may vary significantly from the statements may be affected by the risks we identified in todays press release and those identified in our filings with the FCC.
Include your most recent form 10-K filed on February 21st 2020.
Like Onex 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 Fair disclosure is iconix his policy not to comment on its financial guidance during the quarter unless it is done to an explicit public disclosure. In addition, we'll provide non-GAAP measures on today's conference call.
We provide a reconciliation of those measures the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release, Equinix IR page at Www Dot Equinix Dot com.
We've made available and I are page of our website presentation designed to accompany this discussion along with certain supplemental financial information and other data.
I'd also like to remind you that wrecos important information Equinix, an IR piece from time to time and encourage you to check or website regularly but the most current available information.
With us today, our Charles Myers, Equinix, as CEO, and President and she Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions so from sell side analysts.
Any interest the wrapping this called an hour we'd like to ask these analysts to limit any follow on questions or just one.
This time I'll turn the call over to Charles.
Thanks.
Good afternoon, and welcome to our first quarter earnings call before we get into results for the quarter I want to take a moment to acknowledge the unprecedented times in our world and share our approach to this continuously evolving situation.
First and foremost our hearts go out all those things have been impacted by cold 19.
We extend our gratitude to all the Bottomline workers, who are helping keep us safe and healthy as we navigate this together.
From the beginning we've approached the situation with a consistent set of priorities protecting the health and safety of our employer employees customers and partners, ensuring the availability and continuity of our services that underpin the operation of the digital economy and stepping up to do our part to mitigate the impact of this crisis on people and communities around the world.
Very early on we activated our business continuity plans with the goal of ensuring seamless operations. During this crisis I'm incredibly proud of our teams across the company and move by the care kindness encouraged there demonstrating each day and service to each other to our customers into our community.
As in many other credit situation through the years, the dedication and professionalism of our operations team has been unwavering, particularly as they were forced to adapt our policies and procedures to rapidly changing conditions.
Safety first while ensuring responsiveness to the needs of our customers. Thanks to our global teams our facilities have remained safe available and fully operational and our customer satisfaction scores are at an all time high.
As is often the case times a crisis reveal fundamental insights about an organization and cobot 19 is no exception.
First we have seen remarkable resilience of our people and.
Then a tremendous strength of our culture, we talk every day about the magic about clinics, a reference to our culture that my some light or a femoral to many well when a global pandemic puts and every aspect of the business and your life into flux you quickly realize that 10000 people committed to value like we did for me and find a better way is truly are forced to be reckon.
With.
Second we're seeing a magnification of the role that excellence plays not only for our customers, but in the basic operation of our society. The massive work from home experiment in which we find ourselves as Korean despite some near term demand from a variety of customers much of which we believe will sustain even as we calibrate on a new normal and perhaps most importantly unique.
Characteristics of this particular prices have increased the resolve we see some customers relative to their focus on digital transformation as a long term priorities and I've highlighted the relevance of that clinics in supporting these efforts, but this crisis has also created a level of distraction and friction in the overall economy. It reinforces the importance of real time.
And on demand scalability provided by services like TCX fabric and that will catch.
And highlights the need for us to continue our efforts to deliver an even more digitally enabled experience for our customers.
And finally times like these where we must stay focused on long term value creation and maintain the level of commercial discipline been service, so well for the past decade.
We continue to make prudent decisions in the face our current realities, maintaining the priorities I outlined and ensuring that our balance sheet will sustain us through a wide range of scenarios.
These explicit decisions along with some limited purchase and installation delays have led us to modestly widen our full year guidance, but we continue to see strong underlying performance of the business with particular vibrancy in our market, leading interconnection franchise, which is rapidly approaching a billion dollar run rate business.
Our funnel remains healthy with a line of sight to a strong Q2, and we're reaffirming our AFFO guide at the midpoint for the year on a constant currency basis.
We are delighted that the athletes business will continue to be resilient through times of uncertainty, enabling us to step up for our employees are customers and our communities. While there are undoubtedly many challenges and much uncertainty still in front of us I've never been more optimistic about the future back when it's in the magnitude of the opportunity ahead.
Now, let me turn to the quarter and the details of our results.
We had a great start to the are delivering strong Q1 bookings underpinned by a diverse customer demand and robust interconnection growth.
Looking spans more than 3000 customers from cross border bookings up substantially year over year.
Processed over 4000 deals in the quarter as our retail go to market engine continues to scale in response to our expanding market opportunity.
Turning to our results as depicted on slide three revenues for the first quarter $1.4 billion up 7% year over year, adjusted EBITDA was up 5% year over year and AFFO was meaningfully ahead of our expectations.
Interconnection revenues grew 15% year over year steadily rising the last few quarters and a strong reflection of demand across our portfolio there fashion products supporting variety of customer needs and use cases.
These growth rates are all on a normalized and constant currency basis.
Our interconnection portfolio reflects a unique products that is driving quantifiable customer value. We now have over 370000, interconnections and deliver our 13th consecutive quarter of adding more interconnections than the rest of the top 10 competitors combined.
In Q1, we add an incremental 6800 interconnections fueled by video streaming and conferencing services offset by a slight increase in network grooming after Q4 pause.
The Internet exchange traffic grew 44% year over year in over 20% quarter over quarter, a significant jump driven by work from home traffic spikes.
Customers are scaling into previously provision hundred good growth capacity in ordering new capacity as we head into Q2 and easier fabric continues to be a bright spot with a strong growth in volume and ARPU as higher bandwidth and intermetro connections become a larger share of total.
In March we closed our acquisition of bare metal leader packet accelerating our ability to deliver physical infrastructure software speed.
