Q3 2022 Cyxtera Technologies Inc Earnings Call
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I would now like to hand, the call over to hoist Kwang Epica senior director of finance to begin the <unk>. Please go ahead.
Thank you David Good morning, and welcome to our third quarter 2022 earnings Conference call on today's call. We will refer to the materials available on our Investor Relations website, IR Dot <unk> dot com.
We are joined here today by Nelson Fonseca, President and CEO and Carlos Augusta, Our CFO . After 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 materials.
Safe Harbor language on slide two of our presentation and our SEC filings for a discussion of the major risk factors that could cause our actual actual results to differ from those in our forward looking statements.
In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information.
With that I will turn the call over to Nelson.
Thank you.
Good morning, everyone and thank you for joining us for our third quarter 2022 earnings call.
We have a lot to cover on today's call. So let's get started.
The exterior completed another solid quarter as we continued to execute on our 2022 priorities.
<unk> for our products and services remained robust with annualized core bookings increasing 20% sequentially.
And delivering our 11th consecutive quarter of positive net bookings.
This solid sales performance is a result of our unique global platform of highly interconnected data centers, our innovative approach to cloud co location or.
Our strong and diversified customer base, and our unwavering focus on providing value to customers.
Evidence of this sales momentum can be seen throughout many areas of the company.
We had another strong quarter of channel sales in new logo bookings Q.
Q3 channel performance was ahead of our expectations more than doubling year over year and growing 9% sequentially.
The channel accounted for nearly 25% of our core bookings in the quarter.
Representing the second best channel quarter in company history.
In addition, the strength of our ecosystem continues to attract new customers to our global platform.
Adding 32, new logos in Q3, a 33% increase from the prior quarter.
The strength of our ecosystem is a strategic priority at <unk> and we continue to focus on innovative solutions that help our customers transform.
<unk> and rapidly scaled their digital business.
This focus has led to a continued increase in the adoption of our digital exchange platform.
This quarter, we closed our two largest digital exchange deals in company history.
Both deals supported digital transformation initiatives with a combination of enterprise bare metal smart cabs, and interconnection solutions and we will provide both customers the financial and operational flexibility of cloud with the control performance and security of enterprise grade Colocation and dedicated infrastructure.
Sure.
I am also proud to say we have received two new patents on our digital exchange network fabric due to our continued focus on innovation and providing our customers with intelligently automated deeply connected and cloud like solutions in the data center.
The first patent the places <unk> IP connect service, which enables organizations to instantly provision and dynamically adjust internet connectivity via self service through our API or customer portal.
The second patent covers the digital exchange network fabric itself and the ability for customers to not only self manage existing interconnectivity, but to also create new on demand connections to their various hybrid it environments. Other customers <unk> has delivered services or partner delivered services via the <unk>.
Marketplace.
The results of our differentiated offerings and strong sales momentum can be seen in our continued revenue growth.
During the quarter total revenue increased by $9 5 million or five 4% year over year.
As you know due to the global scale of our data center footprint the strengthening of the U S. Dollar weighs on our reported financials, excluding the impact of foreign exchange total revenue increased by $14 1 million or 8% year over year.
Core revenue increased by $11 8 million or seven 3% year over year, while interconnection revenue grew to nearly 12% of total revenue.
The overall pricing environment remained strong across the board.
Our stabilized occupancy increased 480 basis points year over year.
And we saw an increase in our revenue per cabinet.
All of these indicators highlight the quality of our data center platform and our strong momentum in the market.
Transaction adjusted EBITDA in the quarter grew 0.8% year over year.
Like revenue transaction adjusted EBITDA was negatively impacted by FX on.
On a constant currency basis, our transaction adjusted EBITDA grew nearly 5% year over year.
As we anticipated and previously discussed utility costs continue to rise, but the power pass through process that we put in place is yielding the intended results Carlos who will discuss power costs in greater detail later on the call.
As a result of our strong Q3 performance and go to market momentum and despite the expectation for continued FX volatility and rising utility costs.
<unk>, our 2022 guidance and expect revenue growth to be lower than 8% with transaction adjusted EBITDA growth of 3% to 8%.
Before I pass the call on the <unk> I would like to briefly address a few additional topics.
First we continue to make progress on our Silicon Valley expansion and expect contribution from our <unk> project in Q4 of this year.
Second we previously announced the board approval of our REIT conversion and we continue to make progress on that initiative.
And third we remain fully committed to strong governance, and our ESG objectives as an organization.
Want to empower customers and partners to build sustainable businesses, minimizing our own environmental footprint, fostering diverse and connected communities and increasing trust and transparency in.
In Q3, we released our inaugural ESG Factsheet, which provides information on our initiatives and impact across environmental social and governance matters. We also implemented our supplier and business partner code of conduct this quarter.
In summary, our Q2 results reflect the robust demand for our global platform of highly interconnected data centers and our innovative approach to cloud like Colocation. We remain committed to the long term success of <unk> et cetera, and are confident that our current trajectory positions us well to achieve our long term objectives with that I will turn the call over to Carlos.
Thank you Nelson good morning, everyone and thank you for joining us for our third quarter 2022 earnings call.
Is there a theme once again delivered solid financial results in the third quarter as we move through the second half of the year.
Fundamentals of our business remain healthy, including strong constant currency revenue growth.
Low churn rates and resilient demand across our key markets.
We believe this positive momentum.
With the strong built within our industry position us well to mitigate some of the challenging macroeconomic trends that were experiencing including increasing utility costs higher interest rates and FX volatility.
Going a little deeper into the financials now, let's turn to slide nine.
Okay.
You can see total revenue for the quarter increased by $9 5 million or five 4% year over year to $186 6 million.
Recurring revenue increased by $8 8 million or five 2% year over year to $171 million, reflecting robust demand and continued growth of our installed customer base.
Speaker 1: 2022 are on the call.
With that in mind Q3, interconnection revenue represented almost 12% of total revenue for the quarter and grew 12% year over year.
Speaker 1: Exterra's team once again delivered solid financial results in the third quarter as we move through the second half of the year. The fundamentals of our business remain healthy, including strong constant currency revenue growth, low churn rates, and resilient demand across our key markets. We believe this positive momentum, along with the strong buildings in our industry, position as well to mitigate some of the challenging macroeconomic trends that we're experiencing, including increasing utility costs, higher interest rates, and effects of our ability. Going a little deeper into the financials now, let's turn to slide nine. You can see total revenue for the quarter increased by $9.5 million, or 5.4% year over year, to $186.6 million, while recurrent revenue increased by $8.8 million, or 5.2% year over year, to $178.1 million, reflecting robust demand and continued growth of our installed customer base. With that in mind, Q3 interconnection revenue represented almost 12% of total revenue for the quarter and grew 12% year over year. Growth was primarily driven by incremental demand and further pricing power in the markets we operate. As you can see in slide 13, we continue to experience and elevate the level of FX volatility, with the stronger US dollar reducing total revenue by more than 2.5 points in Q3. Remember fluctuations in foreign currency do not have an impact in our cash flow. The impact is just translational. Average monthly core churn of 0.8% for the third quarter was 10 basis points – well, the 10 basis points increased sequentially and year over year respected. Year-to-date core churn is 0.8%.
