Equinix Inc (EQIX) 2008 Q2 法說會逐字稿

Welcome and thank you for standing by. (Operator Instructions) Today's conference is being recorded. If you have any objections you may disconnect at this time. Now I would like to turn the meeting over to your host, Mr. Jason Starr.

Good afternoon and welcome to our Q2 2008 Results Conference Call. Before we get started I would like to remind everyone that some of the statements that we'll be making today are forward looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's Press Release and those identified in our filing with the SEC including our Form 10-K filed on February 27, 2008 and Form 10-Q filed on April 30, 2008. Equinix assumes no obligation and does not intend to update forward-looking statements made on this call. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures for 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 and President, Keith Taylor, Equinix's Chief Financial Officer, and Margie Backaus, Equinix's Chief Business Officer.

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

Thank you, Jason, and welcome to everyone and I'm very happy to announce another outstanding quarter across the board for Equinix in Q2, 2008. As we pass the halfway point for the year we feel very good about how we are executing against our 2008 plan. The technology trends we've seen for some time continue to fuel our growth across all regions. Growth of Internet traffic increased powering and cooling demands, enterprise outsourcing of data center space as well as the shift to electronic trading and settlement in the financial services sector is highlighting the importance of reliability and speed, which is what Equinix's services are all about.

Underpinning the results we had another strong bookings performance across all of our regions and we continue to see strength in our pipeline. With the recurring nature of our revenue model these results of strong bookings give us high confidence in the guidance we're providing for the full year. So let me hit the highlights of the quarter.

Total revenue for the Company was a $172 million. This represents a 39% increase over same quarter last year organically, which of course excludes our acquisitions in Europe and a 9% increase sequentially. Cash gross margins were ahead of our expectations at 62% and 67% organically due to stronger than expected revenue performance. EBITDA was $69.1 million, up 11% sequentially and ahead of expectations due to discretionary cost management and up 64% over the previous year organically.

Equinix closed 144 new customers in the quarter. Some key wins included the NASDAQ OMX, the Chicago Board of Options Exchange, CSC, Harmon International, Real Networks, Night Capital Group and Liquid Capital.

We ended the quarter with 2,090 customers. Just as a side note this number excludes approximately 456 customers from the [Virtue] acquisition, many of which smaller domain name hosting customers.

In the US business remains strong in all fronts with outstanding bookings and an increase in share of our growth coming out of the financial sector, especially with important new wins such as the NASDAQ OMX and the CDOE. These contributed to a significant increase in overall bookings from new customers this quarter representing just over two times the level of new customer bookings in the previous quarter. We also saw continuous strong bookings from the installed base representing over 70% of the overall US bookings.

Our results in Europe in the quarter continue to remain strong. We saw solid sequential growth of 12%, which excludes the $1.4 million sales allowance adjustment last quarter. We'll provide a further update in Europe later on in the call.

In Asia our revenues grew 13% sequentially with continued strong bookings including new orders from some of our top US customers such as IBM. One other interesting point in Asia, we are very pleased with our continued momentum in the interconnection market. With an example we signed a record 610 gig ports in the quarter along with a 25% increase sequentially in the number of cross-connects booked. The value of our global reach was certainly evident again in this quarter as we closed 34 cross-regional deals.

Finally, as you saw in today's Press Release, Margie Backaus has made a decision to transition out of the Company towards the end of the year. Margie has been here for approximately nine years and is a key member of the leadership team and has made significant contributions to our overall success over that time. As many of you know Margie, she would like to speak to you directly about this decision and I think it's important that she does that. Margie?

Thanks, Steve, and hello everyone. I'm sure that today's announcement about my decision to transition out of the Company may come as a surprise to some of you. After nine years I have successfully accomplished what I came here to do, namely be a part of a team that took a Silicon Valley dream and built it into a multi-billion dollar global market leader. I'm proud of my contribution to our success over the years but personally it's time for a new challenge. Clearly the Company is in a very strong position and my transition plan includes the completion of several important initiatives including participating in finding my successor. After the transition, I plan to take some time to recharge and pursue some new opportunity.

Finally, I would like to say that one of the most important things to me in my time here has been the deep relationships I've built through the years with my team, our employees and our customers. These relationships have always been a big part of my passion for our business. In addition, my work with our investors has been one of the most fulfilling roles at Equinix. I hope that my efforts has helped make our investors more informed about our business and our market opportunity, and importantly I've developed new friendships with many of you, which I will always carry with me. I'm sure that I will be speaking with many of you personally over the coming weeks, so with that let me turn it over back to Steve.

Thanks, Margie. We are clearly going to miss your passion and knowledge of this business. We have a great deal of respect for Margie and highly value her contributions to Equinix. We wish her nothing but the best as she makes this transition.

I'll now turn it over to Keith for a deeper review of the quarter and then I'll come back and spend some time discussing power, a European update and a quick review of our expansion activity and wrap things up with guidance. Over to you, Keith.

Thanks, Steve, and good afternoon. I'm please to provide you with our second quarter financial results with some additional perspective on the quarter's performance against our expectations. Also, I'll give you some color on the key trends as we look to the latter part of the year. So let me first start with revenues.

As Steve mentioned our Q2 revenues grew 9% over the prior quarter to a $172 million, slightly better than our initial expectations, the results of continued strong bookings activity across all three regions. Approximately 38% of our revenues were earned in Europe and Asia Pacific. Unlike last quarter, changes in foreign currency had a relatively small negative impact on our revenues in the quarter.

