Q2 2020 Equinix Inc Earnings Call
Good afternoon, and welcome to the Atlantic Second quarter earnings Conference call all lines will be able to listen only until we open up for questions.
Today's conference is being recorded if anyone has any objections. Please disconnect at this time.
I'd now like to turn over the called to Katrina Rymill, Vice President of Investor Relations you may begin.
Good afternoon, and welcome to todays conference call before we get started I'd like to remind everyone that some of the students will be making today are forward looking nature and involve risks and uncertainties.
Actual results may vary significantly from the statement and maybe identified by the rich we identified in today's press release.
Those identified in our filings with the FCC, including our most recent form 10-K filed in February 21st 2020, entering Q filed on May seven 2020.
Excellent.
Obligation and does not intend to update or common afford making statements made on this call. In addition in light of regulation Fair disclosure is economic policy not to comment on financial gains during the quarter I'd love to do something next with the public disclosure.
In addition, he'll provide nongaap measures on today's conference call. We provide a reconciliation of these measures to the most directly comparable GAAP measures.
For the reasons why the competing uses these measures in today's press release on Equinix IR page at Www Dot com.
We've made available and I are repeatable website presentation to accompany this discussion along with certain supplemental financial information and other data.
I'd like to remind you the repos important information about Equinix IR page from time to time and encourage you to check or what's it regularly with the most current available information.
With us today are <unk> Myers, Nexus, CEO, and President and key Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions from sell side analysts.
The interests of wrapping this kolpin hours, we'd like to assay sealant women any phone questions to Joe's one.
At this time I'll turn the call over to Charles.
Thank you Dream good afternoon, welcome to our second quarter earnings call.
As you all key navigate various health economic and social changes occurring in our world. Our key priorities remain clear focusing on health safety wellbeing of our colleagues customers and community and enabling our customers to respond effectively to the increased urgency of digital transformation has a critical business priority in a driving force in the global.
Even in the face of an uncertain macro environment created by the global pandemic, yes. Its business continues to perform well in our relevance and enabling digital business and kind of activity remains a core tenets of customer purchasing decisions.
Q2, we delivered the third best gross bookings in our history, driven by a record quarter in the Americas continued strength in channel bookings robust interconnection performance in high volume of small deals are expanding go to market engine continues to fuel the business generating over 4200 deals in the quarter across more than 3000 customers can you.
Portions of our global reach continues to shine as our customers scale and expand across the globe leveraging our platform across 56 Metro's in 26 countries. We're continuing to increase the scope of customer deployments customers operating in all three regions now represent 62% of revenue up 1% quarter over quarter.
Organic expansions continue opening holmberg, this quarter, and adding board, though as a strategic PSMC landing locations in support of the key Hyperscale.
And we're using disciplined M&A as a tool to enter new markets in Scotland platform.
June 1st we announced our intentions or 13 Bell, Canada, Datacenters, expanding our coverage in Canada to a national platform and unlocking opportunities for global corporations to capture growth and innovation in the Canadian market.
This acquisition, which is expected to be immediately accretive upon close in Q4 was like segments is continued commitment to executing platform enhancing acquisitions on financially attractive terms.
Before we get into the detailed quarterly results Oh sure a few thoughts on her commitment to social change.
She worked to build a culture in the community that can have a meaningful sustainable impact on the feature of our society.
Recent events in the U.S. would trigger outrage in outpouring of emotions around the world. We have actively tapped into this energy fostering a rich and inclusive dialogue in the topics of equity and social Justice.
Yes on improving our collective understanding of each other in creating a commitment to action, which is imperative to moving us forward positively as individuals as a company and as a society.
While still early in our journey, our vision remains clear correct. When it's to be a culture, where every employee everyday countries say unsafe I belong in another and for our workforce at all levels to better reflect and represent the communities in which we operate.
Your knowledge than we have worked to do and achieving this vision, but are fully committed to demonstrate measurable enduring progress against a multiyear strategy and continue to believes that our culture remains a key competitive differentiator.
Our approach includes traditional aspects such as diversity targets bias training and mitigation Moody's lansky programs in play mobilization, but we also believe lasting change will only happened by pushing ourselves even further in our pursuit of becoming a truly equitable and global organization.
Our objective is to continue to make our culture are critical competitive advantage seeking to engage every leader in every employee at Equinix and integrating diversity inclusion in belong in every aspect of how we run the business as a company. We will continue to put in the works and reaffirm our commitment cultivating workplace and a society that embraces and vigorously.
Defense equality and diversity.
Now turning to all results as depicted on slide three revenues for the second quarter were $1.47 billion up 8% year over year adjusted EBITDA was up 9% year over year, Yeah. FFO was again meaningfully ahead of our expectations.
Connection revenues continued to over index substantially growing 16% year over year, reflecting the important role of interconnection digital transformation and highlighting our clear market leadership in this area.
Unit volume was fueled by growth in provision capacity to support increased traffic and solid new product performance, reflecting our ability to meet the evolving connectivity requirements of hybrid and multi cloud architectures.
Growth rates are all on a normalized and constant currency basis.
I'll have over 378000, interconnections and we continue to see healthy expansion of our dynamic ecosystems across the globe. In Q2, we added an incremental 8000 interconnects driven by streaming video conferencing enterprise cloud connectivity and investments in local local aggregation support work from home.
Our net exchange had one of its best quarters ever with peak traffic up 44% year over year as appearing committee augmenting capacity for video conferencing gaming in over the top video, replacing headroom that had been exhausted by covert related traffic growth.
TCX fabric also had a great quarter, eclipsing 2200, participants and demonstrating robust multi cloud adoption, particularly from network providers with one third of minutes scaling bandwidth to five or more clouds.
We're also making good progress and integrating integrating the packet business strong new logo engagement and continued go to market integration as we work to deliver on our vision for platform Equinix to underpinned foundational infrastructure for today's digital leaders.
