Q3 2020 Equinix Inc Earnings Call
Thank you all for holding for todays conference. Please continue to standby we will begin momentarily again, please continue to stand by thank you.
[music].
Good afternoon, and welcome to the equity next third quarter earnings Conference call all lines will be able to listen only until we open for questions. Also today's conference is being recorded if anyone has objections. Please disconnect at this time I'd.
Now I'd like to turn the call over to Katrina, Rymill, Vice President of Investor Relations and sustainability you may begin.
Good afternoon, and welcome to todays call.
During this call before we get started I'd like to remind everyone that some of the statements we'll be making today are forward looking in nature and involve risks and uncertainties.
Actual results may vary significantly from those statements.
May be affected by the risks to identified in today's press release and those identified in our filings with the FCC.
Leading our most recent form 10-K filed on February 21st 2020, and 10-Q filed on July 31st 2020.
Equinix assumes no obligation does not intend to update or comment on forward looking statements made on this call.
In addition in light of regulation fair disclosure. It is like when it just policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures.
A list of the reasons why the company uses these measures in todays press release on the Equinix IR page at Www Dot com.
We have made available on the IR page of our website a presentation designed to accompany this discussion along with certain supplemental financial information and other details.
Also like to remind you that we post important information about equinix and the IR page from time to time and encourage you to check our website regularly the most current available information.
With us today are Charles Meyers, Equinix, as CEO, and President and Keith Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions from sell side analysts.
The interest of wrapping this call up an hour we'd like to ask these analysts to limit any follow on questions to just one.
At this time I'll turn the call of duty Charles.
Thank you Katrina good afternoon, and welcome to our third quarter earnings call. This year has been an exceptionally challenging one as we all continue to navigate the economic help in seidl changes happening in our world. Despite these challenges we find that clinics in the unique position to help our customers adapt respond and accelerate digital transformation keep.
Priority for business across every sector and a critical driver for economic recovery.
Over 10000 customers cultivating trading ecosystems that enable digital business remains central to our strategy and has been accelerated by coded as businesses shift operating selling and expanding online.
As we respond to these chefs we remain focused on driving disciplined growth extending our global leadership and effectively scaling our business, we are augmenting our capabilities and enhancing our service portfolio and targeted ways to expand our addressable market.
Responding to evolving customer requirements and ensuring that we remain well positioned for the future.
We continue to complement and extend our global platform, both organically and through acquisitions, enhancing cloud and network density and offering our customers the richest range of options to support their adoption of hybrid and multi cloud at the architecture of choice.
Platform Equinix allows our customers more effectively distribute infrastructure, putting connectivity data security and applications, where they need and interconnecting them easily to the cloud delivering the performance required to service increasingly global digital businesses.
In October we closed the acquisition and acquisition of Bell, Canada data center portfolio positioning Equinix as a leading national provider in Canada, well getting Canadian customers to global reach they need.
We also announced a long awaited entry into India, one of the world's largest economies and fastest growing data center markets and now the 27 countries served by platform Equinix.
Once completed our Gtx acquisition like two highly interconnected data centers in Mumbai and will serve as a critical foundation for Pan India an expansion.
Our global reach reach remains as important as ever combining unparalleled facilities based coverage integrated systems delivering care. This competitive differentiation continues to drive our business with revenues from multi region customers, increasing 1% quarter over quarter to 74% and revenues from customers across all three regions remain.
You had a healthy 62%.
The Americas continues to lead in exporting business to our other regions network cloud financial and manufacturing customers take advantage of our reach we continue to deepen our penetration of the Fortune 500, global 2000, and the consistent growth of our top accounts demonstrates the depth of our addressable market and the stability of our business. Despite the pandemic.
With over 90% of our top 50 accounts, increasing their business with equinix quarter over quarter.
As we grow the business. We're also investing in our future by making Equinix, a place that attracts and inspires diverse talent and making sure that our mission reflects our responsibility to leave our world better than we found it.
Well. This was recently recognized as one of the top companies for diverse talent and received the 2020 Green power partner Award from the U.S. EPA.
Recognizing our contribution to helping advance the development of the nation's green power market.
September we issued our first green bond offerings as a mechanism to further invest in innovative designs and technologies meaningfully increasing our efficiency and resource consumption to ensure we continue to operate sustainably and advancing our commitment to reach 100% clean and renewable energy across our portfolio.
Turning to the quarter in Q3, we continue to adapt our cellengine tapping into a healthy demand environment to deliver another strong bookings performance fees.
These results were driven by continued strength in channel bookings solid interconnection growth and from pricing.
And the quality and quantity of our pipeline looks strong as we close out the year.
We continue to instrument and automate our business to support high deal volumes closing over 44 to 100 deals in the quarter across more than 3100 customers with a significant quantity. These order service through digital interfaces, giving our business superior predictability and creating a huge opportunity to drive attach rates for interconnection and other incremental service.
Yes.
Turning to our results as depicted on slide three revenues for the third quarter were 1.52 billion up 9% year over year, adjusted EBITDA was up 11% year over year and a half AFFO was again meaningfully ahead of our expectations.
Interconnection revenues grew 15% year over year as both unit volume and pricing continue to trend favorably. These.
These growth rates are all on a normalized and constant currency basis.
We now have over 386000, interconnections 14 of our top metro's, having ecosystems with over 10000 interconnections and growing in Q3, we added an incremental 8500 interconnects more than the next 15 competitors combined driven by work from home video streaming and enterprise cloud.
