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Edited Transcript of EQIX earnings conference call or presentation 26-Apr-17 9:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Equinix Inc Earnings Call

REDWOOD CITY Apr 29, 2017 (Thomson StreetEvents) -- Edited Transcript of Equinix Inc earnings conference call or presentation Wednesday, April 26, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles J. Meyers

Equinix, Inc. - COO

* Katrina Rymill

Equinix, Inc. - VP of IR

* Keith D. Taylor

Equinix, Inc. - CFO

* Stephen M. Smith

Equinix, Inc. - CEO, President and Director

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Conference Call Participants

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* Amir Rozwadowski

Barclays PLC, Research Division - Director and Senior Research Analyst

* Colby Alexander Synesael

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Jonathan Atkin

RBC Capital Markets, LLC, Research Division - Analyst

* Matthew Scott Heinz

Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Senior Research Analyst

* Michael Rollins

Citigroup Inc, Research Division - MD and U.S. Telecoms Analyst

* Paul Burton Morgan

Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst

* Robert Ari Gutman

Guggenheim Securities, LLC, Research Division - Senior Analyst

* Simon William Flannery

Morgan Stanley, Research Division - MD

* Timothy Kelly Horan

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Yong Choe

JP Morgan Chase & Co, Research Division - VP in Equity Research

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Equinix first quarter earnings conference call. (Operator Instructions) Also, today's conference is being recorded. If anyone has objections, please disconnect at this time.

And now I'd like to turn the call over to Katrina Rymill, Vice President of Investor Relations. You may begin.

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Katrina Rymill, Equinix, Inc. - VP of IR [2]

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Good afternoon, and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements I'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 SEC, including our most recent Form 10-K filed on February 27, 2017. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we'll 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.com.

We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about Equinix in 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 Steve Smith, Equinix' CEO and President; Keith Taylor, Chief Financial Officer; and Charles Meyers, Chief Operating Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. (Operator Instructions)

At this time, I'll turn the call over to Steve.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [3]

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Okay. Thanks, Katrina. Good afternoon, and welcome to our first quarter earnings call. I'm excited to share our 57th quarter of consecutive revenue growth as we continue to capture powerful digital ecosystems at global scale. We see strong secular trends driving our business and are adding new customers at an accelerated pace as enterprises adopt hybrid and multi-cloud as their IT architecture of choice.

Cloud migration and data center outsourcing show continued momentum, and we outperformed the market with share gains across all 3 regions. We also made great progress towards our $3.6 billion acquisition of Verizon's U.S. and Latin America data center portfolio, which we expect to close shortly. We remain highly confident that this transaction will create significant value for both our customers and our shareholders, strengthening our market differentiation and delivering AFFO per share accretion on day 1, excluding transaction and integration costs.

Turning to the results for the quarter. We started off the year with healthy bookings, fueled by strong growth in our global network vertical and continued enterprise momentum. As depicted on Slide 3, first quarter revenues were $949.5 million, up 11% over the same quarter last year on a normalized and constant currency basis, despite the LinkedIn churn. Adjusted EBITDA was $427.6 million for the quarter, up 10% over the same quarter last year on a normalized and constant currency basis, consistent with our expectations given the Q1 seasonal costs. AFFO growth was 13% year-over-year on a normalized and constant currency basis, the result of strong operating performance and lower-than-planned taxes and recurring capital expenditures.

We added 11 Fortune 500 customers this quarter, all enterprise and financial services, and continue to expand our traction with these critical lighthouse accounts. Our global platform is sustaining strong growth momentum with 3-region revenue deployments continuing to rise. This quarter, over 58% of our revenue came from customers deployed across all 3 regions, up from 56% last quarter. Also, over 83% of our revenues are from customers deployed across multiple metros, up from 82% last quarter.

Interconnection revenue grew 18% year-over-year on a normalized and constant currency basis, significantly outpacing colocation revenues. We continued our healthy pace of cross-connect adds and our ecosystems are now underpinned by 237,000 cross-connects and dramatic growth in our market-leading Equinix Cloud Exchange.

The business ecosystems inside our data centers remain at the heart of our strategic operating model and are a significant differentiator for Equinix. We run the largest Internet exchange platform in the market and have globally deployed greater than 4,000 ports, delivering over 6.3 terabits of traffic per second, up 26% year-over-year.

We also saw strong adoption of our Cloud Exchange, which simplifies enterprise connectivity to major cloud services and networks. In the first quarter, AWS, IBM, Microsoft Azure, SAP and ServiceNow all expanded into new metros with Equinix Cloud Exchange. We now have over 800 Cloud Exchange customers, including 150 that will be migrated from the former Telecity Cloud-IX platform.

Turning to acquisitions. Our acquisition of Verizon's 29 data centers will strengthen our global market leadership and create new opportunities as we build on these enterprise-rich assets. Verizon will add over 600 net new customers, bringing our combined platform to over 9,500 customers and accelerating our ability to help companies extend their IT operations to the digital edge through the interconnection of people, locations, clouds and data.

Enterprise and financial services firms represent 1/2 of the revenues related to this acquisition, and their customer base will add a number of notable Global 2000 customers to our platform. Pro forma for Verizon, we will now service over 40% of the Fortune 500 and gain access to a set of accounts with significant upsell opportunities across Platform Equinix.

The Verizon assets expand Equinix's total global footprint to 179 IBX data centers across 44 markets, comprising approximately 17 million gross square feet, further expanding our scale and accelerating critical relationships in the government and energy sectors.

We also expect to unlock additional capacity through capital expenditure investments in these highly utilized assets with expected expansions in both Culpeper and Miami's NAP of the Americas as well as Denver, Houston and São Paulo. In the 12 overlapping metros, we will enhance our value proposition by tethering our assets together as an early step in our integration. To support these newly acquired sites and sectors, we expect to bring on over 250 Verizon employees, primarily in operations, and are excited to welcome these new colleagues to the Equinix family.

In March, we further expanded our relationship with Verizon by announcing a global agreement to resell our colocation and interconnection services, enabling their enterprises to build hybrid cloud solutions and gain quick access to our multi-cloud environment. This agreement represents one of many exciting developments in our broader business development portfolio with our strategic partners, and we look forward to updating you with further details related to these relationships in the coming quarters.

Turning to Telecity and Bit-isle. We are pleased to report that the integration programs continue to proceed smoothly, with the majority of the integration effort largely complete. These acquisitions have positioned us well to capture the strong demand we're seeing in both the European and Japanese markets and are selling across the combined platform to capture this growth.