Now looking specifically at US IBXs that opened in 2007 and the new DC5 IBX in Silicon Valley expansion that opened up in Q2, demand and in particular booking activity was strong in all four of these markets and the pricing trends remained consistent or better than our expectations. Revenues attributed to our DC four IBX, which opened in March of 2007 exited the quarter at almost $34 million of annualized revenues on target to achieve the investment plan objectives for this IBX although sooner than expected. Revenues from our new IBXs in Chicago and New York, which open in Q4 of 2007, doubled to $6.3 million in the quarter for approximately $29 million when annualized off our June exit rate. We expect our Chicago and New York revenues to continue to accelerate in Q3, consistent with our strong bookings and pipeline in these markets. Our success enabled both of these expansion IBXs to become cash-flow positive by the end of the second quarter or within three quarters of opening, ahead of our original expectations.

Looking at churn, both our MRR and cabinet churn we're consistent with our targeted levels of approximately 2% per quarter. We continue to expect churn to remain in our targeted range of 8% for the year. Our quarterly churn metric does reflect some proactive churn or optimization consistent with our efforts to stratify the customers into either network dense or high part IBXs dependent on the customer's need.

Next, moving on to gross profit and margins-- the Company recognized gross profit of $70 million for the quarter, our gross margin of about 41%. Our cash gross margins were 62%, greater than our expectations primarily due to continued strong revenue growth coupled with lower than expected real property tax and utilities expense. Our US cash gross margin increased at 69% in the quarter.

Looking forward to Q3 and Q4 our utilities expense will increase consistent with prior years to reflect the higher seasonal summer rate and the expected increase of cost related to utility consumption in our key US markets, whether in a regulated or unregulated market. On a quarterly basis utilities expense should continue to range between 12 and 14% of revenues. We expect our cash gross margin to approximate 61% throughout the remainder of the year, slightly above our initial expectations. This reflects continued strong revenue performance derived from high bookings leveled in Q1 and Q2 partially offset by increased costs related to a large number of expansion projects across all three regions and higher than planned utility expenses.

Looking at revenue per cabinet on a weighted average basis excluding Europe our average monthly recurring revenue per salable cabinet increased to $1,650 from $1,603 last quarter. We're off about 3%, and off almost 8% compared to last year. This reflects continued strong bookings of our higher powered cabinets, a continued increase in the amount of power and interconnections sold on average per cabinet and continued favorable pricing environment.

On a regional basis our weighted average price per salable cabinet in the US was $1,748 versus $1,693 in the prior quarter, a 3.2% quarter-over-quarter increase. In Asia Pacific our weighted average price per saleable cabinet was $1,26l, an increase over the prior quarter level of $1,230 or a 2.5% quarter-over-quarter increase.

As mentioned on the last call, we're seeing strong market pricing in each of our Asia Pacific markets and continued strong growth of our interconnection services. With respect to Europe our price levels remain strong in each of our markets with selected improvements in current market pricing.

Now looking at our SG&A, SG&A for the quarter was $56.7 million including stock-based compensation and depreciation and amortization expenses of $15.8 million and $4.1 million respectively. Our cash SG&A was $36.8 million in the quarter or slightly above 21% of revenues, consistent with our expectations. This includes about $1.5 million of cost related to our branding and IT projects.

During the second half of the year we expect cash SG&A to grow slightly over the first half spending levels as we continue to invest in our SG&A staffing levels, our IT infrastructure and our global branding initiatives. Nonetheless we expect our cash SG&A as a percentage of revenues to continue to decrease throughout 2008 to approximately 20% of revenues in Q4.

Moving on to net income and EBITDA, for the quarter we generated net income of $2.2 million, which includes a net loss of $819,000 attributed to the Virtue acquisition. Although our net income decreased over the prior quarter we absorbed some specific costs worthy of note; one, a discreet $3.1 million stock-based compensation charge in the quarter related to the departure of our two IX Europe founders, a cost that was previously being amortized over 15 months.; two, a negative $3 million quarter-over-quarter swing primarily attributed to currency fluctuations as we re-measure our foreign denominated assets and liabilities. This negative change was offset in part by various currency hedges placed during the latter half of the quarter as we worked to minimize future currency rate exposures; a $2.8 million increase in depreciation and amortization expense related to our new operational asset and finally, four, greater than $1 million in professional fees and other costs related to our IT initiatives.

With respect to interest expense during the quarter we entered into various interest rate swap arrangements reflecting our view that both the US and EU interest rate have greater upside side pressure than downside pressure. As a result 95% of our interest bearing debt obligations are now fixed at a weighted cash coupon rate of 4.65%. Therefore, as we look forward, recognizing that our net results may fluctuate due to the timing of our depreciation and amortization expenses as we complete our additional construction projects, we believe we can continue to increase our net income throughout the remainder of the year.

Our EBITDA was $69.1 million for the quarter, a 96% year-over-year increase and up 11% over the prior quarter including $11.3 million of EBITDA in Europe. On an organic basis, our year-over-year EBITDA increased by 64%.

Turning to our balance sheet, our balance sheet and cash flow at the end of Q2 our unrestricted cash balances total $324.7 million, essentially no change over the prior quarter despite the continued investment in our expansion IBX projects. This cash balance along with our expected operating cash flows and the draw down of additional debt under our European and Asia Pacific financing fully funds all of our announced expansion projects including the additional capital expenditures related to our New York four phase two project. Under the current year's operating plan and forecast including the announced expansion and updated view of our ability to manage our working capital, we expect our unrestricted cash balance to approximate $260 million at the end of 2008.

Next, moving to operating cash flows, our net cash generated from operating activities was $66.5 million for the quarter, again reflective of the expected correlation to our EBITDA results despite the large interested payments made during the quarter. We continue to remain focused on collection activities in each of our three regions, which resulted in an improvement in our global DSO metric for the quarter to 33 days while we managed the outflow of cash related to our vendor obligations.

Looking at the remainder of the year, we expect our cash flows from operating activities to continue to scale with the growth in our EBITDA. Cash used for investing activities was $108.4 million for the quarter. During the quarter we spent $84.5 million on capital expenditures, lower than anticipated given the timing on certain projects. The capital allocated for these projects will be spent during the second half of the year. Also, we reduced our accrued property and equipment balance by $23.2 million.

