Q2 2022 Equinix Inc Earnings Call
Good afternoon, and welcome to the Equinix second quarter earnings Conference call.
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.
I'd now like to turn the call over to chip NUKEM director of Investor Relations 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 we'll be making today are forward looking in nature and involve risks and uncertainties.
Actual results may vary significantly from those statements and may be affected by the 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 February 18th 2022, and 10-Q filed April 29 2022.
Equinix 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 to not comment on financial guidance during the quarter unless it is done through an explicit public disclosure and.
In addition, we will provide non-GAAP measures on today's conference call. We 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 who would also like to remind you. 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 available information.
I'll say, our 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 the call up in one 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.
Good afternoon, and welcome to our second quarter earnings call on the heels of a record Q1, we had an outstanding Q2 with strong and sustained demand across our product portfolio broad pricing momentum and solid sales execution with particular strength in Americas, and EMEA, resulting in record gross and net bookings and our best.
Ever quarterly revenues step up.
As our customers' progress and accelerate their digital transformation journeys the relevance of platform Equinix continues to grow and our recent global Tech trend survey nearly 70% of the 2900.
Asian makers polled indicated their intention to adopt private or hybrid as their cloud architecture of choice with over 45% of those polled working with three or more cloud providers and over 80%, indicating their intention to sustain or increase their spend on interconnection today, we're seeing this demand for <unk>.
Our connected digital infrastructure across our regions. This quarter's bookings sizeable surpass the prior peak a great indicator of the strength of the business and our go forward pipeline, our business remains resilient and highly diversified with nearly a third of our 10000 plus customers closing incremental business in any given quarter.
Despite macro conditions this customer demand paired with lower than expected churn is driving us above the upper end of our analyst day revenue guidance this year and benefiting our <unk> per share guide with the impact of pricing increases still largely unrealized.
Turning to our results as depicted on slide three revenues for Q2 were $1 8 billion up 10% over the same quarter last year, representing our 78th consecutive quarter of top line revenue growth a clear reflection of the durability of our business model across economic cycles.
Adjusted EBITDA was up 8% year over year with <unk> meaningfully ahead of our expectations due to continued strong operating performance.
Interconnection revenues continue to outpace the broader business growing 13% year over year.
These growth rates are all on a normalized and constant currency basis.
Customers continue to embrace equinix as the best manifestation of the interconnected digital edge and we continue to scale and extend and innovate across our data center services portfolio.
We now have 49 major projects underway across 34 metros in 21 countries with 13, new projects this quarter, including New data Center builds in Dublin, Montreal, New York, Paris, Warsaw, and our first build in Chennai, India. The first of several anticipated metro expansions in this fast.
Growing markets.
Our unparalleled global scale and reach continues to be a strategic advantage driving success with service providers looking to extend our reach and rapidly implement as a service models and with enterprise customers across nearly every sector of the global economy as they modernize their infrastructure and embrace hybrid and multi cloud.
Wins this quarter included a multinational energy conglomerate implementing their hybrid cloud strategy across multiple regions leveraging network edge and Equinix fabric and five a global technology leader in application security and multi cloud networking, establishing additional networking nodes in all three regions to better support.
Their customers in.
In May we closed our acquisition of four data centers for mental extending platform equinix into Chile, and bringing our global footprint to 70 metros across 31 countries Equinix has a decade long history in Latin America, and this acquisition provides significant expansion capacity, enabling both local businesses and multinationals the.
<unk> to accelerate their digital transformation and our Latam aspirations. We also expect to close on the acquisition of one additional data center from Intel extending our reach to Lima, Peru in Q3.
As the world's digital infrastructure company, we believe it's our responsibility to help bring about a more sustainable future in 2022, we continue to advance our bold future first sustainability strategy and are pleased to have been recognized by sustain Olympics as among the best large cap rates for ESG and to be ranked seventh.
U S Epa's National top 100 list of the largest green power users.
We continue to accelerate the transition to cleaner energy grids and recently executed our second virtual power purchase agreement in Finland.
Once operational these two new wind projects combined with our prior projects will bring equinix as total renewable PPA capacity to 300 megawatts and we continue to explore additional PPA projects across all three regions as we progress towards our goal of 100% clean and renewable energy.
Turning to our industry, leading interconnection franchise, we're seeing continued diversification of our ecosystems and robust activity, including a win with bass shop, one of Brazil's largest electronics retailers, who chose equinix to help strengthen the interconnection for its digital core improved cloud connectivity and integrate with the digital retail.
Ecosystem.
In Q2, we added an incremental 7600 interconnections and now have over 435000 total interconnections on our platform.
Equinix fabric saw a notable increase in permitted in capacity as channel enablement is driving network retail use cases and customers are increasingly using inter metro connections on fabric to connect across their deployments, including a win with baby a cyber security company in the Netherlands, using equinix fabric to connect deployment.
In Amsterdam, and London to provide connectivity for its customers as part of its business expansion.
Internet exchange saw peak traffic up 4% quarter over quarter, and 25% year over year to greater than 25 Terabits per second.
Pivoting to our digital services portfolio will continue to see strong growth and significant opportunity as customers increasingly leverage more virtual as a service and edge solutions.
Clinics metal had a strong bookings quarter as partner driven solutions like pure storage and Dell power store on Equinix metal are driving performance centric hybrid cloud opportunities with enterprise customers network edge also had a strong quarter with a notable increase in large multi instance deployments from enterprise customers both metal and.
