Equinix Inc (EQIX) 2009 Q3 法說會逐字稿

Good afternoon and welcome to the Equinix conference call. All lines will be on listen only until we open for question and answers at the end of today's conference. Also, today's call is being recorded. If you have any objections, please disconnect at this time. I would like to turn the call over to Jason Starr, Senior Director of Investor Relations. Sir, you may begin.

Good afternoon, and welcome to our conference call today. Today, we'll be discussing the acquisition of Switch & Data by Equinix as well as our third quarter 2009 results. Before we get started, I would like to remind everyone that some of the statements we'll be making today are forward-looking and nature and involve risks and uncertainties. Actual results may vary significantly from those statements, and may be affected by the risks we identify in today's releases, and those identified in our filings with the SEC, including our Form 10-K, filed on February 26, 2009, and Form 10-Q, filed on July 29, 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, and on the Equinix Investor Relations page at www.Equinix.com. Additionally, we have posted two documents on our IR website to provide an overview of today's announcement. We would like to remind you that we will 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. Keith Taylor, Equinix's Chief Financial Officer, and Keith Olson, Switch & Data's President and CEO. Following our prepared remarks, we'll be taking questions. Based upon feedback, we are targeting an hour's length for this call. In support of that, I would like to ask that that follow-on questions be limited to one. A final note for today's call, because Switch & Data has not released their Q3 financial results, we will not be able to answer any questions regarding this topic on today's call. At this time, I'll turn the call over to Steve.

Thank you, Jason, and thank you to everybody for joining us today. As I imagine you've all seen in today's press release, we have announced the acquisition of Switch & Data, so we have a little more to talk about than just our Q3 results. This agreement will extend our industry leadership as the number one global data center colocation data service provider. Of course, as you also saw today, Equinix delivered another great quarter, posting strong results across all key metrics. Keith Taylor will provide you a detailed look at the quarter in a moment, but let's first talk about this exciting news.

Today's announcement represents the execution of an agreement to acquire Switch & Data for $689 million in cash and stock, based upon yesterday's closing price, and as most of you would know, Switch & Data also has $142.5 million of outstanding term debt. Stockholders of Switch & Data will receive a combination of cash and stock with cash representing 20% of the total consideration, as outlined in our price release today. We do expect this transaction to close in the first quarter of 2010.

We're very excited about this transaction for a number of reasons. First, we believe this combination is very attractive with the ability to produce strong strategic and financial synergies, and will be accretive to our shareholders. Second, we believe that this transaction will enable to us officially enter 16 new markets in North America, including key markets such as Atlanta, Denver, Miami, Seattle, and Toronto, all with existing data centers, rich network density, a strong customer base, and established operations teams already in place. Third, this transaction brings important additional space and revenue capacity in Dallas, New York, and Silicon Valley, where we're experiencing high demand. As a combined Company, we'll improve operating efficiencies in all of the current markets we serve. Ultimately, this will give us a stronger platform for delivering lower latency solutions to a larger footprint of North America, which is increasingly important to our customers.

Fourth, because we understand Switch & Data's business modal and the needs of their customers, we expect a smooth integration. In getting to know the management team, we recognize that common customer focus culture that we plan to maintain going forward. Our strong balance sheet and commitment to expansion continue to make Equinix the Company customers can grow with. We believe this is important for the customers of both companies, while they also gain the leverage of the combined companies' customer focus and operational expertise, now covering a broader set of North American markets, and all in the context of a global footprint.

And finally for our investors, we'll be adding significant revenues and adjusted EBITDA to our run rate. The combined companies will continue to have a recurring revenue model with a high fixed cost structure. This provides the visibility and ongoing predictability you've become accustomed to. And with this added scale, we'll gain a number of benefits including lower level ratios, and greater access to capital, likely at lower costs. Of course the deal is still subject to Switch & Data shareholders approval, regulatory review, and customary closing conditions. Again, we are targeting closing this transaction in the first quarter of 2010.

So let me stop there and turn it over to Keith Olsen at this time, to give a quick Switch & Data perspective on this transaction. Over to you.

Thank you, Steve. Good afternoon, ladies and gentlemen, it is my pleasure to join you on the call today to discuss the exciting announcement. By joining our two great business, we combine a shared commitment to excellence in supporting our customers. With this combination, we create synergies in our complementary business model, and we leverage out high quality data centers and their respective capacities and footprint. A combination of Equinix's global data center footprint and Switch & Data broad North America footprint provides our customers improved access to the world's population centers, and a single partner for the global data center requirements.

