Q1 2020 Earnings Call

Dead dead dead dead.

Thursday Thursday, good morning, and welcome to the cyrusone. First quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key fob have to today's presentation. There will be an opportunity to ask questions to ask a question. You may press the star then one on your telephone keypad to withdraw your question, please press the star into please note this event is being recorded.

I would not like to turn the conference over to Michael Schaffer vice president of capital markets and investor relations, please go ahead sir. Thank you, Chad. Good morning everyone and welcome to Cyrus wage first quarter 2020 earnings call today. I am joined by test-drove Osceola president and CEO and Diane Moorefield CFO before we begin I would like to remind you that our first quarter earnings release along with the first quarter Financial tables are available on the investor relations section of our website at Cyrus one. I would also like to remind you that comments made on today's truck and some of the responses to your questions deal with forward-looking statements related to cyrusone and are subject to risks and uncertainties factors that may cause our actual results to differ from expectations are detailed in the company filings with the SEC which you may access on the scc's website or on Cyrus one, We undertake no obligation to revise these statements following the date of this conference birth.

Except as required by law.

In addition some of the companies remarks this morning contained non-gaap Financial measures. You can find reconciliations of those measures to the most comparable gaap measures in the earnings release, which is posted on the 8th. Kind of the company's website. I would now like to turn the call over to our president and CEO.

Thanks, Michael and welcome to Cyrus ones first quarter earnings call.

These are unprecedented times and we are experiencing a crisis at know none of us have ever imagined the loss of life is tragic and our thoughts go out to all those around the world who have had the experience the pain of losing a loved one on behalf of cyrusone. I want to thank all of our First Responders Healthcare professionals and many others that are showing tremendous Courage by putting themselves on the brake line. Our number one priority is maintaining the health and safety of our employees customers and suppliers while this is extremely difficult time for everybody when we get through this and we will get through this page will get through this together.

Turning to our results. It's like four shows. We had a strong first-quarter with high growth rates across all our key financial metrics. We had second-highest leasing quarter in the company's history signing off of 44 megawatts, totaling $60 of annualized Gap Revenue. Our backlog stands at nearly ninety million dollars, which is a record record quarter and total loss and positions the company very well for growth in 2020 and Beyond

moving to slide five

In the first quarter, we delivered our First Data Center in Amsterdam and brought additional capacity online in Raleigh-Durham. We have nearly ninety megawatts across the US and Europe in our development Pipeline and upon completion of those projects. Our footprint will be nearly 20% bigger compared to a year ago. We continue to focus on strengthening our balance sheet, which is extremely important in this current environment die will provide additional detail on this during her section.

Moving to slide six five six provides details on the leasing results for the quarter the $60 million annualized Revenue side is more than double the prior forequarter average and the longer coverage lease term of more than eight years reflects the shift of the leasing mix towards the hyperscale customers this segment accounted for 80% of the bookings in the quarter up significantly from a higher forequarter average of 51% with similar proportion of large deals, as you may recall in February, I noted that we've seen a pick-up in leasing discussions across our markets since June of the Year. This was reflected in our leasing results for the quarter and we continue to have productive discussions particularly for larger footprint deals. However, as I also noted in February with the timing of these deals are very difficult to predict

Enterprise is accounted for twelve million dollars in bookings

In Ewing the strong leasing Trend that we've seen in this segment in recent quarters with the demands coming from many markets and verticals. As you know, the Enterprise's business has been a steady Dependable growth driver for us over the years. We believe the relationships that we have built and the reputation that we have with these customers will be particularly important as they evaluate the revolving it infrastructure needs in the new environment. They're familiar with our product know our track record of delivery and and appreciate our level of customer service and responsiveness.

They want the source capacity for partners. They trust with strong balance sheets that can meet their needs across multiple geographies and markets this puts us in a tremendous position to win their future business office turning to slide seven. We have seen significant increase in demand for our interconnection products as a result of the pandemic Revenue grew 18% year-over-year to $13,000 and we had a record bookings quarter with 3.2 million in annualized Revenue signed, which is 12% higher than our previous record quarter.

Been with bookings were up 100% compared to last year. And this was heavily weighted toward March which was when there was a dramatic increase in working from home and other remote it initiatives.

I'll talk more about our covid-19 related implications for our business in a minute. Also, please note that at the bottom of the slide highlights some of our other key portfolio metrics.

Moving to slide eight European business continues to produce outstanding results. And then the first quarter we signed 38 million of annualized Revenue over the last four quarters off Europe is represented 46% of our total bookings and almost all of this demand is from us hyper scalars, which is exactly what we thought would happen when we made the decision to expand overseas as we have said previously we have built up our Enterprise sales force to go after European Enterprises and over time. We anticipate that that segment will supplement the demand from cloud providers. Our current month is more than a hundred megawatts and upon completion of the projects that we have in our development pipeline. Europe will represent 16% of our overall business.

We have sites under control that will allow us to deliver an additional 250 megawatts giving us total perspective European footprint of approximately 400 megawatts.

Turning to slide 9.

As I said in my opening remarks remarks, our number one priority is the health safety and well-being of our employees customers and suppliers.

In response to the crisis, we have implemented our emergency preparedness plans and are continuously monitoring the situation and communicating to all of our stakeholders. We have restricted on site access to our data centers am taking the necessary steps to ensure the safety of required personnel.

You can find additional details on our response and preparedness by visiting the Cyrus Cyrus website and clicking on the covid-19 link at the top of the home page.

