Q2 2021 Equinix Inc Earnings Call
Good afternoon.
Welcome to the Equinix second quarter.
Conference call all lines will be able to listen only until we open for questions. Also today's conference is being recorded if anyone has objections. Please disconnect at this time.
Now like to turn the call over to Katrina, <unk>, Vice President of Investor Relations and sustainability you.
You may begin.
Good afternoon, and welcome to today's conference call before we get started I'd like to remind everyone that some of the statements we'll be making the day are forward looking in nature and involve risks and uncertainty.
Actual results may vary significantly from those statements and may be affected by the risks we identified the today's press release and those identified in our filings with the SEC.
The earnings including our most recent form 10-K filed on February 19, 2021, and thank you bye all of us.
April 32021.
1 of them assumes no obligation and does not intend to update or comment on forward looking statements made on the call. In addition of lot of regulation fair disclosure is the Equinix is policy not to comment.
The financial guidance during the quarter unless it is done through an explicit public disclosure.
In addition, we'll provide non-GAAP measures by today's conference call. We provide a reconciliation of those measures. The most directly comparable GAAP measures and the list of the reasons why the company uses these measures in today's press release on the Equinix IR page at WGNA.
W. The Equinix dot com.
Made available on the IR page of our website presentation designed to accompany the discussion along with certain supplemental financial information and other data.
We'd also like to remind you the way post important information about of Equinix as the IR page from time to time and encourage you to check the website regularly.
So the current available information.
Just a day or Charles Meyers, Equinix, 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 of an hour we'd like to ask these analysts the women any following questions. The just 1.
Most of his time I'll turn the call over to Charles Thanks.
Thanks, Ken Good afternoon, everybody and welcome to our second quarter earnings call.
I'd like to know the results we are seeing significant momentum in our business of digital transformation outpaces previous expectations.
Technology spend is accelerating and equinix remains uniquely positioned as traditional technology.
The markets continue to shift as the service consumption model and hybrid multi cloud widely adopted as the architecture of choice.
And the image has highlighted the digital infrastructure is not just the business enabler, but the primary source of competitive advantage the digital leaders across all industries.
And we continue to see a multitude of trends driving the infrastructure that is.
The more distributed or on demand from our ecosystem connected than ever before playing to our distinctive strengths.
Our results reflect strong performance across our geographies tremendous momentum in our market, leading interconnection franchise and deep customer demand across our expanding portfolio of services.
Against this robust demand backdrop, we are of great.
Delivering record bookings fueled by the continued momentum in our Americas business and a strong quarter from Equinix Smith.
The process 140, 600 deals in the quarter across more than 3200 customers demonstrating both the scale and the consistency of our go to market machine we have.
<unk>, our 74th consecutive quarter of top line growth.
Second we're pleased to have been recently been included in the Fortune 500, and exciting milestone made possible by the competence of our customers, placing of Equinix and by the incredible commitment and passion of our 10000 plus employees around the world.
And we continue to expand our global platform of 35 projects underway across 25 markets in 19 countries.
With Q2 openings in Bordeaux, Helsinki and Sultan.
Aligned with our values and our purpose. We're also proud to share of further enhancements to our old commitments on sustainability leaning in across all elements of ESG in early June we became the first in the data center industry mezzanine climate neutral by 2030 backed by science based.
And our guests and aggressive green financing plan and a comprehensive sustainability agenda.
Line with the Paris climate agreement. This commitment is of critical steps to ensuring equinix continues to advance investments and innovations to reduce greenhouse gas emissions and green our customers' digital supply chains Adil.
Additionally, as part of our ongoing folk.
On diversity inclusion and belonging and a commitment to wellbeing. We recently hosted our second annual <unk> connect the best of 24 hour of virtual gathering led by our employees are in play connection networks, and our VIP and wellbeing teams. This event of celebrates quality diversity and connections and offers our employees an opportunity.
And the lesson to learn and to engage in Korea. These conversations as we build the culture and community that can have a meaningful sustainable impact on the future of our world.
Turning to our results as depicted on slide 3 revenues for Q2 were $1.7 billion up 8% year over year, adjusted EBITDA was up 7% year.
Year over year, and <unk> was again meaningfully ahead of our expectations interconnection revenues grew 12% year over year, the solid unit adds of healthy price.
These growth rates are all on a normalized and constant currency basis.
Our global interconnection franchise continues to perform well we now have over 406000 total.
Total interconnection on our industry leading platform in Q2, we added an incremental 7800 interconnection and now have 15 metros with more than 10000 total interconnection a reflection of the scaled digital ecosystems that drive our differentiated value proposition.
The Internet exchange saw peak traffic up 4% quarter over.
For quarter, and 31% year over year and were seeing IX diversified as large scale peering expands to a broader base of enterprise customers.
<unk> fabric saw excellent growth across all 3 regions driven by healthy unit growth and increasing yields as customers expand usage of higher bandwidth connections to interconnect regional and global footprint.
1 of the 2600 customers are now on bandwidth and we continue to see strong attach rates as businesses diversify their end destinations and evolve their connectivity needs in support of highly distributed infrastructure and the adoption of hybrid and multi cloud.
Turning to digital infrastructure services customers are responding very positively as we.
Our portfolio to enable physical infrastructure delivered of software suite.
We had strong bookings of Equinix metal of this quarter, including our largest line to date with our channel partner of Us for a blockchain company building a network of validation nodes across 8 markets.
Our network edge offering showed meaningful acceleration with average deal size increasing.
<unk> nicely as enterprise customers are deploying a diverse set of Virtualized network functions from our marketplace of vendors importantly, and as expected digital infrastructure services are also driving strong cross selling activities and interconnection poster with nearly a 1000 virtual connections already provisioned to support these deployments.
Augment some of our ex scale initiatives, we continue to expand our plans in light of robust market demand and positive customer feedback.
Late in the quarter, we announced agreements for additional joint ventures with GIC, Singapore's sovereign wealth funds when closed from fully built out the total investments between Equinix and GIC in our ex scale data center portfolio will be nearly 7 billion.