We're also strengthening incidences leadership position in the cloud ecosystem through expansion of our Hyperscale strategy, allowing us to service, both retail and large footprint in key markets, while maximizing efficiency of our balance sheet through our partnership with GE I see.
We're seeing strong customer demand in our initial axiall JV in Europe and will soon to expand this JV to include our seventh asset Paris. Nine. This facility is slated to open early next year and is immediately proximate to our market, leading Paris campus already and is already 100% prelease to a major hyperscale.
We're also tracking to close our new Exco JV in Japan with GE I see in Q4, adding new locations in Osaka in Tokyo.
Now let me cover highlights from our verticals are never vertical achieved record bookings driven by robust reset reseller activity and network expansion to support traffic growth.
Expansions, including coal global telecom provider, adding capacity at the interconnected edge to support increasing user demand as well as locus communications and Australian specialty fiber and network solution provider deploying infrastructure to increase scale and improve end user experience.
Our financial services vertical had second highest bookings with strength in global financial insurance firms as they accelerate digital transformation, new wins and expansions included a leading Nordic insurance company, leveraging hybrid multi cloud and distributed data and Galileo financial technologies, a payment solutions platform re architecting their network and securely.
Connecting the ecosystem partners.
Our content digital media vertical also saw solid bookings with particular strength in gaming and video driven by the spike in demand for indoor entertainment, new wins and expansions included.
A leading audience technology platform looking to expand their footprint to serve the AD tech industry, and Moody's leveraging echecks fabric to re architect their networks and multi cloud and multi cloud access for increased performance.
Our cloud Nike vertical also showed strong bookings led by the infrastructure and software sub segments with continued momentum in cloud adoption.
Continue to extend our market, leading cloud density, adding 10 cloud Onramps this quarter alone as cloud providers expand services in the new metro's, including both the top and Mexico City.
New wins and expenses included Cisco extending service capabilities to additional regions to support new product offerings, and security and client demand for Cisco Webex communication solutions, and BMC software, a leading platform provider of digital workflow solutions deploying infrastructure to support their expanding customer base across the region.
Our enterprise vertical saw solid bookings and broad based demand with particular growth and businesses professional services government and energy despite some covert related friction.
It continues to ship shift enterprise spending patterns, resulting in increased demand for various cloud based services, including telephony messaging and conferencing.
New enterprise wins included a Swedish engineering company optimizing its global network to provide optimal employee experience.
The global spirits distributed to switch from building its own on premise datacenters to economics to support rapid rapid deployment as well as phone group a global leader in supply chain solutions, leveraging echecks fabric to digitize its supply chain ecosystem.
Our channel program had a record quarter accounting for over 30% of bookings and delivering great productivity from this go to market vector.
General program continues to be a new logo engine for the company generating over 60% of all new logos, we had great wins with reseller and alliance partners, including ones business, Cisco 18, T, Microsoft and Dell across a wide range of industry segments with projects focused on both digital transformation and covert 19 response.
Channel business. This quarter included notable wins with 18 team for global ensure transitioning from on premise datacenters to hybrid multi cloud solution to enhance elasticity performance and with Vodafone for a premier Global Energy company supporting their adoption divest the wind and hybrid multi cloud and now let me turn call over to keep the car the results for the quarter.
Thanks, Charles and good afternoon, everyone.
To speak with you again.
I'd like Charles Hope, you and your families are doing well and staying safe.
With respect to economics, the business continues to perform well Q2 revenues adjusted EBITDA AFFO and AFFO per share were ahead of expectations. Despite disruptions experienced by our customers our suppliers and partners our employees over the past few months.
In a quarter, we had significant gross pag and net bookings, including very strong net positive pricing actions.
Interconnection activity was very healthy.
The physical and virtual level.
Making solid progress across our new edge services products, our performance against our key operating metrics was again positive.
Including solid increases in our embargo cabinet and billable cabinets metrics.
For the quarter, we're tracking against our expectations on corporate 19 related impact and costs.
As expected.
<unk> cost trends going both directions that we'll continue to make the appropriate adjustments to our forecast as needed.
And as you've heard us say before but it's certainly worth repeating again.
Achieving an investment grade rating and now from each of our three credit rating agencies. After Moody's may upgrade has proven to be a highly strategic invaluable milestone, enabling us to access the debt capital markets expeditiously, while broadening the investor base and tightening credit spreads other issue debt. This is particularly important during times of rate volatility little disruption.
Like today.
In June we refinanced 2.6 billion of high yield debt.
At a blended interest rate of 2.07%.
Most interest rate ever achieved by as any triple B minus rated issuer.
Interest savings on an annualized basis will approximate 50 million. When these savings will effectively offset the dilution associated with our 1.27 billion dollar an equity raise in may.
We have an active construction pipeline with 29 projects.
Your way across 20 markets and 14 countries and we continue to work closely with our suppliers and partners to deliver capacity as close to the target dates as possible.
Now, let me cover the quarterly highlights and note the growth rates and section or on a normalized and constant currency basis.
As depicted on slide four global Q2 revenues were 1.47 billion up 8% over the same quarter last year, our seventyth consecutive quarter of revenue growth, including a $3 million that FX benefit when compared to our prior guidance rates.
We're seeing positive momentum in the first half the year driven by strong that bookings and price increases.
Salting in to help you recurring revenue uplift.
But later than planned nonrecurring revenue cycle time, your custom work and decrease Marchand revenues.
Well Q2, adjusted EBITDA was 720 million or 49% of revenues up 6% compared to the prior quarter, a 9% over the same quarter last year due to strong operating performance and favorable revenue mix, including a $1 billion net FX benefit when compared to our prior guidance rates.
Well Q2 way AFFO was 558 million above our expectations on a constant currency basis, largely the result, and strong operating performance. We continue to manage the business in support of re AFFO per share goals.
Turning to our regional highlights useful results are covered on slides five through seven.
