Q2 2021 CyrusOne Inc Earnings Call
[music].
Good day and welcome.
So the Cyrusone second quarter 2021 earnings call all participants will be a muscle on the mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
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Please note. This event is being recorded I would now like to turn the conference over to Michael Schafer VP of capital markets and Investor Relations. Please go ahead.
Thank you grant good morning, everyone and welcome to Cyrusone second quarter 2021 earnings call.
All of them today, I'm joined by Dave Friedman, President and CEO, Katherine My Lark, CFO and John Hayden CFO before we begin I would like to remind you that our second quarter earnings release, along with the second quarter financial tables are available on the Investor Relations section of our website.
The first 1 dot com I would also like to remind you. The comments made on today's call and some of the responses to your questions deal with forward looking statements related to Cyrusone and are subject to risks and uncertainties factors that may cause our actual results to differ from expectations are detailed on the company's filings with.
<unk>, which you may access on the SEC's website or on Cyrusone Dot com, we undertake no obligation to revise these statements. Following the date of this conference call except as required by law. In addition, some of the company's remarks. This morning contain non-GAAP financial measures you can find reconciliations of.
The S hazards to the most comparable GAAP measures in the earnings release, which is posted on the investors section of the company's website.
I would now like to turn the call over to our President and CEO, Dave Hardeman. Thank you Michael and welcome to the Cyrusone second quarter earnings call as announced yesterday afternoon. The board.
Of those memorandum with Bruce Duncan as President and CEO. This was not related to any matter regarding the company's operations financial conditions of results or the business more broadly including the strategy.
The board recognizes Bruce's many contributions during the past year and on their behalf I would like to thank him for his service.
This and leadership.
I'll be serving as president and CEO on an interim basis, while the board undertakes of search to identify the company's next president and CEO as some of you May know I was co founder of Cyrusone more than 20 years ago I served as the president and CEO from 2000 until.
June of 2010, when the company was sold the Cincinnati Bell and then I served as the Chief strategy officer until the IPO when I transition to the Cyrusone Board I am a member of the Board's Executive Committee and have previously served on the transaction Committee I look forward to leveraging my knowledge of the industry My continued relationships.
Customers and employees and working with the team to continue to drive profitable growth.
We have a great platform, great customer base and the demand outlook remains strong and the business is well positioned.
Moving to the quarter.
Beginning with slide 4 you can see our key second quarter.
Hips with Patrick's, which Catherine will discuss shortly.
We had strong leasing results, which included contributions from both Hyperscale and enterprise customers across our European and U S markets.
We signed approximately 21 megawatts totaling $41.8 million in annualized GAAP revenue are.
Our revenue backlog.
Increased to a record $129 million as of the end of June with the total contract value of nearly $1.1 billion <unk>.
Equating to a weighted average lease term of more than 8 years.
Turning to slide 5.
We continue to take steps to support our growth.
<unk> made of construction on a 146000 colocation square feet totaling 45 megawatts across our U S and European markets, including Dublin, London, Northern Virginia, and San Antonio.
Our development pipeline consists of 280000 Colocation square feet.
We can put on 64 megawatts slightly weighted towards Europe, including 2 new projects in London.
We are excited to announce our expansion into Madrid.
Madrid is 1 of the fastest growing data center markets in Europe with the purchase of approximately 5 acres of land that will provide an estimated 21 megawatts of power.
Total <unk> I look forward to talk more about this in a few minutes.
We further strengthened our balance sheet through the execution of our inaugural Green senior notes offering issuing 500 million euro with the tenor of 7 years price to yield just over 1.3%.
We also raised $232 million.
And for the equity through our ATM program during the quarter and as of the end of June we had nearly $520 million in available forward equity to fund our development and manage our leverage.
Moving to slide 6.
The $41 million on annualized GAAP revenue signed.
On the path was up 27% compared to the 4 quarter average prior 4 quarter average.
As we've discussed before of the weighted average <unk> per kilowatt signed for any quarter, it's largely a function of the of the leasing mix in contrast to the first quarter in which the leasing was more heavily weighted towards hyper.
Kind of customers and primarily in our U S markets in the second quarter, we had more significant contributions from enterprise customers and our European markets.
Approximately 1 third of our bookings was from enterprise customers and approximately 60% of leasing was in Europe.
Consistent with the trend over the last several years.
<unk> revenue contribution from our Hyperscale customers continues to increase representing approximately 53% of our portfolio rent as the end of the quarter.
Slide 7 provides an update on our interconnection results as well as some of our key portfolio metrics.
As the right hand side of the slide shows.
We continue to make good progress on ESG initiatives. In addition to executing the green notes offering we have achieved 100% renewable energy in Europe, well ahead of the 2030 target set forth in the EU climate neutral datacenter pack.
Turning to slide 8.
Provide.
The weighted on Europe.
I mentioned, our entry into Madrid, and we think Theres great opportunity in this market.
It is the fastest growing data center market in Europe outside of the core flap D markets with an estimated 66 megawatts of take up in 2020.
Our hyperscale customers had been expanding here and as we've talked.
An update it's important for us to be able to offer solutions to these customers in as many markets as possible the.