Enabling both service providers and enterprises to quickly and seamlessly to play hybrid and multi cloud architectures.
Our metals rapidly emerging category additional infrastructure that enables businesses to deploy workloads on secure single tenant hardware distributed geographically to support high levels of application performance and integrate fully with their choice of software in management platforms across a range of vendors.
Deploying bare metal in the service on platform Equinix allows companies to accelerate time to market and reduced capex, while enabling new use cases that are required or public cloud and private infrastructure.
This is a strategic part of our vision to evolve platform Equinix interconnecting and integrating global businesses at the digital edge. We're excited to welcome the pack a team on board and are pleased to report that we expect to packwood acquisition to be roughly breakeven in 2020 from a dilution prospectus.
In April we also announced their next milestone in our Hyperscale strategy launching a new axiall JV in Japan with GE I see following the success of our initial exco JV with GE I see in Europe.
Our exco approach as a critical element in our strategy amplifying our already the balance sheet and allowing us to deliver superior returns on invested capital while strengthening clicks his leadership position in the cloud ecosystem.
And leveraging our substantial existing presence and go to market strength in major markets around the world.
Now, let me cover highlights from our verticals our network vertical achieved its third highest bookings driven by strong network reseller activity as well meaningful capacity upgrades to support increased bandwidth for work from home employees expansions, including Hurricane electric a leading global internet backbone utilizing <unk> fabric across 33 locations.
To allow enterprise customers real time access to their IP transit offering as well as reseller goal data, a leading Americans telecom provider deploying edge nodes in advance of the cable landing station to improved connectivity with Latin America.
Our financial services vertical continue to diversify led by a pack and capital market wins. This sector saw healthy new logo ads with meaningful growth in fortune 500, and global 2000 customers.
New wins and expansions included a fortune 500 financial services from re Architecting their network and securely accessing ecosystem partners in a top five global currency exchange tapping into our dense financial services ecosystem across eight locations.
Our content digital media vertical saw solid bookings with strength in video and social media expansions included zoo, extending coverage and scale to support the explosive market demand as well it ticked up a top 10, social media platform deploying edge nodes to support coverage and scale of its content delivery platform to good examples of co wouldn't.
Ladies demand on thoughts on economics.
Our cloud and IP vertical also saw strong booking led by <unk> and a significant increase in east yet favour participants.
Expansions included a fortune 500 security and networking company deploying infrastructure to support new product offering worldwide and Leon Japanese I asked an MSP, just pulling infrastructure to support customer experience and ecosystem access.
Our enterprise vertical saw healthy bookings, despite coven related friction in the back half a quarter, reflecting broad strength, including government healthcare and education.
We continue to focus on helping firms re architect their infrastructure to solve for the challenges of speed scale in securities, while enabling the move to next generation digital platforms, new wins, including free <unk> U.S. health care platform deploying regional infrastructure to deliver an enhanced customer experience as well as the Brazilian education institution.
The point is for digital transformation and improved performance.
Our channel program accounted for approximately 30% of bookings and we continue to see great productivity from this go to market better we processed over 2000 channel deals this quarter, our highest ever with wins across a wide range of industry segments with projects focused on digital transformation efforts as well as cold 19 response.
New channel wins this quarter included a notable wins with horizon for a premier U.S. retailer transitioning from on premise datacenters to a hybrid multi cloud solution to enhance elasticity in performance and a joint win with British Telecom for a fortune 150, biopharma from deploying and multi region when solution optimized for speech.
Need and agility.
Now, let me turn all the color call over to keep to cover the results for the quarter.
Thank you Charles and good afternoon, everyone from burning in California.
The next yet again delivered another very solid quarterly performance.
Our success stems from the strength of our teams who come to work day in day to meet the needs of our customers and so many others, including you our shareholders.
We started 2020, well positioned to create significant value for the year and beyond and write down to the team delivered as or go to market engine, yet again produced a solid set of diversified bookings in the quarter.
Who is our second best Q1 bookings quarter in our history.
So as we sit here today, we firmly believe our platforms not just relevant but even more essential and so will we know quickly shifts to digital only accelerated by the opportunities and the challenges created by Coogan 19.
Our axtel impacted acquisitions, which both closed in Q1 are tracking well against our early expectations.
Also after the quarter end, we entered into our second Hyperscale JV for the Japan market, which we expect to close in Q3 and already looking at our third another joint ventures for the rest of Asia and elsewhere.
Let me continue to look for other platform and hedging acquisitions, both targeted and opportunistic.
Our into region activity remains strong a reflection that we're selling well across our global platform.
We continue to enjoy net positive pricing actions, resulting in gray from MMR per cabinet on a currency neutral basis.
And lastly, after funding the two acquisitions this quarter, we have about $1.2 billion of unrestricted cash in our balance sheet and pro forma for our new 364 days facility, we have an incremental two and a half billion of liquidity to support our global growth and expansion initiatives.
We have an active construction pipeline with 32 major projects currently underway across 22, naturals and 14 countries.
We made a few minor adjustments to our ready for service states in certain markets. While we continue to work closely with our suppliers and partners to deliver the capacity as close to the target dates as possible with limited impact on our guidance for the year.
Well, we expect another year of acted builds and are maintaining our full year capital expansion guidance.
As we've said before we believe the diversity of our business across verticals sectors marketing customers puts doesn't puts us in a highly favorable position to capitalize on industry trends, but also whether the macro shifts and increased volatility.
Specifically, our curtain revenue exposure to the travel energy in retail industries is less than 3%.
Also I want to it or to reiterate importance, we placed on our employees our customers in our communities.
Let me provide you two examples.
We play certain restrictions on access to ride the access to protect book, our employees and our customers.
