Q4 2020 Equinix Inc Earnings Call

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Good afternoon, and welcome to the Equinix fourth quarter earnings Conference call.

All lines will be able to listen only until we open for questions.

Today's conference is being recorded if anyone has objections. Please disconnect at this time.

I'd now like to turn the call over it.

To Katrina.

Vice President of Investor Relations and sustainability you may begin.

Good afternoon, and welcome to today's conference call before we get started I'd like to remind everyone. That's on the statements will be making today are for.

We're looking in nature and involve risks and uncertainties.

The results May vary significantly from the statements may be affected by the risks we identified in today's press release and those identified in the filings with the SEC, including our most recent form 10-K from of February 'twenty, one 'twenty and thank you bye all of them.

Sure.

2020.

Equinix assumes no obligation and does not intend to update or comment on forward looking statements made on this call. In addition of lot of regulation fair disclosure.

Policy not to comment on its financial guidance from the quarter unless it was done with the public disclosure.

In addition, we'll provide non-GAAP measures on today's conference call.

We provide a reconciliation of those measures for the most directly comparable GAAP measures and the list of the reasons why the company uses these measures in today's press release from Equinix IR page at Www Dot net.

Dot com, we've made available on the IR page of our website.

Presentation designed to accompany this discussion along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about equinix in the IR page from time to time and encourage you to check our website regularly for the most current available information with US today are Charles Meyers Equinix and the C E.

And President and Keith Taylor, Chief Financial Officer.

Following our prepared remarks, we'll be taking the questions from sell side analysts.

In the interest of wrapping this call up in an hour we'd like to ask these analysts the limit any following questions for just one at this time I'll turn the call over to Charles.

Thank you Katrina good afternoon, and welcome to our fourth quarter earnings call I Hope. The 2021 is off to a great start for all of you kind of you and your loved ones are safe healthy and ready for an exciting year ahead.

As I reflect on the extraordinary events of 2020, it's clear we're living in the time. Unlike any other of our history without question. The COVID-19 pandemic changed nearly every aspect of our lives for some of the impact has been and continues to be devastating for parts and our support continue to go out to those suffering or facing great loss.

Despite the rapidly changing the landscape. Our focus has remained clear ensuring the health safety and wellbeing of our employees customers and partners keeping our data centers safely operating around the world and continuing to be a source of strength for our communities.

I'd like to take a moment here to thank our employees for not only enduring but it's selling in the face of adversity and for powerfully demonstrating our commitment to be in service too.

In service to each other to our customers to our shareholders and to the communities in which we live and operate.

In the midst of all of that is true inspired our business model has proven resilient and we continue to innovate execute and deliver for our customers.

We closed over 17500 deals in 2020, reflecting the strength of our value proposition and highlighting the tremendous scale and momentum of our go to market engine.

We expanded our scale and reach both organically and through M&A solidifying our position as the leading digital infrastructure provider in Canada, entering the Mexico market and announcing our GP ex transaction in India, which we believe will be an ideal springboard in this large and growing market.

We completed 16, new expansions or most of that can build year ever and have a sizable construction road map still ahead to support our backlog and healthy pipeline.

We've introduced transformative capabilities on Equinix fabric and network edge revolutionizing the way enterprises connect digital infrastructure and we launched the Equinix now fully automated and interconnected bare metal as of the service offering that provides even greater flexibility for customers to place their digital infrastructure, where they need it when they need it.

We also had a very active year in the capital markets leveraging our investment grade ratings to refinance our debt driving substantial interest savings into the business as reflected in our <unk> per share metrics.

For the year, we delivered $6 billion in revenue completing our 72nd consecutive quarterly top line increase and amazing 18 years of continuous revenue growth.

In terms of the road ahead, one postpaid pandemic reality is already clear our world is increasingly an inescapable even more digital digital is reshaping our everyday lives and is impacting every element of our customers' businesses.

Not just how they interact with their customers, but how they interact with their data how they collaborate and innovate how they support their employees how they engage partners how they architect their network everything is changing.

Digital transformation is reshaping the competitive landscape across every sector of the global economy and is fueling demand for a new generation of the digital infrastructure.

The infrastructure there is more distributed more cloud connected and more flexible.

Characteristics that represent the hallmarks of platform Equinix.

As service providers build out their infrastructure to capture burgeoning digital demand in enterprise customers embrace hybrid and multi cloud as the architecture of choice.

<unk> continues to play a key role as the Nexus for advancing their digital transformation journeys.

We believe that the overall market for digital infrastructure will continue to expand significantly creating a massive long term opportunity for those providers able to adapt to the evolving needs of digital buyers.

We believe equinix is uniquely positioned to capture this expanding addressable market and we entered 2021 with a clear set of priorities to build on our market leadership reinforce our competitive advantage and invest in targeted ways to position us for sustained value creation.

First supporting our people and strengthening our extraordinary culture will continue to be at the center of our strategy people are foundational to how we will navigate the challenges and opportunities ahead and our goal is to ensure that our culture creates a sense of opportunity and belonging for all our employees reporting us of durable source of competitive advantage. This.

Here, we're expanding our award winning sustainability ambitions of priority of that has resonated with both employees and customers as diversity inclusion social justice and climate change all remain front and center on the global stage.

Ex is an important component of greening digital infrastructure and we have seen a significant increase in customer interest in this area. We continue to expand our efforts around renewables coverage energy efficiency projects Green building certifications as well as our pursuit of science based targets and innovative techniques to push sustainability forward in all three regions.

Second we will focus on simplifying and scaling our business to drive long term operating leverage and enhance our customer experience. This will include targeted efforts aimed at streamlining and automating ordering and billing, enabling channel self service and delivering enhanced digital engagement options for our customers in parallel we will continue to evolve in <unk>.

Taylor highly productive go to market engine investing in more quota bearing head count and leveraging our growing channel to amplify our reach to prosecute the opportunity in front of us.

