Equinix Inc (EQIX) 2008 Q3 法說會逐字稿

Welcome, and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the call over to Mr. Jason Starr. Thank you. Sir, you may begin.

Good afternoon. Welcome to our Q3 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 filings with the SEC including our form 10-K filed on February 27, 2008, and form 10-Q filed on August 5, 2008.

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 on the Equinix investor relations page at www.equinix.com.

We would also like to remind you that we post important information about the company on the investor relations page of our website. We encourage to you check our website regularly for the most current available information. With us today are Steve Smith, Equinix Chief Executive Officer and President; Keith Taylor, Equinix's Chief Financial Officer; and Peter Van Camp Equinix's Executive Chair. At this time, I will turn the call over to Steve.

Thank you, Jason. Good to have everyone on the call today and I'm looking forward to discussing another great quarter for Equinix as well as our initial view into 2009. Also great to have you here with us as well PBC given your history and continued involvement. I thought this would be a good call to have you sit in with us.

To get started, let me begin by acknowledging these uncertain challenging times for our global economy. Of course every year in our third quarter earnings call we provide an outline of expectations for the year to come. The state of the economy has been in the forefront of our mind as we develop our '09 operating plan and approach to next year. That said, I'm pleased to be reporting another great quarter today as we continue to see strong demand across all three regions with another great booking result and a robust pipeline.

Other leading indicators such as pricing, churn, receivables and customer satisfaction continue to point in the right direction. As we talk to customers about their own planning for 2009, responses range from a strong view that they will need to continue to grow with us to some level of uncertainty in their budget process as next year unfolds. In all cases it is very clear that our services are not considered to be discretionary spending, but are actually essential to their operation.

On today's call I plan to spend more time on the fundamentals of our business, our expectations for our continued growth, and how well positioned Equinix finds itself to continue to drive its market leadership. So before I get to that, let me provide a quick summary of our quarterly results and then turn it over to Keith for deeper insight into the financials.

Total revenue for the company was $183.7 million. This represents a 7% increase over the previous quarter and a 77% increase over last year. Organically, revenues grow 39%. This result also absorbs approximately $2.5 million in currency head winds, which Keith will provide a little more color on.

Cash gross margins were 62% and 66% organically due to the stronger than expected revenue performance offset by higher seasonal utilities expense. EBITDA was $77 million, up 11% sequentially and ahead of expectations due to strong focus on cost management and up 58% over the previous year organically.

Equinix added 178 new customers and ended the quarter with a total of 2,228. Key wins in the quarter included charter communications, Nintendo of America, Direct Edge ECN, Magellan Navigation and State Street.

In the US, we had very strong overall bookings consistent with the previous quarter with particular strength in the financial and enterprise segments. Of total US bookings, we also saw increased momentum from US multinational customers requiring capacity in Europe and Asia. Operationally, we continue to differentiate ourselves with our US IBX's operating at [6, 9's] or better reliability.

Our results in Europe, continue to show strong business growth across all markets. As we mentioned earlier in the quarter, we opened our new Amsterdam IBX in September and our strategy to establish Equinix as a sold member of the European Internet Exchange community is well under way across the entire region. In addition, we are gaining further momentum with our financial exchange offering and Frankfurt and London. We expect this growing ecosystem traction to help drive margin improvement and bolster our competitive position in Europe.

In Asia, we had a very strong quarter with record bookings. Our interconnection business is accelerating and now represents almost 10% of the recurring revenues. We're also starting to see early signs of financial exchange momentum, with a recent win with the Hong Kong mercantile exchange. Again highlighting the value we bring to multinational companies interested in dealing with a global services provider, we closed 59 cross regional deals up from 34 in the previous quarter.

Finally, tomorrow, as we previously mentioned, we will launch the new Equinix brand to all of our stakeholders to strengthen our strategic position as the definitive global leader in colocation Internet connection. In our 10th year as a company, we felt it was the right time to communicate a unified strategic direction for our global organization and tightly link our total customer experience with our strategy as we enter 2009. So with that, I will now turn it over to Keith.

Thanks, Steve, and good afternoon. I am pleased to provide you with our third quarter financial results and take this opportunity to give you some additional perspective on the quarter's performance both against our expectations and assessing the impact of currency on our results. Finally, I will give you some color on the key trends as we look forward to Q4 in 2009.

Before I go into the substance of my comments, I do want to highlight a few key points related to foreign currency. First off, as you're all probably aware there has been extreme volatility in foreign currencies over the past few months. As an example, just in the last 24 hours both the Euro and pound sterling depreciated significantly against the US dollar. We attempted to reflect this weakness in our guidance, but recognize we're in a period of flux.

Going forward as currencies move in either direction, this will be reflected in our reported results from revenues to EBITDA and then on the balance sheet. It is important to note that our lowest margin business is in Europe, hence the bottom line impact from currency fluctuations is less significant than if the revenues were [in effect] in the US or AP region.

Second, we do not hedge revenues but have hedged about $50 million of notional value against remeasurement exposure related to our assets or liabilities. And, thirdly, our 2008 non-US capital investments are being predominantly funded through local currency borrowing lines in Asia and in Europe. This is good when the dollar was weakening. 2009 non-US capital investments will be predominantly funded through the US. This is good when the dollar is strengthening. So, with that, let me get into the substance of my comments for the quarter, first starting with revenues.

Our Q3 revenues grew 7% over the prior quarter to $183.7 million with strong bookings across all key verticals. Better than our initial expectations when we consider the approximate $2.5 million negative impact against revenues, the result of the strengthening US dollar throughout the quarter. Absent the currency movement, in the quarter our revenues would have approximated $186.2 million. Some refer to this as constant currency reporting. It assumes we keep currencies constant with the exchange rate in effect when we issued our guidance.

It is also important to note that we do not hedge revenues for two primary reasons. One, it is extremely costly to put a hedge in place and, two, the offsetting impact of any perceived hedge against revenue is actually applied to other income and expense. This is effectively an EPS hedge.

Sizing our revenues by currency. US dollar revenues are expected to approximate 65% of total revenues while the Euro and pound sterling will approximate 13% and 10% of total revenues, respectively. All other currencies are individually less than 5% of our expected revenues in Q4 and 2009. Last point here. We have assumed for guidance purposes $1.28 to the Euro and $1.63 to the pound.

Now looking at churn. Both our MRR (inaudible) churn were consistent with our targeted levels of approximately 2% per quarter. Our quarterly churn metric did reflect some level of proactive churn or optimization consistent with our efforts to stratify the customers into either our network dance or high powered IBXs. We expect both our Q4 and 2009 churn to be consistent with a targeted level of 2% per quarter.

One final note on revenues as it relates to contract terms. Our sales organization has had success in extending our contract terms with the customer to three years or greater with provisions for annual price escalators and power protection clauses. This is consistent with our publicly stated objective.

Next, moving on to gross profit and margins. The Company recognized gross profit of $73.9 million for the quarter or gross margins of about 40%. Our cash gross margins were 62%, slightly ahead of our expectations. Our US cash gross margins were 67% in the quarter. Asia-Pacific and European cash gross margins improved to 59% and 49%, respectively, in the quarter.