Work edge are also driving attractive revenue pull through to Equinix fabric.
Digital services wins this quarter included protocol labs, and open source R&D lab, increasing its usage of equinix metal to support projects to decentralize, the web and cloud storage and a leading waste management services provider leveraging Fortinet network edge to conduct their business units in Asia to their data centers in the U.
The us across Equinix fabric.
Our strategy remains simple to translate our unique and durable advantages into being the platform where buyers and sellers of additional services can come together, enabling them to deploy an interconnect the infrastructure that they need to transform their business.
Our service providers demand remains robust as businesses around the world are planning major investments in digital technologies to support ambitious expansion plans following lessons learned from the pandemic.
This year Gartner projects that global spending on public cloud services will reach nearly $500 billion.
And we're seeing strong demand across multiple vectors with these key cloud customers.
In the quarter, we added three new cloud on ramps in Paris, and London, and now have nearly 200 on ramps to the major cloud service providers deployed on our platform, making equinix as the home of hybrid multi cloud.
We also continue to see tremendous success supporting our Hyperscale partners as they invest in subsea cables to facilitate the rapid growth of internet traffic between continents.
And in addition to being an integral part of Hyperscale architectures, we continue to drive go to market alignment with these market shaping players partnering to meet end customer needs for hybrid cloud and making the hyperscale or some of our most productive channel partners.
Hyperscale or demand for our X scale offering also remains robust we had high leasing activity in Q2 pre leasing our entire double and six assets. The first phase of our Paris, 13 asset and the second phase of our Frankfurt 11 asset representing more than 38 megawatts of capacity looking across the various X scale Jbs, we seen.
Strong demand with over 170 megawatts now leased across our portfolio.
Currently have 11 next scale builds under development of which more than 80% is pre leased.
On the enterprise side Gardner also continues to view digital transformation, neither one or two year trend, but in a systemic and long term theme.
Our pipeline strongly supports this thesis and our enterprise activity. This quarter was robust with Americas, and EMEA regions driving record bookings with particular strength in banking and healthcare.
Expansions included a leading U S health care software vendor, creating an edge hosting environment on the West coast and the Hertz Corporation, one of the largest worldwide vehicle rental companies, who deployed on platform Equinix to support its digital transformation journey locating infrastructure proximate to cloud providers and tapping into our digital solutions.
And once again, our channel program continued to thrive delivering its fifth consecutive quarter of record bookings, including strong performances for our EMEA and APAC regions accounting for more than 35% of bookings and nearly 60% of new logos wins were across a wide range of industry verticals and digital first use cases.
With hybrid multi cloud as the clear architecture of choice.
We saw strength from strategic partners like AT&T, Cisco, Dell, Google and Microsoft, including a win with Orange business services for our security services technology company to deploy their payment card encryption solution, while interconnecting to our financial services and cloud ecosystems. We're also proud to have been.
Aimed HPE Green lakes momentum partner of the year for 2022, as we together work to deliver a consistent hybrid and multi cloud experience for our joint customers.
Let me turn the call over to Keith and cover the results for the quarter.
Thanks, Charles and good afternoon to everyone I hope, you're all doing well and enjoying the summer months.
Well as you can see from our results Q2 was one of our best quarters to date, if not our best.
The go to market engine continues to convert our healthy pipeline into record bookings with attractive pricing coupled with low churn dynamics.
In fact, it was our eighth straight quarter of increasing net bookings activity and our forward looking pipeline remains robust.
Our success and the momentum in the business are strong indications of the value customers place are highly differentiated ecosystem or the breadth of our service offerings, the global scale and reach of our platform and of course, the quality over operational delivery.
With a great first half of 2022, we're again raising our underlying guidance across each of our core financial metrics.
Now as you can see from our performance we continue to manage an instrument in the business to perform across varying economic cycles, even ones like we're experiencing today.
While all things macro remained within our focus we do feel well positioned to address the volatility in the market and here's why.
We have low customer concentration with no customer representing greater than 3% of our revenues.
And our top 50 customers continue to diversify across our platform and as a percentage of revenues.
With regards to supply chain are best in class design, and construction and strategic sourcing teams are delivering projects consistent with our budget expectation with limited delays.
Have access greater than $300 million of inventory holds to mitigate future disruptions across a number of critical functions.
On inflation.
We've largely been effected by protecting our customers and partners from the market fluctuations.
But as we continue to assess the likely go forward trends related to the cost of energy and construction.
In addition to the broader insulet inflationary increases affecting wages and other operating costs.
We do expect to raise our prices.
And with 60% of our revenues coming from outside the U S. A strong dollar in Q2 was had a notable impact on our as reported numbers and outlook yes.
Yet our sophisticated hedging program has meaningfully dampened the impact to our financial statements.
Now, let me cover the highlights for the quarter.
All comments in this section are on a normalized and constant currency basis.
As depicted on slide four global Q2 revenues were 1.8, $1 7 billion up 10% over the same quarter last year.
At above the top end of our guidance range due to better than expected step up in recurring revenues and strong ex Gilead rfps.
<unk> per cabinet yield reached a new mark of $2000 per cabinet.
Q2 revenues net of our FX hedges included a $20 million impact when compared to our prior guidance rates due to broad dollar strength.
Global Q2, adjusted EBITDA was $860 million or 47% of revenues up 8% over the same quarter last year above the top end of our guidance range due to strong operating performance.
