Equinix Inc (EQIX) 2009 Q2 法說會逐字稿

Good afternoon, and welcome to the Equinix Q2 2009 results call. All lines will be able to listen-only until we open for questions. Also, today's conference is being recorded. If you have any objections, please disconnect at this time.

I'd like to turn the call over to Jason Starr, Senior Director of Investor Relations. Sir, you may begin.

Good afternoon, and welcome to our Q2 2009 results conference call.

Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our Form 10-K filed on February 26th, 2009, and Form 10-Q filed on April 29th, 2009. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of regulation fair disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.

In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the Company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We would also like to remind you that we post important information about the Company on the Investor Relations page of our website. We encourage you to check our website regularly for the most current available information.

With us today are Steve Smith, Equinix's Chief Executive Officer and President, and Keith Taylor, Equinix's Chief Financial Officer. At this time, I'll turn the call over to Steve.

Thank you, Jason. Thanks for participating in today's call and good to have everyone with us.

I'm pleased to report that Equinix delivered another solid quarter in 2009. And now that we've passed the midpoint of the year, our performance and outlook have increased our confidence in our 2009 plan and the expectation of another strong year of growth. Last quarter, we talked about staying the course with no need to trigger any circuit breakers in the flexible plan we've been executing against. As we enter the third quarter, we've begun to think more opportunistically about the second half of the year and 2010 as we've seen measurable strengthening in bookings and pipeline. In fact, we saw a new record bookings result in the US and had a solid performance in both Europe and Asia, despite capacity constraints in several markets of those regions. Of course, the 2009 plan also had a high focus on the cost line, which combined with strengthening bookings and revenues, has resulted in a significant overperformance in adjusted EBITDA. I should point out this also reflects a delayed spending over the first half of the year as we watched our results unfold. Additionally, as we've been reporting the past few quarters, we are still tracking our leading indicators, such as customer demand, new supply, pricing, collections, and churn very closely. And they continue to signal to us that our opportunity for growth in our key markets remain strong despite the current economic difficulties.

Although we have seen some impact from the economy in our churn forecast, which we expect to increase to just over 2% for the next two quarters, our sales pipeline has continued to increase and is now at an all-time high. As a result of our bookings momentum and this pipeline, we continue to see a great opportunity to extend our leading market position by continuing to make very targeted investments and new expansions in key markets. Additional investments also in our systems and processes to operate globally and importantly, we're scaling our bench strength in key sales, product and vertical marketing and operational areas. As we begin to think about 2010 and beyond, we still believe our strong market and financial position will enable us to emerge and even accelerate our market leadership when we get to the other side of these financially challenging times. The $314 million in capital raised in early June was an important step to provide us the added flexibility to pursue this opportunity while staying ahead of the future capacity constraints we expect to face from accelerating fill rates in key markets.

We'll spend some more time on our expansion plans later on in our call, but I'd like to now hand it over to Keith to hit the highlights of another great quarter. So, over to you, Keith.

Thanks, Steve, and good afternoon to everyone on the call.

So, I'm pleased to provide you with our second quarter financial results with some color on the key trends as we look forward to Q3 and the rest of 2009. And I'll start with revenues. Our Q2 revenues were $213.2 million, a 7% quarter-over-quarter increase reflecting both strong demand across all three of our regions and a weakening US dollar against our operating currencies. The Company experienced strong bookings in each of our regions, better than our previously forecasted bookings for the quarter. In the US, our booking strength was partially offset by an expected longer than average book-to-bill interval related to certain key customer wins during the first half of the year. A trend that will continue for the rest of the year. Europe revenues increased to $55.1 million in the quarter, a 15% sequential improvement. The result of continued strong bookings, higher than expected power revenues and stronger currencies compared to the US dollar.

Asia-Pacific revenues increased to $28.4 million, a 7% increase over the prior quarter, in part driven by higher currencies, although partially offset by limited capacity, both in our Hong Kong and Singapore markets. For the quarter, the change in foreign currency exchange rates positively impacted our Q2 revenues by $3.2 million, compared to the rate that we assumed for our Q2 guidance. Also, if we use the same average exchange rates in effect in Q1, our quarterly revenues would have been $209.7 million, the high end of our guidance range. Looking forward, we continue to expect the US to (inaudible) to our US dollar denominated revenues to approximate 65% of total revenues. While the Euro and pound denominated revenues should approximate 15% and 9% of total revenues, respectively. For Q3, and the rest of 2009, we have assumed a $141 to the Euro and a $163 to the pound. For the year, we expect the fluctuation of exchange rates to positively impact our 2009 revenues by as much as $10 million or greater. This positive trend will be offset by the longer book-to-bill cycle mentioned earlier, increased MRR churn over the latter half of the year and limited capacity in certain of our markets.

Now, looking at churn. For Q2, our global MRR and cabinet churn rate was 1.8% and 1.4% respectively, although we do anticipate both Q3 and Q4 churn levels to be slightly higher than our ongoing targeted level of 2% per quarter. The result of higher than forecasted churn attributed to customers with financial difficulties. Clearly, a lagging indicator. The majority of this space recovered from these customers is expected to be resold by the end of the year, and at prices at or above our current average rates. Next, moving on to gross profit and margins. The Company recognized gross profit of $94.6 million for the quarter, or gross margins of about 44%. Our cash gross margins increased to 65%, slightly above our expectations for the quarter, the result of continued strong fiscal discipline, related to our discretionary costs. During the quarter, we continued to see strong cash gross margins across all three of our regions with Europe improving 4 margin points to 55%, the result of better than anticipated power margins.

As mentioned previously, the European revenue model is different than the models in either the US or Asia-Pacific regions whereby power costs are passed through to the customer at a negotiated rate. As a result, the margins can fluctuate meaningfully from quarter-to-quarter, given the seasonal aspect of utility costs. Looking forward, we expect our Q3 and 2009 global cash gross margins to range between 63% and 64%, a slight improvement from our prior guidance levels despite continued expansion activities in each of our regions. During Q3, we expect higher Q3 seasonal utility rates in the US to negatively impact our sequential cash gross margins by 1 to 1.5 margin points. The weighted average price per CABE in the US was $1,893 versus $1,858 in the prior quarter, an almost 2% quarter-over-quarter increase. In Asia-Pacific, our weighted average price per salable CABE was $1,370 compared to $1,331 last quarter, an almost 3% quarter-over-quarter increase.

In both cases, this reflects continued strong pricing across these two regions, although Asia-Pacific was partially benefited by the strengthening currencies against the US dollar. Additionally, this reflects continued discipline by our sales teams to strive for strong pricing in the current market environment. With respect to Europe, our weighted average price per salable CABE increased to $1,009 compared to $994 adjusted last quarter. This improvement reflects two key factors: a higher than expected increase in power revenues in the quarter and a weakening US dollar. Absent these two factors, US pricing has remained firm over the quarter, pardon me, EU pricing has remained firm over the quarter.