This combination of assets and employee talent drive tremendous value in the markets we serve. This acquisition helps our customers address and respond to two broad market trends. Network based businesses create value by increasing the number of eyeballs, eardrums, and endpoints served. To do this, they need to aggregate and distribute information in close proximity to population centers to reduce latency, optimize their service performance and provide platforms for their growth. The combination of Switch & Data's North American footprint and Equinix's global reach enable our customers to increase their market reach and enhance their service offerings.

I'm very proud of the business Switch & Data has developed over the past 10 years. We continue to successfully execute on our strategies. We started with a handful of employees in one data center ten years ago. Today we employee over 370 associates and operate 34 sites that aggregate and distribute worldwide digital content for many of the biggest network centric brands. It is important to remember that success is an ongoing journey.

The customers we serve include the leaders in their respective industries, and we compete for business with numerous data center service providers from global providers to regional players. By creating a Company with more than $1 billion in revenue and operations on four continents, we are evolving our business to better serve our customer and compete on this global stage. We are excited about the new opportunities that that this deal creates for our employees, customers, and shareholders, and in the coming months, until this deal closes, all of us at Switch & Data will continue to execute our strategy and focus on providing the best possible service and support to our customers.

Thank you again, and I'll now turn it back over to you, Steve.

Thanks a lot, Keith, and thanks for your leadership, and thanks to the whole Switch & Data team for building a great Company. We look forward to working closely with you to create something special that our customers, employees, and shareholders will be proud of. I would like to turn it over to Keith Taylor to review the highlights of our third quarter results with you, Keith?

Great, thanks, Steve, and good afternoon to everyone on the call. I'm pleased to provide you with our third quarter results with some additional color on the trends for the fourth quarter.

I do want to start with revenues first. Our Q3 revenues were $227.6 million, that's 7% quarter over quarter increase, reflecting strong performance in each of our three regions. The US dollar continued to weaken against all of our operating currencies, resulting in a $1.3 million currency benefit in the quarter, as compared to our Q3 guidance rates. US revenues increased to $136.3 million, a 5% increase compared to the last quarter. The results of strong bookings throughout the year.

European revenues increased to $60.8 million in the quarter, a 10% sequential improvement, partially the result of growth in our power revenues and the strengthening of EU currencies compared to the US dollar. Asia Pacific revenues increased to $30.4 million in the quarter, a 7% increase over the prior quarter, driven by increasing interconnection revenues and strong operating currencies. Looking forward, we expect the U.S. dollar-denominated revenues to approximate 60 to 65% of total revenues, while we expect the euro and pound-denominated revenues to approximate 15 and 10% of total revenues respectively. For Q4 we have assumed a 1.48 dollar to the Euro, and a 1.63 dollar to the pound for our exchange rates.

Looking at churn. For Q3, our global MRI and cabinet churn rate was 2.3 and 2.2% respectively, consistent with the guidance expectations for the quarter. We anticipate Q4 churn levels to be consistent with Q3 levels, modestly higher than our ongoing targeted level of 2% per quarter. Next, moving on to gross profit and margins. The Company recognized gross profit of $101.6 million for the quarter, or gross margins of about 45%. Our cash gross margins were 64% in the quarter, at the high end of our expectations, despite incurring approximately $5.4 million of expansion costs in the quarter.

In the US, our cash gross margins were 68%, and reflect continued fiscal discipline related to our discretionary spend, slower than expected hiring, and favorable tax recoveries. These positive cost trends were offset by increased seasonal utility costs, and expansion cost in the quarter, including a $1.9 million charge related to our Chicago Four lease, which began in July 2009. As a reminder, we excluded the costs of the Chicago Four lease from our past guidance assumptions while we determined the appropriate accounting treatment. We, have now determine that the lease will be treated as an operating lease and the lease expense will be recorded in our cost of revenues on a go-forward basis.

Europe cash gross margins were 54%, a 1% decline in the quarter, the result of higher power revenues. Asia Pacific cap gross margins improved to 65%, two full percentage points over the prior quarter, the result of fiscal discipline and strong interconnection revenues. Looking forward, we expect Q4 gross margins to range between 63 and 64%, consistent went with the prior quarter, due to continued expansion activities in each of our regions, while also recognizing the added costs from our new Chicago Four lease, which is now being reflected in our revised guidance today.

