Equinix Inc (EQIX) 2003 Q4 法說會逐字稿

Hello and welcome to the Q4 2003 conference call. (OPERATOR INSTRUCTIONS). I would now like to introduce the host of today's conference, Mr. Jason Starr, Director of Investor Relations. Sir, you may begin.

Good afternoon and welcome to Equinix's fourth-quarter and year ended 2003 earnings conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and certainties. Actual results may vary significantly from those statements and maybe affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our report on Form 10-KA filed on April 25th, 2003 and our most recent report on Form 10-Q filed on October 28, 2003.

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 on the Equinix Investor Relations page at www.equinix.com.

With us today are Peter Van Camp, Equinix's Chief Executive Officer; Renee Lanam, Equinix's Chief Financial Officer, and Keith Taylor, Equinix's Vice President of Finance and Chief Accounting Officer.

At this time, I will turn the call over to Peter.

Thanks, Jason, and thank you all for joining us today as we wrap up '03 and take a look into 2004. Let me begin today by saying that 2003 was a breakthrough year for Equinix, and also in this forum, let me say thanks for the support and positive feedback that we have received over the past year from all the constituencies that touch us. One in particular are customers. I cannot count the number of times a customer has directly provided me feedback regarding how pleased they are with what we have accomplished and our strength as they rely on us as their trusted service provider.

There is nothing more gratifying to the executive team or really the entire team at Equinix. With this breakthrough in '03 and the support of our customers, I believe we are now positioned for market leadership.

We will start the call with a quick review of the fourth quarter and highlights of '03. Then Renee will take a deeper look at the financial results before I will come back to discuss the Company's position entering the new year and touch on the market environment and growth opportunities that we anticipate.

Let me get to the highlights of Q4 and the year. Total revenue for the fourth quarter was up 7 percent sequentially to 33.2 million. Total recurring revenue for the fourth quarter increased 11 percent sequentially. Both cash flow from operations and EBITDA performance for the quarter was 3.1 million. Equinix closed 73 new customers in the fourth quarter. Key wins include The Clearing Corporation, CSC, Encyclopaedia Britannica, Goldman Sachs, Royal Bank of Canada, Telefonica and Ticketmaster. We ended the quarter with over 700 customers.

U.S. interconnection services revenue increased 12 percent sequentially and grew to 23 percent of U.S. recurring revenues for the quarter, while total interconnection services revenue improved to 20 percent of total recurring revenue. And finally, on a cash basis, we were net income positive for the quarter.

Now let us move off of Q4, and let me quickly hit the highlights of this great year in our development. Revenues for the year were 117.9 million, up from 77.2 million in '02. EBITDA for the entire year was a positive $1.7 million. The Company passed an inflection point in Q3 as it began generating free cash flow. We completed a secondary stock offering that produced gross proceeds of $110 million, which enabled us to end the year at 73 million in cash, or put another way, our cash paid debt was less than our cash balance.

We entered Asia, completing a complex acquisition and integration effort and have now seem important U.S. relationships such as Akamai, Electronic Arts and IBM expand with us into this region. We more than doubled our customer base with new relationships such as ABN AMRO, Amazon, Apple, Hallmark, Macromedia, SAIC, Sony Online, Verizon and Wal-Mart, while a number of our existing customers continue to grow with us.

Our IBX service levels maintained 6 9s of reliability, even in the face of events such as last summer's East Coast blackout and Hurricane Isabel. We seized on unique market opportunities, such as the acquisition of the Sprint Center and customers in Santa Clara, expanding our headroom in the important Silicon Valley market. Meanwhile expanding share, we grew the company at more than five times the market rate. Again, this really was a breakthrough year for Equinix.

Now with these accomplishments behind us, we have identified an opportunity to further improve the balance sheet. As you may have seen in a separate press release that was filed with earnings today, Equinix will launch a $75 million convertible debt offering that will significantly decrease our annual interest obligation.

So now let's get to the specifics underlying these results. Let me turn it over to Renee.

