Q2 2019 Earnings Call
Okay.
Good afternoon, and welcome to the equity <unk> second 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 Katrina Rymill, Vice President of Investor Relations you may begin.
Thank you good afternoon, and welcome to today's conference call before we get started I'd like to remind everyone that some of the statements we'll be making today are forward looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the FCC, including our most recent Form 10-K filed on February 22nd 2019, and 10-Q filed on May Threerd 2019.
Acronyms 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 echoed this is policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call.
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 todays press release on the Equinix IR page at Www Dot Equinix Dot com.
We have made available on the IR page of our web site a presentation designed to accompany this discussion along with certain supplemental financial information and other data.
We would also like to remind you that we post important information about Equinix and I are paid from time to time.
I 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 an hour we'd like to ask these analysts to limit any follow on questions to just one.
At this time I will turn the call over to Charles.
Thank you Katrina.
Good afternoon, and welcome to our second quarter earnings call.
As you can see in our results we continue to enjoy significant momentum in our business, our ability to deliver distinctive and durable value for our customers as they pursue their digital transformation agenda is fueling strong bookings performance and accelerated new logo capture.
Our platform continues to be highly differentiated due to our superior global reach vast operating scale and the power of our interconnection platform separating us from other data center providers and positioning us as a trusted center of a cloud first world.
We continue to execute well against our strategy, achieving our second best gross bookings quarter with incremental deals from more than 3000 of our customers and strong cross border bookings driven largely by the Americans team.
We achieved our 66 consecutive quarter of revenue growth tops, among S&P 500 companies and we now serve more than half of the fortune 500, with a record number of Fortune 500, global two dozen prospects still in the pipeline.
The diversity volume and velocity of our selling engine continues to shine.
Generating over 4000 deals in the quarter with the majority comprised of small to mid sized multi metro deals, reflecting the tremendous health of our interconnection centric retail business and foreshadowing future land and expand opportunities as these customers using equinix as a nexus for implementing their hybrid and multi cloud aspirations.
Our global reach continues to fuel our topline with revenue from customers deployed across all three regions ticking up to 61% and multi region revenues at 73%.
We saw substantial progress against six priorities I outlined at the start of the year, including evolving our portfolio of products expanding our go to market engine, including channel and delivering on our Hyperscale strategy. We signed their first Hyperscale JV, a greater than 1 billion dollar deal with GE IC, Singapore sovereign wealth funds targeting development projects across Amsterdam, Frankfurt, London, and Paris to serve the unique core workload deployments for a targeted group of Hyperscale companies.
And we continue to expand our global platform was 30 projects underway, including Fivex scalar builds in Q2, the openings in all three regions, including Chicago, Madrid, Osaka purse, Seattle Sofia and Tokyo.
Digital transformation continues to be a top priority for our customers in a variety of key trends are making them think differently about their infrastructure. We're responding to this change in demand by both investing across our traditional strengths and layering in incremental capabilities, we're expanding our data center footprint enhancing our market, leading interconnection platform and have now launched the first offering in our planned Ed services portfolio positioning equinix as an easier to use more valuable and more accessible platform and driving attach rates that will help us sustain and enhance cabinet yields over the coming years.
Turning to the quarter as depicted on slide three revenues for Q2 were $1.385 billion up 10% year over year adjusted EBITDA was up 12% year over year on year and AFFO was meaningfully ahead of our expectations due to strong operating performance.
Our interconnection platform continues to perform well once again outpacing colocation revenues growing 13% year over year as our ecosystems continue to scale.
These growth rates are all on a normalized and constant currency basis.
We now have 348000 interconnections over four times more than the next closest competitor in Q2, we added an incremental 7000 interconnections with strong growth in virtual connections for our Internet exchange platform, we're seeing strength in the APAC and EMEA markets with IMAX provision capacity up 30% year over year.
Yes fabric, our SDN enabled interconnection service now has over 1600 customers, we're seeing increasing adoption of bcxfour, new use cases, including a diversification of IC xcenda and destinations and more frictionless hybrid multi cloud deployments enabled by apiay level integration between FCX and market, leading cloud and network providers.
In Q2, we also launched network edge services and NFP offer that provides enterprises, a faster easier and more efficient way to deploy virtual network services at Equinix as we extend our portfolio of interconnection offerings.
Customers can choose Virtualized services, such as routers firewalls and load balancers from industry, leading partners, including Cisco Juniper and Palo Alto networks.
Early customer response has been great. We that we have a healthy pipeline ahead, and we're working to build out the service offering with additional partners in locations over the coming quarters.
Now, let me cover some highlights from our verticals.
Our network vertical experienced solid bookings led by growth in EMEA and strong resale activity from our top Global network partners. We also continue to deepen our network density with over 1800 networks now available on platform Equinix, including every network provider in the fortune, 590% of those in the global 2000.
New wins included a Chinese telecom provider, serving 40% of Chinas Internet users and wander us regional ASP deploying infrastructure to launch wireless services for West coast residential customers.
Our financial services vertical achieved record bookings led by capital markets banking and insurance sub segments as firms embrace digital transformation.
Expansions included a key win with CMV group, a top three global exchange re architecting their network and securely connecting to ecosystem partners and Hanover life reinsurance a top five global insurer deploying infrastructure and connecting Tcs fabric.
Content digital media vertical vertical produced solid bookings led by the Americas and strong growth in gaming and polishing sub segments.
Expansion wins included Akamai, a top content distributor extending coverage and scale and supporting existing security solutions and Zynga, a leading mobile gaming developer expanding across platform equinix to support enterprise.