Cash generated from financing activities was $41.9 million for the quarter, primarily derived from the draw down of $35.6 million of funds from our Chicago construction loan and our European and Asia Pacific financing lines. In addition, we generated $12 million in proceeds from our employee stock plan offset in part by $5.7 million use of funds to repay debt and other financing activities.

So now let me turn the call back to Steve.

Thanks, Keith. I'd like to take a few minutes to provide you a brief update on several developments that many of you have been asking about. First, given market news about energy and power costs and its importance to our business I thought it was worth spending a few moments here. As most of you are aware, power has historically been the largest variable cost component of our business at approximately 13% of our revenues. As a result, this has always been a high point of focus for us in our day-to-day execution. As we've said in the past, the large majority of our customer agreements, including our high density power customers, allow us to react to changes in our underlining cost structures through price increases

Of course, we're going to be smart about this and as we've done with any price increases over the past several years, we will look at the total relationship with the customer across all of our markets and make decisions on a case-by-case basis. As an example of how we are managing this, we have recently raised the list pricing for new power orders in selected US markets. As a Company we spend a lot of time actively managing this important cost component and we believe we have a thorough understanding of what it means to our business. An important takeaway is that we don't see any energy costs negatively impacting our ability to deliver the objectives as outlined in our cash-gross margin and EBITDA target in our long-term operating plan.

Now let's move along to an overall update on Europe. It's now been over a year since we announced the acquisition of IX Europe and our progress in this region continues to exceed our original expectation. The integration has progressed well and customer churn remains low. [Eric Swartz] is now on the ground full time joining the team and immersing himself into our opportunity there. We're pleased to announce that both our London four phase two and our Paris two expansions are now open and seeing significant bookings and installation activity. We expect to see a significant ramp in revenue and EBITDA in these markets by year end, which should translate into a strong contribution to our 2009 results in Europe.

Our remaining projects in Frankfurt and Amsterdam are on track for Q3 openings. The first phase of Frankfurt two expansion is already more than two-thirds booked and our expansion in Amsterdam has a strong sales pipeline and we are anticipating a high reserve rate by the end of the quarter in this important new market.

We're also pleased with the progress in building our interconnection business in Europe. Relationships are in placed with a major exchange in Amsterdam, the M-6 and two exchanges in Germany, the [D-Kix] and the [AL-pix]. Also, we've re-launched our Swiss Exchange with added redundancy and new customer tools. I'm pleased to announce that the groundwork is now in place with our links partnership as they've informed their membership that they are expanding to our London four IBX while we complete the final agreement.

As we also announced today, we launched the Equinix exchange service in Paris with initial customers already under contract. With this progress we can now provide interconnection and peering services to our customers in all five of the countries in Europe that we operate in.

Now just a quick note on expansions outside of Europe. Both our Q2 expansions in the Silicon Valley and the DC metro area are now open and customer installs have begun. All other expansion projects in the US and Asia remain on schedule. As you saw in today's Release, we made a decision to move forward with New York four phase two to support the significant demand we continue to experience with our financial exchange service. This will add approximately 1,100 cabinets of capacity there with an increased level of power density to 5 Kilowatts per cabinet. As mentioned on our last call, we continue to expand this investment. We expect this investment to be between $80 million to $90 million in CapEx of which we expect approximately $50 million of this to be incurred in 2008. We expect this phase to be completed in Q2 of 2009.

Now shifting to guidance, as you saw in today's Release, we're lifting our annual guidance. We now expect revenues to be in the range of $700 million to $710 million, an increase of $12.5 million at the midpoint from our previous expectations. We now expect cash gross margins to be approximately 61%, at the high end of our previous range. Cash SG&A will be approximately $148 million. We are increasing our EBITDA expectations to now be in the range of $280 million to $286 million, an increase of $8 million at the midpoint.

We are increasing our 2008 CapEx guidance to $450 million to $460 million, which reflects the incremental $50 million for the second phase of our NY four expansion and $30 million of CapEx associated with our LA four expansion IBX, which was not previously included in our 2008 CapEx guidance. The LA four project is still expected to total $110 million. Ongoing CapEx remains at $60 million.

Now for the third quarter revenues are expected to be in the range of $180 million to $184 million. Cash gross margins for the quarter are expected to be approximately 61%. Cash SG&A is expected to be approximately $38 million. EBITDA is expected to be in the range of $70 million to $74 million. Total CapEx for the quarter is expected to be between $125 million and $130 million, which includes approximately $100 million to $105 million in expansion CapEx.

So, as we begin our planning activities for 2009, we continue to see a very strong opportunity to extend our market leadership and as a result we are broadening our leadership team to help us scale on a global basis. First with Eric Swartz in his new role we have hired a very seasoned leader named Mark Adams to lead our corporate development activities. Mark comes to us with over 20 years experience across various segments of the high tech industry including key roles with McKinsey to E Capital, Adaptec and most recently at Electronics for Imaging.

Second, we are nearing completion of an active search for a Chief Information Officer, which will be a new global role in Equinix and will oversee our IT infrastructure and applications on a worldwide basis.

Finally, we're pleased to recognize that Dave Pickut, our head of engineering, who many of you have met at our analyst events, has been promoted to Chief Technology Officer. In this important new role he will be responsible for developing the blueprint of the IBXs of the future, evaluating the evolution of power and cooling technologies and ultimately ensuring that we remain leading edge for our customer's next generation technology deployments.

With all this momentum and the strong visibility we have into our customer's demand, we continue to see a great opportunity in front of us. I've had several meetings with some of our key customers over the past few months and they've emphasized their desire for us to stay focused on our core business, provide them contiguous growth while maintaining highest levels of operational reliability.

