Equinix Inc (EQIX) 2007 Q1 法說會逐字稿

Hello and welcome to the Q1 2007 conference call. This call is being recorded for replay purposes. Today's presentation will be in a listen-only format. Following the presentation there will be a question and answer session. Instructions will be given if you would like ask a question at that time. 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 our Q1 2007 results 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 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 form 10-K filed on February 28, 2007.

Equinix assumes no obligation and does not intend to update forward-looking statements made on this call. In addition we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release and on the Equinix investor relations page at www. Equinix.com.

With us today are Steve Smith, Equinix's Chief Executive Officer, Peter Van Camp, Equinox's Executive Chairman, Keith Taylor, Equinox's Chief Financial Officer, and Margie Backaus, Equinix's Chief Business Officer.

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

Thanks, Jason. Welcome everyone. Well I am happy to report that the transition to Steve Smith as CEO is well underway. A number of you had the chance to meet him when we made the announcement and of course I am thrilled to have him in the seat and leading this call today. So let me turn it over to Steve for the quarter's highlights and some of his initial observations.

Thanks a lot. I'm really excited to be here today on the call with all of you. As Peter just stated I am three-and-a-half weeks into the transition with everything going extremely well. And I must tell you that my first observation is that the momentum here with the operating strategy is very strong. Perhaps no surprise to many of you, so let me move into the highlights that support this.

Total revenue for the company was $85.1 million. This represents a 31% increase over the same quarter last year. EBITDA came in at $32.4 million which exceeded our forecast. Contributing to this was our cash gross margins which came at 62%, also ahead of expectations. We opened our first Greenfield IBX since 2002 in the DC market as anticipated and we have seen great bookings momentum from companies such as Electronic Arts, Internap, Sprint and CareerBuilder. This demand has driven the announcement of our next Greenfield IBX on our DC campus. Of course this has contributed to the acceleration in our anticipated revenues in 2007 as seen in our newly published guidance.

Also supporting this, the company saw its best-ever quarter from a booking standpoint both in the US and Asia-Pacific markets. In addition our pipeline remains strong. We closed 75 new customers in the quarter for a total count of 1335, with strong orders from our existing customer base.

Consistent with prior quarters we saw greater than 50% of our incremental bookings coming from the existing base. This quarter's result was just over 80%. This is another indication here of an extremely loyal and growing customer base.

Just a final note, the company completed a $250 million financing through convertible notes to support the funding requirements of our expansion activities and working capital needs.

I must tell you that I am really impressed with the results that this team has accomplished this quarter. And as with most things in life, timing is everything. So I feel very fortunate to have joined this team at a time with such strong momentum. At this point I will pass it to Keith to provide the specific details on our financials and then I will come back with observations from my first few weeks here to be followed by PVC who will comment further on our expansion strategy and offer guidance.

Over to you, Keith.

Thanks Steve. Good afternoon. I am pleased to provide you with the results of another great quarter. So let me get to it right away. First with revenues. Our Q1 revenues came in at $85.1 million, an almost 7% increase over the previous quarter and up over 31% compared to the same quarter of last year. Our US revenues were 85% of total revenues. Our revenues came in just above the high end of our expectations, the results of strong installations in the quarter off-set in part by greater than expected churn. I will discuss the churn impact further in a moment.

Also in the quarter are three 2006 IBX expansion generated $7.1 million of revenue while our recently opened IBX in the DC market generated its first $200,000 of revenue.

With regards to pricing levels related to our newest IBX the achieved levels consistent or better than planned and reflect the strong pent-up demand for a new service offering. This IBX is already greater than 20% sold despite only being open for three weeks in the quarter and 50% reserved. With the revenue booked to date and once installed this IBX will generate positive cash flow which we expect to occur by the end of Q2. The quickest one of our IBXs has achieved its meaningful milestone.

Recurring revenues in the quarter were $80.9 million a sequential 6% increase over the previous quarter and a 31% increase over the same quarter last year.

Non-recurring revenues for the quarter were $4.2 million derived primarily from installation fees and professional services. Non-recurring revenues were consistent with the prior quarter after taking into account the $1.2 million adjustment recorded in connection with our adoption of SAB 108 in Q4 and $350,000 equipment sale in Asia.

Moving to churn and as mentioned above our Q1 cabinet and MRR churn was higher than expected at 4.2% and 4.4% respectively, an increase over the prior quarter and higher than our ongoing guidance level. This churn reflected the impact of proactive churn as we continue our IBX in customer optimization efforts. This also included the decision by two customers to in-source their infrastructure. One of these customers will continue to maintain their peering relationship with us while the other customer we had expected their churn for some time. I should further note this customer's contract originally took them (inaudible) into the second quarter. However we have accepted an early termination of their contract in this quarter.