Q2, adjusted EBITDA net of our FX hedges included a $10 million FX impact when compared to our prior guidance rates and $4 million of integration costs.
Global Q2, <unk> was $691 million above our expectations due to strong operating performance and included a $9 million FX impact when compared to our prior guidance rates.
Global Q2, <unk> was two 1% again at the lower end of our guidance range.
Looking forward, we expect MMR churn to continue to trend favorably and remain 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 <unk> basis at 14% followed.
Hello by the Americas, and EMEA regions at 11% and 9% respectively.
The American region had a record bookings quarter with great performance in our Canadian and Mexican businesses, as well as our Denver and Silicon Valley markets and.
And healthy new deal pricing.
The Americas go to market engine continues to sell the platform with strong global exports.
The Intel Chile assets are performing well against our initial expectations and we look forward to adding Lima, Peru to our global footprint in August .
EMEA region also delivered a record bookings performance with broad based strength across our cloud enterprise content and digital media verticals led by our London, Paris markets as well as our emerging markets.
In the quarter, we saw a healthy retail activity with strong pricing across our varying deal sizes and solid adoption of our digital services products.
The integration of the main one assets into our platform is progressing well and the business is tracking ahead of our expectations.
We're seeing increased focus on sustainability across our European stakeholders, and thus, we're taking an active leadership role through the European Datacenter Association to address this growing and critical matter.
And finally, the Asia Pacific region had a strong quarter with robust channel activity led by our businesses in Australia and Singapore.
I'd also like to take this opportunity to thank our Shanghai operations team for their dedication and effort during the very strict COVID-19 lockdowns over the past quarter to deliver 100% uptime.
Their efforts are a shining example of what we call the magic of Equinix as they put we before me to ensure our customers' critical infrastructure remained operational.
And now looking at our capital structure, please refer to slide eight.
We ended the quarter with cash of approximately $1 $9 billion, an increase over the prior quarter largely due to our April green bond debt offering and strong operating cash flow created by the business offset by our growth Capex, the cash dividend and the acquisitions closed in the quarter.
In June Fitch ratings upgraded us to triple B, plus given the strength of our business performance as cash generating capabilities as well as our balanced capital funding posture.
We're very appreciative of the support received from Fitch.
Additionally, during the quarter, we executed some ATM for resale transactions, which will provide approximately $400 million of incremental equity funding when settled later this year.
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 $490 million, including a recurring capex of $35 million.
In the quarter, we opened four retail projects in London, Mexico City, Milan, and Tokyo, and two exco projects in Frankfurt in Sydney.
We also purchased land for development in Bogota and Mumbai.
Revenues from owned assets stepped up to 61% of our total revenues.
<unk> long term strategy of both developing and purchasing land in <unk>.
Our capital investments delivered strong returns as shown on slide 10.
162 stabilized assets increased recurring revenues by 7% year over year on a constant currency basis.
These stabilized assets are collectively 87% utilized and generate a 28% cash on cash return on the gross PP&E invested.
And finally, please refer to slides 11 through 15 for updated summary of 2022 guidance and bridges.
Do note our 2022 guidance now includes the anticipated financial results from the Intel Chile acquisition, which closed in May.
For the full year 2022 based on the momentum we're seeing in the organic business. We now expect our revenues to increase 10% to 11% on a normalized and constant currency basis over the prior year trending above our analyst day revenue range, a reflection of the healthy digital infrastructure demands that are driving the momentum in our business.
Relative to our prior guidance, we're increasing our revenues by $65 million, including $30 million of revenues from the Intel Chile.
We expect 2022 underlying adjusted EBITDA increased by net $33 million compared to our prior guidance, including $18 million from Intel Chile, We now expect to incur $30 million of integration costs in 2022.
We're raising our underlying 2022 way if a full by $33 million to grow between 8% and 10% on a normalized and constant currency basis.
And given the strength of our business 2022 way if a full per share is now expected to grow between eight and 9% on a normalized and constant currency basis.
Above the top end of our prior guide with both the main one and then it'll acquisitions immediately accretive to our business.
2022, Capex is now expected to range between two three and two 6 billion, including about $185 million of recurring capex at about $110 million of on balance sheet <unk> spend.
So let me stop here I'm going to turn the call back to Charles Thanks.
Thanks, Keith in closing, we had an outstanding first half of 2022, and our business continues to deliver strong and consistent results. Despite a challenging macroeconomic and sociopolitical landscape demand remains robust as customers continue to invest heavily in digital transformation.
And as infrastructure needs evolve platform Equinix is increasingly relevant as a point of Nexus and it architectures that are more distributed more hybrid and more cloud connected giving us a distinctive value proposition and meaningful pricing flexibility.
The emergence of the cloud continues to disrupt the multi trillion dollar global market fueling both our hyperscale, our relationships and our broader service provider business as successful new entrants extend and expand their infrastructure to drive revenue growth and traditional technology leaders build out distributed delivery infrastructure as they <unk>.
Transfer warm to as a service models.
We continue to invest behind this momentum both in expanding the reach and scale of our data center platform and an accelerating the evolution of our digital services portfolio, which is seeing strong customer interest in.
In that vein, we're pleased to welcome <unk> <unk> and <unk> Rousseau to our board of directors as veteran operating leaders at Cisco and HPE. They bring deep knowledge of both technology and go to market aspects of the evolving digital infrastructure landscape and we're excited about their contributions as we continue to innovate our service offerings for the <unk>.