Now let me comment on our development activity. We continue to invest in response to strong demand and are selling incremental billing cabinets at a healthy clip. Our utilization rate is 79% and we have 20 announced expansion projects underway. This quarter, we are moving forward with 3 additional expansions in London, Paris and Sydney, totaling $145 million of planned capital expenditures.

Over 50% of our development is on owned land, and we expect revenue contribution from these owned assets to grow as we sell in these markets, including Amsterdam, Ashburn, Frankfurt, London and Silicon Valley. We continue to purchase additional land to fuel this trend towards owned assets. This quarter, we purchased 34 acres of land in Ashburn, Virginia for approximately $35 million. These 4 parcels of undeveloped land are proximate to our main Ashburn campus, one of the world's most substantial interconnection sites, and will provide us room to build multiple new greenfield data centers that would add approximately 20,000 cabinets in this critical market.

Our capital investments are delivering very healthy growth and strong returns, as shown on Slide 4. Stabilized IBX revenues grew 6% year-over-year on a normalized basis, largely driven by increasing cross-connect and power density. We have updated our analysis of new, expansion and stabilized assets to now include Telecity and Bit-isle IBXs. Our stabilized asset count increased from 70 to 99, which includes 26 IBXs from our acquisitions as well as 3 net new IBXs from our annual refresh as more assets move into our stabilized category. These stabilized assets are collectively 82% utilized and generate a 30% cash-on-cash return on the gross PP&E invested.

Now let me cover the highlights from our industry verticals, and I'll start with the networks. This vertical experienced record bookings in the quarter, led by the major telcos, who are expanding their capacity and capabilities for digital services such as OTT, cloud and security as well as refreshing deployments with upgraded optical technologies. Expansions included: BT Global Services, who is making major investments across EMEA for their core backbone network; and Colt Technology Services, a global telecom provider building out its new digital platform. We also are maintaining significant momentum as the interconnection partner for new submarine cable projects, including winning our 15th project this quarter, which we'll announce details on in the coming months.

The financial services vertical saw continued growth as firms broaden the use of Platform Equinix to accelerate IT transformation in their businesses. In addition to ongoing growth in electronic trading, we continue to make progress penetrating new segments, including insurance and banking. This quarter, Progressive Corporation, a Fortune 100 property and casualty insurance company, leveraged Platform Equinix to improve user experience for its employees, reduce network costs and improve distributed data management capabilities. We also see other insurance firms such as Lloyd's and AON driving similar value by leveraging Platform Equinix.

In the content and digital media vertical, it saw its strongest revenue growth in the publishing and advertising subsegments. We added multiple new logos in the advertising segment, including OpenX, which is expanding its compute node across Platform Equinix to support a growing user base as well as a top 20 video and platform fulfilling the majority of its ads through Equinix' advertising exchange.

The cloud and IT services vertical achieved solid bookings led by EMEA and strong growth from Software-as-a-Service providers. We're increasing our density and coverage of both Infrastructure-as-a-Service and Software-as-a-Service providers, making it easy for enterprises to find and consume cloud services. Expansions in the quarter included deployments from Oracle, SAP and T-Systems as well as a leading storage hosting provider expanding its presence on Platform Equinix and joining our Cloud Exchange.

And turning to the enterprise, this vertical remained our fastest growing, with recurring revenues surpassing $100 million and a record quarter in terms of new enterprise logo wins. Our enterprise penetration spans many subsegments, including manufacturing, travel, health care, energy and government as all of these sectors work to modernize their IT architectures for cloud and digital transformation.

In addition to these broadly applicable use cases, certain segments have industry-specific needs as well. For example, health care providers are leveraging Equinix to help manage data for real-time clinical research analytics while addressing regulatory compliance mandates such as HIPAA. Health care customer wins this quarter included Eli Lilly, a global pharmaceutical company.

Enterprise new adds jumped up significantly year-over-year with 40% of these customers coming from our indirect channel. Partner contributions continue to be significant and now account for over 16% of our total bookings, with 2/3 of this activity from resellers. Additionally, we've seen consistent trends of 2/3 of our new customer adds coming from the cloud and enterprise segments. This presents a strong land-and-expand opportunity for us over time.

So let me stop here and turn it over to Keith to cover the results for the quarter.

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Keith D. Taylor, Equinix, Inc. - CFO [4]

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Thanks, Steve, and good afternoon to everyone. As Steve highlighted, Q1 was another very solid quarter and has set us up nicely for 2017. Revenues, adjusted EBITDA and AFFO were all above our expectations, absent the impact of recent financings to fund our pending acquisition. We're on track to deliver higher levels of bookings and strong incremental revenues compared to 2016. And our operating metrics, including MRR per cabinet, net cabinets billing, net cross-connect additions showed strong performance in the quarter.

We're very excited about the pending Verizon transaction. We firmly believe in the merits of this highly compelling acquisition, both from a customer and a shareholder perspective. This acquisition will extend our market position across the Americas region, enhance our global interconnection platform while providing strong incremental value on a per-share basis.

Once closed, we'll invest on [lock] and expand the capacity in these assets, tether the less network-dense assets to our network-dense campuses, upsell our products and services to the 600-plus new net -- net new customers as well as invest in the assets to reduce the level of churn experienced in the business over the past few years.

Verizon's currently a substantial customer of and key partner to Equinix. And concurrent with the close of the transaction, we expect to finalize our agreement with Verizon on their affiliated revenues in the acquired sites, making Verizon one of our largest customers.

Now based on our updated view of the business, although still early in the process, we're raising our expected Verizon acquisition revenues guidance to now range between $480 million and $500 million for the first 12 months post-close, with adjusted EBITDA margins of 60%, which excludes an expected $40 million of integration costs anticipated to integrate the Verizon assets.

We'll update the Verizon data center acquisition guidance on our Q2 earnings update post-close the transaction. By then, we'll have an updated view on the anticipated customer churn, the level of revenue reserves required and the conformance to our reporting methodologies. From a consolidated basis, the increased scale and reach from the combined business should enable us to continue to expand our margins while creating significant value for our platform.

As it relates to both Telecity and Bit-isle integration efforts, we've seen steady progress towards the integration of these businesses. Consistent with our prior comments, we no longer will separate out the Telecity and Bit-isle results and will instead report our financials and key metrics on a consolidated basis going forward.

Also this quarter, we closed a relatively small $37 million acquisition of IO's U.K. data center near our Slough campus. And in early April, we completed the ICT-Center purchase in Zürich, a less than $5 million acquisition. These 2 small acquisitions will add additional capacity in these key markets.