At the end of the day to provide these levels of service it's all about people and execution. The Equinix team has consistently demonstrated our ability to meet commitments to our customers and our shareholders and you can expect us to continue to deliver both on a go forward basis.

So with that, Debbie, I think I'd like to open it up for questions.

(Operator Instructions) Our first question comes from Rod Ratliff.

Nice quarter, guys. Steve, would you give me kind of an update on how tight available space is in the more key markets? I mean I know we announced some more expansion plans today but particularly New York, Chicago, Ashburn, Silicon Valley and say Atlanta, how quickly could [fallow] floor space that's not really kind of ready to go be up and ready for occupancy?

Well, I would tell you that varies market by market but let's just-- let's start in the US market and, Rod, I think your question is of our announced expansions how quickly are we-- do we expect fill rates to happen where we have to announce further expansion or--?

Well, I guess what I am driving at here is for instance in New York four when we were all there last fall there was a great big wall and a bunch of empty floor space that didn't have any cabinets installed. That's kind of where my mind is on the question.

Yes okay. Well, just as we announced we're proceeding ahead with our next phase in New York and, again, that's driven by the demand that we described here previously. But we'll proceed ahead and that's got a heavy dose of financial services industry focus there. And then and again, there's a third phase that's available there as we told you from the get go.

Right.

So we-- and that market's probably the highest demand we've seen in the US markets across the other five sites where in LA we're in good shape because of the new builds that we've got going on announced in LA. Chicago, when we see the triggers that will cause us to do what we just did in New York we'll make that announcement for the next phase in Chicago. The DC market with EP 5 opening at the end of this month we're in good shape in that market and then as you-- Dallas, we've pretty much determined-- made any decisions in Dallas to make any particular moves in Dallas at this point but we've got with some recent term we've got some opportunity to provide some space in that market.

Rod, it's Margie. The other thing I would say is just as we look across all of those markets and the strength of the pipeline in those as we continue to look at demand what's applicable is the addressable market for us and understanding the difference between the rebuilds that are announced and ours and what I would tell you is even with the demand discussions we're out having with customers right now and how that's reflected in the pipeline things are about as strong as they've every been.

I think you guys will continue to see announcements made by the REITs made for wholesale builds in some of our markets but again, we track those extremely closely and the majority of the capacity that's coming on in these markets is mid '09 maybe most of it now beginning of '010 and some of the funding for those I think remains somewhat questionable, so we continue to be very, very happy with what we see as a big gap in supply and demand still in the markets we're in and I think the pipeline proves that out as we sit here today.

The Asia Pac price strength, is that direct, more or less directly attributable to the interconnect uptake that you announced earlier in you seem to be pretty pleased with?

Rod, I'd tell you that certainly that's part of it but the lion's share of what we're seeing in growth is really on spot pricing related to co-location, no different than what we've seen in the US and in some markets in Europe. The supply, the amount of capacity in certain markets is-- does not nearly meet what's demanded from our customers and, as a result, the spot pricing has moved up very, very dramatically and in some cases 100% when you look back two years.

One last housekeeping question before I stop hogging the call up here, Keith, given the uptick at the one-time stock comp charges that you guys booked in the second quarter can we expect stock comp levels to more or less revert to sort of the previous guidance levels?

Yes Rod, that was a discreet $3.1 million adjustment just for the two funders of IX Europe. That would have been spent over the next-- over a 15-month period as it stood, so from your perspective you could assume that it is going to decrease going forward.

Great. Congrats again. Thanks a lot.

Jonathan Schildkraut.

Thank you for taking the questions. I only have a few but I also wanted to express my gratitude to Margie. In the five years that I've been covering Equinix it's been a great pleasure to work with you and you have been extremely helpful in getting to understand the stories, so thank you.

A couple of quick questions here, Rod hit a few. It looks like in the phase two of New York four it looks like less cabinets than the original phase and I am wondering if does that mean phase three, which I guess was supposed to be a third of the building, would also be about 1,100 cabinets or is there something special on phase two that we should know about.

I don't think so. I think it's driven primarily by the higher density of cabinet footprint that we decided to go with the flat KW per cab. It's certainly an element of that, Jonathan.

All right great. Also, when we think about the New York market I guess the-- kind of thinking back here, the original Secaucus facility opened up I think in 2003, about 5 years ago, and I was wondering if you could give us a sense because at that time I think you had two anchor tenants and I was wondering if you could give us a sense as to your anticipation of maintaining those anchor tenants as we come to a 5-year anniversary and I think that they were 5-year contracts initially and what might happen to that space?

Sure. Yes I think in terms of the anchors we saw in NY two and you guys are all pretty much well aware of who those anchors are and it's actually only one of them and then we had another anchor in NY four that we announced as well but I think overall that continues to be a really strong customer for us and we don't see any big changes in that relationship over time. I will tell you given the strength of that market and how quickly we saw the acceleration and demand in NY four any space we could possibly get back in NY two would be welcome at this point. I think that New York those between New York two and New York four that has become an absolute hub and magnet for some of the matching engines and the exchanges, two big ones which we announced today, I'm sure you took note of, Jonathan. But I think that relationship with that customer remains extremely strong to this day and I think like any big customer they're going to ebb and flow based on their own infrastructure requirements and any space we could get back in the buildings that are full there we certainly would welcome that and we can fill it up pretty readily right now.

Great, a final question, in the past, Margie, you've tried to give us some sense as to the amount of traffic that was passing through your network access point system maybe relative to a year ago, which kind of gave us a sense as to and maybe an increasing importance of the Equinix data centers in the underlying Internet infrastructure. Can we get a similar type of metric?