Digital leaders of today and tomorrow, So let me stop there and open it up for questions.
Thank you we will now begin the question and answer session. Our first question comes from Matt Mcconnell with Deutsche Bank You May go ahead.
Hey, guys congrats on the quarter, thanks for taking the questions.
Just first maybe on bookings so you talked about record quarterly gross and net bookings Americas and EMEA, leading the way.
Just wondering if you could talk a little bit about how trends evolved over the course of the quarter and whether you've seen any moderation maybe either late <unk> early <unk> just in light of the macro backdrop and then one follow up Keith you mentioned, the 400 million and a T M.
Equity issuance I'm, just wondering with leverage under four turns can you talk about the strategic rationale for the issuance and how youre thinking about potential uses.
Hey, Matt Charles.
I'll take the first one and hand it over to Keith for the second one.
So no I would say the trend line on bookings continues to be strong.
We're seeing a real commitment from folks relative to digital transformation I think we're seeing that strength across regions and cross sectors.
Within the service provider side of our business and the enterprise side of our business and that's that's literally across virtually every sector. As we said in the script. So no no moderation in fact I would tell you that our pipeline going into Q3 is stronger than it was going into Q2.
We've got a lot of forward visibility.
And really continue to feel very good about the overall demand backdrop for the business.
And Matt to responding to the second question as it relates to using.
Our ATM first and foremost as you've probably heard in the prepared remarks.
We've done that on a forward basis. So we haven't pulled down the equity yet and part of it I think is look theres a lot of there's a lot of disruption in the marketplace. One of the things that we know is we're going to continue to build as you as you heard we announced 49, New project, where we are putting in projects under underway. We added 13, new projects this quarter.
We're closing on the acquisitions and we're going to continue to fund these dividends as we think a lot about what we need not only through the rest of this year, but through the end of next year, we want to make sure we bring balance to the market balance to our capital plans, but also recognize that there was volatility in the marketplace and so so we basically.
Did a forward sale through a number of transactions at $680 a share.
Over the over the quarter, we're very selective in our timing as you've as you can appreciate and we just felt that it was there was a good thing to add to the overall.
Liquidity position of the business. Let me just also just sort of say one last thing.
As you step back and you recognize the momentum in our business and what Charles is just what we said in the prepared remarks, but certainly what Charles is has also spoken up the momentum in our business is substantial and the investments that we're making at our assets is going to continue to be substantial as a result, we want to make sure that we have sufficient liquidity in these periods of great.
Uncertainty and so raising capital at a time when you can.
Is is appropriate so using the cash on our balance sheet using use your equity and of course as you can appreciate we're going to be looking at are some debt structures as well to augment our liquidity position. So that we don't have to worry about that next decision, which is what would we do if an opportunity presents itself. So again, it's more about being prudent having ballot.
Supporting our ratings and at the same time, creating liquidity the liquidity in the pit and the in the balance sheet for future decisions.
That's great. Thank you both.
Our next question is from Ari Klein with BMO capital markets. You May go ahead.
Thanks same star rating.
It's been in a while I think last quarter. You mentioned you got a 50 basis point benefit from energy is that still the case and then.
Can you talk about the pricing strategy outside of energy. It sounds like you are increasing pricing increases.
<unk> increases above and beyond the 2% to 5% that you.
We're seeing historically.
Yeah.
Thanks, Alright.
Yes.
The same store, yes tremendous quarter on that and in terms of how much of that wind at the back is energy, it's actually probably a little less than that number in.
In terms of.
Of any contributions to that so really strong really strong quarter overall.
So I believe it was I wanted to say 40 bps in that in that $6 seven that was associated with energy, so but really.
Think we would've said still seeing north of six even without that and so good really good result, there and and feeling feeling great about that and feel like we can continue to deliver in and sort of our previously guided range.
Going forward.
In terms of the broader pricing strategy absolutely. We're we're looking holistically at the pricing strategy not only in the and I've talked about this a number of other forms or sort of several levels to the pricing.
And our strategy and execution one is power.
That is about sort of making sure that we can fully recover.
Sort of increases to power in markets, where that's occurring.
And align that up with our hedging strategy and we've talked in depth about that both continue to have high degrees of confidence that we can.
The combination of our hedging and our ability to pass that through will allow us to mitigate those impacts on the business second is actually just a broader increase in list pricing on space and power that is already rolling through and on interconnection and <unk>.
Interconnection had tens that perhaps have a slightly faster impact just because it's.
Are things roll through it it's a little more dynamic if you will in terms of the way interconnection rolls through the business. So we're raising list prices there and then as you note escalators and I think we will begin to reset escalators at a.
The levels that we think are more appropriate for the current environment and dynamics of the market and so we are already looking at new contracts priced at new list price levels with no escalators in there.
And as I said in the in the prepared remarks, I said that the pricing impacts are largely unrealized meaning that what you saw in our guide today is not really being fueled by pricing is really being accrual by strength in unit volumes firm pricing certainly in terms of how we're pricing, but thats really <unk>.
Yet to roll through in terms of and I really think we will start to see those positive pricing impacts in 'twenty three.
Got it if I if I can just follow up is there a point at which the higher prices force companies to start to reevaluate their objectives around.
Data center expansion and whatnot.