On activity.
Our net exchange saw peak traffic up 43% year over year, with a 7% quarter over quarter step up, albeit returning to a more normal revenue growth rate after the surge of capacity buying in the previous quarter.
Thanks fabric also had a great quarter eclipsing the 100 million dollar an annualized run rate with over 2300 customers fueled by broad based adoption across all verticals and geographies.
As cloud adoption continues to accelerate we're also making great progress extending our leadership in the cloud ecosystem.
Capturing new cloud on ramps and continuing to expand our ex scale business.
We're seeing strong demand for our assets in our initial European JV and are on track to close our new JV in Japan, the G. I see in Q4, adding locations in Osaka and Tokyo.
We've already signed our first ex scale deal in Japan, securing a key anchor tenants, who will take the full phase one capacity in Tokyo 12.
And in Q3, we toppled the final Domino to give equifax direct cloud on ramps for all five of the top clouds across 11 of the Metro is most critical for global infrastructure deployments Silicon Valley DC, Chicago, So Paulo, Amsterdam, London, Frankfurt, Hong Kong, Singapore, Sydney and Tokyo.
Nine more global markets than any other provider.
We continue to adapt platform equinix to the evolving needs of our customers and despite the significant challenges of integrating a new team during coven, we effectively merged our packet Nick Onex, Roadmaps and launched our integrated Equinix metal offering in for global Metro's with plans for an additional 10 by early 2021.
Equifax metal is a feature rich and fully automated bare metal service, giving our customers the option to deploy and physical infrastructure of their choice and software speed across our platform, enabling digital leaders to place infrastructure, where they need it when they need it.
Thanks metal is also directly integrated into equifax favour, helping enterprises quickly interconnect thousands of networks enterprises and cloud platform that Capex advair.
Answering our vision to make excellent ex the world's digital infrastructure company.
Now let me cover highlights from our verticals our network vertical continues to be a foundation of the platform achieving its second best bookings driven by carriers expanding capacity for digital business, new wins with local telcos included Aerotech Internet, a Latin American fiber internet provider deploying a network to improve peering and performance and mid telecommunication.
It British regional network provider deploying infrastructure for increased performance security and scale.
Our financial services vertical had a solid quarter led by EMEA any insurance sub segment.
New wins included a fortune 500 commercial bank simplifying their digital ecosystem as well as expansion with bit FX subsidiary of Singapore Exchange group, adding new qualifications for its FX trading solutions.
Our content and digital media vertical saw particular strength in markets catalyzed by the shift to virtual including video social media and gaining new wins included rackets and mobile selecting equinix as the foundation to deliver its communication platform to global operators and enterprise customers as well as an online real estate brokerage interconnecting to enrich.
Digital experiences for our customers.
Our cloud and I T vertical continue to over index significantly with strength in the Americas and in infrastructure and software sub segments as adoption of hybrid cloud continues to accelerate.
We remain focused on enhancing our market, leading cloud density, adding eight cloud on ramps this quarter alone, bringing us to 160 direct cloud on ramps in equities or 42% market share in our mattress.
Our enterprise vertical had another great quarter with particular strength in healthcare and manufacturing New enterprise wins included health care companies, Max or pharmacy services data technologies as well as garden health, a leading precision oncology company.
Our channel program continues to deliver great results accounting for 30% of bookings and generating over 60% of all new logos, we had great wins with reseller and alliance partners, including Cisco, Microsoft Oracle W.W.G. Anderson layer clustered across a wide range of industry segments.
Channel partners are also contributing to access our new margin expansions, we're excited to expand our relationship with Bell, Canada as a strategic partner working to deliver industry, leading joint efforts joint offers in Canada and globally.
This partnership also allows equinix to engage with bell resale partners to build stronger relationships across the Canadian channel ecosystem.
Other notable wins this quarter include a less stress in our recently acquired Mexican assets for an upscale retail chains and cap Gemini in so Paulo for a fortune 100 farmer from both transitioning from on premise data centers to hybrid multi cloud solutions for elasticity and scale now let me turn the call over to Keith to cover the results for the quarter.
Thanks, Charles and good afternoon to everyone.
I Hope you and your families are doing well doing these unique times.
As Charles noted despite the challenges in 2020, our team continues to deliver.
Techniques leadership is so very grateful and thankful for the almost 10000 employees. They come to work every day and they can't make sense success, we have a fabulous team and culture. This makes a huge difference.
As it relates to the quarterly financials, we delivered another strong quarter with revenues adjusted EBITDA in AFFO and AFFO per share ahead of our expectations.
We had significant growth in pack bookings and once again benefited from net positive pricing actions.
Performance against virtually every key operating metric was positive.
An action activity remained healthy with net ads towards the higher end of our targeted range, resulting in strong MMR per cabinet step ups in each of our three regions.
In September we entered into our third debt financing initiative in less than a year raising another 1.85 billion.
We used the proceeds of this debt raised to refinance a portion of our existing debt on the net present value positive basis.
Effectively the interest savings more than offset the redemption premiums.
Now on the type of debt issuance costs, creating a financially attractive outcome for the company.
As part of this capital raise we issued our inaugural Green bonds, demonstrating Equinix is continued long term commitment to green, our data center footprint and deliver a wide, reaching environmental benefits not only for ourselves and our communities, but also for our customers.
We established a green finance framework raises the bar for sustainability in the data center industry. This.