Weighted average price per sellable cabi in the US was 1910 versus 1893 in the prior quarter, a 1% quarter-over-quarter increase, and up 8% year-over-year. In Asia Pacific, our weighted average price per sellable cabi was 1437, compared to 1370 last quarter, a 5% quarter over quarter increase, the result of increased interconnection revenues, and stronger operating currencies against the US dollar. With respect to Europe, our weighted average price per sellable cabby increased to 1116, compared to 1009 last quarter.

This improvement reflects three key trends. First, a higher than expected increase in power revenues. Two, strong growth on interconnection revenue line, and three, a weakening US dollar. Effectively, our EU customers are now purchasing more services per average sellable cabinet, resulting in stronger sequential improvement in the quarter.

Now looking at our SG&A. Our SG&A expenses for the quarter were $54.6 million. Cash SG&A expenses for the quarter were $39.6 million, or 17% of revenues. A 1 percentage point decrease compared to last quarter. the Company continues to manage its discretionary spend across many of the key corporate lines, although we do expect some of the year-to-date SG&A savings to be spent in the fourth quarter.

Moving on to net income and adjusted EBITDA. For the quarter, we generated net income of $18.8 million, including an impact of $7.3 million of an income tax provision. Interest expense increased by $6.3 million in the quarter, reflecting the full quarterly impact of our 4.75% convertible financing in June 2009. Basic and diluted earnings per share were $0.49 and $0.47, respectively. Separately, during the quarter, we reassessed the assumptions related to the estimated useful life of our property, plants, and equipment assets. As a result of this effort, we reduced our Q3 depreciation and amortization experience by $4.8 million. This reduction was offset by increased D & A expense from our IBX expansions in the quarter. For more details related to this change in estimate, please refer to our Form 10-Q, which will be filed shortly.

Looking at our income taxes. The effective income tax rate for the quarter reduced to 28%, from 38.6% last quarter we be the result of higher taxable profits in lower taxing jurisdictions and a discrete tax benefit related to the release of our Hong Kong valuation allowance. As a reminder, although the majority of our tax provision is noncash, we do anticipate seeing some cash taxes in 2009. Our adjusted EBITDA was $106 million for the quarter, including an approximate $565,000 benefit from foreign currency fluctuations compared to our guidance rates. Adjusted EBITDA for the quarter on a constant currency basis with the average rates used in Q2 would have been up approximately $104.2 million.

Turning to our balance sheet and cash flows. At the end of Q3, our unrestricted cash balances totaled $627.4 million. This reflects the closing of a $26 million debt facility in Singapore related to our Singapore Two asset. Also, we continued to benefit from strong operating performance, excellent customer collections with global DSOs being less than 30 days, and a lower than planned capital expenditures.

Moving on to comments and cash flows. First, our net cash generated from operating activities was $107.5 million for the quarter, a 37% increase over the prior quarter. On a year-to-date basis, we have generated $273 million of operating cash flows, a 92% correlation to our adjusted EBITDA. Cash used from investing activities, excluding short and long term cash investments, was $114.5 million for the quarter, primarily attributed to our net investment and capital expenditures, and the purchase of our Frankfurt Four asset by the Upminster acquisition.

Our capital expenditures continue to to trend below our expected levels, although we believe Q4 CapEx should increase given the level of construction activity we have across each of our regions. Also we'll see increased construction activity related to our Silicon Valley Five, and our DC Six asset this quarter.

Looking at our CapEx guidance for Q4 and 2009, where we we have revised our expansion CapEx guidance downwards, and total CapEx will range between $390 million and $400 million. This reflects two key changes. First, the original expansion CapEx estimates for both our New York Four phase 3 and our DC Six expansion project have been reduced by approximately $20 million each. The result of lower than expected construction costs, plus our ability to modify the initial buildout specifications resulted to our New York Four 3 build.

And two, the anticipated spending in Q4 related to both our DC Six and Silicon Valley Five has been lowered to approximately $17 million and $5 million respectively. Cash generated from financing activities was $28.8 million for the quarter, primarily derived from the net proceeds of our Singapore debt facility and proceeds from our employee equity plans, this was partially offset by payments on on term debt and capital leases. Finally with respect to our equity balances outstanding, we have approximately 39 million shares of common stock outstanding at the end of Q3. This number excludes the shares related to our convertible debt, a large portion of which we intend to settle with cash, and 3.4 million shares related to employee stock plans and other warrants.