Growth was primarily driven by incremental demand and further pricing power in the markets we operate.
As you can see on slide 13, we continue to experience an elevated level of FX volatility with.
With the stronger U S dollar, reducing total revenue by more than two five points in Q3.
Remember fluctuations in foreign currency did not have an impact on our cash flow the impact is just translational.
Average monthly core churn of <unk>, 8% for the third quarter was 10 basis points, while the 10 basis point increase sequentially and year over year, respectively.
Year to date core churn is Europe , 8%.
We continue to expect these low levels of churn given the strength of our diversified customer base and the mission critical nature of the deployments across our platform.
We also have minimal exposure to the SMB market with an overwhelming majority of our customers considered large enterprises, which then stability to our portfolio.
Sure motives are in line with historical trends and certain predominantly around consolidation driven by M&A among our customers.
Okay.
Lastly, we continue to see very positive demand dynamics, and Singapore, while supply remains constrained across the market.
To better serve our customers in this market. We're in the process of moving customers from our <unk> data center in Singapore to our larger sites in Q4.
For reference team wanted to approximately five megawatts, while seeing too it's Tim minerals. This added 10 basis points to 10 in Q3, it would have been in Europe , 7% without it.
Given the positive momentum in net bookings that Nelson mentioned, we saw stabilized occupancy expanded 480 basis points year over year to $73 seven.
Speaker 1: We continue to expect these low levels of churn given the strength of a diversified customer base and the mission critical nature of the deployments across our platform. We also have minimal exposure to the SMB market with an overwhelming majority of our customers considered large enterprises which lends stability to our portfolio. Churn motives are in line with historical trends and certainly predominantly around consolidation driven by M&A and mobile platforms.
I would point out that occupancy expanding even more an additional 180 basis points compared to last year when adjusted for customer deals that closed in the last days of the quarter that are not reflected in our Q3 occupancy numbers.
Sequentially occupancy declined 50 basis points, but increased 130 basis points when adjusted.
Core revenue as shown on slide 10 increased by $11 8 million or seven 3% year over year to $172 8 million.
Speaker 1: Lastly, we continue to see very positive demand dynamics in Singapore while supply remains constrained across the market. Thank you.
Speaker 1: To better serve our customers in this market, we're in the process of moving customers from our SYNC1 data center in Singapore to our larger site SYNC2. For reference, SYNC1 is approximately 5 megawatts, while SYNC2 is 10 megawatts. This added 10 basis points to turn in Q3. It would have been 0.7% without it.
Looking at Slide 11, gross margin was 46, 2% a year over year decrease of 100 basis points, primarily attributable to higher power cost, which I will address in a few months.
Transaction, adjusted EBITDA increased by zero point $4 million or 0.8% year over year to $58 five minutes.
Speaker 1: Given the positive momentum in the book instead of mentioned, we saw stabilized occupancy expand 480 basis points year over year to 73.7.
<unk> adjusted EBITDA margin of 31, 4% declined by approximately 100 basis 140 basis points year over year, primarily reflecting the increased power costs.
Speaker 1: I would point out that occupancy expanded even more, an additional 180 basis points compared to last year, when adjusted for customer deals that closed in the last days of the quarter that are not reflected in the Q3 occupancy numbers.
On a constant currency basis transaction, adjusted EBITDA increased by $2 8 million or four 9% year over year.
As detailed on slide 15 core MLR. Excluding effects include increased by four 1%, sorry, $4 1 million or equal to 4% to $58 8 million $52 million.
Speaker 1: So, consciously, Okpebersey declined 50 basis points but increased 130 basis points when adjusted.
Speaker 1: Our revenue, as shown on slide 10, increased by 11.8 million, or 7.3% year-over-year, to 172.8 million.
Primarily due to net installations.
Our MMR per cabinet increased 1% year over year and 3% sequentially.
Speaker 1: Looking at slide 11, gross margin was 46.2%, a year over year decrease of 100 basis points.
As contracted ramp start to flow through the calculation and price increases have been additive to growth.
Speaker 1: primarily attributable to higher power costs, which I will address in a few moments.
As I mentioned previously our cost of revenue has been negatively impacted by the increased power cost the data center industry has been faced with.
Speaker 1: Transaction adjusted EBITDA increased by 0.4 million or 0.8% year over year to 58.5 million.
The increase in power costs, we have experienced through the first nine months of the year is expected to continue to wait on all of our data centers across the industry.
Speaker 1: Transaction adjusted EBITDA margin of 31.4% declined by approximately 140 basis points year over year, primarily reflecting the increased bar cost.
We have the contractual flexibility to vastly increases embark cost, but we can see that a buyer pass through activity very carefully.
Speaker 1: On a constant currency basis, transaction adjusted EVDAT increased by 2.8 million or 4.9% year earlier.
Because we understand that this is the real impact to our customers and for US. This is a cost recovery exercise, which does not create incremental profitability for <unk>.
Speaker 1: As detailed on slide 15, core MRR, excluding effects, increased by 4.1 percent, sorry, 4.1 million or 8.4 percent to 52.8 million.
While we have established in past recovery process that successfully passes through over 90% of the increased cost to our customers. There is an approximate 90 day lag for this process.
Speaker 1: primarily due to net installations.
As a reminder, further utility cost increase that are not recovered in the fiscal year are expected to be recovered at a 90% plus percent that came in in 2023.
Speaker 1: Our MRR per cabinet increased 1% year-over-year and 3% sequentially. As contracted ramps start to flow through the calculation and price increases have been additive to growth.
As you can see on slide 17, approximately 45% of our total power costs in Q3 was in domestic deregulated markets, which have experienced a 23% increase year over year.
Speaker 1: As I mentioned previously, our cost of revenue has been negatively impacted by the increased power cost. The data in the industry has been facbook.
Speaker 1: The increase in power costs we have experienced at the first time month of the year is expected to continue to weigh on all of our data centers across the industry.
While our exposure to international markets is more limited our power cost in those markets have also increased 18% year over year.
Speaker 1: We have the contractual flexibility to pass through increases in power costs, but we consider the power pass productivity very carefully.
We have mitigated a portion of the risk associated with increased utility costs through greater use of forward purchases.
Speaker 1: Because we understand that this is a real impact to our customers and for us, this is a cost recovery exercise.
In our de regulated markets as well as some international markets, we have address approximately 50%.
Speaker 1: Which does not create incremental profitability for six Tera.
Which has helped us to offset some of the dramatic increases impacting the broader data center industry.
Speaker 1: While we have established a cost recovery process that successfully passes through over 90% of the increased cost to our customers, there is an approximate 90 -day lab for this process.
On slide 19, we have provided a breakdown of our capital investments overall capex is up.
