Q1 2021 Equinix Inc Earnings Call
Good afternoon, and welcome to the Equinix as the first 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 any objections. Please disconnect at this time.
I'd now like to turn the call over to of Katrina.
Vice President of Investor Relations and sustainability you may begin.
Good afternoon, and welcome today's conference call before we get started I'd like to remind everyone that some of the statements. We're making today are forward looking in nature and involve risks and uncertainties.
Actual results may vary significantly from those statements and.
And may be affected by the risks we identified in today's press release on there.
Those identified in our filings with the SEC, including our most recent form 10-K filed on February 19 2021.
Equinix assumes no obligation and does not intend to update or comment on forward looking statements made on this call.
In addition, the lot of regulation fair disclosure. It is equinix was policy not to comment on the financial guidance during the quarter unless it is done through an explicit public disclosure.
In addition, we'll provide non-GAAP measures on today's conference call.
We provide a reconciliation of these measures the most directly comparable GAAP measures.
List of the reasons why the company uses these measures in today's press release on the Equinix IR page at Www Dot Equinix Dot com.
We have made available on the IR page of our website. The 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, as the CEO and President and Keith Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions from sell side analysts.
In the interest of wrapping this call up on an hour you'd like to ask these analysts to limit any following questions just one.
At this time I'll turn the call over to Charles.
Thank you Katrina good afternoon, and welcome to our first quarter earnings call. We had a great start to the year delivering one of the strongest net bookings net bookings quarters in our history.
The by strong demand across our platform, our lowest churn quarter in many years and continued momentum in our Americas business.
With the addition of the Bell Canada assets, we're now the market leader in 19 of the 26 countries in which we operate and we are delighted to now be the market leader in retail colocation across all three regions of the world taking the number one spot in Asia Pacific for the first time this quarter.
The performance continues to highlight the consistency and scale of our go to market engine executing 4300 deals with more than 3200 customers. We have a robust build pipeline to support this demand, including 36 major projects underway across 28 markets in 19 countries one of our most active build years ever.
Fully recognize the COVID-19 remains a very acute issue with continued tragic impacts from key markets around the world, including India and Brazil, Our Hearts go out of our colleagues from customers in those markets and we are actively taking steps to support those communities.
But as we navigate toward of post pandemic World. We believe Equinix remains uniquely well positioned digital transformation continues to accelerate and businesses across the broad range of verticals are recognizing that their infrastructure can be a key source of competitive advantage.
Creasing the digital world.
Demand is as strong as ever the global it and expect it to rebound above pre pandemic levels as enterprises, the increase hybrid cloud spending and service providers build out their delivery platforms to tap into this demand.
Against this backdrop, we remain remained focused on the clear set of priorities I outlined at the start of the year investing.
Investing in our people and culture, simplifying and scaling our business accelerating our digital services and expanding our global reach most of our retail footprint and our rapidly growing ex scale business.
We're delighted with our business results were also highly attuned to our responsibilities as the market leader in <unk>.
The advance of bold sustainability agenda across all dimensions of ESG.
Supporting our people and strengthening our culture continue to be foundational to our strategy.
And in the time, where it matters more than ever our vision remains clear for equinix to be a place where every employee every day can confidently say I'm safe I belong in a matter and so on.
Work force at all levels to better reflect and represent the communities in which we operate.
In early April we hosted our second annual days of understanding with thousands of our employees around the world attended workshops to listen learn and promote a culture of mutual understanding and inclusion as we continue to build and foster an engaged and diverse workforce.
Our people show up every day inspired by our purpose to be the platform, where the world comes together, enabling the innovations that enrich our work life and planet.
As we pursue this purpose. We are also deeply committed to our role as an important component and greening digital infrastructure.
We recently published our 2020 corporate sustainability highlights and I am proud that equinix. Once again achieved more than 90 per cent renewed renewable energy coverage for our global data center footprint and received an a minus score for our CDP climate change survey of leading environmental rating system focused on climate related transparency and action.
In January we announced alongside other providers the formation of the European climate neutral datacenter packed committed to ensuring data centers in Europe of carbon neutral by 2030.
We continue to invest significant resources in our ESG leadership, and we will rollout additional global ambitions over the coming quarters, and both of our environmental and social initiatives.
Now turning to our results as depicted on slide three revenues for Q1 were $1 $6 billion of.
<unk> seven per cent year over year, adjusted EBITDA was up 10% year over year and asked them for was meaningfully ahead of our expectations. These growth rates are all on and on a normalized and constant currency basis.
Our leading interconnection franchise continues to perform well with revenue substantially outpacing colocation growing 13% year over year, driven by the continued strength of Equinix fabric.
We now have over 398000 interconnection and added more organic interconnections year over year than the next 10 competitors combined in Q1, we added an incremental 6700 interconnections fueled by Hyperscale build outs and strong enterprise demand offset by a slight seasonal increase in network grooming activity.
The Internet exchange sort of peak traffic up 9% quarter over quarter, and 28 per cent year over year, driven by the cloud and network segments. Equinix fabric also saw strong growth driven by expanded use of our inter metro offering and continued diversification of end destinations.
More than 2500 customers are now on fabric and.
And we remain focused on driving higher attach rates for this product across our platform.
We're also seeing strong customer interest in our equinix metal offering and continuing to deliver on our commitment to expand the on availability and feature set of this offering enabling as a service consumption of our value proposition across 18 global metros.
On the ex the outside of our business for accelerating our pace and continue to make meaningful progress on our ambitious plans for 2021 as rapid growth of the digital economy drives increased demand for global cloud connectivity with our ex scale facilities Hyperscale companies can add large footprint core deployment to their existing network and on ramp footprints at Equinix.