For integration costs in 2017, we continue to guide you to approximately $30 million, including the first $2 million of costs related to the Verizon asset acquisition incurred in Q1. The timing of the incremental Verizon integration costs will be updated on our Q2 earnings call.

So let me turn to the first quarter. Q1 was another strong quarter of operating performance. As depicted on Slide 5, global Q1 revenues were $949.5 million, up 2% over the prior quarter and 11% over the same quarter last year on a normalized and constant currency basis, reflecting the positive momentum in both the MRR and NRR revenue lines.

Q1 revenues, net of our FX hedges, included a $12.3 million negative currency impact when compared to the average FX rates used last quarter and a $5 million positive currency benefit when compared to our FX guidance rates due to the weakening U.S. dollar. For 2017, we've now hedged over 60% of our EMEA revenues and cash flows.

Our global platform continues to expand with Asia Pacific and EMEA showing normalized and constant currency growth over the same quarter last year of 15% and 14%, respectively, while the Americas region produced steady growth of 6% despite the $6.8 million in revenue churn related to LinkedIn.

Our MRR per cabinet yield remained strong. We added 2,000 net billable cabinets after absorbing 1,300 cabinets of churn related to LinkedIn. Also, we added 7,100 net cross-connects in the quarter. Global adjusted EBITDA was $427.6 million, up 10% over the same quarter last year on a normalized and constant currency basis.

Our adjusted EBITDA margin was 46%, excluding integration costs, or 45% on an as-reported basis, a step down over the prior quarter, largely due to seasonal costs. Adjusted EBITDA also includes $12.3 million of integration cost this quarter.

Our Q1 adjusted EBITDA performance, net of our FX hedges, had a $10.8 million negative impact when compared to our average FX rates used last quarter and a $500,000 negative impact when compared to our FX guidance rates.

Global AFFO was $304 million, up 4% over the prior quarter, largely due to lower recurring CapEx and income taxes while absorbing almost $10 million in higher interest expense from our pending acquisition financings. AFFO on a normalized and constant currency basis increased 13% over the prior year.

Now moving to MRR churn. Q1 global MRR churn was 2.8%, better than our expectations and includes LinkedIn's churn in the Americas region. We're pleased with our team's progress towards refilling the space with a number of ecosystem-enhancing deals. For the full year 2017, we continue to expect MRR churn to average 2% to 2.5% per quarter.

I'd now like to provide some highlights on the regions, whose full results are covered in Slides 6 through 8. The Americas region had a solid bookings quarter with ongoing strong outbound production and the highest level of interconnection as a percent of revenues of the 3 regions.

EMEA delivered record bookings in the quarter, with particular strength in our U.K. and Dutch markets as well as strong bookings from our cloud vertical as many CSPs continue to place edge node infrastructure in multiple markets. As part of our interconnection strategy, we've also started to invest in a number of fiber builds to support our core ecosystems across our key campuses in Amsterdam, Frankfurt, Manchester and Milan. Asia Pacific outpaced worldwide growth, with strong momentum driven by our content and enterprise verticals.

Interconnection revenues continued to outpace overall growth of the business. The Americas, Asia Pacific and EMEA interconnection revenues were 24%, 13% and 8%, respectively, of recurring revenues or 16% on a global basis.

And now looking at the balance sheet, please refer to Slide 9. As you all know, disciplined capital allocation is one of our highest priorities as we selectively expand the business across our regions while strengthening the global interconnection platform. In March, we raised over $3.4 billion in debt and equity to complete the financing of our previously announced Verizon asset acquisition and support the continued demand that we see across each of our regions.

This mix of debt and equity allowed us to preserve our strategic and operational flexibility and maintain current debt ratings while providing a highly accretive transaction for our shareholders.

Unrestricted cash and investments at month-end increased to $4.9 billion. We expect to fund $3.6 billion to close the Verizon transaction this quarter. Our net debt leverage ratio, net of unrestricted cash, was slightly above 4.0x our Q1 annualized adjusted EBITDA, pro forma for the Verizon asset acquisition. Given the favorable cash flow attributes of our business model, we expect to return to our target leverage ratio of 3x to 4x net debt to adjusted EBITDA in the short term.

Now switching to AFFO and dividends on Slide 10. For 2017, as -- we expect our as-reported AFFO to be greater than $1.214 billion, a 13% year-over-year increase despite the incremental $53 million of interest expense related to our high-yield offering.

On a normalized basis, AFFO would be greater than $1.331 billion, an $18 million increase compared to prior guidance, demonstrating the continued strength of our operating model. On an as-reported AFFO per share basis, we expect to deliver $15.66, which includes $87 million of incremental interest expense related to our term loan B and high-yield financings, $30 million of integration costs, and an additional 6.1 million shares related to the equity issued in the quarter. The as-reported does not yet include the operating benefit attributed to the Verizon asset acquisition. We have assumed a weighted average 77.5 million common shares outstanding on a fully diluted basis. On a normalized and constant currency basis, we expect AFFO per share to be $18.33 a share, a 1.4% increase over the $18.07 noted in the prior quarter.

Turning to dividends. We announced our Q2 dividend of $2 a share, maintaining the same level of cash dividend per share despite a larger share base. For 2017, we expect to pay out total cash dividends of approximately $612 million, a 24% increase over the prior year.

Now looking at capital expenditures, please refer to Slide 11. For the quarter, capital expenditures were $277 million, including recurring CapEx of $23 million, slightly below the low end of our guidance expectations. During the quarter, we opened new phases in Dublin and New York and continue to progress with a very active pipeline of new capacity, which includes an opening of an additional 4 new data centers in 2017, being Amsterdam; Ashburn, Virginia; Frankfurt and Silicon Valley. We continue to invest in new capacity, and our 2017 capital expenditures are expected to range between $1.1 billion and $1.2 billion for the year.

And finally, please refer to Slides 12 through 16 as these slides bridge our 2017 guidance from our normalized 2016 performance. So I'll turn the call back to Steve.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [5]

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Okay, very good. Thank you, Keith. And finally, on Slide 16, which summarizes our updated Q2 and full year 2017 guidance, including the impact of FX changes.

For the full year of 2017, we are raising our revenue guidance to be greater than $3.976 billion, a $43 million uplift. That is a combination of currency benefit and improved operating performance. Also for 2017, we are raising our adjusted EBITDA guidance to be greater than $1.86 billion, an $18 million uplift.

So in closing, we are benefiting from our global reach and interconnected ecosystems, which is translating into a firm MRR yield per cabinet, healthy interconnection activity, strong bookings and accelerated new customer capture. We lead in network density, cloud density and size and quality of customer base, all of which we expect to significantly grow over the coming years.