Third we will continue to expand our global reach with an ambitious plan across both retail and ex scale and the indirect response to customer demand and fourth we will accelerate our digital services business, adding new product capabilities expanding market out of availability and augmenting our go to market motion all aimed at accelerating new customer acquisition.

And positioning us for future growth as we drive attach rate across our expansive customer base.

Turning to our results as depicted on slide three revenues for the full year were $6 billion up 8% year over year.

Adjusted EBITDA was up 8% year over year and <unk> per share grew 12% year over year, Inc.

Interconnection revenues grew 14% year over year, driven by strong adoption of Equinix fabric and solid interconnection ads.

Gross growth rates are all on a normalized and constant currency basis.

Our longer term product roadmap and platform vision continue to advance to support our position as the world's digital infrastructure company we.

Now have over 392000 interconnection and continue to build out ecosystem density across our metros in Q4, we added an incremental 7700 interconnection more than our top 15 competitors combined fueled by continued strength in network and cloud connectivity.

Internet exchange saw significant increases both in port capacity and traffic growth with peak traffic up 8% quarter over quarter, and 43% year over year, driven by cloud content and gaming segments.

The next fabric also saw strong growth driven by port additions as well as existing customers upgrading to higher speed connections and increasing their use of our inter metro offerings.

We also launched a new capability that allows the equinix fabric users to quickly and easily connect any other customer on platform Equinix unlocking the full value of our scaled digital ecosystems.

And with Equinix fabric integration built into both network edge and Equinix metal digital leaders are finding it easier than ever to use equinix to create and connect their foundational infrastructure.

In its first quarter as an equinix branded product of Equinix meld, the demonstrated solid momentum and is now available in eight global metros with plans for an additional 10 markets early this year.

On the ex scale side of our business. We continue to be very pleased with our JV strategy and are making significant progress expanding the reach and scale of that business has.

As planned ex scale is enabling enabling us to extend our product set capture of hyperscale demand and deepen cloud density while leveraging our balance sheet with the JV structure, we have an ambitious plan for 2021, and our resourcing ex scale to accelerate growth.

These include increments of our existing Jv's entering the new markets, such as Australia, and evaluating new options to broaden our reach and leverage broaden our reach and leverage our existing land bank.

We currently have eight ex scale builds underway spanning all three regions and are moving forward with the second phase of Tokyo 12, given early success in this market.

Now, let me cover highlights from the verticals.

Our network vertical channel again achieved record bookings driven by carriers upgrading core edge in mobile networks to address shifting traffic patterns, resulting from the pandemic as well as continued strength in enterprise retail network service providers have proven to be some of our most productive channel partners, which has led the sustained momentum in this vertical.

New wins and expansions included sending the networks of Danish network provider connecting the partners in Amsterdam, Frankfurt, Hong Kong, and London, as well as of Fortune 500 cable operator, leveraging equinix to re architect core infrastructure for cloud access to support video on demand cashing in delivery.

Our financial services vertical also had a record quarter led by multinational financial services firms with particular strength in the Americas expansions included a global 2000, and Fintech player expanding their equity options present to access our dense financial ecosystem and a portion of 500 insurance company implementing of hybrid cloud strategy on platform Equinix.

Our content and digital media vertical saw particular strength in video and digital advertising as companies are investing to bring their services directly to consumers new wins include one of the larger the shopping and E commerce retail groups deploying infrastructure to support digital ecommerce activities and index exchange of top independent Global AD Tech marketplace.

Expanding compute nodes to manage increasing traffic from customers.

Our COVID-19 vertical delivered solid bookings increasing density and coverage of software as the service providers and winning new cloud on ramps in smaller markets, including Dubai in Melbourne.

Expansions included Fortinet for global Cyber security platform provider, expanding the support scale and user experience and service now deploying infrastructure closer to users in Europe, the optimize performance enhanced user experience and support their rapid growth.

Our enterprise vertical had a strong quarter, driven by health care and retail as telehealth and digital initiatives and see continued momentum.

Work from home and collaboration related use cases remain active although less in peak pandemic levels as enterprises shift their focus back to broader digital transformation initiatives.

The new enterprise wins included atrium health the largest system health system in the southeastern U S employing digital infrastructure to enable compliant multi cloud and business partner of interconnection as well as of Fortune 500 manufacturing company deploying digital infrastructure of Equinix to facilitate cloud connection.

And our channel program had another great quarter accounting for 35 per cent of bookings, we saw particular strength with our Hyperscale and technology Alliance partners, capturing wins across a wide range of industry segments focused on digital transformation efforts as well as pandemic response, new partner wins included of Canadian Army automobile parts of manufacturer accessing our network.

Work and cloud density to interconnect for the connected car and broader automotive ecosystems.

We continue to expect channel bookings to be the important pillar of our go to market strategy in 2021 and beyond now let me turn the call over to Keith to cover the results for the quarter.

Thanks, Charles and good afternoon to everyone.

Charles noted for living in unique times, and I Hope you and your families are healthy and well.

Despite the challenges of 2020, the Equinix team rallied at all levels of the organization and delivered another strong year for our investors our customers and our employees.

We ended the year on the high note with the record gross bookings.

The inter and intra reaching deal flow activity.

Positive net pricing actions and it.

Healthy sales pipeline as we head into 2021.

Also we ended the year with significant backlog of cabinets booked but not yet installed.

Consistent with my prior quarters comment, we anticipate a meaningful increase in our cabinets billing metric in the first half of 2021.

So simply put we continue to drive value on both the top line and of the per share level and our core strategy is the world of digital infrastructure company continues to separate us from our peers.

In the year ahead, we're leaning into our product and services initiatives scaling and automating our business and investing to expand our platform.

We're also managing substantial cut construction activity at a level previously not seen with.

With 44 major expansion projects currently underway across 30 markets in 20 countries, including Asia ex scale builds.

Our build efforts of our dollar weighted towards major metros that generate over $100 million in revenues.

For the Opex and Capex investments are driving and supporting the continued volume of high quality interconnection rich wins across both our direct and indirect channels.

Resulting in durable long term value creation for our shareholders.

