Q4 2022 Equinix Inc Earnings Call
Good afternoon, and welcome to the Equinix fourth quarter earnings Conference call all lines will be able to listen only until we open for questions. Also today's conference is being recorded if anyone has objections. Please disconnect at this time 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 will be local today are forward looking in nature and involve risks and uncertainties actual.
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.
February 18th 2022, and 10-Q filed November four 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 how close this policy.
Policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.
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 Equinix Dot com.
We have made available on the IR page.
Page of our website a presentation designed to accompany the discussion along with certain supplemental financial information and other data.
Also like to remind you that we post important information about the FX on the IR page from time to time and encourage you to check our website regularly for the most current available information.
With us today are Charles Meyers, Equinix, as CEO , and President and Keith Taylor Chief Financial Officer.
Following our prepared remarks, we'll be taking questions from sell side analysts in the interest of wrapping this call up in one hour. We ask these analysts to limit any follow on questions to one at this time I'll turn the call over to Charles.
Thank you chip good afternoon, everybody and welcome to our fourth quarter earnings call. We had a great finish to 2022, delivering one of the best bookings performances in our history led by the Americas with continued strength in demand and favorable pricing trends across all three regions for.
For the full year, we delivered more than $7 billion in revenue for the first time and completed our 18th consecutive quarter of revenue growth an amazing 20 years of continuous growth all while driving <unk> per share performance above the top end of our long term expectations.
As we look to the year ahead, even amidst a dynamic and complex global landscape is increasingly clear that the secular tailwind of digital transformation remains strong in 2023 R. D. C asteroid spending on digital technology by organizations will grow eight times faster than the broader economy in the current macro economic environment, We believe.
Spending on digital transformation will remain robust for two simple reasons.
First as companies work harder for each incremental revenue dollar digital is seen as a critical driver of competitive differentiation accelerating time to market and enabling product set evolution and second digital transformation is increasingly a means to do more with less enabling businesses to reduce costs and drive operating leverage while simultaneously.
Coming more agile and responsive in serving their customers.
In the context of the secular demand environment, we remain confident that platform equinix is uniquely positioned to support our customers' digital infrastructure needs.
Digital leaders are demanding infrastructure that is more distributed more ecosystem powered more flexible and more interconnected because it is fundamental to their ability to differentiate in the marketplace and lower their costs.
Our market, leading global reach vibrant digital ecosystems, and comprehensive interconnection platform allow our customers to scale with agility speed the launch of digital services deliver world class experiences and enhanced value to all their stakeholders.
But we will continue to closely monitor the macro environment and we will adapt our execution accordingly, the fundamentals of our business remains strong and we're investing behind the momentum, we're seeing including adding quota bearing heads evolving our products and expanding our industry, leading data center portfolio.
With regards to power, our multiyear hedging efforts continue to create visibility and predictability for equinix and our customers in the coming year.
Effective January 1st we raised pricing passing on the full impact of these additional power cost to our customers increasing costs, but giving our customers much needed budget certainty and in most cases, leaving them with rates below the prevailing spot market.
Overall, we believe we ran in a good position relative to competitors and the broader market and I'm pleased with where we landed for our customers and our business.
Turning to our results as depicted on slide three revenues for the full year were $7 3 billion up 11% year over year, adjusted EBITDA was up 8% year over year and <unk> per share grew 11% year over year. These growth rates are all on a normalized and constant currency basis.
Our data center services portfolio continues to extend its scale and reach and given strong demand and high utilization, we see continued opportunity to deliver highly attractive returns on capital as evidenced by the largest development pipeline in our history.
We currently have 49 major projects underway across 35, metros in 23 countries, including nine X scale projects, representing over 34000 cabinets of retail and over 75 megawatts of X scale capacity.
New projects. This quarter include new data center builds in Istanbul, Seoul, and Tokyo, and our first builds in both Johannesburg, South Africa, Andrew horror Malaysia.
Our new <unk> in Johannesburg, augments, our current footprint in Africa, entering the largest and most digitally develop nation on the continent.
And our new <unk> and <unk> represents our entry into one of the most requested markets in Asia Pacific by our global customers.
<unk> remains the best manifestation of the interconnected digital edge and with these new builds our unparalleled global footprint will span 75 metros in 35 countries.
The strength of our global platform continues to shine with nearly 90% of our revenue coming from customers operating in multiple metros and nearly two thirds coming from customers operating in all three regions.
T Multimarket wins this quarter included one of the world's leading hospitality companies finding performance gains at the edge by deploying in strategic markets across all three regions, and our leading cloud and CDN provider extending coverage and scaling globally to support new services and meet growing demand.
IDC estimates that more than $750 million cloud native applications will be developed globally by 2025.
And as this digital transformation wave continues customers see equinix as the logical point of Nexus for hybrid and multi cloud deployments.
This quarter, we won four new cloud on ramps, including one in Mumbai, making it the 12 metro on platform Equinix enabled with native cloud on ramps from all five of the leading cloud providers no. Other data center, operator has more than one metro with all five clouds.
In our <unk> business, we continue to see strong overall demand leasing approximately eight megawatts of capacity across our Tokyo 12 in Osaka, two assets with meaningful expansions in our forward pipeline.
Enterprise wins, leveraging the cloud this quarter include a global technology company in the payments industry deploying infrastructure to place their corporate and customer networks closer to AWS and Azure.
A leading paints and coatings company choosing equinix for its cloud on ramp capabilities and Virtualized service offerings.