This new framework targets, LEED gold or better on new construction and <unk>.
Active to design average annual power usage effectiveness or PV to 1.45 or better which also exceeds industry then benchmark.
To date, a refinancing activities as resulted in annualized interest savings.
Possibly 125 million.
We have another 1.8 billion of debt to refinance which at current rates could result in another almost $50 million of annualized interest savings.
Now let me cover the quarterly highlights looking all growth rates in this section or on a normalized and constant currency basis.
As depicted on slide four global Q3 revenues was 1.52 billion up 9% over the same quarter last year, 71st consecutive quarter of revenue growth.
Q3 revenues net of our FX hedges included a $13 million benefit when compared to our prior guidance rates largely due to a stronger euro and British pound.
Global Q3, adjusted EBITDA was 737 million or 49% of revenues up 2% compared to the prior quarter and 11% over the same quarter last year meaningfully better than expected due to strong operating performance.
Well, one time benefits, including a reduction in cold weather related bad debt reserves, given strong customer collection activities.
Timing of repairs and maintenance and other spend shifting between Q3, and our Q4 quarters.
Adjusting for the shift in EBITDA between quarters, and after normalizing for FX and the Bell, Canada asset acquisition.
Adjusted EBITDA was consistent with our expectations and we expect Q1 2021.
Adjusted EBITDA margins to return to traditional seasonal levels.
Our Q3 adjusted EBITDA performance net of our FX hedges included a $6 million net FX benefit when compared to our prior guidance rates.
Global Q3, Epocal was 580 million above our expectations on a constant currency basis, largely due to strong operating performance and lower income tax expense, but offset in part by higher seasonal recurring capex spend.
As a reminder, Q4 quarter typically includes high recurring capex spend compared to any of our other prior quarters.
Turning to our regional highlights whose full results are covered on slides five through seven.
EMEA and APAC <unk> fastest growing region by revenues on a year over year normalized basis at 16, and 11% respectively, followed by the Americas region, which stepped up to 5%.
The Americas region. So.
Second consecutive quarter of record gross bookings with healthy pricing fever.
Favorable deal mix and record exports the other two regions.
America's net cross connect adds were the highest we've seen in several years, while we speak negative feeling cabinet additions in the quarter largely due to timing of churn.
Also in the quarter, we experienced a turn of some lower power density footprints in some of our acquired assets.
This occurred a quarter earlier than expected.
America's billing cabinets addition should return to traditional levels next quarter, we expect a larger step up in the first half of 2021.
After quarter end, we completed our acquisition of 12 Bell, Canada, Datacenters and expect to close the remaining asset allocated to this transaction in November.
Positioning equinix as a leading digital infrastructure provider in Canada.
Seven new Naturals, and 500, net new customers to sell to across the platform.
Our EMEA region saw strong bookings in the quarter with a healthy mix of small deals and new logo ads led by our London Amsterdam markets.
Interconnection was substantially up on a year over year basis, increasing to 12% of the region's recurring revenues due to both strong volume performance and favorable pricing initiatives.
I'd be accessed the utilization remains high and more than half of our major expansion projects are being constructed in EMEA region for hyper.
Skill project.
Added to our EMEA, one JV with GE I see.
And finally, the Asia Pacific region saw another strong quarter of bookings led by the Singapore and Japan markets.
Seeing early traction with our pending acquisition of Gtx and yet with interest across all of our customer verticals for the Mumbai market.
We expect to close the Gtx acquisition in Q1 2021.
And now looking at our capital structure, please refer to slide eight.
Our balance sheet remains foundational to our future success.
We ended the quarter with 2.7 billion of unrestricted cash on the balance sheet.
Total liquidity, including your unused revolving line of credit.
4.6 billion.
Our net debt leverage ratio remains at 3.3 times accuse me annualized adjusted EBITDA.
During the quarter, we raised a net 197 million of equity.
Leading our 2018 ATM program at an average price of $777 per share.
As we complete this year and head into 2021 and beyond we intend to enter into a new 1.5 billion dollar ATM equity program, which runs through two for 2023.
Which actually makes me often sell from time to time at Comstock for working capital and general corporate purposes.
As we've stated before an ATM program isn't efficient capital raising tool that we've used to fund our various business initiatives.
We continue to expect to use a balance of debt and equity to fund our future business needs and we'll continually seek to maximize.
Long term value attributed to our shareholders.
Turning to slide nine for the quarter capital expenditures were approximately $565 million, including recurring Capex of 38 million.
We opened three new projects in the quarter, including our entre into must carry them on creating a second neutral hop along with Dubai for the region's networks and sub sea cable Tropic. Additionally, we added 50, new projects to our expansion tracking sheet, including our first expansion in Mexico. Following the Axiall acquisition in Q1.
Bringing our total significant builds to 41 projects across 25 markets in 18 countries. The result, very strong customer pipeline.
Trust me, 75% of our major project spend is going to metro generating over 100 million in annual revenues, where we leverage the established ecosystem density and our installed customer base.
We continue to expand the ownership of land for development, including acquiring land in Bogota, Frankfurt and Paris.
Revenues from owned assets were 56% we continue to expect this number to improve in the near term.
Our capital investments will deliver strong returns as shown in slide 10.
A 148 stabilized assets increase recurring revenues by 5% year over year on a constant currency basis.
These stabilized assets are collectively 85% utilized and generate a 20% cash on cash return on the gross PPD invested.