I was a result in certain circumstances were providing free smart hands professional services to be affected customers for a period of time.
This has a direct impact on or short term revenues, but is the right thing to do.
This adjustment as being reflected in our current financial guidance.
Also our greater than 2500, IDXX employees received a onetime cash bonus to help them address personal needs given the shelter in place requirements in their communities. While all other employees were provided the stipend to help supports our work from home requirements.
As a result for the first quarter to covert 19 impact to revenues and adjusted EBITDA was 3 million $14 million respectively.
On a constant currency basis, an option the cold and 19 adjustments both revenues and other just an adjusted EBITDA were above the top end of our guidance range.
And the AFFO and AFFO per share were above our expectations.
Now let me cover the quarterly highlights you will that all growth rates and this section or on a normalized and constant currency basis.
Hi depicted on slide four global Q1 revenues were 1.44 or 5 billion up 7% over the same quarter last year or 69 consecutive quarter of revenue growth.
Q1 revenues net of Ryan. Thanks Ages included up $15 million negative FX impact due to weaker operating currencies with particular impact on the euro British pound of the Brazilian real we compare to our prior guidance rates.
Global Q1, adjusted EBITDA was 684 million up 2% compared to prior quarter and 5% over the same quarter last year, mainly due to strong revenue flow through some price increases and deal mix.
Hi, just typical we had about $18 million of higher seasonal cost in Q1, primarily attributed to the FICA reset and our annual sales conference.
The Q1, adjusted EBITDA performance, none of our FX hedges included that negative 7 billion dollar FX impact when compared to our prior guidance rates.
Global Q1, it's a vote was 535 million above our expectations on a constant currency basis due to strong operating performance a lower than planned interest expense and income taxes.
Strong operating performance is expected to offset financial impacts related to cope with 19 and as such as Charles noted we are reaffirming our answer for any AFFO per share guidance and midpoint on a constant currency basis.
Turning to our regional highlights whose full results are covered on slides five through seven.
I'm in a pack with the fastest MMR growing regions on a normalized year over year basis, a 12, a 9% respectively, followed by the Americas region at 4%.
The Americas region saw its best ever Q1 price adjusted gross or pack bookings with a high number of small deals in healthy pricing.
Also as expected the Americas region continue to export substantial activity to the other two regions highlighting the value of our global platform and the strength of the Americas selling engine.
Bookings included wins with mission critical digital infrastructure networks and work from home service providers.
We continue to expect the Americas revenue growth rate to trend upwards to 5% or graders.
Progress through 2020.
Our EMEA region saw growth across is 22 metals and limited impact from covert 19.
The man was weighted towards our four largest markets being Amsterdam, Frankfurt, London, and pairs with channel activity driving solid bookings into our smaller markets as well.
Yeah cabinets billing reduced over the prior quarter due to timing of Kevin installations in both Q4 last year, which was very strong and the late installations in Q1, this year, which we expect to be realized in Q2.
Do you have pricing remained very firm.
In Asia Pacific region saw solid bookings with a record in Hong Kong and a significant uptick in Shanghai demand was strong across all verticals with increased need for bandwidth across many organizations given the extended work from home mandates.
And now looking at the capital structure, please refer to slide eight.
As it relates to our liquidity position, we ended the quarter with 1.2 billion of unrestricted cash on the balance sheet within an additional $1.7 billion of unused capacity from our revolving line of credits.
Our net debt leverage ratio was 3.9 times, a Q1 annualized adjusted EBITDA up slightly due to the cashew chicken Pete the acquisitions in the quarter.
Also we remain steadfastly committed to driving long term shareholder value and we will continue to fund the business from the healthy operating cash flows generated by the business. While also accessing both the debt and equity capital markets as appropriate.
Also note that achieving investment grade are investment grade ratings last year has proven to be a highly strategic an important milestone for equities.
Despite the recent volatility than debt markets, we continue to review opportunities to refinance or existing debt traunches on a net present value positive basis.
And today that would not be possible without being investment grade rated.
We do expect to refinance a portion of our outstanding debt over the next 12 months and no. There's currently no benefit attributed to our debt refinancings in the current assets sold or AFFO per share guidance.
Turning to slide nine for the quarter capital expenditures were approximately 400 million, including seasonally low recurring capex of 18 million.
We opened two new expansions in the quarter, including a new IBX in Warsaw.
I mean as two new expansion projects, one in Frankfurt and the other in Singapore two of our strongest global markets.
We continue to expand or ownership acquiring land for development, both science and Australia.
Also we recently purchased our so Paulo one IBX.
Revenue from owned assets remained at 55%, but we expect this percent GE to rise by the end of the year.
Our capital investments delivered strong returns as shown on slide 10.
Now 148 stabilized assets increase recurring revenues by 5% year over year on a constant currency basis.
Also consistent with prior years during Q1, we completed the annual refreshed over IB eggs categorization exercise I stayed like I said count increased by net 12 Ibxs.
These stabilized assets are collectively 84% utilize in January that 29% cash on cash return on the gross PPD investors.
Please refer to slides 11 to 15 for our summary of 2020 guidance and bridges to note. Our 2020 guidance includes the financial results from both the actual and packet acquisitions.
Starting with revenues, we expect to deliberate 7% to 9% growth rate for 2020 reflection of the continued momentum in the business and includes a negative FX impact of $105 million never FX hedges compared to our prior guidance.
Also we expect revenues attributed to the pack that acquisition for the 10 month period of our ownership to range between $30 million to $40 million.
An m. our churn as expects to remain in our targeted range of to turn who NAV per cent per quarter for the year.