Billion across 32 facilities globally with more than 600 megawatts of power capacity.
We currently have 7 ex scale builds under development across all 3 regions and we pre leased our entire Frankfurt 9 asset in Q2, representing 18 megawatts of capacity fully submitted in advance of delivery.
With this deal we now have now have.
Shifting to have net have now leased more than 100 megawatts of ex scale capacity and 100% of our open capacity of at least we are actively engaged with partners to develop entry plans and other expansion markets globally, including Australia.
Now, let me cover highlights from our verticals our network vertical delivered strong bookings across all 3 regions with particular.
Strength in APAC as traditional carriers continue to invest in specialty telecom firms if all of their portfolios to address demand from cloud mobile IP services and over the top delivery.
New wins and expansions this quarter included Mccabe of local telecom service provider leveraging interconnection to better serve low latency finance customers.
Costly fiber, a leading provider of network services deploying in our London, and Paris, 7 IV access to support the first new subsea cable laid across the English channel the nearly 20 years.
In the global telecommunications provider expanding their presence to new locations, including the lawn and board of.
Our cloud and IP vertical saw continue.
<unk> momentum over indexing of Europe as organizations accelerate hybrid multi cloud adoption.
The expansion this quarter included Xu of leading video communications platform, expanding coverage and scale to support market demand and the cloud delivered enterprise network security provider deploying infrastructure to support offerings and new locations.
Our <unk>.
Vertical achieved record bookings with broad global strength punctuated by an exceptionally strong quarter in the Americas across several sub segments, including healthcare consumer services business and professional services and retail.
New wins and expansions included Red Bull of major sports energy drink manufacturer deploying infrastructure across all 3 regions.
The price to take advantage of Equinix as cloud ecosystem.
A leading global cosmetics retailer of deploying digital infrastructure to optimize their network move out of legacy data centers and locate private infrastructure adjacent to the cloud providers and.
And of Fortune 500, global insurance provider optimizing their infrastructure to support multi cloud.
Regions and digital media also achieved solid bookings led by growth in CDN publishing and digital media and gaming of digital transformation continues to shape. This vertical.
Expansions included stack path of leading edge computing and services provider deploying infrastructure across multiple edge locations furnace research, a leading data analytics company transforming network topology.
Apology and interconnect into multiple files across platform Equinix and <unk> dot net a leading provider of of application hosting and infrastructure services deploying on platform equinix to enable a consistent high performance gaming experience globally.
And our channel program continues to outperform delivering a record quarter and accounting for over.
35% of bookings.
We're across across a wide range of industry verticals and use cases included multiple equinix metal in the network edge deals as the channel embraces our digital infrastructure services.
We saw continued strength from alliance partners like the AWS, Cisco, Dell, Google IBM and Microsoft and.
<unk> of success with key resellers around the world, including a win with HPE the roller through a leading Australian retailer to modernize and scale their payments platform, which processes over 30 million transactions per day.
So now let me turn the call over to keep the cover results for the core.
Thanks, Charles and good afternoon to everyone I Hope you and your families are.
We also have been enjoying summer months.
So let me start by saying it was great the spend side with many of you, albeit virtually out of June analyst day, No surprise, we were eager to share our plans on how we intend to scale the extend and innovate the business over the coming years to drive long term shareholder value.
Meaning more revenues higher margins the more cash.
Cash flows.
With respect to the quarter of the business continues to perform exceedingly well as the macro environment for digital infrastructure continues to drive favorable demand.
In fact, we exceeded our expectations.
There are many highlights to share with you from the quarter to start we had record bookings activity of.
Both the company and the America the regional level.
We enjoyed robust channel activity and lower than planned churn.
Interconnection additions were solid both physically and virtually.
And our digital infrastructure service lines, which include edge in the middle are gaining momentum.
Simply put we're continuing to execute against the <unk>.
Related at the analyst day.
Given our performance, we're raising our guidance across each of revenues adjusted EBITDA of <unk> <unk> per share for the year.
Now let me cover the results for the quarter of note that all growth rates. In this section are on a normalized and constant currency basis.
<unk> had depicted on slide 4 global Q2 revenues were 165.8 billion up 8% over the same quarter last year due to strong business performance across our platform led by the Americas region.
And as expected nonrecurring revenues increased quarter over quarter of 2.7% of revenue is due at a meaningful step up in ex fuel.
The venture piece in APAC and EMEA and.
The end customer installation work across all 3 regions.
As you can appreciate nonrecurring revenue revenues are inherently lumpy and therefore as a result, we expect Q3 non recurring revenues decreased by $8 million compared to Q2.
Our backlog.
Bill joined us, but yet to be built cabinets has increased slightly despite the 4200 increase in billing cabinets in the quarter.
Q2 revenue net of our FX hedges included an $11 million benefit when compared to our prior guidance rates.
Global Q2, adjusted EBITDA was $797 million or <unk>.
The core set of revenues up 7% over the same quarter last year meaningfully outperforming our expectations due to strong operating performance and the timing of spend.
Q2 included of planned rebound of repairs and maintenance spending and higher utility costs relative to Q1.
Q2, adjusted EBITDA net of our FX hedges.
This includes a $6 million of FX benefit from compared to our prior guidance rates and $4 million of integration costs.
Total Q2, <unk> was $632 million, including a $25 million recurring capex increased compared to the prior quarter above our expectations due to strong operating performance of more integration.
48, the thoughts.
Turning to our regional highlights whose full results are covered on slides 5 through 7.
APAC had the highest year over year revenue growth of 11% followed by the Americas and EMEA regions, both at 8%.
The EMEA revenue growth rate reflects the lapping of the significant interconnect.
Integration of price increases and other 1 off positive adjustments from last year.
We expect the EMEA growth rates of return to normalized levels in Q4.
The Americas region saw continued strength with our second consecutive quarter of record bookings of 6 of our 7 largest markets improved over the prior year.