Now, looking at our SG&A. SG&A expenses for the quarter were 58 -- $53.8 million. Cash SG&A expenses for the quarter were $38.5 million or 18% of revenues, slightly better than our expectations. The Company continues to manage its discretionary spend across many of the key corporate lines, including headcount and professional service fees. Looking forward, we expect some of the first half SG&A savings to be spent over the remainder of the year, consistent with our prior message that allowed the team to flex their spending plans based on our first half performance. As a result, we do expect to increase our SG&A spending during the second half of the year to support a larger investment in our information technology, product marketing and operations groups. Now, moving on to net income and adjusted EBITDA. For the quarter, we generated net income of $17.4 million, after recording an income tax provision of $11 million in the quarter, basic and diluted earnings per share were $0.46 and $0.44 respectively.

Looking at our income taxes, the effective income tax rate for the quarter reduced to 38.6% from 42.9% last quarter, the results of higher taxable profit in lower taxing jurisdictions. Although the majority of the tax provision will be non-cash, we do anticipate paying some cash taxes in 2009, such as US, federal AMT, and California state tax, the result of a temporary suspension of California NOL utilization. Our adjusted EBITDA was $99.5 million for the quarter, including an approximate $1.4 million positive impact from foreign currency fluctuation compared to our guidance rates. Adjusted EBITDA for the quarter on a constant currency basis versus Q1 rate would have been approximately $98 million. Turning to our balance sheet and cash flows, at the end of Q2 our unrestricted cash balances totaled $603 million, an almost $320 million increase over the prior quarter of which $314 million related to the net proceeds from our convertible debt financing in June. Absent the debt financing, the Company generated net cash in the quarter. We continue to benefit from strong operating performance, excellent customer collections with global DSO being less than 30 days and lower than planned capital expenditures.

Next, moving on to some comments on cash flows. First, our net cash generated from operating activities was $78.7 million for the quarter, a 9% decrease over the prior quarter and a 79% correlation to adjusted EBITDA after taking into consideration the semiannual interest paid in Q2. The Company continues to remain highly focused on working capital management in each of our three regions. Looking forward to Q3 and the rest of 2009, we anticipate we'll continue to generate strong operating cash flows, consistent with our expected adjusted EBITDA performance. Cash used from investing activities, excluding short and long-term cash investments, was $67.9 million for the quarter, primarily attributed to our net investment in capital expenditures. Looking to the second half of the year, we expect to increase our capital investments in each of our three regions, in part reflecting the underspend experienced over the first two quarters of the year. Cash generated from financing activities was $301.3 million for the quarter, primarily derived from the net proceeds of our debt offering and proceeds from employee equity plans. This was partially offset by payments on our term debt and capital leases.

Let me turn to the specifics on our debt financing. The Company selected this form of capital raise as it provided us with the greatest degree of operating and strategic flexibility, something we believe is highly important during these times while limiting the amount of cash outflow related to debt service. This debt facility is unsecured and subordinated. At the same time, it was important to limit the level of equity dilution, hence our decision to purchase a capped call simultaneously with a debt offering. The capped call effectively increased our conversion price to $114.82 or a 60% premium to the closing price. We can settle this obligation in cash, shares or a combination of both. Given our desire to have a cash settlement feature embedded in the transaction, we are required to bifurcate the proceeds between debt and equity, and as a result, approximately $104 million of the gross proceeds were allocated at the equity section of the balance sheet. Separately, the cost of the capped call instruments were charged to additional paid in capital in the stockholders' equity section of the balance sheet.

Finally, with respect to our equity balances outstanding, we had approximately 38.6 million shares of common stock outstanding at the end of Q2. This number excludes the shares related to our convertible debt, a large portion of which we intend to settle with cash, and 3.6 million shares related to our employee stock plans and other awards.

So with that, I'm going to turn it back to Steve.

Thanks, Keith.

I'd like to now provide you some color from our regional operations. In the US market, we experienced a record bookings performance in the quarter, which eclipsed our previous record from Q2 2008. Additionally, our outbound multinational bookings to both Europe and Asia came in at an all-time high with particular strength in our Amsterdam, London, Paris, and Singapore markets. In fact, we now have over 175 customers that are deployed in multiple regions with Equinix, an increase of over 100 customers since the end of Q3 2008, which is a solid proof point of the value of our global scale and reach. The sales team in the US did a terrific job this quarter in bringing us back in line with our 2008 bookings rates, while maintaining our pricing objectives despite the recessionary environment we're operating in.

The financial services vertical continues to be a strong contributor to our success in this region with several wins, several large wins including our largest contract in our EFX ecosystem to date. This success was a key reason in our decision to move forward with the third phase of our New York 4 IBX and also our Chicago 4 expansion announcement last week. We continue to extend this ecosystem to many of our markets globally with critical deployments from key players within this vertical such as the Boston Options Exchange, Chicago Board of Options Exchange, Direct Edge, Fortis Clearing, the International Securities Exchange, and JPMorgan. On a global basis, we now have over 375 financial customers with over 550 deployments worldwide.

Shifting to Europe, we continue to experience strong growth and the team there is on track to meet its revenue and adjusted EBITDA targets for the year. We continue to experience strong demand and firm pricing in Europe though we do have some capacity constraints in a few key markets. These will be addressed by the four expansion projects currently underway, which are expected to open over the next several quarters. The financial vertical continues to be our primary ecosystem driver in this region, with several strategic wins booked in the quarter in Amsterdam, Frankfurt and London. Although internet pairing is still a work in progress, we're seeing network density growing in all key sites. As you saw in an announcement today, we were able to capitalize on our first partially distressed data center asset in the Frankfurt market. We have purchased a fully built out data center for just under $30 million and plan to invest up to $10 million in CapEx to recommission it. We expect to sign a blue chip anchor for this future IBX by the time it opens in Q4 of 2009.

Supply in Frankfurt is getting tighter and our recently opened expansion in this market is already over 75% booked. So, we believe this new capacity will be important in the coming quarters. In Asia-Pacific, we had another good quarter with a slight increase in our bookings from the previous quarter and just ahead of plan, despite significant capacity constraints in both Hong Kong and Singapore. We saw particular strength in the network, enterprise and financial segments with a growing interest in our EFX offering. The pipeline here continues to be healthy with strong demand for our new expansions in Hong Kong and Singapore, which are expected to open later this quarter. In fact, Singapore has increasingly become the destination of choice for US based multinationals and the density of networks we have accumulated there is proving to be an important competitive advantage in that market. This is also helping to drive the continued growth of our interconnection offerings in the AP region with Singapore now having the third largest number of cross connects in any of our markets globally. Beyond our execution and our market position, we are benefiting from favorable secular trends which we enjoy such as internet growth, broadband video, enterprise outsourcing, the continued shift to electronic trading and cloud computing, which is enabled by network interconnection. This supports our belief that there's a great opportunity to invest and produce strong returns in our business.