More valuable we can be the them with broad geographical product offering, particularly in Europe, where it can be challenging to secure capacity the more opportunities we have to win their business going forward.
We are now in 6 markets in Europe.
<unk> up from 2 when we entered in late 2018.
Upon completion of the projects in our development pipeline, we have more than 200 megawatts of power capacity in Europe, representing approximately 20% of our total portfolio.
We signed approximately $25 million on annualized revenues in these markets during the quarter.
On the leasing was broad based geographically with Dublin, Frankfurt and London, each accounting for more than 2 megawatt side.
We continue to see good demand in Europe, and it's up to us to ensure we have the capacity across our markets and to convert opportunities into signed leases.
Moving to slide 9.
We are well positioned heading into the second half of the year.
As of the end of June our development pipeline was 86% pre leased on a co location square footage basis, which is the near all time high.
As a result, we have meaningfully decrease the risk of our investments and upon completion of these projects and commencement of the leases.
We will be generating attractive returns.
Additionally, we have significant embedded contractual revenues as a result of our quarter end backlog. The backlog is equivalent to approximately 14% of our trailing 12 month base revenue as Kathryn will discuss not all of this backlog will contribute to next.
<unk> financial results. However, the impact of the backlog combined with the full year 2022 impact of leases that commenced earlier this year.
The impact of the future leasing setup sets up us well for continued growth next year.
We have show on land inventory across our.
Next year in the U S and Europe to support our growth with more than 1250 megawatts of potential built on power capacity. This inventory is primarily in digital gateway markets, which are the higher growth GDP centers in which demand is concentrated giving us significant runway for future growth and with.
Mark of $2.3 billion in available liquidity as of the end of the quarter, we have funding capacity to support near term opportunities, while maintaining significant financial flexibility and a strong balance sheet.
In closing, we remain very bullish on the industry and our business and we're seeing continued strong.
Nearly on in both Europe and the U S.
We are well positioned to capitalize on opportunities and the team is focused on consistent execution and providing outstanding service to our customers.
With that Kathryn will now provide more color on our financial performance for the quarter and an update on our guidance for the year Catherine.
Thank you Dan and good morning, everyone.
Continuing with slide 11 revenue growth for the quarter was positively impacted by of 43% increase the meter power reimbursement right.
Primarily driven by higher usage across both of our United States and European market.
Excluding metered power reimbursements revenue growth was approximately 6%.
Additionally, because these reimbursements are in the expanse of pass through the disproportionately higher growth in this line item had a negative impact on our margin.
Excluding net power reimbursed.
Embarkment, our NOI and adjusted EBITDA margin decreased year over year by 1.5 and 1.1 percentage points respectively.
The year over year of comparison is affected by the positive impact of the last year's second quarter result of.
The receipt of $3 million in lease termination fees, while in the second quarter of this year. We received 400 thousands of dollars in lease termination fees.
On last quarter's call I mentioned that second quarter of churn was expected to be higher than churn in each of the lives.
Last 2 quarters of the year.
However, some rate churn that we anticipated to occur this quarter has been pushed out.
As the result second quarter churn of <unk>, 8% was lower than we had forecasted but we continue to expect full year churn to be.
The range of 4 to 6 per cent.
At our Investor Day, we discussed our view on the renewal spreads over the next few years and.
And we have shown these rate impact for like for like renewals in the second quarter.
The like for like renewal of population for this quarter.
What's the relatively small and the weighted average rate on these renewals was up 4% on the GAAP basis and was flat on the cash basis the.
The spreads were positively impacted by the pushout of the rate churn that I just mentioned.
Turning to slide 12 the.
The contribution from Europe continues to increase as leases come out with these markets currently representing approximately 14% of our total rent.
We brought on our first data center in Dublin online during this quarter and we're pleased to report that the first data hall is fully.
The addition of this market so our portfolio further enhances the geographical diversification of our business.
Moving to slide 13.
We have developments underway across our United States and European markets totaling 280000 Colocation square.
Square feet and 64 megawatts.
Slightly weighted towards Europe.
As Dave noted this developments are 86% pre leased on a colocation square footage basis.
<unk> the risking our capital investment.
We also have 3.
The 3000 square feet of powered shell under construction in Paris and London.
The total cost to complete the projects in our pipeline is $318 million at the midpoint of our estimated range.
And upon completion of these developments.
3 of them our portfolio of will consist of nearly 1000 megawatts.
Approximately 20% from June of 2020.
Turning to slide 14.
In May we executed our inaugural Green bond offering raising 500 million.
All in euros through the issuance of a 7 year senior notes bearing a coupon of 1 point of 1% to 5%.
The net proceeds were used to repay euro denominated borrowings under our revolving credit facility and for general corporate purposes, including pre funding additional.
The euro denominated developments there.
We intend to allocate in the mountains equal to these proceeds to fund the existing or future green assets of project.
This transaction further smoothed out and extended our debt maturity schedule and increased our percentage.
<unk> usage of fixed rate debt, while decreasing our weighted average interest rate.
Our percentage of fixed rate debt, which was 86% at the end of the quarter.