Our industry, leading interconnection franchise continues to perform well with revenues for the quarter growing 13% year over year on a normalizing constant currency basis outpacing the broader business. We now have over 446000 total interconnections on our platform.
In Q4, we added an incremental 4500 organic interconnection slightly lower than our historical run rate due to seasonally slower gross adds customer consolidations into higher bandwidth BCS on fabric and some elevated grooming activity.
<unk> fabric saw continued growth and is now operating at a $200 million revenue run rate one of our fastest growing products.
Attach rates for <unk> for fabric continued to move higher with 40% of customers realizing the benefits of connecting their digital infrastructure at software speed.
Internet exchange saw peak traffic jumped 7% quarter over quarter, and 28% year over year to greater than 29 terabytes per second driven by FIFA World Cup streaming demand and reflecting the continued strategic importance of having the world's largest internet exchange footprint on platform Equinix.
Key interconnection wins this quarter included one of Koreas largest conglomerates, establishing interconnection and sold for S. J C to the Southeast Asia, Japan cable, which will be ready for service this year and the largest water authority in the Netherlands, implementing equinix fabric to directly and securely connect to distributed infrastructure and digital ecosystems to ensure.
Clean water supply.
Turning to our digital services portfolio, we saw continued momentum with equinix metal and network edge driving attractive pull through the fabric digital services wins. This quarter included a leading insurance and financial services company evolving their internal systems from their own data center to a public cloud plus metal approach at Equinix.
And a Belgian advertising service provider using equinix metal for fast efficient and reliable data movement to support localized online advertising.
And our channel program delivered its seventh consecutive record quarter accounting for nearly 40% of bookings and nearly 60% of new logos.
Wins were across a wide range of industry verticals in digital first use cases with hybrid multi cloud as the clear architecture of choice.
We saw continued strength from partners like AT&T.
Cisco HP and Microsoft key wins included delivering a critical time sensitive site migration for a multinational banking and financial services client in partnership with options and.
And Dell leveraging a combination of Equinix metal network edge Ann fabric to overcome supply chain delays and ensure continuity of operations, while interconnecting to critical trading platforms. So let me turn the call over to Keith and cover the results for the quarter.
Thank you Charles and good afternoon to everyone to start we had a great end to the year, finishing Q4 with healthy bookings strong pricing, which included a nice uplift and MMR per cabinet in each of our regions.
Solid forward looking demand pipeline.
We closed over 17000 deals across more than 6000 customers in 2022, and no single customer represents more than 3% of our MLR highlight.
Highlighting the tremendous scale reach and diversity of our go to market engine that continues to produce.
Despite volatile and shifting macro conditions.
Given the weaker U S dollar relative to our prior guidance rates FX has shifted from a meaningful headwind to a tailwind which is positive although 2023 exchange rates still remain below the average FX rates for 2022.
And while we continue to remain vigilant to the challenges in the broader economy, we do remain optimistic about our business and the key demand drivers and feel were very well positioned to grow in scale due to our industry, leading risk management efforts across procurement and strategic sourcing.
And treasury and our future first sustainability program.
Also the diversity in mix of our customers is benefiting us with large established businesses constituting a majority of our revenues is as greater than 80% of our recurring revenues come from companies generating $100 million or more in annual revenues.
And more than 85% of our recurring revenues in the quarter come from customers deployed in three or more data centers, making equinix, our core vendor for our customers digital infrastructure needs.
Equinix remains in excellent financial health with.
With strong liquidity positions low net leverage.
Boeing has to be both strategically and operationally flexible in this current market environment.
Now as part of our larger programmatic approach to managing power costs, we initiated efforts to enhance our customer communications last fall, providing our customers insights into our efforts, while continuing to protect our customers and ourselves against the rising cost through a multiyear hedging efforts.
At the start of 2023, we raised our power prices primarily in the EMEA region to recover these rising costs.
While power markets remain volatile our hedging approach meaningfully dampened the impact of them inflated energy costs for many of our customers.
We expect these prior price increases will generate approximately $350 million of incremental revenues and costs in 2023 and as a result, the cumulative power price increases are expected to increase our revenue growth by approximately 500 basis points.
Now despite these increases our cost management efforts and protected both our adjusted EBITDA and <unk> on a dollar basis, but but as expected have negatively impacted our.
Our adjusted EBITDA margins for the year.
We expect these higher energy costs to be transitory and should reverse course will be our future yet to be determined period at which time, both our gross profit and adjusted EBITDA margins will return to our targeted unexpected levels.
Now let me cover the highlights for the quarter note that all comments in this section are on a normalized and constant currency basis.
As depicted on slide four global Q4 revenues were $1 87, 1 billion up 11% over the same quarter last year above the midpoint of our guidance range on an FX neutral basis, largely due to strong recurring revenues led by the Americas region.
We continue to enjoy net positive pricing actions in the quarter and similar to prior quarter.
Price increases outpaced price decreases by a ratio of three to one.
Q4 revenues net of our FX hedges included an $8 million tailwind when compared to our prior guidance rates due to the weaker U S dollar in the quarter.
As we look forward, we expect a significant step up in Q1 recurring revenues largely due to strong net bookings performance and significant power price increases.
Global Q4, adjusted EBITDA was $839 million or 45% of revenues up 7% over the same quarter last year.
Top end of our guidance range due to strong operating performance.
Q4, adjusted EBITDA net of our FX hedges included a $1 million of FX benefit when compared to our prior guidance rates and $7 million of integration costs.