Our cloud and IP vertical capture record bookings led by the APAC region, and the infrastructure and services sub segments Equinix continues to be the leading solution for cloud connectivity today with over 40% of all cloud ramps from the top cloud service providers in our ibxs across our Metro's expansions. This quarter included a fortune 75 technology company hosting unified communication services and service now expanding its footprint to support is rapidly growing customer base.
Our enterprise vertical experienced diversified growth with particular strength in travel legal and healthcare sub segments.
New wins included a global builder and operator of toll roads ennobling, enabling aiotv smart transportation systems, and tapestry premium a leading fashion brand implementing a multi cloud strategy as well as expansions, where the top three Foodservices company re architecting their network to enable data access and analytics.
Our channel business had another great quarter with broad based strength driving over 25% of bookings and accounting for 60% of our new logos as we deepen our engagement with high priority partners to significantly amplify our go to market reach we are focusing our efforts on driving more productivity and joint offer creation across our reseller and alliance partners, which include Amazon HKG, Microsoft Oracle, Orange, Telstra, Verizon and Wwt.
New channel wins this quarter included a win with Telstra for genomics, England solving for cloud connectivity to increase computing storage and resiliency.
Now, let me turn the call over to Keith cover the results for the quarter.
Great. Thanks, Charles and good afternoon to everyone.
Well after a very strong Q4 to enter the year, followed by our best ever first quarter.
Great to now discuss the continued momentum we see in the business has reflected in our Q2 results.
We had better than expected gross and net bookings in the quarter, including strong cross border activity. In addition to healthy core operating metrics.
This is simply another positive indication that our strategy is bearing fruit.
As platform Equinix continues to differentiate ourselves from our competitors as a result, we are raising 2019 guidance across the board, including a substantial raise in our key AFFO and AFFO per share metrics due to better than expected revenue performance and improved operating leverage in the business.
And as you might expect we are delighted to have received our second investment grid and solid investment grade credit rating from Fitch, a clear recognition of our efforts to improve our debt leverage and liquidity position.
Also this quarter, we are very excited to announce or Hyperscale JV partnership with GE I see.
This joint venture will provide us the opportunity to make significant capital investments to capture targeted and strategic large footprint deployments, while maintaining a strong and flexible balance sheet.
Upon closing of the joint venture, we expect to receive net cash proceeds from the sale of our London, 10, and Paris eight Ibxs another development properties as well as other proceeds related to the reimbursement of net costs incurred and fees earned from the joint venture.
We're delighted to be partnering with GE IC and we'll continue to work hard to close the transaction in Q3.
Now let me cover the quarterly highlights note that all growth rates in this section are on a normalized and constant currency basis.
As depicted on slide four global Q2 revenues were 1.385 billion up 10% over the same quarter last year, reflecting better than expected recurring revenues and lower than expected nonrecurring revenues due in part to the mix of small and medium size deals closed in the quarter.
As we've stated before and our activity is inherently lumpy.
We expect to NR as a percent of revenues to decrease modestly from current levels for the second half of 2019 consistent with our comments on the prior earnings call earnings call.
Global Q2, adjusted EBITDA was 677 million up 12% over the same quarter last year and better than our expectations largely due to strong recurring revenue performance and timing of certain costs incurred.
For the second half of the year. Despite increased adjusted EBITDA guidance, we expect it to continue to invest in our growth and scaling initiatives, which includes expansion drag related to new markets and leases, while also incurring higher utility spend across the platform.
Global Q2, AFFO was $498 million, a 14% increase over the same quarter last year, largely due to strong operating flow through and lower net interest expense.
Recurring capital expenditures increased $16 million over the prior quarter as planned.
Q2 globally Marcher was 2.4%.
Better than expected.
We expect MMR churn to remain within our guided range of 2% to 200% per quarter over the remainder of the year.
Now turning to regional highlights whose full results are covered on slides five through seven.
Deepak them here with a fasted am are growing regions at 17, and 13% respectively on a year over year basis normalized basis.
Followed by the Americas region at 5%.
The Americas region saw continued momentum, including strong net bookings solid pricing as reflected in our MSR MSR per cabinet metric.
On a high mix of small deals, including a healthy level of cross border activity.
That's fair to say the Americas region fully embraces the global platform vision and remains a strong source of deal flow for the other two regions.
Our EMEA region had another very strong quarter led by our UK and Dutch businesses.
We saw robust increase in billable cabinets and interconnections.
As you're aware, we've been opening meaningfully new capacity across our flat and emerging markets and nicely consuming this inventory.
We opened new capacity in London, and Madrid, and Sofia this past quarter.
In Asia Pacific region delivered solid bookings across the region, mostly driven by small to medium sized deals led by our Singapore and Australia businesses.
And we booked our first deal into our soon to open sole IBX.
And now looking the capital structure, please refer to slide eight.
Our unrestricted cash balance is approximately $1.6 billion flat over the last quarter as the operating cash flow and proceeds from the ATM program were offset by higher capital expenditures debt repayment and our quarterly cash dividend.
Our balance sheet and liquidity position continues to create a strategic advantage for us.
Our net debt leverage ratio dropped to 3.4 times at Q2 annualized adjusted EBITDA well within our targeted range.
Our strategic strength lower debt leverage increased asset ownership and a commitment to use both debt and equity to fund our future growth drove our second investment grade rating from Fitch and establish us as a full fledged investment grade rated company.
Reaching this milestone ensures that we have market access to a deeper pool of investors at a lower cost of capital provides a greater set of immunity to the macroeconomic environment. We now operate in.
We also expect to drive substantial interest rate savings into the business over the next few years fourth as we refinance our current outstanding debt load and as we borrow new incremental funds to invest in our future growth initiatives.
Turning to slide nine for the quarter capital expenditures were approximately $444 million, including recurring capex of $37 million.