EMEA APAC with the fastest growing regions on a year over year normalized basis at 16, and 10% respectively.
By the Americas region at 3%.
The Americas region saw record gross bookings with healthy pricing and strong exports to the other two regions in the quarter.
The Americas growth rate was partially muted by our decisions, we have certain smart hand fees and the timing of plan churn.
We expect the Americas growth rate step up in the second half of the year.
We also completed the integration of the Mexico assets of one several key interim actually based magnets and drive networking cloud verticals as customer structural leverage the value of Netflix platform into our Mexico markets.
Crimea region saw strong bookings in the quarter, particularly across a number of smaller in emerging markets, including Dublin and Madrid.
Harris continues to perform well a market, we're seeing an increase in demand and the tightening of supply.
Our broad build out initiatives across the region remains active.
Interconnection with substantially up on a year over year basis, driven by volume and pricing initiatives.
And billing cabinet stepped up in the quarter.
And finally Asia Pacific region saw another very strong quarter bookings, including a record interest into our Japan markets and the region enjoyed solid exports because good particularly in Toby.
Hey pack interconnection had a strong quarter with many providers scale network connections for future growth, but higher than average net adds in cross connects.
From Metro connections.
And now looking at our capital structure, please refer to slide eight.
We continue to increase our operating a strategic flexibility through the management of our balance sheet and capital allocation decisions.
Pro forma for the debt refinancing activities, we have approximately 2.7 billion of unrestricted cash and investments on the balance sheet or total liquidity, including our available revolving line of credit of almost $5 billion.
We will use that liquidity alongside our capital and balance sheet initiatives to opportunistically expand the business fourth organically and Inorganically as we work to maximize long term shareholder value creation.
Including the benefit of the 1.7 billion dollar equity transaction completed in May.
Our net debt leverage ratio decreased approximately 3.3 times, a Q2 annualized adjusted EBITDA.
Well within our target leverage range.
Turning to slide nine for the quarter capital expenditures were approximately 482 million, including a recurring capex of 30 million.
We had seven openings in Amsterdam, Chicago, Dallas, Hamburg, Hong Kong, Toronto, and Washington DC.
This included the opening of Dallas 11, New IBX completed on the it from our Dallas campus, which has an interconnection epicenter at a major hub for the southern U.S.
And we announced for new expansion projects. The majority of these projects to be developed on OLED being Bordeaux, Hong Kong Bill and Warsaw.
We continue to expand our ownership acquiring land for development in both Frankfurt and Manchester markets.
For the year, we now expect capital expenditures to increased by approximately 150 million, which reflects the anticipated timing of the closing of that Japan joint venture with GE I see.
Once this transaction closes GXS portion of the capital expenditure spent parts. The closed it will be reimbursed economic sentiment that is expected to range between 100.
50, and $200 million, including certain previously incurred costs.
Revenues from old assets is currently 55% metric that we anticipate will increase over the next 18 months.
Our capital investments delivered strong returns as shown on slide 10.
But 148 stabilized assets increased recurring revenues by 6% year over year on a constant currency basis.
These stabilized assets are collectively 84% utilized.
Generate a 28% cash on cash the churn on the gross peeping invested.
Please refer to slides 11 to 15 per our summary of 2020 guidance and bridges.
Starting with revenues, we expect to deliver 8% to 9% growth rate for 2020, a reflection of the continued momentum in the business and includes a net FX benefit of $23 million compared to our prior guidance range.
Non recurring revenues are expected to remain at these levels for the rest of the year.
And our churn is expected to remain in our target range of two to two now per cent per quarter for the remainder of the year.
We expect 2020, adjusted EBITDA margins of approximately 48% excluding integration costs. The result of strong operating leverage in the business, including revenue mix offset in part by the anticipated investments on a go to market and public organizations.
And higher than initially planned salaries and benefit costs.
We expect to incur $20 million of integration costs in 2020, but the integration of our various acquisitions.
And we're raising our 2020, AFFO, which is expected to now grow between 14 and 18% compared to previous year.
For 2020, we expect to AFFO per share to grow between eight and 12%, including the effects of the capital market activities completed in Q2.
So let me stop here and turn the call back to Charles.
Thanks Keith.
Alighted with our Q2 results and are pleased with the continued outperformance of the business results of our focus on providing customers distinctive and durable value as they embrace digital transformation.
Our impact for customers and the financial results that Paul as a reflection of the dedication flexibility and ingenuity of our teams.
Over the course of Q2, we like many others had to rapidly adapt our business adjusting our go to market motion. The current realities evolving operating procedures, while maintaining our exceptional service reliability and executing on highly attractive equity and debt deals to enhance liquidity in driving AFFO.
Customers remain at the center of everything we do and our customer satisfaction rating moved up the last two quarters to its highest score in the last three years, while we are delighted with how the business is performing we fully recognize the strain the shifting challenges and the continued uncertainty we're all facing and as such we will remain diligent and closely monitoring market dynamics in further.
That being our business has appropriate through the back half of the year.
The secular drivers of demand for digital infrastructure have never been stronger and we believe that equinix is uniquely positioned to execute on the expanding opportunity presented by the accelerating importance of digital transformation and the ship to hybrid and multi cloud as the architecture of choice.
We remain steadfastly focused on evolving our platform to respond to this unparalleled market opportunity.
Investing to drive topline growth leveraging our operating scale the fuel attractive AFFO per share growth to our investors and delivering positive impact to our many stakeholders as we continue to build an enduring and sustainable culture and business. So let me stop there and open it up for questions.
Thank you we will now begin the question answer session I still like to ask a question. Please press star one on mute your phone a record your name clearly our first question comes from Tim Long with Barclays. Your line is open.
Thank you.
The priest appreciate the question here wanted to start off with the smaller newer piece of business, but with packet if I could sounds like it's moving along pretty well just curious if you can give us an update on.