Global Q4, <unk> was $658 million above our expectations due to strong operating performance, including seasonally higher recurring capex and included $11 million of FX benefit when compared to our prior guidance rates.
Global Q4, <unk> churn was two 2% a derivative of disciplined sales execution, whereby we put the right customer with the right application into the right asset.
For the year and our churn was better than expected with the average quarterly <unk> churn at the low end of our guidance range.
As we look forward into 2023, we expect MLR churn to remain comfortably within our targeted 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 revenue growing region on a year over year normalized basis at 17% followed by the Americas, and EMEA regions at 10% and 9% respectively.
The Americas region had another quarter of strong gross bookings lower MLR churn and continued favorable pricing trends led by our New York, Toronto, and Washington D C Metro.
The strength in the region remains broad based and the acquired Antell assets in Chile, and Peru have performed better than we planned.
EMEA region delivered strong quarter with continued healthy pricing trends and an attractive retail mix as well as record inter and intra region exports as the team sold across the Equinix platform.
In the quarter, we saw strength in the Amsterdam, Madrid, and Stockholm markets and our network vertical.
And finally, the Asia Pacific region had a solid quarter led by our Australia, Hong Kong and Singapore businesses.
Also we're seeing significant interest from our customers an edge metros as we expand our footprint in the region.
More specifically in Mumbai, We had 40, we added 40, new logos in 2022, and we're already seeing customer interest for our for our Jakarta and <unk> sites.
And now looking at the capital structure, please refer to slide eight.
Our balance sheet increased slightly to greater than $30 billion, including an unrestricted cash balance of $1 9 billion.
As expected our quarter over quarter cash balances decreased due to the significant planned increase in growth Capex and real estate purchases and a quarterly cash dividend.
I've said previously we plan to take a balanced and opportunistic approach to accessing the capital markets when conditions are favorable.
We're happy to share that we recently priced the Japanese yen private placement raising in the U S. Dollar equivalent of approximately $600 million of debt with an average duration of greater than 14 years and our blended cost of borrow at an attractive two 2%.
This transaction is expected to fund in Q1, we.
We also executed some ATM for sale transactions in Q4, providing $300 million of incremental equity funding when settled.
Pro forma for these transactions, we have nearly $7 billion of readily available liquidity and remain very well funded to meet our ongoing cash needs.
Turning to slide nine for the quarter capital expenditures were approximately $828 million, including a recurring capex of $80 million in.
In the quarter, we opened six retail projects in Geneva, Los Angeles, Osaka, Singapore, Washington D C in Zurich, and three X scale projects in Dublin in Sao Paulo in Osaka.
We also purchased our Geneva, two in Sao Paulo for IBM assets as well as land for development in London.
Revenues from owned assets increased to 63% of our recurring revenues for the quarter.
Our capital investments delivered strong returns as shown on slide 10.
Our now 158 stabilized assets increased recurring revenues by 6% year over year on a constant currency basis.
These stabilized assets are collectively 87% utilized and generate a 27% cash on cash return on the gross PP&E invested.
As a reminder, similar to prior years, we plan to update our stabilized asset summary on the Q1 earnings call.
And finally, please refer to slides 11 through 15 of our summary of 2023 guidance and bridges to note all growth rates are on a normalized and constant currency basis.
Starting with revenues for 2023, we expect topline revenues will step up by nearly $1 billion, representing a year over year growth rate of 14% to 15%.
Excluding our PARP price pass throughs, we expect topline revenue growth to range between nine and 10% of ABA.
Above the top end of our long term growth rates as highlighted our 2021 analyst day, reflecting the continued momentum in the business.
We expect 2023, adjusted EBITDA margins of approximately 45% excluding integration costs.
And excluding the impact of prior price increases to revenues and higher utility costs adjusted EBITDA margins would approximate 48%. The result of strong operating leverage and efficiency initiatives, we expect to incur $35 million of integration costs in 2023.
2023, <unk> is expected to grow between nine and 12% compared to the previous year and <unk> per share is expected to grow 8% to 10% at the top end of our long term range from a 2021 analyst day.
2023, Capex is expected to range between two seven and $2 9 billion, including approximately $150 million of on balance sheet X scale spend which we expect to be reimbursed as we transfer assets into the joint ventures, and about $205 million of recurring Capex spend.
And finally, we are increasing the annual growth rate of our cash dividend on a per share basis to 10% due to strong operating performance.
The cash dividend will approximate $1 3 billion, a 12% year over year increase of 100% of which is expected to be attributed to operating performance.
So let me stop here and turn the call back to Charles.
Thanks Keith.
Our record of strong and consistent operating performance continued in 2022 and I'm proud of how the team delivered value for our customers and our shareholders in 2023 and beyond we believe the opportunity for our business remains significant as enterprises and service providers alike look to platform Equinix as their key digital infrastructure partner to advance their ditch.
Transformation agenda to expand our market leadership reinforce our competitive advantage and drive sustained value creation. The leadership team and I have outlined a clear set of priorities for the coming year.
First we intend to press our advantage in our interconnected Colo franchise, continuing to scale and evolve our best in class bookings engine delivering on key projects to enhance operating leverage further extending our superior global reach refining processes and systems to enhance the equinix experience for our customers and partners and integrating our sustainability leadership.
Into our services in ways that better help our customers meet their commitments to environmental and social responsibility.
Second we intend to continue to enrich our platform value proposition by accelerating our digital services growth delivering a more unified set of platform capabilities and by investing in ecosystem enablement empowering key partners to bring better value to our platform more quickly and easily and allowing us to leverage their significant go to market reach.