We opened seven new builds including two new IBX is one in Sofia and the other in Tokyo.
For the quarter, we added 3300 cabinets to our available inventory.
And we continue to purchase land for future expansion. This quarter, we acquired land for development in Madrid.
Lastly revenues from old assets remained at 55%.
And our capital investments deliver strong returns as shown on slide 10.
Our 138 stabilized assets increase recurring revenues by 4% year over year on a constant currency basis, an improvement over the prior quarter.
Our stabilized asset count increased by a net four ibxs as we're now including the applicable metro node assets and our stabilized count.
The stabilized assets are collectively 85% utilized and now generate a 30% cash on cash return on the gross PPD invested.
Finally refer to slides 11 through 15 of our updated a summary of 2019 guidance and bridges.
Please note that quarter over quarter growth rates for both revenues and adjusted EBITDA are now updated to include the expected impact of the Hyperscale joint venture closing in the third quarter.
And certain other onetime adjustments as shown in our earnings deck.
For the full year 2019, after absorbing a $7 million reduction in revenue attributed to the sale of our ibxs to the EMEA Hyperscale JV.
We are raising revenue guidance by $10 million and our adjusted EBITDA guidance by $15 million, primarily due to strong operating performance in the business.
This guidance applies a revenue implies a revenue growth rate of 9% year over year and a healthy adjusted EBITDA margin of approximately 48%.
Also we are reducing our 2019 integration cost to 11 million a $2 million reduction.
And given the operating momentum of the business, we continued to improve to improve our AFFO and AFFO per share metrics.
After absorbing a net $5 million reduction and AFFO from the sale of our Ibxs to the joint venture we are raising our 2019 AFFO by $25 million.
A growth rate between 13, and 14% compared to the previous year largely due to strong adjusted EBITDA performance and a lower net interest expense.
If AFFO per share is expected to grow between eight and 9% which includes the dilutive impact from both our ATM program and the prior equity raise.
We have assumed a weighted average 84.6 million common shares outstanding on a fully diluted basis.
And we expect 2019 cash dividends to now increased to approximately $825 million, a 13% increase over the prior year and reflects an 8% increase year over year on a per share basis.
So with that I'm going to stop here and turn the call back to Charles Thanks, Keith.
In closing, we're delighted with the performance of the business and we continue to execute with focus and urgency against our priorities, we see a large and expanding market opportunity and believe we are uniquely positioned to capture this opportunity as customers embrace digital transformation and adopt hybrid and multi cloud as their architecture of choice.
We remain confident that the reach and scale of our global platform the breadth of our ecosystems the strength of our interconnection portfolio and the depth of our balance sheet will allow us to further extend our market leadership.
We are continuing to scale our go to market engine enrollment maintain our focus on operating leverage.
Balancing margin expansion with additional investment in developing innovative new services and creating a robust partner ecosystem.
It will help us drive topline growth and sustain our industry leading return on capital.
We remain firmly focused on building a company that attracts inspires and develops the best talent in our industry.
Delivering distinctive and durable value to our customers and sustainable long term value creation to our shareholders bottom line. The company is executing well on a highly differentiated strategy to become the trusted center of a cloud first world. We're excited about the road ahead and look forward to sharing our continued progress let me stop there and open it up for questions.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on mute your phone and record your name clearly if you need to withdraw your question Press Star two again to ask a question. Please press star one.
Our first question comes from Phil Cusick with Jpmorgan. Your line is open.
Hi, guys. Thanks.
Well, let's just talk was about the company sort of potential to to grow either organically or inorganically from here.
Outside of price what are the important strategic characteristics that drives your decision to to do acquisitions from here.
And are there significant holes left in the portfolio you've moved into South Korea last year, what else is left that you really need to do thank you.
Sure.
Ill start and Keith can add on as needed.
Look we I mean, we definitely think there.
Substantial remaining growth opportunities for the business, both organically and Inorganically I think in particular, I think I'd focus on the organic side, which is.
Our customers are responding exceptionally well to our value proposition, we're seeing strong bookings growth new logo capture and really strong land and expand activity with those customers. So we're going to continue to focus on that as our as our primary growth factor that said I do think that there are.
We said it on multiple occasions, we think M&A is still a tool in the tool kit for us.
We have said that we think there are.
Gaps in the platform in terms of our opportunities to expand it and add to our our market leadership in terms of global global reach.
Weve talked specifically about a couple opportunities and areas, where our customers are asking us about our future plans. Those include India. Eventually I think they include the African continent for us and probably have another other select opportunities.
Including potentially Mexico, as a as an opportunity for us south of the border here and so.
I think there as you said will there. So we'll have to look at those carefully in terms of understanding that price for those.
Assets that might be available and and we'll be disciplined about that but I do think that those represent an opportunity for us for growth.
So I would just add to that.
Then on just to to what Charles said is there's two other things that certainly come to the top of my mind, it's new products and services and Charles alluded to NFI is one example of a new service that we're going to deliver but we're going to we're going to continue to invest around.
Product and service offerings, and then think of that as a potential for growth certainly continuing to invest in included in that is the Hyperscale initiative, albeit isn't is going to be in a JV in the majority of that the growth of at least on a cash flow basis would come below the line.
And then the last thing that sort of you feel it today's first for certain given the macro environment, we're operating in and with the strength of the U.S. dollar.
As a reminder, more 60% of the business.
In rough numbers is outside of the U.S. and we've got a with a strong dollar policy.
And soon to be maybe a weaker us dollar policy on a go forward basis Theres an opportunity on a common currency basis as our hedges flush out that that would provide an element of growth whether it's the breadth the matter, how we think about Brexit and the implications of that and how that's affected our revenue base out of out of the UK to other markets in Europe and beyond so I think there's a lot of opportunity for growth. In addition in addition to.