How are you moving along with features and the sales force in the channel with the ability to sell sell the new products and.
Maybe just a little color with.
The the business that you're doing now if you can give us a sense, maybe what kind of vertical what kind of customers are applications are are being sought out by by those.
Take on this new business for you. Thank you.
Sure.
Sure Tim Thanks Charles.
I guess, it's important Marriott backup and continue to put the or put the acquisition of packet into overall context, I think that as we have talked about on prior calls. This was a way for us to continue to adapt to the changing consumption patterns of our customers in terms of how they want to sort of gain access to the.
Value. If you will have the of the Equinix platform and I think we.
Adding the bare metal service that packet brings to the table and integrating that with the bare metal service that we had under under development organically. We think is really really represents a big opportunity for us to continue to adapt to those changing needs.
The integration is going well, we've we've now aligned on a coordinated and integrated roadmap for and coordinate that into a single offering that we will there will deliver as a company.
We have.
Continued to integrate the go to market motion and we've actually taken some.
Some folks from within the equity this organization.
Blended them into the sales team and have that acting as a bit of an overlay today.
You are two or larger salesforce still early days, there and I think probably them.
A lot of the customer activity is with some of the more digitally native targets that packet had traditionally been serving but we're really starting to see you.
Building funnel of enterprise targets, particularly large large enterprise targets as well as some service provider.
Sort of types that are that are really resonating with the with the packet opportunity and that offering so.
It continues to.
Go well again, very it's still very early days, but.
One of the things that we've we've been talking about internal as we talked about.
Delivering physical infrastructure at software's fee, which is kind of been a a rally cry or tagline that really resonates with us internally and more importantly, resonates with our with our customers. So.
Again, a product roadmap is well aligned now and the engineering teams are.
Underway on bringing a fully enterprise feature set the full enterprise feature set to the bare metal offering over the coming quarters.
And that go to market motion still relatively early but good momentum in the pipeline.
Okay, just to a quick follow up but you talked about pricing it looks like Europe and Asia saw a pretty good among our per cabinet.
See growth could just give us a little.
Highlight on on why you're seeing better better pricing, there and I'm done. Thank you.
Sure.
The key to pricing for us is really continuing targeted discipline disciplined in our sales targeting and we've talked about that for many years now right delivering the.
Hey, targeting the right customers with the right use cases into the right ibxs locations.
I think we've really we're really doing that well in terms of adapting.
Are delivering against the the use cases that are really important customers right now in terms of hybrid multi cloud implementations. When we architecture distributed security a number of things that are really.
Highly feature to I think their digital transformation plans and when you're doing that I think you're able to deliver outsize value and therefore get good solid pricing and we're seeing that show up in our yields. So I think if you look at it is the way our our quarter was composed in terms of bookings we talked about 4200 deal.
As a cross 3000 customers that means we're doing a lot of deals.
More sort of small to midsized deals interconnection oriented ecosystem centric and that really helps us on the pricing front in in Europe. In particular, we're also seeing the effects hours a roll through the interconnection pricing adjustments that we've made and I think those have gone really well, obviously generally customers don't jump up and apply.
When you raise pricing and new services, but I think in this case our team has done a really good job of articulating the value that people are getting from from interconnection and also think we've been very measured and.
Kind of appropriate about how we have phase those implementations and those price implementations and working with the customers and so on so thus far it's gone well, we're starting to really see that roll through in the in that in the impact on the anemia numbers in particular.
Okay. Thanks very much.
Thank you. Our next question comes from John Kim with RBC. Your line is open.
Thanks, very much two questions first one probably for Keith I'm, just interested in kind of the medium term margin.
Puts and takes as we think about where you are in Asia Pac now comfortably past the 50% margin threshold.
What are the factors just kind of think about.
Had a corporate level of you're getting towards those levels over the next.
Several years, and then I've a follow up on an ex scale. Thanks.
Yes, sure John I think as the overall as it relates to margins.
As we sort of setting their prepared remarks, we're sort of.
We're very pleased with where we are.
Pardon me.
We're pleased with where we are.
Pricing actions have certainly been and that positive to us and so thats, that's representative itself very well and our gross profit EBITDA for margins.
All that said there is another things are going on in the business is one of the things that we did what it was certainly highlight was we want to continue to invest in their go to market and product organization and this ties nicely guidance as to what Charles when we talked about with packet.
So there is an example of where we can continue to drive profitability up I think Q2 was.
I don't want to say is aberrational, because obviously, there's no come of many many great things, including revenue mix.
Non recurring revenue came down and as it was on a recurring revenue went up and as a result, you got a favorable mix shift some of that we think will continue for the rest of the year.
But the other part as we want to continue to invest in the business and we think we're on our.
Our track record crack to deliver against our expectations again I'd refer you back to the June 18 Analyst day, we believe we can deliver 50% EBITDA margins are greater.
I don't think thats ever.
You have a question for us is doing it with device disciplined and mindset, knowing that we want to continue to invest in the business and.
Right now we just see.
Very substantial opportunity not only assets we have today.
The ones were acquiring.
An example, being Bell, Canada, and so we'll continue to make those investments in the same time I think is continually find ways to drive more profitability into business.
If we're not investing in our future growth.
And then I don't know Charles if you would have anything to add to that but that's my second question was just on X scale and I think there been maybe some management changes what it wants it maybe getting commentary on that any kind of milestones around future JV financings and then if you could maybe provide a little.
Of color or maybe a little mind or on the fee structure that youve secured in the U.S agreements. So we can kind of understand more the impact on the FFO.
Sure John Yeah, maybe I'll make just a couple of reiterate a couple of comments on the margin side and just again say I think we're seeing as we've talked about the past. We're we're continuing to try to look at driving operating leverage in the business I think we're being successful in doing that.
And and then again, we're seeing some positive benefits associated with a mix of business mix shift.