Enabling faster time to market and offering direct interconnection to of vibrant ecosystem with their customers and strategic partners are more than $3 billion program financed with the support of our JV partners will develop over 290 megawatts of cross our first two JV with several more already in the works we are broadening our reach with the first.
Building of our Dublin, five campus, which is the JV ready and already 100% pre leased two of major hyperscale or Additionally, after quarter end, we pre leased our entire London of 11 assets. These two deals alone represent nearly 40 megawatts of capacity fully committed in advance of delivery.
Now let me cover highlights from our verticals. Please note that we updated our customer segmentation approach to better reflect the industry classifications and use cases as well as combined are financial services and enterprise segments to reflect the true scale and momentum of the enterprise opportunity going forward. We will report under these four key verticals.
Our network vertical saw strong bookings led by the previously mentioned strength in the Americas as firms expand their capabilities and capacity for digital business and momentum begins to build for industrial <unk> applications.
Many of them of part of our network vertical is re sales an indication of the of the momentum of our channel efforts as we work with partners to deliver more complete solutions to support enterprise digital transformation.
The expansion this quarter include British Telecom.
<unk> telecommunications provider optimizing network and connecting to multi cloud for their global enterprise and customers and the lesser of one of the first Mexican cloud service providers, leveraging equinix fabric to provide of multi cloud product offering and.
And sub com, a leading subsea cable system development firm deploying of Campbell no to establish the first route between Oman at Australia.
Content and digital media she of solid bookings as indoor entertainment continues to drive activity in the social media gaming and streaming platforms expansions included marquee wins like roadblocks expanding across platform equinix to support the rapidly growing user base and big data requirements as well as the global edge cloud provider of expanding.
The in deploying network nodes to support accelerating demand for video content.
Our COVID-19 vertical delivered strong bookings led by Hyperscale are continuing their global growth and is worth noting that these bookings results do not include the previously referenced ex scale wins, which are additive to the strong retail performance.
Q1 was also an exceptional quarter in terms of cloud on ramp additions with 21, new on ramp wins in the quarter roughly equivalent to our cumulative volume over the prior four quarters and representing a 75% share of on ramps launched in our metros as a result, equinix customers can now enjoy low latency access to multiple clouds.
In 31 metros across the globe, including eight of the world's top 10 metros by J D. P.
The expansion this quarter included a fortune of 30 software provider deploying infrastructure to support digital transformation and it initiatives and Everest and Australia and cloud services provider specializing in health care expanding to meet country specific data compliance requirements and improve user experience.
Our enterprise vertical continued to be a major contributor to overall bookings performance driven by strength in the retail on financial services segment of sub segments as enterprises shift from pandemic initiatives, such as work from home and collaboration to a broader focus on digital transformation.
<unk> included CME group, a top global financial derivatives exchange expanding their footprint to support growing demand of matching the engines, resulting from a new platform launch as well as a leading global airline re architected to connect to their preferred network and cloud partners and tap into our growing transportation ecosystem.
And our channel program continues to deliver exceptional results contributing more than 30 per cent of our bookings and accounting for over 60% of our new logos. We had great wins, this with resellers and alliance partners, including AT&T, Dell and IBM across a wide range of industry segments focused on digital transformation efforts and COVID-19 response.
Partner wins included working with Verizon utilizing their network out of the service strategy to help of large U S health care provider of modernize their mission critical contact center and leverage the new cloud architecture supporting 12 million members across the U S.
As well as the win with the global Canadian manufacturer deploying in Canada, and Germany for Wan optimization, and cloud access utilizing Cisco's SD Wan solution interconnected to Equinix fabric now.
Now, let me turn the call over to Keith can cover the results for the quarter.
Thanks, Charles and good afternoon to everyone.
On the heels of a record in for 2020, we delivered a great Q1 with strong gross bookings in fact, our best Q1 ever and our second best net bookings quarter ever with solid performance across virtually all of our key metrics.
Our platform continues to shine with strong inter and intra region activity.
For the high interest in our expanded product and service capabilities further separating us from our peers.
Interconnection revenues now represent 19% of of recurring revenues, reflecting our continued interconnection momentum.
With the great start for 2021 on increased visibility over the rest of the year, we're raising our guidance substantially across revenues adjusted EBITDA of <unk> <unk> per share on a constant currency basis.
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 Q1 revenues were $1 596 billion up 7% over the same quarter last year, our 70, <unk> third quarter of topline revenue growth due to strong business performance led by the Americas.
As expected nonrecurring revenue decreased quarter over quarter to 5% of revenues, but as noted on our last earnings call. We anticipate a meaningful rebound in Q2 <unk> due to forecasted custom installation work across a number of markets highlighting the inherent lumpiness of this revenue source.
Q1 revenues net of our FX hedges included a $6 million of headwind when compared to our prior guidance rates.
So for Q1, adjusted EBITDA was $773 million of 48% of revenues up 10% over the same quarter last year significantly outperforming our expectations due to strong operating performance.
For net utility costs.
Our Q1 adjusted EBITDA performance net of our FX hedges included a $3 million of FX headwind when compared to our prior guidance rates of $4 million of integration costs.
Global Q1, <unk> was $627 million meaningfully above our expectations due to strong operating performance and lower seasonal recurring capital expenditures.
Q1 global EM on our term was 2% a meaningful step down with lower short across all three regions.
This improved churn is a reflection of our continued discipline of strategy of selling the platform for.
The right customer with the right application into the right footprint.
For 2021, we continue to expect them of our churn to average between two and two five per cent per quarter.
Turning to regional highlights whose full results are covered on slides five through seven.
APAC and EMEA were the fastest growing regions on a year over year normalized basis of 10 of 9% respectively.