Looking at revenue per [cab] on a weighted average basis, excluding Europe, our average multi-recurring revenue per salable cabinet increased to 1,654 from 1,650 last quarter, roughly in line with the prior quarter and up 5% compared to last year. Although we have had strong bookings of our higher part cabinets, the part capacity allocated to these cabinets typically gets purchased over an extended period of time. As previously mentioned, we target revenue for these cabinets in the range of $1,800 to $2,200 per cabinet.

On a regional basis, our weighted average price per sellable cabinet in the US was $1,756 versus $1,748 in the prior quarter. In Asia-Pacific our weighted average price per sellable cabinet was $1,254, a slight decrease compared to the prior quarter level of $1,261, the result of a weakening Australian and Singapore dollar against the US dollar.

On a constant dollar basis, the average price per salable cabinet was $1,280 for a quarter over quarter increase of 1.5%, and up about 10% over last year.

As mentioned on the last call, we're seeing strong local market pricing in each of our Asia-Pacific markets and continued growth from our interconnection services. In fact, during the quarter Asia-Pacific interconnection revenues grew 15% over the prior quarter and represent about 10% of our regional revenues.

With respect to Europe, our price levels remain strong in each of our markets with particular strength in the UK and Dutch markets. European interconnection revenues remain at 4% of total Europe revenues.

Now looking at SG&A. SG&A expenses for the quarter were $51.5 million, including stock-based compensation and depreciation and amortization expenses of $11.3 million and $4.1 million respectively. Our cash SG&A expenses were $36.1 million or slightly below our targeted level of 20% of revenues.

Moving to Q4 we will continue to monitor and control our discretionary spend levels but do plan to increase our investment in the IT organization to support the continued scaling of our business opportunity. Additionally, we have earmarked expense dollars for the branding project that is being rolled out in Q4. Despite these investments we expect our cash SG&A as a percentage of revenues to remain at or slightly below the 20% of revenue level in Q4 and 2009.

Moving on to net income and EBITDA. For the quarter we generated $7.4 million of net income which includes a $3.4 million increase in depreciation expense related to our newly opened expansion project, a $2 million realized investment loss related to our money market funds and investment portfolio, and an $800,000 adjustment to a restructuring charge for the adjacent floor to our [LA1 IBA].

As mentioned last quarter with respect to our interest expense, we have ventured into various interest rate swap arrangement and, as a result, approximately 95% of our interest bearing debt obligations are now fixed at a weighted average cash coupon rate of about 4.65%. These swap arrangements have proven to be successful give the recent dislocation in the capital market and the effect that this has had on LIBOR base rates.

With respect to income taxes, we continue to believe we will not pay any meaningful cash tax in 2008.

After finalizing our 2007 tax return, our US Federal NOL position increased by $68 million. As a result, our Federal NOLs available to offset future taxable income approximate $148 million. Our NOLs and capital allowances in Europe and Asia approximate $133 million and $95 million respectively.

As a result we do not expect to pay any meaningful cash tax in either 2009 or 2010, and this can be extended maybe even into 2011. Our EBITDA was $77 million for the quarter, an 89% year-over-year increase and up 11% over the prior quarter including $14.3 million of EBITDA in Europe. EBITDA for the quarter on a constant currency basis would have been approximately $900,000 higher.

Turning to our balance sheet and cash flows. At the end of Q3 our unrestricted cash balances totaled $330.2 million, a $5.5 million increase over the prior quarter despite a continued investment in our expansion project. This cash balance, along with our expected operating cash flows and the draw down of about $41 million in additional debt available under the European and Asia financing, fully fund all of our announced expansion projects.

We expect our unrestricted cash balance to range between $260 million and $270 million at the end of 2008, an increase over our prior quarter expectation. This reflects a larger than originally expected accrued construction balance at year end.

Final note on the cash balances and related to the investment laws previously discussed. A portion of our short-term liquid cash was placed in the reserve primary fund, a money market fund which broke the [buck] in September. This represented a $1.5 million out of our $2 million investment loss recognized in the third quarter.

Additionally, we sought to redeem our capital from the fund but have yet to receive the proceeds. We have treated the capital allocated to this fund as a short-term investment, 90% of which the fund's assets mature by the end of May 2009.

Next, moving on to operating cash flows. Our net cash generated from operating activities was $62.7 million for the quarter. The Company remains highly focused on cash collection activities in each of our three regions, which resulted in an improvement in our global DSO metric for the quarter to 31 days. We continue to manage the outflow of cash related to our vendor obligations.

Looking forward to Q4 and 2009, we anticipate we will continue to generate strong operating cash flows.

Cash used from investing activities was $85.2 million for the quarter. During the quarter we spent $95.4 million on capital expenditures, $13.5 million was ongoing and $81.9 million was expansion. This was offset in part by an increase in our accrued construction balance of $10.2 million.

During the quarter, our capital expenditures were less than we expected, although we anticipate this capital will shift to Q4. Finally, although discretionary free cash flow to find EBITDA less ongoing capital expenditures is a metric that we do not track internally, the ability for the company to generate discretionary free cash flow is clearly evident in our results for the quarter and the year.

Said differently, if the Company chose not to invest in expansion projects, the cash flow attributes of our business model clearly allow us to generate meaningful free cash flow.

Cash generated from financing activities was $26.4 million for the quarter, primarily derived from the draw down of $24.6 million of funds from our European and Asia-Pacific financing lines. In addition, we generated $6.8 million of proceeds from our employee stock plan offset in part by $5 million use of funds to repay debt and other financing activities.

Looking forward to 2009 and 2010, we expect to repay approximately $50 million and $52 million respectively of term debt and capital leases. We have assumed that the $32.3 million of 2.5% convertible debt will convert into equity in February 2009.

Additionally, in 2010 it is the intention of the Company to extend the maturity of the $110 million Chicago IBX construction loan as provided for in the terms of the loan agreement. Equally, in 2011 if we have the ability to extend this loan by an additional 12 months at the Company's choosing.

Finally, looking at the end of quarter leverage ratios. Annualizing our Q3 EBITDA, our gross leverage ratio is 3.9 times or 2.8 times on a net basis. At the mid-point of our 2009 EBITDA guidance we expect our leverage ratios gross and net to range between 2 and 3 times. I am going to turn the call back over to Steve.

Thanks, Keith. Now let's turn our attention to 2009. As I mentioned at the beginning of the call, I think it's important to reiterate that our business momentum remains very strong. Over the past several weeks many of you have asked how we intend to operate in this current market environment. I want to be very clear that we realize now more than ever this is the time to keep executing. We will also, of course, continue to be very prudent and measured, yet still remain opportunistic in how we do this.

We believe we have built a strong plan for 2009, including the flexibility to the accelerate or potentially even moderate our business growth as conditions warrant, which could be very important in this coming year. Within the 2009 plan we have also developed an expansion framework which places an even greater focus on prioritizing and stretching the timing of our capital investments. This will help us diversify our investments across as many key markets as possible while remaining fully funded.