As highlighted on flight ten, we are currently seeing limited impact to our business but this situation is fluid and we are closely monitoring developments across our markets in us and Europe data center operations contained in the central activity and all of our data centers are fully operational our supply chain is intact and well-diversified. We dual source with redundancy across suppliers and geographies and wage inventory for long lead-time equipment data center construction is also been deemed in the central activity with the exception of Dublin which has restrictions too early May construction activities are continuing throughout our markets. We may experience minor permitting delays on future development projects in our Pipeline and we continue to monitor those situations. Although the situation remains fluid am currently not seeing any material delays in customer implementations.

The past six to eight weeks of highlighted the importance of communications infrastructure. It's so many different ways.

Whether it's supporting work from home initiatives for thousands of businesses or online learning for $55 million American students or facilitating collaboration platforms such as umm systems or enabling Mass consumption of online products and services data centers have a critical role to play in the new global economy.

There will undoubtedly be vast learnings coming out of this Global pandemic as businesses are evaluating their it requirements and identifying gaps as a result of your current situation. They are thinking not only about the near-term but also their longer-term needs I don't think there's any doubt that there will be major changes in the way the world operates going forward and an underlying theme is life would be an increased Reliance on technology which creates significant demand opportunities for our company and the industry more broadly.

Turning to slide 11 our business is well positioned for the current environment our strategy of targeting Fortune 1000 has results in a very high credit quality customer base with nearly 80% of our rent generated from these companies. This includes nearly fifty percent of the rent coming from cloud customers, which are amongst the strongest credits in the world we have land and she'll inventory across a data center markets in both the US and Europe which allows us to quickly react to meet demand regardless of where it materializes.

We also have had a very strong balance sheet with substantial liquidity and as an investment-grade issuer, we have improved access to Capital as evidenced by the significant new issue activity in the bond market in recent weeks.

In closing I am very proud of the work that the entire cyrusone family has done under these difficult circumstances. We are focused on ensuring that we are there to support our customers needs needs during this challenging time and work working with them to develop solutions for their longer-term requirements. I'm bullish on the prospects for our business and we are in great position to capitalize on the secular demand track that are expected to continue to provide a strong Tailwind for the sector in the years ahead.

I will now turn.

To call over to die will provide more color on our financial performance for the quarter and an update on our guidance for the year.

Thank you guys.

Thanks Cash and good morning. Everyone as Tesh mentioned. Our thoughts are with those that have been most impacted by this crisis. I would like would also like to acknowledge our accounting and financial team for successfully executing our first ever virtual quote as all public companies across the country have done this quarter as well turning decide 13 or financial performance remained strong wage solid year-over-year growth across our key metrics consistent with the trend of the last three quarters turn remained low at 1% And we are maintaining our full-year turn guidance range of five or 7%

While there is still some certain uncertainty regarding potential Financial impacts to some of our customers as a result of the covid-19 pandemic this guidance range represents our best estimate for Thursday at this time as cash discussed. The overall credit quality of our portfolio is very high and we have lower exposure to Industry verticals that are most likely to be significantly affect which I will expand on shortly moving aside 14 and a y increased 8% compared to last year with the decrease in the margin driven by a higher proportion off and pass through meter power reimbursements this quarter the adjusted ebitda margin was up nearly one percentage Point compared to last year driven primarily by increased scale wage. The impact of our earlier cost reduction initiatives at 5:15 shows. We maintain a very well-diversified portfolio with an increased contribution coming from Europe dead.

In the first quarter, we brought online our first Toyota Center in Amsterdam and the initial data Hall is fully leased the percentage least for our stabilized properties remained Thai at 88% off on Friday 11. We highlight the revenue contribution across industry verticals the revenue contribution from the it Cloud sector is nearly fifty percent and again represent. Some of the most highly rated credits in the world regarding higher-risk Industries energy is now only 5% of our revenue and many of our energy customers are Fortune one thousand companies with solid balance sheets this vertical however is one of the higher risk category given the state of the oil sector. We only have roughly 2% exposure to the retail industry and the vast majority of that concentration is which is with large discount and grocery companies, which have fared very well during this pandemic.

Finally, we have little to no exposure to the hospitality and airline industry turning aside 16 our development pipeline consists of construction across eight markets in the US and Europe, totaling 438000 colocation square feet and 88 megawatts. The pipeline is 51% pre-leased on square footage basis, and the estimated cost to complete is in the $486 range or data center portfolio will consist of nearly five million co-location square feet upon completion of these projects. Additionally we have approximately 660000 square feet of powered shell under construction across six markets in the US and Europe.

Santa Clara which is

Not on our development table is currently in the pre-development phase and we expect to have our initial capacity there in 20 21 517 provides an update on our capital structure. And we continue to take steps to further strengthen our balance sheet as we've previously discussed. We closed our inaugural six or eight year old offering in January raising $500 million euro with a seven-year term and a fixed-rate coupon of 1.45% at the end of the quarter. We amended our credit agreement extending extending the maturity dates by two years taking off account the renewal options. We also decrease the interest rate margins on both the revolving credit and term loans the all-in drawn margin on the revolving credit facility based on our current leverage level has decreased by 25 basis points further the margins on the term loans and decreased by 15 to 45 basis points, depending on their maturity date.

Additionally, we have decreased the size of the revolver by three hundred million to one point four billion resulting in savings on the annual facility fee and reflecting are improved access to Capital as a constant great issuer last lastly as we announced the late March. We raised an additional hundred twenty-three million pursuant to a for sale under the ATM. The Ford Equity can be drawn down at same time through March of 2021 as needed to fund our development and manage our leverage. So combined with the ATM for sale in the fourth quarter. We have 222 million + available in available forward Equity our financial position remains strong with leverage at five point four times available liquidity of more than 1.4 billion and a hundred percent unsecured debt off as a result of the Euro offering in the amendment to the credit agreement. We've extended our weighted average remaining debt term to 6.2 years, and we have no debt maturities until November of 2024.