Now let me turn the call back to Steve.

Thanks, Keith. So as you can all see, our business fundamentals and momentum in the market place remain very, very strong. In preparing for today's call, we reflected a bit on our position at this time last year. We had an increasing sense of the uncertainty and challenges we were sure to face in 2009. Despite this, we still felt confident in our opportunity over time. As we said more than once, we believe the strength of our business, the quality of our customer relationships, and our financial position would enable us to emerge even stronger as we return to more stable economic times.

With a continued strong pipeline, and demand that is still outpacing new supply, our business has been powering through a difficult macro environment. We believe that the decision to continue to invest in our expansions and future growth was the right one in 2009, and clearly an example of our confidence in our longer term opportunity. Today's announcement of our agreement to acquire Switch & Data is yet another example of our confidence in our future. As we emerge from a weak economy in 2009, the combination of these investments are proving to extend our scale and reach to better serve our customers and build upon our market position.

So now before we take questions, I would like to provide you with a quick update on guidance to close out our expected performance for 2009. We now expect our 2009 revenues to be in the range of 875 million to 880 million, or over 24% growth at the mid-point. We expect cash gross margins to range between 63 and 64% for the year. Cash SG&A will approximate $160 million for the year. We're raising our adjusted EBITDA expectations to a range of $395 million to $400 million, with the mid-point up another $12.5 million from our previous expectations.

As Keith explained earlier, we are lowering our expectations for 2009 CapEx to now be $390 million to $400 million, including $60 million in ongoing Cap Ex. As you might expect with today's announcement, the team has been pretty busy in getting this transaction signed. At the closing of this acquisition progresses and our 2010 operating plan solidifies, we expect to be able to provide you full 2010 guidance on our Q4 earnings call. In the meantime, we wanted to provide you a preliminary view that based on our pipeline and bookings trends, we would expect our organic revenues to grow in excess of 20% in 2010, while maintaining strong adjusted EBITDA margins.

So in conclusion, as we look forward to next year, we are very excited about our prospects for continued top and bottom line growth. Today's transaction, when combined with our global expansion, internal investments in systems, processes, and people to operate on a global basis, promises to make 2010 another exciting year for Equinix. At this time, we'd like to open it up for questions, and Ivy, I'll turn it back over to you.

(Operator Instructions). Our first question comes from Jonathan Atkin from RBC Capital Markets. Sir, your line is open.

Yes. Good afternoon. With regard to the transaction, I wondered if to you could kind of comment qualitatively on those areas where you expect either top line synergies or perhaps SG&A synergies, and then maybe from to an antitrust standpoint, are there any issues to consider given that both of you are significant players in the carrier neutral space and among the leader providers of cross connect insurance service.

Yes, Jonathan, let me take that on. I'm glad you started out of with that question, because Keith and I today, and Keith Olsen, are not going to be able to discuss deal structure, returns, any post-integration strategy, synergies or employee changes, and as Jason mentioned, anything about Switch & Data's Q3 performance. So any deal-specifics that's not contained in the press release, we're just not in a position today to give you any more color.

In terms of the regulatory position, rest assured that we have looked very hard at this. We do not believe the transaction presents any competitive concerns. We're taking a position that the North America data center market is a big market, as you guys know, pretty highly fragmented, and if you include all of the hosting players in that space, it's in excess of 17 and $17.5 billion. So there's in excess of 350, 360 companies in this space, so our position is we'll let the regulatory case play itself out.

And then maybe one follow up, just moving away from the income statement. If you can comment on just your (technical issues) with respect to acquired assets, what types of investments do you typically make in these kinds of cases, and are there any noncore data center assets that would be candidates for divestiture.

John, I think we caught most of that. You broke up a little bit, but on the back end of your question, we're still in the analysis phase of how we'll combine the data centers, and it will probably give us an opportunity to tier our services in the future. We've been looking at that. I think we've signaled that to you guys before. Now that we're going to have a combination of 79 data centers and 34 markets globally, it sure provides us with the ability to service multiple requirements from multiple types of customers, and possibly look at doing that. But any further color on past that, we're just not in a position today to address that.

Great. Thank you very much.

Thank you. Our next question comes from Jonathan Schildkraut from Jefferies. Your line is open.