Thanks, Peter. Well 2003 was without a doubt a great year for Equinix. As in the past, I will provide a lot of detail on our results so that you can look at the numbers from different angles. What you will see is that no matter how you look at our results, both for Q4 and full-year 2003, the numbers are very impressive, and they show some very positive trends.

In going through our numbers, consistent with past calls, I will review the numbers on both a cash and non-cash basis. The reason for this is simple. There are a lot of non-cash expenses that are going through the financials, so by breaking out cash results, you can better understand our cash spending level and the trends of the business. Again, when we talk about non-cash costs, what we are excluding is depreciation, amortization, accretion, stock-based comp and non-cash interest expenses. Attached to the press release today behind our GAAP P&L statement is a non-GAAP cash P&L statement.

I will also breakout results from our U.S. versus Asia-Pacific operations. And lastly, as Peter highlighted, we did spend a lot of time and effort this year consolidating our Asia-Pacific operations, rationalizing our service lines and cleaning up our balance sheet. As a result, there are a number of onetime events both in Q4 and the year that I will point out.

For instance, in comparing 2003 to 2002, I will provide specifics on how our same-store or same IBX Centers did year-over-year. This means I will breakout the results for the centers that were acquired at the end of 2002 from Pihana and i-STT, as well as the Sprint Center so you can compare on an apples-to-apples basis how the business did year-over-year.

Now let me move into the numbers. As Peter mentioned, Q4 revenue was 33.2 million, a sequential 7 percent increase over Q3. The heart of our business -- our recurring revenues -- were 95 percent of total revenues or 31.5 million, an 11 percent increase quarter-over-quarter. For the year, revenues were 117.9 million, a 53 percent increase over the prior year. Excluding centers acquired, we saw an increase of 24 percent in our revenues year-over-year.

Recurring revenues were 109.9 million, up 68 percent over 2002. Nonrecurring revenues for the quarter were 1.7 billion or 5 percent of our total revenue. Nonrecurring revenues consist of installation fees, professional services and onetime settlements. Q4's NRR was down from Q3's number of 2.6 million due to the absence of onetime settlements in this quarter.

Total nonrecurring revenues for the year were 8 million. Of this, installation and professional services revenues were 6.2 million. This is up 53 percent from 2002's installation and professional service revenues of 4.1 million.

Breaking out our revenues by region, both in Q4 and the year approximately 85 percent of our revenues came from our U.S. centers, while the remaining 15 percent came from our Asia-Pacific centers. One customer, IBM, represented 14 percent of our Q4 revenues and 15 percent for the year. No other customer accounted for more than 5 percent of our customers for the quarter or the year.

Now let's move on to churn. First, let me remind you we calculate churn based upon the number of cabinets returned to us by our customers in the quarter as a percentage of the total cabinets booked at the beginning of the quarter. For the quarter, we had our lowest churn ever at 1.1 percent.

To remind you, we expected to see churn in the range of 3 percent a quarter, which is what we saw on average in 2003. We continue to think this is the right level to expect. As evidenced by our low churn rate, we just don't see customers leaving our centers to go to competitors.

Total cost of revenues for the quarter and the year were 32.6 million and 128.1 million respectively. Cash cost of revenues for the quarter were 19 million. Cash cost of revenues for the year were 73.2 million. For Q4, cash cost of revenues decreased by 3 percent from prior quarters' levels. As you may recall though, in Q3 we increased our tax accruals by $1 million to assure our tax reserves were sufficient to meet the changing values subscribed to our IBX properties. If we exclude this onetime charge, cash cost of revenues in Q4 actually increased 2 percent over the prior quarter. This was primarily related to the inclusion of the operating cost of the Sprint Center, which was acquired on December 1st and is reflected in Q4's cost of revenue.

On a regional basis, U.S. cash cost of revenues for the quarter was 15.2 million. For the year, they were 56.9 million. In Asia, our cash cost of revenues for the quarter were 3.8 million. For the year, they were 16.3 million.