The back of our higher expansion activity around key markets, particularly cynical Matt.
Speaker 1: As a reminder, further D the cost increase that are not recovered in the fiscal year are expected to be recovered at a 90% plus percent payment into a dividcent decree.
Maintenance Capex came in at one 8% of revenue in Q3.
Down 140 basis points year over year.
Speaker 1: As you can feel, like 17, approximately 45% of our total power cost in Q3 was in domestic due regulated markets, which have experienced a 23% increase year-over-year.
Year to date maintenance Capex is two 6% of revenue generally in line with our long term guidance of approximately 2%.
During the remainder of 2022, we continue to expect growth capex to increase significantly from the year ago levels due to ongoing construction at <unk> in Silicon Valley and can meet the strong demand currently reflected in our backlog and near term sell spot.
Speaker 1: While our exposure to international markets is more limited, our power costs in those markets have also increased 18% year-over-year.
Speaker 1: We have mitigated a portion of the risk associated with the quasitutility costs through greater use of forward purchases.
Now turning to slide 20 for an update on our balance sheet and capital markets.
Speaker 1: In our deregulated markets, as well as some international markets. We have addressed approximately 50%.
We continue to improve our leverage position during Q3 with a net financial leverage declining 10 basis points year over year, and 20 basis points sequentially to three six times on a lease adjusted basis, our leverage held steady at six point to tax.
Speaker 1: Which has helped us to offfect some of the dromagic increases impacting the broader data cent, the industry.
Speaker 1: On Slide 19, we have provided a breion of our capital investments.
Speaker 1: Overall CapEx is up on the back of our higher expansion activity around Y markets, particularly silicical value.
Turning to the balance sheet as of September 30, our contractual debt outstanding net of cash and cash equivalents was $1 74 billion.
Speaker 1: Maintenance CapEx came in a 2% of revenue Q3 down 140 basis PO year-over-year.
Our financial net debt, excluding all capital leases was 820 billion.
At the end of Q3, <unk> had liquidity of 159 million, including cash and cash equivalent and borrowings available under our revolver.
Speaker 1: Year-to-date maintenance comppex is 3% of revenue generally, in line with our noring guidance of approximately 3%.
Okay.
Speaker 1: During the remainder of twentthousand 2: two we continue to expect growth CapEx to increase significantly for the year ago levels due to ongoing construction as cessfour four B in Silicon Valley and com, mmeet, the strong demand currently reflecting in our backlog and near-term salessideilees.
Although our current capital stack <unk>, China and floating rate debt. We have managed facilities had been well and have insulated our exposure through our language selection in the second half of the year.
During the quarter, we closed an accounts receivable securitization facility of $37 $5 million with PNC Bank.
Speaker 1: Now turning to Slide 24 apes on our balance sheet and capital markets you.
<unk> for a term of three years.
Speaker 1: We continue to improve our leverage position during Q3, with a net financial leverage declining 10 basis points year-over-year and 20 basis points ofsequentions to three point six stops.
This new facility is another important component of our liquidity and financing strategy and we are very pleased with the terms as it provides us with greater flexibility and a low cost sources Kathryn.
Speaker 1: On a lease adjusted basis. Our leverage held steady at six qupoint two tax.
As it relates to our successful equipments and leaseback strategy in Q3, we completed three transactions with cash proceeds from the sale of critical power, including equipment of approximately 20 minutes.
Speaker 1: Turning to the balance sheet, as of September thirtieth, our contractual deata standing net of cash and cash equivalents was one point and seventy-four billion.
Speaker 1: For our financial met, excluding all capital leases, was 820 bill.
The term lengths where five years.
The weighted average interest rate of 753%.
Speaker 1: At the end of Q3 six ter have liquidity of a home and 59 million including cash and cash equivalents and borrowings available under our resu.
Our cost of debt was 100 to 100 basis points lower than comprehensive similar credit rating, who are consummate the sale and leaseback of the time due to the equipment lending markets appetite for the data center space.
Speaker 2: Thank you.
Speaker 1: Although our current capital sectorments is entireally included rate debt, we have managed the foodity rate that well and have insulated our exposure through our LIBOR selection in the second half of the year.
Currently of the underlying assets to our delivery and the overall equipment in these community familiarity with <unk> and our continued ability to service our debt.
Speaker 1: During the quarter we closed an account receivable securitization facility of 37.5 million with PMT bank.
Key inputs in deposition.
Since inception, we have financed more than $240 million of equipment.
Speaker 1: The maion for internal three years.
Speaker 1: This new facility is another important component of all liquidity and financing strategy and we are very pleased with the terms, as it provides us with greater flexibility and the low-cost source capital.
Equipment financing is a foundational element of our overall liquidity strategy as it enabled us to preserve working capital and improve cash flow.
As it relates to our capital structure and theater, we've been active opportunities. We believe we have enough runway ahead of us with our term loan maturing in 2024.
Speaker 1: As did relate to our successful equipment sil aseback strategy. In Q3 we completed three transactions with cash proces from the sale of critical power and cooling equipment of approximately twenty million.
We continue to evaluate all possible avenues that make the most sense to support our business model and growth plans in the future.
Speaker 1: The term lengths were five years and the weighted average interest rate were seven point 5, three percent.
As Nelson mentioned, we're pleased to affirm our 2022 guidance for revenue transaction adjusted EBITDA and Capex.
Speaker 1: Our cost of that was 100 to 100, fifty Debasis points lower than companies of similar credit rating who were contoating cll leasethat's at the time due to the equipment lending market apappetite for the data center space.
Despite that.
Predictable macroeconomic environment and the very volatile capital markets. We continue to believe that the fundamentals of the industry and <unk> remained solid.
Speaker 1: The criticality of the underlying assets, store delivery and the overall equipment in this community. familarity with sutera and our continue the ability to service our debt were the key input in that position.
And we'll continue to support the strong performance of the business in the future.
With that thank you all for your continued support and for joining us today to discuss our third quarter results.
Operator, please open the line for questions.
Speaker 1: Since inception, we have financed more than $240 million of equipment.
Speaker 1: Equipment financing is a foundational element of our overall liquidity strategy that it enable us to preserve working capital and improve cash.
Thank you if anyone would like to register a question. Please press star followed by one on your telephone keypad.
Speaker 1: As it relates to our capital structure of futer IC national opportunities. We believe we have enough runway ahead of us, with our turn long maturing in 2020. -four.
If you would like to withdraw your question. Please press star followed by <unk> <unk>.
Speaker 1: We continue to evaluate all possible avenues that make the more sense to support our business model and growth plans in the future.
When preparing to ask a question. Please ensure you Amit <unk>.
So, but by one no telephone keypad to catch that question.
Speaker 1: As nelton mentioned, we are pleased to affer our twentfic twentty two guyance for revenue as action, adjusted EBITDA and CapEx.
Our first question is from Frank Louthan from Raymond James Your line is open. Please go ahead.