We've also been active in the capital markets better trending from an investment grade ratings.

Help drove down our cost of boral.

Over the past two years, we've raised over 11 5 billion in the capital funding of the growth and scale of the business, while lowering our overall blended cost of borrowing by approximately 160 basis points. Another value driver is reflected in our <unk> per share metrics.

Now let me cover the highlights for the quarter note that all growth rates in this section are on a normalized and constant currency basis.

As depicted on slide for global Q4 revenues were $1 56, 4 billion up 8% over the same quarter last year and better than expectations in part due to strong in all of our activity, although offset in part by one off of accounting adjustments.

We enjoyed another quarter of net positive pricing actions of strong reflection of how our operating model differs from our peers.

Q4 revenues net of our FX hedges included a $9 million benefit when compared to our prior guidance range.

Looking forward, we expect in all of our activity to decrease in Q1, although step up again in Q2.

Global Q4, adjusted EBITDA was $711 million for 45 per cent of revenues up 5% over the same quarter last year.

Performing our expectations due to favorable revenue mix.

<unk> operating performance the lower utility costs.

Our Q4 adjusted EBITDA performance net of all the FX hedges included a $4 million net FX benefit when compared to our prior guidance rates.

Global Q4 of <unk> was $517 million meaningfully above our expectations on a constant currency basis due to strong operating performance, while absorbing seasonally higher recurring capex investments.

Of the scenario to prior years consistent.

Consistent with the <unk>, our operating cash flow has increased significantly in the quarter largely due to strong collection activities.

Interconnection revenues were greater than 18% of recurring revenue showing continued strong momentum across each of our regions. Both on a dollar basis and as a percentage of our recurring revenues.

Turning to regional highlights whose full results are covered on slides five through seven.

APAC and EMEA were our fastest growing revenue regions on a year over year normalized basis, both growing 11% followed by the Americas region at 4%.

The Americas region saw its third consecutive quarter of record gross bookings with the firm pricing.

The high mix of mid size deals and our highest number of new logos in two years.

Additionally, the team continue to sell across the global platform delivering on our second consecutive quarter of record exports for the other two regions.

The Americas net interconnection ads remained strong.

The spelling trended back to normal levels, and we expect the large step up in cabinet billing in the first half of 2021.

Bell, Canada assets had a good start under the Equinix pattern and our integration efforts remain on track.

For EMEA region saw solid bookings in the quarter, including our best intra region in two years.

For the firm pricing led by activity in both of our Amsterdam and Frankfurt markets.

Revenue growth remains strong, although we expect some 2021 moderation as we lap past our successful cross connect.

Pricing initiative in 2020.

Also we're investing broadly in our growth in emerging markets, our gyms to meet the anticipated demand in these edge metros.

And finally, the Asia Pacific Region had its second best gross bookings quarter with the solid mix of small ecosystem accretive deals and our Singapore and Japan businesses.

The utilization rates remain high.

We expect to bring new capacity online over the coming quarters in key markets to easy anticipated capacity constraints.

And now looking at our capital structure.

Please refer to slide eight.

The year end, our balance sheet is greater than 27 billion.

<unk> unrestricted cash of approximately $1 6 billion.

Meaningful decrease over the prior quarter due to the close of the Bell, Canada asset acquisition and the settlement of debt refinanced in the quarter.

Also we moved our Paris nine asset into the Mei Mei of JV income.

Our Japan JV with GIC in December.

As a result net of our equity investment of the JV reimburse us over $300 million in the quarter of year end, our ex scale joint ventures had total assets on their balance sheet upgrade of the $1 billion, including of the capital deployed.

The 2020 why didn't you should continue to expect a meaningful increase in ex scale activity.

The net debt levels remain low relative to our peers at three eight times of Q4 annualized adjusted EBITDA within our targeted range.

Over the past two years, we refinanced a large portion of our historically high yield debt structure.

Yes, we still have another $1 8 billion of debt to finance over the coming quarters, which at current rates would result in another $50 million plus of annualized interest savings.

Turning to Slide Inc. For the quarter capital expenditures were approximately $834 million, including of recurring capex of $74 million, a meaningful increase over the prior quarter, but as expected.

Our construction and procurement teams continue to actively manage our expansion pipeline delivering capacity of robust build levels, while incorporating of the health safety and wellbeing of our internal and external teams.

Over the past year, we've experienced an average construction of the lay of a few weeks due to the pandemic.

Trend that we will continue to monitor and assess.

For Q4, we opened four new expansion projects D C of Frankfurt, Paris, and Sao Paulo.

Additionally, we added seven projects for expansion tracking sheet, including our entre into generally Italy in support of the subsea cable landing station of opportunity.

<unk>, one will have a direct fiber access to the launch of new flagship facility in this metro slated to open in Q1.

We continue to expand our ownership of acquiring land for development in Genoa, Madrid, Mexico City, Milan, and Sao Paulo.

Revenues from owned assets currently represent about 55%.

For capital investments deliver strong returns as shown on slide 10.

For 147 stabilized assets increased recurring revenues by 4% year over year on a constant currency basis.

These stabilized assets are collectively 84% utilized and generate a 27% cash on cash return on the gross PP&E invested a step down over the prior quarter due to the impact of the weaker U S. Dollar on our non U S stabilized assets.

As a reminder of similar to prior years, we plan to update our stabilized asset summary of the Q1 earnings call.

Please refer to slides 11 through 15 for our summary of 2021 guidance and bridges do note. Our 2021 guidance does not include any financial results related to the pending GP ex India acquisition.

Starting with revenues for 2021, we expect top line growth of 10% to 11%, reflecting the continued momentum in the business and favorable FX rates relative to the prior year.

On a normalized basis revenues are expected to grow 7% to 8% over the prior year.

Some of our churn is expected to remain in our targeted range of two to two five per cent per quarter for the year for.

For Q1, we expect the MMR churn to be at the lower end of this range.

We expect 2021, adjusted EBITDA margins of approximately 47% excluding integration costs. The result of operating leverage of the business offset by investments in our product ex scale and business simplification initiatives.