As recently announced, we're making additional investments in Chicago, Frankfurt, New York and Zurich. With the decisions to invest in these markets, we now expect to see capital expenditures reach the high end of our range for 2009 guidance. Additionally, we continue to see strong bookings in key markets such as Amsterdam, Hong Kong, Silicon Valley and Washington, D.C. We are tracking the fill rates in these markets and are actively reviewing expansion decisions to keep pace with the customer demand given the lead time to build new data centers. These expansions will be important for our future growth in the coming years and of course, we will provide you updates as these plans evolve. All of these decisions are being evaluated with the same rigorous level of analysis of supply, demand, pipeline and fill rate, while targeting the same strong financial returns we've always pursued. We will also maintain the same prudence to assure that any of these expansions are part of a fully funded plan, utilizing our discretionary cash flow and our strong balance sheet. So, I'd like to now provide you a quick update on our expectations for Q3 and the rest of the year. We now expect our 2009 revenues to be in the range of $860 million to $875 million. This reflects a combination of our bookings momentum and assumptions for currency, timing of forecasted churn, and the book-to-bill intervals we discussed earlier on this call.

We expect cash gross margins to range between 63% and 64% for the year. Cash SG&A is expected to be in the range of $160 million to $170 million. We're raising our adjusted EBITDA expectations to range between $380 million and $390 million with the midpoint up $7.5 million. As we pointed out in our release today, we're reviewing the accounting treatment of our recently signed lease for our Chicago 4 IBX shared suite and are excluding any costs associated from this in our annual and quarterly adjusted EBITDA expectation until that review is completed. With the new expansions we've announced in Chicago, Frankfurt, New York and Zurich, we expect CapEx to approximate $375 million, which still includes approximately $60 million for ongoing CapEx. For the third quarter, revenues are expected to be in the range of $221 million to $225 million. Cash gross margins for the quarter are expected to range between 63% and 64%. This reflects an estimated $4 million increase in seasonal utility costs as well as some incremental expansion cost. Cash SG&A is expected to be approximately $43 million. This is up by $4.5 million, sequentially, which reflects additional headcount and merit increases which had been delayed as we managed costs to the second half of the year.

Adjusted EBITDA is expected to be in the range of $96 million to $100 million, which absorbs the incremental cost I just noted. Total CapEx for the quarter is expected to be between $140 million and $150 million, which includes approximately $15 million of ongoing CapEx. So, in conclusion, we enter the second half of the year with confidence that we are well on our way to another year of strong growth and again, in less than ideal market conditions. We'll continue to stay vigilant in monitoring our operating environment, but with the improvement we've seen in the strength of our bookings and pipeline, we believe we are very well positioned to grow share and separate ourselves from our competition. As we've seen, this economy has hampered many of our competitors' ability to keep pace with industry demand and invest in new capacity. The expansion announcements we've discussed and continue to evaluate are a reflection of our momentum and financial strength and provide an opportunity to take advantage of difficult times and emerge as even a stronger market leader. This coupled with our unique global scale and reach is enabling Equinix to become the go to provider for mission critical data center services for the foreseeable future.

So, with that, Becca, I'm going to turn it over to you and see what kind of questions we might have.

Thank you. The first question will come from Chris Larsen with Piper Jaffray.

Thanks, and good evening. A couple questions. Keith, you obviously, you did that big cap raise and now your CapEx guidance is still sort of within or definitely within the original guidance you said. Your EBITDA is exceeding your CapEx. Was this cap raise done really just to give yourselves more cash in terms of comfort zone or can we expect some more new facility builds within that? And then secondly, it doesn't seem from any of your numbers, but I'd love to see if there's something below the trends, anything incrementally worse from customers? I mean, DSOs were up two days sequentially but they're actually down four days year on year. I mean, are we seeing anything that suggests the health of any of your customers has gotten any incrementally worse? And then, have you seen any churn from that large customer yet or will that all be in the third quarter? Thanks.

Great questions, Chris. I think, to deal with your first question first, certainly we raised the capital, one, when we felt it was a very opportunistic time to raise capital. So from our perspective, that was clearly important. But recognizing the commitments that we've announced and some of the commitments that sit on our white boards, there's certainly, based on what we see today and the level of pipeline and growth, we get a sense that there's a bigger opportunity in front of us here at Equinix. So for that very reason, we exercised the opportunity to raise capital when we felt we coul. And so, from our perspective, we'll continue to manage and certainly share with the people on the phone and our investors the -- when we come to a new project or if there's another project we're certainly going to share that with you and we'll reset our CapEx accordingly.

When it comes to your second question, I think it's important to note, both Steve's comment and my comment, that we are going to see slightly higher churn in Q3 and Q4. Our DSOs are still below 30 days as you noted, 29 days versus 27 days last quarter. That's more in one market that we're seeing a meaningful uptick.

But having higher churn, we have -- in my comments, I did -- there is a couple of customers that based -- at the time that we offered our guidance last quarter, things have not gone well for a couple customers and, hence, our churn is going to go up and that's being reflected in the guidance numbers that we've shared with you. I wouldn't say, though, it is meaningfully across our base, the financial difficulties. I think there's select customers, we talked about at the beginning of the year, there are some venture backed companies, which are in some cases meaningful customers of ours. So I think it's important to note that some of those companies are not going to get funded and because of that, there will be some failures and we'll probably see a little bit more failure than we originally anticipated. But again, back to my comment. We fully intend to not only take that capacity and resell it by the end of the year, we're going to sell it at or above the price points we're at today. So with the discipline of of our sales team, the strong pricing that we're seeing in the market and in particular, Steve's comment on the pipeline and the strength of that pipeline, we see it as a short-term negative, long-term positive. And again, it's reflected in the guidance that we have in front of you today.

So, the last question you had -- thanks, Jason, just on the churn in Silicon Valley. A portion of the churn, as we said, we thought it was going to be predominantly a Q2 churn. We started messaging it will probably be split between Q2 and Q3, and that's actually what's happening. But for all intents and purposes, we lost roughly 50% of that large Silicon Valley customer this past quarter in Q2 and the rest of it should be gone by the end of Q3 and we've already started reselling that space with some very strong and very positive oriented customers.

Chris, this is Steve. I think you can't underestimate what Keith is telling you about particularly the churn that we signaled to you guys last quarter with this firm in the Valley. We'll repurpose that space, which was low density type cabinets now to high density cabinets, and we'll resell that very quickly at much higher prices. So, with the constraints we have in this market, not an issue at all for us. Actually, the sales team as Keith said has already begun to turn that over so we feel very, very confident we'll backfill that very quickly.