Speaker 1: Despite the unpredictable macroeconamic environment and this very volatile capital markets, we continue to believe that the fundamentals of the industryriateic eror remains soft.
Great. Thank you can you give us a little bit more color on the shifts and the available space, particularly what was going on with Singapore and is that going to bounce back up as you move to Singapore to is it some sort of a trend and then can you.
Speaker 1: And we've continue to support the strong performance of the business in the future.
Speaker 1: With that. Thank you all for you continvie the Board and we're joining out today to discussmer third quarter results.
You give us a status update on the status of the new Santa Clara facility and when do you think youll be in that I apologize if you addressed that on the call, but I missed it. Thank you.
Speaker 1: Operator please open the line for questions.
Hey, Frank.
Thanks for the questions I think Singapore, I think is a unique.
Speaker 3: Thank you. If anyone would like to register a question, please press star followed by one on your telephone you pad. If you would like to withdraw your question, please press starf, followed by two.
Situation.
Where we felt it was best to move the customers that we've had in that space to Singapore to its a larger.
Speaker 3: When preparing to ask your question. Please ensure you are muted likeally, So that Star below by one no TE lephone you ve hadad to register reions.
The larger facility, so I wouldn't read into that in any sort of.
Trend the real takeaway there is because of that move there was an increase in churn in this quarter that without that it would've been at sort of a one 7%, which I think highlights.
Speaker 3: Our first question is from Frank lutherthan, from Raymond James. Frank in is open. Please go ahead.
Well, we're doing with our customers.
The address of <unk> B briefly in my comments and we do expect that to start contributing to our results in the fourth quarter.
Speaker 4: Great Thank you. Can you give us a little bit more color on the shifts in the available space, particularly what was going with Singapore, and is that going to bounce back up as you move to Singapore too and into some sort of a trend? And then can you give us a status update on the status of the new Santa Clara facility and when you think you'll be in? I apologize if you address it on the call and I miss it. Thank you.
Alright, great. Thank you and then just a quick follow up anything from the SEC or IRS that gives you any any concerns on the REIT conversion being delayed or is everything look like as we go from here.
No look we're working through the process, we don't have any concerns at the moment and so we're as I mentioned in my remarks, just working through.
Speaker 5: frankme, thanks for the questions. I think Singapore think is a unique situationwhere we felt it it was best to move the customers that we've had in that space to Singapore two it's a larger, a larger facility So I wouldn't read it to that in any sort of trend. The real takeaway there is because of that move there was an increase in churn in this quarter that without that it would have been at zero point sevenm percent, which I think high.
The process as it's laid out and no concerns at this point.
Alright, great. Thank you very much.
Thank you our.
Our next question is from John Hodulik from UBS. John Your line is open. Please go ahead.
Great. Thanks.
Thanks for all the information on the on the higher power costs.
And I see that you.
You called out that.
It hit the margins for about 100 basis points this quarter.
Can you talk about how you expect that to play out throughout the rest of the year and into next year I mean.
Should we should we obviously you guys have the ability to raise prices, but given the cadence and the delay you said and recouping those prices do you expect additional pressure on our gross margin as we look into 'twenty. Three that's number one and then any comments on the pricing backdrop and number of your competitors have said that given supply constraints in the industry outside of the power issues.
Speaker 5: bitwe're working through the process. We don't have any concerns at the moment, and so we're, as I mentioned in my remarks, just working through the process as it's laid out and no concerns at this point.
On the pricing environment has improved dramatically over the last 12 months, just any anything you're seeing on that front would be great. Thanks.
Speaker 4: Great Thank you very much.
Hey, John Let me address the pricing and then I'll pass it onto cargos for a little bit more color on the power I think the pricing environment.
Speaker 3: Thank you. Our next question is from John hodulet, from ub. John , your line is open. Please go ahead.
Solid for US right now, but I think it is solid.
Speaker 5: okgreat, and thanks for all the information on the higher powerareel cost and I see that you called out that it. It hit the margins for about 100 basis points this quarter. Can you talk about how you expect that to play out throughout the rest of the year and into next year? I mean, should we, should we? Obviously you guys have the ability to raise prices But given the cadence and the delays said, recouping those prices, do you expect?
Across the industry.
We have.
Very good available inventory across our platform, which puts us in a great position to take advantage of that opportunity. So we're seeing very similar.
Very similar strong pricing environment across the board Carlson know if you want to address.
Yeah, I think John is going to depend a little bit on where do we see some stabilization on on pricing of energy, Brian I think.
Speaker 5: Additional pressure on growross margins. As we look in the 23, that's number one And then any comment on the pricing backdrop. The number of your competitors have said that they're given supply constraints in the industry. Outside of the power issues, the pricing environment has improved dramatically over the last 12 months. Anything you're sitting on that front would be great.
Pricing is not linear up or down and so youre going to see some volatility across quarters typically Q3 is.
<unk> is a tougher quarter, because thats, where the bulk of the summer tends to fall from a financial perspective, I would expect some moderation in Q4, which allow us which will allow us to catch.
Talk a little bit so I would expect Q4 to be more stable, but obviously, we don't have a crystal ball as to what's going to happen with energy prices to the extent that they keep going up you're going to see some sequential pressure on gross margin percentage gross.
Speaker 5: H on. Let me address the pricing and then I'll pass it on ccarals for a little bit more color on the power. Yes, I think the pricing environment.
Speaker 5: It's solid for us right now. I think it's solid across the industry. You know we have very good available inventory across our platform, which puts us in a great position to take advantage of that opportunity. So we're seeing very similar, a very similar strong pricing environment across the Board. carblon, if you want to address- yeah, I think John is going to depend a little bit. Where do we see some stabilization on, on pricing of energy right, I think?
Gross margin dollars, where we're cutting up to the cost and so I feel better on that front, but you might see some pressure on gross margin percentage.
Okay.
Got it thank you.
Thank you.
Next question is from Michael Rollins from Citi, Greg Michael Your line is open. Please go ahead.
Thanks, and good morning.
Speaker 1: Pricing is not linear up or down, and so some going to see some volatility across quarters, typically Q3, in a tougher quarter, because that's where the bulk of the summer tends to fall. From a financial perspective, would expect some moderation in Q4 which allows, which will allow us to cut up a little bit. So I would expect Q4 to be more stable, but obviously we don't have a crystal ball as to what's going to happen with energy prices, to the tent that they keep going up.
If I could start with a focus on the revenue guidance. So the unchanged guidance midpoint, 6% growth year over year from 'twenty. One can you unpack for like the full year guidance impacts like what the headwind is from currency for the full year.
The potential benefits that youre getting from the energy pass throughs.
And then you can help you use those numbers to frame how the organic performance has evolved over the course of the year at the at the midpoint of the range. Thanks.
Speaker 1: You're going to see some sequential pressure on gross margin percentage. Gross margin dollars: we're cuting up to the cost and so I feel better on that front, but you might see some pressure on gross margin percentage.
Hey, Mike So let me address the big picture, what I see from our revenue.
