Q1 2022 Equinix Inc Earnings Call
Good afternoon, and welcome to the Equinix first quarter earnings Conference call all lines will be on listen only until we open for questions. Also today's conference is being recorded if anyone has objections. Please disconnect at this time I would now like to turn the call over to chip NUKEM director of.
Mr Relations, Sir you may begin.
Good afternoon, and welcome to today's conference call before we get started I would like to remind everyone that some of the statements that we will be making today are forward looking in nature and involve risks and uncertainties actual results may vary significantly from those statements and maybe affected by them.
Risks, we have identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 18th 2022.
<unk> assumes no obligation and does not intend to update or comment on forward looking statements made on this call. In addition in light of regulation fair disclosure. It is equinix as policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.
In addition, we will provide non-GAAP measures on today's conference call.
Provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at Www Dot Equinix Dot com.
We have made available on the IR page of our website a presentation designed to accompany this discussion along with certain supplemental financial information and other data.
We'd like to also remind you that.
We post important information about equinix on the IR page from time to time and encourage you to check our website regularly for the most current information available.
US today are Charles Meyers, Equinix, as CEO , and President and Keith Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions from sell side analysts.
In the interest of wrapping this call up under an hour we'd like to ask these analysts to limit any follow on questions to one at this time I'll turn the call over to Charles.
Thanks, Jeff welcome to the call. Good afternoon, everybody and welcome also to all of you to our first quarter earnings call. We had a great start to 2020 to delivering the best net bookings performance in our history fueled by strong demand across all three regions robust net pricing actions and near record low churn, resulting in our 77.
<unk> quarter of topline growth the longest such streak of any S&P 500 company, we executed more than 4200 deals in the quarter across more than 3100 customers demonstrating both the scale and the consistency of our go to market machine.
While there are a number of macroeconomic factors that we continue to proactively manage including rising interest rates inflation and geopolitical conflicts. The business continues to perform exceptionally well and underlying demand for digital infrastructure continues to rise as enterprises across the globe and in diverse sectors prioritize digital transformation and service.
Providers continue to innovate and distribute and scale their infrastructure globally in response to that.
Unfortunately, the war in Ukraine is still unfolding and we continue to be part of the vigorous global response to that cost.
Stewards of key elements of the world's digital infrastructure, we're committed to doing our part in maintaining that infrastructure to support free and open communications and aid in humanitarian relief, while we do not have operations in Russia, or Ukraine, our employees have shown incredible generosity supporting Ukrainian refugees, particularly our team in Poland.
Looking more broadly at our responsibilities as a market leader, we continue to advance on all future for our sustainability agenda that reflect our company's values across our environmental social and governance initiatives. We recently published our 2021 corporate sustainability highlights and I'm pleased to report continued progress, including a $3.
6% increase in representation of women at leadership level, and a 20% increase in the number of employees, leveraging our well being and our mental health benefits. We also continued to develop pathways and partnerships to enhance our diversity and create opportunities for historically underrepresented groups, both inside and outside.
Of Equinix.
As we work to address the urgency climate change I'm also proud that equinix as well on our way to meeting our science based target commitments in 2021, we achieved over 90% renewable energy coverage for our portfolio for the fourth consecutive year, while also improving the energy efficiency of our facilities by over 5% as measured by our bank.
The average annual power usage effectiveness.
Our focus on sustainability continues to be top of mind for customers and partners as they look to buy from and work with companies that have established ESG goals and commitments.
As the world's digital infrastructure leader, we have a responsibility to harness the power of technology to create a more accessible affordable and sustainable future and we will continue to focus on the important issues that impact our stakeholders and our business.
Now turning to the results as depicted on slide three Rev.
Revenues for Q1 were $1 7 billion up 10% over the same quarter last year adjusted EBITDA was up 5% year over year, and <unk> was better than our expectations again due to strong operating performance.
These growth rates are all on a normalized and constant currency basis.
Our data center services portfolio continues to extend our differentiated scale and reach with 43 projects underway across 29 metros in 20 countries, including New project in Atlanta from by Sydney, Tokyo, and Washington, DC as customers embrace our interconnected edge as a point of nexus or their hybrid and <unk>.
Cloud architectures and leverage our scaled digital ecosystems to enable and drive their digital agenda.
According to IDC by 2024, 65% of the global 2000, we will embed some sort of edge first data stewardship security and network practices into their organization digital business processes, and we're already seeing the impact with an amazing 89% of recurring revenues now coming from customers deployed in more than one.
<unk>.
In April we closed our acquisition of main one extending platform equinix into Nigeria, Ghana, and Ivory coast, bringing our global coverage to 69 metros across 30 countries, Nigeria in particular is emerging as an innovative and dynamic player in the global digital economy represent a significant opportunity for the expansion of <unk>.
Digital services and a key first step in our long term strategy to extend our carrier neutral digital infrastructure platform across Africa and.
In the quarter, we also announced our upcoming expansion into Chile through the planned acquisition of multiple data centers from Entel, a leading Chilean telecommunications provider, Chile is the fourth largest economy in South America with the highest GDP per capita in the region and Santiago is emerging as a technology hub, serving both regional cloud and content.
<unk> as well as local enterprises.
This transaction is expected to close in Q2 and will further solidify FX is a leading provider of digital infrastructure in Latin America.
Turning to interconnection, our industry, leading portfolio continues to outpace the broader business growing 12% year over year on a normalized and constant currency basis, driven by a healthy uptick in connections across our coffee ecosystem.
We added an incremental 8900 total interconnections in the quarter and now have over 428000 total interconnections on the platform.
Exchange soft peak traffic up 7% quarter over quarter, and 25% year over year to greater than 2004 Terabits per second.
