Q1 2022 Cyxtera Technologies Inc Earnings Call
Okay.
Thank you.
[music].
Hello, everyone and a warm welcome to the <unk> quarter 2022 earnings call. My name is Stephanie and I'll be your operator today.
Will be an opportunity to ask questions. After the speaker's prepared remarks, which you can do further testing star one on your telephone keypad.
Now I'll hand, the floor over to Kwang Abaca senior director of Finance at 122 earnings Conference call.
On today's call, we will refer to that.
Cereals available on our Investor Relations website at IR. Thanks.
I'm joined here today by Nelson Fonseca.
President and CEO and Carlos the Costa our CFO .
The prepared remarks, we will open up the lines for Q&A.
Before we begin.
I would like to remind you that today's earnings materials contain forward looking statements, including statements regarding our future expectations.
All forward looking statements are subject to risks and uncertainties. Please refer to today's earnings material. The safe Harbor language on slide two of our presentation and risk factors that could cause actual results to differ from those in our forward looking statements. In addition, we use several non-GAAP measures when presenting our financial results.
Bolt.
Over to Milton.
Yes.
Thank you <unk> good morning.
Earnings call.
We're pleased.
To report another strong quarter of results to kick off 2022.
Delivering solid growth and continuing our momentum from 2021.
Our first quarter performance once again underscores the consistent execution from our team as we continue to leverage the robust customer and partner ecosystem, we have built across our global platform.
Sure.
Our team delivered strong core bookings for the quarter totaling $25 7 million in annualized revenue with average monthly core churn in the first quarter of 1%, which is flat to the same period.
The data of $58 6 million representing year over year growth of six 2% and $5 four 5% respectively.
Yeah.
And focused on executing on our business.
So we made to our customers.
Shareholders. In addition, we continue to prioritize growth opportunities.
<unk> innovation.
Anthony of our capital structure.
From a growth perspective, we attracted 43 new logos.
Those two are platform demonstrating the strength of our differentiated go to market strategy.
New logo acquisition for the quarter increased 34% on a year over year basis, driven by the new logo focus of our channel partner program.
The focus on attracting new logos drove an 18% increase in overall channel bookings when compared to the same period the prior year.
In addition, we are continuously looking for opportunities to expand our global footprint and deliver innovative solutions to our customers in new markets.
To that end, we're excited to expand into India through our strategic partnership with <unk> technologies.
<unk>, which is one of the leading digital ICT solutions providers in India operates carrier neutral data centers across various markets in the country.
CDP shares fixed David's focus on delivering leading edge infrastructure solutions required for enterprises digital transformation initiatives to drive growth in their businesses.
Similar to <unk> city deliveries their solutions from World class data centers that feature robust interconnection offerings and rich ecosystem of partners.
<unk> will now be able to provide co location services to our customers in five additional markets, including Mumbai and what are the most important and fastest growing global economies. Additionally, <unk> will resell our future suite of solutions across our footprint in North America, Europe Asia Pacific to more than 10000.
Customers.
We will continue to consider expansion into new markets and evaluate acquisition opportunities our focus will be on the opportunities that are accretive to our plan with a disciplined approach to capital allocation decisions.
Along with looking at potential options to expand our global footprint, we continue to drive innovation through our in house team to ensure our solutions are delivering increasing value to our customers.
For us building, leading edge technology solutions that enable customers to leverage <unk> digital infrastructure to grow their business, both today and into the future is one of the key differentiators that sets us apart from our peers.
We continue to make progress in this area with the unveiling of <unk> Labs, a program that offers support and resources to accelerate our customers' innovations to market. The program is designed to support both startups and large enterprises with research and development projects by offering cost effective consumption based solutions.
Without compromising performance control or scale.
We're excited to have launch external lots in the first quarter and look forward to supporting a broad range of customers through this initiative.
As I mentioned last quarter, we have developed a holistic ESG approach that prioritizes the needs of each of our stakeholders, including our customers employees shareholders partners, the environment and society as a whole to ensure we continue to make meaningful progress across all areas <unk> has prioritized.
ESG initiatives at the board level and established multiple levels of oversight across the organization.
We are proud to join the leading Hyperscale is in more than 30 co location data center providers as partners in the infrastructure Maisons climate accord.