Followed by the Americas region up 4%.
The Americas region saw continued momentum with the record price adjusted gross and net bookings from pricing on a large step up in cabinets billing.
We're seeing good momentum across many markets in the region with particular strength in Dallas.
In New York on the smaller vessels of Denver, and Mexico City.
We have a strong booked but unbilled backlog and continue to expect the large step up in billing cabinets for the first half of 2021.
As partially experienced in Q1 with more to follow in Q2.
Based on this momentum we expect the Americas normalized quarterly revenue growth rate for the remainder of the year to be at or near 6% or better.
Also a part of hedging strategy and minimize the impact of our business from the utility price spikes in Texas during the extreme weather situation in February.
Our power of hedging program.
Along with our World class operational management.
Ensured we also protected our customers from these price spikes as well.
There's no incremental revenue due to the unexpected weather situation.
Separately, our Texas, and Oklahoma Wind farm settlements trended positively during this quarter.
For EMEA region saw strong bookings in the quarter, including healthy exports and record intra region activity.
Although our flat markets remain core to the region's booking engine. We're also seeing increased customer interest in our edge metros with strong momentum in Dublin.
Madrid, and Stockholm on a new market of Muscat and our soon to be opened Bordeaux facilities.
Revenue growth remains strong although moderated from previous levels as expected as we lap past for successful cross connect pricing initiative.
Interconnection revenue stepped up to 13% of recurring revenue showing continued momentum.
And finally, the Asia Pacific region had solid net bookings with good pricing and strong enterprise and cloud growth led by our Singapore and Japan businesses.
Utilization rates continue to remain high.
The open capacity in key markets this quarter and will add additional capacity through 2021 to each potential inventory constraints.
And now looking at our capital structure, please refer to slide eight.
We ended the quarter with cash of approximately $1 8 billion, an increase of the prior quarter largely due to our inaugural Euro denominated Green bond refinancing, which raised $1 1 billion of euros at a weighted average interest rate of 66 basis points.
As a result, Equinix now has the lowest weighted average cost of debt counsel on the long because weighted average maturity of any publicly traded debt data set of company.
We also expect to refinance the remaining U S dollar of high yield bonds over the near term further driving down our average cost of debt.
Our net debt levels remain low relative to our peers of three seven times, our Q1 annualized adjusted EBITDA.
We continue to work alongside of our credit rating agencies are pleased I noted the earlier today S&P upgraded equinix to triple B flat kind of widened our leverage tolerance to five times.
One we're very appreciative of the continued support we get from S&P and importantly, we're delighted with this increased financial flexibility.
Looking forward as stated previously we will continue to take a balanced approach to funding our growth opportunities, while creating long term value for our shareholders.
Turning to slide nine for the quarter capital expenditures of approximately $564 million, including recurring capex of $20 million.
We opened eight new retail projects this quarter, adding 7400 cabinets, including a new IDEXX in Milan.
On the ex scale side of the business, we opened three new facilities in London, Paris, and Tokyo, adding on initial 28 megawatts of capacity and our Jv's.
All of this hyperscale capacity has been pre sold.
We also purchased land and buildings for development of Montreal in Mexico City.
Revenues from owned assets, representing 56% of our total revenues now.
The capital investments delivered strong returns as shown on slide 10.
Our now 150 for stabilized assets increased recurring revenues by 5% year over year on a constant currency basis.
Also consistent with prior years during Q1, we completed the annual refresh of our IV ex categorization exercise.
Our stabilized asset count increased by net seven Ivy exits.
These stabilized assets are collectively 85% utilized on generate a 27% cash on cash return on the gross PP&E invested.
And now please refer to slides 11 through 15 for our updated summary of 2021 guidance on bridges.
Do note. Our 2021 guidance does not include any financial results related to the pending gtx and the acquisition.
Which is expected to close in Q2.
Nor any future capital market activities.
For the full year 2021, we're raising our underlying revenue guidance by $40 million on adjusted EBITDA guidance by $33 million.
Primarily due to strong operating performance and favorable net utility costs.
This guidance implies of normalizing constant currency growth rate of 7% to 8% year over year.
On the adjusted EBITDA margin of approximately 47%.
And given the operating momentum of the business, we are raising our 2021 <unk> by $26 million to grow between 10 of 12% on a normalized and constant currency basis compared to the previous year.
We're also raising of 2021 eight.
Per share to range to.
So now go between nine and 11% on of normalizing constant currency basis.
2021, Capex is now expected to range between $2 75 of $2 97, 5 billion, including approximately $180 million of recurring capex spend of which represents about three percentage of revenues.
This guidance also includes an incremental 200 million of balance sheet ex fuel project funds that we expect to recover at the contributing these investments into our current on our future JV as well.
Let me stop here I will turn the call back to Charles.
Thanks Keith.
We had a terrific start to the year as evidenced by our results the demand backdrop for digital transformation remains strong and I'm very pleased with our Q1 execution and the continued progress against our key areas of focus is the world's digital infrastructure company. We were supporting service providers of every size and shape to build out their infrastructure of the digital edge infrastructure.
That is more global more distributed and more cloud connected than ever before and together, we're leveraging the power of our platform to cultivate scaled digital ecosystems, enabling our enterprise customers to access all of the right places all of the right partners and all of the right possibilities as they transform their businesses and seek to accelerate their digital.
Vantage.
On behalf of the 13000, plus dedicated members of the Equinix family around the World I want to say, thank you to our 10000 customers for the trust they place in Equinix.
Finally, we look forward to our analyst day in June where we'll continue the discussion of our highly differentiated business model outlined the enormous opportunity ahead and discuss the actions we are taking and the investments we are making to drive sustained long term value creation for our investors and our customers. So let me stop there and open it up for questions.