What Charles has alluded to.
That's really interesting on the currency side, if I can follow up once should we think of new capabilities of sort of relatively small tack on acquisitions to really drive the internal knowledge of the company or do you think of.
Bigger service acquisitions as possible. Thank you.
Well I think that in terms, our edge services portfolio, which is probably we're going to continue to grow the interconnection portfolio in terms of reach in services and feature function.
And then the edge services portfolio the first one off the.
Off the line so to speak is as the network edge, which is a little bit of a.
Blend between interconnection and these edge services, but.
I think that we are going to we probably will look at augmenting our capabilities potentially through targeted M&A.
But I think that.
We'll we'll be looking at and a lot of organic development in that portfolio.
Initially and over time, we'll have to we'll have to determine whether whether or not that warrants a more aggressive posture. There from services addition standpoint.
Thanks, Chris.
Our next question comes from Ari Klein with BMO capital markets. Your line is open.
Thanks.
It sounds like you're seeing some better momentum in the Americas can you talk a little bit about that market. What are you seeing there and how you kind of expect that growth that growth rate to maybe improve over next few quarters.
Sure, Yes, I mean, I think what you down to the Americas business for US continues to be an exceptionally attractive business its size.
The profitability of that business you look at it from a.
MHRA per cab standpoint, it almost.
$2400, a cab, it's really an exceptional business large number of customers and really good traction from the selling team not only selling our capacity local to that market, but as a huge outbound engine for the rest of the world and so.
We're super pleased with the performance of the business. It is growing at a rate that's probably roughly in line with the broader retail Colo Colo colocation market, but in some respects I think thats a bit of an unfair comparison because we are.
Yes, what I would say is our real addressable market is the market opportunity for Colocation services and deliver a 30% cash on cash yield and I will tell you our share in that business is substantially higher than.
Then, it's a very high share and in terms of being able to grow that business at market rate is I think an impressive accomplishment. So we still are seeing a little bit of headwinds from the tail of churn in that in Verizon assets in particular.
We talked about that it just continues to take a little bit longer to come out.
Then we had anticipated again net net that's a good thing.
But it does create some a little bit of headwind in that business, but.
Yeah, we see good success and I think now as we add new services like network edge.
In some of the other things I think we're going to continue to have the opportunity to sustain that business in a in a very positive way.
Thanks.
Our next question comes from Jon Petersen with Jefferies. Your line is open.
Great I wanted to talk about the.
Gee I see joint venture in Europe , you guys have been a little coy about the details I think towards the end and Keith Markey said is about a $5 million net net impact AFFO for the balance of the year, but I'm, hoping you can maybe give us.
Just a little more details on what we should expect for the balance of the year and then kind of the growth of that.
JV over the next couple of years.
Sure.
John the whatever but let me start off I just want to make sure. There is a clarifying comment so when we talk about the 5 million dollar impact.
That is basically from selling the assets to the JV. So we are reducing our full.
By $5 million because of that.
That all said as you're all aware, we're going to close the transaction in Q3, and we'll certainly update you on the next earnings call with all the specific details, but suffice it to say Theres a number of things are going to happen. The first thing thats going to be important for everybody. Note is the amount of cash proceeds that come back into the business given the sale of our pairs, our London 10 in Paris, eight assets and again, what we've said that we're going to get to.
At market or better.
Cap rate on basically the recovery of our cash flow.
We're going to get reimbursement of fees.
Reimbursement of costs, but we're also going to get our stake our 20% equity interest in the joint venture and so we're excited about that opportunity.
We've announced the two assets go in that or stabilizers potentially out of the gate for more as Weve highlighted in the in the earnings deck, but then we're going to be active elsewhere in the world and.
We really want to be clear this is not about getting getting into wholesale business. This is about as being very very strategic by the decisions, we make that would add value to the overall franchise and our platform and so we'll be very transparent about the deals that we do.
We'll share with the market, but they are going to be.
There's going to be a number of different jvs that we established over over the coming quarters and years that will will give you a good sense of the momentum and that value will come in typically through.
Through the income from affiliated entities, which will be below the line some of the fees will be.
The fee income that we learned from the JV will be on the topline and again Ob typically in.
Yes, typically on the top line, but that would just be the fee income. So there's a lot of discussion still to be add here that deals go to close but we're very optimistic about the decisions, we're making and were delighted.
By all get out with our partner I think they're going to be a great global partner for us that will go to almost any market that.
That we choose to partner and.
Great and then just maybe one follow up Im curious about the decision to I guess, essentially bringing g. I see as a development partner to kind of share in the.
The development like through the whole process versus.
Finding more of a takeout partner, where you can develop on your own balance sheet and then sell.
Into a joint venture once it's stabilized, which I assume would probably carry a lower cap rates just curious of your thought process around.
How you want to add to that capital to come in.
I think first recognizing as the first two projects, which are stabilized we're going to we're going to get.
Full return for the investment decisions, we've made including all of the development profit associated with those assets that said on a go forward basis. Our decision is not to take what we think is very dear capital and try and use that as a means to fund.
Our lower returning business, we think partnering with GE I see we're happy to share in those development profits because our focus is really on adding to the overall global platform in the retail business and we're going to consume all the capital that we have on our balance sheet and more as we've shared as we shared at the last analyst day on growing the retail business. So this is about making a good decision driving value into our shareholder base and at the same time, augmenting and I said to upset on a number.
At a number of investment meetings between the new services, which includes the Hyperscale and the new.
Interconnection services were not only.