I think the.
The takeaway overall is that we're seeing kind of a strong demand and were hitting those revenue numbers. Despite.
Speaker 3: Thank you. Our next question is from Michael vonens, from citigrp. Michael, your line is open. Please go ahead.
Some of the challenges from FX and so from our perspective, we're seeing the strong bookings momentum the lower churn and that translates into into the revenue growth and so if you take into account. The fact that our revenue has been impacted significantly from an FX perspective.
Speaker 6: Thanks and good morning.
Speaker 6: If I could start with a focus on the revenue guidance. So the unchanged guidance midpoint 6% growth year over year from 21. Can you unpack for like the full year guidance impact like what the headwind is from currency for the full year? Any potential benefits that you're getting from the energy pass throughs?
The fact that we can continue.
To be at the midpoint of that guidance speaks to the strength of Av.
We are from a revenue perspective, I think we put a slide in there on our constant currency analysis of how our revenue growth would have been.
Speaker 6: And then you can help use those numbers to frame how the organic performance has evolved over the course of the year at the midpoint of the range. Thanks.
8% year over year with constant currency and I think thats the.
That's the best indicator of how the business is performing at this stage Carl I don't know if theres anything other than that.
Speaker 5: Hey Mike, so let me I guess address a big picture what I see from a revenue perspective. I think the takeaway overall is that we're seeing kind of strong demand and we're hitting those revenue numbers despite some of the challenges from FX. And so you know from our perspective we're seeing the strong bookings momentum, the lower turn, and that translates into the revenue growth. And so if you take into account the fact that
Mike what I would say, 8% within the third quarter, 7% year over year growth year to date.
On a constant currency basis.
There's no question that particularly in Q3.
FX had a very significant move.
In the market, probably even bigger than what we saw in Q2 weeks.
We expect to see some moderation and so you are right is we didn't change guidance because.
The core performance of the business, it's very robust and it's a combination off.
Higher demand.
Better occupancy.
And yes at the topline you are having that impact of <unk>.
Power pass throughs, which is also helping us.
Get a bigger revenue number but I would say powered buses is not the only reason why we're maintaining guidance or we feel that the bid.
Speaker 5: that's the best indicator of how the business is performing at this stage. Carlos, I don't know if there's anything other you can add. And so Mike, what I would say is, you know, 8% was in the third quarter, 7% year-over-year growth year-to-date on a custom currency basis.
This is performing at the right level, it's really that increase in occupancy.
And market dynamics that we're seeing that really sustain that number.
And then just one other question if I could so you mentioned.
That utilization exiting the quarter.
Speaker 1: There's no question that particularly in Q3, FX had a very significant move in the market, probably even bigger than what we saw in Q2.
<unk> for some deals at the very end of the quarter.
Would be about I think 75, 5%.
If you make those adjustments and just curious as you're looking at where the utilization sits how is that relative to the original multiyear plan and how does that utilization level relate to what the financial expectations would be.
Speaker 1: we expect to see some moderation. And so you're right is we didn't change guidance because.
Speaker 1: The core performance of the business, it's very robust and it's a combination of higher demand, better occupancy and yes, at the top line you're having that impact of power pass-throughs, which is also helping us get a bigger revenue number. But I would say power pass-throughs is not the only reason why we're maintaining guidance or we feel that the business is performing at the right level. It's really that increase in occupancy and
That plan when you arrived at this type of utilization level.
Thanks, Mike So, let's talk a little bit about how utilization kind of translates into revenue. So the way we.
The way. This works is once we sell a deal Bryan. It takes a couple of days, that's why Carlos mentioned that in the last couple of days of the quarter, which is great. But we finished the quarter strong, but we had some deals that would've increased occupancy further if they would've been closed a week before and Thats just the nature of our of our automated system.
Speaker 1: And market dynamics that we're seeing that reallysustain that number.
Speaker 6: And just one other question if I could. So you mentioned.
Speaker 6: That the utilization exiting the quarter, if adjusting for some deals at the very end of the quarter, would be about, I think, seventy-five point point a percent.
But keep in mind that once we have it in occupancy once we sell the deal it doesn't immediately become revenue it becomes backlog and so we have.
Speaker 6: if you make those adjustments. Just curious, as you're looking at where the utilization sits, how is that relative to the original multi-year plan and how does that utilization level relate to what the financial expectations would be in that plan when you arrived at this type of utilization level?
All of that revenue that that's coming from that increased occupancy is not on the books, yet and doesn't go onto the books until it gets deployed in our standard waterfall. So I think that's that's point number one and I think the way we view. It is we're right on track with what we've said previously on the expectations from Red.
Speaker 5: Thanks, Mike. So let's talk a little bit about how utilization kind of translates into revenue. So the way this works is once we sell a deal, right, it takes a couple of days. That's why Carlos mentioned that in the last couple of days of the quarter, which is great, right, we finished the quarter strong, but we had some deals that would have increased occupancy further if they would have been closed a week before. And that's just the nature of our automated sales.
<unk> financial performance from that occupancy rate, we wanted to get to that 80% level and we do continue to work towards that towards that goal. The only pressure on EBITDA from that original plan is obviously FX has pressure and power costs are is pressure. So you see that impacting EBITDA.
But if you take a step back and look at what we were what we thought about from a long term.
<unk> when we launched the company and where we are on the current occupancy rates, we feel good about that performance Carlos anything that you want that you want to add there.
Speaker 5: Systems But keep in mind that once we have it in occupancy, once we sell the deal, it doesn't immediately become revenue, it becomes backlog, and so we have.
No I wouldn't say that versus the original plan I'd say, we're slightly ahead of plan so to speak but without contemplating.
Speaker 5: But all of that revenue that's coming from that increased occupancy is not on the books yet and doesn't go onto the books until it gets deployed in our standard waterfall. So I think that's point number one. And I think the way we view it is we're right on track with what we've said previously on the expectations from revenue and financial performance from that occupancy, right? We wanted to get to that 80% level and we continue to work towards that goal.
The macro environment and as we said before FX and empower our things that are dragging that down. So is the balance we're probably on target with a few things going better and a few things going not as well as we thought.
Thank you.
Yeah.
The only pressure on EBITDA from that original plan is obviously effects, is pressure, and power costs are, is pressure. So you see that impacting EBITDA somewhat. But if you take a step back and look at what we were, what we thought about from a long term vision when we launched the company and where we are on the current occupancy rates, we feel good about that performance. Carlos, anything that you want to add there?
Thank you. Our next question is from Jonathan Atkin from RBC capital markets.
Jonathan Your line is open. Please go ahead.
Thanks, I was wondering if you could talk a little bit about your capital priorities for next year, what types of projects that you anticipate pursuing based on.
No, I would say that versus the original plan, I'd say we're slightly ahead of plan, so to speak. Yes. But without contemplating the macro environment, and as we said before, effects and power are things that are driving that down. So in the balance, we're probably on target with a few things going better and a few things going not as well as we thought. Thank you.