We are expanding our product portfolio to drive revenue and continue to refine our go-to-market engine to execute on our strategy. Our growth and scale are driving increased AFFO and cash flow and dividends, and we will continue to focus on creating sustainable value for our customers and shareholders.

So let me stop here and I'll turn it back over to you, Kerry, to open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Jonathan Atkin of RBC Capital Markets.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - Analyst [2]

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So I had a couple. I wondered if you could remind us what you're seeing in terms of book-to-bill trends, what is it and has that changed over the past couple of quarters? And then on the CapEx, maintenance CapEx seems to have trended a little bit lower, both in terms of dollars and percentage of revenues, and I wondered if it's a sort of a new level that we could expect going forward.

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Keith D. Taylor, Equinix, Inc. - CFO [3]

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Yes, Jonathan, so a couple of things. I think when we discussed the book-to-bill interval, we're continuing to see improvements in our book-to-bill. And so there's nothing I would say to share with you other than we've seen slight improvements, and we're continuing to work to reduce that interval. As it relates to the recurring CapEx, we were light this quarter at $23 million and it's really relative to the prior quarter. But as you look at our forward guidance not only for Q2 but for the rest of the year, you'll see that there's a step-up. And it's roughly $160 million to $165 million of recurring CapEx for the year, which is 4.1% of our revenues. So again, there's nothing than really timing that's affected our recurring CapEx this quarter and again, it'll go back to, I think, traditional levels in the near term.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - Analyst [4]

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And then just real quick on some of the regional color. Asia Pac saw a little bit of a deceleration in cabinets added, and then I think even in the U.S., excluding -- if you kicked out the LinkedIn churn, there was a slight deceleration there as well. Anything going on there that is worth pointing out?

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Keith D. Taylor, Equinix, Inc. - CFO [5]

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I think when you look at cabinet adds, I mean, we had 3,300 cabinet adds across the portfolio, as we said in our prepared remarks. Americas continues to be an exporter of production to the other 2 regions. So when you look at it, the platform as a whole, 3,300 net cabinets billing, when you take out LinkedIn churn, is one of our best quarters ever. And so there's nothing that really is going on in any given region other than to say timing always has an impact on when we book and when we churn. And so I'd just say that we're really pleased with the overall performance of our platform.

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Operator [6]

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Our next question is from Michael Rollins of Citi.

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Michael Rollins, Citigroup Inc, Research Division - MD and U.S. Telecoms Analyst [7]

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Two if I could. First, I was wondering if you could unpack a little further the strength that you saw in the network vertical during the quarter. And since network is the longest-standing vertical that you had, what's driving the particular strength? And how should we read into what your customers are doing in terms of whether it's network topography or what they might be investing for in your facilities? And then secondly, if you can move to the sales side of the business. You mentioned about the Verizon distribution agreement, and I was wondering if you could kind of put that into context of the sales strategy and what you're doing with the sales organization more broadly to continue to pursue whether it's the Fortune 500 target that you have or the broader expansion of your customer base.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [8]

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You want to start on that, Charles?

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Charles J. Meyers, Equinix, Inc. - COO [9]

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Sure. I'll start on both and you can add any color you want. Mike, relative to the network vertical, I think there's a variety of trends that underlie that. As you know, it is, as you said, it's one of our most mature ecosystems. It really is our most mature ecosystem, and we continue to see real strength there in terms of continued bookings, incremental bookings from our key network service provider partners. And I think they're driven by a number of factors. One are some of their expanding portfolio of services and their need to upgrade their architectures to do that. Also, I think an increasing level of sort of receptivity towards the new age, if you will, of how customers are consuming services and the need to sort of be very present with technologies in the key points of aggregation. And I think that has really increased their level of appetite for working with us on a number of things. And that includes -- and then there's also a tech refresh element as they're upgrading their network in a number of dimensions in terms of new technology and moving to 100 gig, et cetera. But a lot of the various telco as well as cable operators are implementing over-the-top services and other digital services such as video-on-demand that are driving a number of those sort of demand drivers for us.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [10]

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Yes, I think -- go ahead, Keith.

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Keith D. Taylor, Equinix, Inc. - CFO [11]

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In terms of the Verizon distribution.

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Charles J. Meyers, Equinix, Inc. - COO [12]

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Yes. On Verizon, I mean, I think that it speaks to a couple of things that we talked about in the script. One is the sort of new logo capture that we're seeing and that being driven, in significant part, about 40% of the new logos for us being driven by channel partners. And what we're seeing is that partners who are delivering certain elements of service to the customers are also realizing that their customers have a demand for hybrid cloud as the architecture of choice and are really looking to Equinix as a key place to build that out. And so the agreement with Verizon is a great example, and just one of several where we're seeing real momentum with the network service providers and carriers that are trying to deliver more complete solutions to their customers. And because many of those carriers have really now sort of stepped away from actually continuing to invest CapEx in their [colo assets] and have divested them, a number of them are saying, hey, we're going to have to lean on partners to do that. And Equinix is really the key partner of choice. So I think it dovetails with the strategy in a number of ways in terms of how we see partners playing into the overall strategy.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [13]

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Yes. I don't have anything to add. I think that's well said. Does that answer your question, Michael?

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Operator [14]

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Next question is from Paul Morgan of Canaccord.

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Paul Burton Morgan, Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst [15]

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A couple of questions. First, you mentioned the enterprise as being your fastest-growing vertical and listed the number of the sectors kind of within there, manufacturing, health care, energy in it. Just wondering if you have any color around whether you'd point to any of these subsectors as being at kind of an inflection point where demand is really ramping. And then maybe how much, kind of, the interconnection density varies across those different industries and whether that's kind of a real upside from cross-connects there? And then second question just on the Verizon revenue guidance from, I think, it was from $450 million to $480 million to $500 million, maybe give a little bit more color there just due to kind of the leased space from Verizon or are there other drivers and maybe anything else you've seen in terms of your diligence. You've had 3 more months in terms of -- or a couple more months at least in terms of looking at the -- maybe some of the regional centers, for example, within the Verizon portfolio.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [16]

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Sure, Paul. This is Steve. Why don't I start out and Keith and Charles can supplement here. But on the enterprise question, we -- there's a lot of horizontal use cases that we're experiencing across all these industry verticals, manufacturing, health care, retail, et cetera. Many of these companies are in the early stages of moving portions of their enterprise workload to hybrid multi-cloud architecture so they're looking for help to do that. That's a use case across several of the industry verticals. Many of them are optimizing the network, as you heard Charles just talked about. Many of them are big distributed global companies, and so distributed data management is a typical use case. Unified communications is showing up in some of our use cases. And in many cases, as they look at their data center portfolio and look at consolidation, that ends up being a requirement that shows up for us. But we're seeing many, many use cases now really start to show up that are not only those horizontal ones I just described, but also vertically. And they range from real-time analytics for product life cycle for manufacturers, clinical research for health care, digital commerce for retail providers. So we're seeing all kinds of use cases now that are starting to show up vertically. And so our teams are studying those to determine where to go in deeper. And it's exactly what we predicted was going to start happening. But they're founded on the horizontal use cases, I think. I don't know, Charles, what you would add there.