Sure. Yes well, Jason is looking for last year's but I can give you the one right now. It's 225 gig is what we saw in the quarter. The one thing I will tell you that I think is interesting going on, as we continue to see nice adds from cross connects is, as customers continue to buy-- we sold 12 10-gig ports in the quarter just to give you that stat as well. But as you-- you'll continue to see kind of people switching from necessarily putting traffic on ports to cross connects so I don't want to-- that's a good metric to look at year-over-year but just understand that as customers continue to grow their traffic between dedicated peers so they often pull that traffic off and go to cross connects, so just be aware of that and just take that as a directional number and not completely definitive of what's going on with the Internet traffic.

Jonathan, the traffic exchange last year, Q2 ballpark, was approximately 150 gigabits and, again, that's just a US stat over the exchange and again, would exclude any kind of traffic over the cross connects and things like that.

Tom Watts.

Congratulations everyone. One of the major real estate firms recently indicated that they were seeing I think as they phrased it, "fewer requests for data center space in the London market" and maybe you could just comment as now I would assume that since the largest portion of your customers, largest portion of your demand comes from your existing customers, they wouldn't be going through brokers but maybe you could comment to what extent does that reflect a different market than you're looking at and could they be-- is there a divergence of two different segments of the market, one that perhaps is slowing or not seeking space versus the one that you serve that's continuing is strong?

Yes, Tom, I think the general difference is the debate over the representation of wholesale versus retail or if you want to call it enterprise market so, as we've stated on previous calls and continue to study the facts out there, a lot of the builds going on around the world including the market you mentioned is heavily driven by wholesale builds that are catered to big enterprise deployments and so we get looks at some of that stuff. A lot of those client prospects do come to us but our focus is still heavily focused on retail with a good mix of interconnection based clients. Occasionally we're going to look at an enterprise deployment that makes sense but our orientation is a little different than just a big enterprise, big block of power purchased like a wholesale enterprise plant we'd be looking for so.

And just to put an exclamation point on what Steve just said, I spent a lot of time talking to investors about that report when it came out and I think the takeaway for us was that yes it may absolutely be true that there is a slowdown in purely outsourced enterprise data centers as they preserve capital and turn to-- I mean in sourced data centers as they preserve capital and turn to outsourcing and I think that's really what we're seeing continue to drive our growth in London. I mean for us there is absolutely no slowdown in London in terms of demand and/or pricing and so I think that's what you're seeing and I think that's not unexpected.

The other aspect, Tom, could be a lot of our customers obviously are deployed with us and also deployed inside of that type of facility for their big server farms or that kind of business so it's not unlikely that you're going to-- you know, big customers are going to use the both of us for the type of support they need today.

And then on a different topic, I think last quarter you mentioned that you'd seen record order growth at 12% if I recall. What would a comparable figure be for Q2?

Yes I'm not sure. We don't-- as you guys know, we don't really throw percentages around on order growth but in the US market we had another record performance on bookings and then very, very strong performance in the other two regions so we don't really add much more color than that, Tom, but I would tell you that the pipeline and the bookings performance continues to exceed our expectations.

Colby Synesael.

I had a few questions. One as it relates to expansion you guys obviously mentioned a new one today. With future expansions both those that you've already talked about and those that you haven't necessarily announced yet, do you guys think that-- can you envision I guess maybe over the next year or two having to go back to the financial markets to raise funding for those expansions or do you think that internally you're going to have enough cash flow to generate the cost of those?

Also, I wanted to get a little bit of an update on your view in terms of REIT status. Is that something that you guys think at some point you're going to pursue and have you guys done anything around that? And then finally, more of a housekeeping question on European growth, it looks like it decelerated from Q2-- excuse me, from Q1 to Q2 versus Q1 from Q4. Is that simply financial-- or excuse me, foreign currency or was there something else there? Thanks.

So let me take your questions. First and foremost as it relates to capital clearly, as you know, we don't really comment on any future financing. But I did try to articulate at least in my prepared remarks that number one, between the cash that we have on the balance sheet, the fact that you can draw a very tight line I believe today between operating cash flow and EBITDA plus the fact that we still have some capacity in our debt line that we are in the position to fully fund not only what we've announced but there's also the opportunity to fund future expansions.

Now clearly the proviso to that is that depending on how much expansion we do will ultimately determine how much capital we need but today I'd tell you that we have sufficient capital to address what we've announced and some more.

As it relates to the REIT status I think it's important to know that certainly it's something that we continue to think about. We've heard it from a number of the analyst communities and some of our investors and that will be something that we pursue but we haven't spent a lot of energy over that matter in the last quarter.

Then, as it relates to Europe, there's a couple interesting notes. Certainly when you look at Sterling or European revenues certainly the impact on Sterling, as I said, we had a slight the slight decrease or negative impact on currency in the second quarter. That was driven by off our guidance where currencies went on the Sterling basis. In addition, we had the UBS one-time pick up in Q1 and so that-- of course, that pick up wasn't realized in Q2 so when you actually adjust revenues for those two items you're effectively seeing good growth quarter-over-quarter. I will also tell you that we are-- you know, we're constrained, we're expanding quite aggressively in our European market and in some cases we are constrained and because of that it is going to influence our growth going forward so we're going to be very mindful in bringing those assets on line as soon as we can.

Jonathan Atkin.

Yes, a couple questions-- one is you talked about strong booking trends on some of the cities on the continent and in Europe, Amsterdam, Frankfurt and Paris specifically, and wondered if there's any meaningful difference that you're seeing in pricing levels amongst those markets, as well as demand? Also, more broadly curious which of your markets are seeing the most amount of incremental competitive supply including both wholesale and retail data centers that are being built out?

Jonathan, are you particular on any one region or just in general?

In general, that latter question.