And parallel with this CapEx prioritization, we will continue to keep our eye on the long-term success by building scale on a global basis with investments in people, processes and systems.

We also believe that the current economic dislocation, combined with our market leadership position, could provide a silver lining as we go into 2009. One example of this would be the potential opportunity to take advantage of partially built out or distressed data centers.

Second, we may well see a flight to quality to Equinix due simply to our brand and financial staying power. In fact, we're already seeing additional demand from companies experiencing their own capital and operating cost constraint as outsourcing can be an attractive option during difficult times. Finally, limited access to capital could also further choke off incremental competitive supply from unfunded and speculative players over the next couple of years, particularly given the cost and lead time to build a new data center.

With the capacity we already have in place, a fully funded expansion plan, as well as a strong balance sheet and operating cash flows, we feel that we are well positioned to capitalize on growing our business in this environment.

Now, I would like to provide a brief expansion update by region with some preliminary insights to the key markets for 2009. In the interest of time, you can still find all the details of our expansion activity on our expansion tracking sheet in the investor relations section of our website.

Beginning in the US, the first phase of our New York 4 IBX is now fully booked and we continue to see strong demand from the financial services sector. I am pleased to report that we have created a plan to accelerate the availability of approximately 300 cabinets within the second phase of this IBX to now be delivered in the middle of the first quarter of 2009. The remaining 800 cabinets are expected to come on line in the second quarter.

In Los Angeles we have begun construction of our LA 4 IBX which we still expect to be available for customer installation at the end of the second quarter of 2009. Our bill plan will deploy all the mechanical, electrical, and power infrastructure to support the original phase one buildout of 1700 cabinets.

As part of our efforts to prioritize and stretch our capital investments, we plan to shift approximately $15 million to $20 million in CapEx from this expansion to other projects. This will still enable us to deliver approximately 800 cabinets of new capacity in this market and push approximately 900 cabinets into later phases.

As a reminder, we still expect this IBX to support approximately 3,000 cabinets when fully built out.

In Europe, we are executing our expansion plan and very excited about our continued opportunity in this region. As we announced a couple weeks ago we're starting the design and buildout of our third data center in Paris for a Q2 2009 delivery. In Amsterdam, we opened the first 500 cabinets in this new IBX in September which are now over 50% booked and nearly 85% reserved, well surpassing our initial expectations.

After taking possession of this project to our acquisition of [virtu], we determined that we require an additional $14 million of CapEx in order to fully meet our design, power and quality expectations for the remaining 600 cabinet equivalents. We expect these cabinets to come online at the end of Q1 of 2009.

Shifting to the UK. London continues to be the largest and strongest market in Europe for us. The recently opened second phase of our London 4 IBX continues to see strong demand. As part of the shift to focus on smaller and interconnection rich deployments, we have reserved capacity to give priority to financial exchange and peering customers. This shift will better help us manage our remaining capacity there through the end of 2009.

As we announced today, we have secured the property to develop our 5th IBX which is in close proximity to the London 4, and has the potential for a total of 5,500 to 6,000 cabinet equivalents. Initial CapEx for the first phase is expected to be in the $80 million to $90 million range of which $65 million will be spent by the end of 2009.

This will yield approximately 1,400 cabinet equivalents and include some investments to secure the power required for this entire data center. The first phase is expected to be open in the first quarter of 2010.

And finally in the Asia-Pacific region we have just opened the third phase of our Singapore one IBX which is already 80% booked. As announced today, we're proceeding with plans to build our second IBX in this market. We expect Singapore two to have the capacity for 1,700 cabinets. The first phase is expected to yield 700 cabinets with an expected capital investment of approximately $45 million, and is scheduled to open in the third quarter of 2009. And finally in Sidney, we're still on track for a late Q4 '08 delivery of our Sidney two IBX.

With all of these announced expansions I should note our current demand requirements and our targeted returns for full projects have not changed.

Now shifting to guidance. And as you may have seen in today's press release, we have updated our 2008 expectations. We have tightened the range on our revenues from $700 million to $710 million to $702 million to $706 million, which places the mid-point at $704 million and represents an organic growth rate of 38%. This new range absorbs approximately $12 million in currency head winds from the recent increase and the valuation of the US dollar since our last call.

We now expect cash gross margins to range between 61% and 62%. Cash SG&A will be approximately $145 million, down from our earlier expectations of $148 million. We are increasing our EBITDA expectations to now be in the range of $287 million to $289 million, an increase of $5 million at the midpoint, and also absorbs approximately $5 million in currency adjustments. 2008 total CapEx guidance remains unchanged at $450 million to $460 million of which $60 million is for ongoing CapEx.

Now shifting to next year, I would like to provide you our initial views on 2009. As we said throughout the call, we built what we consider to be a very balanced plan for the near term, and one that enables us to remain well positioned for the long term. Our expectations for revenues next year will be in the range of $870 million to $892 million or approximately 25% growth at the midpoint. This range absorbs approximately $50 million from changes and exchange rates experienced since our Q2 call.

EBITDA is expected to range from $365 million to $385 million. This number also reflects continued investments in key company initiatives as well as some incremental costs attributed to our new expansions in markets like Paris, Singapore and London.

Turning now to CapEx we expect a total of $325 million to $375 million of which $60 million is for ongoing CapEx. Within this range, we have also included approximately $50 million in expansion CapEx to be allocated for additional capacity in key markets. As always, we will continue to provide an update as these projects develop.

So in closing, as I mentioned at the beginning of the call, I think it is important to reiterate the strength of our business and our unique market position. Although this just may be a reminder for many of you have who have followed us over the years, I think it is important that we assure you that the fundamentals of this business remain as strong as we have seen them.

We have a proven business model and an experienced team with a track recovered of delivering consistent quarterly growth for almost six years now. 95% of our revenues recur monthly on a worldwide basis with a predominantly fixed cost structure which provides a highly visible and predictable financial model.

Third, this revenue is built on long-term contracts with a strong diversity of blue chip customers. We also have high levels of customer satisfaction demonstrated on a quarterly basis with our existing customers, typically generating between 50% to 80% of our bookings each quarter.

In addition, our existing capacity supplemented by our fully funded 2009 expansion plan will provide us with ample head room for continued growth across our key markets for the next few years.

Our 2009 expansion plan also provides us with the flexibility to adjust any changes in the demand environment that could affect our industry in a positive or negative manner. And last, but certainly not least, we enter 2009 with a strong and recently leveraged balance sheet and a business model with strong operating cash flow.

In summary, we have a high level of confidence in our ability to manage through what may prove to be a challenging time ahead. The combination of our experience, our global scale, our flexibility, and a deep focus on our customers will be key to achieving our 2009 objectives as well as our longer term growth opportunity. We have a strong belief that this would enable us to further distance ourselves from our competitors and emerge as an even stronger organization as we take the Company to the next level. With that, I will turn it over to you Melanie.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from Jonathan Atkin, your line is open.

Yes. Thank you for taking the question. Question for Steve and maybe one for Keith. First off, I am wondering about kind of a tenor of your discussions with new customers and has that changed given the market disruptions that we have seen over the last several weeks?