We expect 2020, adjusted EBITDA margins of approximately 48% excluding integration costs. The results of strong operating leverage in the business offset in part by the expected higher utilities and property tax expense and a meaningful investment in our go to market and product organizations, we expect to incurred $20 million of integration costs in 2020.
10 million to integrate packet and the remaining 10 million to finalize integration of our various other acquisitions.
20, 20-F, AFFO is expected to grow between 11, and 16% compared to previous year for 2020, we expect to AFFO per share to grow between eight and 12% excluding capital market activities.
Including capital market activities, we expect to AFFO per share to be greater than 8% consistent with our long term me AFFO per share growth objective as discussed at our June 2018 analysts. Thanks.
So let me stop here and turn the call back to Charles.
Thanks Keith.
Despite the challenges from covert Equinix business is performing well and we remain focused on the clear set of priorities, we laid out at the beginning of the year.
Testing in our people evolving our platform in service portfolio to meet the changing needs of customers expanding our go to market engine to fuel long term growth and simplifying our business to drive operating leverage and enhance our customers experience.
As we continue to navigate and uncertain environment, we will remain diligent flexible discipline and prepared across the company from how we set up our IBX technician shifts to enhance safety to increasing balance sheet liquidity investing in new service development and hiring top talent to expand our selling into all closely tracking our financial went up.
Operating metrics to ensure a profitable growth and maintain a keen focus on an AFFO per share as a light house metric for the business as we have in prior American dislocations, we will manage the business prudently, but a long term orientation and a clear objective to extend our market leadership as our customers continue to make clear the breadth of our.
Polio, the reach and scale of our platform the depth of our balance sheet and critically the passion and resilience of our people will not only enable accidents to weather the storm, but will position us to execute aggressively on the other side of this unprecedented crisis and capture the massive opportunity that lies ahead.
Let me stop there and open it up questions.
Yes. Good question. Please press star one clearly the questionnaire name for question introduction.
First question will come from still Q sat with JP Morgan Your line is open.
Bill Please check anything your line is open.
Hi, This is Richard for Phil I'm, just want to get a better sense of the bookings through the quarter was a pretty steady or did it start to fall off at the end and what have you seen more recently and then a quick follow up on pockets.
Hi, Richard Yeah, I think yeah, we saw it would definitely saw it was it quite a normal quarter I think for the first couple of months and then as we as sort of the Cobots situation became a bit more acute I think there was uncertainty that created some levels of friction although again, we had a really strong.
Quarter across the board.
Generally, but there was I think some buying friction in the system, but I would say we entered Q2 with a really healthy pipeline and has actually straws saw strong early conversion to that pipeline in the quarter.
And I think right now we're seeing the early signs of a bit more returned to normal emetic. We're also seeing is our selling team you know really becoming more accustomed to driving sales cycles.
In in this in this setting and so overall, we continue to feel good about that bookings productivity the sales in.
And then with packet really quickly.
He has a pretty wide range, but I guess looking beyond this year should we expect more steady growth or can we see a bit more of a hockey stick as it I'm kind of skills, though.
That's a great question I I do think that we can accelerate growth in that business. We its obviously, it's a relatively small business now I think there's a meaningful opportunity associated with this kind of bare metal private infrastructure immediately proximate to the public cloud and by the way I think it really fits well.
With kind of what people are seeing how they're responding to covert in terms of their desire to be able to deploy infrastructure in a more a in a more frictionless way and so.
We think as we add enterprise feature set as we extend.
Our partnerships with the software.
Players and platforms like being where red hat et cetera that people have really invested significantly in that it's going to be a real tools for us as people deployed hybrid multi cloud architecture. So I think that we'll have to we'll have to reset when we give you a more a longer term guide in talks about that but.
I do think theres, an opportunity for us to expand gross to net.
Offering.
Right. Thank you.
Your next question will come from Jonathan.
Tim from RBC capital.
Capital markets. Your line is now open.
Thanks, very much so two questions one kind of high level any any impacts in Europe that you're seeing from the merger involving interaction and then the second one for either Keith or Charles.
We're kind of now beginning of May and where we're having settled out.
Now that we're kind of into coated.
On pricing I took away from keeps coming so pricing is actually pretty healthy, but where are we kind of settling out in terms of the run rate around Cabot ads and job in cross connect ads. Thank you.
Sure.
Remember the first one John I'm sorry.
Hi, Europe in any any impacts you notice from the the most are evolving interaction any opportunities.
Yeah, I think you know we ever haven't really seen a meaningful change in the competitive environment in Europe in high demand continues to be strong I think are a universal we're seeing healthy pipeline in healthy bookings as well as strong pricing in the European Theater I'm sorry.
Haven't really seen a meaningful change we will continue to monitor that and determined that that's if there's any change to that and then you know relative to their broader sort of co that in terms of how its settling out in cabinet adds in pricing et cetera.
I'll, let Keith out here as he as he wishes, but yes, as we said in the in the script I think from pricing.
Kicked in Europe, we're continuing to navigate sort of adjustments in our interconnection pricing very effectively I mean, I think that's given us some nice lift from a price adjusted gross booking standpoint I.
I think cabinet ads at you saw a Europe was a particular oddity caused by basically you know something happens every now and then which is a pull forward from cabinets into Q4 from Q1 in a push out from time for cabinets out of Q1 into Q2, and so I do think you're going to see us we saw.
I was very strong Q4, and I think we're going to see a strong Q2.
But obviously, we saw a weaker Q1, but I I don't think Thats, a reflection demand I just think thats one of the things. We've always encouraged you to look at sort of rolling four quarter averages on cabinet ads I think cabinet ads are going to be slightly lower on particularly in Europe, maybe because as we.