Yes, it's a great question, obviously you start at what is the elasticity of demand and how we how elastic or inelastic is the demand is a question we constantly ask and answer I would tell you that quite empirically our evidence would demonstrate that our business is highly inelastic and in fact, if you look at our interconnection pricing activity in Europe .
Over the last couple of years.
We saw a tremendous flow through on that and very little implication from a from a churn perspective, and so and then the other thing I would we've looked hard at kind of where people are in terms of how much of their you know their spend overall is is tied up in equinix as a key sort of point of Nexus.
And their digital infrastructure strategy and the reality is as theyre getting significant value for that investment.
And adjustments in our pricing on that has a relatively limited impact in their overall in the overall dynamic darrin so.
We're we absolutely want to deliver superior value, we think we can do that.
At higher price points and still deliver the value that that data is going to compel people too to.
To make equinix, a central part of their long term architectures.
Thanks for the color.
And our next question is from David Barden with Bank of America. You May go ahead.
Hey, guys. Thanks, so much for taking the questions.
I guess I have two kind of higher level questions.
Charles.
Out of the Investor base hasn't really lived through the <unk>.
Possibility of recession as it relates to data centers and there's two big questions that we get one is.
We'll we'll businesses kind of pull back on their datacenter budgets in a recession and the second is <unk>.
Given all the Ipos we've seen.
Some of these companies.
Smaller companies start to.
Fail as we saw maybe back in 2001 to.
That going to create pressure for the data center business and I guess.
I could ask a second question maybe this one's for you Keith.
We obviously saw.
Ah well regarded.
Short selling investor or come up with a thesis that said that.
The data centers have two problems one is that they're going to.
End up competing with their biggest customers and that's going to.
Cannibalized.
The need for legacy data center businesses and second that the it's not obvious the returns on the consolidated data center businesses are actually great.
So I know you guys know the answers to those questions. So I'd love to kind of just are those out and kind of hear what you guys are thinking now thanks.
Sure, David I'll start and probably not be able to resist the chance to answer some of the second one. The addition, so go ahead, Charles I'll hand, it over to Keith.
So as for the broader question on recession and potential impact to the demand backdrop.
And in particular around exposure to failures business failures and weakness that that might represent in either startups or those types of companies.
As I said right now we're seeing no waning of demand relative to People's investment in digital transformation. In fact, I would argue that I think as they look forward to a potential recessionary environment. Many of them are using that either to try to reduce costs by modernizing our it infrastructure and moving.
The hybrid and multi cloud with greater agility in their it footprint and architecture or they're using that as a fundamental driver of competitive advantage and therefore fuel to their top line.
I think they don't believe they can afford not to invest in.
And you're seeing that in virtually every sector you look at retail for example, and that's a classic example of a sector that people are saying, Oh boy recession could clearly impact consumer wallet spend.
And retail which suffered from that while we are not seeing that show up in terms of their decision, making around their commitment to digital they simply can't afford not to be prepared for the digital future and.
And so we see real strength in that in that sector same could be said for <unk>.
Various elements of banking and financial services, which people will say could could feel some of the staying and yet they continue to invest and so every quarter. It seems that we gave you a different set of sectors that are demonstrating strength in our business and I think that's just a reflection of just how durable that demand profile.
And so we're keeping a close eye on it but our previous experience and recessionary environments as well as the current pipeline would lead us to believe that demand continues to be strong and frankly, we're investing behind that we're going to be prudent and appropriate and watch it carefully, but we're going to put more quota bearing heads on the street given the level of demand that.
We are seeing in the business.
As to <unk>.
Start ups.
Honestly, our exposure is relatively limited startups often start.
In cloud and only as they scale they moved to hybrid infrastructures.
And so we don't see a lot of exposure there.
We have not seen a sort.
Sort of business failures or our pullback in in those as any kind of meaningful contributor to the business.
On the AR on the short thesis.
You know I would just tell you that I think it represents an underdeveloped understanding of the datacenter market.
And the relative position of our various players because I think that you know as I said as we said in the script in various ways.
Our relationship with the Hyperscale errors, which is a key part of that thesis.
There is significant both in terms of our underlying contributions to their architecture in terms of network nodes on ramps et cetera.
As well as our alignment with them from a go to market perspective, because we are in fact are amongst our most productive channel partners as they are selling large multi million, sometimes multi hundred million dollar contracts.
Two two players that are implementing cloud those customers want an answer to what theyre going to do with their private infrastructure and how theyre going to place that proximate to the multi cloud and how it's going to perform and those are the answers that we're providing those are the questions that we're providing the answers too.
So.
I think that we are we continue to feel like that you know this this notion of.
The us sort of that this is a sort of a zero sum game between us and the Hyperscale errors. I think is just not an accurate view of the of the marketplace and so and then there are there on the broader returns.
Again, I would say yeah, our business is dramatically different on a returns basis look at our same store sales and look at the 28% cash on cash returns are those growing at 7%, which is what we have demonstrated this quarter that is a very very different story than virtually any other player in the industry.
<unk> can give you so I couldnt resist stealing that question from Keith, but Keith Please feel free to add your two cents.
Maybe I could add just a couple of points to what Charles said and which is all very accurate, but the other thing I think is very important for I think our investors to appreciate is that we were very wise and their decision on how to manage the hyperscale relationships. We have the business that Charles alluded to that sits inside of <unk>.
<unk> business and again as the Aurora on ramps the aggregation nodes.