Great. Thank you for taking the question. You know, if you could give us, Steve and Keith, just a little bit of the genesis of how this transaction cam about, that would be helpful, and Steve, more specifically in terms of concern trends you might have seen in the market generally during the course of the quarter, kind of bring us up to speed, overall demand, trends by market, and then maybe a little bit about financial services and your global footprint and you know in the past you've kind of given us some of these global logos, and how the footprint has helped you win and of those deal toes. Thank you.

Sure. Let me start, and Keith maybe you can add a little color here. I would tell you that the top of the agenda is is the fact this was going to efficiently put us into 16 new markets in North America. Five of which were of particular interest us to based on customer survey and just pipeline and demand coming at us. Atlanta, Denver, Miami, Seattle, and Toronto were all of high interest us to. The combination will also bring more capacity in critical markets where we overlap, particularly in Dallas, New York, and Silicon Valley.

We like the core focus on the network density, so Keith and I referred to in our remarks about low latency solutions. I think we're getting more customer demands to be able to service low latency requirements, so the net out for us we think it's a very good cultural fit, the business models are common, the customers, we have a lot of commonality, there's a great operational track record between the two organizations, and therefore we think it's going to be a pretty smooth integration. Keith, I don't know if you want to add anything there.

I think that's good and that covers it Steve, good.

Steve, I wars hoping maybe you could tell us how you guys entered, kind of, the conversation and how the deal kind of came together as opposed to the strategic reasons.

Yes, well, these reasons that were driven by our customer is what opened the opportunity for us to have these conversations, Jonathan, so we've known Keith and his leadership team for quite some time, and there's been a good relationship there, but at one point, we made a phone call, and had a conversation with them.

Fair enough. Some of the financial services trends and the global logos?

Yes. Yes. Let me give you -- this might help some other people that have questions too. Let me spend maybe less than a minute skipping through and of the high trends across the region in terms of the quarter performance. in US market, actually at a gross level we matched last quarters' bookings, so a very good performance again in the US, and there it was particular focus on a couple of the verticals you mentioned, so we're continuing to see good upside across the verticals, financial services in particular. We had a big win with Wells Fargo and Barclay's Capital in the US. The revenue mix in general was pretty constant quarter over quarter. I would say one new thing in the US we're seeing is that the government opportunities, as the stimulus funds work their way into the private sector, we're starting to see those show up on our front door, so really good quarter in the US.

In Asia, I would tell you, I would call it an outstanding result, across the board, revenue, EBITDAs, bookings, all outperformed our expectations. The demand trends are picking up in Asia, particularly in network and the financial segments, and we're very focused on those two verticals, as you guys know. You guys can see on the capacity, stuff that we posted. We're having very good success in Asia Pacific across almost all the markets, particularly on a bookings front in Asia this quarter, think we had our best ever quarter in the Tokyo market and in the Sidney market from a bookings standpoint, so we're saying great strength across the board in that region.

And in Europe, the way I would color Europe, I would tell you that good growth in our financial performance, we're tracking ahead of plan for the year. And the bookings growth really came from installation of good first half bookings, and an increase in power usage actually. the focus that our team is doing well is doing very well. Particularly in London with the electronic trading venues. We're seeing some US networks starting to deploy with us in Europe. I'll tell you, the interconnection business is still high on the agenda for us, the relationships with the membership-owned internet exchanges is going very well, we do well in the Swiss and French markets where we deployed our own capability, so I'll tell you Jonathan across the board, it was a very, very good quarter.

Thank you.

Thank you. Our next question comes from Chris Larsen from Piper Jaffray. Your line is open, sir.

On Europe, Keith, can you talk a little bit about some of the constraints in getting space and power in Europe, how and you've done there? I know you have announced a couple of new facility,, but how do you feel the constraints on space and power for your building of new facilities? Secondly, you have told us that constant -- that the revenue per cabi was up 5%. Could you give us that in constant dollars? And is that -- you said something about power, and I wasn't sure in the power was the while driver, or there was a lot more interconnect in other services in there, and lastly on the guidance, what was the currency rate that you were implying when you gave the guidance? Thanks.

Okay, Chris. And Chris, I just want to make sure, when you came on the call, you were breaking up bit. I want to make sure I'm responding to your first question, which it was EU, how do you we accommodate space and four for our construction activities?

Yes, how is the environment in finding space and power for your construction, and how do you guys feel about that?

Okay. Well, and Steve will jump in here appropriately where he sees fit here, but from an EU perspective, clearly, and with any construction project, no matter what market we go to, we look at the available space and power in the market. We don't typically sign up to a physical commitment without recognizing that there's sufficient power to drive the business model. So I think they do go hand in hand. Suffice it to say when you think about the bills that we have underway today, we're building in London, Paris, Amsterdam.