Continue to adjust our mix because if you look far enough back you saw a quarters, where there were really large cabinet adds in there associated with Hyperscale type deals, we would really prefer obviously to direct that business to the ex scale jvs.
And keep our capacity in our capital applied to the very high return retail.
Business and so I think that will impact cabinet adds to some degree, but that's fully contemplated in kind of how we're guiding in the business and we think it's going to again have favorable impact on other core operating metrics.
Keith anything there but.
Charles I just.
Further in church in your comments I'd make a comment there we saw normally strong pricing in Europe, we sought across the platform, which is important John as we as we think about our business we talked about the fact that net.
Net positive pricing actions again, it's not just Europe. It again this across the platform and it gives us confidence that we're continuing to see a currency neutral basis. Clearly there was some currency impact to the metrics, which we share an earnings deck, but overall, we're delighted with what were what we're doing in your part part of what Charles also.
Moving to and we talked about it pack and some of other service offerings.
It is our view that it will continue to add value on a per cabinet basis, I think there's going to be higher attach rate I think interconnection is going to continue to be strong and all of that sort of lens managed to more positive pricing environment for equities.
Yes, John just one more better color that kind of bridges between your question a Richards prior question.
What we're finding from the booking standpoint in overall selling productivity is a bit of kind of puts and takes.
There has been as I said, there was some friction associated with sort of I think the near term.
Towards the end of Q1, we're getting back to where people are adjusting and then we're seeing some relief on that but interestingly in perhaps counterintuitively, we're seeing greater access to decision makers decision makers are are kind of having a you know maybe having a different different schedule phenomenon and we seem to be having gray.
Eight or access to decision makers and seeing a greater resolve on their part to make commitments to move forward aggressively with their digital transformation needs now I think it may mean, some delays in some cases just out of you know again, depending on the sector and depending on how acute or other issues might be.
So if anything we're seeing a greater level of resolve in terms of how they're thinking about digital transformation. So it's a it's a bit of bits a bit of puts and takes but again I think we're we're off to a strong start in Q2 and feeling good about pipeline.
If I can squeeze what it for Keith just on the variability in maintenance Capex. It was quite significant and you talked a little bit about about that what kind of makes up that bucket and what's the.
I guess, what with the surprises around that that the and then you know leaves you did Q.
What would the normalized levels that you kind of weakness towards if you maybe review what what makes that up and what's the various sources available availability of going forward. Thanks for you that she'd slightly less this quarter them than we anticipated.
Roughly 1.2% if I go to the same quarter last year was 1.5% of revenues I mean, certainly as a as we're all aware during the latter part of the.
The quarter things started to slow down a little bit. We also were putting our ibxs into more restricted fashion no surprise as things took route in different parts of.
Different parts of the world, but all that said when you when you look at our overall guidance, we're still looking out somewhere around other than 50 260 million of capital go into recurring and only a portion of that of course is maintenance roughly 2% of our of our recurring capex as maintenance and so you'll see go back to more traditional level.
Q2, that's reflected in the guidance and then for the for the year, you'll see it roughly a little bit lower than we saw last year, but roughly inline with what our expectations would be on a go forward basis.
Thanks.
Our next question will come from frankly, any with Raymond James Your line is now open.
Great. Thank you in two questions one any the recent strength coming from business do you think might be being pulled forward as customers are kinda grabbing some space it could impact.
Could impact the back half and then what do you think conversion rate will be on virtual crossconnects as as a as you've been doing well with those.
As folks are signing those up and then turn converting them into more permanent facilities. Thanks.
The.
Frank I'm, sorry, if I got his first lots first one again these doubled questions a kilometer that [laughter] yeah. Just in any any recent strength that you're seeing do you think any that's coming from business. It might be pulled forward from say the back half that can cut maybe calls a headwind in a in her yeah.
Yeah, I'm, sorry, Yeah, I don't I don't think so I think that.
I think we're seeing that as a response I think the question of whether or not the demands that are the demand that is creating that will be sustained over time, I think thats a reasonable question.
And but I think for the most part people are generally they design their networks. So it's a certain amount of headroom where that is on their overall delivery systems with a certain amount of headroom that work from home phenomenon, obviously chewed up a lot of that headroom and people had to scramble to add capacity I think we were incredibly responsive in helping people do that but I don't think.
No and I think there's some chance that the head room increases as we moderate more towards a new normal.
But I don't think it's going to I don't think I have a huge impact because then it was more of a burst that we saw their offset to some degree by other factors and I think we're just kind of kind of normalize hopefully more so in the back half again, barring any kind of second wave or any other strains dynamic so and I don't think capacity situation I think most markets were very.
Good shape and not not worried about parting ways with that capacity in terms of creating a downs or constraints in the back half.
And as for interconnection again, it really feel good about the way the business is trending we were more towards the low end of what we're guiding in terms of total count, but we had a very strong gross adds quarter on the strongest in several years and but we also had some elevated churn associated with some network grooming, both intend to 100 migrations and some consolidation activity.
In terms of people, who are undergoing acquisitions and consolidating networks associated with that but the virtual cross connects and we think people what limping, we talked about in the script is ARPU going up and that's a real reflection of people buying ports and then provisioning cross connects and driving traffic on them in way.
Is that are increasing the ARPU on a per connection basis, and so we're actually seeing that.
Right in line, if not better than than our physical cross connects and so we're really really pleased with that with the overall trajectory here on the sex fabric.
Alright, great. Thank you very much.
Good afternoon.
Our next question will come from Michael Rollins.
Citi. Your line is now open.
Hi, all Hello.
Two questions I'll break it up into two parts first one.
He is just thinking about the disclosure that your channel I think you said was 30% of bookings this quarter.
I'm curious if that.
What's driving that strength.