And, Steve, you mentioned there is kind of uncertainty in the budgeting process, but if you could give a little more color as to kind of what you're seeing out there in terms of customers' decision cycles, maybe installation intervals expect so forth.

And then for Keith, I am wondering in your 2009 revenue guidance the growth implicit in that, how much of that growth would you consider organic versus growth coming from newly opened facilities? Thanks.

Okay, Jonathan, let me start. First of all, we're kind of doubling down -- not kind of, we are doubling down on customer interface with our sales force and we're having more frequent discussions with our customers. We have been doing that now for quite some time but dug a little deeper this previous quarter given the dislocation we're experiencing.

I would tell you that year-to-date we have seen virtually no impact to our pipeline, our bookings rate, deal velocity, average deal flow per sales rep, whatever category you want to look at year-to-date we have just seen no impact to the current situation.

I would suggest going forward, as this thing shifts from consumer to business, we have built a plan here that will be fully flexible to adjust to any changes in that. But even as we look into our pipeline, Jonathan, we just don't see any let up in the demand for this offering. And I guess the simplest way for me to think about it is this stuff is mission critical, as you all know, and it is by no means in the conversations we have had with our customers making it anywhere near the discretionary bucket.

They look at cutting costs, I think we're actually going to see more demand coming at us for companies that are pressured for CapEx and OpEx. We're already starting to see that in our pipeline now. If you look at the number of new customers we have taken on in the last couple of quarters, I think it is [a] proof point.

Jonathan, addressing your second point. That is a very good question. We actually haven't tried it but let me give you anecdotal comments. Clearly when you look at the Asia market the new capacity we're desperate to bring on Sydney, Singapore, and our Hong Kong market, as Steve alluded to, a lot of that capacity is already spoken for. So as we look forward with our Asia-Pacific revenues into 2009 a lot of that is coming from our newer builds.

Equally so, when you look at European market having build capacity in Paris, in Amsterdam and Frankfurt. A lot of that new capacity is going to support the growth. Again, as Steve alluded to we have had a lot of pre bookings and presales of those assets.

Again, a lot of that growth will come from the newer assets but it is fair to say there is a certain amount of base that we will use that are not new assets for our European growth. And then equally so when you look at the US region, we do have a number of builds underway, as you're aware.

Certainly some of the growth is going to come from the new builds, the majority of the growth will come from our existing IBXs. So I think that gives you a fairly good sense you know it will be relatively well balanced but it will be somewhat affected by the region.

And I guess the last point I would leave you with just to give you a sense. Any time we give forward guidance, despite the fact that we're giving guidance on a Q3 call for 2009, we generally have fairly good confidence in the numbers. And today we're consistent with last year. Looking at our exit rate we're roughly at 85% of your targeted point of revenue number for 2009.

Great. And when the revenue mix new versus existing, the 50% to 80% range, where were you this quarter?

Just under 60% for the quarter.

From new customers?

Yes.

Okay.

So -- pardon me, Jonathan, I misquoted. Bookings from existing was roughly 70% and the balance, this is Jason, 70% of bookings came from existing customers and the balance came from new.

Okay. Thanks very much.

Thanks, Jonathan.

Our next question is going to come from Chris Larsen, your line is open.

Hi, thanks. Keith, one of the things I noticed was that SG&A was actually down sequentially. I wondered, is that a currency? Is that efficiency? Is there any sort of slowdown in sales that is associated with that? And then, secondly, Keith, if we could go through the cash. I just want to make sure I am getting this right. If I take EBITDA as CapEx for next year it looks like you will probably be in the positive and so you have got plenty of cash to fund it, but you mentioned that you had some cash that will be locked up until May of '09.

I just want to reinsure that there is no impact to your ability to finance any of the stuff you planned out regardless of the fact that some of that cash is locked up until then. And is any of that covered under the government's recent guarantees of overnight balances?

Okay. Let me deal with your first question on SG&A. We had some discrete projects in Q2. As we mentioned, we had a fairly large consulting project to look at ways to scale our IT organization and, hence, my comment on Q4 investment. So there was a discrete project for about $1 million with a large consulting firm. That was in Q2.

In addition, we had a fairly expense related to our European Oracle implementation and that was in the Q2 numbers as well. But it's fair to say, and as Steve alluded to in his comments, we are focused today on managing our discretionary cash. We're certainly going to continue to do that in these uncertain times.

So, that said, there is nothing extraordinary about what has happened. In fact, again I want to refer back to Steve's comment. He said that the booking activities this past quarter enhanced the sales compensation attributed to that was high. And so it is not from the sales side of the equation, it really is about managing our expenses.

That's terrific.

So moving to your comment on cash. As I said, it is with the primary -- the money market fund that we're in as I think many people on the phone are aware, it is the one that broke the buck or one of the ones that broke the buck.

As I mentioned, the majority of the assets are to mature by May 2009 but in fact, when we were on the website at the beginning of the week we thought we were going to get roughly 32% of the balance this week. We have not received it yet.

The fund itself is currently under the supervision of external auditors, which is KPMG and the SEC. So I think they are going through a fairly diligent process and [how] to dispute the funds. I don't want to prejudice them or ourselves, but from our perspective we don't feel any incremental exposure to that particular position. So from a cash funding perspective, again it is not something that we're going to lose sleep [at] at night.

We manage our cash very effectively in this Company and we do daily analyses. Between our loans and between our operating cash flow and how we manage our funds, cash flow should not be an issue for us.

And then the last point you made was really, does this get captured in the government support? I think had it broken the buck after the fact? The answer is yes. Unfortunately, this was the fund that broke it before the government stepped in and agreed to guarantee money market funds.

So today our view, recognizing that it is, although we haven't received the proceeds, we have recognized a loss. The view that is that loss is permanent. But clearly there are some other steps that might be taken by different parties that could cause that loss to move maybe up or down a little bit as we move forward. But, overall, this is not a guarantee, unfortunately, guaranteed fund any longer.

And, Steve, I don't mean to, speculate but you did bring up the possibility of buying some distressed assets. How would that influence your cap spend if you were able to buy some stuff on the cheap, so to speak. How would that influence your cap spend? Would you reduce cap spend to keep the cash on hand in order to buy those assets or are the figures being tossed around fairly small?

Well, as you might imagine, we are getting a look at a couple opportunities that are starting to emerge. We expect to probably look at some more as the quarter goes on as we get into 2009. But, as I said, we're fully funded. So we will be using the capital bucket that we have laid out to you to move it around and be as flexible as possible. So if we see an opportunity in a market where it provides the opportunity to go buy something that is partially built and we can get the advantage of time and [redux] CapEx, we're going to look at those opportunities.

That makes great sense.

Let me just follow-up with what Steve said. Chris, Steve and I spent a lot of energy on managing the cash flow in and out. It is fair to say irrespective of what we do, whether it is buying distressed assets or not. We're never going to put ourselves in what we call an unfunded position. I think it is a fairly significant theme throughout our scripts today. So I certainly would like to leave with you that thought.

That's great to know, thank you.

Our next question is going to come from Srinivas Anantha. Your line is open.