And we continue to see expanding customer demand and accelerated growth across our digital services portfolio.
When a fabric saw its highest ever virtual connection add as customers employ an increasingly diverse set of end destinations and utilized fabric for a variety of used cases use cases across cloud networking and backbone connectivity.
<unk> metal and network edge also had strong quarters as enterprises leverage these services for a variety of virtual deployment, increasing agility and helping them to mitigate supply chain challenges.
Metal has the most net customer adds to this service since its launch with several key enterprise wins and a healthy backlog as our go to market partnerships with Dell pure storage and <unk> all gained momentum.
Shifting to our <unk> initiative in March we closed our Australian JV with TGIF versus expected to provide more than 55 megawatts of capacity in the Sydney market when closed and fully built out and in April we closed our south Korean JV with GIC, which is expected to provide more than 45 megawatts is a rapidly growing solar market.
We currently have nine X scale builds under development with over 80 megawatts of incremental capacity of which nearly two thirds are already pre leased.
Now, let me cover some highlights from our verticals.
Our network vertical had a great quarter with good momentum across all three regions and record channel activity with our key carrier partners, New wins and expansions included a site that one of the largest Isps in India, establishing network hubs in our Mumbai, one and two IVF.
High speed satellite broadband service for military and commercial markets supporting its expansion into Australia, and global net our specialty network expanding its footprint and upgrading connectivity to support its growing user base and.
In enterprise continues to be our fastest growing burke with a strong bookings quarter led by EMEA and the manufacturing and public sector sub segments.
New wins and expansions included technical and creative services and technology company for the media and entertainment industry, establishing regional technology hubs and utilizing the full suite of Equinix and digital infrastructure services the.
The global 40 bank choosing equinix as their strategic partner, thanks to our robust digital offerings connectivity in key financial institutions and our sustainability strategy.
And party city, a global leader in the celebrations industry using network adds to enabled cloud connectivity and allow private interconnection between sites as they continue with their digital transformation.
We were also proud to work with global money Center bank leverage our dense ecosystems to enable a critical connection to the national Bank of Ukraine for the UNICEF could distribute filing to those who need those that need it most as part of their humanitarian efforts.
Our cloud and it services vertical had solid bookings in the quarter led by infrastructure the infrastructure subset.
Adding new cloud on ramps in Dubai, Rio de Janeiro, and stock <unk>.
New wins and expansions included digital Ocean are rapidly scaling global cloud hosting provider, who is expanding its infrastructure footprint across multiple regions as they add customers and products.
And a leading SaaS company, leveraging equinix for distributed data and cloud strategy and expanding service portfolio.
Broadcast and streaming sub segments anchored a solid quarter in content and digital media, including expansion with a fortune 75 media conglomerate expanding across platform equinix to support streaming services and content production.
A multinational consumer credit reporting company, enabling direct connectivity via Equinix to their financial services.
<unk> and Fastly global CDN, expanding capacity and deploy network nodes in support of their edge compute strategy.
Finally, our channel program again delivered its fourth delivered its fourth consecutive quarter of record bookings accounting for roughly 40% of bookings and 60% of new logos reseller and alliance partners accounted for over 75% of channel bookings as our partners continue to demonstrate tremendous leadership and helping customers quickly.
<unk>, new digital business models.
We're across a wide range of industry verticals and digital first use cases with hybrid multi cloud featuring prominently as the architecture of choice.
We saw continued strength with strategic partners like AWS, Microsoft Dell and Telstra, including a significant win in France with AT&T, helping our security services company consolidate data centers and interconnect to their choice of cloud providers.
I'd also like to take a moment to recognize AT&T business as our partner of the year for 2021.
Proud to work together to drive digital first outcomes on complex and transformational projects, including the Equinix and AT&T connected climate initiatives benefiting hundreds of customers across multiple industries and now let me turn the call over to Keith and got the results for the quarter. Thanks.
Thanks, Charles and good afternoon to everyone I do hope you're doing well.
Next the team delivered another great quarter.
We did better than anticipated.
<unk> robust growth in the Americas had solid channel bookings further expanding the universe of opportunities for our highly differentiated business.
And enjoyed meaningful inter and intra region activity, a reflection that we are selling well across our ever expanding footprint.
Interconnection activity remains high both at the physical and the virtual level.
Interconnection revenues represent 19% of our recurring revenues are growing faster than the overall business.
Our platform strategy continues to deliver outsized value further separating us from others in our space.
We had strong growth from our digital services products and continued momentum in the most recent acquisitions in Canada, India and Mexico.
And our pipeline remains solid despite our record bookings with a great start to 2022, we're raising our guidance across each of our core financial metrics.
As we've said previously we believe the diversity and scale of our business across sectors markets and customers puts us in a highly favorable favorable position to capitalize on all trends as digital as well as manage the macro factors and volatility.
We have no meaningful near term exposure to rising interest rates.
Our balance sheet strength continues to provide us with a strategic strategic advantage.
It allows us to access the capital markets at times, there are attractive to us.
With regards to supply chain and inflation, we continued to deliver projects against our return expectation with limited delays given our ability to access and secure critical infrastructure components.
And while the energy markets remain volatile our hedging policies are helping us navigate this unusual period.
These factors when combined with the momentum we're seeing in our marketplace enable us to remain steadfast in our commitment to deliver top line growth strong and durable <unk> per share growth to our shareholders as well.
Now let me cover the highlights for the quarter note that all growth rates in this section are on a normalized and constant currency basis.
As depicted on slide four global Q1 revenues were $1 $73 4 billion up 10% over the same quarter last year and at the midpoint of our guidance due to better than expected MLR revenues.
Offset in part by the delayed timing of certain nonrecurring <unk> fees.