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Charles J. Meyers, Equinix, Inc. - COO [17]

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Yes. I would just double click a little bit on your question relative to interconnection density and upside that might exist from that. Basically, as Steve said, we see -- we often see an initial deployment motivated by some sort of horizontal requirement. And Steve mentioned several of those, could be network optimization, could be a basic sort of hybrid cloud or cloud connectivity, a number of other things. But then we see typically that being proven out on a smaller scale and then expanded significantly in terms of geographic expansion, and then use case expansion vertically on top of those implementations over time. And so what I would tell you is I think there is cross-connect upside to those customers. They -- but then there's also port upside because Cloud Exchange is going to be a key method for interconnection for them in our centers. And so -- but I think the key point is really that as you look at the sort of relatively modest size of those deployments but with broad geographic distribution and strong interconnection, I think what we're seeing is the opportunity for those to be accretive to our yield per cabinet story over time, number one; and number two, to be really sticky in terms of being resistant to churn over time. And so we think those are 2 things that really drive 2 key levers in our business and that's yield per cabinet and churn.

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Keith D. Taylor, Equinix, Inc. - CFO [18]

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So Paul, let me just respond then to your question on the Verizon revenue update. As we said, our current thinking right now is revenues would range between -- now range between $480 million and $500 million, which also includes the affiliated revenues related to the Verizon transaction. I think it's important to note though, and these are prepared remarks, is with -- that also contemplates what we have assumed is what churn might look like with our customers, what our reserve positions have to be vis-à-vis that revenues. It also includes how we -- our methodologies and how we report revenues. So overall, feel good about where we are today. As we said, we're going to update that once we close the transaction. And on the Q2 call, we'll give you even more clarity on where revenues will be. But this at least gets you to think a little bit about where revenues could go. I think it's really important to note a couple of things here. Number one, we are extremely bullish on what we think we can do with the asset. The things that we talked about, first and foremost, is using our capital to expand in the critical markets where there has not been capacity before. And so taking our platform and selling into that opportunity with expansion dollars is going to be really important. You couple that with the fact that we've got very network-dense assets and we can then tether those assets to the less network-dense assets of the Verizon portfolio, which will typically be the non-Terremark assets. Then you've got new products and services. You've got the investment we want to make in our operating performance and how that would affect churn. Overall, that's what gives us the comfort with what our positioning is. But it's really the translation of that revenue, what it will do to the value on a cash flow basis per share. And I think if you take the $480 million to $500 million and you multiply it by the 60% margin, that's going to give you roughly $294 million of EBITDA. As you can see on -- for those that aren't paying attention, at least on Slide 15, we've given you a number on an AFFO per share basis both on a normalized and an as-reported basis. Right now that as-reported AFFO per share number is $15.66. When you take that $294 million of EBITDA, and given the fact that we've got about $87 million of cash interest in there and we've got the dilutive effect of our equity financing, that $4.94 is going to turn into almost $3.80 of incremental AFFO per share, and that's sort of pretax. But it gives you a sense, between that and the integration costs, it's a meaningfully accretive transaction to us. And so we encourage you to go do the math, but it also gives you a sense of the bullishness that we exhibit inside the organization for the completion of this transaction.

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Charles J. Meyers, Equinix, Inc. - COO [19]

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Yes, I'd pile on a little bit, Keith, and just say that when the dust settled, I think we felt, really, a sense of optimism about the quality of the assets we are getting, the quality of the team that we're getting, even though it's relatively small, but I think a strong team that brings some additional expertise and quality into the Equinix family. Also, I think the customer response to the pending acquisition has been extraordinarily positive. I think they're very excited about the prospects of us continuing to invest in and deliver value through those assets to them. And I think that gives us an increased level of confidence about our ability to manage and mitigate churn over time. And then also as the numbers sort of fleshed out about what the overlap looked like, net new 600 customers of very high quality and with significant upsell potential across the global platform. And so I think for a variety of reasons, we continue to be really optimistic about where we landed there and are excited about the path ahead.

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Operator [20]

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Our next question is from Amir Rozwadowski of Barclays.

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Amir Rozwadowski, Barclays PLC, Research Division - Director and Senior Research Analyst [21]

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Keith, if I could follow up on some of the commentary you just made about the Verizon assets. It seems though, if we run through that math, as you mentioned, significant accretion from that perspective. How do we think about the incremental opportunities on the assets if we were to frame them or layer them on top of that sort of financial framework? And what I'm trying to assess here is, as you mentioned, improving the utilization, expanding the use of the assets, but also I'm thinking about it relative to your multiyear growth outlook that you had provided last year. We saw sort of where the growth trajectory of the business has been, and I'm just trying to figure out sort of the math in terms of the benefits to AFFO but also how to think about it within that context of being able to drive that greater than 10% growth over a multiyear period.

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Keith D. Taylor, Equinix, Inc. - CFO [22]

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I think you're asking a very appropriate question. Part of the reason that we want to defer further discussion on this until Q2 is we still have to capture all the information and get to us billing these customers in our billing systems, which will begin, hopefully, over the very near term. That all said, I think it's important to note, whether you look at Telecity or Bit-isle, or for that matter, you look at the Verizon assets that we're acquiring, if you look at the 8-K that we -- the 8-K that we filed for the March financing, it gives you a sense of the performance of the business. It doesn't tell the whole story. I think that's why it's very important that you understand what we intend to do with the business on a go-forward basis. And therefore, you've got a relatively slow-growing business that we're introducing into a faster-growing business. Obviously, initially it's going to be dilutive. Now that said, is -- you have to understand, we're going to take that portfolio and we layer it into our platform. And we're going to make sure we put the customers into the highest and best use -- we'll take the highest and best-use view on where to put them and place those customers. And so overall, we really want to talk about the platform, recognizing that you've got slower-growing businesses. That all said, I think the key walk away from a shareholder perspective, your focus -- your sole focus is really what are we going to do on a value per-share basis. And I can tell you, the view that we have with integrating these assets, putting them into our platform and then filling them up with our mindset, I think the value that we will drive on a per-share basis is something that will be attractive to our investors. And again, it's not going to happen on day 1, as you can appreciate, because we have to make these investments, but you're going to see relatively fast out of the gate, we'll be making decisions that would be indicative of where we're going to take this business.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [23]