Also in this quarter's results we took back unused but contracted space from a large re-saler to benefit the wait list. We came to this decision as we felt we could quickly re-sell the space to more network-centric customers. Absent are decisions related to the proactive churn our churn levels would have been consistent with our prior guidance levels. Looking forward to Q2 we expect our churn levels to decrease relative to Q1 and expect our annual churn to still be within our targeted average of 1% per month.

Moving on to gross profit and margins. The company recognized a gross profit of $32.3 million for the quarter or 38% compared to $29.4 million the previous quarter and $1.5 million for the same quarter last year. Our cash gross margins were 62% down from 63% in Q4 and just above our expectations as our utility costs were less than anticipated.

During the quarter we absorbed incremental rent and other operating expenses related to our recently acquired Tokyo site and incurred cost related to our recently opened DC Greenfield. Our same IBX cash gross margin, which includes revenues and costs from our recently opened IBXs and our expansion projects was 67%, a clear indication that we continue to operate within the range of our long term operating objectives.

Now looking at saleable cabinet capacity and utilization levels. As a reminder and as we discussed on the last call we will now provide our cabinet capacity on a net-sellable basis whereas in the past we gave you total potential cabinet that could be sold as planned in the original IBX design. Due to increased power and cooling requirements for today's infrastructure we assumed a D rating factor reducing the cabinets available for customers to range of 75 to 80 % of that to selling capacity. As a result this new metric allows you to better estimate the true utilization of our cabinet capacity.

By the end of Q1 our net sellable cabinet capacity was approximately 25,100 cabinets including the reduction of 200 cabinets attributed to our sold Honolulu IBX. This total is broken down between 23,400 cabinets from our original IBX and 1700 (inaudible) cabinets from the Washington DC IBX that opened in Q1.

Breaking down the sellable cabinets by region the US had about two 20,500 cabinets and Asia had about 4,600 sellable cabinets by the end of the quarter.

With our announced expansions we expect end of year net sellable cabinet capacity to increase an additional 5,800 cabinets, 4,200 in the US and 1,600 in Asia bringing our net sellable cabinet capacity to 30,900 cabinets.

With regards to our Q1 utilization levels approximately 18,400 cabinets or 73% of our sellable cabinets were billing at the end of Q1. On a waited average basis, approximately 18,200 cabinets or 76% of our sellable cabinets were billing. This utilization inversion is due to the 1,700 cabinets added to our capacity in March. Breaking down the details by region the US sellable cabinets billing were about 14,800 or 72%, and Asia's sellable cabinets billing were about 3,600 or 77%. Based on our old utilization calculation the cabinets utilized at the end of Q1 would have been just under 57%.

Looking at revenue per cabinet on a waited average basis our average monthly recurring revenue per sellable cabinet increased to 1,498, up just slightly and in line with the prior quarter level of 1,492 and up over 6% compared to last year. As we looking forward we continue to expect our (inaudible) per cabinet to increase given current pricing conditions and as we realize the pricing benefit from our higher powered sellable cabinet from our Greenfield build.

On a regional basis our waited average price per sellable cabinet in the US was 1,578 in line with the prior quarter. In Asia-Pacific our waited average price per sellable cabinet was 1,169, an increase over the prior quarter level of 1,141, primarily the result of a 13% quarter over quarter increase in interconnection revenues.

Looking at SG&A. SG&A expenses for the quarter including stock-based compensation of $9.4 million were $31.5 million. Our cash SG&A expenses were $20.8 million for the quarter a 2% increase over the prior quarter and a 24% increase over the same quarter last year. This reflected higher variable compensation costs attributable to the (record) bookings in the quarter.

Moving in to EBITDA and net loss. Our EBITDA was $32.4 million for the quarter and slightly above our expectations. This represented a flow through on incremental revenues of 51%. Our net loss for the quarter was $4.5 million or $0.15 per share. This included a loss in conversion of debt of $3.4 million related to the inducement of $54 million of our older convertible debentures. Excluding stock-based compensation expenses and the debt conversion charge of $3.4 million we would have had non-GAAP net income $9.4 million.

Turning into our balance sheet by the end of Q1 our unrestricted cash balances totaled $392.4 million which included the net proceeds from our $250 million convertible note offering which closed in March.

CapEx for the quarter was $67.1 million. Breaking the details down our expansion CapEx for our new expansion centers was $58.7 million but our ongoing CapEx was $8.4 million. This increase quarter over quarter expansion CapEx reflects greater construction activity related to our current Chicago expansion project.