As we look forward, we expect a strong Q2 step up in both recurring and nonrecurring revenues.
As we've noted before nonrecurring revenues attributed to customer installation work and <unk> fee income are inherently lumpy and can move between quarters.
Q1 revenues net of our FX hedges included a $2 million headwind when compared to our prior guidance rates.
Global Q1, adjusted EBITDA was $800 million of 46% of revenues up 5% over the same quarter last year at the high end of our guidance range due to strong operating performance and timing of spend although was impacted by the lower <unk> Q.
Q1, adjusted EBITDA net of our FX hedges included a $1 million FX headwind when compared to our prior guidance rates and also includes $5 million of integration costs.
Global Q1, <unk> was $653 million above our expectations due to strong operating performance.
Q1, global <unk> churn was one 8% the lowest level of churn in recent history, a reflection of our disciplined strategy of selling the platform to the right customer with the right application into the right asset.
For 2022, we now expect <unk> churn to average at the lower end of our two to two 5% per quarter range.
Turning to regional highlights whose full results are covered on slides five through seven.
APAC was the fastest growing region on a year over year normalized basis at 13% followed by the Americas and EMEA regions at 10% and nine 9% respectively.
The Americas region had another great quarter with strong broad based bookings led by our Chicago, Dallas, New York, and Washington DC markets.
Enterprises represented over half the region's bookings that we note that we saw record channel activities as businesses continue to leverage platform equinix to maximize their digital infrastructures flexibility and agility in the hybrid multi cloud world.
The region also saw robust interconnection activity I think 4000 total interconnection and significant Internet exchange capacity led by our Sao Paulo market.
Our EMEA region delivered its highest net bookings performance in three years with strong pricing and a healthy mix of retail activity was solid exports led by our Dubai, Istanbul, London and Milan markets.
In EMEA sustainability is an ever increasing focus for our customers and communities and our local leadership team continues to work to position Equinix as the industry thought leader at both the local and regional levels.
And finally, the Asia Pacific region had a solid quarter led by Australia, Japan, and Singapore businesses with traction increasing across the region for our digital services.
India had another great quarter, we're investing behind our momentum in the market with our newly announced <unk> by three <unk> project as well as purchasing land for development in Chennai.
And now looking at our capital structure, please refer to slide eight.
We ended the quarter with approximately $1 7 billion of cash and increased over the prior quarter largely due to strong operating cash flow offset by growth capex at our cash dividend.
Shortly after the quarter end, we completed our fourth green bond offering raising $1 2 billion to further our commitment to sustainability leadership.
With this latest financing Equinix has issued approximately $4 9 billion of green bonds, making our company the fourth largest global issuer in the investment grade Green bond market.
In early April we're also pleased that Moody's upgrade equinix or <unk> in line with S&P and Fitch, while expanding our leverage targets.
We're very appreciative of the support we received from Moody's and importantly, we're delighted with the increased financial flexibility. We now have across all three rating agencies.
Looking forward as stated previously we will continue to take a balanced approach to funding our growth opportunities with both debt and equity, while creating long term value for our shareholders.
Turning to slide nine for the quarter capital expenditures were approximately $413 million, including seasonally lower recurring capex of $24 million.
Also in the quarter, we opened three new retail projects in two markets Muscat and Singapore have purchased land for development in Mexico City.
Revenues from owned assets increased to 60% of our total revenues.
Our capital investments delivered strong returns as shown on slide 10.
Our now 164 stabilized assets increased recurring revenues by 6% year over year on a constant currency basis.
Consistent with prior years in Q1, we completed our annual refresh of IVF categorization.
Our stabilized asset count increased by net six Ivy exits.
These stabilized assets are quite for the 87% utilized and generate a 27% cash on cash return on the gross PP&E invested.
Please refer to slides 11 through 15 for our updated summary of 2022 guidance and bridges do note. Our 2022 guidance includes the anticipated financial results from the main one acquisition, but does not include any results related to the pending <unk> acquisition, which is expected to close in Q2.
Starting with revenues for the full year 2022.
We're very pleased with momentum we're seeing in the organic business and excited to report that we now expect our revenues to increase on a normalized and constant currency basis by 10% over the prior year.
Relative to our prior guidance, we are increasing our revenues by approximately $90 million.
Which includes our improved operating performance at $50 million of revenues from main one we.
We expect 2022, adjusted EBITDA margins of approximately 46%, excluding the integration costs, an increase of about $40 million compared to our prior guidance, which includes $20 million from main what we.
And we now expect to incur $25 million of integration costs in 2022.
And given the operating momentum in the business, we are raising our underlying 2022 <unk> by $22 million.
Now growth between 8% to 10% on a normalized and constant currency basis compared to the previous year offset by the increased debt financing cost from the main one and infill acquisitions.
The main one is expected to be immediately accretive.
We expect the <unk> acquisition to be accretive when closed.
2022, <unk> per share is expected to grow between 7% and 8% on a normalized and constant currency basis.
2022, Capex is now expected to range between two three and $2 5 billion, including approximately $170 million of recurring capex spend and about $60 million of on balance sheet <unk>.
So let me stop here I will turn the call back to Charles.
Thanks, Keith in closing, we had a tremendous start to the year the demand backdrop for the business remains robust as enterprises across the globe continue to aggressively prioritize digital transformation and service providers expand their infrastructure globally in response to this demand.
Data is being created moved manipulated and stored at unprecedented levels and the need to distribute infrastructure and position. It in proximity to the broader digital ecosystem is fueling fueling outsized demand for the distinctive value proposition of platform Equinix.
Growth continues to outpace our analyst day expectations, thanks to strength across multiple simultaneous growth vectors for the business.
Expanding geographic reach accelerating adoption of digital services, low churn positive pricing trends and strong channel execution.