We expect <unk> for $30 million of integration costs in 2021 for various acquisitions.

2021 of F. O is expected to grow 10 to 12 per cent compared to the previous year.

<unk> per share is expected to grow 8% to 10 per cent.

Including integration costs, we've excluded any capital market activities here.

2021, Capex is expected to be two 5% to $2 8 billion, including approximately $180 million of recurring capex spend which represents about 3% of our revenues. This guidance also includes approximately $250 million of on balance sheet spend related to ex scale projects, which we expect to be reimbursed for in the future as we move.

Marcel axis into either a current or future <unk>.

And finally, we expect our 2021 cash dividends to increase to slightly greater than $1 billion.

A 10% increase over the prior year for an 8% increase on a per share basis. So let me stop here and turn the call back to Charles.

Thanks, Keith <unk>.

In closing as 'twenty 'twenty showed us our world is a very dynamic place.

I'm proud of how we have navigated and adapted through this challenging environment and I'm pleased with our increasing momentum in unlocking the tremendous opportunity ahead, we had a strong finish to the year delivering across each of our areas of strategic focus all while maintaining a disciplined and long term oriented approach to our capital allocation and shareholder return strategies undoubtedly.

As with all times of transition and transformation. There will continue to be challenges ahead, but I'm as optimistic as ever about our business and the opportunity to serve our customers partners and shareholders as the world's digital infrastructure company we.

We need to continue to invest in extending our market leadership and ensuring our long term relevance to the expansive opportunity presented by digital transformation as of <unk>.

Society and as a company we learned a lot in 2020 and I believe there are a plethora of silver linings that will come from this past year, we enter 'twenty 'twenty, one build with gratitude ready to tackle the challenges and opportunities ahead and collectively energized by the pursuit of our purpose to be the platform, where the world comes together, enabling the innovation that enrich.

Our work life and planet, 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 on muted pressing star one and record your name clearly when prompted.

You do need to withdraw your question press Star two.

Again to ask a question please press star one.

Our first question is from Michael Rollins with Citi. You May go ahead.

Oh, Thanks, and good afternoon was curious if you could talk a bit more about the revenue growth guidance of organic constant currency of 7% to eight per cent for 'twenty 'twenty, one and what's driving the difference between 'twenty and 'twenty and 'twenty, one and with the investments that you're making this year how do you look at.

The opportunity to.

Grow in the future of can you accelerate that would you expect to maintain that level just some additional color would be great. Thanks.

Yeah, why don't I I'll start Mike and then keep you can comment as you are as you see fit you know I think that we're seeing as we've talked about in the past you know, it's getting harder and harder to grow on a on a very you know of much larger base and I think you know and doing that while maintaining the level of discipline on the strat.

And so you know that's that's definitely our because we believe that that's the way to continue to drive value creation. You know, we're seeing strong uptake in terms of customers being resident with the value proposition, but it does take you know a lot of the a lot of productivity to drive the bookings that are going to fuel the kind of growth rates that we're seeing.

The you know given the size of the business overall.

In terms of the investments, yes, we do believe that those are going to continue to translate to a sustaining in and hopefully maybe increasing growth rates over time, but I think you know and I think we've already seen that I think without the investments that we've made in the past into our product you know teams in particular and in the other areas of the business.

Ex scale, I think and I don't think we would have seen the growth that we saw in 2020, and so I think it has been Ah Ah and operating the opportunity for us to invest in the business and generate returns I think well one factor on operating margins I think in in 'twenty 'twenty going into 'twenty 'twenty. One 'twenty 'twenty was an unusual year and I think I'm you know it was a.

Difficult time for our World overall, I think we made the decision to both continue to invest in our people and very various ways that we are giving you visibility to you know over the last several calls and give them confidence that they would have their jobs and I buy the standby that decision is the right one for the company and I'm confident of.

But the long term return on that the citizen is compelling, but it's interestingly I think as we you know per eye.

I guess, partially expected employee turnover of fell significantly.

Because I think there's people sought the security of a really strong employer like equinix and they probably fell even more than we anticipated in the in really to some degree of reduces your range of motion of the business I think when it falls and yet you're wanting to continue every day.

Evolve and adapt your workforce to the changing needs of the business and the strategy of hand, Youre left with the decision as to whether you add in and kind of overrun where you thought you were going to be from a head count standpoint, or whether you delay doing that you know in an effort to sort of stay tighter on the expense side of like many we probably landed somewhere in between.

And Ah, but undoubtedly I think that's contributing factor yeah in terms of growth of SG&A as a percentage of revenue and reversing that trend is the priority for us in 'twenty 'twenty, one and beyond the you know.

But we do feel like we needed to make these investments can lead to continue these investments in the business because I think the opportunity associated with the digital transformation, you know sort of the needs of our customers or you know are of significant I think we're uniquely positioned to play into this.

Heath anything you want to add bodies.

Yeah, why don't I, just maybe just a couple of other comments I think of the other thing that's very telling of about 21 over 'twenty and particularly as you look into Q1.

There was a meaningful step down in a non recurring revenue and as we've said before it tends to be lumpy. We said it would be a step up in Q2.

As of nicely to two the incremental cabinet additions that we should we expect as the business and so that's the that's sort of playing into the other thing that.

We can't lose sight of is the level of price increases that went through last year.

As I said in my prepared remarks that we're going to lap over that and so you get of the bet you don't get the same benefit that you get in your run rate and then the last thing I would just say is that we continue to invest in ex scale and I talked about a lot of activity taking.

Taking place here, but we're not yet banking on that as it relates to to how the year will progress.

Other than the fees or a contribution from our equity interest in the in the JV and so that's sort of what's going on in the business and again when you look at overall, 10% to 11% recognizing normalize of seven to eight per cent I'll tell you maybe it was just one other thing that really comes to note here again the.