Would you like the next question?

Yes.

It comes from Michael McCormack with JPMorgan.

Hey, guys. Thanks. Just a couple things. First, on the full year guide based upon the tailwind from FX. I'm just trying to get a sense. It looks like the FX makes up for basically the entire guidance increase, and yet you're saying both bookings and pipeline are seeing improvement. Just trying to get a sense for what's happening on that dynamic. And then secondly, a couple of your competitors have been successful in raising money as well. Do you guys have any concern about the capacity in this environment?

Great questions. Let me deal with your last question first. Certainly, there is a little bit of capital coming into the market. If you look specifically at (inaudible), they have a $420 million facility. As you know, the majority of that was really a refinancing transaction for them.

Obviously it was a good deal that the team over there did. But it doesn't -- it's not giving them substantial capital to invest at the scale that we're investing in. Just reading their news, as well, looks like they'll be investing more in the nap of the capital, and maybe a little bit out here in Silicon Valley. The benefit we have is we're investing in a number of our markets in three regions of the world. So, I don't feel that we're -- we, the industry and we, the Company are exposed to an oversupply. In fact, we still believe that supply is not keeping up with demand. So hopefully that addresses that and I think there are a couple other small financings but again, not of the magnitude that (inaudible) and Equinix have completed.

Keith, I'd add to the -- Mike, on your question on the capacity in the markets. In the 18 markets we're making decisions in, I think we're now active in ten markets building and you guys can look at that on the website on the sheet. In those markets where we've made decisions, as I stated, we have deep analysis on supply, on pricing, on competitive build, et cetera, and there really is nothing that is signaled that we do anything differently than react to our fill rate and our bookings and pipeline activity that we've been looking on. So we feel very confident that ten markets we're acting in, that we're not facing any kind of supply that is going to cause us to not go with the fill rate that we think we can go in.

Okay. That's helpful.

And so Mike, then to address your first question, there's a couple things. Certainly, we know we've got the benefit of the tail winds from currency and that -- we see that as a positive because relative to last year we were getting a fairly substantial headwind with currency. So again, we think we're now sort of operating more in I would say traditional trading levels, at least for some of the currencies. So there's a benefit we're certainly taking for that.

Now, to offset that, there's two things that we wanted to share with you, and we've tried to color it a bit in our scripts here. Number one, the book-to-bill intervals are longer and what we mean by that is basically the time that we book a customer to the time that we actually start generating revenue from billing that customer is extended. And so when you -- without getting into the specifics on a customer by customer basis, when you think of some of the announcements we've made as of late and think about the complexities of some of these infrastructure deployments inside our facilities, you can appreciate how long it's going to take for us to start recognizing revenue attributed to some of those deals and so we wanted to make sure that people recognized that we've effectively sold out capacity, but we're not going to get the benefit of revenues attached to that for a period of time and we're saying really the back end of the year.

Keith, is that a majority of just complexity versus customer hesitancy due to the economy?

No, it's complexity.

Okay.

Think about some of the -- our focus on the EFX and some of the recent trading wins, financial exchange wins that we've had to give you a sense of how some of these installations are going to be. Secondly, when you look at churn, we are telling you churn's going to be a little higher in Q3 and Q4 and that's sucking up some of our tailwind as well, and in particular there's a couple as I said venture backed companies that have effectively hit the wall at full speed and because of that, not only have we fully reserved for them in Q2 against the revenues and AR, but we've also had to take -- we took basically the impact of their contract out of the latter two quarters of the year.

And so, we have to absorb that, but going back to Steve's comment and my comment, because of the pipeline and the momentum, like anything, it's short-term negative, long-term positive because these non-paying customers, we are going to replace them before the end of the year and we think we're going to be in a constrained environment in Silicon Valley before the end of the year and so it gives you a sense that there's still great momentum in the plan. It's just the timing and in-flows and out-flows of churn and book-to-bill intervals.

Great. Thank you, guys.

Great, Mike. Thank you.

The next question comes from Michael Rollins with Citi Investment Research.

Hi, good afternoon.

Hey, Mike.

Michael.

Just a question on the customer segmentation. As you look at the bookings and what you're looking at in terms of the comments of the strength in bookings going forward, can you give us more definition in terms of what verticals might be stronger? And also at the same time, on the churn front, are there certain verticals that are experiencing more churn or is it diversified? Thanks.

Yes, Mike. I'll take that. Let me give you some color by region and then I'll bring it up to worldwide. You guys know, we bucket our bookings and our MR by four verticals. And I would tell you at a very high level, we have seen an uplift in the financial services, which includes our EFX ecosystem focus. Much greater than any of the other verticals and I would tell you in this quarter, Q2, both digital media and the financial services had a bit of an uptake. Network was fairly flat on a worldwide basis, quarter-to-quarter. And enterprise and our reseller activity was fairly flat quarter on quarter. But that varies by region.

If you go to Europe, the enterprise business and reseller activity is almost half the book to MR bookings in that quarter, and the financial services is roughly a third. If you go to the US market, it's much more balanced. It's roughly 36% enterprise reseller, it's 30% financial, which is stepped up significantly, roughly 15 network and roughly 19 or 20 in the digital media. And then in Asia, it's pretty balanced. It's network's the largest and then in the high teens, low 20s are the other three segments. So generally at a very simple level, the financial services vertical has had a big step up for us, predominantly driven by our FX ecosystem activity, followed closely by digital media and then pretty flat quarter on quarter with the other two verticals.

Thanks.

Jonathan Schildkraut with Jeffries.

Good evening, and congratulations on a good quarter. Couple of questions here. Couple of questions here. First, on the guidance, and then maybe a little bit on your capital structure. As I look into your guidance for the next two quarters, taking into account the things that you've said today, and some of the pricing action we've seen over the front course of this year, it still feels like you're being a little conservative. I'm guessing where the impact's going to be is that we would see and correct me if I'm wrong here is that cabinet adds would be lower in the back end of the year relative to this quarter because it seemed like the cabinet adds in this quarter were extraordinarily strong.

I don't want to say that we're conservative. We certainly recognize the amount of moving pieces in our business plan at this point. And again, not trying to repeat myself, Jonathan. I think it's real important for the listeners to understand there is a lot of success in the business today, but because of a few things that are moving around, we've getting the benefit of course of currencies but between the book-to-bill interval and between the churn, we're probably not going to see a lot of the strength that, if you will, the real positiveness going on in the Company until the back end of the year and what that really says is it bodes extremely well for the beginning of 2010. And again, I don't want to -- I'm not out promising. I'm not -- what we're going to do. I just -- my sense is there's enough movement in the various revenue components that we think it's fair guidance, given what we see today and we'll continue to update that as we move through the year.

And did you say that MRR churn was 1.8% and cabinet churn was 1.4% or do I have that backwards?