We continue to leverage our market, leading scale and expansive balance sheet to deliver new capacity, even in an increasingly challenging macro environment and our bold future for our sustainability agenda guides and rallied our team as we collectively pursue our shared purpose to be the platform, where the world comes together create innovations that enrich.
Our work our life and our planet, we are delighted with the ongoing performance of business optimistic about the road ahead and remain keenly focused on delivering distinctive and durable value to our customers and to you our shareholders. So let me stop there and open it up for questions.
Thank you if you would like to ask a question. Please <unk>. Your phone is not muted press star one and record your first and last name. So I may introduce you.
Please standby for your first question.
Simon Flannery with Morgan Stanley You May go ahead.
Okay. Good evening, thanks, so much.
I think you've talked a couple of times about the macro environment.
Concerns about recession risk in Europe could you just talk to what you've seen in sort of March and April from CIM.
CIO et cetera in the European market, specifically and perhaps.
I'd also just on the power side, we've seen a significant increase in spare you talked about the hedges and obviously the guidance is good to see but how should we think about the.
The sort of medium to longer term when those head just need to get replaced thank you.
Sure. Thanks, Kevin I'll start and Keith can add on that.
So we had a great quarter in Europe , So big kudos to the to the sales team there Johan <unk>. Our sales later, just put together a tremendous quarter and I think we've we've asked him to continue to reshape that business as we.
Shifted our revenue mix there.
And really the sweet spot of sort of the small to mid size deals, we're seeing great momentum there and again, we talked a few quarters ago about accelerating growth there back to prior levels and we certainly delivered on that forecast this year or this quarter with that back at 9%. So.
Pipeline looks good so I would say that the broader macro environment in terms of the prioritization of digital transformation and kind of what we're seeing from technology and it buyers continues to look good and I think a high degree of relevance in terms of how they're looking at us in the role that we play in that so overall.
We feel very good about that.
That part is part of the world So from a power perspective.
As we've said previously we're kind of.
Pretty much entirely hedged, where we can be in Europe , and so we have not seen substantial impacts there.
We are seeing elevated rates.
In terms of.
So as our as we have a lot of runway as we look at our hedges and are continuing to build our hedge positions for 2023 and beyond.
The hedge or hit the success of our hedging program I think gives us a lot of visibility and runway.
Figuring out when we when we need to pass those through and at what levels and that's ongoing work and will be I think in a good position going into 2023 to adjust to that.
Thanks, a lot.
And our next question is from David Guarino with Green Street, you May go ahead.
Hey, Thanks. Good question on the same store cash gross profit decline I think it was the first time, we've seen it turned negative since you guys started disclosing that data with a lot of that due to the power cost in Singapore or was something else driving that.
Yes, I mean, the same store revenue growth is strong and we did see some contribution.
To that 6% from from APAC in Singapore in particular.
I think there probably is some some contribution from the on the <unk> on the cash gross margin side, there as well associated with that but overall, we were actually very pleased with the with the same store growth performance, because as I said less than half of that.
Gain.
To up to the 6% is really impacted by the.
But the power pie, it's really impacted more by the addition of the new assets into the mix.
And and strength in the Americas, which sort of has an oversized influence on me.
On the stabilized assets, so keep anything further to add there.
Just.
As we've noted and that's sort of embedded in our guidance is the impact coming from.
The power cost in Singapore, that's having a knock on impact not only on the Asia Pac market, but the overall performance of the business on a gross margin basis. So.
Again, nothing nothing out of that.
What we expected.
As Charles alluded to the fact of the matter is that the stabilized assets are growing at 6% on a recurring revenue basis with great momentum in the business and we've now absorbed effectively.
The Q1 results the impact of the Singapore business and sort of that that's in the business on a go forward basis.
Alright, that's helpful. And then one other quick one it looks like you guys are building two new phases at your 81 facility in Atlanta are you seeing any shifts from tenants who want to relocate away from other colocation data centers in the Atlanta market.
Yes.
The market has been good we continue to see demand, there and where we've been making some of our own transition in terms of really attracting and motivating the network density into the 81 facility on Peachtree. So.
So yes.
Again, you certainly see competitive wins in that market.
As well as just net new customers. So it's yeah. It's been a good market. We are continuing to invest there in terms of new capacity as noted and we feel good about that market overall.
Great. Thanks for the color.
And our next question is from Jon Atkin with RBC capital markets. You May go ahead.
Thank you I was interested on the energy topic.
Currently hedging presumably at elevated rates and I, just wondered what sorts of applications that might have down the road. If energy prices were to normalize do you see any sort of the exposure in terms of pushback from customers and then and then on the other end.
Any more color around pricing action, you mentioned about power related pis, good anything else about just what's pricing.
Renewal discussions cross connects and any color around how pricing is evolving thanks.
Sure Yeah, I mean, because where we're heading now is kind of in a rising rate environment as we have these service.
Feathered hedges over multiple years, we're hedged essentially below the below the prevailing market rate.
And in a rising rate environment, what that provides actually protect.
Protection to the customer.
Against those market rates, because we will be able to roll them in more gradually and and so that's the artifact that we see again as hedges roll off and you hedge at and.
And you've hedged at an increasing rate.
Our chasing that up but again it provides a net benefit there.
And the customer will have an expectation that they see what the market rate is even in their own personal power consumption. They are generally a broader expectation that they're going to see some sort of Verizon we can mitigate that to some degree. So I think the hedging and the success of our hedging and that's the way it's worked for us in rising rate environments.
The time and so we feel generally good about that as I said, we're well ahead of that planning cycle as we build our our hedges for 'twenty three and beyond so anything further to add there.
And then on pricing, yes, actually we had continue to have strong pricing.