Thank you. Two questions. Steve, I know you guys talked about pretty strong pricing trends. Given the macroenvironment that we're in, could you just talk about how economization with customers are now days and are you seeing any push back on that particular front.

Secondly, Keith, with respect to margins looks like Europe margins mainly on the EBITDA seem to have been improving quite a bit. And as we look into 2009, and given the expansions, how much more margin expansion can we expect here? Thanks.

I would tell you on pricing no big change since really the last big quarters in terms of pressure from customers. Actually in Europe we're actually seeing on a per KW basis a bit of an increase across several of the countries over there on our pricing schemes.

So I think as we develop and position the total interconnection offering and bring Equinix into full fold in Europe we're going to see the opportunity, we're charging for cross connects now. We have got ourselves set up with our arrangements was [Lynx] (inaudible). So I think on a go-forward basis in Europe we're going to be in good shape.

Wherein the US and Asia I would tell you we're still seeing very strong pricing. We're remaining and holding ourselves true to up around list in most cases. So the demand has not let up enough at all for us to even begin to be concerned about pricing now. So, particularly in anything that has a direct connection to our ecosystem or direct connection to the interconnection business.

And just on your question on the margin profile in Europe, clearly no surprise to you or other people on the phone, the European team has been investing fairly heavily over the last little while. So now that we have got great momentum on the revenue line you're seeing a lot of that benefit drop down to the EBITDA line. And it is no different, it is a different stage of its evolution than that of the Asia-Pacific region or, for that matter, the US market.

So going forward, as we continue to scale the European region, as you know we're investing in a number of markets, I think you're going to continue to see the margins increase in that region. Having said that, though, we have been fairly open about the fact that we wanted to invest more heavily in the core infrastructure in the European market to give [Eric Schwarz] and his team more support not only as it relates to people but systems and tools as well.

So from our perspective, we will be taking some of that growth and we will be reinvesting it back in the business, so on a go-forward basis it is fair to say the margin profile across all of our markets absent expansion, we're seeing increasing margin profiles.

Just one question on CapEx. In the past whenever you guys give guidance or CapEx you guys start off with a low number and then as you proceed along the year you guys gradually increase the CapEx number. Is that something we should expect for 2009? Or the CapEx number that you guys have given is a fairly conservative number and even if there is going to be an uptick in that number it is going to be fairly minimal? And also I know you guys announced expansions in London and Singapore. If possible, can I get the utilization of your London center that was just opened as well as in Singapore, thank you.

So, addressing CapEx. Again, I want to refer you back to Steve's comment. Again, we have certainly put a fairly broad range in our CapEx guidance. We have also, as we said, put $50 million to deal with other potential opportunities. Certainly from our perspective, we're very aware of the market. We're obviously very much aware of the capital markets and whether we could raise additional debt on any of our facilities.

Having said that, we're building our plan to remain fully funded and keep a certainly minimum amount of cash on our balance sheet. So it is fair to say that we don't think that we have given you conservative guidance at this point, but going forward I think one of the things that we need to realize is if the opportunity is there the company is always executed against that opportunity.

And it is not to say that there is anything out there that we're sort of sand bagging today. We think we have given you a good plan that really stretches the capital not only across a different time and horizon but it also stretches it into various markets and so you have got the diversity that you want. I think that's exactly what we will try to accomplish while at the same time making sure we can fund it from our balance sheet and our operating cash flows.

And, Srinivas, I tell you on the Singapore asset it is at capacity today on the original. So we're down to managing very tightly in the current Singapore facility. So we will have to manage that capacity closely between now and the third quarter of '09.

And then in London, London 4 has got quite a bit of capability left in the second phases but, again, we're not bringing London 5 on until the first quarter of 2010. So we will manage that capacity through that time and plan. As I said, we're actually quarantining part of that space off to get the interconnection business jump started in that market also. So, we feel really good about where we are with avoiding going dark, if you will, in that market.

Thanks, guys.

Our next question is going to come from Jonathan Schildkraut, your line is open.

Great. Good evening, guys. Thank you for taking my questions. I wanted to start with a question on the currency head winds. Just based on your number it appears that currency head winds for the fourth quarter will be about $10.5 million. Is that correct?

That's correct.

All right. Great. Also, could you tell us a little bit about power costs? In the past there has been a tremendous benefit -- I mean pardon me, there has been -- as power costs have risen, certainly you have been able to bring up the costs you charge to your customers. I know had you a power price increase at the beginning of the summer. Power costs are now starting to fall. How long term are your contracts around power? Do you see a benefit as power prices fall. Your contracts allow to you raise costs or raise prices on power to your customers. Do you then bring them down? Is it something you adjust regularly or will you see an incremental margin benefit as your costs on power fall but you maintain the pricing increases?

Good questions, Jonathan. Let me first start with power as a percentage of our revenues is consistent with what we have seen typically in Q3 of any fiscal year and it is 14% of our revenues. It is also fair to say that although we put some price increases in, we as a company have been very focused on not necessarily turning around and pushing increased prices across all of our customer base. We have to look at each customer uniquely and decide where and when it is appropriate to increase pricing.

Having said that, there are a couple of markets we have entered into power purchase agreements with the unregulated provider. And there are other markets, such as Chicago, that is coming up for renegotiation in December. Clearly with oil and gas falling, it certainly puts us in a better position than it did 6 or 12 months ago but, overall, we certainly are managing our costs.

It would be atypical for us to adjust our power pricing down because it doesn't relate just to the consumption of the power of other people in the IBX, it's about the gear that we run; about the maintenance programs and all the ancillary costs of managing the infrastructure. So that's something that we haven't done in our history that I'm aware of. And so it is not something that I would speculate that we would do going forward.

Okay, great. Final question here. Could you just give us a color on any changes in the competitive environment. One of the things that we certainly are hearing and Steven confirmed in his comments about some of the data centers out there which are not fully funded could come up as distressed assets and some other construction projects not getting done. In general, though, are you seeing any change in the competitive environment or are you seeing a greater competition from some of the larger guys with smaller guys fading away or is it still kind of roughly the same competitive environment?

I think that as a general statement, Jonathan I would say that it is generally the same although in the smaller guys we're starting to see tail off and not show up in the competitive win-loss data that we study every quarter. For example, in the Singapore market when we made the Singapore decision, there were several companies, local companies, some I guess you could call speculative builds that had funding and then all of the sudden magically as we studied the market made the decision to do Singapore 2 had faded away. Virtually there is no new capacity coming on in Singapore as we made this decision.

So we have examples of that by market, but in the big markets in the US, Jonathan, we're still seeing the typical competitors and in the New York market it is the same couple of competitors, particularly for the financial exchange activity. But I have to tell that you our win rate is still north of 80%, 85%. We just have not seen any degradation in win-loss rates. That's just another signal to me of the strength of the model and the proposition here.

Great. You actually you bring up an interesting topic. Financial exchange. Obviously you've had great success extending that from Chicago to New York. I know that you're in the early processes of getting it in Frankfurt and London. What are the plans around maybe Tokyo or Hong Kong?