Also were enjoying.
Interconnect healthy booking activity across our smaller markets, including.
Including Atlanta, Boston, Denver, and Seattle.
Sales of our focus on retail interconnected deployments with healthy pricing.
In the Americas region also benefited from strong imports from the other 2 regions are reflection of our continued focus on platform.
Our EMEA region had a strong quarter led by Dublin in Stockholm at our newly opened Bordeaux market.
As well as high exports to the other 2 regions.
Enterprises contributed approximately 1 third of the region's bookings up significantly over the prior year.
We're also seeing good momentum across our flat markets.
And the EMEA.
The region benefited from nonrecurring revenues related to ex scale fees earned from the pre lease of our entire Frankfurt.
In London, the 11 buildings.
<unk> 37 megawatts of demand.
And finally, the Asia Pacific region had a solid quarter led by Singapore, and Japan with strong regional bookings.
Waiting for small and medium size deals remains strong and we're seeing good traction with equinix metal.
APAC regions quarterly <unk> growth was partially constrained due to COVID-19 related capacity delays in Singapore.
The political uncertainty in our Hong Kong market.
And now looking at the capital structure. Please refer.
Despite the 8 and 9.
We ended the quarter with cash of about $1.8 billion and our net debt leverage ratio.
The 3.8 times of Q2 annualized adjusted EBITDA, highlighting the financial flexibility.
The strategic advantage, we have relative to anyone else in our space.
EMEA, we raised 2.
$6 billion, including an incremental $1 billion in Green notes.
Since the Equinix as the inaugural investment grade issuance in late 2019, we've reduced our annualized interest expense by approximately $196 million offset in part by the incremental debt capital raised.
2 points of our landed cost of <unk> is now the lowest in the industry at approximately 1.7% on a weighted average maturity is nearly 10 years.
We also raised $100 million of ATM equity in the quarter.
We continue to expect to use both debt and equity to fund our future business needs with an increase of lean towards debt capital.
Alright.
Turning to slide 10 for the quarter of capital expenditures were approximately $692 million Inc.
Putting recurring capex of $45 million.
We opened 3 new retail projects this quarter, including new <unk> embargo and Silicon Valley.
We also purchased land for development in Frankfurt and housing.
Capital.
Revenues from owned assets now represents 58% of our total revenue due to the acquisition of our Singapore 3 Ibs.
On the ex sales side of the business after quarter end, we contributed our Dublin bypass it to the EMEA joint venture in return for net proceeds after our 20.
The percent equity contribution of $49 million.
Our capital investments delivered strong returns as shown on slide 11.
Our 153 stabilized assets increased recurring revenues by 3% year over year on a constant currency basis.
These stabilized assets are quite from the 86% utilized.
<unk> and generate a 27% cash on cash return of the gross PP&E invested.
Looking forward, we expect to ex the year closer to the top end of our stabilized asset growth range in part due to strong Americas revenue growth.
Please refer to slides 12 through 16 for our updated summary of 2020.
'twenty, 1 guidance and bridges.
Do note of our 2021 guidance does not include any financial results related to the pending GBS GP ex India acquisition.
Which is expected to close in Q3.
For the full year 2021, we're raising our revenue guidance by $50 million and.
Adjusted EBITDA guidance by $27 million.
Primarily due to strong operating performance and favorable FX rates.
Although slightly offset due to the timing of spend as we proactively pull forward of expenditures to mitigate supply chain risks.
This guidance implies of normalizing constant currency.
Revenue growth rate of approximately 8% of midpoint compared to the prior year and I know the adjusted EBITDA margin of greater than 47% of.
Given the operating operating momentum of the business, we're raising our 2021 of <unk> guidance by $15 million.
Growing 10% to 12% on a normalized and constant currency basis.
Compared to the previous year, while also increasing our <unk> per share range.
2021, Capex is now expected to range between 2.7 and $3 billion, including an approximate $450 million of on balance sheet ex scale Capex, a significant portion of which is expected.
<unk> be reimbursed by either of the current for future JV.
And of $193 million of recurring Capex spend of <unk>.
Slight increase over the prior quarter due to timing of spend as we mitigate supply chain risks.
So let me stop here and turn the call back to Charles.
Thanks, Keith the.
Momentum behind digital transform.
Transformation is as robust of there and shows no signs of letting up as the world's digital infrastructure company Equinix plays a unique role in this evolving story is positioned to be by the catalyst and a key beneficiary as we partner with customers to unlock the enormous promise of digital both economically and socially as.
As we discussed at our recent analyst day.
We are focused on 3 strategic levers as we execute on this transformational opportunity.
We will continue to scale doubling down on the strength of our core business investing to further scale. Our go to market machine to win new customers, putting our capital to work to add capacity in existing markets and executing on targeted operational improvements to standardize simplify.
<unk> and automate.
Driving expanded operating margins and providing a better experience for customers and partners.
We will extend the reach of our platform and accelerate our aspiration and ex GAAP by the end of this year will be in 66 markets around the world and see continued opportunities for expansion and growth across both retail and ex GAAP.
And third we will continue to innovate across our portfolio supporting scalability of self service and energy efficiency across our Colo estate delivering advanced features to sustained momentum in our market, leading interconnection franchise and driving adoption of our digital infrastructure services to deepen our relevance to customers.
Our ability to scale.
Expand and innovate starts with our people and with our commitment to building a diverse and inclusive workplace for every person every day from confidently say I'm safe I belong and I matter.
We show up every day with an in service 2 mindset, starting by being in service to each other which enables us in turn to be in service to our customers to our communities.
Entities and to you our shareholders.
Purpose creates passion and we are inspired by ours to be the platform, where the world comes together, serving as an enabling force for our customers and unlocking their incredible potential to deliver the innovation that enrich our work our life and our planet. So let me stop there and open it up the questions.