Positive pricing actions, we have increased less pricing.
Meaningfully and I think that we're continuing to evaluate that in terms of and that's partially an implication of an artifact of increasing unit costs and other other factors in the business beyond power.
Like Labor for example, but that tends to work its way into the business slowly over time as you as you see some of that.
And we continue to see just a really strong response to the value proposition.
Value basis.
And so we have we have been increasing list pricing.
Beyond power as well.
And John if I might just add I think it's.
Also important to note.
We didn't talk about it specifically, but the net pricing caused our pricing actions. This quarter were were substantial even when you take out the increased power pricing and so when we look at our overall growth rate.
You could take out the full implications of our of the price increases associated with Kerr and Youre still have growth rate of greater than 9%.
On a normalized and constant currency basis. So yes. It does have some impact but the reality is as the fundamental business that is driving the growth there on the top line and that leaves us open to as Charles said some discussion of what happens later as inflation continues to take hold what do we do with our pricing in addition to our list price.
<unk> adjustments. So overall I'd, just say that I think we had a really good position from a pricing perspective.
You can see that our either blended MMR per cab.
And even when you sort of discounted out the impact of prior pricing associated with that.
Price increases you still see a nice fundamental increase in overall price on a per cabinet basis.
Just two quick ones and then to follow up sure churn cannot remain on a sustainable basis at these below average rates and then demand seems elevated.
And you had a couple of obviously, a strong result last quarter and a strong guide.
Does that feel sustainable as well in terms of.
Enterprise retail Colo demand or is there some sort of a catch up dynamic where you're seeing some some buying that was catch up but it might normalize from here and demand.
Go back to normal levels or do you see elevated demand indefinitely. Thanks.
Yeah, I'll start with the demand piece I think we just continue to see an increasing overall addressable market as people continue to prioritize digital transformation has become such a central part of how people are looking to compete in the modern age that and and the nature of digital infrastructure has continued to change so much.
As they adopt public cloud as that becomes a prominent part of their infrastructure strategy as they think about factors like data sovereignty and application performance and application modernization and the complexity of networking in a sort of hybrid and hybrid cloud world.
All of those things really lend themselves well to our.
Our value proposition and I think people are seeing us as increasingly relevant to those discussions and so and that's that's really resulted in what you are seeing which is several strong quarters of <unk>.
<unk> in a row record levels and as Keith said in his script. Our pipeline continues to look strong. So this isn't a matter of sort of emptying. The coverage. We continue to see a growing pipeline. We said, we see record levels of pipeline in our digital services portfolio.
And you'll continue to see all elements of the business really really respond strongly from a demand perspective, so we're not seeing any.
Hey.
Fading of that it does not feel in any way, let to us like some sort of catch up but instead, a more sustained level of demand for for the business and.
And then relative to churn, we've always said the best way to reduce churn over time is to put the right business into the into the.
Platform to begin with and I think our strategy is really paying off there and we always are.
This caution people in terms of churn can move around a little bit quarter to quarter, but if you look at our eight quarter trend or a 12 quarter trend on churn.
It will start to reveal to you that the downward trend is in fact, I think sustainable again I wouldn't want to bet on every quarter being where this one is but I do think that we have.
We have demonstrated sustainable downward trajectory on our on our term.
Thank you.
Thanks, John .
Our next question is from Ari Klein with BMO capital markets. You May go ahead.
Thank you maybe just following up on the tower questions the expectation with Singapore West for the impact to moderate in the second half of the year and since the original guidance is provide the backdrop has obviously shifted a little bit with Russia, and Ukraine. So have the visa shifted on.
On the pace of improvement.
That you are expecting for the second half of the year.
Yes, a little bit.
I would say overall look the big the big power issue is really Singapore.
It's very much on the margin in any other places I think going forward I think we might see more of our we have the planning to do in 'twenty three and beyond is power as hedges roll off and as we think about that as I commented earlier, but I think that's more of something that we have plenty of visibility to an ability to respond to as it really.
<unk> two this year, Singapore is is by far the overwhelming issue.
And.
There's not a ton of change from what we said last quarter.
Q1 was actually a little better than we expected and then the back half of the year might be a little higher than we had originally forecasted, but they're kind of going to come out kind of in roughly the same place.
We now have over 50% of our load hedged or locked in rate wise in Singapore. So we have better visibility of that and I don't think a ton of variability in outcome from here.
We'll continue to update you if that changes, but not a not a big change probably a slightly slightly more on the backend and less in this we had a better quarter this quarter than what we had originally forecast, but on a full year basis really roughly what we had said previously.
Got it and then the Americas, you've had several quarters in a row really strong strong bookings and the growth rate accelerated.
As we look ahead I think over 70% of cabinets are outside the Americas.
And the development pipeline.
How should we think about occupancy from utilization rates from here, it's obviously stepped up but where does it kind of level off or get to before you have to add more significantly too.
Good question.
Good question.
I think that we have a fair amount of headroom and a lot of markets in the in the Americas right. We're at a lower overall utilization rates are on a much bigger business, so theres plenty of capacity to sell.
So I'm sure my sales teams are hearing me say that so far.
Any to go around.
And.
And in the Americas business has performed exceptionally well.
Your shot out to our Cal Shar <unk> senior sales leader in the Americas, and I think that business is really humming and delivering strong sales execution and so youre right a lot of the investment is going to the going outside the U S. But we've also are topping up in key markets in the U S.
And in the Americas broadly to.
To meet the demand there so we feel good about our ability to both deliver the new capacity and to sell it.
And we've got a new president of the Americas coming online Terra Richard.
She is a tremendously customer centric executive.
And I'm very excited about that I feel we feel great about the trajectory in the Americas.