And then and then again that's balanced against the reality that we want to continue to position ourselves to take advantage of what we think is a really big growth opportunity in front of us as hybrid Multiplay multi cloud really plays out and so we will we will continue to invest in the business and that will be wells on the capex side, any FX side, which I think will be a bit of a moderating factor.
On the margins.
But I think we can continue kind of up until that right.
Turning over over the long haul.
I'll take that scale.
Can things continue to.
Really go well in that overall, we did have some adjustments Jim Smith has has made the decision to step down from his role as managing director.
Of the of the program, but does remain as an advisor to the initiative.
And we've we've as Kupol revolver who's been on the scale team now for a period of time and.
Incredible background, and we've asked him to step into the role he has done that and really kept the continuity team.
The team recruited in there I think is incredibly strong very experienced and as is really starting to hit their stride. So.
It's going well, we've we've talked about in the script that we are probably likely adding that are very soon adding the Paris nine asset that is 100% pre leased to hyperscaler.
And we gave we continue to see good good customer interest in pipeline on the other facilities.
The the JV in Japan has now been announced we're working towards closing.
In closing that later in the year.
And then and then we're looking at additional JV beyond that so good momentum and overall and then relative to the fees, maybe I'll, let Keith comment quickly on kind of how that structured and impact on the business.
Sure So just to draw as it relates to the fees, there's really four primary fees. So put aside the equity ownership right now we're treating the businesses.
It looks like the Japanese Japanese JV will be a.
Equity oriented investment likewise.
Initial neo JV and so the way. It works is there's basically and asset management fee of facilities fee development fee in the sales and marketing machine.
And when you break those down summer recurring revenues from a nonrecurring and then the benefit we get from the profitability created by the joint venture I comes in below the line.
Through income will come from an affiliated entity. So that's how it sort of the fee structure works right now still pretty early on as you know because we've just got the first two assets up Charles alluded to Paris, nine and having that 100% Preleased and we're actively engaged across a number of other assets. Both in development and also in the March will those out.
Sets across the platform. So we're pretty excited about the performance.
A group is going to kick the can take leadership role in this in this entity so.
Great progress today.
Thanks very much.
Thank you. Our next question comes from Colby Sinuses Cowen Your line is open.
Hi, good. Thank you just few.
Last quarter, you called out a zero to 50 million dollar a headwind to guidance revenue guidance for a covert 19 I was wondering what the headwind.
Or impact wasn't the second quarter, and if you still feel that you're going to be.
Within that year to 50, and maybe you could tighten that up little bit if possible at this point secondly.
Your America's growth missed our estimate I think that's probably one of the weaker parts into quarter on Keith I know you mentioned.
The smart headway fees, I think thats, just a $3 million impact.
And on the churn side when I look at least the cabinet and the Interconnects. Both those numbers still went up yet the revenue came down which just seems to be seen just more of a pricing impacts on trying to get better understanding there and then before Katrina kills me in just one last one.
Your previous guidance on organic growth was 7% to 9% you raised at the 8% to 9% happy that excludes FX, yes. The only change based on your guidance was in fact, FX I'm wondering where that extra 1% to 8% at the low end came from thank you.
Charles you one maybe take the first.
Sure.
I just want make sure because we're in different locations ever been so just making sure that looking at.
Organize accordingly, let me first start off by saying look were absolutely delighted Colby with the performance of the business for the second quarter and as you know when we went into the quarter, we give ourselves a relatively wide range.
Wide berth from zero to 50 and and for the for this quarter as you know, we basically delivered slightly above the top end of our guidance range.
So said differently, then we basically got a lot of flexibility through the second half of it yet.
And we chose to leave it intact other than FX very similar to what Charles did last quarter. You made the reference the fact that we're going to adjust or currency and here's a range of zero 50.
And the we're also going to hold absent FX, we're going all the full.
We're going to target mid quite.
Well when we look at the second half the year Theres just a lot of uncertainty that's still remains well too much in our business per se, but the reality of how it how all of the terminal catch manifested into our results we left that flexibility inside our our guide.
So what you're seeing is not per se any specific headwinds.
On the margin there is a two adjustments that are affecting us.
We have slightly larger bad debt reserve than we had before but that was planned for.
I made some reference to the fact that there's cost going both directions, clearly our travel and entertainment.
Is relatively low Thomas almost zero.
But offsetting that of course is our salary and benefits cost less attrition less paid time off and we're doing a very good job of hiring harming the staff that we are slated to be hard.
So our salaries are a little bit higher.
So I think thats sort of deals with perhaps the majority of the discretion to other than the Americas.
Because as we said relatively flat this.
Hi, this quarter Colby, you're right, there's $3 million of smart HAMP fees.
There's also the impact of the Brazilian currency fairly substantial segregation to an unhedged currencies and then you've got a nonrecurring revenues.
When you look at it from a pricing perspective will EMR per cabinet was relatively flat.
Quarter over quarter and so we're we're delighted with where we are we alluded to the fact of pricing was strong good gross bookings we have momentum in the business, but you also have some things timing of churn and the smart hands plus nonrecurring in Brazil affecting the results.
Benefit we get there for of having a very global and and diverse set of assets that things are going to move around on a continuous basis. In this case, you're starting to see currency trends moving in our favor in so, albeit we might be a little bit more susceptible to weaker currencies in the Americas, you're going to see youre seeing uplifts in.
In Asia and in Europe. So.
So let me stop there Charles you jump in if Theres anything you want to add.
Or if there's anything in the to clarify.
No I mean, I think again on the on the zero to 50, obviously, we saw the smart hands impacts across the regions in the quarter as well as.
A fairly meaningful impact on our custom in our so but so the enter our was meaningfully impacted I think we had a strong recurring revenue quarter.
Bookings were solid we are seeing some level of friction still out there, but as you know as of our results imply.
The team power through that and had a good quarter.
But we have two to sort of big step up quarters remaining in front of us in the back half the year and as we looked at that we and plus I think you know very uncertain environment still in terms of sort of a second wave. If you will on uncovered and the implications of that and.