The regional network gateways and things are very critical to running their their core infrastructure. But then there is the piece of the business that is substantial in scale and size that we always chose not to do and say the retail business and instead set up a structure, which is hyper scale business and as we have just.
Talked about our <unk> business is is humming as well given the momentum we're seeing we have 11 builds underway, where roughly 80% utilized across all of the inventory that we've not only built but our building.
Or at least I should say and so that puts us in a very good position also isolated in that we only have effectively 10% exposure on an equity basis to those investments. The other thing I think it's important to notice. These hyperscale there as they are looking for alternatives to other than self builds with others, because we can do it.
And location is cheaper and faster than they could do it themselves and I think it's a testament to the quality of our global design and construction teams.
And then last part I think is really important too to appreciate a lot of these deals are done they're priced to yield and so the price to yield based on our cost model prices aren't going down they're only going up they're longer term in nature.
To yield and I think it's a really important aspect to the contracting terms and as a result, as I said at the analyst day last year.
Charity.
The likelihood the revenues associated with Hyperscale for us represent about 1% to 2% of our topline and will represent at full maturity again, assuming we spend at $8 billion, plus 3% to 5% of our <unk>.
And so we feel there is very resilient not only to to the overall performance of our business, but there's also a resilient to two the price to yield strategy that you've deployed when you when you contract under these arrangements.
Just to be clear that that last statement in terms of percentage was relative to hybrid or to X scale our.
Our broader business with Hyperscale is meaningfully larger than that $1 billion plus business.
Outside of X scale, our run rate and growing nicely because we play a very critical role in that infrastructure in terms of what they do inside of our retail facilities around the world and because of our relationship with them on a go to market alignment perspective.
You weren't like Charles Thank you both.
Thanks, David.
[laughter].
Our next question comes from Michael Rollins with Citi. You May go ahead.
Thanks, and good afternoon, a couple of questions if I could.
First just on power if you can give a little bit more detail on what youre seeing in terms of.
Not just power cost in Europe , and other markets, where there could be issues, but also power availability and how should investors frame the risk of the supply side of the equation and then.
Just.
Switching gears over to the.
Change in the annual organic revenue growth guidance can you give us some additional details of the.
You've seen that evolution guidance over the last couple of quarters.
Where is the relative strength coming from in terms of regions or and or verticals.
Thanks, Mike.
I'll start and Keith can add on here, yes, we obviously, we're super tuned in to the overall energy situation globally.
With a particular focus on Europe , given the uncertain uncertainty created by the war in Ukraine.
And so and you're right. It's not just a cost question, which we're we're certainly tuned into but also availability. So let me let me tackle them, both a little bit not a lot new to add on the pricing power cost situation.
It is clearly going up in.
In many markets around the world and I think thats more evident and more acute in Europe .
But we are well advanced in our hedging strategy for 'twenty three already.
And we are looking at kind of where we will be on that and then how we will pass that through to our customers and we continue to feel have a high degree of confidence in our ability to both contractually and execution only to get that done.
The question of availability is a little bit of a different one and we know that that's on People's minds.
And although we don't want to minimize the issues there and there's clearly some level of risk that certain tradeoffs, you really need to made in some countries relative to how power will be allocated we continue to feel really confident in our ability to maintain availability of our services to our customers and let me. Let me tell you kind of why that is theres really.
Three different levels to the to the issue and this relates particularly to the question around natural gas potential implications to the nordstream availability and overall supply there.
So we think about it in kind of three levels. First one is will you know will the grid be sort of constrained in its ability to deliver the amount of electricity required and that's really a factor of two.
As it relates to gas a factor of one is the grid, primarily or substantially gas powered end to end too.
It is gas powered how we're how exposed is it to the potential shortfalls associated with particularly Russian supply.
And what I would tell you is that generally speaking natural gas isn't it isn't is the underlying source for just a fraction of the electricity generation across our EMEA portfolio. It ranges from almost zero in the Nordics to call it 30% of round about round there in the Netherlands U K.
Turkey and Portugal.
Then there's a second level question, though which is in markets that are dependent to some degree on natural gas how much of that is is potentially at risk for Peru in.
In terms of Russian supply and in that case.
Only the Netherlands, and Turkey have more than a 25% dependency on on Russian gas. So the composite is really the composite risk is really a product of those two things and and candidly we feel like it's very manageable.
So that's the first level is will the electricity grid really be impacted by these things and fall short of its ability to deliver the second level question is if that were to occur, which we think has some chance of occurring what will what will local governments and regulators do and how they deal with power allocations.
And on that level.
Thank God that we're confident.
That we think that those local regulators have a very deep understanding of the criticality of our facilities and that those are that our facilities are inherent to the proper functioning of the internet of the economy and candidly to society at large and we have these sort of critical infrastructure designation in these countries.
For that reason and so we feel confident that we're going to.
Continue to have.
Continuity for Equinix data centers be a keen area of focus for those folks and get the.
According the appropriate allocations accordingly, and then the last level of that question is even if all of that were to fall down we have the resilience within our facilities in the event of any interruption or intermittency and electronic electric supply and so are our facilities are designed with high degrees of redundancy and all.
Our ability to manage through intermittent or even extended periods of interruption to grid availability is very strong and our track record on delivering exceptional availability even in adverse circumstances like that is well known and I think frankly, a testament to really the professionalism and preparedness of our team so.
That's a lot, but it's you know we've been as you might imagine it is a topic of significant energy and discussion and focus for us and and all in all we feel well you'll while it is a less than ideal situation in terms of rising costs and potential risks around availability is one that we feel very well.