And please refer to slides 11 through 15 for our summary of 2020 guidance and bridges.
Do note our guidance includes the anticipated financial results from the Bell, Canada acquisition, excluding the auto one facility, which we expect to close in Q4.
Starting with revenues.
For the full year, we expect revenues to grow 8% on a normalized and constant currency basis, which includes an incremental $39 million compared to prior guidance to the acquisition of the Bell, Canada assets and an expected foreign currency benefit offset in part by packet revenues being slightly below our prior range and the deferred timing of X next custom order work.
Which we anticipate will move to early next year.
M., our churn is expected to be within our targeted range of 2% to 2.5% for Q4.
We expect 2020, adjusted EBITDA margins of approximately 48%, excluding integration cost an incremental $21 million compared to prior guidance due to the acquisition of the Bell Canada assets.
As expected foreign currency benefit.
Also we expect to incur $20 million of integration costs in 2020.
We are raising our 2020, AFFO, which is now expected to grow between 16, and 17% compared to the previous year due to the acquisition of the Bell, Canada assets, an index and expect the FX benefit and lower interest expense.
2020, we expect gave a full per share to now grow between 10 and 11%.
So with that let me stop here I'll turn the call back to Charles.
Thanks Casey.
We're very pleased with our results this quarter and is keep noted we're immensely grateful to our teams around the world who continue to keep the customer at the center of everything we do and are delivering sustained performance in business.
Even in these uncertain times companies in every sector are embracing digital transformation as a critical business priorities. We are uniquely positioned to help our customers scale with agility and create digital advantage.
Our consistently strong bookings in healthy interconnection growth give us confidence in the strength of our digital ecosystems and the depth of the addressable market created by broad scale digital transformation, we continue to invest in our strategy evolving our platform in response to evolving customer needs expanding our global reach to accelerate digital delivery committing to a more sustainable.
Future ensuring that our culture is widely recognized as a place that attracts embraces inspires and develops exceptional and diverse talent. So let me stop there and open it up for questions.
Thank you at this time, if anyone would like to ask a question. Please ensure that your phone is and you did press star one and record your name clearly when prompted if you need to withdraw your question Press Star two again to ask a question. Please press star one.
Our first question is from Jordan Sadler with Keybanc capital markets. You May go ahead.
Thank you and good afternoon, so first.
First I just wanted to touch on what you're seeing in the business and.
Whether or not you're seeing any evidence of the enterprise positioning ahead of 2021 for a possible acceleration visa disease, where the digital transformation you referenced in your in the release in your remarks.
Sure no.
I definitely think we're I think we're continuing to see enterprise doesn't it as a very strong sort of vertical for us and cloud both cloud and in enterprise, which are sort of the two sides of the adoption of hybrid and multi cloud as the architecture of choice, we're seeing that show up both on the supplier side in terms of really strong cloud performance.
And on the demand side of the ecosystem in from enterprise and so I think what I've been really pleased with is our ability to continue a generate both new logos and enterprise bookings. Despite tobin, we've adapted I think very well in terms of our selling and marketing engine or overall go to market approach.
In light of what is now largely virtual selling cycle, but.
But yeah I think I think we are seeing enterprise continue to pick up in terms of their adoption of cloud and I think we're going to be in a good position to continue to invest behind that I think we're going to look look carefully at the productivity of our sales teams and look to continue to add where we think that makes sense, but I think there's.
A lot of opportunity in front of us in terms of the enterprise opportunity and I'd say, if you look at how we're evolving the platform by adding things like network edge continued success with that Capex fabric, which we talked about a $100 million run rate business now and then pocket which was.
Now have in markets in four markets with 10 more coming I think those are all opportunities to expand the proposition for enterprises.
Okay, and then just a a one point of clarity on the guidance.
You touched on it a couple of things. It was a couple of factors, but I just want to make sure. We're capturing all of that that the for the fourth quarter the implied a AFFO guidance.
Sort of suggests that the midpoint at least about a 15% decline from what you produced in Threeq, you and I know there were a bunch of puts and takes and I think the magnitude is smaller at the adjusted EBITDA line.
In terms of the decline, but maybe you can just walk us through Keith.
What's sort of driving that.
Sure.
Like anything in Q3, I mean, you can see that we had just had an excellent quarter and like.
Like to say that things gently bounds himself so.
We tended to have more good news than we had a bad news. If you will as a result, we mean to overperform relative to our guide.
Trying to put that in perspective for you because it.
So again when you look to the year in totality. When you look at the margin for the year, we're right, where we want to be and then you add an accretive transaction like Bell, Canada right you know what.
We're delighted with what's going on and then on top of that currency.
But as it relates specifically to the operating costs.
There's really three main things that have happened between Q3 and Q4, So let me deal with Q3 first.
There's roughly $15 million to $20 million of what I'd call favorable nothing.
That favorable outcomes and in three areas, one repairs and maintenance was lighter than we had planned.
And because of that we have is that we have cost moving from Q3, where you got the benefit into a quarter, where we typically do more repairs and maintenance you moved into Q4.
So you have roughly $11 million swing there quarter over quarter.
The second one relates to utilities and again no surprise I think many people on the call.
Well it does move around a lot there seasonality, we had basically between one off rebates and other things we had another sort of $5 million a favorable going through the utility like.
And then you slipped out into Q4 and going the opposite direction, where where basically we have some settlements with her.
Indirect power purchase arrangements work for sustainable energy and so your swing about $10 million there.