Thank you Sir at this time, if you would like to ask a question. Please press star 1 on your Touchtone phone. Please ensure that your line is muted and please record your name and company name to be introduced once again of the star 1 at this time. Our first question comes from Jordan Saddler with Keybanc capital markets. Sir Your line is open.
Thank you good afternoon.
Uh huh.
During the Investor Day last month, you guys outlined the the 7 of 10% annually for share growth through 2025, but you also suggested debt next year could come in in the lower half of the range I think is.
Efficiency initiatives fixed income.
Open ramp in <unk>.
You didn't have as much benefit the.
From refinancing opportunities that have taken place.
Given the acceleration of Youre still seeing in this quarter and in the.
The bump you've seen here can you can you speak to.
What the trajectory looks like heading into next.
The time until we are and then.
Separately, the follow up and I'm, just curious about the ATM in the quarter I think Keith you talked about the significant incremental debt capacity given sort of the leeway offered by the agencies and so I'm a little surprised to see the the equity raise of the quarter.
Thanks.
Next you take great. Thank you for the questions. Let me take the first 1 and then we'll.
Well, let me take the first question.
First of almost when we came off the analyst day, 1 of the 1 of the questions. We spent a lot of energy talking about was.
Was the <unk> per share growth rate in the first sort.
In 2022 relative to.
Broader guidance. The reason I said it was going to be in the bottom half of the range instead of the top half of the range was 1 it was a reflection of all of the investments, we're making across our portfolio of this year not only as it relates to exco.
But also our digital infrastructure services, and then all of the efficiency initiatives.
So the the absorbing the full annualized impact of those costs.
In 2022 net as a result of tends to cause us to cause us to be a little bit more dilutive on the from the per share metrics relative to the the broader guy.
In addition of course here, but you've got a very strong guidance.
For this year as well so it doesn't have the benefit of.
Yeah.
The refinancing out of the majority of our of our high yield debt and so you've got a little bit of wind at your back and you won't have that when they get back next year. So that's that's the primary reason relative to the comments, we made about this year and.
But he is in your guide.
No not a big surprise to many of you as we saw at a lot of it's coming and it's reflected in the long term model that all of a sad because we still have the ability to move our numbers up.
But it's a 5 year plan as you can appreciate and so I wouldn't say that we're changing the trajectory on the guide.
At Analyst day, just because we had 1 good quarter of that.
Does it feel like the right thing to do.
Secondly, as it relates to the ATM.
Like anything we are going to use the little bit of debt and equity. This was really commensurate with our our commitment to our rating agencies to tap purion.
Honestly, the the 18th a T M.
Facility, but with dramatically reduced what we anticipate that we would otherwise use and as a result, you saw.
The $100 million, but the message that I had I had in the prepared remarks. It was really the lien is towards debt capital but.
On a go forward basis for obvious reasons, 1 of the cost of that debt Caf 1 even over the last few weeks has continued to trend downwards, and so that will be the lean on the go forward basis. So there is always going to be a little bit of a blend but are again I want 1 of them make sure that everybody fully appreciates we want to use.
The debt capacity that we have on our balance sheet to its fullest advantage, but it was still at the same time, maintaining a very positive relationship with the rating agencies.
Yeah, I might augment just a bit in certain of Jordan in terms of just saying I think in the environment as attractive as we as I believe we're operating in now and in terms.
We are seeing so.
So much growth opportunity for the business I think the ability of continue to ensure that we have the ability to respond to that and Ah and the balance sheet to do so it's just something is top of mind for us as she said I think the <unk>.
<unk> is definitely towards debt for from the obvious.
But I think it probably makes sense for us to I think have some some level of ATM just to continue to have optionality in the business.
Thank you for your question. Our next question is from David Guarino with Green Street. Your line is open Sir.
Hey.
Thanks, guys I wanted to ask of regarding the 3% stabilized revenue growth from the quarter and your comments on the acceleration of that.
Through the rest of the year or was that just due to the timing of when the Americas bookings shipped during the quarter and I thought it would be a little bit higher and then could you just remind us of the top end of your stabilized growth rate.
Sure David.
Yes, we typically guide of 3 to 5 so we're kind of at the bottom of low.
And of that of that range this quarter.
I think there is a there are some timing effects in there theres also some 1 time.
Items, I think that that are flowing through.
But as we really unpack that and looked at what we expected.
Towards the back.
Back half of the year I think we feel feel good about.
Sort of moving more towards the top end and I think that's partially due to just really obviously really strong continued momentum in the Americas business.
Out of the full portfolio of assets there so.
And 8% quarter, there, obviously some strong IRR.
<unk> in there, but even on the MRO side, 6% growth really strong quarter.
So, yes, I think towards the back half of the year, we're feeling really good about the trajectory there on the on the stabilized asset same store number.
Okay, and then I know you.
I can guarantee you noted strong bookings in the Atlanta.
The market could you comment on which data centers in that market saw the strong demand in the particularly I guess could you comment if you're a 180 peachtree datacenter of gaining any traction versus the other properties in that market.
Yes, I mean, thats, where our focus is.
I believe that's H, 1 and putting the putting the energy and they're continuing to build.
That ecosystem, which we believe has the critical mass of of interconnection and ecosystems depths debt is really necessary to scale our market effectively so yes, we're seeing good success there in that.
And again the emphasis is on is.
As on that on that Peachtree location, a few months.
Thank you for your question. Our next question is from Sami Badri with Credit Suisse. Your line is open.
Hi, Thank you for the question.
Charles other question for you and this is kind of going back a couple of quarters I believe in the back half of 2020, you discussed that there was going to be an enterprise acceleration.
And I know the dynamics now are actually picking up across the majority of the tech sector and we've seen some large cap tech results sort of reflect this including gear results.
But you know how would you describe your expectations in the back half of 2020 to what Youre seeing right. Now is this coming in line or is this coming.
Ahead of what your what you were expecting in the back half of 2020.
Yeah as you as you indicate of saying we were pretty optimistic and bullish about the momentum we're seeing in yet with the enterprise customer even even.