Is in line with that of other investment grade REIT and significantly mitigate our exposure to rising interest.
Percentage.
As slide 15 shows we continue to maintain a strong balance sheet with liquidity as of the end of the quarter.
Italy, 2 points to $8 billion.
During the quarter, we sold approximately 3 million shares on the forward basis.
Basis under our ATM equity program.
Which will result in net proceeds of approximately $232 million up on the settlement by June 'twenty 'twenty 2.
Combined with forward sales agreements and sort of into the second half of last year.
Approximately $519 million in the available forward equity.
Also during the quarter, we settle the forward sale agreement entered into last year, resulting in net proceeds of approximately $95 million, which were used to repay a portion of.
The amounts outstanding under our revolving credit facility and for general corporate purposes.
We are announcing a 2% increase in the third quarter dividend to 52 cents per share off of a penny from the second quarter dividend.
This represents.
We have annualized yield of nearly 3% based on our current share price.
While paying an attractive dividend, we continue to maintain 1 of the lowest payout ratios among Reits in order to retain internally generated cash flow to reinvest in the business.
Turning to slide 16.
Our backlog at the end of the quarter totaled $129 million in annualized GAAP revenue.
Up from $113 million as of the end of the first quarter.
Approximately $76 million.
<unk> is expected to commence in the second half of this year, resulting in a significant contribution to growth next year.
All of of the remaining $53 million approximately 26 million is expected to commence next year heavily weighted towards the second half of the year.
Moving to slide 17.
We are revising our 2021guidance ranges.
We are increasing the lower end of our guidance range base of poor base revenue by $10 million.
The resulting in the $5 million increase in the midpoint.
This is primarily driven by a more favorable full year of churn outlook, including the timing impact I mentioned earlier.
Additionally, we're increasing both the lower and upper end of our guidance range from metered power reimbursements by $10 million.
Cause all of higher usage across our markets.
We are increasing the lower end of our adjusted EBITDA guidance range by $5 million, resulting in the $2.5 million increase at the midpoint.
This is driven by the increase in base.
As the revenue, partially offset by slightly higher anticipated property operating expenses, primarily facility costs in Europe.
We are decreasing both the lower and upper end of our development Capex guidance range by $50 million.
This is driven by.
The timing with some spend that was expected to occur later this year now expected to occur early next year.
Finally, we are increasing both the lower and upper end of our normalized <unk> per share guidance range by 5 set with the mid.
<unk> also increasing by 5 sets.
The increase in the midpoint is primarily driven by the increase in the adjusted EBITDA guidance midpoint and the shift in the expected timing of funding needs.
In closing we are pleased with the company's performance through the first half of.
Ms for it and the team continues to work hard to put us in the best position possible to take full advantage of opportunities and continue creating value for the shareholder.
We appreciate you participating in our call and we are now happy to take questions.
Given the number of people.
In the Q, we kindly request that each person ask 1 question. So that we can stay on schedule and conclude the call on time.
Thank you and the operator, please open the line.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question today will come from Jon Atkin with RBC capital markets. Please go ahead.
Thanks.
Dave I was interested in your prepared remarks upfront.
Any of the debt.
Bruce's departure.
Gave some reasons why what its not attributable to but if you could maybe clarify.
Covid why the transition now.
You were looking for.
The qualifications as you conducted new search and we're just not also be an opportunity to entertain strategic options given that you, whereas the CEO of when the company was sold to Cincinnati Bell back of the day.
Thanks, John Good day.
Good to hear from you.
Look I can't really talk about matters of the board, but what I can tell you is that the board is prepared to kick off the search to.
To find the highest qualified.
The person to run the business.
We're committed to the strategy of the company, we're committed to the team.
We anticipate no future changes.
And we're excited to kick off the search.
So talk of who you might be looking for and then the question that I had about maybe strategic options.
Given given the the hiatus that we got we now have.
So at the CEO level.
Soon as we kick off the search will have a group to identify.
And map out exactly the qualifications of the background.
We have not begun this exercise yet I really can't comment on it but.
It's it's an exercise that we.
We look forward to.
We haven't we haven't embarked upon it but.
As far as strategic you know the.
Company has committed the board is committed to the strategy of the company. We support the team. We're excited about the industry. We think the opportunity is as good as it's ever been and we're committed to the strategy.
And then secondly in terms of the asset dispositions.
Any kind of updated thoughts as to the.
The types of interest there may be for some of the legacy.
Assets that are that might be disposed of over over the multi year timeframe that you talked about at the analyst day and with respect to Europe.
Are we done for now in terms of new market entry or the other markets.
That you think of them are interesting and opportunistic to expand into.
<unk>.
Oh I'd like for Katherine to comment on the.
On the first portion of it yes.
Good morning, John So on the recycling as you recall.
Because of where you're committed at our Investor day to the program of recycling 1 to 2 billion over the next 3 to 4 years and as we execute on this program. We will let you know once we complete on that right now we have nothing to report on this other than we're committed to our recycling program.
And as far as Europe. The entry to Madrid is a really strategic point for US. We believe it is the great market.
And we're open to new market entry of collaborating with our customers as and when it makes sense and it's strategically fits within our portfolio, we do have expansion.