Well, that whole ecosystem, Jonathan, as you know a little bit about that, we are extending that across all regions today. The demands we see there are pretty consistent. Network connectivity has become the primary driver for these guys. Where we have density of networks we are advantaged.

We don't see any let up in their demand in terms of their band width requirements. They still have to plan their platforms around surge capacity. They are still growing. They like our service delivery. They like the fact that we're still expanding which gives them contiguous space. There is still, I think, somewhere on the magnitude of 20% to 30% of these firms that have not gone to electronic trading. We're still very focused on the matching engines and the access pops and getting those guys in so that we can get the members to connect into them because they still look like a magnet to the members.

We're pushing this forward across the board. I think we will see black box trading increasing also. I think I read somewhere recently that there will be somewhere in the next two to three years a 400% increase in the trading infrastructure spend just to support the algorhythmic black box trading activity.

Great, that should help volatility.

Yes.

Maybe John, one of the final point, if you look at some of the top 10 markets globally for financial those are the markets that we're in. So when you look at London, Frankfurt, Tokyo, New York and Chicago, you get customers in some cases that start out in one market and then want to expand to the others. So having this global reach has been really important for that vertical in particular and going forward.

So are you seeing the financial exchange partners that you had in Chicago come to New York and then move into your other markets? Or are you attracting a new group of financial partners in every new market? And then as a corollary to that, could you give us a little more color on what you feel like your exposure is to the financial services group. And I'm not talking about from a percent of revenue perspective but just in general I think there has been a lot of concern about some of the consolidation, forced consolidation that is going on and how that might impact your results.

Yes, I say to your first question Jonathan we're seeing both. So we're seeing it come at us from both ways. As I said in my script we signed on the Hong Kong mercantile exchange in the Hong Kong market, which when you see a guy like that, is going to attract many other players to come into that center to connect. We are seeing requests from movement from Chicago to New York, London to Frankfurt.

So I think there is going to be emerging requirements that are going to have us take on metro to metro connectivity. We will have to figure our way through that with our partners. It is growing and this is a great spot for us to be in. It is all about latency and proximity. We bring a great advantage to them for this.

As I talk to these folks, network connectivity is the heart and it is the primary driver for these guys. And it hugely advantaging us as we build this ecosystem and it is growing at a pretty alarming pace. We're, just in Asia alone our peering traffic since early 2008 has grown by 10 times.

So some of that is fed by the peering network content activity. Some of it is going to start to be fed by the financial exchanges. So, it is going to give us a good lift in cross connects. This is going to give us a good lift in the interconnection revenue in total to supplement the peering activity that has been here for quite some time.

Jonathan the second piece of your question really was on the exposure relate to do financial via consolidation. As I think through the sort of -- I guess the more prominent accounts such as Lehman, Bear, Wachovia, WaMu. At one point we had a little bit of exposure to WaMu but my recollection is they moved out about a year or two ago. But overall there is very little exposure to those type of entities.

We do have Merrill and we do have Banc of America in our facilities. And so there is some overlap, but nothing that is sizeable. And we don't expect that is actually factored, bottom line factored in to the 2% churn that we expect on a go-forward quarter.

Great. And Steve, when you were talking about peering traffic, are you talking over the gigabit [ear] or 10 gigabit Ethernet switch or are you including kind of cross connects in that?

No. Well, it could be both but I am mostly referring to getting ourselves set up with our exchange platforms in Europe and just pushing -- the growth in Asia that I mentioned is a little bit of both but its mostly cross connects.

Okay. Wonderful, thank you for taking the questions.

Thanks, John.

Our next question is going to come from Michael Rollins. Your line is open.

Hi, good afternoon. Just a few questions. First, with respect to your guidance for 2009, I was wondering if you could help us think about that regionally. Is there a certain region where you're seeing incremental strength over another region. And is there just a way to think about -- also as you think about currency rates are there any differences that you're applying in terms of Europe versus Asia in terms of any changes there from the fourth quarter?

The second question I just had was if you have taken a look at more detail and the possibility of your company qualifying as a REIT some day. And if you looked into that and what the status of that investigation is. And, finally, just a question on how you're thinking about investments.

As you're thinking about making incremental investments, given the current market conditions, are you changing any of your assumptions for internal rate of returns or are you also thinking about that relative to the current share price and how to think about investing in a new center versus investing in your own centers vis-a-vis a possible stock repurchasing stock program? Thank you.

Let me start and Keith can add some color. As we built our guidance, I would tell you that because we're seeing strength across all the regions at a similar growth rate, I think we spread the wealth as we thought through the guidance and had built a pretty balanced plan not heavily weighted toward any one region or any particular growth rate in any region. So obviously we're receiving the currency head winds from Asia and Europe. I think we built a pretty balanced plan against all [30] (inaudible).

In state status, we spent a little bit of time thinking about that. You mentioned one alternative. We are exploring obviously that and other possibilities all the time. I mean, we built an '09 plan but we have a five-year plan we take to the Board every quarter. We look at all kinds of alternatives. So I would tell that you that's one of a handful that are being considered here on an ongoing basis.

And Michael, so then just following up as Steve had said, just on currency, I did give you the rates at least on the European side, again recognizing that the Euro represents 13% of our targeted revenue for '09 and sterling represents 10%.

We are using today which we consider to be -- although, who knows where it is going to go, we consider it to be a relatively low rate which is it will cost you $1.28 to buy a Euro and $1.62 to buy a pound.

As I look into the Asia-Pacific region, couple things, the yen has been strengthening. As you probably know it is 98 yen to the dollar today. Not long ago it was 110 yen to the dollar. So we have a little bit of offset there. Again, though, recognizing Japanese yen and the revenue attributed to that currency is relatively low at less than 5%.

The last point I would like to make, certainly we're having success in Hong Kong, it's a collar currency. And we believe we're absorbing the fairly dramatic impact on the (inaudible) dollar and that's reflected in our guidance.

That is the general sense around currency. We're not trying to fix the market. We just give you the guidance based on these factors. And clearly, as I mentioned in sort of the preamble to my script, it is going to move. The question is, is it going to move up or down?

I guess we all have differing views on whether the US dollar should be a stronger or a weaker currency than its compatriots. I will let everybody draw their own conclusions but at least you know what rate we're using what percentage of revenue.

The second thing though is important that you asked that was REIT. Yes, we certainly have heeded the advice of many. We are continuing to look at the REIT status. I did want to give everybody a sense of our tax NOLs. But it is fair, Michael, that we do look at the REIT status. That is something that you are going to see us put a little more energy into over the next few quarters.

My sense is, though, nothing is going to change on the short term because we're going to lap up all those NOLs as long as we can and hopefully create some more at least from the tax perspective, less from a book perspective. So under that scenario we will continue to share our findings with you as appropriate.

And the last piece I think -- or there were two other pieces, one is on IRRs. Our investment horizon and our profile doesn't change just because of the market conditions. And it is fair to say there is a lot of competing projects inside the Equinix family. So one of the ways that we measure and prioritize our projects, again referring to Steve's earlier comment, is making sure that we look at the financial return and then the strategic return and a whole bunch of quantitative and qualitative reasons behind each of those, but IRR is still the threshold that we look for and we're not changing from that level.