During the the more peak levels of the of the pandemic etcetera and so we are.
<unk> of people, despite that saying hey, we've got to be investing in digital and so it was showing up in terms of our pipeline build.
And our bookings and so and just qualitatively in the conversations we're having with customers and so that's why we're kind of signaling that optimism I think that is definitely translated how we.
How we expected it.
And and I think I would say that this quarter was even stronger than I think we would of thought it was going to be in that.
As reflected in our.
In our results and therefore in the adaptation of our guide.
So I think the business is just a really strong.
We're seeing from enterprise perspective, as I said in the in the.
Sort of script.
Across all 3 regions across a variety of sectors enterprise bookings were very strong Chavez day channels of big part of that working not only in terms of pursuing hybrid cloud opportunities with our key Alliance partners.
Non core and.
The cloud players, but also with our reseller.
Of the portfolio of partners and so.
Yes, I think we're seeing it.
In line or better than we had thought and I think we expect to continue to see sustained.
I'll put in growth from the enterprise segment.
And probably Oh.
Over index.
And the cloud and enterprise have been over indexing for a very long time now.
And the enterprise just seems to be just a.
On a tear in terms of.
It's the growth right now.
Thank you for giving us color on that 1 quick follow up and I'm going to ask you. This because this is.
The question a lot about the investors actually asked me and where do you think enterprises are and the and they're kind of I T. Modernization cycle are enterprises, 20%, there, 40%, there, 60% where would you put them as far as our cycle in terms of where they are in their upgrades and modernization efforts.
Yeah.
I mean, it's obviously really hard to pinpoint that with any precision, but what I would say is I do think it's still relatively early in terms of people, whether they want to use a bit.
Paul analogy or whatever it is.
I think it's it's early innings right we haven't.
We havent passed the midpoint here.
So I think there's a long way to go in terms of people, who still have you know.
A lot of legacy architecture.
Theyre looking to adapt to the sort of hybrid multi cloud world and then the other comment I would make is that the.
The pace of change itself is just continuing to accelerate and so.
No.
I think that the the <unk>.
Technology lifecycle and refresh cycles are shortening I think people are thinking differently about how the idea as I said in my comments.
A number of very large technology markets are dislocated as they shift here as of service and as we talked about at analyst day that.
1 of its an upside opportunity for us to get a bit more wallet share as those things are delivered as a service with the with Equinix as the point of Nexus for consuming those services because we're getting both of the underlying service price themselves locating infrastructure of Equinix and then we're often able to deliver those services on the platform.
Aligned with things like fabric and metal and other things, they're allowing us more more wallet share and so.
I think we're it's still early days I think there is a you know a long period of of.
The team.
Architecture, and digital transformation investment in front of us.
For the purpose for the foreseeable future.
Got it thank you.
Thank you for your question. Our next question is from Simon Flannery with Morgan Stanley. Your line is open.
Great. Thank you very much good evening.
On the normalization point again can you just talk about the supply chain side.
Things.
Are there any challenges that you see both in terms of availability, particularly as you get into more of the infrastructure businesses and then just inflation, which you know some of the others in the food chain has been talking about with freight cost et cetera.
And you mentioned some of the the challenge of its with Covid and some of the Asian markets like Singapore I think.
<unk> also heard more stories about the limitations on power and water and some municipalities kind of looking at data centers and the slightly different lens you.
You, obviously highlighted here ESG initiatives, but any color around how you see that evolving and how that kind of his.
Of this position for that would be great.
Yeah. Thanks, Thanks for the question.
<unk>.
I'll take the 1 around supply chain suffice it to say we've been investing quite heavily.
As you've heard us speak of in our procurement and strategic sourcing initiatives.
Under the very strong leadership and as a result, we are getting ahead of.
Some of the the.
On the Ts constrains in the marketplace.
And were normal sort of still only managing our access into the production cycles.
For this year, but it's also contemplating of consumption needs for next year.
That marries up nicely with also the inflationary exposure of that 1 might otherwise have been.
Entering.
The first of a broader commitment you can mitigate some of that inflationary pressure as well.
That is that all said I think we're making some great.
We're having great successes and working with our partners, our vendors and our suppliers.
And then.
Also go on to say the inherent in our contracts.
<unk> is a lot of the inflationary protection.
The aspect of supply and demand and then there's the aspect of pricing.
And again, we're very confident of our contracts.
We will appropriately.
Contemplate the exposure to the extent that you've laid out.
The higher inflationary environment over the coming.
Practice.
So from both of our effective we'd want to squeeze out of 11, both to the make sure that we protect our interest in revenue, but we also have access to deliver the managed and support the cost model and I think we're doing a good job of that as the company.
Did you Charles do you want to talk about the Singapore sure.
Yeah, I mean, the there are there is a little bit there in terms of you know I think the question of are specifically as it relates to you know a Singapore I think if there is there wasn't the COVID-19 related delay in terms of the timing of that facility debt created a little bit of a revenue headwind relative to the timing because of demand for that is so strong.
In Europe that we had planned on that coming online a little bit earlier, and so we're seeing a little bit less despite that delivered a really strong quarter.
And I do think there is a broader phenomenon as you described in terms of markets thinking about how they're going to allocate capacity and deal with the.
The demand.
For data centers and the environmental impacts what I would say is that that's exactly why we're making the level of commitment into ESG and in particular, the environmental side that we are I think we're really positioned to tell the story. There as is now the leader going out and saying we're going to be climate neutral by 2030, I think we're going to be.
In a position to really partner with municipalities to say, Hey, look there's there's a ton of of economic and social benefit being driven by digital I talked about that in the analyst day, you know to the tune of 100 trillion dollars.
And people want to tap into that but they wanted to do so responsibly and I think our ability to.
Investments in ESG is kind of continue to be something that really differentiates us and that's not true only and in Asia by any means there the number of markets around the world facing those same things and I honestly I think that's gonna be of thing 1 of the areas, where we continue to separate ourselves from the pack.