Moving onto cash gross profit. For the quarter, our cash gross profit margins were 43 percent. We are particularly pleased with this margin in Q4 as it included the operating cost impact from the commencement of operations from the Santa Clara IBX center acquired from Sprint on December 1st. For the year, our cash gross margins were 38 percent as compared to 28 percent in the prior year.

Moving to Q1 of 2004, we believe our cash gross profit margins will decrease slightly to the 40 to 42 percent level as we will be absorbing the Sprint Data Center costs for the entire quarter. Looking ahead, however, we continue to expect that for the full year our cash gross profit margins will be in the range of 45 to 50 percent.

On utilization rates. In Q4 our total capacity, as well as our utilization, continued to grow. We picked up an additional 1000 cabinets from the Sprint Data Center, which brought our total cabinet capacity to approximately 22,000 cabinets.

On a regional basis, approximately 77 percent of our cabinets are in U.S. IBX Centers, with the remaining 23 percent located in Asia. At the end of the quarter, 37 percent of our cabinets were billing, up from 33 percent last quarter. This is a 12 percent increase from Q3. This ties out to the increase in our recurring revenue in the same period of 11 percent. On a regional basis, U.S. utilization rate was 39 percent. Asia's utilization rate was 32 percent.

Moving onto our average monthly recurring revenue per cabinet. Again we calculate average monthly recurring revenue per cabinet simply by taking our recurring revenue in the quarter, divided by three months and then divide the number of cabinets billing at the end of the quarter. Our average monthly recurring revenue per cabinet for the quarter was $1290, down from Q3's average of $1364, but up from Q1 and Q2 averages.

The primary reason for this drop is the acquisition of the Sprint IBX Center mid-quarter. This center was acquired on December 1st. So although the cabinets are reflected in the percentage of cabinets billing at the end of the quarter, we only had the benefit of one month's revenues from the center in the quarter. Adjusting for the Sprint impact, our recurring revenue per cabinet for the quarter was $1320.

On another note, both as it relates to this quarter and Q1 of 2004, a small percentage of our recurring revenues are related to the resale of bandwidth to our customers. Most of our customers prefer to work directly with our many carriers and ISPs for their bandwidth needs. However, some customers, especially in Asia, require a more managed approach to their bandwidth procurement, using Equinix services such as Equinix Direct. In the past in limited circumstances, we have resold simple transit services. Given the lower margins associated with these services, we are deemphasizing the sale of pure bandwidth, and when possible, we are not renewing these contracts. Although this had some impact on the average monthly recurring revenue per cabinet in Q4 and we will see some continued impact on this number in Q1, our cash gross margins will improve as this low margin business declines.

Moving back to the expense line, SG&A expenses were 13.2 million for the quarter and 53.8 million for the year. Cash SG&A expenses for the quarter were 11.1 million, a 12 percent increase from the prior quarter. This increase reflects additional sales commissions as our salesforce saw its best quarter of the year in terms of new bookings and additional onetime SG&A costs associated with our secondary offering and the Sprint Center.

Going forward on a normalized basis, we would expect cash SG&A expenses of $10 to $11 million a quarter or 44 million for the year. Cash SG&A expenses for 2003 were 43.1 million.

On a regional basis, cash SG&A for our U.S. operations was 8.4 million for the quarter. For the year, cash SG&A for our U.S. operations was 32.7 million. In Asia, our cash SG&A for the quarter was 2.7 million. For the year, it was 10.4 million.

For those of you tracking us on an EBITDA basis, let me translate these results into EBITDA both for the quarter and the year. For the quarter, we were at 3.1 million EBITDA positive. For the year, we were 1.7 million EBITDA positive. On a regional basis, for the quarter, U.S. was EBITDA positive 4.6 million. Asia-Pacific was -1.5 million. For the year, U.S. was positive EBITDA 10.1 million. Asia-Pacific was -8.4 million. In Asia-Pacific, we continue to be pleased with our progress in driving those operations toward profitability. 2003 was a very successful year as we integrated the businesses ahead of schedule and under budget.