Some projects underway based on demand that youre seeing from customers and then secondly.
How you would propose maybe the puts and takes around different financing options to.
To fund the Capex given some of your debt.
The patients correct liquidity.
Thank you.
So Jonathan let me start and I'll pass it onto cargos from additional for some additional color as we've been pretty consistent since day. One our expansion is really focused on those key markets.
Silicon Valley, where were finishing up a sofa or be doing great in that market and so we would continue to look for opportunities to expand and lesser performing we've also talked about London.
Thank you. Our next question is from Jonathan Atkin from RBC Capital marketts. Jonathan elline is apram. Please go ahead.
Chicago was markets that were very interested in expanding and because we're seeing great performance. There. So I think those priorities from an expansion perspective have not changed I would also point out that we still have available inventory and a lot of those key markets and so we're in no rush per se to have to expand we're always looking for.
I was wondering if you could talk a little bit about your capital priorities for next year, what types of projects that you anticipate pursuing based on projects underway, based on demand at your scenes and customers, and then secondly, how you would propose maybe to put some stakes around different financing options to fund the CapEx, given some of your projects.
Opportunities to expand in the best way possible for the business from a capital perspective, Carlos can chime in but we're always looking at the best way to fund any one of those individual projects that makes the most sense for us at that time horizontal I think anything that that you want to add there.
obligations and current liquidity. Thanks. Well, John , let me start and I'll pass it on to Carlos for some additional color. As we've been pretty consistent since take one, our expansion is really focused on those key markets. So Silicon Valley, we're finishing up SFO4B. We're doing great in that market. And so we would continue to look for opportunities to expand in SFO4B. We've also talked about London.
Maybe I would say that obviously those are the key markets in which we intend to expand but we follow our customers.
Markets like Toronto for example, which has proven to be a very strong market or Atlanta would be markets that we would consider because we listened to our customers than we were using that intelligence to continue to expand in a very cost effective and occupancy effective way.
and Chicago with markets that we're very interested in expanding in because we're seeing great performance there. So I think those priorities from an expansion perspective have not changed. I would also point out that we still have available inventory in a lot of those key markets. And so we're in no rush per se to have to expand. We're always looking for opportunities to expand in the best way possible for the business. From a capital perspective, Carlos can chime in but we're always looking at the best.
When it comes to funding options, obviously, we need to address our debt stack that matures in 2024.
<unk> been working on it for quite some time the market hasnt been a supportive as we would hope, but we'll still.
And the way to manage it in an appropriate time is when we say that we wanted to be.
Strategically, how we thought about it but opportunistic in the sense of hitting the right window.
But I think that we showcase a little bit this quarter a lot of the capex that we need to put into a facility relate to critical mechanical electrical and power and we have found a stable operation support our financing partners that allow us to do that.
Good terms.
And good interest rates and so that was probably will be our primary source.
And we were using that intelligence to continue to expand in a very cost effective and occupancy effective way.
Even after we do a full refinancing of the debt stack.
When it comes to funding options, obviously we need to address our debt stack that matures in 2024. We've been working on it for quite some time. The market hasn't been as supportive as we would have hoped, but we'll still find a way to manage it in an appropriate time. We've always said that we want it to be strategic in how we thought about it, opportunistic in the sense of hitting the right window. We've been working on it for quite some time.
Thank you.
Thank you.
Next question is from Sami Badri from Credit Suisse semi your line is open. Please go ahead.
Hi, Hi, Thank you.
First question is kind of hitting the topic of pricing and I think the one thing a lot of people in the data center investor base or just trying to understand is how.
But I think as we showcase a little bit this quarter, a lot of the topics that we need to put into a facility relate to critical mechanical, electrical, and power. And we have found a stable of really supportive financing partners that allow us to do that at good terms and good interest rates. And so that probably will be our primary source. Thank you.
How much has the effect of price increases and power costs through how much of that has already been executed.
Executed and being seen on the income statement and some of the drivers of your financial statements. So that's kind of the first question and maybe just an expectation for what you expect to see from a price increase perspective for <unk> 22, and also into 2023. That's my first question and then my second question has a lot to do with <unk>.
even after we do our full refinancing of the debt stack that we have.
We do a full refinancing of the debt strateily. Thank you.
Where you believe your cash position will be at the end of <unk> of 22, just so we can understand how to model cash position liquidity and are there any other kind of moving parts in our financial model.
Thank you. Our next question is from Sammy Badgeri from Credit Suisse. Sammy your line is open, please go ahead.
Thank you Sami so as we've mentioned right.
A number of aspects to pricing so let's talk about the power pass throughs.
Hi, thank you. My first question is kind of just hitting the topic of pricing. And I think the one thing a lot of people in the data center and investor base are just trying to understand is how much has the effect of price increases and power costs through, how much of that has already been, you know, executed and being seen on the income statement and some of the drivers or your financial statements. So that's kind of...
Think we've been consistent in the way we pass through power cost increases to our customers, we're going to recover 90% of that but it's going to take 90 days. So by definition power cost that we've experienced in the last 30 days, we will receive that.
Are you able to pass that through and get that as revenue.
Over the next 90 days right and so because we don't know what the public power market is going to evolve its very hard to say what that power increase is going to be it is that kind of 90 day window or that 90 day.
The first question and maybe just an expectation for what you expect to see from a price increase perspective for 4Q22 and also into 2023. That's my first question and then my second question has a lot to do with where you believe your cash position will be at the end of 4Q of 2022 just so we can understand how to model cash position, liquidity and any other kind of moving parts in the financial model. For more information on banking's Governments we're Kindly endlessly excited to see the rest of you 24i pulmonary be on on the high side 5Q22 and also on Q2. They'll continue to get who you're passing on to the extended
Slide four recoup repricing from a power cost perspective, but that isn't the way a customer abuse of power cost pass through is an increase in price right, they're paying more for what they have that's one aspect of it we're seeing.
Thank you, Sammy. So as we've mentioned, right, there's a number of aspects to pricing. So let's talk about the power pass-through. I think we've been consistent in the way we pass through power cost increases to our customers. We're gonna recover 90 percent of that, but it's gonna take 90 days. So by definition, power costs that we've experienced in the last kind of 30 days, we will receive that and we'll be able to pass that through and get that as revenue.
Ill go to powering.
Situation and environment for cross connects right in the markets that we're in so that there's an ability to raise prices. There. We've also increased prices just on our base.
Bookstores, new logos come in pricing for those new logos is higher and then because a lot of our.
Vast majority of our customers are on kind of a three year contract window as we renew those customers. We're also seeing a very stable pricing environment remember, unlike maybe wholesaler hyperscale providers that have longer term contracts where.
over the next 90 days, right? And so because we don't know how the power market is gonna evolve, it's very hard to say what that power increase is gonna be. It is that kind of 90 day window or that 90 day slide for recouping pricing from a power cost perspective. But that isn't the way a customer views a power cost pass through is an increase in price, right? They're paying more for what they have. That's one aspect of it.