Looking at our debt position, with our $250 million convertible debt financing closed and the $25 million partial drawdown from our $110 million Chicago financing our gross debt outstanding approximates $500 million at the end of the quarter. Our gross debt annual EBITDA is 3.9 times.

On a net debt basis we are reducing our total debt balance by our current unrestricted cash position. Our debt annualized EBITDA is less than 1 times. We expect our net debt annualized EBITDA will increase about two times by the end of the year as we fully drawdown our Chicago financing.

Next moving to our operating cash flows. Our net cash generated from operating activities was $20.1 million down from $26.3 million in the previous quarter reflection an increase in working capital. DSOs continue to remain less than 30 days. Cash used from investing activities was $57.6 million for the quarter related to CapEx spending $67.1 million off-set by a $16.5 increase in accrued property and equipment. Additionally we funded a $6.5 million deposit towards the purchase of our Silicon Valley flagship IBX.

Cash generated from financing activities was $273.3 million for the quarter related to the net proceeds from our convertible note offering, a $26.4 million drawdown under the Chicago financing and $10.3 million of proceeds from the employee stock plan.

Finally, with respect to our equity balances outstanding we had approximately $31.4 million shares of common stock outstanding at the end of the quarter including about $1.4 million shares converted from debt to equity in March. This balance excludes the remaining 816,000 shares attributed to our 2004 convertible debentures eligible for conversion in February 2009. Also, given our intention to sell our $250 million convertible debt obligation with cash we have excluded the 2.2 million shares attributed to this financing. And finally, this balance does not include the 3.9 million shares related to employee stock plans and other awards.

So let me now turn the call back over to Steve.

Thank you, Keith. As I said earlier I would like to share a couple of early observations since my arrival. First of all my plan will be to continue to visit with our people and our customers to better understand the business, focusing on the market sales and operational readiness of our company. I believe it will also be critical to continue our emphasis on the fundamental blocking and tackling required to continue to grow our market leadership.

As part of that my assessment is that there are several things we need to preserve, starting with the fundamental values and the culture of the company which includes our growth orientation, our customer focus, our teamwork and execution and our financial consistency and predictability. Also preserving the simplicity of the business model and the speed of our decision making will be critical as we continue to execute on our expansion strategy and the strong returns that we target.

After a visit to a couple of our key markets and several customer meetings I am convinced that our focus on co-location and interconnection is the right strategy. As you know with my background I am intimately familiar with the challenges of simplifying complex business models. And given what I have seen so far I have a strong appreciation for the advantage of our simplicity.

In addition preserving the competitive differentiation of our business by growing the critical mass of our network, content and enterprise customers and the resulting network effect these customers drive is crucial as we strive to leverage our network neutrality in 2007 and beyond.

So preservation of things that are not broken and are working very well are as important to me as any changes that we may end up making here.

My second observation is that we have made a solid investment in scaling our internal systems, processes and leadership depth to match our growth strategy. This is an important element in a fast growing company and as you would expect we still have more work to do here.

The third observation is I have seen a focus on several key areas including service excellence, growing our interconnection business, and investing in our people. All of these are essential ingredients to our services business that is focused on customer needs. In my experience developing deep relationships at multiple levels within customer organizations, ensuring loyalty and reference ability with those same customers as well as a strong reputation for doing what we say we are going to do is important in capturing what I believe to be a very exciting global opportunity in front of us.

Lastly I have spent some time in our IBX expansion strategy and understand the critical nature of delivering these major builds. I will be actively involved in the key milestone reviews, cost control and overall project management as they will all be important to our future growth.

As discussed in our last call and as PVC steps away from the day to day operations he will continue to work closely with me and the rest of the team on the larger expansion strategy. With that I would like to ask PVC to update you on these expansion activities and our 2007 guidance.

Thank you. As I've said I am pleased to work closely with Steve and the team on this expansion strategy. So let's begin with a quick update on our first Greenfield in DC and current expansions. As Keith noted, bookings momentum has been very strong for this IBX which has only been open since early March. This IBX is currently 50% booked or reserved which sets up an expectation of a fill rate and cash flow break even target to be well ahead of our original plan. Of course this and our customer demand studies have led to the announcement of a second Greenfield in this market. This will be our fifth IBX in the DC area.

In other active expansions in Chicago, despite what has worked out to be a tough winter we continue to expect a late Q3 early Q4 opening. I am pleased to report we have already signed our first customer for this new IBX in Deutche [Borshe] Systems the operators of the [EurX] futures exchange and the new United States futures exchange. As a reminder this customer was one of the first financial exchange customers in our original Chicago IBX and was an important magnet as we built the financial exchange there. So we are excited to extend this offering into our new Chicago site.