Looking ahead, one of our key objectives is to drive our Asia-Pacific operations to EBITDA breakeven by year-end 2004. On a total company basis, we had a net loss for the quarter of 17.7 million or $1.49 a share. Excluding certain non-cash charges, for the first time in our history, we had a net income on a cash basis for the quarter of $1 million.

The fact that Equinix is transitioning to a company that is generating cash, there have been questions raised about potential income tax obligations. We do not anticipate paying any income taxes for 2003, while we expect to pay limited taxes of approximately $500,000, an alternative minimum tax in both 2004 and 2005.

Just to make sure we are all starting from the same page in our potential income tax obligations, as a result of the SEC and the audit transaction that took place at the end of 2002, we had a change in control for tax purposes and for all intents and purposes lost the use of our previously accumulated net operating losses for NOL. In addition, as a result of this transaction and the limitations imposed by the IRS code, our ability to use depreciation of assets to be held as of the close of that transaction to offset taxable profits will be significantly reduced for the next five years, ending December 2007. This means that it is possible that we could have income taxable -- that we could become income taxable even before we are GAAP profitable.

Having said that, there are several factors that make this an unlikely event, primarily the benefit we get from an appreciating stock price and the corresponding stock option deduction as employees exercise their options, as well as the NOLs we accumulated in 2003. Let me assure you that this is an area that we are focused on to make sure we understand when and to what degree we will be taxable as clearly we expect to be profitable.

Turning to our balance sheet, our cash and cash equivalents and short-term investments for unrestricted cash on December 31 was 73 million. This represents a 48 million increase over last quarter after taking into consideration the net proceeds from the secondary offering offset by the prepayments on our credit facility. Importantly, our cash balances are greater than our debt obligations that require cash interest payments, what we call our cash paid debt.

With respect to DSOs, our companywide DSOs remained at a very low level of 28 days. Again, a strong reflection of the strength of our customer base and the value of our services. Going forward, we expect our DSOs to range between 30 and 35 days. Capital expenditures for the quarter were 4.9 million. Total CapEx for the year was 7.8 million. The majority of the capital expenditures in the last quarter was related to the buildout of IBM space in Singapore.

Next, moving on to our statement of cash flows. Our net cash generated from operating activities was 3.1 million. This was substantially better than guidance. There are two primary reasons for this. First, our customer collections were greater than anticipated. Second, we collected an $800,000 foreign VAT (ph) tax receivable in the quarter that we were expecting but were unsure of the timing. Once again, Equinix was free cash flow positive for the quarter.

Our net cash used in investing activities for the quarter was 2.4 million, primarily related to the capital expenditures in the quarter. Our net cash generated from financing activities in the quarter was 47.3 million. Again, this is primarily the result of the proceeds from our secondary offering, offset by payments on the credit facility, as well as some monthly principal payments on our other debt facilities and capital lease obligations. For the year, our net cash used in operating activities was 17.3 million, net cash used in investing activities was 3.1 million, and net cash generated by financing activities was 52.3 million.

Finally, with respect to our equity capital structure as of December 31, we had 15.1 million shares of common stock outstanding. Assuming conversion of our preferred stock, as well as the outstanding convertible notes and the warrants associated with those notes, we would have had 24.1 million shares outstanding. In addition, as of December 31st, we had 3.7 million options and other warrants outstanding.

This concludes my prepared remarks. Let me now turn the call back to Peter.

Thanks, Renee. Now let's shift to how we have entered '04 and our outlook for what is ahead. We expect to continue to be a growth leader in the co-location sector. Our strength is our focus on the co-location market and our unique network neutral service model. We enter '04 with a critical mass of over 170 networks across our IBXs, who are reaping tremendous benefits for themselves while providing significant value to our entire customer set. These networks are a huge strategic advantage.