Sort of widening our mode. We're also deepening the moat around our business and I think thats just a good use of our capital and let our partner participate would participate with us at appropriate returns, we'll get we'll get outsized returns because the fee income that gets attached to to those levered returns.
Great Thats very helpful. Thank you.
Okay.
Our next question comes from Colby sign to solve with Cowen and company. Your line is open.
Great.
I just have two modeling questions actually one is on the ATM that 348 million.
That you raised in the quarter.
A bit surprised just considering you just on the.
Equity raise the quarter before can you give us any color on.
Expectations for the remainder of this year.
To extent possible and secondly.
Kevin and cross connects they were down.
Quarter over quarter, and just taking into consideration the developments and how much you are building out.
Any color on what we can expect for both cross connects and I'm talking about physical cross connects and cabinets.
As we go into the back half of the year as well. Thank you.
Why don't I take the first one coping Charles will take the second one on the ATM.
We've always said that we would use it.
Probably the right time and as a company we knew what our funding what our funding needs where.
Between now and the end of the year and as we looked into 2020, and we always felt that it would be a little of that always be a little bit of ATM that we take off the table at the right time, and certainly with market conditions being as volatile as they were I was doing this deal that ticket using this ATM.
Roughly an average price of $485 a share we said we thought it was the right. The right thing to do having said that in my prepared remarks, I really wanted to I was trying to highlight or new ones that as we look forward a lot of our our capital needs will come from debt. So we want to make sure that we continue to balance that debt.
Look at the.
Capital source with debt and equity, but this was a unique opportunity because one we knew that we could get to the market and the market.
We've got a good price for.
To sell the equity for our shareholders yet at the same time. It also assure does have that second investment grade rating.
And so you saw the market reaction after that.
It it was very very positive and ultimately when I step back and I now reflect on what we potentially could do to save from an interest perspective, we historically said it could be a $100 million I believe today given market conditions and also because of that second investment grade rating that that number can it can now be between 100, and say a 130 $140 million of cash interest savings over some period of time and that's that's what really excited us is making sure that we have the liquidity to position the strong balance sheet will use the ATM sparingly, but on a go forward basis I would tell you that the Madrid absent any M&A or any other strategic things. We would we would typically focus more on the on debt than anything else at this point.
And then.
Taking the second one called me the relative to cabinets.
We feel very good about the momentum in the business. We've always said that sort of cabinet cab adds is one that can be a little lumpy in depending on timing and various other factors and so.
We really encourage folks to look at sort of rolling four quarter average.
As sort of an indication of the health of our ability to translate capacity into.
Certain utilized and billable cabinets and when you look at that we think that the trajectory across all three regions continues to be.
Very strong and again, we have added a lot of capacity.
It is and it also is important to note that we are doing that with.
A very attractive deal mix.
And so.
Large deals our way to add cash a lot of cabinets. They are just not a way to add as much value and so I think what you're seeing is shifting in our mix.
And still being able to deliver the cabinet additions that we think are.
Appropriate and attractive, but doing that at much higher returns and so.
So we feel good about that overall and again, we encourage you to really look primarily at the rolling four quarter average as the as the primary metric and then relative to interconnection and cross connects physical cross connects in particular.
Solid quarter, we were started right at the bottom end of our range.
I do think that we're seeing.
It's a little bit of the continued 10 to 100 gig migration.
Sort of impacts in terms of slowing that down a little bit but gross adds continue to be very strong.
And and when you combine that you look at it then you add in the virtual.
I think you're seeing a number that that looks very good and recognize that both of them are very important to us and actually were very similar economics, we've talked about that previously which is.
Our our ARPU and return profile on virtual interconnection is actually every bit as good as as physical and so it's a matter of just the customers choosing a different.
You know different.
Different tools for different job so to speak and so I do think that we're going to see I think we would kind of stick by our prior views on this sort of evolution of 10 to 100 gig migration.
Flattening out at the end of this year and and we think that will represent some upside in the Americas.
As we go into into next year. So interconnection overall, we feel great about 13% year over year over year growth I think we're seeing some improvements and pricing globally.
And again strong performance on the platform overall.
Great. Thank you.
Our next question comes from Frank Louthan with Raymond James Your line is open.
Great. Thank you can you comment a little bit on on the Americas business, and what you're seeing in pricing, particularly in in Northern Virginia.
And then I have a follow up.
Sure, Yes, I mean, it's interesting because I I think that revolves around the.
Some of the others, who have reported some of the challenges in northern Virginia, which I think revolve primarily around the hyperscale business and large footprint capacity and sort of supply demand dynamics of that business.
I think that as we've said in the past.
We're kind of taking a pass on on playing in that in that market relative to hyperscale in northern Virginia.
Instead, we're kind of at the center of that universe relative to interconnection.
And relative to sort of the overall ecosystem and in that market, which again continues to be the largest colo market in the world and so.
So I think there is going to be I think there's some sorting out at the Hyperscale side is impacting pricing, but it's it's not really having.
Significant effect on our business, there, which we continue to see strong levels of interconnection, good solid cabinet yields and pricing and feel like we really plan a differentiated position there in terms of the center that ecosystem.
Okay, Great and I believe you will raise pricing in Europe earlier in the year did was that pretty much.
Those price increases pretty much played out the quarters anymore to bleed in.
To impact the back half now they're going to bleed in actually over a long period of time, we took a very measured approach in terms of how we wanted to go about normalizing those to what we felt were appropriate.
Market rates and we we did that for a variety of reasons because we we we really value the long term relationship with customers. We want to do that in a way that is measured but we also want to make sure that we're getting a fair return on what we think is an exceptionally high value service and so.
The way, we've done that as we've rolled them in at renewals typically and so they're coming in as as Weve already changed the price on new ads.