In New York we have encountered some permitting delays which are now resolved, however this has pushed our expectation for delivery of this site into early to mid Q4. In the meantime, and in support of existing customer need we have developed a plan to augment our current Secaucus center by just under 200 cabinets. This is expected to be delivered in early Q3 and will help smooth the growth curve in this market as we expect to be at full utilization prior to opening our new IBX. This augmentation will require approximately $3 million in ongoing CapEx.

While in Asia our Singapore and Tokyo expansion are both on track for Q3 and Q4 opening respectively.

So as a result of these expansions let me give you an update now on the company's overall revenue capacity. With the addition of our planned new build in the DC market and the completion of all announced expansions at today's pricing we now see head room for total revenue capacity in the range of $625 to $650 million at full utilization

So I am pleased to note that customer interest in all of our builds remains strong and we continue to feel very good about our ability to bring a new IBX online and deliver results in line or better than expectation. A real example of this has been in seen in the Silicon Valley. As we noted on our last call our third site was approaching full utilization and we have begun installing new customers in our expansion site or fourth Silicon Valley IBX. This IBX is now 25% booked and once these bookings are installed this IBX becomes cash flow break even.

So with this, and the installations of bookings to date in our new DC Greenfield all of our operating IBXs will be cash flow break even or better.

We continue to see strong bookings and pipeline in the Valley. This success does have us evaluating a potential move within one of our previously acquired Silicon Valley IBXs. This would be an attractive option as it would require less CapEx on a per cabinet basis than a Greenfield build while also leveraging the team in place.

Now I know a number of you have been asking about our expansion plans beyond '07 and the impact of cash flow on 2008. As we said in the past we have the ability to generating meaningful kit-free cash flow in 2008. Yet as I am about to note in our guidance our success has delivered an acceleration in our revenue expectation and growth. As we look at continued customer demand I do anticipate this continues into '08. Although we are not ready to define '08 expansion plans to be fair there is a scenario where our accelerated growth and our utilization levels bring forward opportunities to expand in support of customer demand earlier than originally modeled in our long term expectations.

Of course, we evaluate all of our expansions carefully ensuring they are warranted beyond and based on real customer demand input targeting 40% returns. Should this acceleration continue it may mean more investment in '08 than we originally modeled last year at this time. Again, not ready to provide the definitive numbers, however I do not see this investment reaching the levels of our 2007 plan. And of course, this investment would only happen if we see a clear opportunity to drive high growth in revenue and EBITDA.

So let's take a look at our updating guidance for 2007 and then the second quarter. We are raising revenues to now be in the range of $359 to $367 million which increases the midpoint by $4 million. We expect cash gross margins to be approximately 60%; this includes $7.5 million in net costs attributable to our expansion activities. Cash SG&A will be in the range of $79 to $81 million or 22% of revenues at the midpoint. We are increasing our EBITDA expectations to now be in the range of $136 to $140 million. At the midpoint this would produce a 38% EBITDA margin for the year up from just under 36% last year. This target also allows room for some discretionary spending in customer facing functions in support of an increased revenue ramp.

Moving on to CapEx expectations, ongoing net CapEx is expected to be approximately $39 million and includes approximately in $3 million of investment for the augmentation of our existing Secaucus IBX. Expansion CapEx is expected to be $315 to $335 million a reduction of $10 million which is being shifted into 2008 for our recently announced DC Greenfield expansion. This totals to an expectation of 2007 CapEx of $354 to $374 million.

For the second quarter revenues are expected to be in the range of $88 to $89 million. Cash gross margins for the quarter are expected to be approximately 61%. Cash SG&A is expected to range between $20 and $21 million. EBITDA is expected to be in the range of $33 to $34 million. Total CapEx for the quarter is expected to be between $135 and $140 million which includes approximately $120 million in expansion CapEx.

Thanks PVC for both of those updates. Listen, as you begin your new role I would like to thank you for the leadership and direction you have provided over the past several years in building this great company.

As I think about the trends affecting our industry I really like our market position. I am very excited about Equinix's prospects for the future and again, thrilled to be here today. So with that, Jackie, I would like to open it up for Q and A.

Thank you. If you would like to ask a question at this time please press Star 1 on your telephone key pad. Our first question is from Jonathan Schieldkraut with Jeffries.

Good evening.

Hi, Jonathan. Hey, a couple of questions. First let's just start with some housekeeping items. Can we get the cross connect number, the [gig E port] number and the number within that that are 10 Gig E Ports.