Thank you we will now begin the question and answer session. If you would like to ask the question. Please press star one.
And our first question today comes from Ari Klein with BMO capital markets. Your line is open.
Thank you can you can you talk a little bit about the lower churn in the quarter you know on what specifically is driving that and whether or not maybe longer term you see a path to maybe coming down from that 8% to 10 per cent range that you typically see.
Sure Yeah, obviously, a great quarter on churn are really no.
On the scrip for one of the best we've had in a number of years and you know.
Probably a little bit of timing. There. We were we had some kind of pull forward and we'd probably pushed a little bit of out, but but I would say that I think that we are we continue to believe and as we've talked about this many times. The best you know are our best way.
Way of managing churn is to continue to be really disciplined in our targeting and our execution of the of the go to market engine and I think that we're seeing that the mix of business continues to be right on the money for what we want them. I think you know, we're selling a lot of business and of that you know the sweet spot of the sort of small to mid size interconnection heavy applications.
And in use cases, and and again I think that's going on bode well for us over time. So you know I wish I had mentioned this in several other forums, which as you know we again the.
The last two quarters up you know of towards the high end of the range and even slightly over on in Q for them, but.
But you know now down right at the bottom of the range and I think our I think we're you know we're.
We're really we're really seeing positive trending on that on the churn so and we have efforts underway to really identify all of the you know it really project out and look at churn our churn risk in the business in a very sophisticated way identify I get ahead of it and I think we're seeing real dividends from that.
Now the thing and then just maybe quickly on the new customer additions it seems like Youre a little bit off the recent pace is obviously a lot of activity and you're investing in the go to market is that in the area. We should expect to see an uptick over next few quarters.
Yeah, I mean, I think that we're you know our new logo additions continue to be strong we had good momentum of new logos through the course of 2020 Q1's, a little bit of of seasonally soft quarter for new logo additions typically but we saw good. Good results I think enterprise demand continues to be very strong our aggregate customer count is not going up as fast as our new.
<unk> due to a variety of factors, including the fact that we are we're seeing some consolidation activity at the parent account level, we see we see some other movement in terms of you know people, leaving the leaving the system either due to you know smaller some smaller customers that might be a lead.
On the system due to financial constraints or other things, but I would say overall you know we were seeing good a good healthy new logo adds and I think we're you know we would expect as it continued to see the new customer kind of growth.
Thank you.
You bet.
Thank you. The next question comes from Jon Atkins with RBC. Your line is open.
Thanks question about slide 19 on ex scale, and then slide 23 on the on kind of the lease renewals. So ex scale I'm just wondering you've.
You've outlined the stuff that's open to us so it's kind of in the pipeline is that the right kind of cadence to think about.
Going forward or could that potentially accelerate and if you could.
Remind us how that translates into <unk>.
The income there's like four different ways, you get paid but some of that may be more frontloaded than others before where you would get the revenue before of recognized revenues before the customer actually moves in.
And then on slide 23, just on the lease renewals.
Wondering what would be a realistic with many pipeline to think about that would enable you to convert these.
Of these properties to owned properties or is it mainly a matter of managing the renewals going forward. Thanks sure Jonathan why don't I start with a little bit of color on ex scale at a macro level and then Keith if you're on a jump in and share of a little bit more on the fee streams and their impact and flow it through into the into the business that'd be great and then.
We will pick up the second question, but look we're delighted with the and the efforts of the coupon on the whole lifestyle team and the and the true people supporting them from within the core of Equinix as well as the support we're getting from our partner of Jesse.
As you know things are really humming in terms of the ex hail business. Obviously, we you know we talked about the fact that we've had great pre leasing activity on the on the facilities that we've put out there I think there is an opportunity for us to increase the pace and we're gonna come back to you at the analyst day, and really talk about you know kind of what we would see.
As of the scope of opportunity for ex scale going forward as you'll recall, we talked about that and in 2018 at the at the analyst.
Analyst day, and and I think that you know we were we certainly I I've said it a number of other forums that we're trending more towards the high end of that and I think we will give you more clarity on what's possible. We think in the ex scale a business, but you know where were targeting the you know of pieces of the of the pie out there that we think are really.
T J claim important and add to the overall platform value and and again, we're seeing really good a really good momentum in the business right now I do think there's the opportunity for us to continue to pick up the pace. So Keith why don't you comment on a on the fee streams and an impact and the flow through.
Sure.
So John as it relates to the teasers for fee streams tour of recurring in nature and two are nonrecurring and then the the fifth if you will stream of value that comes in as below the line through income equities of affiliated entities, So basically that sort of equity ownership in the in the business.
Now having said all of that.
You are starting to see the momentum picked up as we announced in her prepared remarks a.
We introduced three new assets in this quarter and all of them of pre sold and so it gives you a sense of the the momentum is picking or is picking up quite substantially with the.
Fairly robust opportunity in front of us so what youre going to start to see in the coming quarters as some nonrecurring aspects of the fee income.
You're really going to start to see a ramp up of the recurring fee stream as well.
And you know again, we'll talk more about it on you know on the <unk>.
June analyst day, but suffice it to say it is exciting to see the momentum coming from that team.
Yes, So let me just leave it there I think I think we answered your question Keith why don't you pick up the lease renewals as well on just what the opportunity might be for us to continue to increase the ownership sure and then the second one as you were talking about John about the you know the lease properties. There's a number of transactions that we are currently in the middle of them. They are we have.
The negotiated the purchase price of the purchase of those acquisitions, it's built into our forward guide no surprise to you both of them as it relates to cash but also the anticipated.
The anticipated consumption of those lease arrangements insider for financials. So so we are continuing to acquire where we can there are some that of the clearly are more towards than others, and so where we can we will focus on those that are the most important yet.