And then finally on the share purchase -- repurchase, I think it is fair to say that in an environment where you can grow substantially and diversify your investment, certainly something you want to do but also recognizing the state of capital markets, I think it wouldn't be the right thing for the company to be buying back its stock at this stage just despite the fact that we certainly believe we're -- we believe it is under value and it has been under a tremendous amount of pressure despite the returns or the results that we have been providing. I just think in this uncertain time stock repurchases would not be an appropriate decision for the company.

If I could just follow-up with an operating question. It looked like in the quarter the nonrecurring revenue is up a little bit more. Does that infer something about volumes in the future or is that reflective of a different type of booking that you might be booking in the numbers?

There are a couple different things going on in the recurring. Some of it is the increases and decreases on the sales allowance or the reserve against our revenue. In our cases, it relates to the amount of booking activity that we experience in the quarter related to MRR booked. So we do track the company how much NRR we generate relative to an MRR dollar. This quarter happened to be a meaningfully higher one than we have seen in the past.

And then I guess the third piece relates to just our smart hands and the amount of activity and the amount of activity our professional remote hands business. And so between all of these it causes it to move around a little bit, but there is nothing out of the ordinary in this quarter. I should mention in some cases like we did last quarter we had an equipment sale in our Asian market and sometimes when we have an equipment sale tied to a customer relationship that will affect nonoccurring revenues and we report it on a gross basis, so it does reflect the full value inside that nonrecurring revenue line.

Thanks very much.

Yes, thanks, Michael.

Our next question is going to come from Michael Bowen, your line is open.

Okay. Thanks Steve. Thanks Keith. One point of clarification. When you were talking about a prior question on SG&A you talked about a couple of discrete projects with consulting firms and you kept mentioning 2Q. I want to make sure either I understood was a it a second quarter project that would have flowed into third quarter or did you actually mean third quarter, and then I have a couple follow-ups.

Mike, what the -- what the comment was there is why did our SG&A go down relative to Q2.

Right.

And so because of that I was saying that we had discrete project in Q2 that we did not spend in Q3. So, we had -- I wouldn't call it -- we had an unseasonably high SG&A number in Q2. So as you look into Q3, of course we were the benefit of not spending that. And then as we go forward, Steve alluded to the fact that we're really -- we're managing our costs and making sure that the capital stays on the balance sheet and funds our expansion.

Okay. So this quarter then we should consider more of a normalized quarter if you will.

That's correct. That is absolutely correct.

Okay. Thanks. Couple things, then, I am trying to get my arms around. With regard to your customers now coming up. Obviously they are going to be doing a lot of budgeting in December and January. Planning what they want to spend for outsourcing with you coming up. I guess the first question is as they go through that budgeting process, how quickly will you get an insight into a large percentage of your funnel. Second point of that would be how much of your MRR at this point, particularly of the 81% co-location revenue in your mix, how much of that is coming up for renewal and obviously that depends upon your average length of contract and that's kind of where I am going with that. And then last question is can you talk to us a little bit about interconnection revenue pricing? There was chatter during the quarter that that had weakened and I wanted to kind of give you guys an opportunity to address that. It looks like from the absolute dollar standpoint it did not. But what are you seeing in that -- in the interconnection revenue?

Yes, Michael. Steve, I will start out with what we're hearing from our customer segments. We actually have a pretty good ongoing program here where we meet with key customer segments. And so this time of year actually we just finished with a big segment, with our network segment, and do a pretty deep dive with key players to look into as far out as we can. Some can go out to 18 months but we get a pretty good look at '09 on what their plans are and I would tell you the general theme from the networks are that they are going to keep upgrading networks. They are going to keep growing business in the current existing spots that they are doing business with us. A little less likely that they would go to a brand new market. It would be lard to go convince a big carrier today to go to a tier 2 market if we decide we wanted to do that but, in general, we don't see any let up in the current course and speed of what we're see receiving from those players.

We're getting ready to do the same thing with another big vertical here this week and we will dig in with them on the same type of level and we will get direct feedback on budget. So we have a good mechanism in place here where our sales teams extract pretty good information. I would tell you we have solid information for 12 months, in some cases we can go out to 18 months. Across the board, as I mentioned in my comments, we just do not see any let up in the demand that we're seeing across all four verticals. In this quarter we had a little bit of, I wouldn't call it slow down, but a little less growth with digital media, but across our four big segments growth is continuing at the same pace.

And I'm sorry, Steve. How often do you talk with each key customer because obviously in this environment things are moving pretty quickly. They could change their minds literally on a monthly basis.

We have over 2200 customers. So it is pretty hard -- we talk to them in big chunks. Of course our sales force is talking to them all the time. Our marketing engine here is collecting information on them on a monthly basis. We look at it quarterly. I would tell you we have a pretty good pulse rate in terms of what is going on with our customer base through our sales force. We feel pretty good about having pretty good visibility there.

And the last one on the interconnection.

The exchange -- if you're refer to go, we have gone through a recent repricing of our exchange offering which is 4% of our interconnection, 4% of our total revenue. It is not the cross connects, i is our exchange switch. And we have actually just rolled out a global program to bring it more in line with market pricing. So, we have a very measured program that has been actually introduced in the month of September. We have had a very big uptake out of the gate. We're going to look for working with our current customers to reprice current contracts. Out of this we expect to get new ports. We expect to get upgrades in the ports. We expect to get extend contract terms. We probably will even see some [colo] pull through as new network deployments start to show up once they see the pricing. So, we were, call it a little out of whack in a couple markets in terms of how we were pricing our exchange product, and we decided we needed to make a move, bring it more in line with market pricing. Customer receptivity has been very high. The sales engine is incented. We have very detailed account plans. This will go on throughout the year of 2009. I see it as a very, very positive move for us.

Okay, thank you.

Our next question is going to come from Rob Dezego. Your line is open.

How are you today.

Hey, Rob.

Good. I have a question on the flexibility of the CapEx that you have been talking about. So if demand slows and you decide you want to pull back the CapEx, is the low end of the guidance really the low end of where you could go, given the long construction cycle I want to get a feel the things are really tough in '09 how low could you bring the CapEx down?

Yes. I think that is a great question. Certainly is one of the questions that we talk about internally here. That is certainly not the case. We -- when you look at the capital that is being committed there is certainly some element of it, but I would say roughly 50% if we use the mid-point of range, 350. I would say you're in the range of 50% to 60% is probably what is meaningfully committed in some form. So you're really dealing with roughly 40-odd percent that I think you could just turn offer the spigot if you wanted to. If all of a sudden we woke up tomorrow and who knows what is happening we needed to turn things down, we could turn that down very, very dramatically and, in fact, I don't want to put a number out there but you could imagine how quickly you can turn off the things other than what you have already committed to. So we're under construction in Europe. We're under construction in LA and we're near fully constructed in a number of our other markets but all the new ones we have talked about today plus the 50 million basket that Steve alluded to, you don't have to spend a lot of capital on those if you don't want to starting tomorrow.