And so those will begin to obviously to have an impact and then others will roll in on renewals over over the coming quarters and years. So it will be a bit of a slow slow growth there, but we think it will have a positive impact and sort of ongoing lift in in that business.
Any competitive reaction from that.
I think I think that what we've seen is that there's you know general.
Stability in that market in terms of people delivering.
I think theres been some upward lift in the overall market pricing and so.
And again, I think thats, a reflection of the value delivered to the customer and so so overall it seems to be going well.
Great. Thank you very much you bet frame.
Next we will hear from Tim Horan with Oppenheimer you May go ahead.
Hi, Thanks, guys, the 40% of all cloud on ramps could you just elaborate on that a little bit what do you mean by that.
Do you think thats been growing as a percentage of share and will platform Equinix is that designed to capture more of those onramps broadly speaking thanks.
Yes.
Yes, it's it's a great question, we will.
I don't know that we'll continue to grow share on the on the on ramps because I think that we most most of the providers are looking for some level of reserve redundancy and they're looking for oftentimes multiple Ron ramps in a market.
Dave very frequently led with us.
And so that is where I think we jumped out with a very large share position.
And so I think we can we can continue to grow with them and as our geographic footprint expands hopefully continue to maintain very very high market share ratings. There. If you look at it in terms of a coverage from a coverage standpoint in the markets in which we operate.
Set we have 70% coverage of Onramps with the large move into larger largest cloud service providers and 40% share overall, so it's going to continue to be an area of focus for us we think that the combination of us being able to continue invest in sort of the retail centric portions of our hyperscale relationships with Akron X and focus our balance sheet firepower on that and then being able to leverage the strength of our ex scale JV with GE I see to pursue the large footprint is really absolutely spot on the right strategy for us and we think we're going to continue to play a very differentiated position in the overall cloud ecosystem.
And can you add many new products the platform Equinix and I guess going to be like material business for you.
Yes, and yes.
I think that.
The edge services portfolio that we're looking at I think network edge services.
Is absolutely capable of being a meaningful contributor to the topline over over a period of years.
And as we look at other augmentations to our edge services portfolio.
I think we absolutely think those can be meaningful.
Additions and we and we think that they can.
Comment comment attach rates.
Strong attach rates and low cost to sale that we think will will prove out to be very very attractive economics and won't be able to allow us to sustain our return on invested capital at our market leading rates.
Thank you.
Our next question comes from Simon Flannery with Morgan Stanley . Your line is open.
Thanks, so much good evening.
I think I'm, Keith you talked about on the EBITDA. Some delayed spend can you just give us a little bit more color around that and then just coming back to your comment on the currencies can you just remind us of the hedges that you have right now and what the remaining term are you do you have any hedges that extend deep into 20 or is it pretty much say six nine months left on the existing hedges. Thanks.
Sure. Thanks for the questions Simon.
I think as it relates to EBITDA and when we talk about delayed spend.
Again as a company.
You know as you recognize we've been able to increase our EBITDA guidance. This year relative to the beginning of the year, roughly $45 million and $70 million at the AFFO line.
And part of that of course is timing and timing relates to things that we talked about the outset. When we when we highlighted some of the areas that we were we expose the pinedale. Two this year. It was about expansion growth rate that we've never seen before.
Through the second half of the year, you're going to see some of those costs come in.
Whether it's the weather's sole or Hong Kong, Singapore, where we're making substantial investments for future opportunity and those costs will run through the Pinedale now will affect us by roughly $7 million through the second half second half of the year incrementally and then utility spend as we have said utilities are going up and were felt it.
We've experienced a lot of it both from a pricing perspective out of consumption perspective, and that's going to hit us by roughly another $7 million. So there's $14 million of costs that were we anticipate at least we've embedded into our guidance that reflect reflect that outcome.
As it relates then to just currency, we hedge out we had Joe typically over eight quarters and as you can see in India in the stated guidance and we delivered with our press release, you can see that we break down our.
That's what it called the blended rate sort of not only the spot, but also the hedge rates right now with the euro the euro is roughly at 111, and we are hedged out at 117.
Pound is trading at 121 and were hedged at 134 and so it just gives you a sense I'm sorry, let me size that for you. The euro the euro is roughly 20% of our revenues and pound is 9% of our revenues.
And one of the things that was really really telling to me so.
Well quite a good hedge position of course, those will fall off over over again, the next six to eight quarters and we will continue to.
We'll continue to feather in future hedges and sort of smooth the impact of.
Of the currency movement, but the thing that was very telling to me as if you think about the UK sterling alone and from pre Brexit to sort of pre Brexit to where we are today.
The rate differential is roughly it was 161.
Dollars dollars to the to the pound and today is roughly 120, so theres a 40 cents movement and we have $500 million roughly 9% of our revenues are $500 million just for that for the pound to go back to its level pre pre Brexit I mean, that's roughly $170 million to us on the top line.
So you get a sense of how substantial these currency movements of being an impact that weve absorbed in the business over this relatively short period of time. So we're optimistic as things get back to normal one day whenever that one day will be.
It's hard to imagine anytime soon.
You're going to see the benefit that will accrete to this business because of our diversified.
Portfolio.
With a lot of growth occurring in markets outside of the outside of the U.S.
Great. Thank you.
Our next question comes from Michael Rollins with Citi. Your line is open.
Hi, good afternoon.
Just thinking back a little over a year ago, you provided some long term financial goals now had little more than a year of operating results.
In progress and I'm curious, how you see future performance relative to some of those annual goals, including the revenue target of 810% annually. Thanks.
Yes, Mike I think.
Relative to our analyst day, we what we talked about at our analyst Day last June .
We continue to feel good about that and I think that we've we've delivered.