We have acquired an asset in Frankfurt, in Zurich and Geneva, and I'm sure I'm missing something there. In all cases, we've made sure that we have appropriate capacity, one to grow the business model and meet the target objectives that we have, but probably more importantly that we can drive it with the right amount of power infrastructure. So I think that's something that is commonplace, whether you're talking about Europe or other markets, but from our perspective, we feel that we have more than enough capacity in the European market to continue to drive that business plan.

When you look at the price points, I don't have the specifics to break down on a price point from an EU perspective, but let me give you some color, because I think it would be appropriate. What I was saying in my comments was that there is more power revenue that was driven out of the European model than originally we had planned. As a result, you're getting more average consumption per average unit of measure, or cabinet, what we call sellable cabi. But even more relevant, and Steve alluded to was that interconnection revenue grew more than 30% quarter-over-quarter, so basically the eco system and the development we have in the intersection market is driving forward, so from that perspective, those two are independent of a physical cab, and as is a result, it drive use are average unit up.

And then when you just look at currency, recognizing, recognizing that sort of in the quarter when we look at the average rates, and I think this is what will capture maybe your FX question, when you look at the exchange rate, they're up anywhere from 6 to 8%, whether you look to the euro or sterling on an average basis in the quarter, so that was the benefit. So when you translate that into, a dollar term perhaps cabi you're talking about $60 to $80 on a $1000 cabinet coming off Q2.

Keith, the only thing if would add, I would tell you from a pricing standpoint Chris in Europe, continues to be firm. We saw renewals generally done at market rates, new contracts at higher prices, and we're seeing more services driven into existing cabinets.

That's great, thanks. And then currency FX for the wrist of year guidance? I'm sorry.

And so on a euro basis, wire looking at roughly a 1.48, and then on a sterling basis, a 1.63. And we recognize, today relative to spot, those are slightly lower than spot, but we're confident in at least using that for our guidance for Q4 and for -- sorry, our initial guidance for 2010 on our revenue basis.

Great. Thanks so much.

Thanks, Chris.

Thank you. next we we have Michael Rollins with Citigroup. Sir, your line is open.

Good afternoon. Just a few questions. I guess the first one, to head back on the FX, can you give us the constant currency refer for 3Q 09 for the total for the Company, or what the total FX impact was? I think you gave the incremental relative to your expectations. Secondly, I was wondering if you could talk about the pricing trends specifically in the US I think over the last couple of quarters you mentioned there were a couple of skirmishes in a couple of markets, and wondering what what you're seeing out there in your key markets in the US and finally on the domestic portfolio, can you talk about and of the expansions you've done recently? Are there any metrics you can share with us some terms of share rates or booking rates in those facilities. Thanks.

Mike, let me respond to the first question. Steve was writing down your other questions here. So when we look at Q2 rates and apply them to Q3, basically our revenues would have come in at $223.4 million. So roughly 5% up quarter over quarter. Okay? And then I'm just -- Steve, did you get --

Yes, from a pricing trend in the US. Mike, I would tell you that we're past the first half of the year, where we're relying on any significant amount of ramping or free months. There's still a little bit of that going on, but it's definitely tailing off in terms of the sales force needing to use any tools to get customers in the door. So I would tell you that we're holding very firm on pricing, very happy internally with where we're landing on pricing in terms of the internal targets we've set. My metric I've mentioned to you guys before is very few deals get escalated up to Keith and I for approval to go below the floor that we've set with the sales force, so we're very happy with where we are.

In terms of expansions, across -- across the US market, one, you guys have been kind of tracking it. We had a big pickup Chicago Three this quarter. Think we'll continue to see that as we gee into Q4 and beyond. So we've kind of cracked the nut and CHI3. A lot of demand in DC, New York and Silicon Valley, obviously driven by the announcements we've made, and another perspective I would tell you in Silicon Valley is we have basically booked half of the cabinets, we talked about the churns that came at us the last couple of quarters, so those two very large churns that Keith was taking about, we're booking at a much higher price, and booking it very, very quickly. So putting pressure on capacity in the valley.