The Americas region grew about 4% of as I said last quarter of my prepared remarks as you come through Q1 to continue to see relatively modest growth in the Americas, but then you'll see the acceleration through the the last three quarters of the year and that's what was really exciting about what we see in the plan. So part of the show's timing based part of it is the impact of non recurring revenue part of it.

The price increases, but overall, we feel very confident in the numbers that we've put forth here.

Thank you.

Thank you. Our next question is from Phil Cusick with J P. Morgan. Please go ahead.

Hi, This is Richard for Phil just wanted to follow up on the a little bit about the Americas growth I assume some of that is the growth of the acquisitions all of Max tow pocket of Bell what kind of growth rates are you expecting from them versus kind of for the average for the overall region.

If you want to grab that the I. The one thing I would say on packet is we don't really think about that as of regionally oriented investment. It's a sense of the capabilities that are gonna be deployed on the global basis a bit.

We definitely expect that to grow substantially.

Substantially indoor over index over the rest of it over the rest of the business, but we are expecting to see success across the readings on that and then the other the other businesses are also I think or are likely to over index, you know, but but I think theres. Other factors I think it's more of a sustained you know the sustained performance of having really moved through.

I think of lot of the churn that we're seeing associated with the you know the Verizon assets in some of the churn that occurred through the Arab and take a stabilization of the business and of really you know several or a really productive bookings quarters from the Americas bookings in the.

And the follow up on the the churn I guess was a little higher of the second half of the year of the two 6% where do you sort of would be lower in the first quarter ease of mainly because of the rise of churn as long or is there something else. There that is showing that improvement are driving that improvement.

No. It's the you know we did say that in fact, we had in the last call. We had said that this quarter, we expect it to be back in the range and you know we saw a little bit of timing you know adverse timing again, this quarter and a little bit of a little bit of unforecastabel churn the push to substitute six.

So you know I mean, I'm I'm, a tad reluctant to tell you all back in range of Q1, but I do I do believe that Targa. Our firm expectation. So you know we are I would say that there. If you look at it there were several turns over the last couple of quarters that were from acquired assets.

Net where the types of deployments that we wouldn't generally be targeting and so I don't think it's the fundamental sort of issue in the business as it is I think some of the things that weren't aren't really part of our strategy of moving through the the other three says that it's similar to that of about 20 bps of the Q4 churn was associated with large lower margin managed services deals.

In Europe, and so again I think when you back those things out your you're really looking at sort of a level of churn performance within the business, that's pretty consistent with our expectations of churn is definitely a focus for us in the year ahead and I do think you know kind of where we land on a full year on the revenue basis is going to really depend on where we can land in the churn rate.

<unk> that we've forecasted you know through the course of the year. So it's gonna be of a critical area of focus for us, but no nothing nothing fundamental that we're seeing you know just volatility in terms of or just you know movement in terms of people evolving their architectures and the normal frictional churn that exists in our business, but you know I think nothing nothing beyond that.

Great. Thank you.

You bet.

Thank you. The next question is from Tim long with Barclays. You May go ahead.

Thank you I wanted to ask on the interconnect business maybe of a two part of can you just update us on all of the initiatives for for global pricing there for the international markets I'm getting them more up to America's type of levels are and then could you talk a little bit about.

Your view of that kind of as we head into 'twenty 'twenty, one, particularly with the the really strong cabinet equivalent billing in the first half could that'd be of you know of positive indicator for what we will see from interconnect activity as we as we head into the first part of the year. Thank you.

Sure Yeah.

Yeah, I mean, I would say that on back on you know overall, we're incredibly pleased with the performance of our interconnection business and what that means for the broader performance of the business because of then and you know interconnection isn't really even though we've reported as a as the product line. If you will and talk about the performance in its growth and its its continues to over index meaningful versus the rest of the business.

It's the it's really a core part of the value proposition and fuels. The rest of the business in terms of the strength of the value proposition when it comes to the digital transformation you mentioned, specifically pricing, obviously, we had tremendous.

The success implementing a a pricing sort of normalization effort in Europe over the course of 2020, we're largely through that now and so I do as Keith said, that's impacting the year over year compare on revenue growth in our in Europe, but we're now seeing those benefits you know, we sort of built into our run rate.

In terms of broader opportunity for pricing adjustments you know I I think that you know, we're continuing and will continue to evaluate that I don't I wouldn't see anything meaningful on the horizon for US there I think we obviously I could just coming off of the European adjustments, but I think that you know we we we do have to continue to look at both our underlying costs in the <unk>.

And the trajectory of those in and whether or not adjustments are needed for us to continue to maintain our margin profile and then also you know the real focus for US is looking at the cut the delay.

The value delivered to our customers and we do think it is it is so substantial as they look at implementing Equinix fabric. For example is a foundational part of their hybrid multi cloud architectures that we feel comfortable that we're going to be able to continue to get strong pricing from from the interconnection you know offerings and then last point.

It keeps getting mentioned, where we're expecting you know sort of strong cabinet ads cause because of the strong backlog and yes, that's going to kind of you know where it is going to continue to fuel the interconnection because where we're seeing you know really good sort of ratios in terms of because of where it's maintaining the level of discipline in the strategy and we're not reliant on these.

Super large footprint deals that are that are poorly interconnected you know we are seeing you know cabinets fuel interconnection growth and so so overall I think those things will move you know nicely in tandem.

Okay. Thank you.

Sure.

Thank you. The next question is from Ari Klein with BMO capital markets. You May go ahead.

Thank you Chuck, causing you mentioned in the prepared remarks, some of the bigger picture changes as the World Eh Digitizes can you talk about how this is impacting deal flow of deal sizes on any any impact on sales cycles or the lengthening in any way as a result.

Yeah sure Yeah, I mean, you know I talked about you know that we you know, we're really seeing digital take off and and you know be a board level priority for people and it's changing the way as I said, you know people think about not only you know electronic commerce and digital interaction with their customers about how they think about data and how they are you.

The AI to create competitive advantage.

How their you know how they're architected their networks in those last two examples of our two really good ones of debt are central to what we have in our funnel today and what's fueling our you know our strong bookings on a quarter over quarter level.