1 of the out of piece of color on the prior question too on these.
To make the supply chain sort of constraints of issues now.
I've talked to some people that there's really kind of 3 areas of our business, where do you think about it you have the the data center build side of things there because of our size our market leadership et cetera, I think we feel like we're in a very good position.
<unk> access to the equipment, we need to continue.
To hit our delivery dates.
And so appealing.
Good position, there, but obviously continuing to monitor trends and your of the networking side of our business, where maybe we're a little less.
The position, but what we've done is really said, okay. We're going to go ahead and make investments to mitigate risks there and in.
That's an area, where we've had real success in it.
Again that showed up a bit in the in the quarter.
Our guide as we think about calling some cost in and then the the third level of it is really at the digital infrastructure services line with things like metal.
And that's a that's an area, where it's a smaller business for us.
So it will be less impactful, but we are looking there about how we can partner with the with the number of folks to mitigate supply chain impacts there, especially since we had just came off of very strong bookings quarter for metal and so we want of B make sure that we can continue to sustain that momentum.
Great color. Thank you.
Thank you for your question. Our next question is from Brendan Lynch with Barclays. Your line is open.
Great. Thanks for taking my question.
We put out a press release related to the channel and it was clearly a.
Strong quarter for the channel.
And <unk>, maybe you could talk a little bit about your changing approach there and what.
Type of investments you might need to make to.
Bring the new structure to fruition.
Yeah Yeah.
Incredibly strong performance from the channel and spend that way for every quarter for as far back as I can remember, we've just been really delivering well in that arena.
I would say.
Say that Theres, a few things 1 of.
The debt.
The relationship that we have with what we refer to as our alliance partner Group, We mentioned several of them in the script again, the usual suspects AWS, Microsoft Oracle et cetera.
Those are folks that we are partnering with us.
The enterprises think through their demand for hybrid infrastructure.
They are line to advanced sales sales cycles for the public cloud services.
In order to do so they have to have a comprehensive answer for the customer.
In terms of the hybrid of infrastructure.
Story, and so together, that's a very much a 1 and 1 equals 3 kind of story and we can bring that to the customer and have really been effective in winning business together and so we're seeing real strength there on the reseller side people that are combining value.
Certain ways with with Equinix.
Value to solve customer problems.
Seeing a nice uptick there and what I would say is we're seeing more concentration in terms of.
A smaller number of our really well.
Well highly capable of resellers delivering more of the revenue and I think that's a good general dynamic for us.
Okay.
The structure and in terms of the investments, we're making the big area. There is really to continue to upgrade our processes and systems, which can be very honest were not designed channel ready from the beginning and continue to adapt those to be more channel friendly so the quoting ordering customer support.
It can all.
<unk> done it.
<unk> the support.
A customer of a customer or a customer of our channel partner in this case.
So the adaptation of our systems is that's a multi year.
Sort of.
Trajectory, but that's really the area of some of the key areas that we're making the investments.
So really better certain channel partners.
Great and just 1 follow up on that.
I'll leave you of a goal of getting to about 50% from channel sales what is the timeframe for that and also would effect on margins will be increased channel sales have.
Yes.
The asking that question.
I've answered that.
So I think you're probably referring to statements I made in the past of debt.
I see no reason why we couldnt be 50% I don't know exactly when that will occur I think that I do think that success with our as we're seeing channels channel partners embrace some of our newer services like metal and network edge.
Almost inherently sort of of channels service because we're partnering both with people that are providing their virtualized network functions and then with providers, who are bringing that to market.
Tandem with other value.
I think we're seeing a bias towards continued strength in the channel.
But we also have and are continuing.
The continued great success with our direct selling team.
So both are growing nicely.
I don't know.
Channel has been over indexing a bit.
And so I think we will trend towards higher numbers, but it's hard to predict I think the exactly where we land I think if the newer services really accelerate I think that could.
Can bring us the higher.
Channel percentage is faster.
And in terms of impact on margins.
Yes.
Really not particularly meaningful in terms of.
Our current model is slightly higher cost in that we often are our double comping on commissions.
When we have our direct team partnering with.
With channel.
But when you look at the customer lifetime value of these contracts.
Location of that to margins is actually quite small.
And given the the very attractive profile in terms of return on capital and margin of some of these newer services I don't feel like that's going to be.
A significant drag on our margins and in fact, I think our other areas of margin expansion.
Spansion or going to overpower those.
Great. Thanks for the color.
Thank you for your question. Our next question is from Eric Klein with BMO capital markets. Your line is open.
Thanks.
And just maybe in the Americas, the cabinet additions of picked up which I think you've been alluding to over the last couple of quarters, but in the backlog.
And now you mentioned that.
At least the overall kind of a backlog of exceeded that.
Filled backlog so how should we think about utilization rates I guess moving forward it's around.
73% now a little bit lower than than it's been historically, what kind of rate would you like to get to it.
Alright, I will take that 1 clearly.
You're right the.
We had a really good quarter something the Wii.
Foreshadow some of the last.
Cutters, particularly around the west coast.
The U S and so great and the success.
With the cable landing station not all says is we've introduced some new capacity of the Silicon Valley of 11 assets.
Has come online and so when you look of the overall utilization range. It still is still.
All in the mid to low 70, <unk> that said, we're going to continue to have success in the Americas, Charles alluded to and I've mentioned debt and so I would assume that that debt utilization level is going to continue to move up.
We consume the inventory of the assets fulfill but also add.
Just on that basis, and I made it I had made the comment in my sort of prepared remarks.
The amount of each of book, but yet to be built inventory is up slightly despite the all of the inventory that we've got all of the inventory that moved into the.
The billing queues and so that that's a real causal.
So it gives you a sense that there has been substantial bookings already that will consume that inventory.
Of the thing I think is really worthy of note.
This quarter and for that matter through the rest of the year, we anticipate that will continue to be selling into what was historically known as Verizon assets, we've seen a real nice move.
And as we said 6 of the 7 markets plus the some of the smaller markets in the U S and that includes much of the.