<unk> to manage.
And just while we're on that topic as tower, maybe before getting into the revenue question I just wanted to follow up any update on Singapore, which is a larger discussion during the <unk> earnings call.
Sure quick one Mike had no real update.
Coming in pretty much as we had expected.
And again that that exposure in terms of what we are kind of eating if you will relative to Singapore, we think will resolve itself out going into 2023.
And so no real update it has.
Some level of.
<unk> impact on our business from a margin perspective, this year, but we believe that we can resolve that going into 'twenty three.
And then just the regions and verticals of relative strength as you've increased your organic constant currency revenue growth guidance.
Yeah, I'll just I'll give you a quick two <unk> on that and then I have Keith add to it.
Look at our business is super.
Diverse in terms of in all of our regions are performing well absolutely great quarter from Europe Americas performance continues to be strong and you said you saw APAC was our fastest grower right now I'd expect that to be the case I think that the overall dynamics of Asia are going to continue to allow us to lead there but.
Amazing performance in Europe , really strong cross sectors.
Again, I think we're seeing strength in <unk>. This is really the ecosystem nature of our business, we're seeing strength both on the supply side, meaning all these service providers ramping their business to deliver services required for digital transformation and they are doing that at Equinix and then the enterprise buyer really seeing nexus as that Paul.
<unk> of.
Are you seeing equinix at this point of Nexis tied to really how does their hybrid it infrastructure and so the.
The short answer is we're seeing it cross regions and cross sectors keeps me can wait what would you want to add there, yes, microwaves, just adding a couple of points to Charles's comment.
When you look at our overall growth we telegraphed.
Above sort of analyst day guide and said that we can grow the business on a normalized and constant currency basis, so normalized take care of the acquisitions.
By 10% to 11%.
Of that 10%, 11% of growth roughly 60 basis points as power right.
Roughly 60 basis points above prior price increases that we that we sort of initiated at the beginning part of the year. So you can see that the core business is performing fund just phenomenally well and in the U S. The Americas business, specifically is performing exceedingly well and growing at 10%.
Percent. It just gives you a sense of the momentum and it's across the verticals and is in the market. So we're the way we're.
We're fueling basically the capacity you can also see that we're building in 13 or 13, new projects. The 49 projects in total and we call them major projects, there's a much more than 49 projects underway, but 49 major projects underway.
A number of them are 34 markets I think 21 countries. So we're building across the portfolio.
And just as a reminder to everybody. The majority of our growth comes from the installed base 90, plus percent of all of our bookings is coming from that installed base and so despite the fact that that.
We don't know what we're seeing that concentration decrease but the dispersion increase.
And that's just that's a phenomenal aspect of our business model in that and then the last thing I would just say our pricing has been strong you know again another quarter of net positive pricing actions notwithstanding all the comments that Charles made which is those are things we will see in the future, but the relationships of our price increase to a price decrease this quarter was <unk>.
Three two to one so for every dollar of decrease we saw a 3.2 dollars of increase so it gives you a sense of the momentum in our business and then you and you can't hide away from the fact that our digital services.
The performing <unk>.
Performing at a very high high clip and that's adding to the overall business. So it's a combination of all these things are giving you, giving you the positive momentum in revenues.
And our next question is from Jon Atkins with RBC capital markets. You May go ahead.
Thanks, very much so you've talked a lot about influences around the business around strong demands and power costs pricing increases I wonder if you could maybe flush out a few of the other kind of Hilton head.
Headwinds or tailwind so as we think about how to model. The rest of this year next year around churn and G&A and maybe any other items that you want to call out and then crystallize maybe kind of the net impact of.
How you see margins in ASF so sure.
Trending into next year. Thanks.
Sure.
Yeah, I mean, I think there is obviously a lot of levers in the business I do think churn is continues to be a generally a good news story I think we're seeing you know I think our level of sophistication, we have in sort of understanding and modeling and being able to effectively manage churn has really improved dramatically over the year.
And I think so we have we forecast virtually all you know with pretty great precision our churn on a quarter to quarter basis, and so I think we see that is actually a continued positive story and that's part of what's been contributing to the sort of record net bookings levels I think a gene area G&A is an area of <unk>.
<unk> opportunity for us in the business I think as we look at our hiring for example, I said, we're investing in the business in terms of driving quota bearing heads into the into the market given the strong demand backdrop, but we're being very prudent as it relates to adding G&A. We think that's appropriate in this environment and we're really kind of pulling the reins back.
Adding only where we fail that's absolutely critical and then also investing in some of the automation and simplification that we're looking for to drive efficiencies and in the in the business and and I think that what we hope that that will continue to do is give us progression over time towards that towards that long term target.
50%.
And I think we're already seeing some of that I think on the other side of that there are probably there are some headwinds and Reits and utilities are part of that.
The Singapore situation was fairly unique this year, we think that will resolve next year, but I do think that the the broader utility situation as we as as prices rise, even though even though I think our hedging strategy and then our pricing increases will allow us to recover that I do think that some of the increases are going to be.
A bit more zero calorie from yeah from a margin standpoint, and that is probably going to affect margins on a percentage basis.
But I think that our focus is really on driving the top line and then getting the flow through to <unk> per share.
And I think that's what you're seeing in our guide and that's what we're going to really continue to focus on.
And John Let me add a couple of comments just to Charles's.