And then the last thing that happened was effectively and as I said in the prepared remarks.
When we started the year as you might recall from Q1.
We got you see a.
Negative hit to revenues of 3 million and 14 million to EBITDA at that time, we took a very.
A very conservative view on basically what the implications are for the coal over 19 would be on our business.
And because customer collections have been very strong.
We're in a position to release a portion of the reserves that we created.
And so we had a six six thinking about six 7 million dollar benefit in Q3.
But the flipside is as we move as we deal with Cove, It and the return to office and a one off payments to employees, we're moving to a negative four.
So all of a sudden you've got everything going from I can summarize it sort of it.
Positive sort of 15 to 20 million in Q3 to a negative 15 $20 million in Q4, and that's why I was very deliberate and my comment that once you get back to Q1, we get and we returned to our seasonal norm. If you will for EBITDA margins.
Yeah, there was a lot of moving pieces a lot of capability.
Quite openly it's I think we've got a conservative Guy you gone on acute Q4 numbers, but if everything went as as anticipated. That's what you would see and yet we still deliver against our expectations for the year plus the uptick from currency and then Bell Canada.
Long winded response I apologize for that.
Thank you for all the color appreciate it.
Thank you. The next question is from Sami Badri with Credit Suisse. You May go ahead.
Hi, Thank you very much for the question I just wanted to touch on first the channel strategy and you've obviously been doing a lot of trailblazing and creating new connections and new partners at formulating a much more robust sales motion.
I think many of us really kind of thought about a couple of years ago. So I was hoping you could give us a little bit of an update not necessarily on the percentage of revenue flowing in from channel partners, but more specifically has this channel strategy now formulated to where you guys want it to be or is there still essentially a lot more to go more channel partner.
The common to complement your business complement how you sell through or you guys are going to continue selling with the channel I'm. Just so we can understand how this could potentially will evolve over the next coming years.
Yeah, Great question Sami.
Short answer is I think there is a long way to go still I think a bunch of opportunities still in front of us I'm as Youve noted you were 30% of our bookings coming through the channel, but primarily on a cell with basis a lot of success in selling alongside our cloud partners and other technology partners, who I think have.
An aligned interest on sometimes somewhat begrudgingly, but sometimes quite MBR in a quite embraced way on hybrid and multi cloud as the architecture of choice. So, but I think there is a way if you really look at it. We won we we probably actually have gone through a pretty normal cycle, where we add.
A lot of partners realize that we weren't probably having that you know it was a smaller subset of them are really driving productivity and if actually you know glean that a bit and more focused on the partners.
A significant difference in the bookings now but.
But I think the areas, where we have room to go is really finding.
Those partners, who have the mortgage.
Milt leading can sell their.
Their own can create and.
In the southern Michigan than what exists and then also partner should bring complementary offer and provide a more complete solution for our customers.
Yes definitely.
Definitely success.
Okay.
Oh pumping like the EM ER.
Great.
And the investments.
Their tools tools voice in terms of.
For structure within the environment, and then you know sort of marrying that up with with the value proposition that equity earnings both in traditional Colo and what they might be doing there, but also with with services like.
The equinix metal offering, which we just brought to market off the backs of what we acquired with pocket. So I think there are some I think there's a fair amount of opportunity there in terms of in terms of growing the channel and taking it to a new level.
Thank you and then one quick follow up regarding just the X. scale choosy and initiatives.
Clearly had some new announcements and some new regions with Gtx and India coming into the pipeline is there a potential for taking the the exco G. The you know I want to say sales motion or opportunity into regions like in India and into potentially say Latin America, where there is high growth in large opera.
Kennedy for bones, Hyperscale or just very large deals.
Yeah, you know, we I think we've.
Gotten comfortable with our ability to navigate some of the complexities associated with these things as you roll through or call. It took us a while to get there on on the X., Gail Jvs and get them.
Sort of fully.
Fully work through all the complexities that come with that but I do think there's opportunity for us to extend that either directly in terms of just additional jvs, which we have commented in the script and and others that were already well underway on discussions in other markets, where we think the the JV structure will work effectively.
And we think that that includes some of the markets that you described but I also think there's other ways that we kind of think about potentially over time using other peoples money as a as a point of leverage in terms of getting financial partners, who are really excited about the returns that we could offer and then we give us.
The ability to gain more more run way out of our balance sheet and focus our firepower on the on the high returning investments that are really down the middle for us. So so I do think there's more opportunity for that four out there I think a near term focus is really going to be on additional markets, where we would look at jvs and I think you'll be hearing more.
From the more about that from us in the coming quarters.
Got it thank you.
Thank you. The next question is from Ari Klein with BMO capital markets. You May go ahead.
Thank you can you unpack that performance in the Americas, a little batch turn was higher in the quarter or maybe just address that whether or not that's something that that could continue and then you noted the expectation for improvement in the Americas, but how are you doing to organic growth profile there.
Well, specifically drive improvement from here.
Sure.
Keith maybe I'll start and you can add anything.
You want there, but look we actually feel very good about the Americas business, we talked about over the last several calls that we expected to sort of return to about a 5% growth rate in the Americas.
You know it towards the back half of this year and years you are seeing that now as you. As you noted churn was little bit higher you know that was associated with Keith actually mentioned that in his script really to larger deployments. One that came in a quarter earlier than we thought the other on there was you know came in as forecasted in terms of churn.