On the same time, as we think about our future growth.
I think of my memory serves roughly 75% of all of our future growth right. Now is is on property. The resort indoor we have of long term arrangement with on for a ground lease and it's 75% of us going into a major metros notwithstanding the fact that we still have the 30 plus over 35 projects underway across the world and many of them.
Metros in many.
Many countries. So all of that said is you'll start to see that continue to go up it takes time.
And then will you know what I.
I should say will net to win when we close the but suffice it to say there are some transactions that we are anticipating to announce over the not too distant future.
Understood and then and then just lastly, if I could squeeze this in the Americas margins came in a lot higher at least than we were expecting any kind of the drivers of that or color you could provide.
But the one of the you know one of the the prepared remarks that I had and like person for most of the business is performing extremely well the Americas business.
One of the things you know when we report Theres two aspects to it there's the if you will of the fundamental business that we compare apples to apples versus you know the APAC region. The EMEA region and then there's and then there's the corporate overlay.
So if I tell you more specifics about the Americas region in and of itself without the corporate overlay margins are continuing to improve largely because we we have very strong interconnection activity will continue to grow our or our customer base of our scale and we're driving more profitability into the business. So that's that's the if you will the easy response the.
Second part.
Is that just timing of a of expenses as you know between Q3 for and then this quarter, there's been some movement of of cost around the different different quarters and as a result.
We started to see the benefit of those of the of that movement in Q in Q4.
Specifically as it relates to Q1, though right again one of the comments. We made was that we have we have a very strong.
You took on the utility costs are part of a hedging program. Our operational team operator business is very very effectively the assets, particularly in the Americas in the in this particular case vis vis of Texas until we have the strong hedging program that protected us against the spikes.
And price, but we also have a wind farm of arrangement, where both in Texas and in Oklahoma, We of wind farms and so we had some benefit of attached to that and then there is some seasonality around of repairs and maintenance expense, but overall youre seeing fundamentally of U S business or Americas business. It is performing exceedingly well and continued to drive margin into it into its final.
The <unk> offset by the corporate investments that we'd be making.
And the mix of business. It was really good in the quarter or two in terms of strong MRO performance, which always helps the margin. So yeah really good quarter and we are continuing to invest in it.
We're being disciplined about the pace of that but and we obviously were pleased with the margin performance and we do have an eye on margin expansion as of as a priority for us over time.
Thanks, so much.
Thank you. The next question is from Sami Badri with credit Suisse. Your line is open.
Hi, Thank you.
My first question has to do to to visit back on ex scale. I know you guys have laid out quite a bit of information on that recently, but the one thing I think that would be very helpful is when we look at the originally published for.
Turns that you guys were targeting between 13 and 17% I believe from the 2018 analyst day did that include all of the various forms of income that youre going to be generating from the exco venture and and is also that the same yield.
<unk>, we should be thinking about for the ex scale business.
He's going to take that bet.
Sure.
We're driving Charles direct traffic since from two different places so part of the pause.
So as it relates to take care of the number one it's going to be very market dependent.
It depends on some markets are more competitive than the other markets and youre looking at Unlevered anywhere from sort of Unlevered returns of eight to 12 per cent of the project level, we get a piece of cream on top of that and then of course yeah.
We put.
<unk> put some debt on on.
On the business. So as a result, when you look at hopefully equinix position.
You know what our return profile is as good if not better than what we will share now having said all of that if you asked me on the specific project there'll be some variation for the team under of coupons leadership, we're working really really well the well known.
With our construction team, but with our JV partners to make sure that we get the right returns and we're negotiating appropriately with the the various hyperscale or two to get a good long term contract. So overall again I would just say that there's no.
There's no material variance from what we said if anything it's a little bit better and as Charles made and as per our comments in fact, there's probably a broader or bigger appetite over the coming over the coming quarters and years.
Given the momentum that we're seeing that you would see maybe do more than we originally anticipated from the Juno June 2018 analyst day.
Got it. Thank you and then just one quick follow up for you Keith.
I know the guide does not include any further capital markets activity and you did mention that you are looking to retire the high yield debt that you have are you going to reissue that as green debt or in another region or are you targeting you know.
Do you have something in mind for when you do revisit that.
Yeah, Yeah, yes, I mean.
No surprise to you there'll be an element of green attached to any transaction that we do.
We do anticipate the we will retired over the near term as I said.
There's a relatively strong positive impacts associated with that.
And again.
I'll, let a lot of led everybody to do the math on what why the that.
That is but it will be a blend of perhaps five 710, maybe even the 30 year term six tenths of we go out that for some of them will be green that would beat that tend to be on the shorter end of the curve and then the only other thing I'd say is to the extent that we can and we will take advantage of those of you know the.
<unk> to make sure that we can.
Retire some of our foreign debt, where possible and arbitrage over over a favorable sort of interest rate environment.
The last thing I just want to say is you know again, we're delighted with the with the work that's on our Treasury team has been doing under Melanie leadership to negotiate with the S&P and get a favorable favorable upgrade but what's really important here is more financial flexibility and as many of you have asked over both on our private sessions, but also on some of the calls.
We've always wanted to have more financial flexibility as it relates to the debt and.
And no surprise to everybody that our cheapest source of capital.
And as a result, you will see us continue to focus on refinancing the debt and then also using debt where appropriate with some balance to equity to make sure of that we create this long term investment portfolio.
Portfolio of that work that we've announced and you know from from our perspective I just think of it was the best of all situations today that not only getting that upgrade but also having the flexibility to.
To drive down the cost of capital.
Got it thank you.
Thank you and the next question comes from Michael Rollins with Citi. Your line is open.