Cabinet was 1.4% and MRR was 1.8%, Jonathan.

Okay. Great. So, just in terms of looking then at the EBITDA guidance for the remainder of the year, already you've hit $190 million, basic run rate here would get you to the bottom end of your guidance range and I guess what we're looking at is very conservative incremental margins, pretty much all of your incremental revenue growth it appears would be taken up by some of the costs or initiatives you've been talking about, working on in the back end of the year. I mean, am I missing anything as I look at the expectations for the next six months?

Well, I think there's a couple things. No, you're not missing anything. I think it's important to note that as we said, there's the seasonal impact which you're aware of, the $4 million of utilities. We see that every Q3. We've seen it over the last, what is it, six, seven, eight years. So, that shouldn't -- that's basically sucking up a fairly meaningful piece of our revenue increase. But the second piece is, there's a lot of expansion that we've announced and incremental expansion costs that we are going to absorb and I can't remember, Steve sized of it, but it is a couple million dollars plus over the next little while that we will absorb with no incremental revenue.

But probably even more importantly, I think Steve's comments were very sound in talking about the fact that we're going to invest very heavily in IT, very heavily in our marketing team, because we need to. We have underinvested over the last few years and it's going to position us extremely well for what we see in 2010 and beyond and so there is a disproportionate amount of investment going on, not only in those two groups but across the organization to scale us to a much larger Company than we originally anticipated because we see an opportunity that is greater than we originally thought.

Keith, I would add and I think I said this Jonathan on the -- my earlier points, is that, also we're -- I think you know we're investing pretty heavily in the product lines as I did mention we extended the merit decision until the midpoint of the year and then we're going to now execute on that in the second half of the year. But we're investing in vertical depths now so we're launch new products and as Keith said, there's continued systems investment going on around the world to bring our systems up to next generation. So, there's a fair amount of investment going on in the Company to be able to operate globally. When you get to the scale of the customers we're delivering to now globally, global SLAs, global MSAs, global pricing, there's a heck of a lot of work going on here to be able to deliver that, so there's a significant amount of investment to enact that.

All right. Great. Just one final question. In terms of your capital structure in the past, Keith, you've indicated three to four times leverage is something that you feel is the right amount of leverage on this business. And maybe I'm not as conservative as the gentleman who asked this question about your plans for those dollars on a go forward basis, but based on what we see in your business and the cash flows you're generating, even if we got significantly more aggressive in terms of your expansion in early 2010, it still seems like you're sitting on an extraordinary amount of cash. And if you maintain a three to four times leverage, that cash number is going to go up dramatically. Is the Company now considering other options for that cash, call it share buybacks or dividends? And even if you don't want to answer that question today, when might we hear from you on your plans?

Yes, so there's two things there, first and foremost, we did raise it. When you look at our net leverage, we're about 2.5 times net levered today. Certainly, we have announced an increase in spend. There's a tone coming from Steve and I that basically says that there's an opportunity we think that's going to be greater. We've already sent -- told you sort of the investor community as a whole, there's a number of markets that we are looking at, we talked about it on our analysts day. We have not yet made any announcements on some of those markets, but it's fair to say that we think we're going to be constrained in some of the big US markets.

We announced today the New York 4 Phase III, but there's other markets that we have to pay attention to as well and Silicon Valley is one that comes to mind right away and then of course there's the success we're having in DC. We're out of capacity in Dallas. We're building, of course, in LA right now and we're also -- we're going to build in New York. So, and Chicago. So, I feel pretty good about what we're doing but there's a number of unannounced projects so a lot of that excess capital as you might see it could be consumed relatively quickly.

Having said all of that, we recognize that our EBITDA is extremely strong. We recognize as we look forward into 2010, based on the exit rates that we have from 2009, that we theoretically should generate a lot of operating cash flow at this point to our adjusted EBITDA. And so because of that, a lot of it -- part of the reason of the capital raise was making sure that we had capital, that we always were going to be in a fully funded position but we recognize, depending on how you spend the capital, you can have -- you can run short of capital because the investments are so high. And so, it does not give you a direct answer on why you think we might have excess capital, but our sense is that we feel we're well positioned as we look forward. Now, on the analyst day we did talk a little bit about our leverage. We said this is a recurring revenue model, long-term asset, great opportunity. Theoretically, the leverage should be higher on this asset. If we just run the business as we're going to, we'll have zero net leverage in 2012. We recognize that's no way to run the business.

What the excess cash does do, it's going to give us at some point the ability to maybe one day do a share buyback or maybe do a dividend or alternatively, it's going to give us the capacity later down the road, I said it in my comment, that we want to make sure we can take out these convertible instruments with cash and avoid the dilution and so in a back handed way, that's really doing a share repurchase because we want to use our cash to pay back the debt and we've embedded these cash settlement features in our large structures. So, hopefully that answers your question and --

Well, not really because if you paid off that debt with cash instead of shares, then you would become underleverred based on your own analysis, but I get the point. I actually would love for you to spend just a minute more on the new Chicago facility and some of the lease costs, just based on the information you put out in your release, you're spending just under $8 million a year whether it comes out of the capital or operating lease. Translating it to cabinets, about $1,100 a cabinet. In the past, you guys have targeted a 40% IRR in incremental investments. That would imply that the pricing environment in downtown Chicago was quite strong and I was wondering if you employed the same IRR hurdles in this situation as you had in the past and then maybe talk a little bit about the accounting. Thanks.

Okay, Jonathan, thanks. I think it's fair to say that we see a lot of strength in the Chicago market, particularly the downtown market where we operate our EFX business. From our perspective, we, and Steve mentioned this in his prepared remarks, we're shooting for the same targeted returns under this model as we are with any of our other models and so high economic return for the investment we're making. Now, that said, just we're not using our capital. We're working with digital realty.

In many ways, we're using a lot of their capital to expand our footprint. That all said, the reason we have chosen not to include anything in our guidance at this point, one is an extremely complex accounting transaction because of what we're leasing and determining whether it's operating capital or a hybrid structure. We've had a few of those before so we need to get valuations done and so the complexities of that, but certainly from a cash perspective I think it's important to note that there's no effective rent until 2010, if I -- the beginning of 2010, if I'm correct here.

And so because of that, because there's no cash outflow, no cash impact, we, as a Company, one of the things that we do that's different than many of the others out in the marketplace, we don't adjust for deferred rent. We actually take the full impact of non-cash deferred rent into our EBITDA calculation, where there are a number of companies out in our industry that actually take out deferred rent, and so for that very reason we wanted to make sure we were clean with our EBITDA and certainly message at this point that EBITDA has not been adjusted for this because we don't know what the treatment is going to be, but because we don't take out deferred rent, it could have theoretically a non-cash EBITDA impact to our EBITDA.

All right. That's awesome. Thanks so much for spending the time on my questions.