In retrospect over the past year plus.
In strong fashion relative to those expectations and so and I think the results today, Sir another step in that direction. So again I think our business is performing very well I think we're we're comfortable with kind of what we had laid out there.
We think theres huge opportunity for us we think the expand the addressable market is actually expanding.
We think we are actually adding to it by continuing to deliver new and incremental services on top of what we're already doing and so yeah. We feel we feel good about what we what we articulated.
Thank you.
Thanks, Mike.
Our next question comes from Jeff Claw with Nomura Instinet. Your line is open.
Yes. Thank you very much I would like to follow up on Mike's question, a little bit it sounded as though in your prepared remarks that your organic growth is in the 3% range.
And it also sounds as though your intention over time is maybe to lean a little bit more on organic and inorganic.
For growth so I guess.
If organic is only growing at 3% of that 8% to 10% growth rate are you are you, suggesting that the organic growth should should tick up a little bit with some of these new products.
Or how should how should we think about that.
But I think I think you're referencing our stabilized asset growth at 3%, but our our combined growth is there much higher numbers. So I think our organic growth were again were comfortable in that in the ranges that we just had articulated so I think in fact, we just delivered a quarter that was 9%.
Year over year and so that.
Net that we feel very comfortable that the organic growth can sustain the range that we had articulated.
Okay. So ongoing ongoing capex that makes sense.
And Jeff.
I mean, we've stated over a five year period, when we delivered our guidance to two.
Astor's.
The June 18th Analyst Day, we said over the next five years, you should expect growth to be in eight.
And this is this is what I call them.
Non acquisition growth, 8% to 10%.
On a normalized basis normalized for currency movements and the like over that five year period and that was not a CAGR of those it would be play in that range depending on on.
Inventory development and timing of bills and the like but we feel 8% to 10% is a reasonable expectation from that 2018 through 2022.
Okay. Thank you and then on follow up I think.
Charles you talked little bit about being resilient to the macro.
It's been quite a while since there has been a.
A bit of a down turn in some respects and I'm wondering if you can sort of help us understand how your business has played in prior down cycles or how the business is different now from from prior down cycles.
Well again, I think our history in terms of our performance during down down cycles has been very very good.
And so I think that and I think the importance of our the infrastructure that we provide to our customers in terms of how they operate their business.
I think makes it quite quite resistant I think thats, particularly true as you look at how they use us.
In terms of.
Thinking through.
Things like.
Our priorities for our customers like ran re architecture, which is a way of improving the performance of their business, but also taking cost out and so.
And as they implement hybrid and multi cloud as a way to stretch their capex dollars and.
Dr. application performance those are things that we think we're going to be very very resistant to sort of fluctuations or are macroeconomic condition. So again, we feel good about about the strength of our business.
And I believe it will be very resilient through the macroeconomic cycles.
Jeff Let me just add one to one another a couple of quick comments here first and foremost as Charles said, we love. The fact that we can be resilient, we've historically thrived in periods of economic turmoil.
Yes.
Can't we can't sort of influence how the market reacts and at times and values our stock, but we certainly can take advantage of the of the opportunities and we've done that over the years. The other part that I think we really tried to highlight that today being an investment grade rated company, but understanding that we have $1.6 billion of cash on our balance sheet. We have an unused line of credit of $2 billion. We generally are generating a AFFO of $1.9 billion a year that and we said we think we can grow from.
It can grow meaningfully over over that five year period. Our leverage is 3.4 times. We've just partnered with GE I see for Hyperscale initiative, and our payout ratio over over an extended period of time is it's going to be in the mid to sort of low to mid fortys and so that gives us a lot of strategic flexibility as a company.
Thanks, Dan thing, we have to pull back we're absolutely. We've we've always felt we can push and pull on leavers as needed whether it's the operating spend or the capital spend. So we have a lot of we have a lot of.
Comfort in who we are and what we're doing and as we said in the prepared remarks, we think we're strategically advantaged relative to anybody else in our space.
Okay. Thank you both very much.
Our next question comes from Nick del Deo with Moffettnathanson. Your line is open.
Hi, Thanks for taking my questions.
First as we think about the new products and services that you're introducing or planning to introduce.
Other boundaries, we should consider regarding how far you're willing to push out for example limits in terms of your willingness don't hardware that customers consume virtually or services that might compete with customers things of that nature.
Yes.
What I would say is I think that we we view ourselves really as an infrastructure company and I think but I do think the way people think about consuming infrastructure is changing and I think we have to adapt to those changing market needs.
And be willing to adapt the how we deliver our underlying value proposition, which is centered around global reach ecosystem access interconnection and service excellence and sell.
I think that we will we are probably not likely to go way up the stack.
I think we are we are very comfortable being in infrastructure provider that is an enabler to other people's sort of broader digital transformation aspirations.
We believe we unlocked ecosystem value by combining our infrastructure value proposition with sort of a higher layer value propositions of our partners and I think thats proving out every day, whether those be partnerships that we have with the likes of our network service provider partners.
Or the the hyperscalers themselves.
Or or other things that we'll we'll continue to look at.
Further down the road, so I think that we're going to we're not going to go too far.
You know away from what we believe we're really good at but I also think that.
We certainly wouldn't shy away from things that are slightly different than than what our traditional business has been if that's what's needed to deliver the value proposition to our customers. So.
And in terms of.
Competitive overlap I do think that we are we really believe that we need to continue to be that that trusted partner. We have a our business has been built on an ability to be a sort of a neutral provider that gives people broad choice and access to.
You know a broad value proposition and I think.
Strategy will still within reason need to stick to stick to that that underlying heritage.
Okay, that's great and then.
I was hoping to get a funeral details on on X scale.