How how the protracted economic impacts are going to begin to affect companies et cetera.
Felt like it was prudent to sort of maintain the revenue guidance and just just book the FX impacts into their so so thats, where we landed.
Okay. Thank you.
Thank you. Our next question comes from Frank Louthan with Raymond James Your line is open.
Great. Thank you very much.
So talk to us a little bit about.
It more in the Americas, our we've talked in the past about what's going on with abroad and space Thats leasing is going talk just little bit about that and then follow up his thoughts on inorganic growth for for the remainder of the year I know you've already done one deal clearly not shying away what are your thoughts on on those opportunities. Thanks.
And frankly, I'm sorry, the personal was on under on Verizon Horizon assets.
Yes, the bride and assets and where you are as far as being filled that space out to back five utilization there.
Yes, yes again, it's been good long time now that we kind of integrated so we tend to think about them all as really part of the platform now so it's.
It's tough for us to think about or even.
Fully measure that but that the but we are seeing good utilization, obviously made some investments into some of the assets orders that we actually add some really strong deals this quarter into Miami and call Pepper actually and so we're seeing good good progress on some of the key assets. There overall you know as we said I think.
Good.
The Americas business, we expect that to step up to.
More like a 5% growth rate in the back half of the year again, it was really solid quarter from a bookings perspective, and so overall I think with with US starting to I think really having worked through the the the issues on the on the horizon portfolio in terms of the churn and things have happened there.
Okay, and seeing that stabilize I think we're looking at a solid back half of the year for the Americas there.
Relative to inorganic I think that there are plenty of opportunities out there. So we think that.
We're going to continue to have a posture that.
If you really look at it our our our strategy remains unchanged we have used and.
M&A for market entry.
Core markets scaling.
For sort of capturing strategic interconnection assets and now for sort of capability additions as we look at the future platform Equinix and what that means.
And I think are there opportunities and all those categories. Obviously, the Canadian deal was was really an opportunity for us really scale in a market in reached national presence in Canada.
We think or some other opportunities.
In terms of new market entries that that are areas that we are continued.
Continue to be focused on that or that are out potentially actionable out there.
And so and it's one of the reasons really that we when did the equity deal is making sure that we kept some dry powder.
On the balance sheet to be be appropriately.
Opportunistic about growth opportunities that present themselves.
Alright, great. Thank you.
Thank you. Our next question comes from Michael Rollins of Citi. Your line is open.
Thanks, and good afternoon, I was curious if you could delve a bit more into what you're seeing out of the enterprise vertical.
In terms of the ability for them to make decisions and the growing interest that the management team has been describing that you're seeing for hybrid cloud architectures. Thanks.
Sure.
Thanks, Mike.
Yes, I think that.
You know we're.
We're seeing a there is there's a few things one I do think that we've seen some projects.
I have delayed decision, making so things pushed out further in the pipeline.
But I think thats been offset to some degree by a broader realization that I think you've heard us and probably many other.
Companies in ours and related spaces. For example, the cloud providers talked about this elevation of awareness around digital transformation in the priority that exists there even in sectors of the economy that are meaningfully impacted by code I think that what people are seeing is that those companies that were better for.
Paired or further ahead in their digital strategies are weathering the storm better and I think that that's leading people say, we've got to make that investment.
In some cases, even if their businesses are a bit on their back.
They kind of say look we're going to take that medicine, but we're going to invest in the business and in the future and make sure we're making the digital investments that are necessary. So.
So that is I think we are seeing a little bit of sort of both sides of the coin there which is some some delays, particularly new new new projects that might be delayed just by a variety of factors, including.
Taking longer to be able to visit sites. Although they are we are now having tours and visits into the sites.
On a on an appointment basis and so we're we're sort of freeing freeing up some of the.
Wheels are turning on that but there is some of that if you look at new logos theyre, a little bit lower than our pre cobot levels.
But we also are they are targeted more at larger larger accounts with bigger wallet sizes.
So a little bit of a mixed bag, but on balance I think what the enduring phenomenon that we think we're really seeing is this increase commitment to digital and also very much in terms of people, saying look we still have private infrastructure requirements, we love that private infrastructure over time to be you know, it's probably going to be.
Smaller than what we're doing now, but we need what we what remains to be immediately proximate to the cloud and deliver both performance and economics in a different way and and we think equinix really rises to that challenge for them.
Thanks.
Thank you. Our next question comes from Matthew Nick now with Deutsche Bank. Your line is open.
Hey, guys. Thanks for taking the questions just two if I could first maybe to go back last question in terms of sales cycles any notable delays or during the quarter that you'd call out that may have deferred some bookings into the into third quarter and then secondly on the competitive front. If you can talk.
About the competitive backdrop in Europe, whether you've seen any changes in the landscape in recent months. After a some of the recent M&A larger scale M&A in the region. Thanks.
Sure.
As I said, yes, we have obviously, we've got a very sort of deep command of the pipeline in terms of deals that are in there. We did there were certainly some opportunities that we had originally as.
Targeted to close this quarter that pushed out but that's the case every quarter, obviously, there's some of that and but some of those were but people would chalk up to covert related sort of delays in decision, making but on balance when you look at it and you see our third best gross bookings core quarter ever.
Record in the Americas.
Obviously, we're we've been able to sort of power through some of that and still deliver strong overall bookings results. So there's some of that.
Well, what we are seeing I think quite encouragingly is that.
Those are our just delays there not cancellations of projects and at this point, we think it's just a matter of when we're going to bring those are those opportunities in so on balance I think feeling very good and feel like.
The team really rallied and delivered an exceptional quarter given the broader circumstances that we face.
In terms of competitive backdrop, I would say not a meaningful change I feel like particularly in I know relative to any commenting on the sort of post interaction.