And we will advance these priorities by continuing to cultivate a culture that remains firmly people first we're committed to making equinix a place that attracts inspires and develops the best talent in our industry cultivating and in service to mindset and creating a place where every person every day can say I'm safe I belong and I matter.
In closing our business remains well positioned despite a challenging macroeconomic and socio political environment digital transformation remains a clear priority across all industries and digital leaders will continue to harness our trusted platform to bring together an interconnect the foundational infrastructure that powers their success.
In that vein, we're pleased to welcome Tom Olinger to our board of directors as the longtime CFO of prolonged as Tom has extensive international operating experience spanning real estate and technology, which will benefit our business I'd also like to thank Bud Lyons for his exceptional service and contribution to the growth and success of the company over the past 15.
10 years as she rotates off the board So let me stop there and open it up for questions.
Thank you we will now begin the question and answer session. If you would.
Ask a question. Please press star one on mute your phones and record. Your name clearly is you need to withdraw your question Press Star Q again to ask a question. Please press star one.
Our first question will come from Simon Flannery with Morgan Stanley . Your line is open.
Great. Thank you very much good evening.
I Wonder if it's good to hear the strong outlook for 2023 and the good commentary around current activity.
Can you square that for us with some of the comments from Amazon and Microsoft and others about enterprises, becoming more cautious in December and through.
Through the early part of the first quarter.
You did talk a little bit about some grooming I think can interconnect, but I understand the core value proposition, but are you seeing any of that behavior and what gives you the confidence that that's not going to be of a concern through some of your enterprise or other customers who are facing some challenges in this macro environment and then the second one on the pricing.
To see the color detail around that thank you.
Has that have you been able to successfully get the payments is there hasnt been any pushback from the customers around that or.
Or people, who have struggled to pay those increases and any color on that would be great. As he goes through the first couple of billing cycles here.
Sure. Thanks, Simon Yes, both questions, we fully expected would be there.
In terms of the.
The overall macro environment I would say.
The discussion has had been interesting in terms of the cloud providers.
Talking about customers being a bit more cautious I think in specifics around customers, who have really significantly expanded their.
Their investment in cloud and workloads are moving to cloud et cetera, and many of whom I think Kevin said Wow cloud our cloud Bill has gone crazy on us.
And we really need to step back and take a look at that.
I do think that we see some of that dynamic we actually see that dynamic to some degree playing in our favor in that customers are actually one sort of saying hey, what are.
It's not blindly sort of everything in the cloud. It is really a what is the appropriate mix of infrastructure requirements and how are we going to use the various clouds and how are we going to do that effectively and how are we going to have the agility to move things between clouds and so I think we've seen customers really one very committed to their digital transformation agenda.
Two I do think that there they even though they have that commitment it's probably in the context of a sort of a broader belt tightening environment for overall budgets and so I do think there they are being appropriately cautious about their investments I think that they are we're seeing that they are I thought I heard one CEO .
Characterize it as measure twice cut once in terms of how customers are thinking about their investments but.
But we definitely see them leaning in on digital overall, and I wouldn't say that.
Even in the cloud space.
The amount of ads that are going in into the incremental revenue that the cloud providers are adding is still absolutely staggering and in terms of overall quantum is quite consistent.
Coming down because the growth rates are coming down because you're on a very huge base, but overall I think people still very committed to.
Hybrid and multi cloud as their architecture of choice and I think they are really viewing equinix as a.
As a key partner in figuring out how to appropriately manage and efficiently manage infrastructure costs going forward. So so while we are seeing I think.
People's being appropriately cautious in a in a macro environment that will dictate that.
We're still quite optimistic about the overall demand profile in our pipeline and our conversion rates continue to sort of.
It makes us feel confident in that.
And then the second one relative to the to the power pass through.
We feel very good we've got you know we've communicated that out to customers. We've had a lot of inquiries. Most of those inquiries are simply about explaining and providing them additional information on the charges.
And so to this point, we feel very confident that we continue to feel very confident we're going to get full recovery of that and and we will continue to update you as we learn more but right now all systems go.
Good to hear thanks.
Thank you. Our next question will come from Jon Atkin with RBC capital markets. Your line is open.
Thanks very much so.
Maybe looking a little bit of the revenue growth guidance. If you could unpack you talked about the <unk>.
Price increases.
Apart from that.
<unk> growth versus cross connect growth in various flavors of digital services.
Can you talk a little bit about what you're expecting for 2023.
Sure.
So again, we're very excited.
As evident in the Guy we continue to feel very optimistic about the top line in the business.
Obviously, it's a bit elevated with the power price pass through.
But even on a <unk>.
Just did basis, excluding that 9% to 10%, which is above the long term guide that we had provided at the analyst day. So I think it reflects the overall strength in the business and we're seeing.
Really across the board strength I think in in Colo and interconnection in digital services and really across the regions and we're seeing a combination of solid volume and very strong pricing and so I definitely think pricing is going to continue to contribute and that is separate and apart from the from the power price increase even if you take.
That nine to 10.
US increasing list pricing.
Which I think and it's sort of an inflationary environment, we have to demonstrate that we can do that.
And I think we're having having good success with that so I think the you know the.
The color business remains strong unit volumes on Colo interconnection growing at 13% again, we saw a slightly softer unit adds there, but I think we feel like that will probably normalize through the course of the year.