The enterprise interest and adoption are there other things that are driving that up.
And what kind of visibility you get into.
The pipeline that the channel is looking at versus your own salesforce.
Sure because that is that was that it did or did you have another one.
I should ask for clarification also when you described is you're going to 60 million dollar revenue impact from Kogut 19 earlier in the conversation I think you've mentioned smart hand fee waivers in was curious if that ranges only waivers for smart hand services.
Are there some other things that were just anticipated in that guidance impact range.
Sure.
I'll take that I'll take the first one and then keep can comment on the second one and I'll add as appropriate so channel yeah.
I'm very excited about the momentum we haven't channel and I would say, it's largely attributable to the enterprise market like we.
I think that's where we're really seeing the effectiveness of our channel partners in terms of reaching enterprises, with whom they have longstanding relationships existing contractual vehicles et cetera, and and then and then also with some of our channel partners, where we're combining our value with theirs to create a full customer solution and by the way the hyperscalers fall into that category as well.
Well as they have now seeing a very clear.
Sort of signal of the demand for hybrid cloud.
If they're seeing a sales cycle being restrained by the need to satisfy the private and private portion of the hybrid cloud requirements. Then there are there, they're coming to us, bringing us and allowing us to help them get that resolved so that they can.
Really satisfy the public cloud demand and so we see a and we see it across a range of channel partners and also across a range of verticals, but really combining our value without of our partners to solving customer needs and in terms of sorry, but definitely very very very slanted towards the enterprise.
And then in terms of visibility what I would tell you is that today, we are primarily what I would prefer to as a cell with channel.
So we are still in you know in the relatively earlier phases of channel maturity.
We're not yet at a point, where generally people are selling on selling the equinix value proposition on their own they're typically engaged with the client.
Customer they engage our sales team we sell jointly we comp our direct rep as well as the channel partner a little bit of costs in there, but really quite modest when you consider it relative to the total customer lifetime value and.
And so we are getting really good visibility and of course, they have to register deals to get paid so we get really good visibility to the overall funnel on the channel side.
So Keith I'll, let you handle that sort of the discussion on the revenue guide.
Sure. So second question Mike.
The zero 50, a that Charles commented in his prepared remarks views of either revenues, there's really a rough real section that there's a lot a lot going on with global pandemic and.
I mean, some uncertainty those created having said that we had a really strong Q1, Charles alluded to the fact that we have a very very healthy pipeline and we haven't had a great start so Q2.
So we recognize that all that said is when we think about the scenario planning, which we I assume many others are doing what are the potential implications on the business and of course with thought about different things could there be an extension of the book to Bill cycle could there be could there be a weakening of the pipeline again.
We haven't seen that yet but these are examples enhance as you look forward and understanding what are the overall overall implications of the call the 19 pandemic.
We size that have zero to 50 million now having said that first quarter. We've absorbed threemillion already that 3 million 2 million of it relates to smart hands that we basically in certain cases with customers will offer a free smart and services because of the restrictions of were placed on or Ibxs and then there was a small sales.
I was that we put in place as we look forward, we're going to continue to offer those on a selective basis to certain customers smart hands and therefore on a go forward basis that will continue for some period until we have better clarity on.
If you will our business and the rest of the businesses around the world will open back up.
And then other things that we've thought about or what are the implications on customers on whether we need to me.
Concessions as it relates to invoices that have already been generated.
To write downs to companies that go out of business and were reflected all of that enhance when you look at the revenue guidance page that we delivered in earnings deck, you have a pretty good chance of what.
The scenarios are that we that we could plan for here.
Having said all of that we're going to run the business to deliver again, sorry, AFFO target at the midpoint to midpoint or better and so.
That's sort of gives you a sense of what we're anticipating but right now the most concrete thing I can tell you is that right selected opportunities. So say select cases, where we're delivering smart hands for free to our customers to certain customers.
Yeah, Mike I mean, obviously just.
It is more than that that that range is impacted by more than just as smart hands as Keith indicated and was just argue that given uncertainty about the depth and duration of exactly what we will see here and it was prudent for us to give a consider those other items like book to bill in some modest level of concessions and and try to size.
Those and say what could that impact be.
During the course of the year and lets a adjust accordingly, but again, we're feeling good about the early start to Q2 feeling good about that can discussions, we're having with customers, which are quite limited relative to concessions et cetera, and and so we're we're feeling good about where we're headed.
Thank you very much.
Your next question will come from Simon Flannery from Morgan Stanley. Your line is open.
Thank you very much good evening I Wonder if you could update us a little bit on the exco progress how how are things going with the initial JV nice to see the <unk>. The latest signing here and then just continuing on the on the previous theme you had trying to two for you reiterated the two to 2.5 range do you think you're likely to remain at the upper end.
Over the next couple of quarters or.
Whether it will stop more the onetime items say recording asking might go back down to where you feel the last couple of quarters. Thank you.
Sure.
So exco is going well I think there's theres lots of demand. It said, it's a complex business in terms of both the construction side of the business and all that comes with building large scale projects like that as well as the sort of demand side of the business in dealing with very you know certainly large an important and strategically critical but also very demanding costs.
Covers.
But the I think that they've always demonstrated a strong appetite for us to be.
Satisfying a portion of their large footprint demand and so we're we're very engaged with them and in seeing strong pipeline not only for the projects that we already have underway or built out but for new markets as well and so you know very healthy and vigorous dialogue with that with customers and.
As I've always said were Wasnt are we are planning to be really chase after market share at all costs in Hyperscale. Our view is you know work to generate work to when that market demand that we think is critical to cloud ecosystem positioning and and we think are we feel like we're being very successful in those kind of.