This has enabled us to establish the deepest penetration of the Internet's leading websites. As noted earlier and I am sure many of you saw, we just announced two more in Ticketmaster and Hallmark. Our neutral model is winning, and the value of our interconnection services is driving our success.

Now building on the traction we saw last year in entering the enterprise and government sectors, we expect these to be important growth drivers for us in '04. In fact, we have just recently seen a sizable expansion order from an in-place federal agency and two other well-known agencies associated with the (inaudible) and security.

Within the enterprise, our pursuit of a financial vertical was building momentum. Last week's press on The Clearing Corporation is just another example of the progress if The Clearing Corporation will clear all trades for Eurex planned U.S. exchange, which is scheduled to launch next week. Eurex is the leading futures and options exchange in the world. They joined Deutsche Boerse AD and Eurex Lite in our Chicago IBX.

Our focus on the financial sector is also seeing attraction in Seacaucus where we saw two leading institutions commit to joining us there last quarter. As an aside, we saw record bookings in Seacaucus in Q4. Both of these deals were new outsourced applications, which supports a trend we have seen in recent bookings. Namely the number of deals coming from either new deployments or first time outsourcing is increasing. As share shifts sustained our growth over the course of last year, we expect this new trend to complement market share growth in 2004.

In addition to the growth we see from these new customer opportunities, let's keep in mind the value of a recurring revenue model and the growth benefit we see from our installed base of customers. Historically we have seen approximately 50 percent of our new monthly recurring revenue in a given quarter generated from our customer base, which continues to grow.

As a final note on momentum, I would just like to quickly touch on the power of our greater than 90 percent recurring revenue model and how it has already contributed to our 2004 growth. For example, let's look at Q4 revenue. Let us annualize it. This run-rate places us at a 133 million base in 2004 without consideration of much of what was sold in Q4 of 2003 or for any churn that may be an offset.

Now today early in '04 we are providing revenue guidance with a midpoint of 35.5 million for the first quarter. Of course, prior quarter bookings and customer growth provide us visibility with a high confidence level entering any given quarter. That said, if we annualize Q1 guidance, we are already at a 142 million run-rate in 2004. This should give you a sense of the compounding effects of a recurring revenue model and how it contributes to our pathway for growth in 2004.

Now let's move onto Asia. More color on that region has been an often asked question. As Renee outlined, we are quite pleased with our progress as we work towards driving the Asian region to its inflection point. Over the course of the year, Bill Keon (ph) and the leadership team in Asia did a fantastic job of aligning the organization, achieving all of the synergies we saw in the newly combined companies while completing '03 solidly ahead of our acquisition plan.

Just a couple of Asia's specific stats. The team closed 95 new accounts in 2003, including Asia's Cap Gemini, CSC, Equant (ph), Fujitsu Goldman Sachs, Japan Telecom and SAVVIS. We launched our peering services in Asia with three GigE exchanges, including one with Microsoft in Singapore, and we brought our IBM relationship to the Singapore market. As we look into '04, we expect to see continued success from supporting the Asian deployments of our growing U.S. customer base.

As previously noted, we have begun efforts to develop the market for networking content peering as an opportunity which has also been so successful for us in the U.S.. However, this opportunity will take time to evolve as the network market becomes more competitive and we drive more of our key content relationships into our Asian IBXs. Asia will play a role in our growth this year, although not quite at the same level as the U.S.. In a general sense, Asia is approximately six quarters behind the U.S. in its development. While our interconnection business evolves, we expect to experience some level of churn and country specific pricing pressure, yet as Renee noted, we are targeting an EBITDA breakeven by the end of '04.

Now let us take a broader look at the industry and the environment we are operating in. Clearly the headlines of late have been the apparent resolution of what will become of the cable and wireless assets. As I imagine most of you have seen, Sabbath's submitted the winning bid assets in the bankruptcy auction, which begins now to bring clarity to the cable and wireless customers. Of course, there is much work to be done in closing this transaction and integrating the many pieces of the network and hosting businesses of cable and wireless with Sabbath, yet the net net is that this is a network company that wants to sell their bandwidth, leaving customers with the same network solutions.