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Keith, I think -- Amir, said another way, I think in the near term, you're going to see a blending of the growth rates as we integrate it into the Americas business. And as Keith said, on a longer-term basis, once we start investing in these assets in Culpeper, in NOTA, in Denver, Houston and São Paulo, and we tether those assets, as Charles and Keith talked about, back into our core network hubs and we start cross-selling into them and we layer in our customer service on top of those customers, you're going to see churn stabilize, you're going to see growth starting to take off, you're going to see the global selling engine grabbing ahold of these assets and selling into them from a much greater velocity than they've ever been sold into before.

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Operator [24]

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Our next question is from Colby Synesael of Cowen and Company.

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Colby Alexander Synesael, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [25]

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Just one quick housekeeping question. The 7,100 cross-connects, were those all organic or are there any more adjustments to Telecity or Bit-isle that ultimately showed up in the first quarter metrics? And then I appreciate that you aren't giving more specifics on exactly when the Verizon deal closes, and I don't believe you've given integration costs, but can you give us any color on the magnitude of what the integration costs could be for the second quarter specific to Verizon? And then just lastly, you guys talked about last quarter ramping up the sales force. I was just curious if you can give us an update on where you're at on that.

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Keith D. Taylor, Equinix, Inc. - CFO [26]

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I'll take the Verizon and you take the sales force, Steve. I think it's important to note, when we talk about shortly, you could also say imminent, so the deal will close imminently. And so we're eager to get that behind us. As it relates to the cross-connects, that is an organic number. There is no adjustments, so it's organic to Telecity and Bit-isle. Right, Kat?

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Katrina Rymill, Equinix, Inc. - VP of IR [27]

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It's all in to the 7,100.

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Keith D. Taylor, Equinix, Inc. - CFO [28]

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And then as it relates to the integration costs, what we said last quarter was when we disclosed the Verizon transaction it will be roughly $40 million of integration costs. We incurred $2 million of integration cost in Q1, so there's $38 million more to go. If I break that down $40 million, I would expect -- again, it's going to depend on exactly when this transaction closes, but if it's imminent we would expect roughly $30 million to $35 million of integration cost to be realized this fiscal year, in '17, and then $5 million the following year. Again, those are preliminary numbers. We'll update you as we close the deal and update our guidance on Q2, but that's our current thinking.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [29]

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The 2017 total...

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Keith D. Taylor, Equinix, Inc. - CFO [30]

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Will be $30 million to $35 million.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [31]

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All in with Bit-isle in, 60...

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Keith D. Taylor, Equinix, Inc. - CFO [32]

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$60 million to $65 million.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [33]

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$60 million to $65 million.

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Keith D. Taylor, Equinix, Inc. - CFO [34]

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Is that helpful, Colby?

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Colby Alexander Synesael, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [35]

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That's awesome. And then just the sales force would be great.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [36]

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What, Colby, was the question on sales force?

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Colby Alexander Synesael, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [37]

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Just curious what the update is in terms of the sales hiring that you guys had talked about doing for the year.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [38]

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The journey is off to a good start beginning of the year, mostly in the Americas. We're still -- in Europe, we're still leveraging the integration of Telecity in the Equinix core team. And then in Asia, mostly focused on channel hiring. So I think the total headcount now for quota-bearing, ballpark coming out of the gate here in the beginning of the year, is somewhere in the order of magnitude of -- I think we exited the year about 360 to 365, and we're up to about 386, 387 today of quota-bearing heads. We're still adding as we go through the year. That's obviously spread across the globe, and we're adding some support behind that.

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Charles J. Meyers, Equinix, Inc. - COO [39]

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And Colby, just to comment that we -- part of -- I think we've seen an accelerated rate of new logo capture. I think we're seeing a strong awareness in the market around the value propositions that we talked about, some of these horizontal as well as vertical value props. And we're starting to see the channel uptake and drive that as well, which has given us some confidence to do these additions and feel like we're going to get strong returns from them.

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Operator [40]

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Our next question is from Phil Cusick of JPMorgan.

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Yong Choe, JP Morgan Chase & Co, Research Division - VP in Equity Research [41]

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This is Richard for Phil. One quick clarification. In terms of cross-connects, in the Americas it was up 3,400 but revenue was only up $1 million quarter-to-quarter. Is that just timing or is something else going on there? And then normally the top 10 customer list doesn't change very much, but I mean, ex LinkedIn, it seems to have shifted and more cloud and IT and then a customer that only has 4 locations but is appearing in the top 10. Just kind of want to get a sense of what we should -- how should we look at the new list?

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Keith D. Taylor, Equinix, Inc. - CFO [42]

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Yes, so first and foremost, when you think about the cross-connect adds relative to the revenue, of course, a lot of that is just timing and timing of when things get realized versus not realized. So nothing out of the ordinary there. As it relates to our top 10 customer list, the thing that's certainly worthy of note here is -- I just want to confirm with Kat, so this is fully including Telecity and Bit-isle.

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Katrina Rymill, Equinix, Inc. - VP of IR [43]

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Yes. So the updated big shift here is it now includes Telecity and Bit-isle on the top 10.

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Keith D. Taylor, Equinix, Inc. - CFO [44]

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And so you see a dramatic shift, and 5 out of the top 6 customers are cloud and IT-based companies. And then the largest, of course, being an enterprise-oriented company. So it's more about the introduction -- the integration of the Telecity and Bit-isle results into our key metrics.

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Operator [45]

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Next question is from Robert Gutman of Guggenheim.

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Robert Ari Gutman, Guggenheim Securities, LLC, Research Division - Senior Analyst [46]

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In the quarter, you saw a nice sequential increase in revenues out of Europe and continued strong cabinet adds. During the quarter, you also announced some cloud infrastructure. You made some cloud infrastructure deployment announcements. Would you say the demand is driven -- it was reflecting really demand from SaaS providers? Or are you also seeing enterprise demand connect into the SaaS platforms?