Thanks, and good afternoon first I was just curious if you can.
Just on the tack a little bit more of the organic increase in the annual revenue guidance I think that was about $40 million and when you consider the the size of that change on $6 billion of revenue last year, how does that fit into the organic constant currency revenue growth guidance raise.
<unk>.
Of seven to eight per cent for 2021 that was unchanged from when you provided that in the fourth quarter.
And then just secondly, just the follow up on ex scale. So it seems that.
For some of the projects before they enter into the joint venture you're taking some of the on balance sheet Youre running some of the on balance sheet from just the high level perspective on can you just help frame how.
We should think about the financial impacts that that's happening you know relative to what's the you know the.
Core operating business and strategy. Thanks.
Sure well Keith why don't you go ahead and grab the revenue guide and we can we can pair up on the ex scale a follow up.
Yeah.
So Michael I think there's a couple of things one when we when we do the charge the choice of of shared in the earnings the earnings deck with the everybody.
We really try to simplify it there's two aspects to it one is what is what's the how is the underlying underlying business performed on its $40 million on uplift. The second part is what currency and based on the forecast rates of all using as the 60 61 million downdraft.
But frankly, if I took the spot rates from today, which we don't do we don't do the day of week, obviously, we have forecast rates that $61 million would be would be cut in half if not more just to give you a perspective.
Having said all of that when you look at the fundamental underlying business.
It's all about the round the again, what you've done it with what we've done is we've taken the step up added $40 million of revenue on a $6 billion.
$6 billion business and now you're starting to see us move up into the range in the seven to eight range. So before the bottom end of the range of of slightly below 7% now you're basically you're in you're well into the range of the 7% to 8% again. This is the you know the first the first step that we've made since the Q for earnings call.
Then there's momentum in the business and we're just delighted by you know by the ability to to be able to raise $40 million on on the underlying business.
And of course at 40 million coming from regionally or activity of personalized yeah I mean.
As it relates to E on sort.
Sort of our comments around the Americas business.
I'm sure. It wasn't lost on you was very deliberate or comment that you know the Americas business for the next three quarters.
It's going to be at or 6%, if not better and so it gives you a sense of the Americas business ahead of record not only of record bookings quarter.
Certainly on the net basis the churn the churn has moderated and as a result of your again your you know you're getting on Americas business continuing to to perform and so that's one aspect of it and then the other two regions.
Sort of down the middle of the or some aspect due to our prior you know of printer pricing pricing uplift in Europe, you know the sort of the sort of haven't we're lapping through if you will all of those price increases in some of the accounting adjustments, we made last year, but the reality is that overall of the business is performing well across our platform and that's what excites us.
But if you if I was to say one specific thing it's the Americas business. We're just delighted by the momentum that we're seeing.
Charles made the comment in his on his prepared remarks, and there's over 4000 transactions with three over 3000 customers in the quarter were operating out of it at a scale that it just is just so substantial.
And by the way our pipeline is exceedingly strong and so your company is the culmination of all of that that is given those the the confidence on the visibility to raise our guidance at this juncture and we still have three quarters to go in and by the way on analyst day.
Yeah.
Yeah, and then on the on the ex scale piece, Mike. Yes. We are we are you know kind of leaning in and moving projects forward even in advance of those are being into the JV structure.
Because we think the market opportunity kind of is there to grab them and as Keith said and it is in the script that there are a couple of hundred million dollars. There, but we would expect to come out of that out of that sort of macro guy and he gave overall Oh boy to income in the form of reimbursement once those facilities moved into the JV.
So that's something that we you know and but I would say that we.
Our preference obviously is for projects to be you know to be end of the JV from the beginning and I think we're now at a point, where many of the projects will be able to do that with but especially in markets, where we are looking to either form new jbs or or for all of our do it other circumstances, we are leaning.
And taking the advantage of the strength of our balance sheet to move those things forward, but then you know looking to get a obviously those of those things get reimbursed and come back to us given the where again our capital commitment into those projects is basically a wash.
One of geared at sort of of 10 to one ratio since were 20 per cent owners and we expect leverage on those projects.
And if I can just add on to what Charles said, there I think the most important part is to recognize that when we do on uplift like we said in this particular case of our Capex spend.
Unfortunately, when you look at our financials it looks like our Capex has been the elevated but ultimately when we get that reimbursement from the joint venture. It comes through a different line and so it will be the sale of disposition of that construction in progress into the JV and so basically it's a gross up if you will.
And so that's how it gets represented but going forward you know as Charles said, our objective is to do most of this work inside the JV instead of on our balance sheet and we're working really hard and we'll probably spend some more.
Just the people spend much more energy talking about this at the analyst day, because I think there's a really good story around that particular that particular topic.
Thank you.
Thank you. The next question comes from all Matteo Okusanya from Mizuho. Your line is open.
Yes, good evening Ah congrats on the solid quarter.
My question has to do more around some of the effects of the.
Effects impact.
When I take a look at the new guidance assumption just around you know the Singapore dollar or.
The you know all of the euro or the pound it seems like there's an assumption here that those currencies are going to get that the dollars when they got stronger.
And so those currencies, but all of you ever really seen the dollar gets weaker so I guess I'm struggling a little bit with why the new effects.
<unk>.
Assuming the strength in the dollar which is kind of causing the FX drag on to kind of yeah, otherwise kind of stellar quarter on outlook.
Sure Jeremy take that Charles or you got by lawyers [laughter].
Okay.
One thank you for the question and the sort of things. Thanks for raising it I think if you were to step back and say what is the the overall buys for the U S. Dollar it's for the U S dollar to get weaker.
And that as you know that is something that we anticipate we.
Having said all of that when we go through our exercises exercise to forecast from the re forecast.