And the opportunities in our current footprint. So that's also of our first priority.
Thank you.
Our next question will come from Ari Klein with BMO capital markets. Please go ahead.
Thank you.
Just following up on the on the change.
Yeah, Bruce didn't have the data center tech background is that something the search for the next CEO.
The value of a little bit more highly than maybe previously.
Oh, thanks, sorry.
You know.
We're going to go through a process.
With the firm we search the search firm and we're going to really get granular on on how we should define requirements.
Until we do that I really don't want to comment because I don't want to mislead.
But we will go through a very thorough process to define.
And look deeply at that.
Got it and then let me just.
Yes on on the REIT.
Leasing spread headwind or expectations of you outlined at the Investor day coupon rates of more insights on what markets you are anticipating a significant headwinds there.
So are you let me take that.
So that the basically of what we communicated at the Investor day in.
In terms of our outlook on like for like return on like for like renewals in the future it depends on where our renewals happen. So it's more of the profile of the leases that we've answered in the past that come up for renewals now renewals are very complex negotiations as you know.
And they take time.
And the rotated and change so it happens across all of the markets and across our profile of the leases. So theres not on any particular market that I would highlight.
Okay. Thank you.
Our next question will come from Richard Choe with Jpmorgan.
Please go ahead I wanted to follow up on the churn that was pushed out was this something that we should expect of the third quarter because of be delayed further or maybe even avoided. Thank you.
Hi, Ray.
Yeah, I mean, obviously, it's in all of our best interest to work with our customers and the voyage charter to the extent possible as you know the customers are going through their it strategies and hybrid strategies and will collaborate with them and as I just mentioned a minute of few minutes earlier, it's very complex and it takes time.
We're collaborating negotiate the renewals with the customers and we work on it and as the those decisions get pushed out in the future they're delayed at some point, we do like to come to resolution on those and when they happen, we'll let you know.
Yeah.
Great. Thank you.
2 of our next question today will come from Simon Flannery with Morgan Stanley. Please go ahead.
Thank you very much type of.
I Wonder if you could just talk a little bit about 1 of the things you are going to be really focused on in the next few months. So as we go through the search process. What are your kind of top 3 priorities.
Great. Thanks Simon.
Good to hear from you.
It's it's a it's a great question and my focus is going to be on meeting with customers.
Investors and employees.
You know I've been involved in the business for 20 years I feel like I really have a great grasp of what's going on in the industry and the business and the more time I can spend with our customers.
<unk> and investors and of course the team the.
The better and that's where my priorities will be we'll be focused.
Great and then any comments on the pipeline the overall demand environment good leasing this quarter.
Demand is strong and we're we're really excited we've got a record backlog.
We feel real good about the.
On the demand.
Thank you.
The next question will come from Eric Anderson with Stifel. Please go ahead.
Yes, thanks for taking the question, maybe just to clarify where isn't the follow up on the CEO search.
What what sort of the timing that you're looking for in terms of identifying a new CEO candidate I realize it's still early days and then you know does this include both internal candidates as well as external and then maybe my question is.
In addition, given it appears to be a lot of momentum that's built up through the first half.
Of this year.
As evident in the results and the raised outlook for the year what are the main priorities for the team as you sort of go into the second half of the year end.
And sort of what's driving that optimism for the improving fundamentals.
Thanks, Eric.
But the the timeline is.
It's hard to tell these things I mean, we're gonna have.
Get together and pick a search firm shortly.
And then once we've gone through the process with them we can determine.
How long we think it'll be it's just hard to guess as far as the internal and external we haven't.
I had that conversation there may be internal candidates.
Today to maybe external it's just too early to tell this is this is very fresh.
The second half of the year, we're committed to the strategy we feel strong.
Demand is strong the <unk>.
Backlog is fantastic.
Okay.
We are we're being.
Very very.
Focused on just executing on the strategy as we laid out and the team is really enthusiastic. So you know I don't I don't have any any any different guidance than we've already given.
Okay. Thank you.
Our next question will come from Frank Louthan with Raymond James. Please go ahead.
Alright, great. Thank you. So just wanted to follow up a little bit on you know, we just had the analyst day are there any aspects of the strategy that were laid out debt that are no longer viable you wont really be pursuing.
What's the 1 of the takeaway from there. Thanks.
Thanks Frank.
You know, we're really excited about our about the strategy I actually watch the entire investor day start to finish twice.
The board is committed to the strategy.
The team is committed to the strategy.
There are absolutely no changes to report.
Okay great.
Just a quick follow up are there any other key personnel that you that you need the higher or put in place to the kind of achieved the strategy where are you on sort of the senior team.
We feel great about the senior team we have no.
No open slots that were were looking for.
Alright, great. Thank you.
Our next question will come from Colby <unk> with Cowen. Please go ahead.
Great. Thank you.
I apologize.
Beating a dead horse here, but I'm going to do it anyway I guess.
What value are you gaining being so closeted.
As to the why you're making the CEO change I mean day to your own point. It's fresh you mean it seems like you guys just did this.
Your stock's off 5.