The IMAX since climate accord is a cooperative of over 70 companies to reduce carbon and digital infrastructure materials products and power.
We're committed to being good stewards of the environment and continuing to support initiatives like the IMA since climate accord that seek to bring together industry leaders to drive.
Meaningful positive guidance for how our sector can effectively reduce carbon while efficiently operating our facilities to provide the services our customers require.
Lastly, we continued to make progress on strengthening our balance sheet and optimizing our capital structure. During the first quarter, Carlos who will provide additional color during his section.
In summary, we are pleased to deliver strong financial results for the first quarter highlighted by continued growth in core revenue and EBITDA. We are excited about the opportunities ahead of us and look to leverage our differentiated global platform strong ecosystem and innovative solutions to drive accelerated growth increased profitability and.
Attractive returns on capital now I'll turn the call over to Carlos to cover the financial results in more detail.
Thank you.
Good morning, everyone and thank you for joining us for our first quarter 2022 earnings call.
We're pleased to report today, our strong start to 2020 utility that we have seen during the quarter as a result of geopolitical and macro pressures the business.
And are supportive of our connection rich differentiated offer.
As we will discuss later energy continues to be the most serious and example of this volatility alongside supply chain initiatives I.
I will speak to energy later, but in regards to supply chain, we continued to see pressure mostly in lead time.
Our abundant available.
Civil capacity acts as a good mitigate or to this risk alongside great planning and dynamic execution from an engineering and data center operations.
Quarter with our war on redemption complete.
And the exercise of the full project.
And so our balance sheet.
As we speak.
These transactions provide clarity and strength to our capital structure.
Now, let's go a little bit deeper into the financials now.
Turning to slide nine total revenue for the quarter or five 5% year over year.
To $182 4 million.
While recurring revenue increased by $9 million.
Year to $173 7 million on the back of great customer engagement and strong overall demand.
Our scale highly connected.
Environment ease of consumption and innovative products continued to attract new customers.
With that in mind Q1.
On interconnection revenue represented 11% of our total revenue for the quarter and grew one revenue as shown on slide 10, which excludes luminaire revenue.
Our six 2% year over year to $165 9 million.
3% a year over year.
This points primarily attributed.
First of all to increase revenue more efficient installation cost some lower expense related to timing differences and Thats correct.
Expense, all of which was offset by higher utility costs.
Energy costs continue to be a key focus for <unk>. The same way we are hearing from other players in the industry.
As we discussed last quarter, we have the contractual flexibility to pass through increases in power costs, but we considered power pass throughs activity very carefully because we understand that this is a real impact to our customers.
So far this process has been broadly constructive and we remain cost and revenue recognition.
Transaction adjusted EBITDA increased by two points.
The year to $58 6 million.
Okay, principally due to higher revenue and in spite of higher higher public company costs and enhanced go to market efforts.
Transaction adjusted EBITDA.
Declined by approximately 31 points.
31 basis points year over year.
Transaction adjusted EBITDA.
Dr increased by $3 3 million or four 6% year over year to $74 3 million, which equates to a margin of 47%.
Are there any.
Reminder, we view transaction adjusted EBITDAR at the best metric for comparing our performance to our peers because it adjusts for our asset ownership structure.
Average monthly core churn of 1% for the first quarter was increased from Q4 were within our expected range.
Although net net bookings were healthy in Q1, we did see a decrease in occupancy of 90 basis points.
This decrease is broadly attributable to incremental capacity, becoming available roughly 60 basis points and.
In a late quarter churn event, which we expect it to ramp which we expect to replace it in short order.
Despite the sequential drop occupancy has expanded by 320 basis points year over year across our stabilized markets.
As detailed on slide 13 corridor, MLR, including FX increased by $1 1 million to $49 8 million driven by Navy installations.
Our <unk> per cabinet increased two 4% has been in fact, the ramp started to flow through the calculation.
On slide 16, we have provided a breakdown of our capital investments.
Overall capex is up on the back of our higher expansion activity around key markets and a more normalized maintenance capex levels versus Q1 in 2021, which.
Now turning to slide 17 for an update on the balance sheet and capital markets activity.
We continued to make good progress on the deleveraging journey.
The Q4 2021.
Basis.
At $6 one.