Newell only comes once or once in a in a long period of time, our sales motion includes renewals all the time right. It's part of what we do and so we're seeing a healthy pricing environment as we renew customers. So our power pass through is is one lever on price, but it's not the only lever right that's more of a cost.
Recovery item that that we do for that we do for our customers, but overall and in general the pricing environment is very strong.
We're seeing good power situation and environment for cross connects right in the markets that we're in, So there's an ability to raise prices there. We've also increased prices just on our base book So as new locals come in, pricing for those new locals is hier and then. Because a lot of our- the vast majority of our- customers are on kind of a three year contract window. As we readrenew's customers. We're also seen a very stable.
Carlos if you want to address <unk> question.
On the cash on liquidity, yes.
I'd say without any changes to <unk>.
Current seven leaseback activity, we would expect to end the year around $75 million.
Got it thank you one.
One other question if I may.
As the REIT conversion.
On track from a timing perspective, I believe you were targeting something in the not too distant future for completion and then maybe once you are once you become a REIT what is the kind of strategic.
Pricing environment. Remember, unlike maybe wholesaler, hyperscale providers that have longer term contracts, where a renewal only comes once over, once in a long period of time, our sales motion includes renewals all the time. Right, it's part of what we do and so we're seeing a healthy pricing environment as we renew customers. So a power pass through is is at one lever on price, but it's not the only lever. Right, that's more of a cost recovery item that that we do for that we do for our customer.
I guess like the game plan right as it is one of the main objectives to kind of be more comparable to other equity companies is is it a.
Almost a fund raising benefit that you guys see as something that's viable could you just kind of give us the merits for what strategically and financially converting into a REIT right now at the right time is the right move risk there.
Yes, so Sanjay I think.
I mentioned in my in my remarks, the process for the redesign Goldman has gone. According to plan right. So as we first mentioned Theres a lot of things that we need to do.
Working through all of them, but we feel.
Good about where we are.
That was our conversion understanding that we're not done right and theres still steps that we need to complete.
Another question, if I may. Is the REIT conversion on track from a timing perspective? I believe you were targeting something in the not too distant future for completion. And then maybe once you become a REIT, what is the kind of strategic, I guess like the game plan, right? Is one of the main objectives to kind of be more comparable to other equity companies? Is it almost a fundraising?
Complete we feel that being a REIT.
Good for the company, both short term and really more long term it will make us more comparable.
To our peers.
Look we have strong demand for our offer our capabilities, we're seeing that everywhere across the footprint for our digital exchange and so.
<unk>.
Could help us for fund raising in the future and I think there is no lack of opportunities for us to deploy capital right. So I think those are two of the main reasons that we feel that that had been a REIT is good for the company Carlos anything that you want to add there no I think those two are the tenants of that decision.
benefit that you guys see as something that's viable. Could you just kind of give us the merits for why strategically and financially converting into REIT right now and at the right time is the right move for SCTERra?
Yeah, so Sami, I think I mentioned in my remarks, the process for the REIT is ongoing and it's going according to plan, right? So as we first mentioned, there's a lot of things that we need to do. We're working through all of them, but we feel good about where we are with that conversion, understanding that we're not done, right? And there's still steps that we need to complete. We feel that being a REIT.
Alright, perfect. Thank you.
Okay.
And finally, if I may I made a comment before when they talked about the market, maybe not being as supportive I really was referring more to the volatility that we've seen in the debt and equity markets more than anything else. It's just been a very.
A very unstable market backdrop, but that's what I was referring to.
good for the company, both short term and really more long term, right? It will make us more comparable to our peers. And so we have strong demand for our capabilities. We're seeing that everywhere across the footprint for our digital exchange. And so, you know, being a REIT could help us for fundraising in the future. And I think there's no lack of opportunities for us to deploy capital, right? So I think those are two of the main reasons that we feel that being a REIT is good for the company.
Got it thank you for the clarification.
Thank you.
Next question is from Michael <unk> from Cowen and company. Michael Your line is open. Please go ahead.
Okay.
Great. Thanks for taking my questions.
Two if I may 1st just relating to the REIT conversion.
Just wondering if there's any framework you can provide for us as we think about potential dividend moving forward and then also potential magnitude for any E&P purge related to the reconversion. That's my first question and then I have a follow up after.
Carlos, anything that you want to add there? No, I think those two are the tenants of the decision.
All right, perfect. Thank you.
In summary if I may I made a comment before when I talked about the market they did not being as supportive. I really was referring more to the volatility that we've seen in the debt and equity market more than anything else right. It's just been a very.
Okay.
I'll I'll start with E&P, because thats an easy one we don't expect to have any earnings purge as part of this process.
That's the conclusion that we reached with our advisors and we're pretty solid on that.
Nelson Yes.
On the dividend as we're working through finalizing the reconversion and kind of our position on dividend.
a very unstable market backdrop, but that's what I was referring to.
Got it. Thank you for the clarification.
Timing about when those things are part of that a part of that work and so as we know more and as we complete that process, we will provide more information on that front.
Thank you. Our next question is from Michael Elias from Cowan and Company. Michael your line is open please go ahead.
Last call and then just a follow up just talking about the broader demand environment, you've seen record leasing of our strong leasing rather the last two quarters.
Great, thanks for taking the questions. If you, if I may, first, you know, just relating to the reconversion, you know, I was just wondering if there's any framework that you could provide for us as we think about, you know, potential dividend moving forward, and then also potential magnitude for any EMP purge related to the reconversion. That's my first question, and then I have a follow-up after. Thanks.
As we think of your pipeline how would you discuss describe the depth and breadth of it versus what you saw entering the third quarter and as part of that also any areas or pockets of incremental weakness that youre seeing.
Well look Michael.
It's a very good question honestly, we have not seen any negative impact to the pipeline it's been consistent.
I'll start with the EMP because that's an easy one. We don't expect to have any earnings perch as part of this process. That's a conclusion that we reached without our advisors, so we're pretty solid on that. And Nelson? Yeah, look, on the dividend is we're working through finalizing the reconversion and kind of our position on dividend, the timing, amount, and those things are part of that work. And so as we know more and as we complete that process, we'll provide more information on that front.
For us now for a number of quarters.
I pointed out in my room.
Remarks are our success with the digital exchange platform and so obviously as customers we have large enterprise customers with global needs as they look for ways to become more efficient to grow their business, but do so in a.
Flexible and cost efficient way I think the market is coming to US right. We have a very diverse platform. So we can meet customers need multiple locations and all of the top to top 10 markets. Not every provider has that capability, they're highly connected facilities. So they can get all the business partners they want in.
All right, cool. And then just a follow-up, just talking about the broader demand environment, I mean, you've seen record leasing or strong leasing, rather than the last two quarters. You know, just as we think of your pipeline, you know, how would you describe the depth and breadth of it versus what you saw entering the third quarter? And as part of that also, any areas or pockets of incremental weakness that you're seeing?