Digital combination in Europe and impact there I would say, it's still very much seems to be in a digestion phase and I think customers or are working this sort of figure out what that means for them I think employees or of those companies are trying to are now that company or trying to figure out what it means for them.
And we're trying to stay focused and deliver and execute effectively.
All that digestion occurs and so.
I think are obviously the performance of our business in EMEA sort of speaks for itself in the quarter.
And we continue to.
As I as I was I've always said interaction was always a very credible competitor for us in Europe.
I expect they will continue to be one.
But we are right now I think we're seeing the digestion period, and we're trying to take advantage of.
Of that while it exists.
Thank you.
Thank you. Our next question comes from Simon Flannery of Morgan Stanley. Your line is open.
Great. Thank you very much good evening coming back to act scale I think when you were talking about the project. Initially you talked about mid teens type returns I Wonder if you could update us on what the caregiving you've done some leasing now it's got a better sense of pipeline on economics, what's your latest thoughts and the return price profile on these projects.
And that's just coming back to the enterprises, what's going on on being renewals side.
What sort of pricing are you achieving on renewals, obviously your pricing commentary has been pretty bullish overall, but.
We do see you know a lot of pressure on I too, but just broadly on it are you seeing out here thats coming through in terms of customers trying to get some relief for out when they renew with here.
Thanks care.
Yeah, I would say that relative to exco and return expectations.
Let's say that when you look at it we obviously get some of the benefit.
Particularly as it relates to our our lens on the returns of both fees flowing through as well as the development returns, which give us a bit of a lift on the returns overall.
I think will allow us to continue to have those into the into double digits. I do think there is some pressure on returns caused by just an overall pricing environment that continues to be.
You know aggressive I think in terms of people competing aggressively for the Hyperscaler business and that is out there. So I think there has been and probably a bit of pressure there, but I think that it continues to be a very attractive return profile I think for our for both for us and for our partners and for US I think being able to do that with red.
Relatively limited, it's sort of dry powder off our balance sheet, which we want to allocate to our our higher returning retail business.
I think this strategy is still makes sense.
Sense for us, but I would say some some downward pressure on returns it'll be interesting to see whether that persists I do think that Keith mentioned for example, there are markets, where we see supply tightening.
And obviously that tends to improve pricing, but you do have a very.
Powerful set of customers in the hyperscalers that or are looking to sort of get to divest best available terms, so theres been a bit of downward pressure there.
Relative to enterprise renewals.
You know as I said, what we're seeing I think is generally people are.
Continuing to figure out how they can make most effective use of equitex in pursuing their long term hybrid multi cloud architectures and so that might mean that people are downsizing sort of elements of their architecture as they move certain applications to cloud and then focusing there pricing.
Sure that private part of their hybrid cloud.
Into economics facilities proximate to the cloud and are still willing to Reno renew those.
What we consider to be very attractive rates that are good for us and deliver significant value for the customer we do see some sawtooth thing, which is because we have escalators annual escalators built into our contracts.
Virtually across the board.
Oftentimes when you see a renewal you might see that if you implemented a 3% to 5% annual escalator over a say a five year contract that at renewal you may be above market and you you may see sought to thing of that.
Occur, but that's all sort of part and parcel or all included in our overall model, which again continues to reflect overall positive net pricing actions, which we think reflects the value that we deliver customers.
Very helpful. Thank you.
Thank you. Our next question comes from Jordan Sadler of Keybanc. Your line is open.
Thanks, and good afternoon.
So just wanted to.
Going back to Excalibur time, it does sound like.
You characterize overall bookings in solid and seeing maybe a little bit friction I think as we talk to maybe you will enterprise.
Also that characterization contains the exco business as well and it was.
Parents nine leased during the quarter.
Yeah.
I would say the I think the dynamics are a little bit different in that obviously, we're targeting a much smaller set of customers and so when you look at.
The the Axiall dynamics, I think it's a bit more about where where these where these hyperscalers are in their expansion how that matches up relative to a sort of capacity, where it's needed kind of element in so.
If you look at Hyperscalers and we're we're actually if you look to the performance and results of some of the other companies that are more focused on that they tend to be lumpy, they have sort of a bit more boom and bust in there in their quarters.
Based on the timing of.
The timing of sale of timing of bookings and where we're hyperscalers are in there in their cycles of expansion and so I think the dynamic is a bit different but yes. The the leasing was completed in the quarter prepare us nine.
And so we were very pleased to get that done and we do see a strong pipeline. It just takes it those are a bit bigger bigger more complex deals with longer sales cycles and I think the.
The results in any given quarter tend to be a bit lumpier.
Okay, and then just a follow up I think you touched on interconnection pricing in Europe the adjustment.
That you've made there where are you in the rollout of those adjustments and what sort of the magnitude of that pricing adjustments.
We are we're reasonably well advanced I think that we'll continue to see those adjustments flow through over the course of the next year. So.
Because we tried to be fair and balanced and not.
End of overly aggressive or greedy about about how to the timeline on which we wanted to implement those and as we tried to.
As we've talked to our customers and tried to implement something that we thought was was fair and balanced and so it'll it'll continue I think through the course of.
The.
The remainder of this year and well into into next year, I think probably through the course of next year as well, but I think we've probably seen.
A good chunk of that probably more than well more than half of that roll through and begin to into the into our results. But there is more work to be done I think it will it will be a bit slower as we as we go through the course of the next several quarters and in terms of of magnitude.
I forget what the.
But the percentage increase was it was what was it was meaningful and that is showing up in the results, but again you still are seeing interconnection prevailing pricing in Europe meaningfully below what it is in the Americas and I don't think we will be in a point, where we will equalize that but we are making making progress in terms of delivering.
I think pricing thats more consistent with the value delivered to the customer.
Okay. Thank you.
Thank you. Our next question comes from Nick del deal with Moffettnathanson. Your line is open.
Hey, Thanks for taking my questions.