And that is the you know people thinking about using equinix as the Nexus for their data located in their day to day are intersecting at with cloud services across the globe to create insights and egress those insights to the people within the business that need them and then network re architecture has been bread and butter for us for a bit.

The long time in Equinix fabric and net in things like network edge and now the metal even adding to the mix there I'm really substantially improving the way people can and accelerating the way people are thinking about network the architecture and in terms of how it's affecting our I would just say this I think that if you look at our mix of business. If you look at the <unk>.

The volumes that we're doing 17500 transactions over the course of the year. It is it is we're really focused on those sort of on those sweet spots in our business, where we can demonstrate differentiated value and I think that's why we're seeing such strong pricing you know, we we continue to see positive pricing actions.

<unk> and firm even spot pricing you know in many ways I mean, our business because I think the value proposition is so strong and so and I, but I do think it is still at a point where you know these are not really short sales cycle. There's a lot of solutions selling still being done with us and through and in combination with our.

<unk> and it's why we need to continue to invest in re architected and re refining in and adding capabilities to our selling organization, including scaling our channel and so those are areas of investment, we're making and Ah I I do think that the prospect is over time that those those.

I would say that I don't think the sales cycles are lengthening and in fact, if anything I think they're starting to shorten in particular follow on sales cycles, meaning after you've already brought of customer in that first of the first win with the customer is still it can be pretty extended but you know of follow on sales and sales cycles, I think are shortening and I think the.

Hopefully that you know points to us continuing to add you know even further productivity from the selling engine going forward.

Thanks, and then just real quick on ex scale, you're building in Brazil, you mentioned, Australia being in the roadmap where does the U S scanned on that list.

Yeah, we talked about that in the past and generally said the you know it's not a big priority for US we think that the competitive intensity of sort of the hyperscale business in the U S is significant you know I would say capacity I you know with the.

The supply and demand are coming more into line in the U S markets, whereas I think they were a little out of balance for awhile. So I think that's a good improvement overall for the industry. You know I would say, where you know of never say never in terms of weather.

Customer really had a specific need that they wanted us to be working with all of them, we'd be receptive to it potentially.

But I would say that you know are we're so comfortable and confident in our you know in the the durability of our interconnection value proposition in the U S and in for the strength of our ecosystem the spoke network cloud and others.

Debt you know I think I think the strategic imperative is a little bit different and so it wouldn't be a key priority, but I do think we'll be open minded about about opportunities as they as they might surface.

Thanks for the color.

Sure.

Thank you. The next question is from Sami Badri with Credit Suisse. You May go ahead.

Yeah.

Hi, Thank you for the question one for you. Charles is you commented about an enterprise acceleration really starting to kind of.

Come into fruition of at least in 'twenty 'twenty. One do you still really believe this to be kind of the case or the observation for the year or has your view slightly tilted mainly kind of tied to some of the sales cycle commentary. You. Just gave just wanted to get your latest thinking on any kind of enterprise of acceleration, mainly taking place in 'twenty and 'twenty one.

Yeah, I mean, I do think that we're seeing in fact, if you look over a multi year period, I think you've seen a pretty substantial acceleration of the enterprise component of our business and I think that is really tapping into the traditional service provider density that we an ecosystem density that we have as well as our geographic reach and how that plays into.

Hybrid and multi cloud and distributed architecture as a you know as an end state for enterprise customers and so it's interesting because if you are the way. We report externally you know it has network service you know we talk about net where our network segment of our financial services segment, and then enterprise.

In reality all of those three segments have significant enterprise components, because the our enterprise resale in the network.

Vertical is reported there in terms of how we look at that but we have of meaning piece of that meaningful piece, which is enterprise business that sold through a network service provider partner and then on the financial services side, Yes, we have our trading ecosystem, but actually the larger piece of that is enterprise financial services business, and obviously enterprise I mean the finish.

Services is one of the markets, where they have a very large it spend in a very I think thoughtful and aggressive agenda about moving to hybrid and multi cloud as their long term architecture. So all of that has created this you know the enterprise momentum for our business over the last several years and I think that absolutely continues into 'twenty 'twenty one.

One and like I said I think the our selling engine is quite productive. It's not yet you know I don't think we haven't crossed the chasm by any means but I actually think that's a.

Really a good thing when you look at the overall Equinix thesis because I think you're looking at a very large addressable market and we're still in the early innings of tapping that market and so that means the solution selling takes a little bit longer to get people over the hurdle and really get them through thinking about their other hybrid and multi cloud and state and how we play in that.

But as you I think as you get them over the hurdle, there's just a lot more wallet share to be gained and so I think there is is it an acceleration opportunity for us and I I would expect enterprise to over index as the segment for us in 2021.

Got it. Thank you and then just one quick follow up on adjusted EBITDA margins on one side pulling this up you have interconnection ex scale should have slightly higher margins and now you have of 35 per cent of sales coming in from the channel and then you did comment earlier about some of the big investments you are making into your cash.

Teams your human capital and your channel.

And I guess, the perception of little bit of that your adjusted EBITDA margins should level up a little bit higher than what you're guiding to in 2021 could you maybe just give us a little bit more of an idea of maybe in a multi year view in terms of how you see kind of of the trajectory playing out just we can visualize where equinix is going to shake out of the next couple of years.

Sure. It keeps you on the you want to start maybe with a view of the kind of what the moving parts are on the guide and then and then your thoughts on that and I'll add is kind of add color as needed.

Yeah sure sure.

Pardon me, we have to start off at a lot of you know last quarter and one of the things. We spoke of last quarter was there a number of what other items that we're going through the quarter and so then you look at the guide that we offered in Q1 and then for the year I think it's important when you know one of the things. We said is you will see a recovery of that there's some one off costs that were in Q3, they were benefiting us.

Benefits I should say, there's one off costs from Q4, but when you look at the Q1, you get to see in EBITDA performance at a substantially up relative to what you would've thought you would've previously previously maybe the anticipated Q1 tends to be one of our lore of.