But candidly those were both deals that wouldn't have met our commercial hurdle in terms of deal. We would have done in terms of our focus on really ecosystem centric you know a interconnection oriented footprints and so even though we're seeing some we saw a negative billable tabs movement as associated with that churn I think.
As we backfill that with the right kind of business you know that we're showing we can do that we can find out there and deliver bookings on I think we're actually going to get improvement on yields in the facilities that were impacted so you know, it's it's definitely a more mature market, we're working hard to continue to drive.
Good traction in the enterprise market and seeing good success. There I do think there is organic growth opportunity for us, particularly in the enterprise market and also by the way I'm using that.
Selling force.
Export business to our other regions, which is playing a very very key role in doing so I think thats. The quick snapshot of the Americans and again definitely more mature market read has returned to growth pretty nicely. I think we are going to see some of those turns come out that were deals that we wouldn't have really targeted prior.
And I think as we as we stabilize we'll see continued improvements in yield.
Charles Ive, just said because a couple of comments I would just add to what Charles said is.
Number one when when Charles made the reference to the fact these aren't deals that we necessarily would have done ourselves.
Having having no churned it turned those deals where you've actually effectively seen as RMR per cabinet increase as part of the reason for that increase the second thing is really important as you know we are dealing with a mature market, but to two points are worthy of note that were in our in our commentary number one Americas had one of its best quarters.
Ever so that that's another positive, but the interconnection activity continues to be seasonally strong and that's on a net basis and so you've got a very healthy ecosystem that's being developed.
On top of that we are investing around our new products and services. So I would think over some period of time, you're going to see an acceleration of that opportunity, but you also will see a higher attach rate and so did so despite some of the negatives that you see there are some real positives are coming down the road. The last thing is in my prepared remarks, I didn't make the comment that.
The Americas has been choppy as being choppy for a few years.
But we are anticipating a return next quarter to more normal billing quarter and then we do anticipate a more meaningful step up in the first half of next year.
Thanks, and then just I cannot briefly on the packet acquisition can you just talk about what the customer response has been to lot of metal and then I think you noted in the guidance that the growth.
Little bit lower than you expected maybe address that.
Sure you bet I'll tie those together yeah. We had we had previously guided 32 to 40 and and I think that we're going to come in a little below that prior range, it's really.
An artifact of a decision that we made in terms of focusing on when we first did the acquisition. Our belief was that we would kind of let the existing packet offering run for a period of time and then seek to launch a fully integrated equinix metal offer in early 21.
But the the response frankly from customers was super positive in terms of our our intentions to offer you know met.
Metal as a as an offering and they were really encouraging us to bring together the feature set that we envisioned in our in the organic product that we've had underway when we bought pack and so so we decided to bring the teams together, but then we waited a bit in terms of we wanted to make sure we had the off.
Bring in market before we put the real wood behind the arrow from a sales enablement perspective, and so I think that resulted in us being slightly behind in terms of where we had hoped to be from a bookings and revenue standpoint, but if you look at it in terms of what we expect to deliver in Q4 and what that implies on an annualized run rate about 30, it's really.
Not too far off expectation.
I think encouragement that we're getting from summer about what they believe is possible.
Yeah, Thanks, a lot.
As we enter new markets over the course of the first half of 2021.
I think there's a great opportunity there. So we feel very good about it when we bought that business, primarily because of the technology and then eat and to really give us some credibility in the market. We thought was super attitude to our value proposition and I would say along all three of those dimensions. It has been what we hope for the team is terrific we.
Seeing we've seen very little turnover in that team I think they are great cultural fit they come together with our engineering team to really develop I think in equifax metal offer that's going to be very successful in the market and we feel very optimistic about the path forward.
Appreciate the color. Thank you guys.
Thank you. The next question is from Michael Rollins with Citi. You May go ahead.
Thanks, and good afternoon.
Just curious because you're getting into that 2021 budgeting process to give us a preview on how you're thinking about balancing topline growth with the company's long term margin goals to get above 50% and then just secondly in the quarter. It was curious if you can unpack some of the strength in nonrecurring.
Revenue sequentially in year over year, and how to think about that level going forward.
Sure.
Keep maybe I'll take starts and you can comment on the second one if that works.
And anything one on the budget too, but were kind of well underway on that we do believe that its and you've heard from us Mike over the years. The same old song and dance. If you will which is we really think about this as a long term long term value creation is our objective and we want to maximize market opportunity and leverage.
Our significant differentiation to introduce it to do that and I think that does require that we continue to evolve our service offerings on our platform to be adaptive to to what our customers are asking for and I think that that will and it will require investment but.
But we also have a focus on continuing to drive operating leverage in our business and converting that into into margin expansion and so we continue to believe that that 50% is an achievable long term target and we want to drive margin expansion, where we can I think if you look at the upper.
In performance in the sort of EBITDA levels that are our mature markets operate out it's something that we ought to be able to achieve.
We're very focused on trying to make some investments in automation to drive.
Operating leverage.
And will and then we will trade off when we drop that to the bottom line and give margins merch margin expansion versus putting that in.
And doing things like adding additional services platform and investing in further automation, so well well come back to you obviously with more clarity as we as we align that but that is the approach that we've taken and I do think it's going to you know it's going to be a journey still for us and my on balance I would say.
I believe the opportunity is such that we ought to continue to invest in the business and I think it would be a make mistake for us not to do that but we also need to make sure that we don't lose sight of the importance of operating leverage.