Given quarter, we have to look at the prevailing rates irrespective of what they might be in the future.
So as the company when we on the Q4 call. If you recall, we took on one of them. There was $106 million. If you will wind at our back from from the weakening of the U S dollar versus the basket of currencies that we operate in.
This quarter that actually reverse of when we annualize the impact of there was the 60 $61 million headwind.
But as I said on one of my other responses.
That's based on our forecast right. So we use when we read it re forecast of the year and we will give them the use of guidance if I use the spot rates of today you basically.
That 61 million would drop actually by $45 million. So it tells you that the U S dollar weakened again.
So again, we try and bring a lot of discipline to how we message it it's it's.
It's at the point in time when you do the forecast we are not projecting forward on what might happen.
If it does happen then you'll see a benefit and you'll see that benefit primarily because roughly 60% of our revenues are earned in currencies other than the U S dollar on so.
When the U S. Dollar weakens again recognize we do have some hedges in the they take time to burn off then you'll see an uplift on the uplift in revenue accordingly, so hopefully that answers your question and so let me stop there and just see if I did answer your question. Yeah. That's actually very helpful. Now of kind of understand some of the nuances of.
Around that if you can just indulge me with one more I mean.
When you look at the beginning of the year. There was a lot of concern just around extension of sales cycles.
Well that wasn't the hyperscale side or whether it was on the enterprise side can you just talk a little bit about you know again it seems like given the stellar quarter on some other comments you've made about your verticals that that really isn't a concern anymore.
That of a fair statement.
Yeah, we I mean honestly, we haven't really experienced that other than I think in the very acute periods of COVID-19, where people were trying to sort of just figure out how to you know how to make the transition to work from home and really dealing with matters of survival, we did not see.
Any sort of an extension of significant extension of the selling cycle. In fact, I would tell you that I think what we're finding is is that we're improving our skill set and capability of delivering the sort of.
The you know the digital transformation of oriented messaging to our enterprise prospects and and seeing good you know good momentum in terms of bringing those sales cycles down and so yeah, but we haven't seen that you know of Hyperscale sales cycles are a little longer but you know I wouldn't say they have a protracted in fact.
I think we've we've made really good progress with several of our key hyperscale customers trying to.
Define more repeatable terms that we can do business under which is is compressing the the timeframe in which we can get deals done and it depends on that's been an important priority for us and one that we have really put a lot of energy into of late and it's really important to our partners and customers. So I'm, sorry, I would say no I, we I think I feel good about sales cycle right now.
In fact, I think when we're looking at our funnel, we're seeing it we're seeing a very deep funnel and we're feeling the feeling like conversion rates and conversion timing support you know our optimism about the the remainder of the year, which is all kind of reflected in our guidance.
Thank you very much.
You bet.
Thank you. The next question comes from Colby sign of sale from Cowen Your line is open.
Great. Thank you for your question so on the <unk>, Yeah, Yeah on <unk> guidance.
You mentioned, you're using a wider range just given what.
What could be some volatility within the nonrecurring portion I'm wondering if you can just give us some sense of of what Youre thinking N. R. R might look like and could we step back up to.
The levels, we saw on the fourth quarter and is that of better assumption going forward on.
And then secondly, just the point of clarification on the Capex guidance you maintained the guidance at.
Chewed out 125 to $2 315 for the the nonrecurring portion, but is that including the for 25 to 475 Frac Scout. It felt like you were saying in your prepared remarks that.
It is included but the way at least the press release it looks like read the at least reads to me like it's exclude it's I just wanted to get clarification there.
And then just real quickly.
As it relates to the analyst day on obviously ex scale is gonna be a big focus that's been a big focus of questions. This evening.
No one else can.
Are you planning like what is the big focus I mean, what where do you think that Inc.
That's yours or maybe a little bit off in terms of their thinking the company and you really want to make sure you're going to be hitting home on thank you.
Okay.
Keith why don't you talk about the the Q2 revenue range and then our or and then the ex scale Capex and I'll pick up that last piece on the analyst a analyst day focus.
Sure.
The Colby as it relates to the non recurring I think what you could see is that meaningful step up to.
If you think about Q4 of 'twenty.
The you're at you're starting to get to a percentage of non recurring revenue that will could look something like that.
Is it you know as we said in the prepared remarks, and again I know you know this quite well.
Because of some of the work that we're doing and I made a reference a couple of quarters of back that there were some large installations that were taking place in the first half of the year. It looks like that those will close them and installed in Q2.
As a result, you will see a step up.
Again look it would be more reflective of what you the percent of revenue coming from non recurring that we saw in Q4.
And then the which it moderate back down higher than Q1, but moderate back down more of.
On to a more reasonable level for Q3 and Q4.
So hopefully the is that helpful I want to make sure.
Yeah, that's perfect. Thank you.
Okay.
And then on the ex scale Capex okay.
Yeah, I'm, sorry, pardon me as it relates to the X scale Capex that is included in the number.
Okay.
And then relative to the analyst day, we you know there'll be a number of things, yes, we will definitely talk about the momentum in the ex scale business again, it will start flowing through and at least you know and positively impacting the overall business, but again since we don't consolidate revenue there.
That could be a major driver there other than some very positive flow through on the fee streams and of course, the continued strategic importance of that to you know to our platform overall.
But well you know I think our focus is going to be speaking about the overall opportunity, giving some additional color on our views on the addressable market and how it.
It's expanding and how our how our relevance to digital transformation continues to increase in the eyes of our customers will talk about what we're doing to continue to evolve our go to market engine to respond to that including how we're what we're doing in there on the channel side of things I will also talk about you know our roadmap for digital services and how we're on.