Yes let me just give you some spot information. In Europe, London I would tell you still is active and it's hot, as we have been signaling in the past. We have strong pricing in that market today, some of it driven by the fact that we're driving more business into our newer facility. It's at a higher density in London four versus London two or three, so that's helping us ship. In Germany versus the UK market or even the Swiss market, it's lower in absolute terms of pricing but it's improving. France, pricing is stable for us and we are seeing some growth there. Switzerland, much smaller market for us but it remains very stable and very high and then, of course, in the Netherlands we're just getting started and we're so far what we're seeing on pricing is in line with our expectations.

I guess in the Asian market just very quickly still seeing good strength in the Tokyo market, we're very focused on the interconnection in that market, mostly in Hong Kong and Singapore more towards the financial services business. We've seen very good prices on new customer installations there. And in the US markets I think across the board I'd say we're pretty strong or most active in four or five of those markets out of the six and I wouldn't say there's any trend that I am seeing heat that I think would trend it up or down. I think we're certainly for new installations we've had a big uptick in new customers, which again I think is another indication of the market desire for this kind of business model with the amount of new customers that are looking at this type of offering so we're very strong in that new customer pricing.

And Jonathan, I'm just to add to sort of partially address your second question, when it relates to supply-- and I think Margie alluded to it earlier on-- we're not-- we still feel we're in a market where there's insufficient supply to meet the demand and so we're not feeling any particular-- any great pressure in any given market but we do recognize in some cases there is new supply coming on but our general measures to the investor base is that we're not seeing it in a meaningful way that's causing us to have any concern over our booking trend or for that matter our pipeline and, as a result, we're continuing to marshal forward as we've anticipated.

Okay and then Steve mentioned the uptick in new customers. Can you refresh us on where you are for the quarter on the breakout of incremental revenue that came from new versus existing customers and then maybe comment a little bit on how many of your wins were multi-site or even reached across your various regions and then who are you displacing when you sign on these new logos? Are you displacing another provider of data center space or is it usually an internal resource or is it just expansion needs that you're meeting when you make these sales?

Well, the first point I'd tell you that roughly 70% of our new booking activity came from the installed base, so slightly-- a slight decrease of where we were before but it really drives the point home that Steve made. There's 144 new customers across all of our markets that came into the Equinix site, so from that perspective we're extremely pleased. When I look at absolute dollars, so what did we book from existing customers this quarter versus last customer? It's effectively that same so, as Steve said, we've had another great quarter of bookings and in absolute dollar basis we're seeing the same level come from the installed base.

Yes and from-- if you talk about new customers that came into the business at 144 new customers we had on-- excuse me, on bookings, about a third of those came from share shift so coming out of other kind of retail providers and about two-thirds came of new. The one note I would make is of those new customers we had a couple of very significant wins that we won against tough competitors at prices premium to their offering, so I think that that continues to show the overall strength of the value proposition to those customers.

Can you talk about the trend on multi-sites as a mix or were these single site wins that you mostly were signing on at least initially for the new bookings?

For new bookings I think it's probably mostly single site if you were to cut a percentage of it but I don't know if we've looked at that cut. But I can tell you I think last quarter we were 10, 10 deals that were cross regional and I think that's stepped up significantly, as I mentioned in my remarks so we are seeing multi-region, multi-site deployment from a lot of these multi-national customers and I think it's again it's another statement in support of wanting and needing to be serviced on a global basis.

And, Jonathan, typically what happens, as you can appreciate, once the customer installs part of the reason that we get such a large uptake on a go forward basis from our installed base is that customer is buying new services either in the existing IBX or they're moving with us geographically or internationally and so that's where we get the benefit, so it's not typical they-- it's not to say we don't get it but it's not typical you get a multi-site deployment from the get go.

Mike Rollins.

Just a couple questions-- I guess I'll give you one at a time to make it easier. First, I was just wondering if you can give us some numbers around the Tokyo and Singapore revenue? Over the last couple quarters you've given some disclosures on that and I was wondering if there was an update on that front in terms of the new centers that front in terms of the new centers that you've launched.

Concerning just the phases you're referring to, Mike?

Yes I think like last quarter I think you may have mentioned that there's maybe $2.2 million of revenue. I'll double check that as well. From those new centers I was just wondering how they're doing relative to the Asia portfolio.

Mike, this is Jason here. We put some updates on the expansion sheets that's on the website but yes we typically don't break out revenues per new site other than what Keith puts in his prepared remarks just on exit rates and things like that, some of the new, it's been more of the US sites.

But anecdotally they're both doing outstandingly well in terms of installs and booking rates into those centers.

Second question on Europe, I was just wondering if you can give us-- I know you gave a lot of context around what was happening in Europe around some foreign exchange and as well as where you are in some of the countries. Can you tell us I think back in the fourth quarter you gave us a statistic about what percent of the revenue capacity is currently booked in Europe. Can you give us an update on that front and within that context is there a specific dollar number that we should be thinking about in terms of the revenue impact from FX in the second quarter?

Yes so let me deal with the second question first if I may. Number one, I did make a mention that it was a relatively insignificant impact to revenue from currency movement relative to our guidance. Now having said that, to size it for you it was probably-- it was roughly a negative $200,000 impact in the quarter related to currency. Why was that? There were two primary currencies that went against us or depreciated relative to the US dollar, that being Sterling and Japanese yen. Euro strengthened a little bit in the quarter as did the Australian dollar. So from that perspective when I looked at the basket of currencies relative to what we guided to, there was a relatively modest and insignificant impact.

As you go to sizing of the European footprint, we're at a point it's relatively consistent across all of our markets where we're almost in the range of 80% contracted. Now they look at it a little bit differently in Europe than we do in the US because of the installed base but it's roughly an 80% contracted. Having said that, we used to size it that it was 160 to 170 million in 2008 related to the European revenues. I'd tell you today that that number has increased quite significantly, in part because of the Virtue acquisition and in part just because of the demand that we're seeing in the European market and I would take it today up to 170 to 180.