On.
I think the one times, it's one five times lower than the same quarter last row structure and future refinancing upwards.
Synergies, we believe we have ample ramp.
We are ahead of us with our term loan maturing in 2024.
We continue to evaluate all financing alternatives.
To support our business model and growth plans in the future.
While we are not under any pressure to address any financing needs in the near term. It has always been our philosophy to get ahead of this in a thoughtful and timely manner.
And with that thank you all for your continued support and for joining us today to discuss our fourth our first quarter results. Operator, Please open the lines for questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad now.
Our first question comes from Jonathan Atkin of RBC capital Jonathan. Please go ahead.
Yes, thanks for taking the question.
Wonder if you can give us an update on.
Regional tread and.
Maybe trends by by vertical or by products can you just give us a little bit more sense of commercial momentum.
So its whether its particular.
Metros.
Product any.
Any takeaways sweet spots youre seeing in terms of your offer whether it's bare metal or particular types of colo offerings.
And our end user verticals or use cases are seeing particular.
Momentum thanks.
Thank you Jonathan so look.
Our solution is really not vertically focused so we have a capability of our bare metal or a global platform that is really horizontal in nature, we can support and we do support customers from across every vertical.
One of the two verticals that are being very big.
Important for us as we.
We continue to grow our bare metal offering in digital exchanges artificial intelligence machine learning a number of customers that are coming to us because of the ease to use our data center infrastructure. So those are that's an area that's been.
Very good for US I mentioned, our <unk> labs, and then some of the startups that are really looking for raw infrastructure as they launch and so those are two areas that we've seen some.
So nicely logo wins and.
And some additional momentum, but truthfully the demand is strong across all the verticals and frankly across all the regions as well. So we're not seeing any sort of over performance in any one vertical or any one region across the footprint.
And then <unk> does a lot of network services the evening.
Yes.
<unk> and the <unk>.
Incredible.
Systems integration type work as well as off being pure Colo. So I'm just interested in what was it more of a national footprint that attracted them as a partner, but maybe talk to us a little bit about it.
What led to that partnership and then the types of criteria that you might.
<unk> seen similar partnerships elsewhere.
Well I think India is a market that we've always been interested in it's.
It's a market, where we get it a lot of inquiries from our customers and we had 200 customers, they're all growing and.
And we want to be able to support their growth needs. So this was a region that we felt we needed a solution.
We know the folks at <unk>, we think they do a great job yesterday do some additional things.
Besides Colo data centers are really carrier neutral from that perspective.
It's got a great footprint with those five locations within the country. So I think it's the first step of a.
Broader relationship and broader activity for us in India, and as far as what kind of model. We will use as we look to expand into other regions. We're always going to look at the best model for any given market right I think one of the.
And one of the benefits of our global platform and our approach is different ways for us to expand into new markets. This was that we thought the best App with a great partner in India, but as we look at other markets and other regions. We may decide to do a different approach we could buy build we could we could do a number of different things, but for India. We thought this was the right approach at the right.
<unk> now we can meet some of the demand that we have from our customers and then we can take a long term view of the partnership.
And then lastly wondering if you can just give us an update on where you stand now and if theres any types of.
Goals, you have with respect to asset ownership I think one thing that makes the company a little bit different is that you.
Hi.
So if you kind of characterize that mix now.
Within your own footprint lease versus own loans, changing that or any desired.
Yes look we always start.
With everything we do here at <unk> from the company.
Customer lens from a customer perspective, our view and I think our strong bookings.
Churn performance reflects that is that our customers are.
Not worried about the ownership or lack of ownership with a data center. They want to make sure we have control of ingress and egress networking and security and we have that at our data centers. So from a customer perspective, it really doesn't matter it doesn't slow us down.
Our asset light model is a little bit different than some of the others.
The industry it does give us some <unk>.
Flexibility in terms of how we expand but we're not opposed to owning data centers either right and so as we think about we haven't set a goal or target to say, we need to be at X ownership percentage by a certain date again, we're very customer focused but as we find opportunities in an opportunistic fashion to increase ownership whether that's through.
Position.
We will we will look at that Jonathan but we don't have.
At target in terms of increasing ownership as a percentage of all of our facilities.
Thanks very much.
Thank you.