And then digital services, we came off a really strong quarter 2022 was really I think the front end of an inflection point of really really people, saying Hey, This is a great way for us to think about how to really use the power of the interconnected edge at Equinix in new ways, and so I think I think we're going to see.
Great strength there the Americas business performed 22 is just an amazing business a year for the Americas business.
EMEA really demonstrated some hearings come extreme strength coming off the back end of the interconnection price increases and continuing to really evolve that portfolio to the retail sweet spot.
And then Asia is our fastest growing region at 17% so.
So again I feel very good that we've got a pretty comprehensive strengthening volume and in price across products and across geographies.
So just by way of follow up in.
What youre expecting in terms of customer decision cycles. This year book to Bill intervals in your core business. It sounds like no change I just wanted to kind of clarify that and then turning to X Gill briefly if you could maybe comment on pricing in the wholesale segment and how is that keeping keeping pace with higher build cost and higher.
Financing costs.
Sure Yeah, generally I think that the book to Bill we have not seen any to any extensions of book to Bill I think in terms of quote to book and.
In other words, what's the sales cycle.
I think we're seeing some anecdotal evidence of this sort of measure twice cut once but again. The team has seen is seeing strong conversion rates.
Solid pipeline and continue to feel good overall, so havent seen any material change yet, although again anecdotal evidence that youre seeing a little just caution in terms of customers really making sure that they are buying exactly what they need in the REIT and mountains.
That's not surprising in sort of the macro kind of environment that we have and then Keith I don't know if you have any further comment on book to Bill and then X scale.
And the only other thing I was saying book to Bill last year, you know there were some supply.
Apply chain through constraints, we don't foresee any of any meaningful amount of that this year.
As it relates to installation of our customers. So continue to be optimistic about that and then as it relates to exco I would just say.
In the prepared remarks, you can see that there is a tremendous amount of capacity that we're building across our ex scale.
Sort of portfolio and it's exciting and so as that relates to not only the opportunity.
And not countered assignments, maybe worried but we're seeing we're seeing the.
A lot of volume opportunity sitting inside Dx scaled business. So that's good and then from a price point no surprise costs have moved up and pricing. Therefore has moved up.
To recover that cost and get the appropriate returns. So I feel good from both perspectives. One there's the volume Thats. There. There is the activity that we're building to support that volume and we're getting the price points and the returns that we feel are appropriate for this.
And at this juncture.
Thank you.
Thanks, Jeff.
Our next question will come from Frank Louthan with Raymond James Your line is open.
Great. Thank you.
You walk us through a little bit of the difference between sort of what's the pass through on the on the revenue on the revenue side from the power increases versus what's flowed through from the price hikes that you've put in this year and what had the biggest impact from the price increases was more the base rents or the cross connect how would you characterize that.
Sure, Yes, I mean, the power pass throughs are really easy one to think there is it it's on the order of $350 million on the revenue line and on the expense line, so and it's just.
It's just and that's really what causes the 500 bip increase on the revenue line, obviously without corresponding flow through to EBITDA.
So so that impacts the EBITDA margin, but on a normalized basis. So as reported 45 guide.
But a.
And normalized or excluding that 48, which we think continues to look very good and so and in terms of power price increases on the rest of the portfolio I think we're seeing it we're going kind of across the board.
Space power as well as in the digital services.
The adjustments that we think are appropriate in the market.
And part of that is just reflecting an increasing expense.
Expense environment.
And some of the cost inside of the business that are going up but then part of that is also just I think a really strong reflection of the value we deliver to the customer and so so I think youre going to Youre seeing.
The growth on is certainly partially driven by by strong pricing and Thats and thats pretty consistent across the space space power and interconnect.
In fact, let me just maybe add on to what Charles said, there as we think about our business and I said this at the analyst day, two years ago, and we'll certainly update you in the June analyst day, coming but when you think about pricing historically it was running at about 6% of our bookings.
We've said that price increases are in the range of 3% to 5% and stabilize revenue stabilized assets are growing and recurring revenue at 6% right. Now so I think youre going to get it from a number of different spots number one.
Inflation, you've got the inflationary impact and of course that is going to move the pricing up higher than where we historically have been and Charles was also alluded to the fact, they also are moving list pricing and so when you look at list pricing plus you've got the inflationary increases and then you've got the <unk>.
In addition to adding what we think is great value across our set of products and services you have a broader influence coming from not just price, but you have.
Quantity, but you have price I think that that's something that we'll continue to track and update you on as we come come to the June analyst day as I said.
And can you remind me what's your average contract length is.
Two to three years of remaining to inside the retail business at scale of course is longer than that.
What's the average kind of outstanding at any currently.
And X scalar in retail.
Interest in retail.
Yes.
Just two to three.
Yeah, and I don't have any more refined than that it is just a.
You an indication of how things will renew.
And as a result.
One of the things I said at least in my prepared remarks is when you look at price increases relative to price decreases we always talk about net positive pricing actions and you've heard us talk mentioned that quarter after quarter for years.
It's a reflection that it's <unk>.
Living and breathing organism and theres always going to be movement, and Youre renegotiating with your customers and some people.
Adjust down but the bias is towards price increases not only because that's how the model works, but you're really going to see that come through as again you feel the inflationary impacts you go through the prior price increases and it manifests itself in our.
On a currency adjusted MMR per cabinet number across all three regions.
And that's.
That will continue to be something that we will we will monitor very very closely.
Yeah, and Frank that offer that in a sort of in and we've become very adept at sort of managing and optimizing sort of the overall return profile in the business and as you look at the current environment, which is strong underlying demand signal.