Our stations and then obviously, we're very excited about the Japanese JV, we think it's a terrific market. We think we're well positioned we think that supply is going to be somewhat scarce and difficult and we think and therefore, we've had a lot of interest in a in the capacity that we're projecting to bring to market. So so really feel good about that and.
Again, as Keith indicated we're underway with additional JV conversations in other parts around the world as well already.
Relative to churn again, we did have some some churn of that impacted the EMEA cabinet ads and and brought us a little bit towards the higher end of the range.
But I think two two and a half is we're just couple of comfortable in that range and and we of course are doing everything we can to manage that towards the bottom end, but I would just reiterate we're comfortable with that was that range.
Okay. Thanks.
[music].
Your next question will come from find somebody ammo capital market. Your line is now open.
Thanks, Chuck you mentioned.
Section and enterprise, how challenging it to add new logos in the current environment and what are you doing.
There to kind of help with that and then some of that you mentioned network grooming impacting cross connect net net ads with any of that related coded or is it on related.
Sure.
Yeah, we we did see we actually had a good quarter on new logos and we tried to unpack that in terms of.
Is that in the first two thirds of the quarter or what do we see in the back half and there was it was lighter and I would say you know our bookings from new customers was slightly less than it has but not in a meaningful particularly material way.
I do think gets harder we're finding that you know, we're having to learn a new set of skills around being able to get a an account over the line fully without the physical interaction.
But I think we're already seeing that take take root.
And we've already actually applied given that our cuts or our sales teams a number of new tools to be more effective in that setting and so I think if there is that because it but obviously there is some level of friction I think we just need to be cognizant of that and that's that's why when we talked about the bottom end of widening the bottom end of the ranges little bit it really reflects.
Some of that and our hope is that we are we return to some form of normal sooner rather than later.
But even even without that we feel like the sales team can be fairly productive, but there is some level of friction in new logo capture undoubtedly.
And then relative to network grooming.
It is no. We did we did not see it as covered related it was associated with.
Some additional tend to 100 kind of migrations.
And and then also associated with some network consolidation associated with prior acquisitions and so so we saw a little bit of and it's not atypical you usually see a slowdown in Q4 because of this sort of network.
Quiet periods, and then you see some of that activity.
Sort of take place in Q1, so not not particularly surprising to us and as I said I do think that we're we're probably at a point now where.
A lot of the the initial bump as tend to 100.
Kind of went through some of the largest players, but there's going to be a continuation of that as because this is limited it becomes economic for somebody to upgrade electronics.
Based on their route analysis, there clearly going to do that so there's going to be a little bit of that in there, but we feel really comfortable with that sort of 79000.
Third quarter guide and the gross adds are particularly encouraging.
Okay. Thank you.
You bet.
Your next question will come from Colby Info with Cowen. Your line is now open.
Great. Thank you.
To follow up topics one as it relates to question think Jonathan I can get asked.
When you think about your bookings.
For the full year and the new environment that we're in versus what you may have thought they are going to be.
Entering your comment on January Onest do you think with all the puts and takes that you would expect bookings can be down the same or off.
Today versus what you would have thought on January 1st for the full year 2020, and then secondly, as it relates to Rob's question on the 50 million and young the disclosure as you mentioned, we'll know hands, but given the number that wasn't the actual.
First quarter that thing is 2 million in versus taking now it seems like it's obviously a lot more than that.
Fair that am I correct that you just really trying to be conservative you can give yourself kind of a plug if you will for what could be happening, but it's not necessarily.
Something that you're seeing right now and airport actually could potentially be a source of upside.
As we go through the course of the year and then lastly on just a housekeeping question. You guys are supposed to have year to year analyst day coming up in June in New York City, just curious what the expectations there. Thank you.
Great.
Let me comment on the on the first at the first one for sure I'll give you a little bit on the second one maybe Keith can add in and then last cat to maybe jump in and talk about the.
Status on analyst day, but.
Turns of bookings as say you know if we looked at it and said what's our area is our expectation now that is gonna be the same better or worse then.
Then what we would then we what we thought be coming into the beginning of the year, obviously I think by virtue of the fact that we've we've widened the bottom end of range and therefore, the slightly lowered the midpoint on our revenue guide I think we're indicating that there will be risk balance towards the downside.
In terms of bookings and revenue, but that that risk is actually fairly modest.
And and so I think that would be the way I would characterize it again were very strong Q2 strong Q1 bookings strong Q2 pipeline.
Where we see signs of sort of friction and some of the factors that were impacting us sort of at the peak of coded beginning to.
Moderates and so our hope would be that we are you know, we'll see that will that risk will dissipate, but I think thats. That's an accurate characterization is that is since we widened the bottom end, we would see a little bit more downside risk from what we had originally planned.
But I also think there's there's opportunities for us to continue to close those gaps during the course, the or what's kind of brings me to the second question, which is is that all at one reiterating it isn't all smart hands.
It's a portion of that if you know each as Keith said, a couple of million during the quarter, but obviously it was a relatively short stub period.
You should that occur throughout Q2 or three.
Q3, and four we would see obviously.
More than that which would be.
Contribute to a meaningful portion of that 50, but then there's other things in terms of potential book to Bill delays.
Concessions in sales reserves et cetera that might also impact that and so.
I think it was it was our best judgment about how to reflect what we thought the risks were.
My opening up the bottom end slightly and leaving the top end in that if things mitigate quickly we get back to a more normal environment that and in the business can can you continues to perform well even in this environment that we think we can close those gaps. So that's kind of what I would say I keep that enough you have anything to add on that second topic.
Well said well said Charles Thanks.
And any color you can then.
On analyst day on as you can appreciate given all that's going on we will be moving our analyst day back we've absolutely.