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [47]

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Yes, I think we're seeing it across -- Robert, across all sectors. The infrastructure players are continuing to, what we call, another wave of deployments. They've been at it for 6 or 7 years now, and so we're seeing a second wave of deployments into -- deeper out around the world. We're seeing the SaaS providers, which are many more than the Infrastructure-as-a-Service providers, are starting to show up at higher rates. And then you're starting to see, on the other side of that ecosystem, the enterprises connecting to both the SaaS and the infrastructure and platform providers. So it's coming at us from all angles. And the part that we're trying to learn as fast as we can is what Charles and I described earlier on the enterprise vertical use cases. We're starting to really understand the adoption rate of these enterprise industry subverticals and understand those use cases so we can go after them where there's like opportunities. So we're seeing demand, I would tell you, from every core industry vertical that we've been in for 18 years, and we're seeing a pickup with the advent of the cloud enterprise ecosystem that we've been talking about for several quarters.

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Charles J. Meyers, Equinix, Inc. - COO [48]

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Yes, I'd just offer that I think we're seeing continued strength and momentum in the European business as a confluence of sort of 2 things, which is the timing of sort of cloud adoption and some acceleration of that in the European theater. And then combining with what I think we expected when we announced the Telecity acquisition, which is a very strong competitive position in that market and a superior value proposition that's allowing us to capture sort of more than our fair share of demand in that market. So I think it's really a confluence of those 2 things coming together.

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Operator [49]

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Our next question is from Matthew Heinz of Stifel.

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Matthew Scott Heinz, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Senior Research Analyst [50]

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You've been highlighting the growing percentage of bookings coming from your channel partners over the last several quarters, and I think you said 16% this quarter. I'm just curious if there's been any material change in customer acquisition costs within the channel that, I guess, could drive longer-term improvement in gross margin as the channel continues to grow as a percentage of bookings.

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Charles J. Meyers, Equinix, Inc. - COO [51]

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Yes, not really is the answer. I think that on balance, probably, channel bookings are slightly more expensive, but in the grand scheme, it's a pretty marginal lift relative to the overall margin profile of the business. We are -- one of the things is at any point, anytime you, I think, are building a new channel sort of muscle, it's very important to ensure that you have a level alignment between the direct and indirect sort of selling motions. And so we are comping with that in mind and so that does add a little bit of cost. But again, on balance, it's -- we think that we're getting a level of additional reach and new logo capture, which if you look at it from a customer lifetime value and an NPV creation standpoint and you balance that against a very nominal incremental commission cost, we think it's great business. And so we're very excited about the progress of the channel, feeling very good about the momentum there and feeling very good about the partner's ability to increasingly position the value of Equinix as part of their overall solution.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [52]

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I think this quarter, too, guys, we have -- I think it was about 1/3 of our new logos came out

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Charles J. Meyers, Equinix, Inc. - COO [53]

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About 40%.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [54]

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Almost 40% came out of the channel. So to Charles' point, we're really starting to embed our proposition with the channel partners to be able to talk a full enterprise solution, which includes using the Equinix IBX footprint around the world. So it's really starting to take hold.

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Matthew Scott Heinz, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Senior Research Analyst [55]

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Okay, great. And then as a follow-up, if memory serves, it seems like it's been a while since you called out any significant wins or kind of highlighted the growth from your traditional content customers. And I'm thinking specifically with respect to streaming and OTT platforms. I'm just wondering if you've seen any pressure from kind of more targeted edge data center providers in some of those Tier 2 and Tier 3 markets that maybe kind of taking some incremental bookings activity away from customers in that vertical.

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Charles J. Meyers, Equinix, Inc. - COO [56]

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Not really. I would tell you that I think we continue to have a lot of the sort of CDN-type players as very significant customers that continue to grow with us. And I think that, that includes carriers who are increasingly in that business and delivering OTT-type services. So I think we see strength there. I think there is a limited market, particularly around the delivery of consumer media and digital media that is out there. And the cable operators are active in that market, but it hasn't really impacted our business from a share perspective. And we continue to see them seeing Equinix as a primary point, because of our network density, to deliver those types of services from.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [57]

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Yes, from a number of standpoint in this quarter, actually, that vertical represents about 14% of our recurring revenue and the bookings are generally in that same zip code, 13%, 14%. So we don't really -- as to Charles' point, we're not seeing a change. Most of the -- it's because we're still over-indexing in enterprise and cloud, and so the growth rate of bookings over recurring revenue is still the highest in cloud, enterprise and network.

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Operator [58]

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Our next question is from Simon Flannery of Morgan Stanley.

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Simon William Flannery, Morgan Stanley, Research Division - MD [59]

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I think, Keith, in the back, you talked about the escalators and 2% to 3%, 5% escalators on some of the contracts. Maybe you can just update us on what the book of business or your overall revenue stream looks like in terms of how much is escalators, what's the average escalator and maybe what the term of contract is at the moment. And then on the seasonal costs, you obviously flagged that as being a factor sequentially. I think, particularly, sales and marketing was up a lot. How much of -- maybe you can just drill down into that a little bit more. How much of that is kind of onetime or will flow through into Q2? Any sort of itemization there would be great.

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Keith D. Taylor, Equinix, Inc. - CFO [60]

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Okay. So let me just take them in order, Simon. I don't think there's any been meaningful change in what we think about from an escalation perspective. 2% to 5% is typical in our contracts. And as you can appreciate, every contract is negotiated separately with the customer, and so it depends on their starting point versus their end point. But I think, for all intents and purposes, you can assume a 2% to 5% rate of escalation. Our net pricing actions have been very positive over basically the last 2 years, so I feel good about the position that we've been in from a pricing perspective relative to price decreases. The average contract life is still 2 to 3 years. But certainly, as we continue to invest more across our platform with customers who are putting their critical infrastructure in our -- across multiple markets with us, you're seeing an extension of term. And that can range from 5 years to 7 years, in some cases, 10 years. And so a very large base is not moving the averages much, but certainly there's an indication that there's a number of longer-term contracts that are coming into our portfolio. As it relates to...

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Simon William Flannery, Morgan Stanley, Research Division - MD [61]

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[That point], the stabilized growth is 6%, so is that fair to say then maybe half of that is coming from escalators?

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Keith D. Taylor, Equinix, Inc. - CFO [62]

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I mean, it varies. I mean, a lot of -- you've got the stabilized growth going down to 82% from 87%, as you realize. So it's going to change the mix of our discussion a little bit more because we've added all these new assets into the stabilized portfolio. But let me say, to the extent with some of the oldest data centers, we're getting a lot of it from volume. We sell more cross-connects. We sell more cross-connects, some more power circuits, but of course then there's pricing actions as well. As it relates to, if you will, the newer of the stabilized assets, it's volume and price driven, no surprise to you, because you've got the portfolio that was not as highly utilized as the prior subset of assets. But 2% to 5%. Look, I'd feel more comfortable if you said 2% to 3% is where you can get it from a net pricing action, and the rest is coming through volume.