The next question comes from from Credit Suisse. Please.
Please go ahead.
Hi, Thank you I'll only have one question and then one follow up.
Could you characterize the pricing environment for the market right now for your open space or are you seeing an opportunity to see.
Better pricing on a per cabinet basis. Then you then you saw about three months ago can you just characterize what you guys plan on seeing or what you're mobilizing for from a pricing perspective.
Thanks Amy.
Look at pricing for us has been stable to up.
It remains that way and I think we've been pretty clear that we priced at the market level right across all of the number of markets that we are across the globe. So to the extent that we see opportunities to increase price, we're taking advantage of those opportunities.
But again, we're always going to peg our pricing to the market and right now we see it as stable and we do see it up in certain markets and we'll continue to monitor that trend in and obviously, if there's a way for us to increase prices.
We're going to definitely take advantage of that opportunity, but stable to up is the way I would describe it in summary.
But maybe can be a little bit more specific just so we can understand magnitudes here.
Would you say that because of the supply chain dynamics and just crazy what's going on that you can take price a lot more in this specific environment versus just say three months ago, when things didn't seem appetite.
Well I do think there's pricing opportunity stemming I do want to kind of mentioned we are.
From a retail perspective, we have customers that are in multiple markets that grow with us.
Across the globe. So we are seeing the ability to price a little bit higher we're being cognizant and thoughtful about that as these are the same customers that are growing with us into new markets.
Hopefully like India, and so we want to take a long term.
Customer relationship approach to how we how we could push pricing, but yes. The dynamics are favorable for pricing and keep in mind that we've had available capacity on its one of the differences in our in our platform and so we've been able to take advantage of really driving bookings with the available capacity that we have across the footprint.
So again stable to up and we will take advantage of the opportunities that we have in any given negotiation.
Got it. Thank you one follow up question that I wanted to come in with was.
How do you balance here.
Margin targets relative to not passing on too much.
Power costs to your customers now how would you how would you describe the strategy of the company.
He just specific saturation.
You kind.
Kind of take more market share and watch how much you pass over to your customers.
Yes, Youre, China pass on as much as you, possibly can in a very efficient.
And considerable way just to maintain operations.
Ongoing activity with our customers.
Sami I think those are kind of the two ends of the spectrum with what I would say is one we have the ability to pass through power cost and we are passing through power costs and so margin is very important to us the dynamics in the market are real and so as our Cros increase we will be passing those costs onto the customer that being said we want to be.
Full about how we do that the timing of that and so if there's lags.
In us passing those costs on some cases.
A lag or a timing issue as an acceptable.
It's an acceptable.
Factor.
In certain cases, but but margin is important and we will be passing on the costs that are elevated or that we're incurring as a business Carlos I don't know if theres anything that you want to add there I think Nelson said, it but I will just reiterated is put ourselves in the shoes of the customer right. So for us it might be a cost recovery exercise.
For the customer is real cost increase and we don't want to generate a situation where the customer we think they're there they're strategy with us because of that LIFO were five to heated balance in which we will get back to where we need to be over previous times that will be digestible for the customer but eventually.
The question is not how much because we're pass it all is over what period of time correct.
Got it thank you.
Next question comes from Frank Louthan Raymond James.
Please go ahead.
Great. Thank you walk us through the potential opportunity here with the Cfe deal any sort of revenue potential there and is there any are there any capex commitments or anything like that on your end and then maybe.
Give us an update on what the status is with business in Singapore that that market has opened up a little bit how should we think about that opportunity going forward.
So lets Frank address if he first right now.
Very modest capex as we deploy some of our key.
Capabilities.
In country, but I think it's the first step of many again, we feel like there's significant demand for India and within our customer base and this is the first step for us to capture and capitalize on that demand before we make.
Essentially a bigger investment in the area. So I would consider it a first step of a more strategic vision for for the region, but very limited capex.
At this point Carlos I don't know if there's anything that you want to add there at this point.
Super.
From a from a Singapore perspective.
Create market. This is obviously one of the markets back to some of the pricing questions that are out there that we've been able to take advantage of <unk>.
Strong pricing.
Dynamics.
In Singapore, but again, great demand and great pipeline for for that market, we'd love to get additional capacity in that market. We're looking at different.