517 shows the estimated commencement timing for our $88 million Revenue backlog, which is mentioned is the highest quarter and total in the company's history. We expect least comments. I am representing annualized Revenue in roughly the 15 to 20 million dollar range in each of the next 3 quarters and lease is totally Thirty one point five million annualized Gabrielle to commence in 2021 and Beyond this includes approximately twenty-six million associated with 22.5 megawatts expected to be deployed and 4.5 megabyte blocks family from mid 2022 to Mid twenty twenty-sixth subject to receiving the necessary permitting as a result, even with the very strong bookings in the quarter and the record backlog meaningful portion of the associated Capital requirement will be deferred be on this year.

Turning to slide 19. We are adjusting our guidance regions given the current environment. We have marginally decreased the high and low end of our revenue and ebit arranging but maintained our capex and I know for sure ranges the decreases in the revenue and adjusted ebitda midpoints reflect the anticipated impact from covid-19 including potential risks associated with receipt of birth payment slight customer commencement delays and a modest impact from changes in FX currency. We also have additional covid-19 related expenses associated with steps. Just taking in our Datacenter operation to address the heightened situation.

with respect to our

Normalized ffo per share Guidance the potential risk to revenue and adjusted ebitda are offset by expected interest expense savings primarily associated with a decreased and the Libor forward curve as a result of the actions taken by the FED in March. We will also benefit from the impact of decreases in our interest rate margins and the credit facility fee associated with the amendment to the credit agreement as I just discussed saved in clothing. We had a strong first-quarter and we are well-positioned to operate in this new environment with our existing Data Center capacity and development pipeline to meet them on going demand drivers arising Out of This Global crisis. We recognize that we are in one of the few industries that is likely benefit benefiting from this terrible crisis. And we do not take that lightly if test stress safety and health is the top priority which we have focused on is we have remained fully operational at the data center level. We came into this crisis with a birth

And liquidity level that can clearly weather the storm while the balance sheet executions were intentional. It also turned out to be very fortunate timing. We appreciate your waiting on our call, and we are now happy to take any questions. Please note that Michael and I are obviously in separate remote location, so it'd be very helpful. If you would direct your questions specifically either one of us as you ask them in addition given the number of questions and the cube. We kindly request that you limit your questions to one question and one follow-up with that. Thank you and operator. Please open the lines question.

Thank you very much at this time. If you would like to ask a question, you may do so by pressing star then one on the telephone key pad. If you were using a speaker phone, please pick up your handset before pressing the seats to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

The first question will come from Frank laughing with Raymond James, please go ahead.

Great. Thank you very much. I guess question for for cash. When you look at the at the what you booked in. The quarter is any of that from some of the hyperscale customers pulling some business forward-looking to secure some space in case they can't find it later. And and what impact do you think that has on on the future periods?

Hey Frank, how are you? Hope you and your family are safe know it wasn't it was kind of you know, as business as usual as usual as you can as you can be given wage. What happened at the end of the quarter or the last five weeks of the quarter for sure, you know, we were coming out of a pretty, you know, pretty muted queue for if you recall I think it was more, uh, you know, taking care of some of that business, um in early in early q1, and then we just were pretty consistent through the quarter with a good a good group of hyper scalars and Enterprises contributing to the quarter.

in terms of the second part of your question pulling forward

No, like I said, I think it was more of the you know, Q4 and just a steady steady rate of business. Um, we we we've had consistently good conversations. I've been alluding to this now law or since December ended. I don't believe a lot of that a lot of that was covid-19 related. It was just I think normal course of business relation, and now there are obviously different types of conversations going on with covid-19 as part of the part of the challenge that all businesses are facing.

All right. Great. Thank you. Just a quick follow-up. I guess word for Diane. Can you give us an idea on what percentage of your revenue and is it might be in rent or other? It's more one time in my life. That might be seeing some weakness given kind of the the business disruption and the usual kind of run rate for that. I and I assume that's part of why the you know, the range of guidance is lowered a little bit. You see a little bit less of that right off, but you can give us a feel for how how that's affecting the the numbers.

Are you asking that question Frank in directly related to the covid-19 situation? Yes. I mean, I'm assuming that there's always some kind of one-time revenues be pretty consistent and it usually has to do with you know, customer installation things like that. Is there anything or you know cancellations or things that or you know the things you may be given credit for that? Maybe your now give a little bit of relief is that a bulb two to 3% kind of a part of a bit of Revenue or or am I off-base just kind of curious what you know, what impact that's having in the current environment as we're thinking about modeling.

Yeah, really? Nothing that impacted the first quarter results, you know given that the sort of the work from home didn't really start till mid-march in in the guide as long as you know, our guidance range is just for revenue and you but we're brought down, you know, basically roughly 1% So that reflects a bit of again both the change in X and the you know, some some cushion for you know, rent relief that's typically associated with covid-19, but it's pretty awful.

Okay, great. Thank you very much.

You're welcome. The next question comes from Simon Flannery with Morgan Stanley, please go ahead.