Investors are there New York, we typically has a very large events, but given Toby we will have to push back in the meantime, Kip and I are going to be increasing the amount of reach.
Virtually but were aimed at increasing amount of conferences the times and engagement.
Looking forward to having.
And with our Investor base.
Yes. Thank you.
Our next question will come from Jordan Saddler with Keybanc. Your line is now open.
Yes.
Thank you wanted to.
A follow up on a couple other questions of topics that have.
Oh, I discussed first regarding concessions and or collections looking into April.
Either with regard to the 50 million or otherwise.
Yeah.
Seeing or had any requests from some of your customers.
Can you quantify either number of requests or percent of.
And reflected by those requests to date and then separately is touching back on the on the book to Bill.
What can you quantify maybe any delays that you've seen as a result of Cove. It was a result, lockdowns related to call that directly as it relates to.
The book to Bill and then.
Coming back to the churn specifically in EMEA.
What was that attributable to specifically if you could add a little bit more color and then on the timing in the quarter that'd be helpful. Thank you.
Sure.
That's a lot, but I wrote it down this time and everything so I can remember it.
[laughter].
Well, maybe you can start with the first pieces there on concessions in collections et cetera sure Jordan.
As you can appreciate I'm still pretty early in the process.
You know as as we refer to it was really the latter half of of the quarters, where we start to feel the more.
Larger impact to the pandemic.
Having said all of that our Q1, when we reported out our dsos actually improved, particularly in Europe, and particularly for those that extended terms and so our dsos dropped a wonderful day to 42 days. So it gives you a sensors our collections continue to be very strong you'll see entertain Q that we report.
That are actually our Q, even though revenues went up our accounts receivable went down quarter over quarter.
So it gives you a sands really that right now we don't see as it seems as an issue as we look into April still don't see there's an issue.
And.
The other with closed April, but we have a pretty good idea and have a coming in in April and as Charles and I have both alluded to we feel pretty good about.
The first month of the new quarter.
It relates to concessions absolutely there are customers out there that have asked for concessions.
But you remember our top top 50 customers represent 40% of our business and you know who are top customers are and so we'll be far into the tail typically that customers will be asking for some type of concession.
To be honest I don't have the visibility.
Given that it just hasn't had an amount just anything significant at that point in to this point in time.
Well, we are assuming that there won't be customers, who will who will eventually asked for concessions or who already have asked for concessions.
Just like you are hearing out in the and the other in the marketplace from a from our peers another like industries.
So why don't I start there, let me pass of that back to you Charles just on them.
Yes, yes.
Yeah, and then maybe on the on that you actually had asked for a little maybe more specifics on the book to Bill We do see occasionally is some people, saying Hey, we were we were scheduled to.
Implement this things and begin billing on this commencement date, obviously, we're not comfortable having our teams out there to finish that deployment, we'd like to push that out a bit.
And so I think there is some of that again fairly limited.
In the Grand scheme of things, but but I think those are the types of things that we think we are and we do see some of those and were accommodating those requests because we think thats. That's the right thing to do given the situations, but theres a relatively small number those.
And then relative to the churn and EMEA on there was some large footprint churn I think it's pretty it would be pretty typical indicative, though that as I said in our in my prepared comments you know maintaining our commercial discipline. Continuing these were really large larger footprint deals.
Lower yielding returns on capital.
And the kind of things were where you do continue to see people re architect.
Towards different different solutions and so.
Nothing, particularly surprising there, but a couple that hit in the quarter and caused both the reduction in or an increase in churn and a reduction in cabinet adds but of course, so cabinets go right back into the Hopper.
And we intend to resell them at a significantly higher price point and margin profile, given what is a really favorable trend on mix of business in EMEA.
Thank you.
Yep.
Your last question will come from Eric Ramazan from sizable your line is now open.
Yes. Thank you very much I'll keep it a brief then just a on the JV announcement.
For your ex skill base that builds in Japan.
Can you just comment on how you see this changes your opportunities across the region and your market position and with that who do you see is your biggest competitor is in the region and then just a follow up there would be I know you've been focused on international markets, but at what point do you see the U.S., becoming more interesting base.
Yeah, I mean, we feel really good I would say that the you know the.
Look we view your minutes ourselves very much of the global platform and so continuing to extend the string our strength in key markets around the world and being able to meet a more comprehensive set of our customers' needs across a variety of solution requirements, including the very large footprint.
Just we think increases our overall global position, obviously in market in Japan, and we think the as I said I think given what we see as potential supply constraints in that market and what others customers are seeing his extensive supply constraints, we feel really good about our ability to generate utilization and bookings and therefore.
Strong returns from or print, Japan, JV, but it is part of moments that are bigger picture. We have the we have an incredible business and apacs on being able to serves customers in the primary sort of APEC markets that they're looking to.
Deploy in is a key part of our strategy.
And we were excited about the overall trajectory there and then in terms of US looking more interesting again I think its continues to be a very highly competitive market with some markets. Unlike in Ashburn for example at the large footprint end of the spectrum being I think in a in an imbalance of supply.
And demand situation, which is highly pressuring prices et cetera.
We are field feel very fortunate that we maintain a very different franchise in ashburn and have seen tremendous health and strong price durability in or ashburn, because in our business in ashburn.
But I think our appetite in the U.S. will be more more limited for sure. Although I do think that we'd look at a campus like.
Dallas.
Having the potential to add large footprint capacity and immediate proximity to the imports that is a very unique proposition that we would sort of resonate with so.
We're going to be we're going be very selective there just because we think theres other better opportunities for us around the world.
Okay. Thank you.
That concludes our Q1 call. Thank you for joining us.