Thanks, Jonathan.

Simon Flannery with Morgan Stanley.

Thanks very much. Good afternoon. The pricing is very strong. Can you talk a little bit about is that -- are you seeing that thoroughly much across the board in terms of -- within the US and the various markets or are there particular markets where you're seeing a lot of pricing strength because of shortages? And in terms of your customer or your sort of growth this quarter and as you expect the rest of the year, how much do you see coming from existing customers expanding with you and how much do you see coming from new customers and maybe you can just comment on the new customer count in the quarter. And then finally, anything you have to say on the interconnection trends would be great. Thank you.

Simon, I'll take that. Let me start out with the pricing. As you guys know, it does vary by market, but I would tell you in the key critical network dense markets, pricing is holding very firm and stable. And as I think Keith or I mentioned, we are seeing some sales cycles that are starting to stabilize and I think the durations of the sales cycles probably in this quarter remain a little bit longer than normal, but we are seeing pricing strength and quite frankly we're very targeted and very focused on key clients inside of key verticals that are feeding our ecosystem. So, the ecosystem focus is going to help that in terms of maintaining pricing.

You get away from mission critical activity and you get to back office or non-mission critical type stuff, whether it's disaster recovery or testing or development type deployments, then you're going to get away from pricing strength. So, I would tell you across the critical markets and it even shows up in markets like Dallas where we've gone dark, where we're foregoing pricing strength in a market and competitors are getting it because we don't have capacity. So, capacity still remains our number one issue, but in general, the sales team is doing a very, very good job selling value, not dropping pricing for -- and trading for volume and sticking by the framework we have in place for them. So, across the board I would tell you pricing's pretty darn strong.

Part of the driver to that is also utilization is continuing to grow up. So, from a macro standpoint around the world, data center utilization continues to go up as we've seen quarter by quarter which is also providing strength to pricing. On the existing customer side, I think we were around 84% this quarter worldwide existing customer base, so existing customers are very strong in terms of purchasing. If you look at our top 15 to 20 customers in each region, we see a majority of them continuing to grow with us and very few of them that are not. So, a good signal from all three regions is that the top customers with very few exceptions, one or two and they're tied into the companies that are in the business of building data centers and have taken some of this volume back in house that's been here for four or five years. Outside of those, we're seeing very, very good strength with existing customer.

New customer take-up this quarter, I think the total new was roughly 124, 125 new logos that were brought in around the world. US had the highest number, was roughly 60, roughly 40 in Asia and roughly 25 in Europe. So it's a pretty good mix. It's been higher in previous quarters but generally we're getting strong, strong buying patterns from our existing customer base and I think that's what's driving the bookings and the pipeline momentum.

On the interconnection front, full speed ahead as an initiative for the Company. In Asia, we're 9.5%, 10% pushing up towards 10% now. Europe is still working hard to get it -- to get the cross connect and exchange business embedded in all the countries. We're making very good progress with the network density as I mentioned and in the US now it's flattened out and it has been flat the last couple of quarters. On an actual dollar basis, we're running about the same the last two or three quarters. But I think you'll see as these major deployments that we're installing around the world with EFX and as these matching engines start to take hold and they start to get their members connecting, we expect to see the cross connect business to start to step up.

On the exchange front, with our reports, we're still repricing. It will probably go on for the remainder of the second half of the year and we'll see up tick and upgrading of ports on that front also. So, I would tell you it's all goods news. Most of the new product orientation we're doing is all behind interconnection. So, all of the stuff that our new Chief Marketing Officer and his team are focusing on is all behind the ecosystems and generating more cross connects, more ports, and more ways to sell the interconnection part of our business.

Very helpful. Thank you.

Simon, if I could just say one other thing. I want to make sure I leave you with this thought. Also part of the reason pricing is so strong, customers are buying more products and services per average cabinet. Remember the metric that we use is MRR per cabinet or cabinet equivalent and so as we sell higher dense cabinets, meaning more power and as Steve alluded to with more cross connects, then the average unit is going to go up on a per unit basis and pricing overall has remained firm across -- from a price point perspective. So, I wanted to make sure that you were just aware of that particular structure in our metric.

Thanks.

Mark Kelleher with Brigantine Advisors.

Thanks for taking the question. I want to talk a little bit about Europe. Europe was very strong in the quarter. The utilization rate seems even higher than the US. First of all, on the utilization question, where can -- at what point are you going to be comfortable with the new capacity that's coming online to bring that 85% down? Are you looking at some pricing leverage? Is there some churn that you might be able to get, maybe some positive churn from some customers to get that -- to get some space back to alleviate that issue?

And then on the pricing, just kind of connected to the utilization, are the cross connects factored into the utilization rate or can you continue to generate revenue on top of an 85% utilization without adding cabinets by adding cross connects and that all ties into how much pricing you have and can you raise pricing in Europe? That's all one question. Thanks.

Let me start, Mark, and then Keith can add some comments here. But as we mentioned in our script, we have four expansion projects going on in Europe, which will alleviate some of the pressure we have in the constrained markets. So in Paris, in London, in Amsterdam, in Germany now with the recent announcement, we will start to alleviate some of the constraints we have and that will help us, certainly from a capacity standpoint.

One of the biggest things we're trying to enact with our European team is to move from a primary focus on selling big suites, medium sized suites to a better mix of shared COLO with big deployments, predominantly have historically been around enterprises. So, the team over there is doing a nice job getting the interconnection part of the business into the value proposition, into how we communicate to customers, and so we do expect to see that to start to pick up and drive past that 3% here over time but it's going to take time, but all the signs and all the work we've done to date we think is starting to show up.

So yes, I do believe that from a European standpoint we're going to get a better mix of space and interconnection that's going to help us alleviate the constraints we have today. But the 85% that we're sitting at today is similar to Asia, it's a little lower in the US and all these announcements that we've signaled today are pointed at these markets where we know we have the demand and we know we have the pipeline and we know we have a fill rate history that we can go attack that. So we feel pretty darn good about that.

When you give us the capacity utilization rate of 85%, does that -- how do you factor in the fact that you can sell additional services to existing cabinets? You could do more cross connects to existing cabinets.

We don't really do that, Mark. It's tough to develop different metrics for this, but we're really talking about a physical footprint or a cabinet equivalent. Many times you're absolutely right there's more revenue opportunities coming from the cross connect, but equally so coming from power. In the end, it takes a while for customers to ramp up their deployment and over a period of quarters and in some cases years, they will continue to invest in their infrastructure and take more and more power infrastructure as part of their offer, the service offering and so it doesn't get well reflected.

What we try and do as a business, we try and give you a sense of what the revenue opportunity is for this business and last quarter we told you it was roughly $1.25 billion, roughly $1.25 billion of revenue opportunity. We've since announced incremental capacity and so obviously that number is greater today. And with that, it gives you a sense at least what we're charging for or charging forward towards as a total opportunity based on the capacity we've delivered.