Much of the the capacity.
<unk> 2 <unk>.
The known as the Verizon assets. So we're excited about the momentum I think you're going to see the Americas region continue to perform well as.
We accept the last quarter when they're telling you this quarter through the rest of the year and we'll update you on 22 of when we get there, but overall, we're just delighted by the success we've seen.
<unk> seen on the heels of all of this opportunity.
Got it thanks, and then maybe just a follow up on the Americas MMR per cabinet came.
Came down slightly in the quarter or was that just timing given the.
GAAP net addition.
Then it is timing and again it goes back to that that was the large and as I referred to the large cable landing station deployment that came that came at a different price point and so you've got the timing impact as well as the very large deployments.
Appointment.
On the West coast, but overall from a pricing perspective.
What youre seeing great success, Charles alluded to it in his prepared remarks, just the number of deals that we're doing across a number of customers the volume of activity and mediums much of the smallest medium sized deals.
But with the highest high focus on pricing on the pricing environment.
This is playing out perfectly for this for the company and as a result of theirs.
Despite the timing, there's really nothing nothing that is the abnormal as it relates to our pricing environment.
Yeah, and I think that that's just kind of area where.
The price.
The healthy pricing and the the business mix day is being reflected in the across the board. It just continues to be really strong.
And we're hitting that sweet spot in the market pricing is firm and then the interconnection activity is high and all of that comes together into really.
Awesome story relative to yields and so it's been years now because people are always saying Oh, you know kinect and can the American kept better and here's the guy was always like L. T. The it's pretty darn good and yet it continues to rise. So it's been a it's really been a good story.
Great. Thanks for the color.
Thank you for.
For your question. Our next question is from Michael Rollins with Citi. Your line is open.
Thanks, and good afternoon.
A couple of follow ups.
So first there.
There was a mention that the cabinet backlog increased in the quarter and I was curious if that's relative to the 11000 that was the.
Disclosed at the analyst meeting in June.
That might compare to historical levels of backlog and then secondly, the gross new global customers added in the quarter increased to 270.
And curious if you could unpack how the increase in this metric.
Create influence your future results and where the increase may be coming from.
If I could take the backlog question, though.
So on the backlog like Oh, Yes, we did disclose the 1000 over the last 3 quarters, you would have seen increased to this level.
So I'll refer to this as an elevated level of backlog.
And so it did increase slightly over the prior quarter.
And as a result of that again is a reflection of the momentum of the business and also to some degree of the tightening of our booking activity yeah that makes a very very strong June.
And because of the strong June of of course that goes into books of the building.
But overall with the momentum that we're seeing not only in the the activity of the booking activity.
What it means for the backlog, but even more importantly, the depth and the.
The.
The scale of our of our pipeline as we look forward.
And that's really about revenue on the common in all 3 cases.
The up into the right movement.
And on the on the new customers.
I'd say you know we continue to feel really good about our new logo capture capabilities.
Both direct and the of channel and interestingly via channel isn't necessarily showing up in customer count because oftentimes those.
Those are the customer of record as the channel partner and so its actually theres, even more strength than the sort of appear on the face of the of the results overall, but and in turn.
Terms of where they're coming from uniform I think we're having pretty uniform success geographically.
So there's no there's no 1 region that is.
Significantly outpacing the others, obviously, a really strong quarter from the Americas and that selling team I think has been doing an exceptional job.
But we're also seeing.
Good good new logo capture across the other other regions as well.
And in terms of how it translates into the business you do see that new new logos over index on a growth rate perspective from the burden of vis vis existing customers and so I think they have the opportunity. If we can continue to do that.
That's really why we talk about this.
3 legged strategy right of scale extend the innovate scale is.
Hey, with the the customer.
Customers are buying and so let's continue to get new customers and add capacity in existing markets to serve them non extending in terms of new geographies to increase wallet share and then.
The innovation side, which is really bringing in new services and the ability to capture more of wallet over time in terms of the service types and so I think it gives us a really a multi dimensional growth opportunity that's really showing up so new customers definitely are I mean look we still get the bulk of our bookings from existing customers.
And that's the that's sort of always good news in the our customers are expanding there's less friction and that there is lower cost to acquire customer lifetime values continue to go up but new customers are definitely the lifeblood for the business as well and so were havent focus there and real success there.
It's a it's fairly uniform growth across the across geos and across our product set.
Thanks.
Thank you for your question. Our next question is from Colby <unk> with Cowen Your line is open.
Great 2 modeling questions. If I may 1 in the a F.
They're both escalation there was an adjustment for impairment charges of $33.6 million I'm just curious what that is.
And then secondly, you've done just over I think 48% margin in the first half you're guiding to.
Just over 47% for the year, so obviously implied a downtick in the.
In the back.
That's the where are we most likely going to see that as the Cogs and sales and marketing or is it the G&A. Thanks.
So let me just take the impairment charge of first time all of them between Charles and I will respond to the other 1.
There was some favorable tax adjustments associated with the.
Moving up some matters.
In the quarter and as a result of close to the tax line you have to keep pure youll see that theres basically.
The potential of decrease in tax.
Primarily in relation to a transaction we did in Australia because of the Metro North where were indemnified.
By the other party and as a result, you've got the benefit on the tax line.
Carriage of assets on the other line and so net net it has no meaningful impact on the on the P&L, but it gets disclosed separately in its growth and so it shows the sort of shows itself.
The independents.
The income and expense line.
So that's what that's what happened there, but again as it relates to half a quarter of no meaningful there was no meaningful move because it was embedded in the other lines.
Then as it relates to the margin question, Yes, we've done very.
Well the first 2.
And the other of the year.
As we as we continue to say we want to guide you to what we think will happen for the year.
Price and although for the year, we're seeing greater than 47%, we are making a relatively meaningful investment Q2, we added net roughly 250 heads to the organization Q.
Quarters in Q4, we're going to add another 7 to 800 hits the organization as a result, you're absorbing the other human capital that we need to invest in our growth.