Per cent since this call started based on I think of frustration, which has been you know.
Part of the theme of this company over the last year in terms of just not really sharing much information you've gone through 4 Ceos in the last 18 months.
When you guys think that investors deserve to understand it a little bit more about what's going on with the company.
Tobey I totally respect the frustration I understand the question you know, there's just certain things that are private to the board and I can't comment on and you know I'm I'm really you know I look over the last you know you know interest you can look at the last 10 years 15 years of the company and while there's been changes to the company. The momentum continues the team is strong.
You know the secular demands of the industry are great. The team really has been able to translate that into a successful growth profitable growth and and I and I get it I mean, you know what this team is as you know we call it high wide and deep you know, we get very very Oh, we're not dependent on any any.
The 1 individual and I understand the frustration.
And I I feel the same if I were not getting an answer but theres matters that are private debt I just can't answer and so we focus on the things we can control and there's just such a tremendous momentum and we just had such a great quarter that where we're just for focus on execution.
Well hopefully there will be a point that comes soon when you guys can share more information on on really what did happen what is going on because I do think that that's a.
A big problem for you guys right now and then I guess, just secondly, as they shipped over the 18% to 22% cash renewal spread that you disclosed at the analyst day just.
And the clarification is that simply where your current rates are relative to market, whereas that genuinely what you think is going to happen in terms of where you're actually going to take your rates over that time period. Thank you.
Yeah of course.
As Katherine let me take that 1 so hour.
Outlook.
Want to get on like for like renewals that we communicated in the Investor day is basically a comparison to the rates that all the leases that will come up for renewal or scheduled to come off based on the lease expiration day that dates that we now know in the next 3 years compared to.
The market rates of today, it does not necessarily imply that we would get to that point, we will try to mitigate that risk as we renew leases and work with the customers.
Great. Thank you.
Our next question will come from.
Look David Gordon you know with Green Street Advisors. Please go ahead.
Thanks, Katherine maybe this one's for you I appreciate the added disclosure on the GAAP and cash renewal rents maybe the first is this going to be a metric that you'll provide going forward and then historically what percentage of your leases renewing are actually considered like for like.
Some of your peers blend together of the new and renewal leases, so it's somewhat difficult to compare those metrics.
Yeah, Hi, David So.
<unk>.
Let me let me take the first of all is like for like in the last 2 quarters have been a very small portion of our renewals.
It's hard to predict what in the future of what portion of our renewals would be exactly like for like it is very complex.
As customers go through their IC hybrid strategies, it's very hard to determine what exactly would be like for like as far as historical I'll probably.
<unk> get back to you at some point I don't have those numbers in front of me to compare that but yes, we will continue to disclose this metric and talk about it.
Okay.
And then maybe of what else can also on strategic the strategy of issuing equity and the reason I asked that as well I know.
That's part of the company's strategy to issue equity to fund its development projects when.
When you did it in Q2 of the share price you choose it was pretty attractive. So was that just a temporary opportunity you guys saw and said Hey, let's go raise capital at this price or was that planned and it just happened to be really well timed.
So we.
The way we use for the ATM program is we really like that program because it gives us flexibility and it gives us the opportunity to raise funds when it's.
When it's the market is favorable but it also gives us an opportunity to take those funds down to fund our developed.
And the pipeline in the next 9 to 12 months. So that's the flexibility that we like about this program the.
The amount of forward of equity that we raised in the second quarter of this year was consistent with our forecast and our plans and expectations to fund our development pipeline we were fortunate.
Minute, the an opportunistic on the market conditions I do agree with you.
And then we had to take down some of our commitments from prior year as well. So it is the flexibility of this program that is attractive to us.
Alright, thanks for that.
Okay.
Development of next question will come from Nick Chen.
Please go ahead.
Hey, Thanks for taking the question.
My question is on the U.
U S. Hyperscale of if I sort of look at the $42 million in leasing and I Peel away enterprise on appeal away Europe Hyperscale.
It seems like the U S. Hyperscale leasing was only about $3 million in the core growth I know this can be really lumpy, but I'm just wondering.
Is there any changes you saw on the competitive front intra quarter or anything change in terms of the market dynamics of demand.
So you can comment on thanks.
Matt So let me just first of all.
I remind you that we have talked about how lumpy hyperscale leasing is and how we like the geographical diversification. So in the first quarter, we had the record U S leasing in the second quarter, we have strong Europe leasing so those transactions are so large in.
<unk> deployments are large and they take time to collaborate with the customers and sign those leases so as far as the overall broad market. It's not on any indication that that of what type of leasing will have we don't talk about future leasing we talk about the leases that.
We have signed but I'll, let Dave can talk about the market in the broadest sense.
The the market strong demand is strong.
While we've been having such a huge focus on Europe. We have works in great demand in the U S. Right now as well and so you know the business is always you know kind of a local business right.
So.
We feel strong about where we have capacity and we're not seeing anything that would give us concern.
Just 1 quick follow up on and I believe I know the answer to this but I want to make sure I got the right to at the Investor Day. There was the target laid out from mid single digit <unk> per share growth of the next couple of years.
Does that still hold as well with grew sleeping.