Utilization rates in some markets, particularly we have some markets that are quite tight.
It really gives us the opportunity as we look at how to optimize to not only sort.
In a rate in a rising rate environment look at how to optimize that and and upon renewal either take unutilized capacity and resell it at significantly higher rates.
Or in some cases look to do that proactively and so so I do think that that that works well for us as we as we continue to demonstrate that we've got a level of a level of pricing power in the business.
Alright, great. Thank you very much.
Our next question comes from Michael Rollins with Citi. Your line is open.
Thanks, and good afternoon, just a couple of expense questions and then a revenue question. So on the expenses as you've closed the books on 2022, if I'm looking at the slides it looks like there was some impact both to revenue and EBITDA or expenses from the power pass throughs, you previously discussed Singapore.
Can you share the final dollar amount of impact that we should just be bouncing off of for 2023.
And then as you look at 2023 are there incremental sales our product investments.
That we should be mindful of as we think about the types of opportunities Charles that you were discussing in the priority is to enrich the platform.
That gets to the final question of just what are some of those examples maybe specifically on how you are trying to enrich the platform for 2023 and beyond.
You want to take the first one on the PPI.
From 'twenty two.
So in Singapore.
Let me, let me step back first and when I talk when we think about Q4, which obviously is the most current and guide you see that we did slightly better than we guided to.
Despite some of the movements and as we sort of mentioned in the last call. We knowingly accelerated some costs into the fourth quarter.
Largely for repairs and maintenance and so most of the consulting work and we expected our utility cost to go up.
Is that because of the seasonal aspect less about the Singapore, Singapore, Ppas, but the seasonal aspect.
And part of the reason that we did a little bit better was it was utility rates didn't go up as much as we anticipated and then what we have seen some moderation in price.
Pricing power is still inflated, but moderated relative to some of our assumptions. So so when you look at the fourth quarter I was I would say that.
It performed exactly as we anticipated with a little bit of benefit attributed to two power savings operate and really with the operating performance and then better revenues.
Specific to Singapore, though when we look at the net so the net hit for Singapore last year think of it in the order of magnitude.
$50 million to $60 million. The reason I'm, giving you a range is there is there was a substantial increase.
Or weakening of the U S dollar relative to the Singapore dollar and so when you look at the net impact it had a little bit of a knock on in.
<unk> on our results because obviously, you're absorbing our cost at a higher exchange rate and so that would that gives you a sense of where we are in Singapore. As you then sort of fast forward to 2023, one of the things that we had mentioned in 2022 for the costs that we do not recover from Singapore in 2022.
Two because we were out of market.
Market has moved to Equinix, and we and part of the recovery that Youre seeing and it's embedded in that $350 million.
Is basically.
Covering cost of the cost increase in Singapore that we didn't recover in 2022.
And so it gives you a sense there isn't that think of again the order of magnitude of $50 million to $60 million is that in that number is that number that you should be thinking about.
And of course, the overall quantum and in 2023 is much larger as I described earlier and so.
But thats a better but I think we're clear on that in terms of how that affects both revenue and margin.
Because you're asking about the P&L I want to make sure that we hit that question for you.
Yes, so it looked like just on the slide 12, and slide 13, just to dig in just for another moment just to make sure I fully appreciate the difference. So it shows the 11% constant currency without power pass through 10%.
After the power pass through and then it shows a difference in margin as well so at least at this $50 million to $60 million or is there an additional amount that we should just be thinking through when making the adjustments to compare it to what's happening in 2023.
No.
Relatively is consistent with what we said I mean part of what Youre getting is a normalized versus a normalized without PARP power pass through and so the difference between those two is we're saying that if you.
We would've done a little bit a little bit better had we had we not been exposed to that that Singapore exposure.
Thanks, and then just on the cost for 2023 meeting as yet that are there any specific sales or operational investments.
Yeah definitely let me give you a little color on that Mike So we.
The investments that we already have and I've talked about this in a few different forums that.
We are we're holding a pretty tight line on G&A.
We are definitely investing in the go to market engine.
So that's a clear area of investment I think we will be approaching closer to 700 quota bearing heads and so so we've definitely made that investment some of those or are many of those were already on board at our connect sales event sales kickoff event and are Raring to go for the year.
But we're still adding some as we speak.
Product.
Is it really not an area of significant incremental investment, but we are adapting sort of exactly how we're spending our product Tuttle investments Scott.
Scott Crenshaw come in on the digital services side, and I think we're evolving our areas of focus we're going to continue to focus on and we think metal continues to have significant opportunity network edges is continuing to see momentum in the market, but I think evolving metal to be a more foundational platform for the ecosystem to bring value.
Our platform is something we see a lot of value in and so.
We're excited about the BMC, an equinix side that partnership with Vmware and.
And I think that's sort of a more of a sort of the color of things to come in terms of more of an investment in the ecosystem and so I think thats something youre going to see them.
And then.
And then.
We're also going to probably make some efficiencies and continued efficiency programs that we think are going to drive long term either power efficiencies in terms of improvement.
And and <unk> labor efficiencies in the business because we do believe that at some point down the road, we're gonna have to use.
<unk> expansion as a way to drive <unk> per share growth. If you look at the current guide, it's really being driven by top line growth.
And then flow through right and so and we're but at a very healthy margin. So.
Absent.
The PPI worried about 48% margin a little bit of an increase about 10 bps from where we would've been in 2022, we would have been higher than that because we are delivering operating leverage on G&A.