Good morning. Maybe you could just talk about what what the the kind of reality is on the ground in terms of the competitive environment and your ability to compete for new logos showed customer potential customers around the the the facilities Etc. How much of that is are you able to do remotely versus stuff really getting delayed a little bit on the getting new customers versus expanding with existing customers. Thanks. Hey Simon. Hopefully your family is safe. Thanks for the question. We have you know, listen everyone is learning how to work in the new world and the sales process and the pre-sales process is equally being disrupted through this through this change. The good news is we had all of the uh thing, uh, the base infrastructure in place. So we had virtual tours ready. We had the ability to deliver. We we were using teams. Wow.

Call before covid-19. So there were lots of that infrastructure was on.

Already in place for us to help facilitate, uh, the sales process. Um, unfortunately don't think we actually were talked about new logos in our in our in our dialogue this morning and our comments this morning, but we we had a a really good new logo picked up. We did add a couple of folks that we had not seen that we would consider in that in that that second tier of it Cloud hyper scalar type clients, uh that took space in in our facility. So we were able to see that I think obviously dead. So I mean, I think that you will it will be easier to do business with folks that you've already contracted with that already know your facilities if they're trying to expand that seems that seems to be a trend that we're offering right now, but we did not see our new logo, uh dip off considerably in the first quarter and the conversations and the cute too were still quite healthy.

Right on the competitive environment. This is this has been a competitive industry for quite some time now and you know, I I don't I don't tend to run into the small private guys as much except for maybe one market or two. I can tell you that, you know, my my my public Brethren are extremely aggressive in a Marketplace. They've done a great job of of of managing their their business, um between I, you know, we we met we we probably go against you know, you know the big the guy above me all the time in in the in the in the most of our hyperscale deals. Most of my clients are his clients so they know us really well and it's we've been that's to me that's that's kind of in the environment for the last decade and it's that really hasn't changed much.

Great. Thank you. Thank you. The next question will be from Eric Rasmussen with stifel please go ahead. Yeah, thanks for taking the question and some nice execution. Obviously, we're all in challenging times here, you know, so bookings, you know, we're strong in Europe. Could you maybe comment on on the pipeline and the types of deals that the team is tracking obviously, it seems like hyperscale and large-scale Deals were sent to the mix but any sort of comments there and maybe that's attached.

Yeah, sure. Thanks Eric. Hopefully your family safe.

So Europe, you know our business mix is quite different. It is been a primarily hyperscale Focus business in that market when we acquired it, you know, it had a a fewer number of logos over the last 18 months of of operating it we've added some new logos in that market but it's still, you know, primarily a hyperscale place business what we have seen in a market is that the the request and this when I mentioned last February that the conversations were were bigger. Um, they're also getting bigger in Europe. So in Europe, you know, probably our history both Legacy and with us operating and a biggest

deal was

You know, it's between 2 and 1/2 and 5 and 1/2 megawatt type of footprints. We have now seen conversations that are five and half and greater. So I think that we're we're seeing the footprints get larger and this is you know, related to many factors, you know, pretty covid-19. I think everyone got their head around there delivery in in the market they got them around and and they got a strategy around gdpr and how they're going to handle transactions and they've got they've got their head around the technology and how to continue to expand in the marketplace. So so as they're maturing, um, the footprint sizes are getting bigger in Europe and so we did the beneficiary of that.

Great. Thanks. So maybe just sort of the hyperscale theme here and again for you to Nova seems to be recovering and we're even hearing of improved demand. How are you seeing? You know this Market in your opportunities and and and then maybe with that. Can you just comment on on other markets where you seen an improvement versus what you thought maybe just 90 days ago. Thanks, Uh, thanks very, um, just to on a follow-up to I think it was Simon's question. We we did have 11 new logos and glitter so that was a it was a healthy healthy number of the low-wage in in that in that in the quarter, um in relays. Yes, we definitely seen a pick up in in Northern Virginia or parts of the other part of the world, uh, Dallas Phoenix of all started seeing increased activity in the pipeline. And so I think that we'll we'll start seeing some of that. Hopefully come through the birth.

Through over the course of the year. We have over a hundred megawatts of cup of available potential capacity in in Northern Virginia between what we have remaining in our controller project and we've got to other campuses that we can deliver capacity. So we think we're well-positioned as the demand keeps coming up and if it wraps up to to where it is and and where we think it can get to will be will be well positioned for it. But yes, we we are seeing a pickup in demand in a pickup or request for Northern, Virginia.

Thank you.

The next question comes from Eric Chou with Wells Fargo, please go ahead.

Hi, thanks for taking the question. This one will probably be for cash. So just to follow up on that question. I'm wondering if you've seen any shift from the US based hyper scalars particularly in the US on you know, self build your own data centers or you seen them increasingly come back to the multi-tenant market to help manage, you know, some of the demand spikes and their network if you see any Trends there, that would be great things.

Thanks Eric. It's been you know, they are the most demanding customers on the planet. They have definitely changed planetary buying their their their Capital requirements and their demand requirements across the globe continue to increase and you know money's not the issue for those clients. They've got more money than most of the banks. It's who can deliver and where they can deliver and so it's really a question of you know, as they continue to think about their planning and in this goes from the tire industry are we well positioned to help them in in a in a in a in a area or Market where the the curb quickly moved for them to demand curve quickly talk to them and they and they will come to us. They have very experienced teams internally. They definitely continue to build in some markets that they have the they have the benefit at the time and the planning wage.

All of us continue to be the beneficiaries of of the increased demand. I think I think

This is the first week that all of the five of them Facebook Apple Google Microsoft all reported in the first same week in in like seven years or some some number like that. So we're seeing all those numbers moving up into the right which means that it's you know, even the best forecast can probably be challenged by that and I think that we we and and all of the country benefit from that from the growth great. Thanks passion just a follow-up to that. I wanted to hone in if you've seen any pick up and demand in the federal sector particularly with Microsoft and the new jet pack contract. If you see any movement there particularly in the northern Virginia Market, thanks. Yeah. I think that's part of what that picked up has been people have asked us about our new our land and and the total capacity on that land and like I said, we've got over a hundred megawatts of capacity. So I believe that as they're starting to get their planning up dead.