Again, I think plenty of opportunity to grow into the capacity is there and drive utilization up and we will continue to invest where there are markets.
That we start to see sort of pinch.
Pinch pinch points out there in the future and so so overall feel really good about our ability to continue to put capacity online and sell it.
<unk>.
Thanks for the color.
Our next question is from Michael Rollins with Citi. You May go ahead.
Thanks, and good afternoon.
Just thinking through some of the comments Charles earlier on the call.
Talk about hybrid cloud.
And you have hyperscale through the X scale.
And you have of course, the retail centric business.
And as you have more enterprise customers are.
Are you thinking about ways that equinix can increasingly serve their hybrid needs and go beyond retail.
Enterprise deployment that they may be looking at to retain as part of the.
Hybrid cloud architecture.
Yes, I mean, I think that I think you're getting at sort of enterprise LSP and whether or not there is sort of intermediate to offer their between X scale I would tell you that we again continue to.
Those needs are in the context of a broader platform requirement and how are customers thinking about their digital transformation. Then we will we will talk to them about how we how we might do that and where we might be able to meet that need but again the sort of the.
The larger footprint more commodity sort of Colo.
Enterprise requirement isn't a major focus for us in fact as I talked about we've really been retooling our revenue mix in markets like Europe to to really focus on the sweet spot of the retail business interconnection rich ecosystem centric that deliver superior MMR per cab it delivers superior retention and Thats, what youre seeing and show up in the business.
<unk> per cab lower churn et cetera. So we've got a we're going to stick to stick to the strategy that continues to drive the performance in the business and I would tell you that what we're seeing in <unk>.
On occasion, you do see large enterprise type needs.
<unk>.
And we'll we'll partner with with enterprises and thinking that through but I will tell you that for the most part I think a lot of times customers are saying, hey, we're going to quit.
We're going to we're going to use a mix of public cloud and private cloud and we really need to place our data in a in more of an inter cloud kind of.
Location to drive our performance.
And the data sovereignty requirements et cetera. So.
I feel really good about the portfolio that we have in and actually think the real big opportunity with us on the enterprise side is the digital services portfolio really delivering them metal, they're responding very well to metal as the value proposition because it helps them mitigate.
Their technology lifecycle management, it helps them be more agile more scale more rapidly.
Move capacity around as they need it and as customer demand mandates that for them.
And then network edge is a way that they really are thinking about retooling and rethinking networking and cloud centric world.
And then of course fabric do you see the momentum that we have there and so I feel good about the portfolio and we're going to stood up the digital services be you and are going to continue to make some investments there and I think that's been a position us really well for for continued enterprise momentum. So really long answer to your question, but I think we'd be very selective about.
That we don't we don't see a big priority on sort of large footprint and a lower margin profile kind of kind of business.
Thanks.
Our next question is from Erik Rasmussen with Stifel. You May go ahead.
Yes, thanks for taking the questions.
So this quarter we're expecting.
Really good straight from Hyperscale or as soon as it relates to your <unk> business.
Considering sort of this.
Elevated demand environment, what would you say with some of the hurdles you're seeing as you think about meeting this demand.
Well I mean, it's.
I think the business is executing really well.
We're not we're not sort of trying to chase every bit of Hyperscale. That's out there we've got a.
And aggressive, but unappropriate plan that we think delivers strategic value to the overall platform. We're focused on a relatively small number of.
Sort of global Hyperscale or that we think are critical to how the overall cloud macro plays out.
And our focus on them I think it's really just being able to continue to deliver capacity.
And so we've been more aggressive about.
Land banking.
We're continuing to work to make sure that we have.
Capacity in the key equipment necessary. So our supply chain team has been active both in terms of both are the X scale side of our business and retail to ensure that we are buying the buying inventory or pre can move forward can maybe making forward commitments to ensure the availability of <unk>.
Equipment to get.
The projects delivered on time, so I think that's going to be the key thing for us and right now we feel very good about that fact since the last quarter I talked about a couple of quarters ago. I guess it was we talked about having roughly $100 million of pre commitment and an inventory in place to try to mitigate.
Mitigates mitigate against spikes and we've nearly doubled that.
We continue.
You know sort of anticipate and head off any any pinch points that exist in the supply chain. So I think we're doing a good job there, but I think that's the that's the area that we need to be continue to focus on it and I guess the purpose in the putting and that are our delivery dates are all on average.
The outliers here and there but on average we're no more than a week or two delayed on projects and so being continuing to deliver on time on time deployment.
Great.
Helpful and then maybe just on M&A.
You've obviously been pretty disciplined in your approach historically, but in the current environment multiples have moved up but just wondering if the right opportunity were to.
Come up or are there scenarios, where you would stretch your comfort level to maybe not lose out on a particular deal and what would that tie.
Type of deal look like.
Yes look I mean, we every deal is a little bit different I mean, I would say that there are good examples in our past, where we have quote stretched and what park terms of maybe a multiple that we paid based on our belief about our ability to sort of buy that multiple down over time through growth.
And I think metro node and info Mira probably a couple of examples that pop to mind that we've had.
At both turned out to be really great deals for us, but we're all we're going to be appropriately disciplined we're not going to win every deal.
But we also believe that M&A is a is a key tool in toolbox and we think there are opportunities out there for us to continue to expand and scale our platform and our priority is kind of remains the same key interconnection assets scale in markets, where we're seeing success and continue to extend the extend R. R.
Platform geographically into the markets that matter and I think all of those types of opportunities are available so and we've got the balance sheet to pull it up I think so.
So we'll be we'll be out there will be aggressive and in the cases, where we think it makes sense to stretch, we well and where we don't we won't.
Great. Thank you.
Our next question is from Brendan Lynch with Barclays. You May go ahead.