We have already heard some disappointing voices over this from mutual customers that we historically shared with CNW. Of course, there are also always those customers who do require a fully managed solution, much like those customers in our centers with IBM and EDS (ph). Yet again, our customer momentum and share growth has been driven by our network neutrality. Our strategic advantage remains unchallenged.

Also at the end of the year, Sprint largely completed their exit, and of course, we have benefited by the addition of their Santa Clara Center and customers. In addition, we are working closely with Sprint as a preferred co-location provider of theirs in other markets. Outside these two specific events, we anticipate seeing additional consolidation in the hosting and co-location market as certain competitors exit or rightsize their operations. As this happens, we will continue to benefit from gaining customers looking for a stable and secure option. Our market leadership has us well-positioned for further gains from industry consolidation.

Of course, consolidation could also bring opportunities to add headroom and value, such as our acquisition of the Sprint property. We may do more of these. However, as we said, we will be very selective with any similar opportunities. As was the case with the Sprint property, the criteria will be leadtime to breakeven, quality of the design, in place customers, access to networks and headroom in a given market location. Like the Sprint property, the right combination of these factors may be quite attractive for us. Now dependent on a particular deal, these acquisitions may require some additional CapEx in order to bring these centers up to Equinix's standards.

Now let me go to guidance for the coming year offering an outlook for the total company. For Q1 of 2004, as we previously noted, we expect to see revenues in the range of 35 to 36 million. We expect EBITDA to be in the range of 4 to 5 million for the first quarter. CapEx in the quarter will be approximately 5 million. This includes a portion of the CapEx that is being invested in the new Sprint Center.

As we noted on our last call, we plan on putting just over 3 million of capital into the newly acquired Sprint Center to Equinix the building and to increase the power of capacity for the existing 1000 cabinets. Just a note, the Sprint Center CapEx is entirely offset on a cash basis by the other terms of our deal with Sprint.

On a full year basis, we are tightening the revenue guidance and raising the floor to now be at 154 million with a full range of 154 to 162. Our cash flows margins for the year are expected to range between 45 and 50 percent. We expect EBITDA to be between 30 and 35 million for the year. CapEx for the year is expected to be 10 to 15 million. This consists of our normal estimate of 10 million annual CapEx to support our existing centers, plus an additional 3 to 5 million associated with the Sprint Center.

In closing, I could not be more pleased with the Company's position after a fantastic 2003, while we look forward to more success in 2004. Thank you for joining us. Now, operator, we can take questions.

(OPERATOR INSTRUCTIONS). Andrew Schroepfer, Tier 1 Research.

Congratulations everybody. Let us start with Secaucus. You mentioned it had a record quarter of bookings. Are the kind of deals that you are booking that lead to that kind of statement the start of something big, or are you starting to see the bigger picture type of deals moving closer to reality?

I think it is a little of both. We are very pleased to now see certainly some leading financial institutions join us there, and clearly the brand is having some solid penetration both in New York and in this financial sector. So we are very pleased about that, and it is certainly meaningful for Seacaucus to now see that happen.

A couple of others for you. On the trend toward net new applications being deployed, is time to market critical, and is that impacting and hopefully helping your deployment schedules and how quickly you get the book of business into revenue generation?

Help me with the question a minute. Time to market for those deploying applications, or --

The new applications that are being deployed or new infrastructures, is time to market still a critical issue that once they book a piece of business with you, is it being deployed more quickly than it has over the past couple of years?

I would say in general the book-to-bill over the past couple of years has improved, but I will say some of these significant deployments are starting with initial footprint and then ramping in over time to their full planned deployment. So, yes, we are seeing revenue probably more quickly on the front end of these deals, but it still for a significant deployment may take a matter of three to five months for a full rollout.

On Asia, once you have complete the deployment with IBM and Singapore, how close does that bring you to breakeven? I know you said you hope to get to breakeven before the end of the year.