Total cross connects are 15,552. Total ports at 466. Asia actually is up to 50 ports which is a number we are excited to see. I think a change of progress in our Asian interconnection business for sure. And we now have 60 10-gig ports installed.

Hey Jonathan, it's Margie. I just want to point out so that there is no confusion on this metric. This is the first time given we have a critical mass of ports in Asia that we are now pushing this new metric out there. So again, let me split that out for you. So it is 466 total, 416 in the US, of which significantly 60 of those are now 10-gig. And in Asia 50 and we also have 1 10-gig port in Tokyo as well which is an exciting new add in the quarter. So pretty significant movement on the exchange business overall.

Great. Great. I have a question about Tokyo. For some reason I thought that the company was paying $7.5 million to acquire that facility and I am not sure when that payment is going to occur; I guess I thought it would happen in the first quarter.

The payment did occur already, Jonathan. And what we have done is it will open up in the back end of the year although there is one existing customer in the facility today—it is not a meaningful amount of revenue so we are incurring a portion of the revenue today. But payments have already been paid.

Great. If you could talk a little bit about Chicago. As I understand it the original data centers in Chicago were in the same building as the Merck. And I have also heard that the Merck is moving. I am wondering if that will impact your financial exchange business. It also seems that in the new data center in Chicago you may try to replicate that same financial exchange value proposition. And just wondering how you are going to go about that.

Well a lot of what you said is obviously accurate. But certainly the Merck continues and will continue to be an important part of the exchange in the current data center. But much as you have seen with Deutshe Borshe systems will see a lot of the leads to the exchanges as a part of our strategy in growing the new center. And so that is certainly a first win and you can expect us to continue to work that strategy into the new center. Now granted right now we re in the same building as the Merck but using our ability to tether these centers and bringing our own managed fiber into do that is part of the strategy to extend the financial exchange out to Chicago.

Great. Just final question. Keith if you could just take us through how we get from 25,100 cabinets to 30,900 even with the additional 200 in Secaucus. I think I am missing few cabinets. I am not sure in which market.

I can just throw it there. Jonathan this is Jason here. I kind of just memorize these stats. But if you look at the greenfields that we have got, you have the additional Chicago which is 2,500 cabinets coming online. You have the Secaucus Greenfield which is 1,700. You have approximately 740 in Tokyo and then you have approximately 900 in Singapore.

Thank you.

Thank you. (Operator Instructions) Our next question is from Chris Larsen with Credit Suisse.

Hi, good afternoon. As I look at [cola revenue per rack] it actually looks like it may have for the first time just stepped down ever so slightly from 4Q to 1Q'07. And I am wondering if there is anything in the areas that they have been in—new racks have been added or is there anything else? This looks like it has been the first time that I have ever seen this I awhile and I am just wondered if there is anything within the numbers that I am doing wrong in my math that they maybe missing something on the cola revenue per rack.

Chris, Keith here. Couple of things that I can kind of guide you to. Number one, as we mentioned we have record bookings in the quarter which is obviously very important but what it is even more interesting is a lot of those bookings took place at the end of the quarter or in the latter part of the quarter. I shouldn't say the end of the quarter. That is number one.

A lot of the churn took place at the end of the quarter as well so when you look at the cabinets relative to the revenue you have a little bit of a skew in this quarter. So I would tell you predominantly, I think as you pencil it out you are probably accurate but it is more because of timing, not because of anything fundamental in the business.

Great. Second thing; could you, Keith, give me the, I missed the churn number and then would that churn number would have been absent, the major contracts that you kind of—you let them go, I guess.

That's 4.2 and 4.4 respectively between the cabinet and the MRR churn. Had it not been for the, what I call the proactive churn. And there were two specific ones that we referred to in the script, which would have been about 2.7%.

2.7?

Yes.

Okay. Thanks.

You are welcome.

Thank you. Our next question is from Tom Watts with Cowen and Company.

Hello everyone.

Hey Tom.

On the two customers who left did you have an indication of where they went and in terms of their pricing were they near market rates or could you—do you expect to be able to release that space at substantially higher rates?

Well actually some of it is already sold and would expect it to be at higher rates. A lot of it, of course, in the exchange element of that Northern Virginia Center; there is a lot of value in that space for the networks themselves. So we will see increased revenue out of that foot print. But where they went was actually in-house. In one case the content provider who is moving to foot print they already had internally but of course remain a peering customer of ours. And then the other was a move to just in-house. More of a (inaudible) than that other customer.