Great. Good afternoon, Thanks for taking my question.
Thanks, just to start.
We're about one year on from your long term guidance. When you issued your long term growth for 50% of adjusted EBITDA margin by 2025.
Your guidance. This year is implying a 140 basis point contraction for some of the well documented reasons that have been.
Discussed already.
Just wanted an update.
If you would on the ability to achieve that long term target and what are some of the elements that are.
Directly within your control on the cost side that could help get you. There if you can't get there through pricing power.
Yeah, Great question Brady I Wonder, obviously that we are very.
Focused on and think a lot about it I'll start by just simply saying that we continue to see 50% is an appropriate long term target for EBITDA margin.
There's a number of moving parts on the overall margin trajectory of the business and as you said some we've talked about many of those with power and particularly the Singapore power situation being central to that we kind of already talked about that dynamic which is we're a little better than expected in Q1, our back half of the year might be a little bit worse than what we had originally forecast.
But not a major shift there as we enter next year, we'd expect to see APAC margins normalize.
Either through moderating rates, and we can't really predict that fully or even if they don't moderate by us.
Essentially putting additional P is through and getting in in line with the broader market and so so I think we'll see margin normalization there.
And we continue to drive in and expect continued operating leverage in the business in the back of the back half of the year from several of our targeted efficiency programs in the business and so we do think we need and need to have other levers available to continue to drive operating leverage, but we also may make some investments.
In quota bearing heads I think given the tremendous bookings strength that we're seeing so I don't think that would be surprising to anybody. So so bottom line. We will give you more detailed guidance on the 'twenty three and beyond margin profile as that becomes more clear, but I think the really critical takeaways are that one we continue to see 50.
<unk> is an achievable target.
And two that we really remain confident that we can deliver against the analyst day, our <unk> per share growth targets through some combination of topline growth and appropriate operating leverage and at the end of the day, that's really our lighthouse metric is driving that <unk> per share growth.
Great. Thanks, that's helpful and maybe just one follow up on the churn profile or trajectory in the past some of your acquisitions have kind of had a customer product mismatch.
We saw an uptick in churn this was specifically with the Verizon assets I Wonder if there's anything like that with any of the recent acquisitions that you've made that might cause churn to increase.
Yeah really good question generally we don't see that.
That happened I think a number of them.
I think bill was a little bit more aligned maybe a little maybe a little bit of that and we will continue to reshape that customer mix a bit but much smaller scale than Verizon was.
A bit of a bit of a different dynamic there and then some of the other ones. I think are more are more in line with kind of the overall customer profile or much smaller.
And they're in their overall scope. So theres certainly some of that you inevitably Siena in M&A, but I wouldnt see anything on the horizon that would meaningfully picked that up.
Okay, great. Thanks for the color.
And our next question is from Sami Badri with credit Suisse, you May <unk>.
Go ahead.
Hi, Thank you.
Had one question and a follow up for the first question I think you talked a little bit about the Americas business and I just wanted to hit on specifically Americas MMR per cab and how it was down quarter on quarter and <unk> 22.
There were some adjustments and there was also a footnote, but I just kind of wanted to just get a better idea on what's going on there.
And then the second question is regarding the $42 million.
Increased outlook visibility, which regions are providing the strength for that $42 million.
Sure, Yeah, and MMR per cab I'll give you a little bit of a more holistic view and then comment on Americas.
And Keith just commented on this we saw a nice uptick in overall and MMR per cab on a global basis.
I think it's driven in meaningful part by quite a significant organic strength in Europe .
And then some uptick in APAC and definitely with the Pi power pie in Singapore contributing to that but but more than half of that is really driven oh and an overall global basis is driven by underlying organic strength in the business in the Americas Cup.
A couple of moving parts there we've always encourage people to kind of look at a multi quarter average since that metric can really be more volatile depending on several factors and we saw a few of those factors. We saw some settlement activity in the Americas that was a one time thing we saw a large install which is not.
Get ramped and so you get the cabs, but not not as much revenue.
And then finally, we had a little bit of a price action associated with the very large renewal, we did with NASDAQ, which was a huge win for us, but it had a little bit of downward downward impact on that but but overall I think nothing nothing of concern I think the MMR per cab in the Americas is still exceptionally healthy.
And I think we would continue to be able to you know feel like we can continue to manage it at or above those levels.
So I mean, I would just add on to what Charles said there the other thing that.
You, probably recognize we put bell Canada's assets into our metrics.
Last year, the end of last year, and they've come at a lower and lower.
MMR per cab.
And then the average right and as a result, you've seen the dilutive impact of that coupled with the fact that Canadian business continues to perform well and so you've got a little bit of a mix on a go on a go forward basis.
Lastly, I would say is the currencies.
Again this is a U S dollar denominated number.
So you see that the impact of lower currencies were not neutralizing, yes, when we when we report on that.
On financial metric page, we do on the on the regional breakout page, but also you've got the impact of currencies influencing given the strength of the U S. Dollar it's just.
Japan is down about 12% as an example year to date, you've got other markets that have taken a little bit of a hit relative to the U S. Dollar. So there are a number of things that are going on but fundamentally this is not anything to worry about in fact, we're seeing greater strength in the business given the pricing profiles that we have and so.
We've talked a lot.
Focus on that particular metric.
Pete you want to comment on the regional strength of the regional breakout of the MLR.
But as it relates to the original.
Book to Bill as we said 42 million of incremental EBITDA $20 million is coming from named one you've got $2 million coming.
Coming from currencies.
That gives you a sense of the strength of our hedge positions on a currency basis.
Financial impact to the business is relatively de Minimis for the rest of the year under current course and speed. So that feels good so relating to the organic business Youre seeing strong broad based performance across the business one of the comments Charles Natus, we're seeing strength in all three regions of the world and because of that strength in the top line is dry.