Adding to and scaling capabilities like network edge and Equinix metal.
And maybe what we have on the horizon in terms of how those digital services are really going to be responsive to how our customers are thinking about consuming and adapting their digital infrastructure for the world of head and you know I think that we're at now we continue to see great momentum great Great response from.
Our customers and we're eager to hear and share those things coming on in June.
Great. Thanks for helping me frame out of my preview.
You bet.
Thank you and the next question comes from David Guarino with Green Street. Your line is open.
I think last quarter, you guys mentioned the development yields for ex scale of decline since you initially on or in the Hyperscale space, but can you maybe talk about what's happened to hyperscale cap rates over that same timeframe and what that might mean for equinix in their ability to achieve better pricing on JV from the initial ones that were down on the chassis.
Yeah, I mean, I would say that you know we did we did mention that and as Keith said I think that you know our overall return profile continues to look very attractive in terms of what we think pose fees and post leverage the kinds of returns that we're gonna be getting on those projects. Although as he also said it is a wide range depending on the.
Digital projects and the individual sort of market circumstances, because I do think there are markets, where we've seen that cause I think Keith Keith quoted eight to 12 is the sort of yields that we're looking at in terms of of range and there are markets that are you know what that is certainly at the low end of that were.
Due to a variety of the of circumstances and just the overall competitive nature of the market, but I think oh in terms of Ah I think we were very pleased with the with the nature of our relationship with GIC. We think that we can continue to extend that and have other JV ease of similar ilk around the world under very favorable.
<unk> set of terms, we find ourselves to be a.
Very attractive partner and you know based on the engagement the we'd had as we've looked at these jv's and so we expect we're going to be able to get you know get.
Get very favorable terms for those partnerships in and have them be very much of a win win so Keith I don't know if you want to add anything on that last topic relative to the the cap rates.
No and I think it's true that was reflective of the Columbus again will be kept there'll be specific to the to the market again.
Again, we look at on the project level and then there's the fee stream for Equinix.
Any of the leverage that we put on the business and overall, where we're pleased with the business and again, we're going to spend a lot more energy talking about this on the June analyst day, and it will be able to break out and give you a little bit more color of I think that will make you probably more satisfied with what the overall project a day.
Okay. No. That's helpful. And then maybe one more question, we haven't really talked about this topic in a while but could you share your thoughts on public to public M&A for the data center REIT sector kind of equinix could be of potential play on that.
Sure I'll comment and keeps you on the AD a feel for you we.
We have always believed and we've been quite successful using M&A as the as a tool in terms of thinking about how to expand our business and create value for our customers and for our shareholders. You know that that Hasnt changed we continue to believe that there are opportunities out there I would tell you that probably more.
Four of them are aligned around the you know in the private markets and we've clearly been active in that regard filling out of our platform geographically and adding key scale, you know and and locations and some of our markets around the world.
But you know we're not gonna be if if we felt like there were transactions that we would think for you know a highly.
The strategic and where the right economics in terms of.
How the deal would flow through on an accretion basis, you know the where we're gonna be open to those things, but I'd say, there's probably a little biased marine right now of more towards private opportunities in the for air opportunities in the private markets, but we're going on we're going to always be a half of our eyes wide open.
Great. Thanks for the time guys.
You bet.
Thank you and the last question comes from Erik Rasmussen from Stifel. Your line is open.
Yeah. Thanks.
Maybe just back on ex scale, you really been leaning into that the initiative over the past few quarters can you just maybe comment on the environment as it relates to the Hyperscale or is this more concentrated with a few of the leaders or is it is it more broad based.
Yeah, I mean, when we when we formulated the ex scale.
Entity.
And the approach we talked about you know of a range of a range of players there that would be that we would pursue a relationships with and pursue business with it is to some degree concentrated I think that's just that's the nature of the Hyperscale community. Today is that the you know the largest end of that is taking up more of the AUM.
Overall demand for providing more of the overall demand so its concentrated at some level, but we have had significant success beyond sort of the you know the three or for that would pop to mind for people.
Right off the top of their head and so I think we're going to continue to evaluate those those opportunities, but I you know and I would say that we're you know we're really continuing to build on a strong relationship we've had with the without full of Hyperscale community for a very long time because of the you know as I talked about with our our when I when I characterize our hyperscale.
Sales relationships at the analyst day in 2018.
The there amongst our largest customers many of them and that is a lot of it on the backs of really the important role that we play in terms of their network nodes their on ramps and.
In other elements of their infrastructure outside of sort of availability zones, and really large core deployments. The there might be more of the focus back scale. So the very multifaceted relationship that we have with them. They're the critical we believe that you know the as as people had dropped adopt hybrid and hybrid.
Hybrid and multi cloud as the architecture of choice, we think doing that at Equinix is really going to be a key priority for them in terms of both superior economics and performance and so the relationships that we have with the asking rent the hyperscale or are very important to us and and it's certainly to some degree of concentrated a problem for them.
On the demand basis, but where we're continuing to strive to extend that to a larger portfolio of customers.
Okay, Great and maybe just my last my follow up then the.
Any change in the competitive environment in Europe around DLR of interaction you know year after that deal is closed.
Especially as it also appears that investment activity has picked up and demand still.
Seems to be pretty robust out there.
Yeah, I wouldn't I would say no not really I mean, I think we continue to feel very good about our overall competitive position in Europe. As I said you know our interaction is has always been a very critical credible Pan European player. There you know and and I think that continues to be the case, but we have a what we think of.
The much stronger global story and have had great success in the market and are going to continue to build on that success in and we feel good about the our position there.
Thank you.
Thank you that concludes our Q1 call. Thank you for joining us.
Thank you that does conclude today's conference and thank you for participating you may disconnect at this time.