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Charles J. Meyers, Equinix, Inc. - COO [63]

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Yes. I doubt it's half of that 6%, though, because you do have -- again, in pricing, although we have seen and continue to see net favorable pricing action, you do have again older contracts, depending on where they were priced, may come out and sort of provide some sort of a sawtooth effect on pricing as they see escalators throughout the term and then maybe a re-baselining, which we will often do if we exchange that for longer term. So I doubt it's half of that, but it does contribute and there is a fair amount of interconnection in power that I think make up the balance of that stabilized growth.

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Keith D. Taylor, Equinix, Inc. - CFO [64]

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And then Simon, just to add to your last question because I think it's an important question. Sort of like Q1, if you -- you can go back over many, many years, Q1 tends to be a much higher cost environment than it is in Q4. A lot of it has to do with salaries and benefits. It's the FICA reset we experience in the U.S. When you look at our SG&A base for Q1, our cash SG&A was $218 million for Q1. We guided you to, for the rest of the year, to a midpoint of $820 million, which tells you that our average over the next 3 quarters -- again Q2, we're guiding to about $210 million. But our average is roughly $200 million. So when you think about our costing environment, we're going to effectively hold SG&A flat to down for the rest of the year. And it tells you that you have these anomalistic charges that go through your first quarter, but we also get the benefit of what happens in the fourth quarter where our FICO goes down and there are some other seasonal costs that sort of come out of the equation. So overall, I think we've got what looks like an improving margin business through the rest -- the next 4 quarters -- next 3 quarters of the year. You've got incremental revenues greater than that of what you saw in Q1. I'm putting currency aside for a moment. Put currency aside, revenues, you'd see a nice uptick in revenues in the next 3 quarters and then you'd see our margins continue to improve through the rest of the year.

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Operator [65]

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Our last question is from Tim Horan of Oppenheimer.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [66]

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Keith, we might not have a lot to talk about in the next conference call on Verizon, but the AFFO accretion you're talking about, should that hit relatively quickly, it sounds like, or maybe just a rough timing on that? And then can you talk about maybe how their prices compare to yours on a per cabinet or square footage basis at this point? And then maybe Steve, can you talk about who your largest channel partners are, to get a sense of that? And is this 40% of new logos kind of a good way to think about the business going forward?

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Keith D. Taylor, Equinix, Inc. - CFO [67]

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Let me take the first one and then we'll do jump-ball for the next 2, maybe Steve or Charles will take them. As it relates to the AFFO, I'll try to give you a perspective on, again, what we're guiding you to, that $480 million to $500 million is post-close for the next 12 months. We're assuming that revenues are going to be somewhat ratable over that period of time, so relatively flat over that same period of time. That all said, therefore, you get to enjoy, if you will, the benefits of accretion right out of the gate, but you have to take out the integration cost and the acquisition costs. I'm assuming we're going to take those out of the equation. So much of what we've done in the last few earnings calls, we'll separate it for you when we do our analysis and our bridges. But that would tell you then, for all intents and purposes, you get that benefit of accretion pretty darn quickly out of the gate post -- exclusive of those 2 items. And what we've really said is, day 1, it's an accretive transaction. I think when you start to do the math, and you think about $294 million of EBITDA, what that translates to from an accretive perspective when you look at $15.66 versus the $18.33, you'll come out of the gate right away and go, "Wow, that's a highly accretive transaction." Again, recognizing that we're -- our intention is to continue to do better than we guide. And so we're going to work hard to drive as much value to the shareholders as possible, and make it an even more attractive transaction for us as we look down the road.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [68]

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And just to be clear on the integration costs, does that include any CapEx that's required to get it up to your standards? Or would that be in addition to that?

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Keith D. Taylor, Equinix, Inc. - CFO [69]

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We're only giving you $40 million of operating expense related to the -- for the integration cost. There will absolutely be some costs that we will invest not only in expansion, as I alluded to, I think it was Steve and Charles that both said, look, we're going to invest in whether it's NAP of the Americas, whether it's Culpeper, Denver and other core markets that have been, in our views, underinvested in from an expansion perspective. But certainly there's some CapEx that we're going to put in the business to make sure that we operate it to our specifications, our operating procedures. And so what we call single points of failure or areas where we need to invest in end-of-life, we'll do that. Again, that's something we're going to guide you to on the Q2 call because we'll have much better visibility at that point in time.

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Stephen M. Smith, Equinix, Inc. - CEO, President and Director [70]

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And Tim, on the channel motion, real quickly, we have 3 motions that we channel partner with. We have some -- the first one is platform partners, and these are the big hyperscale cloud partners and there's a dozen that we have relationships with in that vector. There's probably 3 or 4 that we focus on. It's the Oracles, the AWSs, the Microsofts. And then we have a reseller sell-through relationship with many, many, 300, 400 partners here, but probably a dozen again that we're very tight with, which is the companies like Datapipe, Accenture, Infosys, Unisys, BT, Dimension Data, companies like that. And then the third category is referrals. It's a very small part of the channel and it's a lead engine and a handoff lease to us. We qualify them and if we close them, they get a referral fee.

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Charles J. Meyers, Equinix, Inc. - COO [71]

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Yes. And I would just add an additional -- some of the best momentum we see is with what I would consider to be sort of integrated business service providers that may be core telcos that are expanding their service offerings over time. Obviously, we're excited about the Verizon reseller agreement and our expanding relationship with them. But their global peers are companies with whom we do significant business and have great relationships, and so we expect that to continue. AT&T has been an excellent exceptional channel partner for us. We continue to increase our investment in that relationship. And then the European and Asian peers that are in those businesses, including the likes of BT and T-Systems, et cetera, really, who are delivering complete solutions to customers and really being able to effectively integrate Equinix as part of the story as they implement hybrid cloud and multi-cloud solutions. So seeing real momentum there. SIs are a little slower to move, but I think have the potential to be just massive opportunities for us over time. And then as Steve said, some of these more new-age cloud integrators that are right at the forefront of helping people migrate to hybrid and multi-cloud, the likes of Datapipe, et cetera, those we certainly see continued success there.

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Katrina Rymill, Equinix, Inc. - VP of IR [72]

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Great. Thank you. That concludes our Q1 call. Thank you for joining us.

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Operator [73]

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Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.