And in other areas of the business, but we've reinvested it into those areas that I just described for you.
Thanks, and just finally on some examples of the ways that you'd like to enrich that platform in terms of the priorities you were sharing with us earlier in the call.
Sure a couple of areas one is definitely on that ecosystem enablement side, we've got to make it easier for partners to bring their value to the platform and so I think in terms of how we think about.
Enabling them from the software side with API richer API as an and.
Easier easier and easier experience for customers and partners, improving our portal and our and our software.
Our software level programmatic engagement opportunities be it at the API level, that's clearly going to be an area of investment and then making the platform easier to use and more consistent I think we've that's one of the things we've heard from our channel partners, making it easier for them to quote and.
Thanks very much.
Thanks, Mike.
Yeah.
Our next question will come from David Barden with Bank of America. Your line is open.
Hey, guys. Thanks, so much for taking the questions.
I guess, Keith you'd probably expect this question, but you.
If I take your fourth quarter revenue and multiply it by four I add the $350 million of power pass throughs and I subtract from the midpoint of your 2023 outlook. The math suggests that you're telling us we're going to see mid 30 million per quarter sequential revenue growth versus.
What we saw in 2022, which was closer to mid forties. So I just want to make sure I didn't mishear anything about the strength of the platform and other things that we might need to be concerned about and then I guess my second.
Western is other than.
Raising your revenue growth guidance over the course of the year as we think about the the June analyst day Charles.
What are you what kind of expectations do you want to set that we're gonna here.
When we get to the mid year time. Thank you.
So let me take the first question, David and <unk>.
Thanks for doing the math.
<unk>.
Let me, let me start off at the highest level, we expect to book more and more in 2023, then we put it on a net basis than we did in 2022. So you can see that the business is going to continue to perform.
At a nice clip, there's a lot of nonrecurring activities that go on in the business, particularly around X scale, but I would say that ex scale. In addition, we expect to do more in 2023 than we did in 2022.
<unk> got some currency movements in some relatively media movements, but currency is now.
Starting to feel like it's at our back but as I said.
2023 rates are still below the average rates of 2022, and so you're taking a little bit of a hit in the order of magnitude of that hedge is to give you a sense on the averages it was about $160 million to the topline.
So you run a little bit going on there, but I think if you go back just to the fundamentals.
All else being equal.
If currencies continue to move as they had been although we're being a little bit of a blip over the last couple of weeks.
Another 10% move in currencies as a substantial uplift in our revenues.
And so not only what it recapture the averages that we saw in 2022.
To give you more wind or your bag for 2000 22023.
And so bottom line is there is nothing fundamental we're obviously, giving you a little bit wider range given the economic environment that we're operating in today.
That was very deliberate.
And it's very early in the year and so for those reasons I say look that that's the guide.
Got a wide range in <unk>.
And we're planning to execute against the plan that I just mentioned.
So in terms of the analyst day, I mean, I think we will that.
We will actually be.
<unk> progressed, well into the year and I think we will be able to give you a continued update on momentum in a number of areas.
But I think we will also continue to give you visibility in how we're evolving.
They are driving the evolution to a more comprehensive platform value proposition, we really talk about being a.
The infrastructure platform of choice for customers as they implement hybrid and multi cloud as the architecture of choice and so I think updating you on what that means for our sort of traditional interconnected colo business and what that means for expansion of the platform.
<unk> improvement of the of the customer experience and then on the digital services side, how will continue to evolve platform in terms of the service offerings of rare with probably a real focus on on metal as a foundational piece of that and then also on cloud networking networking is definitely an area of value add that we have always had for our customers.
And I think an area that we can continue to evolve the platform in terms of how we make it easier for customers to interconnect a variety of forms of infrastructure in a in a very cloud centric world and so I think we will do will talk you through those those evolutions of the strategy and update you on where we're making investments and <unk>.
We see the long term out like playing out as a result.
Okay looking forward to it thanks, Charles Thanks, guys.
You bet yeah.
Our next question will come from Eric <unk> with Wells Fargo. Your line is open.
Oh, great. Thanks for thanks for taking the question so.
Curious on your development pipeline I think it's about as big as I've ever seen in terms of new expansion capacity, maybe you could talk about based on pretty tight industry supply what kinda fill rates or utilization rates do you expect to deliver a new development if it happens faster happening faster than it has in some.
Historical periods and then in terms of developing cost inflation that we started to see that cost curve flattened out and do you think that to some extent could dictate how much of your ability to raise rents excluding power pass throughs as we look throughout the year.
Yeah, I mean, we're definitely starting strong fill rates in there that's informing the continued investment in the development pipeline for <unk> and <unk>.
I would say that.
So that's.
That's that's clear and I think we're seeing we're underwriting to return profiles in light of that that I think are very consistent with what we've seen in the past.
I definitely do think on the second part of your question that we are.
We've seen a meaningful uptick in cost and we are expecting anticipating and managing toward increases in pricing to maintain.
We maintain a more consistent return profile.
Thus far I think we're seeing that that our ability to have those.
Have those price increases materialized in the market in other words, our pricing power remains strong so I think and in terms of weather there.
Stabilizing.
Do think that this as Keith said the supply chain situation I think is a bit more stable and we were I think do too good a good strong execution on our part and our scale in some of the capabilities. We have I think we managed it quite effectively.
We're continuing to be diligent about that going forward. So I think we've stabilized a lot of the risks on the on the supply chain side labor is.
An area to watch for us, but but overall I think feel very good about the underwriting a lot of it is still going into our core campuses that have sort of a really really well established track record of fill rate.