Laura EBITDA quarters, but you can see the we're stepping it up unadjusted $19 million to $39 million. So it gives you a sense of meaningful step up for the quarter and that includes absorbing 10 million net $10 million.

I would refer to as seasonal costs.

Then as you look through the you know the tail end or through the the next three quarters. It typically you would see typically what you'd see in how we're modeling. It is the EBITDA margins would continue to increase throughout the throughout the year.

And then you sort of take that thinking on you know all of a lot of what Charles has said and then you sort of translate that into our of F. O again, one of the things. We said if you look at it in total the ethical is growing nicely. When you look at it at the share level of its growing 8% to 10% for.

The fact, the matter is if you back out the integration costs, which are again, they're specific to two of them generally for the acquisition of Bell, Canada, Youre going to see urea for for per share growth of 10, 10% to 12%. This coming year. So theres a lot of value coming into the business Theres a lot of value coming from ex scale.

But theres still of the potential of much more to come if we execute against our strategy and as I said in the at least in my prepared remarks, there was a tremendous amount of activity that we will be embarking upon a true this year with ex scaling and we're optimistic that that will continue to drive a more.

More value to not only the the margin line, but also to two of our core metrics, which is the EF all per share.

Yeah, and I guess, the the additional color I might add Sami. It's just I I do think that we were generating operating leverage and as I've said in past years.

The last year I guess, you know that you know we we just are more than offsetting that operating leverage by investments and in this case in this year into the product team and in the in the ex scale as well as into you know or what we call project Horizon, which day, you know an effort to really simplify and automate the elements of the business.

And I referred to some of those in my prepared remarks, and I think those are areas that we do need to bend the cost curve in the business and I think that expanded the operating margins.

Or and you know are still a priority for us going forward and again I think we you know rather than you know.

Try to squeeze the too tight and not make enough room to open up the longer term opportunity. We made the decision to make those investments this year and we think that's the right one of them over and but I think we also need to make sure that we're seeing those investments are translating into operating leverage over time. So we continue to believe that we can out of it.

For a multi year basis expand our expand operating margins and see additional leverage.

Got it thank you.

Thank you. Our next question is from Jordan Saddler with Keybanc capital markets. You May go ahead.

Thank you good afternoon. So I just wanted to touch base on the Americas cabs billing during the quarter. It was.

Rebounded, but yet still seemed a little bit below historical levels, even after last quarters no churn event.

You pointed to in your prepared remarks of large step up coming in cabs billing I think of the Americas in the first half can you point to the drivers there and did you know.

For the fourth quarter come all the way around relative to what your expectations were.

These funds you grab that cause the cause.

That and I'll come back.

Sure. So again both of like what Charles said on it as part of remarks, there was still a little higher churn than we are than we originally anticipated in the fourth quarter part of it was in Europe of.

In reference to of managed services provider, but there was some in the U S. Right of point now where we believe that we've made the turn and then you know as as I said first quarter, you're going to feel the Doe and the guy that we'd give you could go a little bit soft, but predominantly soft of the San said, you know I would expect more but we're taking about $20 million out of the nonrecurring line in the first.

And so what you're really seeing is the momentum pick up from the installed cats pardon me the the the backlog to be installed of cabinets in Q1 and in Q2 until the third deals that we that we've signed the effects of the booked just not installed and so we are going to see that momentum and and that's why we you know we have the confidence not only in where we think the.

Revenues will go but also of the momentum that we received through the rest of the year.

Yeah, just the the only other thing I'd add is the you know we have we continue to also be very focused on delivering not only cabs, but what you know delivering the yield that we're going to get from those cabs and that's and that's really a matter of continuing to be disciplined on the workloads and the and the opportunities that we're pursuing and I think we're seeing good success there in terms of preserve.

Very high you know sort of yields per cab and I think over time, our product portfolio is going to allow us to continue to expand you know yield you know effectively as well or at least at least sustain the very high levels that we have today and that combined with the backlog of sort of trend translation I think are good signs.

For the Americas business.

The one of those lines Charles can you speak to what you're seeing in terms of pricing in the Colo business, particularly the U S co Lo business.

I know or is the sort of held up and been a been a driver, but you know there's a lot going into that items.

It seems that Oh.

Given the overall dynamics that there might be greater pressure out there on Colo and I'm just curious for you all of them.

Yeah. If you were talking about I think the broader U S. Colo market beyond the our U S and Americas Colo market I do think there you know there is the dynamics may create pressure on that market and which is why I think we need to continue to distinguish ourselves and you know focus or you know be.

The very disciplined about our targeting and how we're how we're prosecuting the business you know I think there's there's always there's always a continuum you know in terms of the the strength of the value of proposition and therefore, how differentiated you can be on pricing, but again I would point to the fact that you know we across our regions are our quarter over quarter.

Demonstrating a positive net positive pricing actions, meaning debt when we do have a reprice. For example, those are generally being offset by our ability to sustain our price increases in our contracts, which I think is a is a really good sign for the business in terms of our ability to do that so you know I think undifferentiated.

<unk> Colo is going to continue to struggle to maintain price points and people are either you know are looking for what the either lowering price and we're looking for new ways of new markets a lot of them tilting towards Hyperscale, which there are they're certainly not going to find a lot of relief on pricing there and so you know I do think the broader market has.

Translation.

And it is a challenge there but.

But I think we you know we're not immune from that but I think we're substantially more insulated and I think our metrics really demonstrate that.

Yeah. Thank you.

Thank you. The next question is from Colby.

You May go ahead.

Great. Thank you two modeling questions if I might.

You raised almost $2 billion in equity in 2020, I'm just curious.

What your thoughts are around the need for equity as it relates to your balance sheet and leverage.

2021, and you know I guess offsetting that would be the opportunity of refinancing you noted about.

The 50 nines and potential annualized savings.

Is the goal ultimately to to maintain eight to 10 per cent per share growth one way or the other.

And then secondly, just real quickly what are the assumptions for for stabilized growth.