And Tom just to further on what PVC said. We had anticipated that that second customer was going to move with a two-year contract, and basically they were building their own internal data center.

And then also, in terms of some of your newer customers or even existing customers can you comment on any trends you see specifically driven by IP video? Has there been any acceleration in servers necessary to support that? And have you seen just any examples of new applications or accelerating cross connects for peering to support IP video?

Well certainly I think it is showing up, Tom, in a number of our 10-gig ports. Clearly there is a lot more video influence on that. Is it IP TV versus just video and You Tube and other things, I don't have the visibility into to specifically pull it apart in there. But certainly that trend is a big driver in the increase in capacity to cross the switch.

And then just finally in terms of the sellable cabinets metric that you are using; that implies that you could get to 100% utilization theoretically or at least would not be power constrained to do that.

Yes. We are just trying to get that for everybody's benefit. I think a number of investors have asked for just the mobility to follow—okay what is really sellable because I don't want to hair cut the old foot print because you are worried about how much you can get out of the power and cooling. So we have gone ahead and hair cut that capacity to now just have a sellable cabinet number. So that is the number we feel we can actually install and support.

And before you said that if you ever got to 65% capacity utilization any given market you wanted to be building new capacity by that point. Using the new metric are there any specific—is there a different set point that says you have to have new capacity or is it more just a function of how quickly you can fill new capacity if you just build it.

Well I think the biggest driver still remains customer demand and I think we are paying attention to it because of this acceleration a lot sooner than we historically had. So I just say it is the overall acceleration that we are seeing. And so like I noted the Silicon Valley site, for instance, at 25% bookings already once installed cash flow positive we see the pipeline in the Valley—it just really says let's be looking now about it because the windows to bring new capacity online have shortened if you are going to stay up with current customer demand.

Okay. Thanks very much.

Thank you. Our next question is from Michael Rollins with Citigroup.

Hi, good afternoon.

Hi Mike.

A couple of quick follow up questions. And I just had a higher level question. First on the cabinet count to 25,100; does that include the 200 from Secaucus or is that coming later in the year?

And then the other just quick clarification question. Do you have the recurring revenue between domestic and international broken out?

Certainly we can do that. The first one on the 200 cabinets. That is not included in that total yet in the 25,100. And then just breaking down the recurring revenue by region. The US is $69,243,000 and Asia is 11,643,000 by region on a recurring revenue basis.

And when you talk about record bookings how do you measure that? Do you measure that as cabinets? Dollars? I'm curious the way we should think about what record booking means. And then to follow up on that question, as you think about the pipeline for demand how good is it building? How would you rater the visibility over versus today from a couple of quarters back? Thanks.

Well bookings is all based on MRR, Mike. So really as we look at it this is contracted monthly spend from customers that we are talking about when we are rating bookings. So this quarter we just booked more committed MRR than in any prior quarter. So that was acceleration there. And then—what was the second one?

Visibility?

Well the visibility—Margie and team have really now moved their demand study to monthly updates. So beyond just the interaction of all the account teams that we are doing that spend time with our customers we are certainly just spending a lot more time on demand study and the granularity as we make these expansion decisions.

Great. Thanks very much.

Thanks Mike.

And our final question comes from Rod Ratliff with Stanford Group.

Hi guys.

Hi Rod.

Sorry about the speaker phone I've got a malfunction with my earpiece here so I hope you can hear me okay?

We hear you fine.

If you guys—Margie could you talk about the competitive landscape. There seem to be a lot of new builds and expansions going on away from you guys. Can you foresee this having an effect on marginal pricing at all? Can you envision any of that?

When you say—let me just make sure I understand you question. So when you say away from us you are talking about—

Different companies, competitors.

Yes. How we look at it, as PVC said we started to look at this monthly given the level of activity that is going on here. So we try and look at it as what is in our addressable market and what really isn't. So when you strip out the (inaudible) so whether that is Dupont or DRT or Rockwood or one of those guys, so those look a little bit different because they want the big foot print, lower price points. So based on the customers we are seeing come in and demand, we are seeing come in, there is very little overlap outside maybe an enterprise plus client we will be looking into Chicago or New York at then end of the year. There is very little overlap from that perspective.

Then you kind of get down to AT&T and Savvis so we listened to Savvis call yesterday. They definitely have some plans in the markets we are in; again that is what we pay attention to. But you probably heard it like I heard it yesterday; they are very solid in terms of their strategy on managed services. So the customers they want are going to go up the value chain and those are the customers they are going to want to have. So I think we pay a lot of attention to the customer mix we are bringing in to make sure the customer is getting the value proposition and so there is a different price point for what we are selling whether it is the increased power or whether it is the ability to interconnect to partners or peering; there really is a different value proposition than someone going into AT&T and Savvis versus someone who is coming into Equinix today.