And then just focusing on the US for a moment, you saw in the quarter if you look at collocation revenue per average cabinet, that collocation revenue per cabinet accelerated significantly in the second quarter and I was wondering if you could tell us a little bit about whether that was pricing, whether it was just customers installs being completed and how should we think about the mix over the second half of the year between pricing and volume?

Mike, and I just want to clarify, are you referring just to the European market or the entire market?

I'm sorry, in the US portfolio, in the US portfolio just taking the collocation piece.

Yes so I'll tell you there's a couple things. Clearly, as you know, a lot of the new assets that were brought on line are what we call our high powered or higher service assets and, as a result, we're charging $1,800 to $2,200 per cabinet, so we have seen a great uptick and DC, DC for us is a perfect example of that where we're reaching at capacity level. We exited Q2 at 130-- or sorry, not 100, $34 million of annualized revenue off of that asset, so it gives you a sense of we're seeing great momentum there.

We're certainly seeing great momentum in our New York four phase one asset, so we're getting the benefit of higher powered assets selling into the market. Clearly as our customers are continuing to buy interconnection services or more interconnection services on average per cabinet so that's benefiting us as well. And then just generally speaking the pricing trends, we have not seen any-- just it's fair to say we see pricing firm or better than we expected and, as a result, our price points have continued to rise on average per cabinet.

And then just the last question for you is on Los Angeles. You talked about the acceleration in CapEx into '08 from what was originally planned for 2009. Is that being demand driven to launch the sensors sooner or are there other factors driving this shift in CapEx into '08 from 2009?

What we did, Mike, one of the things when we originally launched the Los Angeles four project we originally said roughly 20% would be spent in '07 and 80% in '08. We didn't-- because of the delay related to the environmental permitting we really didn't update the guidance but to give you a sense of what happened so starting in 2008 we feel a lot closer. You know, we feel closer to being able to launch the construction activities in Los Angeles. We originally had $43 million of CapEx attributed to that project for 2008. We're now increasing that to $73 million, hence the $30 million increase, and we're keeping the project size still at $100-- $110 million. Essentially what we're saying is $73 million will be spent this year, $37 million will be spent next year. We, as a Company, certainly trying to accelerate as much as we can. As you know, we did delay the project, so we're going to try and bring as much of this project on line or we're going to spend as much of this project as we can in 2008 in anticipation of opening it as soon as we can.

Great. Thank you for all the details.

Manny Recarey.

Thanks and good luck, Marge, in whatever your next endeavor is. Two quick questions and most of mine have been answered. You had spoken about I think it was on 70% of the incremental came from existing customers, which was a step down. As we look forward, do you expect that to kind of be more of the trend or do you expect a reversal back to the way it's-- the 80 plus percent?

Yes, Manny, I don't know if we could have enough quarters looking back on a trend. I think the good sign of that is that we've got a lot more new customer demand showing up that's testimony for the pressure that's going on inside a company today with CapEx and data centers becoming obsolete and everything revolving reading about it from a trend standpoint, so I think we'll stay somewhere in between that 70-ish to the 85% on existing. It will probably fluctuate back and forth.

Okay but yes I definitely agree with you that it's a good sign. And then, Marge, you made a comment about as you're looking at new capacity other new capacity coming on in like late '09 or 2010. You know, you're kind of suspect about the financing of that. Are you seeing actual pushback or is it just kind of looking at the companies and the era and the outlook?

No we-- projects that were supposed to start coming on line, there are literally if you drive by these projects there are not yet shovels in the ground, so that tells you either something has gone wrong in their construction plans or the stuff is just not getting funded and I would tell you it's probably B based on everything we hear so there's solid evidence of that as we are pretty close to what's going on in the supply side on a city by city basis.

This person did not record their name so I want to make sure. Is this Mark Kelleher?

Yes.

Okay your line is open, sir.

Most of my questions have been asked and answered but just going back to the buildout in the US there's 1,700 cabinets in LA four and 1,100 in New York four coming on line around June of next year. Is that right?

In the Q2 time frame, Q2 '09.

Right, in the Q2 time frame, can you tell us how-- what the buildout, how many cabinets in the US are coming on line per quarter between now and then not counting those two buildings?

Yes we can.

Yes as we look at-- there's a spreadsheet also for everybody on the website so what's remaining in the US is you've got LA four coming on line in Q2 of '09 and New York four phase two coming on line of Q2 of '09 as well and that gives you a total of 2,800 cabinets in the US. And then, of course, there's room in a second phase of LA four and also New York four for an incremental expansion two assuming the demand and everything continues.

Okay and DC five as well?

DC five is building now.

Right okay.

Silicon Valley two phase two.

In the US it's just those two projects that will come on line between now and Q2 of 2009 and certainly, as you know, we've got, as Jason alluded to, we have on the investor website the activity across all of our three regions and there will be more capacity coming on line both in Asia Pacific and in our European markets.

Chris Larsen.

Thanks and I also did want to say thank you to Margie and wish you the best of luck in the future. A couple of things-- one of the questions and you mentioned a lot about financial services and the strong demand there and obviously we're all watching the tape and highly attuned to the issues that are going on there. Is there any sort of weakness or change in demand that you've seen over the last couple of weeks that would suggest that the five sort of areas hold back at all? And then secondly, on the New York four phase two is there any thoughts to perhaps bringing on phases two and three at the same time? Would there be a cost benefit and/or it seems like you may possibly run out of space in phase one before phase two comes on line. Is there any thought in accelerating phase three to get that on line as phase two comes on line and is there an impact to sales in not having-- to the sale people, of not having a product to sell?

And then, Keith, if I listened to what you talked about, about the one-time oriented adjustments, as I look at the EBITDA figure for this quarter it almost seems that on a above the non-cash line that EBITDA would have been $1 million higher had it not been for all those one-time things, some of them netting out and the only one being a $1 million negative against you. Is that right? Thanks.