<unk> for us in region, but.
Demand is very strong there from from our customer base and good pricing dynamics as well.
Alright, great. Thank you.
And as a reminder.
One to ask a question.
The next question comes from Michael Rollins of Citi. Michael. Please go ahead.
Yes.
Thanks, and good morning a.
A couple of questions if I could the first I think you mentioned earlier.
In the prepared comments that interconnection growth was 1% during the quarter can you unpack.
What youre seeing on the interconnection side.
The network densities are trending in your portfolio and how that interconnection should grow over the longer term and then just secondly as.
As you think about enhancing your business plan and the opportunities in front of you.
How are you thinking about the merits of being a public company in that context versus other options that you might be considering structurally for the company. Thank you.
Hey, Mike So first let's tackle the interconnection.
Interconnection revenue phase of growing of our customers are using more cross connects and our digital exchange adoption.
Is increasing nicely, we have more customers on the digital exchange and they're continuing to get more and more.
Services from Us.
We did see although an increase or a smaller increase though year over year from an interconnect revenue perspective, but look cross connects or in ports or a little bit about timing as well we've had some great bookings and some good customer wins as they deploy in those customers ramp I think some of that interconnection, we'll catch up but.
I think we're seeing great strength in our interconnection portfolio and I really don't see that slowing down and so I think we're still on track for for some of the remarks, we made in the past about where interconnection as a percentage of revenue should be.
Going forward for.
From a financing perspective.
We're happy to be a public company.
We're performing well.
From a financing perspective, I think Carlos addressed that in his prepared remarks, Colin I don't know if theres anything that you want to add in terms of.
Financing and what we're looking at here in short order no, but I think going to Michael's question.
We're happy to be a public company, we think being a public company opens for us.
A wider pool of potential capital sources, and so we think we are where we need to be.
Thank you.
Yes.
The next question comes from Michael Elias at Cowen Michael. Please go ahead.
Great. Thanks for taking the question a question on one follow up so it seems like the enterprise demand environmental accelerated pretty meaningfully over the last six months just curious coming off this leasing quarter. How would you describe the gulfport leasing pipeline and how that compares to what you're seeing this time last year.
Sure.
Look Michael I think for US, we take a snapshot of the pipeline.
In the first quarter, we see the pipeline again.
Similar to pricing is stable to up the pipeline is growing both from existing customers and also new logos, which we do focus a lot on new logos. We know we delivered good service and customers get value out of our offerings. So we noticed as we bring new customers into the fold were going to grow with us within a data center in throughout the platform. So.
For my follow up question.
And how it stable to Opex.
As I think of it.
Input costs are up labor costs or our power costs are up.
What I'm trying to understand here is with peers.
Talk about increasing pricing materially.
For the new list prices on some of them are taking the opportunity to.
They are higher and if you don't.
Do that one.
What is that.
And what does that essentially imply for the margin picture.
Two things and Carlos feel free to chime in I think one as I mentioned, we priced at the market level. So as that market pricing goes up our pricing is going to increase with that and we do see pricing going up with thoughtful about raising prices because we take a long term view of the.
Business, but we will not be selling that any sort of discount to the market. That's never been our approach and we always price.
Right.
That market level, so that will continue I'll mention again, because we have available capacity across the footprint that input costs in terms of construction, maybe affects us a little bit different than our peers that are building.
More capacity, obviously as we continue to drive up utilization.
That will affect us.
Similar ways.
So those are the two views, but we will continue to price at the market. We are seeing market pricing go up and we're going to adjust accordingly, but we're going to be thoughtful about it Carlos anything that you want to but you want to add there.
I would just reiterate what.
What you just said, which is we price at the market and as the market goes up.
We will go up with it right I think Singapore and the increasing capacity that we're seeing there is a great example, in which capacity.
Capacity is at a premium market is growing up we'll follow the market and we've seen it.
Thanks for the color.
Thank you Michael.
We have no further questions. So I'll hand back to Nelson Carlson for any closing remarks.
Alright, well. Thank you everyone for spending some time with US. This morning, we appreciate all the questions and the dialogue and look forward to updating you all next quarter. Thank you.
This concludes the <unk> first quarter 2016 earnings call. Thank you for joining US you may now disconnect your lines.
Okay.