Yes.
So the earlier there is no change to the strategy. The strategy that was laid out at Investor Day is what we are focused on execution.
Perfect. Thank you.
Our next question will come from Brendan.
<unk> <unk> with Barclays. Please go ahead.
Great. Thanks for taking my question I wanted to just dig in a little bit on the capital recycling program.
Can you give us some.
Color on.
Protecting the customer relationships that you have.
Increasingly do have of it.
A component of interconnection and your customers are buying into our platform.
So it's not necessarily just the 1 asset there and I'm just kind of curious how youre thinking about protecting those relationships as you saw from those assets.
Thanks, Brendan let me, let me take that 1 just because.
Brendan.
<unk> program, we just announced last month, and we set up a target of 1 to 2 billion over 3 and 3 of our years of cell will be very disciplined and obviously, we take our customer relationships are very seriously and it's a big and important asset for.
The accounts so capital recycling program is focused more on our non core assets and optimizing the portfolio to the extent it makes sense and our portfolio of fits our customer needs as Halloween with the approach that program.
Okay.
You know.
We're very sensitive to this topic and I'm glad you brought it up.
This is the platform and you know our customers are or traditionally deployed in several places. So we don't take it lightly.
We look at all aspects.
But we are committed to the strategy and we are committed to the market. So you know at.
At the end of the day.
You know, we we balance all of those aspects and the customer always comes first.
Great. Thank you for taking my question.
Our next question will come from Sami Badri with credit Suisse. Please go ahead.
Hi, Thank you for the question.
I want to look at just the P&L and look at your general and administrative expenses that actually dropped off quite a bit sequentially into Q 'twenty, 1 and what I'm really doing here is I'm triangulating with what you guys actually reported on your leasing with 33% of annualized GAAP revenue coming.
From enterprise, So maybe just to think about what this business needs to spend on general administrative and sales and marketing and to think about the balance between Hyperscale and enterprise.
How much of you guys gonna have to spend on opex to sustain signings and in business and cash.
On a like my bigger question here is.
When we moved from 'twenty, 'twenty, 1 and into the out years and considering your strategy.
The adjusted EBITDA margin profile, we're solving for here.
Hi.
The first of all and I recognize that we haven't filed our Q yet, but let me just tell you that was a 1.
Time item in SG&A. This quarter. It was the settlement on the insurance related to the lawsuit that has been outstanding for a few years.
So absent of that our SG&A has been pretty consistent and steady.
As you recall in the Investor.
1 we pointed out to our margin expansion that we expect to reach.
We would expect to improve ex metered power margin by 300 points and by that 2025 time horizon. So that's our goal.
And we continue.
Serving.
Moving our mix of our customers, both enterprise and Hyperscale, So I'm not sure it's the.
Exactly 1 size fits all but we do have inside sales force that works with our customers and our primary direct sales channel, Yeah, Hey, Sami it's John So I just wanted to add something to that like when do we think about enterprise.
Day or scale like these are still going to large scale campuses right and the operational the opex efficiency you get.
Translates to both sets of customers right. So it doesn't look like all of this enterprise customer cost us more to operate than those hyperscale customer I think it is important to keep in mind.
These these customers.
Customers are going into the same assets, while they're deals may not be as large.
They're getting the same operational.
Level of service from Us and Sami I'll I'd like to add a little bit to that too because I think there's as we've seen the business evolved over of evolve over time the.
I look at this is.
And similar to Jamba to stay at it a little differently Everything's of cloud. These days right. So you've got public clouds and private clubs the deployments on our side of the same the opex efficiency of the same.
It's just the private cloud as you know as we call it enterprise or using it internally the public cloud as we're selling it as a service but to us the provider.
We do the same thing so.
It's important to understand that the scale and the efficiencies we get due to scale a great. It doesn't matter to us whether it's a public cloud deployment on a private cloud deployment.
Got it thank you.
Just a follow up request here and.
I'm doing this mainly on behalf of a lot of of the industry experts and.
And just relationships are built on the data center industry over the last couple of years I've been covering the sector, but what kind of executives are you looking for to fill the new CEO role and you don't need to give us specifics here on person or profile, but maybe just read.
<unk> focus or Hyperscale versus enterprise, you know kind of just ironing out a little bit more focus on what you guys are looking forward for the next successor to come in from the CEO of perspective.
So Sami.
I think I was asked the same question earlier and.
We haven't defined it we're picking up this is really for us we're picking of firm we're going to go through a really detailed process to define that and without sounding coy I mean, we need the right person who's the best fit for the company and Thats, both the cultural fit its a non.
Knowledgeable fit enthusiasm said I mean all of those.
Different things, but until we actually embark upon the process.
It'd be front running by trying to guess and less from qualifications out.
Got it thank you.
Our next question will come from Jordan Sadler.
Similar with Keybanc. Please go ahead.
Thank you and Dave.
With you.
And thanks for the last response, I think I get it on the new search but.
I think in your commentary you've mentioned that the board is committed to the strategy and the the opera.
<unk>.
Which really seems like the board is committed to staying the course of essentially after the hiring of new President and CEO does this mean that the company is not for sale.