In Asia, in Singapore Two, which is going very well, driven by the multinational traffic, we're over 20% now booked at the capacity that we've opened up there, so doing very, very well in that market. Hong Kong, we actually have done a small expansion phase and we've actually found another space in that building to bring on another set of cabinets that will open up later -- or mid to third quarter of 2010. Tokyo, we're doing okay. Sidney is doing very well. Sidney, again, is a very local part market, as you guys know, but Jason, I don't remember the percentage in Sidney bookings.

No, actually they their best bookings quarter ever, and we are looking at the potential for expansion there, so there is still capacity in Sidney, too, but that is something that we're looking at.

I think the only other one Mike that's of interest, in Paris, we've been anxious to get the remainder of that space open. We're fully booked in the first suite and we're well on our way in the second suite that we're bringing on board in that market, so I think we're very happy here with the pace of the fill rates.

And I guess just a follow up. If you look what you have seen in terms of booking activity and the churn, do you foresee an improvement in incremental billing rates? So if bookings have gotten to better and the churn, I guess, once you get out of the fourth quarter, goes down, does that mean 2010 is sort of a better building environment that you're going to be in, or does it end up being similar to what you're seeing on a constant currency basis in 2009?

I think that's an excellent question. I think there's a couple of things. Obviously we're experiencing a little bit more churn than our average 2%, that was historically seen in our Q3 and Q4 numbers. We think we're getting through a lot of the churn. We're probably going to look at roughly 2% churn per quarter next year. That's what we'll probably budget off of. When I look at a constant currency basis, we're seeing more momentum, as Steve said and I referred to, if you look at Europe specifically, they're buying more power across connect unit of measure, so our price point should go up.

If you look at the spot rates in each of our metros, one of the things that's very interested to us is there continues to be an undersupply in many of the markets that we serve, and the fact that we're needing to bring on incremental capacity that Steve has referred to, plus we're very much watching the construction project that we have underway today, and all of that, we need because we think that the momentum and strength of our pipeline will cause us to to continue to have pressure on our inventory systems. All of that said, we're confident in continuing to see strong bookings for 2009, the rest of this year, and 2010, and we're also confident that we think that a lot of the churn that the more substantial churn is getting behind us.

Thanks very much.

Thanks, Mike.

Thank you. Next we have Ilya Grozovsky with Morgan Joseph. Your line is open.

Thanks. So with the acquisition of Switch & Data, are any of your internal domestic expansion plans getting shelved or anything like that, or does everything continue as planned?

I think the way we think about that right now, Ilya is they're going to give us as I mentioned, more capacity in more markets, particularly three key markets, Dallas, New York, and Silicon Valley, where as Keith just said we have very high fill rates and we'll be managing that capacity. This is going to help us to be able to bring on new capacity in those markets that could alleviate some of that capacity. We have announcements, as you guys know in all of those markets, but the timing of that, we've tried to build it so it's just in time, but with the fill rates now accelerating, the back half of the year, it's going to put some pressure, so that's going to bring some added good capacity in those three markets.

So the answer is -- yes, go ahead?

I would also add from Steve, so we're going to take advantage of hopefully some of that capacity, but actually equally important when you look at our downtown builds in Chicago, our downtown builds in L.A. and of course DC, all of our markets were needing capacity. We think there's sufficient demand not only in the market place today, but residing in our pipeline that is going to cause us to fill up our capacity quicker than we anticipated. So any incremental capacity that we have particularly when you know think about our New York Four phase 3 asset that's going to come on line next year, we're concerned that that is insufficient capacity to meet the demands of the marketplace.

So the answer to your question is we currently have no plans to stop any of the announcements that we've made.

Great, thank you very much.

Thank you. Next, we have Colby from Kaufman Brothers. Sir, your line is open.

I know you gave very generic color commentary for guidance for 2010. I think you said greater than 20%. Obviously to us 20% is deceleration from what you're doing in 2009. Curious if you would expect growth to decelerate in 2010. My next question has to do with the financial vertical. The New York Stock Exchange, for example is building a facility in New Jersey. I think they're building one in London. What's the concern that as exchanges themselves start to build their own facilities, they may no longer see Equinix as a valuable partner. The other part to that is that I think the New York Stock Exchange is going to open up their facilities to other exchanges to be housed in there as well. What's the concern that that could start to gain steam and take customers away from you guys.