Comments as well.
Again, the you asked about the second half of the year I think it's important to realize is number one we Q2 had some <unk>.
Recurring revenues in it and so thinking about next quarter that are.
Our nonrecurring revenues are going to go down about $10 million quarter over quarter, and then you should see them step back up in Q4. So that's one thing that's happening.
Good thing is we're making investments in the business, we're being very deliberate about.
Committing to the topline committing to the to the value on a per share basis and driving as hard as we can on that but at the same time still making decisions about investing in the business.
Charles alluded to the quota bearing heads there's development costs, another $10 million of costs in the second half of the year that werent in the first half of the year. There is some lease adjustment. So a 11 million Bucks that's going through the second half of the year related to some Hong Kong leases and then we're investing in <unk> another $15 million because we think.
That's that is money well spent getting our go to market engine in front in front of the customers as well as our teams working together.
Coming out of a post COVID-19 environment. So overall I would say youre going to continue to see momentum in the business. The guide is the guide, but we're deliberately making investments to set ourselves up for a good 2023 and the last thing I think is really really important to note book absent.
The implications of currency with.
With 60% of our revenues residing outside of the right outside of the U S. It has an impact to us, but we know that that will that will revert over some period of time and so we look at it is we're making we're putting our placing our bets on our hedging strategies. We're doing all the things that you would expect us to do to try and give you the predictability in the forward looking.
Visibility, but but by the same token absent what we just we reported our revenues we just hit it this quarter for $100 million because of the weakness in the north and the non U S currencies when that goes back to a more traditional levels, where other markets start to increase their interest rates.
Similar to what the U S. As is doing here to stave off inflation.
See us recover that type of value.
And the implications on revenues of $100 million EBITDA is $50 million in as opposed to $42 million. You had 46 cents. Just this quarter alone were impacting the year's guidance by 46 cents, just because of FX and most of that is being recovered by better business performance.
And so theres a number of things that we'll continue to talk about in Q3 Q4, and certainly as we go as we spend time with you in February on the 2023 guidance on these matters.
Thanks, that's very helpful X scale had a strong leasing quarter are you pricing in line with the market or are you seeing a slightly different trends.
Yes, I mean, I think that you know as we've said you know X scale tends to be one where it's probably a narrower band.
And pricing and so and it really pricing I think Japan is.
Is dictated substantially more by supply demand characteristics in any given market.
And so I would say that we we feel great about our ability to deliver a fantastic offering to those customers.
But I'd say, it's at prices more.
It's a good market and X scale, I think is going to price in a narrower band.
And our next question is from Frank Louthan with Raymond James You May go ahead.
Great. Thank you how many new logos did you sign in the quarter and how has that been trending in the last few quarters.
And in particular with sort of verticals are you seeing the most strength with.
Thank you Rob that overall, there's probably roughly 300, new logos in the quarter I think the exact number was 286.
And so.
As I said, we're seeing it look a lot of the growth comes from the installed base as you understood as you understand but we're seeing it across the portfolio, we talked about our content and digital media.
The cloud.
Services, it's really across the board and it goes back to Charles's comments.
As companies start to progress with their digital transformation.
All in all sorts of past lead to Equinix.
From our perspective, Theres, not anything and everything that you sort of look at when you have an opportunity to either we have won it or we are or we actually have it within our pipeline and so I would say that it's hard to sort of pinpoint one thing because.
We have the capacity we have the ability to sell in that market and one of my prepared comments was in the emerging markets. What we call the growth in emerging markets out of Europe , we're seeing tremendous opportunity there.
Again, a high performing quarter for us and these are sort of the if you will the secondary markets to our majors are majors, where we do $100 million or more so it's really a right across the board both from a from a geographic perspective from a vertical perspective, and then certainly from a customer perspective, and it's the combination of all those that make us feel very rare.
Good about what we're seeing in our pipeline and the amount of activity. We saw this past really this past quarter, but we've had growth over the last eight quarters in a row Internet bookings line. So it tells you about the momentum and this quarter was an off the charts when last quarter was fantastic. This quarter was was better than fantastic.
I had two more pieces of color around new logos Frank.
One.
I would say if you look at the non financial metrics.
We're in a relatively tight band on that.
But I think one thing that gets lost in that a bit is the number of customers that come to us through channel partners.
And so those don't show up in that because we actually booked out through the channel partner and so that.
That really masks I think some of the momentum we'd like to see particularly in the broader enterprise market, where we're relying on some of our key partners around the world.
Whether that would be an AT&T or an orange Telstra.
Telstra or whatever Oh.
Variety of types of partners of ours that are bringing those customers to the table and so so I think that's a that's something that's kind of loss there, but an area where given the strength of our channel I think that's continuing to add significantly and then the other thing I would say is our success with what we refer to as star targets These sort of.
The global 2000 type companies that were really focused on good momentum. There in fact, we had a number of global 2000 additions this quarter.
And I think the team is just doing a fantastic job of helping those large complex global multinationals really think through their strategies on the enterprise side and then on the service provider side. Virtually every enterprise is yeah. There are a lot of them are becoming service providers and we're helping them on that journey.
And because everything is going as a service and so on so I think we're seeing some real real strength on that side as well.
Alright, great the gift that keeps on giving.
Okay.
Thank you. This concludes our Q2 conference call.
Goodbye.
And this concludes today's conference. Thank you for participating you may disconnect at this time.