Are you putting pricing in on in Europe, pricing increases?

We tend to be premium price, but obviously there's market conditions in a number of our markets that -- remember, we're operating in eight different markets, so there's uniqueness to each of our markets, but like anything, if you want, you can moderate uptake based on your pricing decision, but we, as a Company we're disciplined to pricing. We think there's a fair price relative to the investment that we make and we charge that as a business. But certainly if you wanted to see your -- see the demand go down dramatically, you could put a fairly large price increase in place but our general view is we have this great opportunity to take share and grow the business and we're getting the returns that we expect so based on that, why not continue to invest versus trying to, if you will, govern the amount of momentum we have in our business plan.

We should be clear though, Mark. There is not -- to be very specific to your question, we have not instilled a price increase program in Europe. We're enacting it country by country as we deploy network dense stuff with a network business or with these ecosystems, you tend to be able to hang up closer to list price and that's the type of discipline we're enacting. So cross connects we're starting at a much slower point than we are in the US, but they're starting to go up and we're starting to get traction. So, that will happen over time, but there's not a plan. The margins are moving up by the scale and by the multinational business that we're pushing into Europe and by just the equinization of the business there.

Okay. Great. Thanks.

Winston Len from Goldman Sachs.

Hi, thanks for taking my question. Just want to drill into Europe a bit. (Inaudible) You mentioned increased power usage helped revenue there, but (inaudible). I would think that there's little margin benefit from it. Could you just give a bit more color around the cost drivers that helped this quarter? And then maybe just a switch to the Silicon Valley space. Given the weakness among venture capital backed companies and the trend for some of the larger internet companies, what type of customers do you see picking up the space and how far along in the discussions are you? Thanks.

Okay. Let me at least take the EU comment because it was in my script. It is not necessarily a pass-through power arrangement. That's why I actually was trying to be specific in my language, in my script. It's a negotiated rate, so you prenegotiate with the customer, taking into consideration both the consumption and the tooling of the power on what that rate's going to be and so there is seasonality in utility costs in Europe, slightly different from what we experienced here in the US and in particular, California. And so there is negotiated margins effectively in the power. So it's not directly a pass-through, and so we benefited from that, but we also benefited from more volume, you saw we sold more and more cabinets are billing today than they were last quarter and then you get the added benefit of what's been going on with the currency.

Absent currency, you can take out roughly five growth points, so you would have been roughly up 10% quarter-over-quarter. The benefit of that was really coming from power, from power and then increased volume. As it relates to VCs, I mean, this is a typical issue that we always will experience. There's some companies who funding will dry up and decisions will be made, whether or not they -- whether or not somebody else will fund them, there's some companies that we now see today that will not get funding and we as I said, we've not only taken the hit in Q2 for anything that we had on our books, but we're fully taking it out of our business plan for Q3 and Q4 and there's a number of circumstances like that.

That's muting basically some of the success we're having. Steve's always very clear, though. We have a gross booking number. We have a churn number and we have a net booking number. We're managing churn as best as we can. A lot of that's out of our control and we're driving the team to drive gross bookings as high as possible so we have a net booking number that's consistent with our objective, but there is a fair number of VC backed that will not make it. We know who they are. We reserve for them and we factor that into our capacity management.

Now, that all said, there's a lot of great companies out there that are growing very substantially that are well funded, that are private and generating income and generating positive revenue and generating positive cash and net income. And those are the type of companies that we're looking for to grow with, in particular, in the Valley and some other markets.

The only thing I would add, Winston, is to Keith's comments is that we try to do as much work as we can. There's probably a larger amount of private companies that are in the pipeline in the bookings numbers in the Silicon Valley because of the nature of the market out here and we do as much work as we can to check the credibility of the company before we sign them up, but bookings in this last quarter in Q2 in the Silicon Valley, were back to Q2, 2008 levels so that was a very good sign.

The mix of customers in the valley really hasn't changed that much. It's maybe in the software as a service bucket we're seeing more activity there, but it's still a lot of social web 2.0 companies, it's video, it's CDN driving growth, it's those companies that you guys would expect would be in the Valley that are at the heart of the pipeline and the bookings. And then, the team in the Silicon Valley has done historically a very, very good job of doing a lot of transactions in a quarter. So, our biggest challenge in the Valley is capacity, no question about it.

Great. Thanks for the details.

Thanks, Winston.

Next question is from Colby Synesael from Kaufman Brothers. Your line is open.

Great. Thank you. Just wanted to follow up actually on the first question that was asked. You guys increased your CapEx guidance to the high end, $375 million. Just want to make sure that that basically is for all projects already been announced. In other words, there's no more room left in there so if we see a project or an expansion announced a month from now that that's still included in the $375 million. And then my next question has to deal with just trying to quantify how big the market opportunity is. So, financial services or financial exchange obviously been a huge grower for you guys. When you try to figure out how long this is going to last, how many more customers there are to actually go after, maybe you could give us some parameters on that so we could get a better understanding of how long this significant growth is going to last. Thanks.

I'll take the last question first. We think at this point now, Colby, we're in the low single digits of market share at a pretty rapid growth rate in the CFX ecosystem. So, there are literally thousands of these companies, buy side, sell side, technology companies in this space. We are very focused on large pops. We're very focused on matching engines. We're very focused on the magnets that will attract other companies -- other members that want to come in and connect with them. So, there are plenty of companies around the world.

Many of these companies are looking for multi-region deployment, so one of the advantages we have over most all of our competitors is the fact that we can deploy them in the top ten financial cities around the world. I mean, all top ten financial cities on the charts, we're deployed in. So, that is a huge advantage and we're very, very early in the stages, we believe, on enabling these companies and with the push into electronic trading, our pipeline is just very, very solid with opportunities across probably today five or six markets, we think that will go to seven or eight and up to ten markets as this thing starts to evolve. On the CapEx, Keith?

On the CapEx, Colby, right now we, based on what we see today, on the projects that we've announced, we have fully consumed, we believe we will have fully consumed up to the top end of our range, so any incremental projects will be above the $375 million.

I mean, we're obviously still six months left and based off of some of the comments during your prepared remarks, it sounds like there's other markets you're still looking at. Is it fair to say, then, that we're going to see some more projects announced in the next six months and therefore CapEx would go above your current expectations?

Well, there's certainly more projects that are out there that we're looking at. I think realistically, it will have -- if we announce something, it will have some impact on 2009, but realistically it's more likely to have an impact embedded in our 2010 guidance.

Okay. Great. Thank you.

Thanks, Colby.

James Breen with Thomas Weisel Partners.