So we pay a lot of attention to it in terms of how we plan. We definitely don't discount that that could happen which is why we are not counting our chickens in any of our future planning. That's important not to do that. But we keep a really good eye on it. We have a really good ear to the ground with our customers as they are out shopping or anything else as to what is going out there. And it is really important to do it on a market by market base. You really can't make any assumptions in general. You have to look at it market by market.

If I could just add a comment here too.

Sure.

Oh, I'm sorry; too far away from the speaker.

I can hear you fine.

I have said on calls a number of times how we are trying to build this business on a defensible platform with the right customers that are network focused in interconnection as much as possible and the applications they are deploying in our centers. And we have walked just from significant (inaudible) requirements. And clearly the real estate community or just private real estate concerns that are building data centers today are more focused towards that opportunity. And again, we don't want to build our business on housing a general ledger/accounts payable/payroll system in our data centers. And much as we even saw a churn, a known customer that was going to use us for a period of time who eventually churns out into their own data center, we are not going to build our business on that kind of demand. So I think this will show up in the pricing, it will show up in the stickiness of our customers and we just need to stay disciplined as we build this customer base to ensure that is what it is based on.

But I can tell you the pricing trends we are seeing in the market with all of our customers and even the renewals we are doing in expansion is very strong.

Alright. It has been a little awhile since the [New Star] partnership was discussed. Are there any other sort of big elephants to hang on the wall out there like that particularly as it relates to next-gen services like (inaudible) or sexy gaming and media and stuff like that.

Yes I would kind of say to you what I have been saying to you which is a lot of that stuff is still a trial base. It is growing pretty well and actually New Star has gotten some interesting new things they are working on which is driving growth in our centers. From that perspective we are seeing some uplifts from them as a customer if anything else. But given how fast interconnection and peering in general is growing driven by video and broadband. If you look at the size of video file versus the size of a (inaudible) where we are going to see real growth is—

It's a material difference.

And so I am going to tell you for the foreseeable future it is a rounding (inaudible). So really think about video, broadband, multi-media, all of those things. I mean, even one new 10-gig customer we had in the quarter was a customer we never had before. They went straight from zero to 10-gig and it is a media sharing sight. So the new stuff that is coming in is going big fast right out of the gate. So that is what is really going to drive growth. But New Star in general I think is doing some really interesting things and growing with us as a whole.

One last thing, I am going to give you a chance to revise and extend some remarks earlier because it could be perceived as a negative that you had major bookings late in the quarter.

In the end what happened is that as you know we opened up our DC core IBX in March.

Okay. Good enough. That's good enough.

Thanks, Rod.

Thank you. We have got a couple more questions now. We will go to Jonathan Hoops with ThinkEquity.

Thank you. I was wondering if there was any chance that you sellable cabinet number could go back up for example if customers started using more energy efficient server switch and storage technologies---are the sellable cabinet count, this new number something that we should expect to decline as you periodically reconcile?

It could go up over time. But don't start looking for that anytime soon in terms of the power consumption trends we are seeing in the servers that people are installing.

Can you discuss a little further on those trends? There has been some commentary by both the server vendors as well as the power vendors there that there are some incentives out there, for example PG&E giving rebates. Have you seen a very strong uptake in that? Or is it pretty much legacy equipment finding its way into these data centers.

I mean all of those announcements are very encouraging to kind of curtail the current trends in growth in power consumption but we aren't seeing any impact in the installed base or new customers as yet. So again, don't expect this near term as we look at our foot print.

And Jonathan we actually just went out and asked that question to customers in a recent kind of primary research study we did, and those same customers came back and said within the next two years they are going to be driving significantly more not less. So I think in terms of the way customers are looking at it and how they are going to integrate it into their infrastructures it is a ways out.

Great. Thank you very much.

Thank you. Our next question is from Manny Recarey with Kaufman Brothers.

Thank you. Two questions. One, if you can just help me understand the churn a little bit more. I understand it was about 4% and excluding the two customers that you pointed out it was 2.7% and I believe that was a little bit of an up tick over what it has been recently. So is that up tick, most of that due to just proactive on your part?

I will tell you that overall we are looking at our sales and our sales IBX optimization plans and certainly some of it is proactive but some of it is just customers who have chosen to move out of the site or who don't exist any longer as a sort of a viable entity and they—and we term them out ourselves, so proactively. But generally speaking I really want to go back to the trend is not inconsistent with what we have seen. And as we look forward into the latter part of 2007 we really don't see any meaningful change from what we have seen over the prior year.