Created for not only Jedi but other projects and and remember the federal government, um has installations all over the country. It's not isolated to the northern Virginia area many of the markets will see a benefit from from that from increased government activity, but we have we've seen we have seen a pick-up in the Norfolk Virginia area about land and but it's also we've also been asked about specific government projects in in Texas in in Illinois and other markets.

Great. Thank you. Thank you.

The next question will be from Richard Cho with JPMorgan, please go ahead. I have one for you one for day and starting off with Tash. Can you give us a little bit more color on the back of the deal came through I mean 22.5 megawatts over. You know, the long time frame is this you know, how are you comfortable with a client and vice versa? And is this one location or is this multiple markets and then I have about 4.

Sure. So it's it's a client that we do a lot of business with we're very happy with the credit and we're extremely it's been a a project that's been in the works for over a year-and-a-half and you know what we love about it is obviously, you know the size and the credit and but uh, you know, it's also the other thing we like about it is that it's it's it's a project that we have to deliver over a course of the next three to four years and there's an opportunity to accelerate it or but you know, generally speaking the plan is to deliver it over, you know, three or four years wage means you get to you know have a really specific amount of capital that you you roll out every year. It's not a unpredictable amount and that's what we really loved about it and Thursday. It's you know, we don't comment on specifics around where we're deals are our customers don't like when we do that. So we try to keep that a little quiet if you don't mind got it and then for Diane, yep.

Of the margin the margin was pretty good in the first quarter, but the guide is kind of implying kind of tougher kind of rest of the year anything.

Is that just being conservative?

In terms of are you referring to Ether Mark? I'm sorry. Yeah. Yeah. Yeah adjusted ebitda. Margin. Yeah. I mean, I I think we even said at the beginning of the year that it would be relatively in line with where we ended nineteen part of that is again due to probably more money this year than my act and and that obviously is a zero margin business. But yeah, we should it is an we anticipate over time it will continue to increase but relatively flat year-over-year this year.

Hey, thank you.

And the next question will come from Dell deal with Moffat Nathan, please go ahead.

Hi, this is Michael ciron for Nick. Thanks for taking the question number of your peers are starting to rely more heavily on the channel to land deals. You can store if we been reluctant not go that route. Is there been any change in your thinking on that front door? You still dedicated to driving the vast majority of your sales through your term in Salesforce.

Maybe hey Michael, welcome to the call and hope your family safe. And please give our best to Nick. It's not often reluctant to do anything. We've had a fiber channel program. It just contributed on a percentage basis not as significant as our direct, uh-uh direct sales force did and both are in our relationship with both the cloud and Enterprise customers. Um it is when you when you have a robust Channel program, it is probably the most expensive sale because I have another another party and and possibly two parties to participate in the transaction in terms of commissions and fees. So and and it's part of our secret sauce is the relationships we develop with these Enterprises and it's been the the foundational element of how we've grown over the past two decades. It's the ability to do the complex deal with with the dog.

Large which a large Enterprises and then repeat that process in another location for them. So and we don't you know life. It's okay to have in the we use Brokers and agents and advisors in in many transactions put on a percentage basis that probably not as big and and because our customers both enjoy that relationship with us directly. We don't want to dilute their experience by adding more more more mouths to feed and more hands to to grab on Thursday. So that's probably we still we still work with a lot of folks and it just never been a big big percentage.

Got it. Thanks.

Our next question is from Colby synesael with Colin, please go ahead.

Hi, this is Michael on for Colby touch. I hope you and your family are staying healthy and safe in these crazy time two quick questions for you. If I may give them the strength in the quarter. Can you give us an update on how you're funneling change quarter-over-quarter and what percentage of your current funnel comes from Europe? And also are you seeing more opportunities similar to that 22.5 megawatt deal where the customers are leasing capacity today, which will be delivered in powder Years. Thank you.

So the mix of the funnel has been pretty consistent though, the the hyper scalars like I said earlier and and we've seen this trend now for about three to four months off has been that the that the hyperscale is are thinking about larger deployments than they were through most of the second half of 18 and and most of all of nineteen so that that life has changed the names have changed a little bit as well. Like I said, we've got a we had a couple of couple of the new logos in that 11 below goes were what I would call that next ten years of hyperscale to type or Cloud type companies and cloud-computing type deployment. So we're so we're definitely seeing that Europe is definitely be strong for us. Like like we reported, you know, forty six percent of the bookings over the past, you know, five to six quarters has been from Europe and and that Trend we don't see subsiding Thursday.

Time in in the near future a lot of our lot of our existing clients. Like we said in the opening comments and remarks, uh, we're looking for us to move into the Europe market. And so, you know, we we obliged them and and we've gotten we've gotten the reward of that I said roughly, you know about overall funnels probably, you know, thirty percent of our overall funnel wage is is your based, um, and that shift, you know, like like we said, we we announced that we were moving into Europe late in life and 17 and then it finally closed in late eighteen and so it's been a long journey for us to get there and and even with even with the rapid expansion, um that we've seen first client in Amsterdam getting these buildings completed and getting megawatts least. Um, it's still only sixteen percent of the business, by the way.

Next year, so we we got a lot of work to do. Um, and we're we're very very committed to that to that work and we need to just stay focused on on the markets that we're working on and and a customers that want us to build for them.