That will be a big contributor. As I think you saw, EBITDA loss in Asia was 1 million 5, so we certainly have that number going on the right track. IBM will contribute to that. But some of the bookings taking place in Asia as you saw last year with 95 new customers, and we're still seeing a nice pipeline there. So I think all those things will contribute to that target at year-end.

And then last two questions. One quick one for Renee. If I missed it, what was the contribution from Sprint in the quarter?

We actually did not break it down on that one.

I will take my best guess. Absolutely no comment, Renee. Voice-over IP, can you give some examples -- and I know there are a number of customers that would either have a hosted voice-over IP service or the cable providers wanting to get in -- maybe you could give some examples of what you saw the fourth quarter as voice-over IP becomes more important than how you are benefiting there?

Well, we have seen a number of customers involved and certainly the peering from cable providers and all the IP peering that takes place in our center can be impacted by the voice application. One thing I will say is voice creates really little capacity demand on the backbones of these networks. So we don't see significant uptick in the current peering relationships today, but as you start to see more network to network communications versus just private intranet for voice-over IP, I think you're going to see a lot more cross-connects and a lot more revenue drivers for us. It is just that voice-over IP has not made that step across borders yet.

Thanks everybody. Congratulations.

Tom Watts, SG Cowen.

Congratulations as well. Two questions. First, do you know what MMR (ph) per cabinet would have been if you had the Sprint (inaudible) for the full quarter? And where do you expect to see that going say in the first quarter of '04?

Yes. What we did, Tom, was we said without Sprint it would have been about 1320 if it was in for the full three months. It would have been somewhere between 1320 and what it was for Q3.

Okay. Also in terms of CapEx, could you give us a little bit more color on what the CapEx spending was for in Q4?

It was 4.9 for the quarter, and I think the majority of that was for the Singapore buildout for IBM.

Okay. And then you mentioned that you may be looking at playing a larger role in consolidation. Can you say anything more in terms of priorities you would have in terms of what criteria you might put on in the acquisition? What that might do to -- you mentioned CapEx (inaudible) CapEx expenditures. Would you consider looking at properties that were free cash flow negative, or what might be the impact on EBITDA be?

Well, they are start of a broad set of criteria as I outlined that we will look at. of which breakeven becomes a very important one, actually similar to the Sprint situation. By the way, it looks like we will be on track for that to actually generate cash by the end of first quarter, the end of the quarter we are in. So you can clearly see a huge criteria was a quick time to breakeven in that decision there. These are the types of things that we would look at and consider interesting. Any CapEx associated with centers like this is going to be minimal in comparison with the (inaudible) of the center and any other way you might consider expanding headroom.

So all-in, certainly we don't want to see any significant drains on EBITDA and would not coach you to be looking out for those over the current year. And that outside, the markets we are going to go into are more about proactively just staying ahead of any utilization questions like we had in San Jose and certainly had a nearing capacity IBX in the San Jose facility, and now Sprint gives us nice headroom to continue on the growth trajectory we are on.

Thanks very much.

Michael Weisberg, ING.

I really need an explanation of your decision to do the financing the way you did, because I have got to tell you, I don't think it makes any sense whatsoever. Why would you do a convertible when you have a liquid stock with limited loss recoverage that is not well understood? All you're going to do is allow the convertible arbitrage funds to short the stock.

I think consistent with the 144-A rules, we cannot give a lot of color on that on the call. We're very restricted on what we can and can't say on that offering, but I think it is something we looked at long and hard, and as a company decided for a variety of reasons, it made a lot of sense.

As a shareholder, I would just like to say that it's not a well understood story, it's not well covered, and it is in liquid stock. So why wouldn't you do something to solve those problems as an equity offering where you could maybe get more firms involved and more analysts involved, rather than do something that will hurt the equity holders? It does not make any sense whatsoever.