How do you determine what deployments go into X. scale versus what goes into equity mix.
Well a material amount of your current leasing shift index scale.
And how tight or loose as the exclusivity component of degree meant with the GE I say.
Yeah, Let me, let me take some and Keith can add on as needed but.
Really there is a pretty distinct difference typically in terms of a very large multi megawatt footprint and the requirements of that for hyperscalers as they look at it.
Availability zone type of deployments and they look very different than.
Than a typical either.
Sort of Onramp platform or network network node.
So.
Most of that business I think on the very large side of that we will try to direct to the x. scale.
Facilities, and so because we think that thats, a better way to allocate our capital.
And so so there will there are mechanisms in place for us to evaluate that and and again, if we if we have availability of capacity in an x. scale environment take on those very large footprint, we would prefer to do that just because that provides better returns overall.
Okay, just a follow up real quick I mean, I understand was that hits you know youve been willing to take some large deployments in your European footprint, you're saying that what exco is targeting is even larger than what you've done there historically well no. If you look at what we did in mind and 10 for example that was exactly that type of footprint and it was in a hybrid facility that now that that facility as being sort of recapture are being sold to the JV and so yeah. We were doing some of those and I do think that there are you know we talked a little bit is that this on either last on it.
Prior earnings call or last one or the one before that.
But we then we selectively done some of that in our hybrid facilities in Europe .
I think our preference would be to do that in the X. scale Datacenters, that's not to say it's out of the question that dynamic the dynamics of the market either from a capacity or availability standpoint would preclude us from doing something different.
But given our druthers, we would prefer to move that capacity into the into the X. scale JV.
Okay, and then regarding the exclusivity component yeah. So an exclusivity neither parties exclusive to the other but theres a lot of compelling reasons that we want to partner for long the extended period with each other and again theres the flexibility that we choose to do something that they are not interested in then.
And.
And then we can go do it ourselves or they can go do something there's theirselves, but overall you know we have to be careful theres no theres.
Theres no competitive tension in the markets that we operate in and that's what that's sort of the the understanding of the parties that we're not going to compete against each other in market, but there are there could be markets where.
Again, what are the other chooses to be in and the other is not interested.
Okay that helps thanks guys.
Our next question comes from here, Chris missing with Stifel. Your line is open.
Yes. Thanks.
And maybe just continuing with Ics skill.
How should we think about the particulars of the scale opportunity, especially around capacity. It at full build out I know you put out in the announcement.
As you know would you expect the capacity of would be but.
And then just the number of sites initially in relation to what was laid out at analyst day, maybe just compare.
How that compares to what was laid out.
Yes, I mean, I think it is very much the first step along the vision of what we painted at analyst day, and so we continue to feel like that we can you know I think that that that.
You know that if you recall that slide and from there we were talking about.
A large larger number of markets and a probably 500 megawatts I think.
Over time those are things that I think are absolutely doable through a series of joint ventures, and so obviously this one covers.
Sort of four key markets that are.
Hi, there that are really we think critical to the overall ecosystem.
And as we add incremental Jvs, we think will add additional metro's.
And so I think that the vision that we laid out is I think very very accessible if not.
I think we can it may even if we may even have the opportunity to grow I think the overall collection of Jvs for X scale.
To something that is better than that we think theres a big opportunity there.
We think we're going to operate at the sort of deep into the demand pool there and.
And.
So I think this is a great first step for us and several several more I'm sure to come in the not too distant future.
Okay, Great and then maybe just related to that one of the properties that was I guess under committed and we will be under development would be in Amsterdam, and I guess it relates to what we've heard recently about the 12 month moratorium on data center construction.
Do you have any thoughts on the potential impact and what that might mean for this project and maybe just.
In relation to others.
Yeah, I mean, we bomb.
Obviously, the Amsterdam has a significant market.
For us and in the in the sort of global scheme of things.
We've we've stayed very close to that and the good news is that I think we have the runway on our projects that.
That are that are already sort of grandfathered in and so we're going to have I think plenty of capacity to keep things moving as we sort through that moratorium.
And I think we will stay very close to that but I also think that we're going to have the opportunity as the market leader there too.
To really continue to serve that market well and because we have so much already committed development to do I think we're going to be well positioned as we go through that phase.
Okay. Thank you.
We do have time for one more question. Our last question comes from Robert Gutman with Guggenheim Securities. Your line is open.
Yes, thanks for taking the question.
Regarding the $12 million portion of the revenue guidance.
Great attributed to outperformance.
Can you point with any more specificity.
Two what is performing better than planned.
You know we've talked about a lot of stuff in this call but.
It's something is going faster than you thought it would is it.
Would you say, it's Europe would you say its services uptake is it the channel deals is it multi region deal demand.
Would you highlight anything in particular Thats pushing you had faster.
So Robert Smith at 12, and part of US just highlighting that is that where we try to sort of give everybody an indication of where the strength is coming from is in the recurring.
Elements of our revenue stream and that was important for us to highlight on the.
On the on the prepared remarks number one number two when you look at our forward guide for Q3 as relatively.
Actively modest to the overall guide for the second half of the year, which really is telling you that the momentum is going to come in the fourth quarter more so than that of the third quarter based on some book to Bill.
Differentials and then there's some one off anomalies are going through our results in Q3 from asset sales to.
How we get reimbursed for some.
For some costs with under a favorable tax ruling situation in Dallas, but overall, I mean, theres momentum right across the portfolio across the platform.
And we are delighted with the with all three regions and how they are performing.
And that was really what Charles alluded to earlier on today.
Okay, great. Thank you.
Great that concludes our Q2 call. Thank you for joining us.
That does conclude today's conference. Thank you for participating you may disconnect at this time.