The the.
The board the board is.
<unk> is committed to the strategy that we're committed to the team.
The that's that hasn't changed and it's not going to change.
Okay. So the board has the board discussed hiring bankers, it's all of the company.
We don't matter, we don't comment on matters of the board.
Okay.
And then.
Now that you've been involved with the company true.
You're just saying that you stepped away almost a decade ago kind of were actively involved have you been in the operations of the business of the board member if at all and for instance, the you're still like relationships with the customers.
But you know, it's a it's a small world right and.
And being someone who was on the inside you know you kind of always stay on the inside I mean, I've known a lot of the customers I know a lot of people on this call I know a lot of the employees.
And I've maintained relationships with all of them.
I Wouldnt say ive been involved in the operations of the business I'd say I've been on board oversight of I think I did a pretty good job of going from.
And being the CEO to being a board member which is not easy.
But I've maintained good relationships with a lot of customers and a lot of employees and while I don't know a lot of the investors because I haven't been in the seat I'm excited to meet them.
Along those lines.
In terms of the search will you tell us your hanging in ring because of the potential full time role.
Yeah, it's too fresh in early for me to comment on that.
I think I need to kind of be around for a little while before I consider that.
Okay. Thanks for your patience. Thank you Jordan.
Jordan. The next question will come from Michael Bilerman with Citi. Please go ahead.
Hey, it's Michael Bilerman.
Dave I was just wondering if you go back to when you were sitting in the boardroom.
And the search last year, obviously, you had touched on the seat who had been at the company.
And ran it pretty exhaustive search.
Search firm.
What were the qualifications that you looked for then that Werent met.
Today that made you lead to the change right. So what was the thing that you thought you were going to get you. Obviously made of very large financial commitment to Bruce you are now, making a large financial exit.
Search will have to go through it again, which is of a lot of shareholder capital. So can you at least dive into a little bit about you had prepared a fulsome search last year about trying to find the best individual to lead the company forward. A year later you have made the decision to go a different way.
I think investors sort of.
It should be.
And now to get a little bit of color, especially because it's their money and as a board member you worked for shareholders to give us a little bit more color about sort of the shift 1 year later.
Michael Thank you and it's a fair question and I appreciate it.
Obviously, I've said it a few times of certain.
Matters of the board I can't comment on but what I will tell you is that we did do an extensive service last year and <unk> was considered for the job.
And the board made the best decision.
The thought they could at the time.
And.
The changes that we just experienced this week have nothing to do with.
The business so its operations the financial reporting the the.
The internal controls of procedures or how.
Bruce manage the business and so as we go forward, we're going to go down on a similar path and were just hoping for a different outcome.
So just personality and culture at the end of the day then.
Well I I I would love to be able to comment on matters of the board.
But.
Im just prohibited from doing so and so.
You know while it's it's a it's a fair question. We just have certain you know certain.
Certain things that of private for the board.
And I guess it is.
Are you thinking about the board just following on Jordan's question.
Do you feel like the board needs more strategic advice as you go through the same process again with the search firm to find the CEO does it make sense to bring in sort of advisers to evaluate.
Everything or is the board.
Committed now just stay the course in the of public company for.
On a long time.
Can you can you maybe articulate the question I don't understand exactly what you're asking.
I'm trying to I'm trying to understand the obviously the board made the decision.
<unk> the company to grow needs of different leader needs of different C. Maybe you maybe someone else. It may be somewhat data center experience, maybe it's a different industry. The board is obviously can come to the conclusion that Bruce was not the individual that you would see managing this enterprise going forward as part of that Shouldnt The board.
So think about.
Whether the company maybe its not the CEO of that's the problem.
Maybe its something else the deeper that requires outside counsel to come in.
We use of advisors.
When the board sees fit.
We use.
All lines of advisers on a regular basis.
We will continue to do so.
And just lastly, just have you summed up the total amount of shareholder capital. That's been spent between Gary Tesh, Bruce I mean, it's.
It's almost $50 million in totality, when you sum everything up with all.
I'll come in from the stock grants and the terms.
You know I.
I have not.
Spent time.
Katherine you know I don't know if you have a comment on that yeah, I mean, Michael we have public.
The closure then we have filing then.
Albert out there so yeah I'm just trying to I mean, it's a pretty big number and between all 3 and so I'm just trying to get understanding of the board how they think about capital in these things. These are not small amounts of of money that's being tossed around.
Right.
The way, we're focused on running the business and the board made the decision.
Nathan.
And where are the areas.
Isn't it.
Absolutely.
Okay. Thank you.
Yeah.
Our next question will come from Jeff the ball.
Wolfe Research. Please go ahead.
Yes, thanks, very much and let me change change gears, a little bit I guess, 1 of the things that we've heard a little bit about in the industry outside of actually the Equinix brought it up last night is there's a bit of of increased propensity for.
For the largest web scale of ours to try and self build where they can I'm wondering to what extent that is it is the dynamics that you are also seeing and what are the barriers that they face.
In that process.
Hey, Geoff it's John.
Thank you so.
Listen the.
The hyperscale customers haven't been building their own data centers for decades.