Obviously we work with our advisors. We actually think it does make sense as opposed to going out and doing another equity offering so quickly on the back of the old one. Just the cost of equity versus the cost of debt right now. The terms you are seeing on the convertible deals are just so attractive that --

Exactly because they are aimed at the convertible hedge funds who short the stock, they are going to start tomorrow shorting the stock to hedge themselves.

(multiple speakers)

The stock is already down.

(multiple speakers). We cannot give a lot of color on it, so we --

You just made a mistake. I won't say anything more.

Fair enough, Mike.

Brian Garnick, Corsair Capital.

Can you tell us if you put in a price increase in the fourth quarter? If you did, how much that contributed to the lift in revenue? If you did not or if you did, what you have in your guidance for this year with respect to price increases?

The fourth quarter had no impact from a price increase really launched in January. So as a result, we will see some pickup from that price increase. One thing you will need to be careful of, though, is the price increase will not impact every customer in the current revenue stream. Obviously we've got long-term contracts, and so there is some protection for customers. So you will see price increases bleed in over time. So certainly the impact of that is in the guidance over the course of the year. But there is just a lot of flat out organic growth that is going to be driving that revenue growth is there.

Can you comment on how much of a price increase then, and I don't know, is there any way to quantify in dollar terms for the year what that might represent?

I don't have those specific numbers. The price increase itself will vary across product sets, though. They are just basic co-location services, etc.. That is a more minimal price increase in nature. 5 percent is a good number there. However, for the value of our exchange ports and growing capacity there, customers are rolling over there and seeing as much as a 100 percent increase in what their costs are.

As we launched the exchange, which was sometime ago, we had a very attractive rate to build critical mass, and now those terms are expiring and more market rates are falling into place for those customers. So we are seeing a strong increase in interconnection coming from that.

But I'm sorry. I don't have a specific component of revenue line I can outline that is just price increase related.

Vik Grover, Needham & Co..

I feel special. Last question. (multiple speakers). First of all, congratulations on all the progress. It has been stunning rise back from the meltdown. You said I think you had 39 percent utilization. Are there any other markets besides the Bay Area where you might need more capacity that we can think about? Or a guess another way to ask a question like this, are there any markets that your existing customers want you to launch an IBX in?

And a follow-up. I guess I could ask a couple, but I don't want to keep the line too long. Is there any update on the i-STT global crossing opportunity? That deal is out in the open now. It is done. What have been your discussions with i-STT with regard to how you mike attack the global crossing customer base?

Let me see if I can get them in order. For utilization, at the end of last quarter, I think you might have said 39. We were at 37 percent (multiple speakers) if I missed that number.

From a general market standpoint, we don't give specific stats on centers. I don't see any of those, though, that will represent any impact in '04 in terms of just being a utilization level that it might limit growth or have an issue for us, although we do have some very successful centers.

I will just highlight some key ones. The Ashbourne Virginia Center has been a great success for us. So that might be a market where a proactive move to gain more headroom could make some sense. Chicago is a nice center for us as well. So we will keep our eyes on those and continue to manage accordingly with the opportunities that are out there.

So that said -- oh, you did ask the question what other markets that we are not in today, I think we have said this before. We are going to be driven by network interconnection in a lot of our decision-making here. So the other markets where you will see concentrations of bandwidth consumptions and potential opportunities for interconnection may be a Seattle. There is a lot happening there. Maybe an Atlanta or maybe a Boston. But as yet, we just don't see them has mature from an interconnection standpoint. We have watched those carefully, but that would be a key driver rather than just acquiring a center in Boston for a (inaudible) if I could say that.

Then your last question about i-STT and global crossing, already seeing value from a business relationship there in that they, like any other network, see value in the model and are coming to it for doing peering and certainly offering bandwidth to others. So clearly we will have a good relationship there, but at the end of the day, the network neutrality is the key thing we are saying here. So you will not see any special treatment or positioning for global crossings network in our facilities because it just does not make sense in the business model, and certainly there is distance between the two of us for that reason.

Well, thanks a lot. I will take my others off-line. Congratulations again.

This concludes our conference call for today. Again, thank you for joining us.