Right. And given though the long construction site, at what point in '09 would you reach the point of no return on that 350 capital. You could probably turn off 40% today but as we get into April, May, June of next year is there kind of a time period where you're committed to that capital?

Recognizing it takes 9 to 12 months to build an asset. Once you have the asset and you have prepurchased or precommitted for long need items, there's certainly, when you look at the investment we're making and some of the ones that we have contemplated that Steve has alluded to again in his basket, some of those are back ended to the back end of 2009. In other cases, they're front loaded because we need the capacity. I think the point of no return certainly would be as we get to the midpoint of 2009 and beyond, that's where you can have a less meaningful impact not only as it relates to your spending, but also shipping your revenue around.

Okay and last question is on your back log on the demand and the kind of waiting list I had I know you alluded to on past calls, could you just give an idea -- could you kind of not necessarily quantify the number but kind of where you are versus prior periods on your demand backlog and the waiting list on your data centers today.

Existing centers?

Yes.

Well, the backlog how we look at it is there is really no change if you're referring to committed or are you referring to the pipeline what we see going forward.

Yes, exactly.

Either end I would tell you that we're early in the fourth quarter. What we see early in this quarter is no different than what we saw when we looked at Q1, Q2 or Q3. That's why I say we just do not see any impact to look for pipeline activity or even the fill rate that we have got going on in our existing centers today.

Okay. And last question is are you seeing any customers that were reserved or you thought were going to purchase space turning around and pulling out now you know in the last few weeks or last month or so given the environment?

I would say -- I can't say for sure, but that's not something that we're hearing inside the halls of Equinix.

Okay.

But it is fair to say that there probably are some small customers who have decided not to install for whatever reason but it is not, again, a subject matter we expend energy on at the company right now.

Perfect guys great quarter, thanks.

Thank you.

Our next question comes from Rod Ratliff, your line is open.

Thank you very much. Nicely executed, guys. Very nice to see.

Thanks, Rod.

Hey, Rod.

You referenced this is odd, Steve, that you brought this up in your prepared remarks because I actually have it in my scripted questions the phrase "flight to quality." Have you actually seen any sort of "flight to quality" away from your less well funded competitors and given your -- the EU expansion plans that you announced today, are you seeing any even anecdotal evidence that competitors may be having trouble lining up financing to do the same?

Sure, we're seeing that every day. Without throwing names around it is going to start happening more and more. But the flight to quality, Rod, I would tell you in the 16, 17 months I have been here, I think I've seen it from day one to more pronounced today. It is the old adage of a CIO never get fired for picking IBM. Well, a lot of our folks who end up picking us, it is brand, financial staying power. It is reliability. You're not going to get fired for picking Equinix fix you're in the colo and interconnection game, so absolutely we're seeing that. And at the end of the day, price and reliability are going to be a couple of the two things that are going to follow up to the final negotiations and absolutely we're getting chosen because of the reliability and the brand and the staying power.

Good, good, good, good, good. Could you talk a little bit about your expectations vis-a-vis the new interconnection agreements in Europe meaning what effect on revenue growth and margins. I am sure you're pretty excited about it but could you maybe frame it for us a little better?

I think Keith has alluded to this in the past. It is going to take awhile. We're starting to make very good progress in Asia and look how long we have been at the game in the Asia-Pacific region. So step one for us this year was to get the infrastructure set up and we have done that. We're now starting to charge. I think we're charging the equivalent of -- Jason want to say $100 for cross connect kind of US dollar kind of range when that market wasn't even doing that before. We have got activity in the pipeline across all four regions, all the regions in Europe. So we're starting to see it show up in the pipeline. We have a couple markets as I mentioned in London where we're harnessing off space just to aim at getting the interconnection business going.

Well, you yourself said that was a paradigm shift for Europe so --

Yes, I mean didn't spend a lot of time and didn't focus on -- they were selling medium and large sized suites. They are, now most of the centers in Europe have that and shared colo space setups. So the model's in place, we have a leader in region now that is very familiar with the model. The team is very excited about it and it is starting to take hold, but I wouldn't tell you should expect any -- I don't want do put a timeframe but it will take a while to get meaningful margin improvement but we are going to start seeing it and Eric Schwarz is held accountable to go figure that out.

Very good. A couple of quick housekeeping things here. If you haven't answered this already, if you have I missed it. What is the growth in total network access traffic year on year? It was 225 gigs in 2Q, so what was it in 3Q '08 and 3Q '07?

Jason here. It was 235 gigabits per second. This is just a US stat to be clear. It's up roughly 34% year-over-year. So this is a traffic statistic. There is a lot of other stats that are in the back of the press release, but that gives you a break out there.

Okay. Great. Thanks, Jason. One last one nowhere Keith. Did you mention an extra depreciation charge earlier? Did I hear that correctly?

I was just referring to Q3, I was talking about net income that was $7.4 million positive net income. That included incremental depreciation that you didn't see in Q2 that effected Q3 because of expansion.

Okay. That's what I heard. Thanks a lot.

Thanks, Rod.

Our last question is going to come from Mark Kelleher, your line is open.

Hi, guys, thanks for taking the question. Just want to talk about the Q4 CapEx. If we take the guidance that you gave for Q3 CapEx it looks like there was about $30 million pushed into December. I know you mentioned that there was a push out.

Yes.

Can you talk about what that might be related to and also the ongoing CapEx looks like it is going to take a fairly good jump up in December.

Yes, there is -- well, good question. I -- again, there is a number of different assets, we're -- it is fair to say when we look across the mix of investment and different markets, LA we're pushing it a little bit more into 2009 and I am transferring some of the capital, so we spend a little less in Q3 than we anticipated. For having said, we have been accelerating as fast as we can our New York 4 phase 2 build. Steve alluded to in his comments that we're nearly sold out in our phase 1 so we need that asset. We're bringing some capacity on sooner than we originally anticipated, so we're spending some more CapEx there. Equally so, when we deal with the ongoing, we have held it firm at $60 million primarily because there is a number of very important projects both as it relates to single points of failure, network asset in improvement and some other things that we're doing as a business that we anticipate spending in Q4.

I know it is a big number, but right now we're really encouraging the team to spend it. If we need to get it done, let's get it done in 2008. Let's get it behind it and then focus clearly on 2009 with a clean slate. So that's why you have seen the effort. Frankly speaking, it wouldn't surprise me if absent an expansion, our team tends to spend less than they guide us too. It wouldn't surprise me if we were a little bit lower but right now we're going to hold firm at our $60 million number.

Okay. And then one last question. It sounds like you have reallocated some assets from the L.A. build. Can you tell us what you're seeing in that market that allows you to do that?

Yes, just briefly, part of that is really driven by we're trying -- we don't need that much capacity out of the gate in that market. It, I think given the -- what has gone on in the market I think it was just a prudent decision by us to kind of reallocate that to core pairing markets. We will redirect that CapEx to help us make sure we keep from going dark in less markets and keep the lights on in more key markets. That is just all about just simple prioritization and stretching the capital.

Okay.

There is no change in that demand and that market at all.

Okay, great, thanks.

Good, thank you.

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

That does conclude today's conference. You may all disconnect.