That's 1 aspect of the tune of about the seasonal impact of the utilities in the Americas.
Coming through and then 3 because.
Q through Q1 Q2 of them, we've had the benefit of.
Well the number of of.
1 of the nonrecurring revenue items debt to carry a lot of cost with them some of the JV fees. When we when we sell an asset and we got of sales fee or we get the development C. As you can.
No as you can.
C N of results that comes through on the revenue line, but there's very little drag.
The drag to the bottom line and so it.
Can be inherently lumpy and we just don't see a lot of that through the second half of the year.
If anything as I mentioned non recurring revenue will go down in Q3 over over Q.
But then it's going to flat line in Q4, and there won't be another 1 of the likely that's like the gets.
Recorded in the fourth quarter, but bottom line, that's why even on.
But even with the fee that you just mentioned you think that NR is flat.
4 key versus the <unk>.
2 yes.
It is that's correct.
Okay. Thank you.
Thank you for your question. Our next question is from Tim Horan with Oppenheimer. Your line is open.
I think we've seen some pretty of transformational outsourcing by the carriers of the Hyperscale or do you guys think there'll be an important.
On the corner, there and will that also attracted new enterprise customers peer of locations.
And in fact, if I understand that you're asking if the if the carriers themselves will be attractive partners for us to attract enterprise customers.
Well AT&T is outsourcing the other core.
Horton to Azure and we see this you know announced something with AWS.
Do you think you know will you be an important part of that outsourcing you know help me the hyper scaler zone and.
In agency and other carriers and I'm looking at through the same thing globally.
Yeah, I think so I think that we have definitely have an opportunity there I think that the that overall.
Net worth is definitely showing sort of.
Signs of reshaping of bit, but as you know carriers are a really important set of of.
Partners for Us as it is in fact, it's our enterprise success is actually.
More than what is reflected in some of our results that we report to you in this earnings deck for example.
By channel some of the revenues on the enterprise on the.
Network side are really carrier selling to enterprises.
And I think when you have this dynamic of carriers.
Working with other providers that are there.
That are really taking a different and more non traditional approach to building their infrastructure.
Structure and dish is a great example, there I think we have absolutely have an opportunity to continue to play and our points of interconnection and really act as key points of Nexus.
And some of these architectures that I think are going to be important pieces of the puzzle. So yes, absolutely in fact, our business development team.
Team.
It was really quite active and really thinking through edge opportunities and some of these more emerging infrastructure.
Areas like with people, making new significant investments, unlike what youre seeing from dish.
And just a follow up the that you think qualitatively the hyperscale or for more.
We the outsource the infrastructure or the in sourcing more of where do you think the trends of setting there.
We do see some a greater level of appetite from some of the hyperscale or 2 self self provision.
But I think that the demand is just so robust that there is going to continue to be.
A huge amount of that debt is going to need to come from from third parties and so.
And as we've already said, our ex scale aspirations aren't to sort of go and sort of capture share in huge buckets. It is really to the.
Grow that business.
<unk>.
Bye bye.
By targeting attractive and strategically important.
Locations and deployments that we can place of the overall benefit of Equinix and deliver outstanding returns to our to the JV into our JV partner and so and I think I think we're really executing very well on that strategy. So.
There is plenty of opportunity out there.
But there is some I think some of the hyperscale or are seeing a desire to self provision in certain markets.
Thank you.
Thank you for your question. Our last question will come from Jon Atkin with RBC Your line.
Is open.
Thanks, very much so a question on <unk>.
Hyperscale slide 20 ex scale. It looks like you did 37 megawatts of leasing you've got 140 megawatts of capacity and if I'm interpreting the the lower rate numbers correctly 31 megawatts available to sell so I guess my question is.
And what's the type of range that we should expect annually quarterly in terms of at least the number and at what rate does that 140 grow.
Over or kind of on a quarterly run rates.
Some of it.
Okay.
Yes, so John I don't know.
The 1 of the comments. We made was we have somewhat of a lot of success in Charles maybe comment versus virtually everything we've built with snow sold out and so we're going to continue to ramp up dramatically 1 of the things that is critically important in the ex fuel initiative is for planning.
And.
Quite openly we've had more of a momentum in the business than we originally anticipated sort of the teams are working received when the hard too.
Hum.
Procurer of secure the future inventory end of it.
It's probably a little bit early to tell you exactly how that will present itself the suffice it to say.
They will we'll continue to provide a really DSO of detailed summary of of all of the different builds that are going on across the across the 3 regions of the world and again, we anticipate that ex scale will be in all 3 regions of the world now.
And as we as we said with the GIC initiative.
Like I said the billion dollars of capital.
The over 32 buildings in the 600 megawatt.
That is through the time period in 2025 will take us to 25, 2025 and beyond but that doesn't take into consideration some of the other initiatives that we're working on including another joint venture with the different part of <unk>.
So as we continue to progress we will just update.
I'll take you in the risks community, but we are seeing great success. If I can summarize the sold out of virtually everything that we have we have built and we're continuing to procure and secure more land and capacity to build up for the future.
It's not it's certainly not precise I realize but I can.
The next.
140 of kind of a lot faster than the first 140.
And because we're definitely accelerating putting putting capital to work.
And <unk> seen good success.
Great and then lastly of the balance sheet is showing $227 million in the assets.
The <unk> held for sale can you remind us what is it you're selling.
There's always ask the typically so of Dublin was the perfect example of that our government funds pass and move to the joint venture on July 7.
And so that's the that's an asset that is available for sale, we have some other assets, where again, we're investing the capital and our balance sheet.
<unk> had from we're gonna transition of contributed to the joint ventures, and moving thereby get of recovery of those investments net of our equity ownership. So those are just the assets that are sort of queuing up to be delivered to the joint ventures.
Thank you.
Great that concludes our Q2 call. Thank you for.
Yeah.
Okay.
This does conclude today's conference call you may now disconnect.