Okay, and then if you can give any more color---I know you spoke about the 2008 potential spending. Can you talk a little bit about timing? Is it something you would have to think about in the next three months or is it more towards the end of the year that you would have to have your plans together?

We don't have a specific timeline on any announcements to new developments in '08. I think the overall message here is as we have just seen an acceleration in the business we are now looking sooner than we originally anticipated we would at utilization and we are looking at all of our markets as you might guess. And so as we look at that if the business accelerates further than we would see in the '08 or maybe early '09 timeframe would be a way to look at it that potentially for more capacity in certain markets. Of course, if that happened we would be building in '08 to support that. Whereas the trends of the business in the past not quite on this revenue ramp would have pushed those builds out even further into '09 and smoothed that curve a little bit from really what we are starting to see in the acceleration of the business.

So again, it will be about support of specific customer demand. It will be about having confidence in the return targets that we see in today in what we use to make a build decision. But all in we are just kind of acknowledging that this demand could be there. And so we just want to be fair and understanding that as we think about future builds.

Okay. Thank you.

Thank you. Our next question is from Jonathan Schieldkraut with Jeffries.

Thanks for taking my second set of questions here. Just a return to the competitive environment for a moment. Earlier another analyst asked about the new data center launches from some of your competitors. I guess I was wondering if your new competitors enter the market or the large majority of the expansions or all the expansions from existing competitors. And then secondly if you could comment a little bit about the movement in house from a couple of large customers. We heard some similar commentary from Savvis. And this seems to be the reversal of a trend that we have seen in the market over the last several years. And I am just trying to understand if this is just at the very top end with players like Google and Yahoo or if this is a larger trend that we should be cognizant of?

I don't think it is a reversal of a trend, Jonathan. Not sure on our disconnect there. People have been making the in-source versus outsource decision all along in our business. And we have seen it happen in the past and clearly some of the big content guys had moved to a more in-source solution, Yahoo and Google of course with their origin servers but still remain customers for peering. So this is a thing we have seen in the business on an ongoing basis. So not sure it is a new one. And at the end of the day there is just a significant issue that everybody is trying to solve and that being that the power and cooling infrastructure of their historical data centers isn't up to what they need today and so you are seeing demand for the corporate data center going into the read opportunity. There is demand for origin servers maybe in large content guys also supporting someone like a Dupont. But with all that going on people are also considering other options on how they do it and this one customer in particular saw us as a way to manage their situation for a couple of years time before they moved to an in-house solution, all part of their strategy. For a period of time it makes sense. Just like we take anchor tenants to help in a given building and support their move to cash flow break even sooner; we have made some of those decisions in the past. But again I don't want to build this business based on large (inaudible) footprints. There is not a great deal new here. It is just—obviously there is a lot of activity because this power and cooling issue is a problem.

And Jonathan I guess I pointed to a little bit to the other side of the coin. We look inside the new customers we got this quarter and this has been fairly consistent as you know. But 60% of the MRR new to the business was from people outsourcing for the first time or putting brand new applications in our center. So yes, you are going to see some one-sie, two-sie we have a lot of visibility into that are making decisions based on their own infrastructure. But the other side of the coin is we still see a significant amount of outsourcing going on. And we are the disproportionate winner of that based on our model. So I think you have to look at both sides of the coin when you try to take a look at that. But I would agree that this is nothing new; this is not the sign of a new trend. We have a lot of visibility—multi-year visibility into some of these. And I think it is fairly consistent.

And Jonathan if I can just add one last comment on that. Had not been for us to being proactive here we probably wouldn't be having this discussion on in-sourcing and outsourcing. It really was something that we chose to do ourselves and just bumped it up for the quarter but we are very fine with how we look going forward.

And Jonathan just to answer your first question a little bit on the competitive nature; again as we look city by city you will see in DC you will see kind of a regional competitor, we also see a regional (inaudible) new builder in LA, so we do look at what is going on with people who are very focused on singular markets. But typically they are going after opportunities that are very different than ours as you can imagine. So much more wholesale, much more re-focus, much more build a big building, hand them the keys and then walk away because they don't have the service experience we have. They are more real estate guys than service providers.

Great. Are you guys going to do an analyst day this year?

Yes we are. Hope to do it—what we are targeting right now is that I would like to do it right when the new New York building opens before customers get in there so you guys can see it and we will have a good analyst day and update you on '08 and it should be a good event.

Thank you.

At this time we have no more callers. Thank you very much for joining us today. This concludes our conference call.

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