And my call as it relates to the second quick question. So this quarter, we did a roughly five 5.8% of our revenues came from nonrecurring.
In fact, it was a meaningful step up as you as you know over the prior year and also a over the prior quarter. In fact, we actually did a little less than we anticipated we thought we'd do $4 million to $5 million more this quarter than than than we actually did here that all said I did make the comment that at a different customer.
Custom work that we do as a company will likely push into the first the first part of next year.
And I think it's fair to assume you for all the different reasons that somewhere between five and five and a half and 6% is a reasonable nonrecurring revenue expectation, we'll certainly update that when we give the full annual guide in February, but thats, a reasonable assumption to make vis-a-vis or non recurring revenues and.
Again.
It's relatively it's five 5.8% on average for the year. It is for the quarter and it's not I mean, it's not a meaningful departure from where we were year to date last year. So I think we're about 245 million year to date.
Last year at this point and were about to $42 million to $43 million year to date in 2020, So again I'm comfortable in the five and a half to sort of 6% range and then we'll update that accordingly.
Keith just to understand the business activity under those dollars.
Can you describe what's happening in terms of is this representative.
You know some of your customers I can't catch your facilities and your smart Hannes Wittig nutrition installation services more than they did in the past or is this.
Tied to just the normal course installations and what your processing.
Just curious if you could unpack a little more of what that is yeah sure. There's a number of things that certainly go on in that particular line first and foremost of course are the deferred installation revenue that we realize with every sale that we make.
Certainly there is up as their drag along effect referee M. our dollar.
We we book stores and and our our dollar as well and so you defer that over basic that the relationship of that of that contract.
Then in addition to that at times, there's goods from goods for resale.
There's custom work that we do as well and think about a large.
Perhaps a large hyperscale or a large customer who is looking for a build out of their environment and so we do some of that work and we do a fair bit of the work, particularly for the Hyperscalers and as a result, it can be a little bit lumpy and it'd be it'd be custom cabling and installation work for the customer so effectively they move and put their servers and are there.
Our equipment into the racks and there are good to go but we do all the prep work again, it's a it's a great line of business for US It varies and margin return again, we use some cases, our own workforce, but that's a line of business that generates roughly 30% or 25% to 30% margins and it appears on the non recurring revenue line.
Thanks.
Thank you.
The next question is from Colby sinus cell with Cowen you May go ahead.
Great and just a few numbers oriented questions first off just to.
Make the point, so we should be adding some crack.
Looking at $20 million back to our first quarter 2021, EBITDA when when modeling.
Before taking into considerations like seasonality is that correct.
You say Oh.
There's there's certainly the take away the seasonal aspect. So colby as you know we have the FICA reset in Q1, and we also have our annual sales conference. So if you put that aside and that's why I wanted to swing back to traditional seasonal seasonal margins that is ranged anywhere from 46 to sort of 48% keeping your sales over the last few years, but suffice it to say there.
Absent any investments that we've made we make a given Charles in his comments that is that you are talking about $15 million to $20 million. It would come out of the Q4 numbers.
And when we add it back into the fourth into the first quarter number yes. Okay.
Okay, and then secondly, you guys gave guidance back in 2018.
Your analyst day of 8% to 10% revenue and.
8% to 12% and <unk> per share and you gave that guidance for each year through 2022, you normally have an analyst day every two years it would've been in June of this year, but you didn't and is that guidance that you gave back in 2018 in terms of how to think of the business still.
Alan and then if I could just sneak one extra question in there you gave guidance.
Earlier this year for zero to $50 million impact from Koby 19, curious where are we in terms of the actual impact year to date and what the thinking is for us for the fourth quarter. Thank you.
Just Charles you want me to take those are yeah. There's a few of them there. The one we once you hadn't yet jump in where you wanted there and I'll add.
Oh, Okay, well first and foremost colby as it relates to the to the analyst day Guy in the 8% to 10% was a number that we we we embarked upon again in June of 2018 and as.
As you know, we've done very well <unk> very well against those expectations, particularly around the AFFO per share again, 8% to 10% and there's been a lot of activity.
We've done a good job of normalizing for Conns.
For currency and then for the acquisitions.
To say you know were.
We are thrilled to get a third year into it and you know we're running ahead of what we originally told the market at that point in time.
As it relates to the next five years is probably a little early to give a give you a sense, but but generally speaking I feel very good about sort of the range that the ranges that we were giving at that time a.
A lot has changed since then and we'll update you accordingly, including some of the acquisitions, we've made and.
And we'll be very active as a business.
But overall I feel very good that we can deliver against that profitability target that we set for ourselves vis-a-vis on a per share basis.
Make sure that the shareholders recognize the value that would deliver.
I'm, sorry, I have no because.
COVID-19 wasn't that bad yeah.
As it relates to covert again, you're right.
We we basically said a relatively wide range as you know, but then we targeted around midpoint.
And you can see us starting to Peel back so there's definitely some impact even you know as we as we talked a little bit about.
The packet you know the packet acquisition and just.
The difficulty on making making sure that we can pull altogether as Charles said in a corporate world you know that certainly slowed us down a little bit but put that aside for a second I think overall the things that we were most worried about is what customers were going to go out of business, what payments, where we not going to to receive what where the incremental costs certainly as a business.
You know again, we we said $40 million of costs in in Q1.
The EBITDA line.
All intensive purposes, we wrote back 6 million of that in the third quarter and then we're going to book another 4 million.