Profitability in the top right now we think again as you appreciate that in the U S or the Americas business, we make corporate decisions and make accruals and so we had bad debt as a part of the at the corporate level. Therefore, the Americas region, but overall the fundamental business across all three regions is strong and the only thing I would add.
To that is yes, you see the fluctuation in Asia Asia Pacific and <unk>.
Specific to the Singapore matter that Charles has spoken of and again, that's in our numbers now sooner run rate.
Go forward basis, we feel very good about the profitability in the business and so youre seeing that growth.
The momentum in the business and it's right across the board.
Got it thank you very much.
Our next question is from Michael <unk> with Cowen and company you May go ahead.
Great. Thanks for taking the question.
One quick question on the power cost side and the price increases.
When you do pass through higher power cost to the customers. Just wondering are you structuring it as a temporary surcharge or is that permanent increasingly.
Power cost embedded in that contract. So that's my first question.
And then my second question is you mentioned earlier that you've raised your list prices meaningfully higher just as we think about the implications of that on MMR per cab going forward and kind of your renewal schedule. Yes. Any color you can share on what you would expect over the medium to long term to see how the MMR per cab side. Thank you.
Sure.
Yes.
The power of <unk>.
I think it all depends is the answer.
Because I think that if we if we say if we saw a reversion back to meaningfully lower rates than I think we would adjust accordingly, and so so I do think that we kind of separate out more of the power related pricing adjustments associated with power volatility from more structural sort of.
Price levels and margin profiles within the business and so I think we're just gonna have to navigate that in terms of.
But I do think that in markets, if we saw a big uptick.
Pass through those those meaningful adjustments and then saw a reversion I think we would we would make adjustments there and so but I think it's going to vary.
Much.
<unk> be something we'll have to look at on a market by market basis.
And then pricing I think in terms of its impact on AR and MMR per cab.
Yeah, I mean, I think that as we increase increased pricing due to the various inflationary factors as well as due to the continued strength of our value proposition and are willing to our ability to continue to add more value for our customers I think that's gonna have a positive impact.
On our on our MMR per cab and just allow us to continue to preserve our margins and drive.
Great returns on capital so.
We're going to have to continue to monitor that in terms of just how what the pace and the level of the.
Inflationary forces in the business are but but right now I think we've demonstrated that across the board we can.
Can we can make appropriate pricing adjustments and therefore feel.
Like we can preserve that MMR per cab trajectory.
Perfect. Thank you.
And our last question comes from Matt Mcconnell with Deutsche Bank You May go ahead.
Hey, Thanks for taking the question one.
One on the balance sheet and then a quick follow up on the balance sheet I think Keith you referenced some of the ratings agency upgrades of late.
It looks like you've got some additional leverage capacity, you've yet to use I'm just wondering what's the latest thinking around optimal leverage for the business given the expanding scale and stickiness of our platform and then just as we think about funding for <unk> I think right now after the $1 billion plus Green bond.
We're sitting on about $3 billion worth of cash pro forma for that.
I get the sense the company is fully funded for the.
And till acquisition I'm, just wondering if we're thinking about it the right way.
Trying to understand if the NFL deal will require any sort of incremental financing upon close or whether thats just a straight contribution when it closes. Thanks.
Great questions.
Let me first start with just the overall performance of the business as the Green Bond and we just did as you know that.
This yield is three 9%, but we put treasury locks in place.
Last year, the beginning of this year and so we're able to trade down to a 10 year term 10 year terms, 335%. So exceedingly pleased with the performance of that transaction that effectively fully funded the acquisition of Intel and as we noted in the results. So there is.
When we are when we a portion of the income.
Increased interest expense this year relative to the two acquisitions $8 billion of it was allocated to <unk> and the other $22 million.
Is it running through our books right now so we've absorbed the cost is sitting there it's in our guidance it was yet to report.
The addition of the Intel acquisition that will that will happen sometime in the second quarter. The May June timeframe and as a result, youre going to get the net benefit of that so I think that what youre seeing as you are.
Already funded the cost side of the equation.
I enjoyed the if you will the income side of the equation yet so as it relates to overall sort of our capital management, we do have some flexibility with three eight times Levered right now as a business as we look forward, we still feel that the.
Leverage of the four plus range is appropriate we've got more flexibility with all three rating agencies and we're very thankful for that we've got the flexibility to draw down on that we think that is.
The rising interest rates as of late is still a cheaper source of capital for us enhance why we took $1 2 billion off the table in.
In April .
We're looking obviously at other debt debt transactions over some period of time Europe seems to be a good place given the differential in lowering rates.
And then we.
We always will use a blend of debt and equity.
Largely because that's what we do and I think that's what allows us to have the strength that was Charles referred to before we can transact with a strong balance sheet with great success, given how we structured ourselves.
And so the only other thing I'd say is we are looking forward.
Just because what we what we fund today. We also were looking forward into 'twenty, three and 'twenty four.
What is the capital needs of the business, where we're maintaining that flexibility as we look forward in.
Periods of great volatility, we always like to strike as I said in my prepared remarks, but we think it's appropriate to raise the capital and Youll give us strong balance sheet, we would use that flexibility and got into tomorrow at the time that we've chosen.
That's been very very effective to us long term basis. So all of that is long winded response, I would say that we can have great flexibility, we're absorbing cost today without the income attached to them and I am excited about the opportunity on a go forward basis. The business is performing exceedingly well and that's going to give us an opportunity to continue to fund the growth that we saw.
And the business.
And I'll stop there.
That's great I really appreciate all that color. Thanks.
This concludes our Q1 call. Thank you for joining us.
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