And we've seen that split 50, 50, 60.40, depending on the customer of depending on the market.
On that exist out there, we don't see it as the real headwinds they they look.
Partners in this space they need to deploy cloud services, sometimes they can build on themselves sometimes they lease it and.
Yes, nothing new there.
The swing more towards self build.
At the moment.
I mean, like I said, Jeff I think it got completely market dependent right. I mean, we're looking at if you look at Europe, there's probably very little self build if you look at.
Sub markets in the U S depending on their land position versus the <unk>.
Providers land position, maybe swings the other way of little bit, but it's swung the other.
Like I said for years.
Okay.
Why don't I follow up on the record on the record backlog, obviously last few quarters, great leasing activity record backlog.
The.
Some of our organic leasing revenue growth from sort of yet yet to see that at least in this.
Guidance.
I'm wondering when.
When we should see that translate through to.
On the leasing performance.
I mean, we've laid out of this is Michael Jeff.
Provided of commencement schedule of estimated commencement schedule of Kathryn provided more color on that schedule. So.
Is that exactly as we sit here today, what we think the timing is going to be on that backlog.
The 86% of its purely.
Of the development pipeline.
That's in the backlog.
Yes, so let me broaden that a little bit because.
Now on leasing is quite variable.
And so I just wanted to make sure that the leasing strength in the last couple of quarters. He isn't like like on an.
An uptick but it will continue and therefore, we will.
To be more of leasing strength to support the revenue growth.
For 'twenty, 2 and beyond this isn't just the 3 quarter surge post of the pricing action.
I want to talk about <unk>.
Of that thing.
We tell you that the backlog and the profile of backlog will drive the revenue growth and as Dave pointed out the market demand is strong and we continue to look for opportunities to capitalize on it.
Actually if we can move to the next few questions. We have only a couple of minutes.
Thank you.
Our next question will come from Eric <unk> with Wells Fargo. Please go ahead.
Thanks for taking the question.
So looking at your portfolio today your development pipeline is almost fully leased I think 86% so and some of your best markets in Europe, Northern Virginia Phoenix.
Our 90% to 100% so.
Kind of surprised that you had lowered your capex guidance and I. Appreciate that there was some spend that got pushed out but are you running into any supply constraints in the second half of the year that might.
And your ability to continue leasing momentum or are there some projects going on in the background that havent been disclosed on the development side.
<unk> could provide some opportunity.
Hi, Eric.
I mean.
<unk> developed a day of Capex guideline not because of that project of being canceled or anything but the timing of that capital expenditure is getting pushed out some primarily due to permitting mostly for example.
The Santa Clara is still in the process of permitting we also had delays in permitting in Frankfurt.
We do not anticipate we have experienced some issues with supply chain on the minor level, but the let John talk about that yeah, Eric on the supply chain side, I mean sort of the permitting stuff to the GAAP Katherine mentioned Thats all of it is those projects.
Debt are teed up contractors everything so we're just waiting on permits but on the supply chain side listen we have seen some some minor impacts to some equipment.
And our supply chain has been robust enough to deal with that but we're constantly watching interest there is a global issue and the.
The teams all over it.
Okay, Great and just 1 quick follow up.
On the enterprise leasing side I thought you had signaled maybe it would be flat or a little weaker.
But it came in kind of ahead of the $9 million to $12 million you typically target per quarter. So maybe you could provide a little color, but were there some larger enterprise deals that came in this quarter and maybe what does the pipeline look like.
Yes and no.
Price business, the even though the stadia, then obviously on less lumpy than the Hyperscale, but generally you still have deals that happen and theyre not necessarily quarter to quarter. So if you remember our first quarter on the enterprise wasn't as strong. So this was the little bit strong as its all about timing really at the end of the day.
<unk> signed the leases.
Yeah.
Okay. Thank you.
Our last question will come from Michael Funk with Bank of America. Please go ahead.
Yes. Thank you can kind of me in guys..1 of few if I could Dave I. Appreciate you don't want to comment on internal.
On the board discussions of deliberation, so more and more of your opinion Dave.
Clearly the public markets are forcing suboptimal levels of leverage on data center companies.
<unk> been recycling of assets, which is arguably.
Low cost source of capital seems to be punished in the short term due to the dilution.
<unk>.
What is the advantage at this point of being a public company versus being private for Cyrusone.
As a public investment grade company.
Tell you our customers really love that we've got access to capital.
Our customers would always rather do business with us if we have capacity and I think part of that is they know that.
Access to capital so.
The customers really enjoy it.
And so it's a concern that's being private debt you wouldn't have access to enough capital to develop is that the concern that the because the credit markets the where even.
Partners are owners wouldn't have access to the same amount of capital.
Mike I.
We have we should comment on private versus public we are of public company and.
We enjoy a certain privileges of public company, but we also.
On being more transparent to our customers and we and the customers appreciate that and we take full advantage of where we are and we do have access.
The capital through the public markets, but it's a.
That's where we are creating value for our shareholders as a public company.
Sure I appreciate that and thank you for the time.
Thank you.
Thank you all I look forward to meeting some of you as I get out on about and I. Appreciate your time today.
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