In 2021, we saw stepped down to I think three per cent.

India in the fourth quarter. Thank you.

If you want to start on the bed.

Sure.

So, especially as it relates to a couple of capital market activity again, we were very specific but we didn't want to include anything in the guidance. So again, if you take care of the integration costs for for per share will grow 10% to 12%. So feel really good about where we are and as you I think many of you will recall based on the June 2018 analyst day, we felt anywhere from eight to.

<unk> 12 per cent was reasonable.

Reasonable growth rate for <unk> for phone, we're tracking you know tracking well against the those models that we do we develop that kind of back in 2018 that all said when you look at it when you look at what we planned to do this share you know way of a very large capital build.

The thing I think of the most is how do we are quite a bit how do we go to our lowest cost lowest cost of capital, which is basically incremental debt and so what youre going to see is we're going to refinance out of the debt as appropriate we'll pick our timing of accordingly, we'll get over some period of time, the annualized benefit of 50 million plus and then.

You know, what's the extent that we can or we have capacity, we theoretically could raise a little bit more debt.

Because again that would be of a cheaper source of capital as you also where are we do have our ATM program.

The last year, we announced the one and a half billion dollar program, but we'll use that are you know.

Appropriately as market conditions allow we would we would walk through the door to the extent. They don't then we would we preserve that the.

That council for a later day, but again, we're always kind of bring it a little bit of balance for our capital structure, we're going to make sure that we have the liquidity on our balance sheet, we of the cash right now as we announced in our press.

Our prepared remarks, $1 $6 billion, plus $2 billion of incremental liquidity from her line.

And I'm just I remain very optimistic about about the amount of cash that we generate in the business as well as of the.

The the return of capital from the JV as we continue to invest in building out some of these assets will get we'll get some more incremental capital from the JV partners as we scale the business. So again the Colby I think it's a great question eight to 10 is sort of the very comfortable range of where we feel we can deliver in 'twenty.

And sort of 2021.

And and we'll update you further on the I think we're gonna do the junior analysts or at the June analyst day, well loved to hear a little bit further on the you know longer term view of what we think we can accomplish as a cause of company.

And then Colby on the stabilized assets you know, we've been saying three to five per cent on that and we're kind of right in the middle of that range and so I think that's probably of we we'd expect the sort of continue to operate in that range.

Great. Thank you guys.

You bet.

Thank you. The next question is from Jonathan Atkin with RBC capital markets. You May go ahead.

Hum you had a question on product I suppose it relates a little bit too Charles your commentary on the kind of yields per cabinet, but can you.

Talk about the Equinix fabric equinix metal, how youre, either expanding those product capabilities or expanding the distribution reach and you seem to kind of call out on that front and then it's been a number of years.

I think since you've commented on the federal vertical but the winter in the.

The context of some of the Americas questions earlier on the call what the what's happening in the anything different to call out in that segment. Thank you.

Sure. Thanks, Jonathan Yeah, well you know we continue to invest in Equinix fabric and the feature set thereof, I talked a little bit about the recent you know capability, we've developed which allows customers to more easily interconnect of any other equinix discussed around the fabric metal obviously as it has been a significant area of investment and we're excited to expand the capabilities.

<unk> there in terms of or expand the reach of that out now to 18 markets or will get too early in 'twenty one.

We're also investing in the go to market motion to continue adapt that where we're currently executing with the an overlay of and continue to refine our thinking on how best to scale that market, but accelerating our overall digital services portfolio, which would include fabric and metal and network edge and others is of is clearer, but clear priority for us in the year.

As I said in our prepared remarks so.

For we were really excited we believe the because you did put that in the context.

Well, we think that that can continue to drive yields we think return on invested capital for those of offerings, there's going to be very attractive over time, and we think the importantly, they're really responsive to the ER to the needs of our customers as they think about how digital transformation you know how what their true digital transformation journey looks like so so you'll hear a lot more from us.

On what the the multi year view is for those products as we move towards the towards analyst day.

And then third look we actually we were bullish we think that there's more opportunity we and.

It's something that we're putting a little bit of of.

And energy behind and I can't speak in in a significant depth out of I know Carl as you know is excited about the opportunities that exist there and it's something that we're going to continue to be active in trying to pursue the right kinds of opportunities that fit the equinix value prop.

Thank you.

You bet.

Thank you and our last question will come from David Guarino with Green.

Street you May go ahead.

Hey, guys. Thanks for taking my question I just wanted to go back to the a sequential step down in Colocation revenue in the EMA region was that entirely due to this one managed services customer and are there any more kind of like that inside of your global portfolio.

If you want to take that.

David the and in fact of what that was referred to the one off of Judd I'm, referring to the one off adjustment of the in my prepared remarks. So so basically the it was an accounting adjustment that we made in the fourth quarter of the sort of step down in co location revenue between the two quarters.

So the step up in Q3, and then the step down in Q4.

Okay got it town and then on the Yeah, Yeah, you know matters or not interest pardon me a managed service providers go through our M. M. I S line.

For sure you know.

Okay helpful. And then the last one just really quick on your ex scale projects for 'twenty. One could you just remind us of what the day one stabilized yields on those projects that are in them and it would be helpful. Not just to get the equinix as the JV share with all of the CS, but just on the the project level, what kind of returns you expect of Chi.

Yeah, I mean, we have talked about it at analyst day, we had talked about you know yields or cash on cash yields in the low double digits low to mid double digits I I've I've sat on a couple of occasions that I think there's been more pressure on you know those returns out of cash on cash yields in the Hyperscale play the space just because of overall supply.

The demand dynamics and a lot of people sort of shooting at that target them and so I think you're you're looking more at a you know you know more of the lower end of that and I think still seeing either very high single digit or low double digit cash on cash yields, but I think when you look at it from our standpoint and with both the fee structure that exists.

There and then and then leverage that exists I think you're you're able to get substantially more attractive project returns that are are going to read into that double digit range.

Great. Thanks for the help of color.

You bet.

That concludes our Q4 call thanks, everyone for joining.

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