New costs in Q4 soon so net so net net you're sort of somewhere in the $10 million to $15 million range on EBITDA I would say I feel pretty good about that as it relates to the topline. We it's hard to quantify there are certainly some impact from Covance I think I think you know outside in the in that 20.
$30 million range.
And here is how we got there for a number of reasons.
Very good success in being able to book.
The gross line there.
Absolutely well there will be some there there has been some fallout from Cowen for companies have gone out of business and would make concessions and other things and so we're absorbing that but I also think there's been a timing implication.
The timing implication.
Particularly in Q2, and a little less on Q3 customers were having difficulty difficulties getting to sites and doing deployments and all that and so the knock on effect on the revenue line began our estimate.
Again, as we share with our internally and also with our board is probably at a $20 million to $30 million number. So that sort of gives you a sense of the ranges a that was absorbed again, we're delighted with where we are vis-a-vis all that what could have been one when we first started here in Q1 and started locking things.
Clearly we've done a meaningfully better than we originally anticipated from that original guide, but that's I think because the company. The company has been running extremely well and our customers have been paying their bills as they come due absent a few concessions that would be making here and there.
Oh, I'm, just a little color on all of them. One just backing up the very first question you had in terms of.
Again, just to be clear I think that what we're what we're saying here is that the Q4 downtick, which is apparent in the guide is really a matter of movement between Q3, which obviously, we significantly overperformed on EBITDA that was there.
That was pulled forward and shipped and I think if you take that and you you sort of adjust for that the movement between quarters. I think you would see a much smoother trajectory and then we would expect that to sort of continue to roll into Q1 with the margin profile, that's more consistent with kind of what we typically see so that's.
Yeah, that's I guess clarification enough on that one.
Terms of multiyear Guy, we were going to come back and obviously provide that.
In and hopefully we'll get back to an analyst day here this year and we can offer that and but I do think that we continue to believe that our addressable market opportunity continues to grow and I think we're going to continue to find ways to invest behind them and then again uncoated I think Keith gave the color, but there were a number of hard cost that we continue to.
See in that there's definitely tradeoffs and there are some things that are are better, but we're also putting we've made significant investments in terms of trying to address.
Our employee wellbeing during this period of time, putting investments in making sure that work from home is a good experience for our employees and so there's some hard dollars that hit that tough.
Tough to put all of the revenue impacts fully in the play but.
ER into perspective, but but overall I got to tell you I think we're extremely happy with how the team has performed.
Despite the pandemic.
Thank you.
Thank you. The next question is from David Marino with Greens Green Street, you May go ahead.
Hey, guys. Thanks for taking the questions I actually got two legislative focus questions for you.
The first one you know with profit.
15 on the California ballot in November <unk>.
You can't give us an idea of what the increase in Atlantic City property tax Bill would be measure were to pass and.
And then the second one in New Jersey I was curious if you started having any conversations with some of your financial tenants as a result of the proposed financial transaction tax. There you know if you could just remind us what percent of your cash gross profit comes from New Jersey, and it'd be great. Thanks.
Yeah, Let me, let me jump on the second one first and give a little bit of color and then Keith maybe you can take the crop 15 and at any color on on sizing you know potential impacts from the New Jersey thing, but what I would tell you is yes, obviously, we're deeply engaged with our financial trading customers very healthy.
Ecosystem globally, and certainly New Jersey is.
It is an important one I would tell you that those companies are designed with input.
Partnership with excellent looks to be highly resilient.
And I think that they're going to they're going to make it clear that they can they can move their there.
They're trading platforms around as they need to you know traditionally that has been in response to a disaster I think some of them. We consider the German New Jersey tax a disaster that they would respond to.
[laughter] take we just.
And you know, we're we're there as a partner to to support them in terms of making sure that they can continue to run their business effectively so I think that it would be.
It would be there would be a potential impact to that but I think it would be a movement around the ecosystem I think in terms of being able to restabilize that trading volume in other venues and so I personally think that you know I think.
People are he cooler heads are going to prevail and I think it will realize that that's probably not a great outcome and that wouldn't it wouldn't accomplish when people had had hoped for and but we're very closely aligned with our our trading customers and I think in a coordinated approach to try to make sure people and people are thinking.
We added about that.
Thanks, Charles and so I would say that as it relates to generally to the legislative matters that are coming in front of us, particularly around the tax first and foremost as we.
I think we all know.
Fixes the rate yeah, U.S. reason because of that.
No matter what the outcomes are I think you were not going to pay much in the form of corporate income tax I don't think there can be a meaningful change.
As it relates to some of the propositions, though.
Charles I think as highlighted well what our position on the New Jersey.
Natural transaction tax or the potential for that profit.
15 in California, we have roughly 11 triple net leases to give you a perspective.
Some of our properties if it moved for profit 15 move for we would estimate is.
Still going to be a huge number, but it's probably going to be in the $5 million to $10 million range.
That's the or at least our estimate today of what could it could be again, we're paying very close attention to this and.
You know again, we'll we'll know over the coming coming quarters, what they see on the outcome and then we'll we'll update the investors accordingly on the future and lets call future earnings calls.
Great. That's helpful. Thank you very much.
Okay.
Thank you and that was our last question.
Speakers I will turn it back to you for closing remarks.
Thank you for everyone joining the Q3 call that concludes the call.
Thank you for participating in today's conference all participants may disconnect at this time.
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