In those facilities and frankly the investments we've made in developing the software to allow our customers to get what they need in a very rapid and flexible environment is paying dividends and so we are a.
Michael, it's a very good question. Honestly, we have not seen any negative impact to the pipeline. It's been consistent for us now for a number of quarters. I pointed out in my remarks our success with the digital exchange platform. Obviously, as customers, we have large enterprises as customers with global needs, as they look forward.
A very good choice for those large enterprises to continue to grow their businesses and scale it and I don't see any reason for that.
Change in fact.
It's going to continue because I believe the market is coming to us from that from that perspective, So we don't see any weakness.
And then in any of the pipeline.
We're very pleased with the progress that we're making on that front.
Perfect. Thanks, and if I could squeeze one more in you talked about the better pricing environment. I was just wondering if you could help translate that for us and so what youre seeing on a GAAP and cash renewal spread basis. Thanks.
for ways to become more efficient, to grow their business, but do so in a flexible and cost efficient way. I think the market is coming to us, right? We have a very diverse platform so we can meet customers in multiple locations in all the top 10 markets. Not every provider has that capability. They're highly connected facilities so they can get all the business partners they want in those facilities. And frankly, the investments we've made in developing the software.
GAAP and cash for US is basically the same because we don't have this long term contracts that you see with some of the other guys that we don't do wholesale and we don't do Hyperscale So capital for us tends to be the same thing.
to allow our customers to get what they need in a very rapid and flexible environment is paying dividends. And so we are a very good choice for those large enterprises to continue to grow their businesses and scale it. And I don't see any reason for that to change. In fact, I think it's going to continue because I believe the market is coming to us from that perspective. So we don't see any weakness in any of the pipeline. We're very pleased with the progress that we're making on that front.
So there's no spread there if you're asking about what we're seeing on renewal spreads what I think we would say is that.
We're seeing a growing trend of positive.
Pricing spreads at the time of renewal Nelson.
And also as you like.
So I tried to comment a little bit on I think it was Sami that asked the question Michael.
Look because renewals are part of our business. We go through renewals all the time, we're very cognizant that our customers are going through a lot of pressures rightful price increases are difficult for them and existing customers are 80% of our bookings that being said the pricing environment for us is very healthy so as we get to renewables renewables for us.
Perfect, thanks. If I could squeeze one more in, you know, you talked about the better pricing environment. I was just wondering if you could help translate that for us into what you're seeing on a gap in cash renewal spread basis.
I can't speak to other types of providers in the industry, but renewals for us are a good time to address the need for increasing prices and so as we go through renewals again, I'll remind everyone that we have an average three year contract. So think about it as every every year, a third or so 30% to 45% of our.
Gap in cash for us is basically the same because we don't have these long-term contracts that you see with some of the other guys and we don't do wholesale and we don't do hyperscale. So gap to cash for us tends to be the same thing and so there's no spread there. If you're asking about what we're seeing on renewal spreads, what I think we would say is dead.
<unk> of our customer base renewals and I'm sure we have the ability to address pricing at that at that time and so what we're seeing is.
We're seeing a growing trend of positive trafling fres. I been done you like. Yeah, I think I. I tried to comment a little bit on I think it was samme. That that's the question. My glad, I look, because renewals are part of our business. We go through renewals all the time. We're very comfant that our customers are going to well. Lot of pressures right, So price increases are difficult to them and existing customers are 80% of our bookings.
Good discussions in a healthy environment, when we engage with customers at that point.
Okay.
Great. Thanks for the color.
Thank you before we take our next question I'd, just like to remind everyone to ask a question. Please press star followed by one on your telephone keypad now.
Our next question is from James Breen from William Blair. James Your line is open. Please go ahead.
That being said, the pricing environment for us is very healthy. So as we get to renewals, renewals for us, I can't speak to other types of providers in the industry, but renewals for us are a good time to address the need for increasing pricing. And so as we go through renewals, again, I'll remind everyone, we have an average three-year contract. So think about it as every year, a third or so, 30%, 25% of our customer base renewals. So we have the ability to address pricing.
Thanks for taking the question.
Just in terms of your customer activity can you talk about customers are taking space from multiple locations and has that changed at all over the last several months and then with regard to the REIT any sort of preliminary view in terms of.
What amount of revenue and cash flow.
Fit into the REIT.
Taxable.
Yes.
at that time. And so what we're seeing is is it's good discussions in a healthy environment when we engage with customers at that point.
Let me talk about the customers and then I'll, let Carlos address.
That re question look I think one of our big Differentiators as a company is the fact that we have global scale, we're not a regional provider, England all in the top 10 markets and so.
Thank you..
Great, thanks for the color.
Thank you. Before we take our next question, I'd just like to remind everyone to ask a question. Please press star, follow by one on your telephone. Ke paad now.
Just like we've had many of our customers in multiple locations that trend continues.
<unk> continues for us and frankly, even when customers only need one location for a given workload. The fact that we can provide them additional locations in the future or frankly give them portability for that workload as their needs change and all of a sudden instead of want it to be in London, They want to be in New Jersey.
Our next question is from James green, from William Blair. Jam erline is open. Please go ahead.
thankstaken the question just in terms of your customer activity can you talk. About customers are taking space from your multiple locations and has that changed at all over the last several months and then with regard to the REIT. Any sort of preliminary view in terms of what amount of your revenue and cash flow could fit into the REIT versus taxablelow and.
A core part of our differentiation and a key key aspects of our go to market. So so that continues strong strong for us and will be something that will continue to drive.
Good solid sales momentum for us in the future.
Carlos what our trust.
Yes.
Fully finance fathom on that James but I would expect.
Let me talk about the customers and then I'll the Carlo's address that requestion. Look, I think one of our big differentiators as a company is the fact that we have global scale. We're not a regional provider and when all in the tops end market and so, just like we've had many of our customers in multiple locations, that trend continues.
The.
The Trs part of the of the contract to represent less than 5% of our current revenues.
A couple of business lines that we're going to put into that Trs entity, and it's really not going to be very meaningful.
That continues for us and frankly, even when customers only need one location for a given workload, the fact that we can provide them additional locations in the future or frankly, give them portability for that workload if their needs change in all of a sudden, instead of wanted to be in London, they want to be in new Jersey. That's a core part of our differentiation and a key, key aspect of our go-to market. So So that continues strong, strong for us and will be something that will continue to drive good, solid sales momentum for us in the future.
Great. Thanks.
Yes.
Okay.
Thankfully we have further questions. So this concludes today's call I hope everyone has a lucky day and you may disconnect your lines now.
Of course MO trust here. Yes we're not fully find asan on that James, but I would expect.
The trs part of the construact to represent less than 5% of our current revenues. But there's only the coupleital business lines that we're going to put into that prf entity and it's really not going to be very meaningful.
Great thanks.
The BR.
Thank you. We have no further questions. So this concludes today's call. I hope everyone has a lovely day and you may disconnect your lines now.
Thank you, Thank you.
Goodbye.
The.