Thanks. I was wondering, could you just talk a little bit about the different verticals and this quarter you talked about customer growth coming from existing customer base, but a as you look across, whether it's carriers or content providers or enterprises, sort of where you're seeing the growth coming from? Thanks.

Yes, from a booking standpoint, James, or from where our MMRs deployed today? Either one or -

Either one is fine.

Yes. Well, let me give you bookings. I hit that before, but the simplest way to think about the bookings and this has been pretty standard the last couple of quarters, the financial services vertical for us has got the highest growth. It was 29% on a worldwide basis of the bookings in this last quarter.

Network is still very strong, but it's mostly existing customers with a couple exceptions in Europe where we're trying to add the number of networks that we've got deployed in our markets. So, network was pretty flat quarter on quarter, call it 17%, 18% of the bookings. Digital media in the US picked up a little bit and in Asia picked up a little bit. It was roughly 16%. These are the content digital media companies. And then the biggest segment for us historically has been the enterprise and the resellers, so the big systems integrators and the managed service providers, they're still pushing a lot of volume to us.

I think as we continue to see the cloud develop, and we're getting much more mature about how we're looking at the resellers and the managed service providers, we want the ones that are moving their cloud offerings or their offerings to the cloud compute model because we want most of those clients in our data centers so that we can help them enact the enablement of the cloud. So, we're pushing deeper into key resellers, key managed service providers that are trying to offer cloud computing, that don't have the ability or the data center reliability or network density that we have and we're focused on those. So, we expect that we'll see that to be pretty strong as we go forward here in the coming quarters.

Great. Thanks. I just had one other question with respect to build-out and data center space. You obviously made a purchase this quarter of some space. As you look around these markets, are there spaces out there that you could jump on sort of immediately if you needed to in order to expand and sort of in the buy versus build category, where is that leaning right now in the market?

Well, we've signaled to you guys that we -- at the beginning of the year, late last year, we thought we might see more partially distressed or fully distressed properties and to be very honest with you, we've seen very few. I think Keith, we've looked at one or two, maybe three along the way and this is the first one that we've seen that we acted on that met the criteria, met the return metrics and in that market was going to help us do the kind of business we need to do in the Frankfurt market, so I don't know. We haven't looked at as many as we thought, certainly nowhere near like it was seven, eight years ago. Most of those properties have been collected up. This property was actually a data center in Frankfurt that was built by one of the players in that time frame. And had been set there empty for three to four years. That's the reason we're able to stand it up real quickly.

We'll have it recommissioned in three months. There's a knock built out there. It's a very high end facility. So, I don't know. We don't expect to see a lot more distressed properties coming at us here as we get through the second half of the year. Short answer.

Great. Thank you very much.

Our final question comes from Jonathan Atkin with RBC Capital Markets.

Yes, good afternoon. I wondered if you could comment a little bit more on interconnection. As a percentage of revenues, it's moderated a bit in the last two, three quarters. Does that continue to moderate before it stabilizes or do you think it stabilizes and starts to grow given some of your marketing push in some of the regions by vertical for network rich customers. And then, I wanted to maybe see if you could comment on some of the recent data center outages. There's been more than a handful in the last several weeks, including -- you were not unaffected by that, but they seemed to be pretty minor in your case. But do you see it necessary to change the nature of some of your maintenance CapEx given some of the recent outages? And then finally, on contract duration, how is that trending, is it still ticking up a little bit?

Sure. Let me start. And Keith, you can add some color here. First, question on interconnection. Jonathan, I think the simplest way to think about interconnection, we're -- our plans are we're hoping it's starting to stabilize. And the plans are to -- all the energy and money we're putting into product development and evolving vertical focus to really go deep with next generation products is all driven around interconnection.

So, whether it's going to be ethernet, (inaudible), cloud hubbing, whatever area you want to pick, we're looking at many of them, we're going to start to drive deeper into these ecosystems. As I mentioned earlier, we expect the cross connect business to pick up on the back of the EFX ecosystem as members start to connect to the matching engines. So, we know that's out in front of us. That should start to pick up, particularly in the key financial markets around the world. But suffice to say, you can expect that Equinix is going to continue to drive interconnection, stabilize it in the US, drive it up north, going bigger in Asia and in Europe. It's part of the plans, the leaders are held accountable for it. The marketing organization is building next generation products to get after it. It is part of the DNA here.

So, I would not expect -- you should not expect to see us let the foot off the pedal on interconnection at all. On the data center outages, there has been a couple since we last spoke with everybody. We had a couple power failures, one in Paris, one in Sidney. They were relatively minor. One unfortunately was due to human error made by an outside factory technician that was in doing routine maintenance on a UPS.

I would tell you that root cause analysis has been done and corrective measures have been taken on that and again, little or no impact to relationships with customers. The other one was -- ended up being an improper factory setting on a UPS which is an unfortunate thing again, but corrective action has been taken, all the root cause analysis has been done and you can expect that the learning from this has been shared and we don't expect to see these kinds of things. So unfortunately we had them. They were corrected quickly. Limited to no customer impact. I would add that, on that topic, one of the initiatives we have is a global initiative where we're driving consistency of how we design and operate these IBXs around the world.

We are making very good progress. It is a very good question. The bottom line to your question about maintenance CapEx is that we do not expect to see maintenance CapEx go up as a result of these. We have plenty of CapEx in the maintenance bucket, Keith, I would say. This is more of a process and people focused event that we believe we will be on top of very quickly when we have these kinds of incidents. Last topic was contract, contract length. And I -- two to three years still Keith? We're trying to drive them up where appropriate with certain verticals, certain customers, where we can we're getting longer term contracts. I think we've mentioned to, Jonathan, we have incented the sales force to look for longer term contracts and over time we should start to see length start to increase.

And then finally, you noticed -- you talked about a second half uptick in both IT and marketing. On the marketing side, how much of that is headcount related versus other areas of marketing spend?

Yes, most of it is headcount related. As we make -- as Keith and I and the rest of the leadership team make decisions to launch into new product development, it will require network and portal developers, so yes, as we -- we're right in the middle of making decisions in the couple areas I mentioned to you about going down the path for new product development at a greater pace than we have in the past, so there will be an impact to the headcount in the marketing function.

And then in the asset at Frankfurt, you said there would be a committed anchor tenant that you expect to be able to announce. Is that an existing -- would that be a new customer relationship or an existing customer elsewhere in your footprint and how much of that site would they take as a percentage of cabinets, let's say?

Yes, we don't know the -- it's a big, it's ultimately long-term a large commitment for a large amount of space. Initially, they'll step into a sizable commitment that certainly meets the requirements of an anchor client. It is an existing customer but it's a very, very large customer around the world, just in terms of the size of the business. So, it's a blue chip, big brand name customer and we're thrilled to have them.

Great. Thanks very much.

This concludes our conference call today. Thank you for joining us.

Thank you all for your participation. You may disconnect at this time.