And then on the on the larger opportunities like the 22.5 megawatt deal. Yeah, we've had a history of building Cloud centers for our clients for about four years. Now. We we've done you know from Northern Virginia to Arizona to to you know, we hope that the market will continue to get larger in Europe. We can see that the type of growth in in the European markets as well. It's just it's more difficult to get um that type of Campus environment and and that kind of power in in Europe as you know, it's an extremely constrained and tight market and many of the markets that we operate in especially like London and Frankfurt. So um, but yes, we've we're very we're very happy to see that the wage what we call the cloud Center product, uh, you know, deployments of over over 20 megawatts and above are coming back into Vogue. I think we we definitely miss those in 2019.

Perfect. Thank you.

Thank you. Be safe.

The next question comes from Ari Klein with BMO, please go ahead.

Thanks recognizing. It's still very early how how conversations change with Enterprise customers in this environment? And to what extent do you expect some of them to accelerate some of those Investments and maybe if you could comment on which sectors you would expect to kind of lead the way there?

Right. Hey re how are you and hope your your family safe? I think it's it's listening. You've got we've got a bunch of data that's going to log in to into us over the next two to three weeks as all these companies are reporting, you know, because we deal with the fortune five hundred and Fortune one thousand, you know, primarily they're larger companies, they're public and so we're going to see a lot of it the things that you would you would expect or probably going to be true right hospitality. And these folks are going to be challenged and the ones that are really thinking about how their Disaster Recovery is working and what they need are are the ones that you know are focused on so think about financial services. I mean one of the you know, I I live in the New York City area and four years everyone thought you you you couldn't you had to set up a trading desk somewhere else in order to trade and and what we're realizing that people have actually been able to do that, you know from from home or from another type of low-wage.

and so I think all of these learnings are to come out over the next like I said in my comments going to be vast learnings about this and I do believe that when when you look at myself off our our industry as a whole are our our our our competitors, we all had very high levels of availability were able to keep our facilities up we're able to make sure the people felt safe we were able to make sure that we screened appropriately and those are all the things that when you think about what you're going to do in the future,

It's going to be beneficial for folks who have to keep systems up.

We were always we and I say this for us in in in the industry more broadly. We're always operating in we have to be prepared when the lights go out we have to stay on.

It just so happened. We never thought it was going to be all at once and and it happened and we all responded very very appropriately. I've been speaking to my peers. And other thing I would comment on is the collaboration that we have seen through all of the all the operations professionals the CEOs. I've spoken to my peers text messages ex-boss understanding, you know, what we did in best practices come across different markets. We had the benefit of no, uh of having a very close relationship with GDs understanding that they had this this pandemic at Ground Zero if you will early on they were sharing with us how they were able to maintain all of their operational excellence with no cases back to confirm cases in their data centers. We took some of those best practices operated them in to put them into into Cyrus ones operation and then when we when we talked to our partners at home

For others. We said it's it's in the

Best interest of all of us to make sure that our vendors suppliers and everyone remain healthy because obviously we share multiple providers. We don't want anyone to get sick and close down my site one else's site. And so this was it was it was there are there have been some some perversely speaking. They've been some benefits that have come out of this pandemic found the operational excellence of our industry is one of the things that I look look upon proudly.

Thanks, and and then Diane obviously you don't have a lot of exposure to chat receptors. But if you can maybe you just comment the provide some color on rent Collections and repo release request, you know, and what you said and that standpoint.

Yeah, I mean, I think March was generally in line with our historical April, you know, we're we're getting to the end of April today, but it was tracking a bit long but not alarming and we think some of it just might be slow pay in this environment cuz people are working outside the office or even your payables group is, you know remote in any company as as ours. So again, you know, we're we're incredibly fortunate that we just don't have a lot of exposure to the industries that are going to get the most hit by this pandemic and and by the shutdown of you know, businesses and travel and whatnot again, so we think any exposure on the margin has been reflected on our faith in our guidance ranges that we provided today. Thanks for the color. Sure.

The next question is from David Guarino with Green Street advisors is go ahead.

Hey guys, I think this is probably pritesh. I know this isn't the best measure to use but you know, if we look at a revenue per megawatt from the leases you guys signed in Europe this quarter. It's trending well below that history where the companies kind of price deals and I know Europe typically comes with lower development returns, but could you maybe just talk about how pricing has changed in that market since you entered it a few years ago.

Yeah, I'm not I'm not sure. I'm not sure how you got that. But our we're actually seeing in in in that market price a lot of price stability. Like I said all of my public peers that I deal with on a regular basis in Europe have been very consistent and very disciplined around how how we were price deals in markets like Frankfurt. We actually increased pricing for for certain deals over the past twelve months. Um, so I'm not I'm not sure how that how how you got to that number of be more than happy to take it offline and and make sure that we understand what you're looking at.

But the we've seen we've seen we've seen a lot of stability in pricing. Like I said the folks that I probably compete against on a regular basis that we compete against on a regular basis been extinguished Upland around pricing around renewals around how we're a deploying capital and that that to me is the maturity that our our industry is has come under and especially the public the public company my public company peers.

That's helpful in there.

Maybe just one quick follow-up on Europe. Um, can you just remind us how annual contractual ram pumps work for the hyperscale deals on that market? Are they fixed or they CPI link?

It can be both they've had you know, they do a lot of PPI indexing cap and collars around CPI indexing or just flat-out rental. There's there's different rules and different markets around how indexing is can be viewed. And so you just got to work with those rules, but generally speaking it's a blend of both.

Great. Thanks. Thank you.