First Keith I want to drill down a little bit more on the EBITDA upbeat, which was pretty meaningful I think you suggest it was a function of revenue mix and you said you expect those mix benefits to continue but your guidance implies lower EBITDA.
In dollar terms. The next couple of quarters relative to Q2, and and margins that are quite a bit lower but was there anything else. Besides the mix shift that we should be bearing on like power costs or or anything along those lines.
Overall, we're way when we look as a second quarter specifically.
We made the comment about price increases.
Across the board so one number one of those could see that.
Most of that was really focused on the linear region.
Offsetting that was nonrecurring revenues saw the step down to roughly 4.8% of a revenue of nonrecurring and so that comes at a different margin.
Profile, so you've got the benefit of those two things happening. So revenues are roughly at the high end of our guidance range of currency neutral basis, but the mix is mixed as favorable and you saw the benefit of that going to to the EBITDA. In addition, what you. We also saw was.
Some moderation in our utility consumption.
Until we got some benefit attack attached to that and then in some of the markets, particularly one I'll refer to Singapore, Theres, a doubling concessions due to.
Due to the current climate and was concessions come through in a couple of different actions.
As tax abatements that is rent abatements.
So is it salary adjustments.
That is not you don't apply port you are allocated to the coupled with the recipient of certain dollars from the Singaporean government as an example, but overall I was just say that we're on top of where our numbers I think the look toward is.
As Charles alluded to it.
It's giving us the flexibility to look at the next two quarters invest in the places that we need to and therefore, that's why you see revenues are moving up.
Obviously.
Overall, so keep that cost model at roughly 48% pre integration cost.
And that gives you a sense of that we're still spending in the areas go to market will products. They have going I did you know I referred to in my one of my prior remarks salaries and benefits are going up inside the business and the that's not because but that was some of those sort of an implication coming out of depend damage.
Lets people are taking vacations and that's how we get represented in the financials somebody what we want to certainly encourage people to the more and more talking off.
I'd also just the.
The title of our hiring this we were getting a full quarter ization of behind we had a record hiring quarter in Q2.
Hi, I'm good net net adds to the business quarter in that that's going to run through the quarter. The next two quarters as well the last thing I would say, there's some seasonality built into.
Into our spend particularly around liquor recurring capex Q4, more specifically and Thats why you see will impact coming through or guide on the full as well. So overall, we look at on an annual basis relatively $1 appropriately some of its just a little bit more front loaded than originally anticipated and they'll get the full quarter residual impact of it.
Yes, thanks for taking reiterate the SMB, thus salary and benefits piece of that which is.
We are one we were seeing lower attrition I think that partially due to maybe concerns and about the pandemic also I think it is just a reflection of of people sort of being very excited about where we are and the culture and what the opportunities in front of bizarre, but that I think thats rolling through in ways and were.
And we're hiring we're moving forward hiring plans across both go to market product technology, because we believe the opportunity is really big in front of us the net impact of that in terms of is that we have more more cost on the books.
And I think that we're kind of calibrating on that in terms of pace of hiring and that kind of thing, but where where even if we were at the same sort of targeted number of heads were with the attrition being a bit higher it's you get some.
Some.
Some timing there where it takes to re higher and and that sort of keeps keeps things a little lower so we are seeing a little bit of that and I think thats part of what made is impacting that in the back half there.
Okay got it that's that's great detail.
Maybe one quick one on.
TCX fabric.
I think early this year you dropped a node into a partner facility in Belgium.
Just first when you've done like that any initial insights into how thats going or or updates as to whether we'll see more deals like that.
Still very early days, we have not see and I think it's obviously it happened right in the into teeth of the pandemic. So I think probably still too early to tell there I would say that I think that brought more broadly speaking.
Our thinking about how we want to extend the utility in the reach of Vcs fabric.
Yes.
Both within our facilities continuing these bill do our build outs aligned TCX fabric closely with our packet offering to make a more powerful edge offering in our own facilities and I think also look to potentially position that.
As as something to get to be deployed.
In non equifax facilities, and so I don't know that it would look exactly like what we did in Belgium, but I do think the notion that we'd be looking at.
Extending the reach of these CX fabric and ensuring that the ability to use yes, SPX fabric as a way to plug back in from a bit of a further edge back into the the ecosystem.
And particularly the cloud ecosystem is something that we are absolutely actively looking as I do think thats something that will be we'll be continuing to monitor and look at how to do that overtime.
Okay terrific. Thank you both.
Yeah.
Thank you on our last question comes from Brett Feldman of Goldman Sachs. Your line is open.
Yes, thanks for squeezing in its really just a point of clarification, you've talked about this call about an outlook for improved revenue growth in the Americas in the back half a year and last quarter, you were talking about growth improving to something in the range of 5% or maybe better 5%.
As you were getting into the fourth quarter I think that's still the what's embedded in your outlook based on your commentary about I just wanted to clarify that you're still targeting that 5% and then whether it's 5% or anything.
Seems like it's going to be better I, just want to be sure we understand where the momentum is coming from.
The extent to which it's an EMR as opposed to nonrecurring because if it is on the EMR side. It would seem like you have really good momentum into 2021 as well thanks.
If you want to grow that.
Yes, I'll take that to Charles So you know the referenced.
Charles already said earlier on but in my prepared remarks as at the second half a year and Q3 looks like a quarter that we would see that step up and goes back to the goal or comments number one we saw good pricing so a record bookings.
We still see some element of churn inside the Americas business for the next two quarters that all said when we when we calibrate across across the Moon part of the year. We're firmly believe that between the pricing in the momentum of the business, including a strong pipeline you should see a step up in.
And the growth rate.
And that's something that from our perspective, it would carry on into 2021 sold but early to give guidance on that but there's no reason why we wouldn't see that momentum continues.
Thank you.
That concludes our Q2 call. Thank you for joining us.
Thank you for your participation in today's conference. Please disconnect at this time.