But then we're also seeing some of our new.
Newer edge markets.
Continue to perform well ahead of expectation so yes.
Yes, Big Big development pipeline, managing it well and I think feeling good about our about our ability to sort of perform to that underwriting.
And Eric Let me just add Greg maybe to what Charles has said and again.
Prepared remarks, one of the things that was really important that we wanted to share with her with or are the group here is the fact that we're funding the business. So we not only have the cash on the balance sheet, we're bringing capital cap more capital on the balance sheet to fund.
449 major projects that we have at least announced thus far across our across many many many metros.
And we're going to be in the 75 metros.
Not too far from now and so you.
So you got a sense that one.
The capital plan is increasing we think we've got the supply chain well secured we have a really good.
Our procurement team in strategic sourcing team them that make sure that we have have the resources available.
And then you've got a global design and construction team, they're doing just an excellent job delivering the capacity as quickly as we can deliver it and it's tough out there at in some markets.
But I think it was really important to understand not only the volume there we've got strategic planning sourcing in place we have the capital that we need and we're setting ourselves up to fund all of those things through 2020, three and put us in a really good position as we start 2024, and so leverages now kind of shifting in any meaningful way. So it gives.
Is that an enhanced flexibility.
At the same time, we've all effective pre funded a lot of the costs into the model and we are not enjoying the benefits of this large expansion are those growth initiatives that Charles has alluded to both on the physical side and on the digital side and so it's the combination of all of those things that really give us.
Make us feel very good about our capital plan, our balance sheet and liquidity position, we're in right now.
Great. Thank you both.
Thank you do we do have time for just one more question. Our last question will come from Nick del Deo with SBB Moffat Nathanson. Your line is open.
Hey, Thanks for squeezing me in guys.
First Charles you noted that interconnection adds were a bit soft due to seasonality grooming and some virtual interconnection has been consolidated I guess can you just expand a bit more on <unk>.
What's specifically driving those trends the relative importance of each one and why you feel comfortable that it's going to normalize over the course of the year.
And then second in the current environment and you've got customers more cautious about spending in general, but maybe more averse to.
Capital outlays.
You see that as sort of a net neutral for services like metal or a net positive or net negative and do you feel like you're educating your customers appropriately today to take advantage of them.
Yes, great questions.
Starting on interconnection.
Feel really good about the interconnection business overall growing at 13%, we're clearly being able to make adjustments to interconnection pricing alongside broader list prices. So you know the pricing element is strong there.
As I said, we did see a little.
Weaker Q4 is seasonally a bit weaker but definitely this Q4 is weaker than prior Q4s.
And I think there is there is some consolidation yes, I think it's partially due to just as I said the behavior of customers four.
Interconnection is probably as close to we have to a usage based service some of our some of our digital services are more usage base, but in the interim or the Colo environment.
It's as close as we have to usage based services when people things start to get paid people immediately look at the things they can impact the fastest and so I think it's pretty common for them to look at the portfolio and say do I have any interconnection that I'm not using or underutilized that can consolidate on the higher circuits and I think that some of the dynamic that.
We're seeing so.
I would expect and then we did see a little bit of.
In terms of visa.
Virtual sbcs to cloud Z ends a little lighter on a gross adds still very healthy gross adds by the way because the cloud, but I think cloud workload migration continues a very full tilt.
Sort of what.
What people are saying about the.
Reducing growth rates of their cloud business, we're still seeing that vary but it is it is low a little bit lower in terms of gross adds in it than it was and so.
But I think that that we tend to see that so those kinds of dynamics as a something that's a bit of a bit of a burst of activity as people go through budget cycles, and then they kind of run out of gas on their ability to sort of.
Sorry to squeeze more out of that and so.
We will monitor it closely I continue to feel like the bottom line is that our customers really.
We really see our interconnection platform as fundamental to how theyre thinking about go forward.
Grid multi cloud architectures, and so I think the demand profile for the business or the interconnection of our long term is going to continue to be a be really strong and then on the on the second part around digital services I definitely think that we're starting to see a a realization from customers and the ability of our sales teams to articulate.
<unk> that.
Services like like metal and their ability to deliver more on demand infrastructure that can help customers be more agile is something we're seeing an inflection point on <unk>.
We won some very marquee deals in in Q4 of last year I think we're seeing very large service provider and enterprise customers starting to sort of test the waters I think they see it as an opportunity to reduce their lifecycle management of technology obligations.
And I think to be a lot more agile.
How they implement infrastructure and so I think we're definitely seeing the front edge of that I think we're seeing a lot of excitement about things like VM.
<unk> Vmware cloud on an Equinix battle.
And so I think that will continue to be quite optimistic about that piece of the business, but we're definitely learning how to effectively sell that and how to sort of get in front of different personas and and I know Karl on the go to market teams are are really evolving our approach there in those areas, but we feel very optimistic about it.
Okay and do you feel its current environment helps.
It helps that selling proposition or kind of makes it more challenging.
So again I think it helps in many respects I think I think overall people are looking for a way to advance their digital agenda that they have and do it as efficiently and as effectively and as with as much agility as possible and so so.
Again, we've seen strong demand I think that the those services that are more more on demand more agile I do think have an increasing level of appeal to customers.
Okay. That's great. Thank you Charles.
Thanks, Nick.
This concludes our Q4 conference call. Thank you for joining us.
Goodbye.
That does conclude today's conference. Thank you for participating you may disconnect at this time.