My next question is from John Atkin with RBC, please go ahead.

Thanks very much, both of mine and protest and then I think we'll have some follow-ups for Diane off line. But where do things stand with the CEO Search terms of processing online. Um, and then the second question would would be around just you know, without meaning customers. Can you give us a sense of the the the major geographies Metro's within the US and Europe where you where you saw the biggest Gleason volume this past quarter. Sure, excuse me. So yeah, the the CEO search it's in the it's been going on and progressing as as the board of outlined to me and I just using um using the you know, the the

A standard timeline of it's it's got to take a couple of quarters. And if I use historical averages of both of my my bigger peers, I think it was six seven months respectively. So, uh, I you know, I think I've been told that the board is uh, and then my conversation is the board that they're progressing nicely they feel comfortable with the timeline. And so, you know, I mean, I think you know somewhere later in the year, they will be ready to announce something they have to do their process and they're doing it properly and our our board is, you know, very experienced and and the time like this it's really nice to have you know, someone like a Bill Sullivan who, you know live through the the 2008 crisis and and prologis or you know, Todd Nielson and you know, understanding technology so off the board has been a great partner for us through this whole process and understanding how to deal with these types of unprecedented times. Just getting their experience and dead.

And their value in conversations has been unbelievable in terms of markets. I think I think we talked about him all they did pretty pretty pretty well diverse, you know, we only operate in for in Europe. So we've seen good interest in demand on in all of those. Um, obviously, uh, anything coming out of we had wage. I think it was five or six megawatts total in London last year and and so any activity in London kind of an approach post-brexit world is is really a month is really, you know, nice for us nice to see because that was that was a little soft last year in in the US. I think we already talked about Northern Virginia has picked up, but we had a good activity. Excuse me.

Good activity in Arizona.

Productivity in Dallas good activity in in Raleigh-Durham and and and also the New York City New Jersey assets have been had some good in fact bookings and good activity in them as well. So we're very pleased with kind of where we are. And where our footprint is relative to the Enterprises and the cloud customers and where they're dead. It's coming from thank you and and maybe just to squeeze in one for for Diane or oil change, but you can kick Diane in The Shins if you want to answer it, but you know you had for about 5 million of your backlog shifted from late twentieth and twenty Twenty-One. And I guess I'm just kind of wondering any any general Trends call out on decision cycles for wholesale deal is it is a customer specific or the season cycle getting longer or shorter? What what would be the general observation?

Are you referring to the backlog shift the backlog shift? Exactly? Yes. Yeah, that wouldn't be yeah, that'd be less about decision-making that would just be more wage, you know the construction cycle and and when we give it back, you know, the backlog estimated timing every quarter that we provide that their best, you know estimate at that point, but it's it's not unusual for something. That's what they from the end of the quarter to early the next quarter. But yeah, no no major trends that we're concerned with but I'm not surprising given what's going on but you know some of the construction of the or customer implementation is just a slight shift.

Thank you. You're welcome. The next question is from Michael Frank with Bank of America Merrill Lynch, please go ahead. Yeah, thank you for calling the same questions. Maybe they began a couple of protest if I could so, you know, thank you for the color on on Europe, you know, and obviously very strong demand in that region of the que have 250 megawatt wage current and under development capacity. But you know thinking about the future demand Trends. How are you thinking about incremental development in Europe to to match that with demand object with a balancing act right trying to have capacity in Time versus free developing. How are you thinking about that? Because yeah, we we we we think about it often took a weekly basis. We are sitting there looking at it looking at our markets and how we should think about future capacity. The the thing for us has been that we've a game.

At a really good project development and site selection team that have been so good at going out finding a plot of land getting the power and seeing if we can get it zoned in permitted appropriately and it's even more difficult in Europe than it is in the US and in this covid-19 environment, you know, you show up at some some markets and there's no one in the city hall or town planning area to take a phone call to even ask but we still been working diligently on it. So, you know the key for us is to be you know to have really purposeful growth really understand when we go into a market then we have good demand that we have a client in tow and and go and de-risk that development at all costs money in that to me is really what I'm focused on is making sure that when we were talking to our customers getting ahead of what they want us to do and then going into a market that we know that we can log.

that acquisition

And acquisition with either a pre-lease or a uh, or a or a a signed lease, you know prior to development.

And one more one more for you to ask if I can please sure Ali Baba now. It's about $28 billion spending over three years and Cloud infrastructure including data centers. I think part of the rationale for investing in GDs was you know, obviously that hopefully tap, you know tap that market, you know previously, you know Cyrus One commented on, you know, demand coming out of town. So maybe just update us there and you know your expectation or opportunity to you know, some of that some of that spending from Alibaba

Sure, well.

Yeah, let me pause for a second because what a what a difference three years makes when we started that relationship with GDs and it was a tremendous investment back from you know, our chief strategy officer Jonathan schildkraut Led Led the the thought on that and it's proved to be unbelievably valuable for us because three thousand years ago. We had very little if not zero exposure to any of the Chinese, uh, Chinese Cloud companies and um, once we were able to get introduced to them, then the cyrusone magic happens where we get to, you know, develop relationships talk to about or delivery our construction of development expertise, and we were able to develop those and we probably had over over 20 megawatts. I'll probably close to 30 megawatts come in to come into Cyrus over the three years.