Okay I would tell you, Chris, on the financial services segment and, of course, I think as we've signaled inside of that a sub-segment with the trading systems we are having a lot of success and there's a lot of activity there so-- and it's an ecosystem that looks a like the core ecosystem that runs, that's underneath our interconnection business, so I think from that standpoint we're seeing a lot of activity. But in some big markets where big financial institutions are like Hong Kong and London and Frankfurt and Singapore we're also seeing just general demand from them still, so from our perspective no let up in demand in that segment, no signals really at all. From a-- you are very insightful on the New York four situation and I would tell you yes there is a benefit to putting two phases together from a cost standpoint and from a sales standpoint and probably from a three or four other standpoints, so I would tell you to stay tuned. We're looking at that very, very closely and it's a high demand market and we're studying it.

And then, Chris, as it related to your question just on EBITDA, clearly we have been investing fairly heavily in Q2 relative to Q1 in a number of different areas. But the one item that we did call out now specifically was IT and some branding and so we have spent more money than we originally anticipated and it's also fair to say in Q1 without getting into the smaller to and fros there was that roughly $1.4 million benefit attributed to the reserve reversal in Q1 and certainly that impacts-- that impacted as well as you look Q2 back to Q1.

Our last question for today's conference comes from Sri Anantha.

A couple of questions-- Steve, I know you talked about pretty strong demand. I know you haven't seen any letup in bookings or anything. Given the overall macro concerns will you just talk about what is driving the demand? Is it just companies just also working their data constraints or just taking their existing [identa] structure and housing and just moving it to you? And also, what is driving the demand from your existing customer base? I know you talked about incremental bookings about 70% coming from your existing base.

The second one is you also talked about raising prices. Could you just provide a presentation what exactly was that and if you were to strip out the increase associated with power what was the raise in price? And also if you could talk about the utilization of power per cabinet say during the past two years, how much has it increased and to what extent are you guys able to pass on that incremental cost?

And the last one, I know beyond the capital intensity I know you guys raised CapEx again in response to incremental demand I think which is pretty good but just going devil's advocate like you know if some of the data centers that you guys constructed like four years ago, five years ago, is there any reason for you guys to go back in those data centers given the higher power needs or is there reason that you might have to shut down those data centers? Thanks.

Wow, those are a bunch of good questions, Sri. Let me just tackle a couple of them here and maybe Keith can chime in. O the demand side the drivers really haven't changed and they range from the broadband growth to the videos to the power and cooling demands, the CapEx constraints with CIO offices, next generation stuff pushing them to go to this model. So I think the demand drivers, Internet growth, server growth, storage irregular, all the stuff you'd think about that we put together in these data centers. There's just no let up in any of those circles. Everything is up and to the right, so we feel pretty confident that everything we're seeing across markets is giving us a lot of demand that's given us the support to do the supply decisions we're making.

And in terms of raising prices, I think we did signal that on the power front with the pressures going on there we have in select markets in the US raised list prices in a couple of or one area particular on circuits and so yes and that's for new customer installations and so we've made a decision there but we're spending quite a bit of time looking at the power situation so that we can act accordingly with our customers and, as I said, we'll do that on a case by case basis.

Power, do you want to take that one? Go ahead.

So on power clearly, Sri, as you know we're now building our data centers to four KV or greater and with the second phase of New York four it's going to be five KW per cabinet, so clearly the demand, the average demand per cabinet today is going up quite sizably. We don't track it specifically although we do have some averages. It's clear to us that basically that demand is going up fairly dramatically and hence we're building to that capacity. What it is and what also is important to note that is just when we think about our historical assets and the amount of power infrastructure we put into those assets it was roughly a 2.2 KW cabinet and, as you might recall, we went from physical cabinets to sellable cabinets and the primary reason for that was customers were procuring more power on average per cabinet today than they were historically.

Having said that though, when I look at our older data centers you can't go back and retrofit and so it's important to know that particularly our older data centers are the ones that are more network centric and that's what I was referring to earlier on about stratifying the customer base. Clearly from our perspective we want to take the higher power using customers and put them into our new centers and keep the more network dense customers for the older site. Those older sites are our most profitable IBXs and so from our perspective I wouldn't expect you to see any write off of that any time soon.

Yes just to add to that something really important that Keith just said is I think versus some other centers that are out there that are non Equinix centers, our legacy centers as Keith said, have become very strategic to our network customers. What's important about that is those are DC power using customers. You can do augments to DC power and we have done some and we've done some significant augmentation to DC power across our base in the US, so that is something we're able to take advantage of so as networks and our content customers who are doing most in [peering] applications in those legacy sites continue to grow in those legacy sites. Equipment generally that's in there is not changing and so these are generally lower power customers and they have to be in that building for very strategic reasons so I think we're-- Equinix is in sharp contrast to other people who have older assets that don't have that strategic nature to those. Those assets are a little bit older and that's really important.

And, Sri, I'm not sure I answered your specific question on the list price increase but it's in the order of magnitude of 15% on these select cities.

Got it. One quick clarification on this power utilization, what I am trying to arrive at let's say if I am a customer within your data center like two years ago if I was utilizing let's say 40% of the power that was available per cabinet what am I using today? Is it-- did that 40% increase to 60% or that 40% increased to 50% on an average across your footprint?

It's clear to-- certainly clear to say that customers are using more power today than they were historically but it's not a number that we disclose.

Great. Thanks a lot, guys, and best wishes and good luck, Margie. It's been a pleasure to work with you too.

Thanks everybody else for joining the conference call today. This concludes the call and we'll talk soon. Thank you.

Thank you for attending and participating in today's conference. It has concluded. You may disconnect at this time and have a nice evening.