And we've now got relationships with all those folks. So that's the that's the good news over that same period of time we've been able to develop all those relationships, you know, fortunately those relationships are gained now and and we can rely on them and they've they've done business and transaction with us. Unfortunately. The environment is shifted quite a bit. Um, it's going to be difficult to say what happens, um, you know in the in the last 24 months, there's been a trade trade war with China and and now the political the geopolitical ramifications of what's just happened. There's lots of speculation on what that means. So we're very pleased with the relationships we have with with the folks that you know, some of those folks that you mentioned in in your open in your question, but we're going to be very cautious and understanding what what what happens going forward with all of these relationships because I think the the political environment is definitely going to be shifting.

Yeah, thank you. Thank you so much one more could quickly what kind of running along here. But but if I could ask you one question on the guidance, I know you mentioned the some conservatives them in the guide and I get that, you know, totally right environment for conservative them. I think you mentioned, you know, obviously kind of rent, you know commencement timing, you know, it looks there. It feels even to me that month, you know Leasing and one Cube may have been even stronger than you expected you would report for maybe I'm wrong. But you know die if you could just maybe Bridge us here in break out some of the peace parts off so we can take a lot more of a normalized guidance. So if these other conservatism factors weren't in there, you know, how does guidance look?

Well, look we don't we don't do like a pro forma kind of stuff.

Okay, this is what it's what we feel is appropriate at the at this point. And even though yeah, we had a amazing bookings course again, roughly 35% is twenty-twenty and Beyond when Roderick starts and even the Rev, you know any Red Rock that we really have beginning say in the fourth quarter isn't much impact to this quarter. So we're thrilled with the tremendous booking but it's you know much of it is really a bigger impact to 20 21.

Yeah, Michael. I just say it's early in the year. It's April and this is such a fluid situation coming forward. We're we're happy with q1, but we've got a lot of year left to to walk to work through and

and that's

understood, but I really appreciate the time. Hope to see you all soon in person and hope you're all well, Michael. Take care.

The next question comes from Jordan Sadler with KeyBank, please. Go ahead.

Hey guys. Good morning. Thank you for taking the question. This is Katie on for Jordan, and I hope you all are well and staying safe. I have two questions. Once you've kind of talked about on gas stations of hyperscale. He's and you know, you talked about the pipeline. Have you seen the momentum? You guys saw in 1 Q carry over into two Q. We now have just about like a month under a belt into two Q off that involves brushing for Diane after. Thank you.

Yeah, we'll we'll definitely talk about future earnings call. But so far. Like I said the conversations have been really positive since wage and you know middle of December of nineteen. So and we've just seen that that those conversations continue to stay positive in spite of the office environment of of covid-19 said all the tools were already in place. So the virtual tours and the ability to to do meetings with teams and all that stuff. So I I feel I feel like I should wear in in good position. Um, and you know, we've always said that the there's a there's a lumpiness to our business and you know, if you can if you can do you know, if you can do one one Cloud Center deal or in in a in a year, that's a really good a really good really good thing if it really good result dead.

And and and we got off to a really good start in q1, but there's a lot of year left to still play. And and so we're just want to make sure that we're keep both hands on the wheel and both eyes on the road.

Awesome. Thank you so much for that. And then Diane just a quick question for you in terms of like one Q expenses. Did you recognize any bad debt in the quarter?

It was a it was pretty normal to our historical.

Okay.

That's it. Thank you guys so much second question. I hope you all stay safe. Thank you. You too.

Thank you. See the next question will come from Nate cross it with berenberg, please go ahead.

Hey, good morning. I guess this one's for cash just to follow up on the pricing question after earlier. I know you touched on Europe. But what is the pricing back like in the US specifically Nova say today versus six months ago.

Yeah, that's like we said I think there's been a lot of consistency and stability amongst most of my public peers. And and I you know, we took it on a fairly regular basis almost three-quarters to 80% of the the deals. It's it's it's head-to-head with you know.

With the with the the guys figure than me, and so we're we're very we're we feel comfortable with where we're priced. We feel comfortable with continuing to find incremental cost Savings in our construction and and delivery times. These are all important to how customers view view us and then it just, you know one market indicator. If you look at our life big quarter, which was kind of you three of 18 our average price. I think the price on that was $105 and this year it was like one this quarter was like 150 so you can actually see that, you know on a relative basis there was you know, not only a lot of stability, you know, some of that was product mix because we didn't do any operations in Europe at that point. You're still you're seeing that that that stability and that's almost that's almost a two-year look back if you if you look at that. So I think that that gives you really good sense of kind of how the market is stabilized in terms of pricing.

Okay, that sounds fun. And just one quick one for a Diane on the lease expiration for 20 20 20 21 would should we kind of be penciling in in terms of renewal spread?

You know we deal with that in our churn guidance. We don't report a same-store per se but our churn captures not only non renewable, but any rate decreases and it's typically roughly 50% of churn is just non-renewals and about 50% is rated just sent off again. We stress that even in rate adjustments often times because we don't offset it. It could be that a customer took more space than power. So on the margin we give them a little more kick out of the brakes or they do an additional lease and another Datacenter. So there's typically a story to that but we don't we have never offset. We just report, you know, the most conservative way regarding term.

Okay. Thank you.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to test for any closing remarks.

Thanks everyone and thanks for joining our first quarter earnings call. I know this has been a very difficult time for everyone out there. I just wish all of you know, families your employees all health and safety. And I know that this is you know, we're going to come out of this and we're going to come out of this together. But what I've said in a recently is that you know, there's some things that are pretty, you know, this covid-19 is pretty infectious. But the one thing that's even more infectious than that is the human spirit and what we are doing as as an industry wage and as a as a Humanity, I'm extremely proud of so have a good day.

And thank you. The conference has now concluded. Thank you for attending today's presentation. You may not disconnect.

Dead dead dead.