Colby, I'll answer your first question and Steve will take the second one. On the growth rate, one of the things, again, it's very early in the process, and as Steve said, we've been working very hard to put in place the transaction we announced today, so recognizing we haven't done a budgeting exercise with great formality thus far, what we basically wanted to do was put a floor in place for recognizing that we said it's 20% or greater, and so that least gives you a perspective of the opportunity. When you also couple that with the fact of law of bigger numbers, and then you think the comments Steve and I have made about markets that we think are filling up faster than we had anticipated, there is going to be some inventory constraints in some of the markets we're operating in in 2010, so that's something we're going to pay very close attention to as we move forward. But all we are trying to do is give you a floor. We're not giving you an estimated ceiling at this point, and until we get a little bit more wind at our back, we want to make sure that we manage our guidance with respect to you guys and make sure you at least know what the floor is, and then you can figure outer what you think the ceiling is going to be.

And Colby, on then financial vertical, we're watch having those closely, and quite frankly have seen no impact to the business to date. I couldn't -- you would have to have to ask NYSE how they're doing on are the builds in Europe and here, but we're accumulating at a pretty rapid pace some very key trading venues, matching engines and execution venues that are going to be attracting lots of members coming in. So the network neutrality, the network density that we have is a whole different proposition to what NYSE can offer to their end clients. So I would tell you in the grand scheme of things, there's going to be room for the NASDAQs and the NYSEs and the Equinixes and the other players in this field. There's a lot of activity here. We have a very small percentage of this market. There's thousands of these companies looking for places to deploy this gear, and so we just don't see any impact on that, specifically on the New York Stock Exchange.

If I could just add a follow up to that. Have you guys quantified at this point how much of your revenue consuming from stock pools or flash trades at this point?

No, we don't really cut it that way. We track the electronic trading stuff inside the financial services vertical, and, just to give you a flavor of the bookings this quarter, roughly 32% of the bookings came out of the financial services segment versus 41 in the enterprise and the resellers, and about 27% in the network. Excuse me on a worldwide basis, let me give you some different numbers-- 21% in the financial services, 38 in enterprise, is and is 18 network, and about 23 in the digital media. So it's a pretty good spread, but we're still seeing the highest growth in the financial services vertical because we're focused on it and we're pushing on it and have people deployed around the worlds that are connected on a with subject matter extra people that are going after and targeting the vertical.

And you said then first set of numbers were the US booking and the second worldwide?

Ignore the first set. The quarterly bookings on a world wide basis were 23% for digital media, 38% for enterprise and resellers, 21 for financial services, and 18 for network.

Great.

And it changes quarter on quarter, but generally that's how our bookings sell out by vertical.

Thank you.

Next we have Frank Louthan from Raymond James. Sir, your line is open.

Thank you. Could you give us on idea of what some of they have key hurdles are going to be for the integration? And I can appreciate your comments on the synergies. Do you expect synergies, is that more of a top line or cost synergy that you're targeting, and more of where that might come from, thanks.

Yes, Frank, I think as I mentioned earlier, you know that there's a common business model between these two companies, and there's obviously going to be overhead functions, I don't care which one you want to pick, that we're going to look at and study together where we can achieve the synergies, but as I mentioned early we are we're just not in a position to share beyond the expected synergies we built into the model, we're going to go execute on, Keith and I and the two teams will go do that together, and we'll hit them during the first year.

What were the key thinks that you're looking at for integration? What are the first couple of things you're tackling, and what are going to be your biggest challenges?

Quite frankly, we're not viewing anything to be a big challenge right now. So we've mapped out people, process. We've looked at all of the functions. Keith and I and our teams have spent quite a bit of time together, so we have a pretty good plan of looking at all of the functions from IT to sales to marketing, we've laid it out together and so I again, we'll give you more color on that as we proceed through the coming months.

Okay. Great. Thank you.

Thank you. Next we have Erik Suppiger from Signal Hill. Sir, your line is open.

Good afternoon. A question for Keith. Keith, what portion of your customer base do you share with Equinix?

Erik, when you look at the information to that we've both provided publicly and on our website, you look at many of the large network services and content, on-line content companies. We share quite a number of those customers as mutual customers.

So I'm wondering, how much of them would be looking to find a second source, if -- as you combine with Equinix? Would that be a concern?

When you think about the way people have deployed inside of Switch & Data's data centers, they utilize our footprint for reach and the interconnections that they support on their return streams, so we see this as an expansion opportunity.

So they may not be looking for a second source in those particular regions? Is that the way we should think about it?

I was commenting on the confirmers that we see that continue to expand with Switch & Data, and the value proposition on how we positioned it.

Okay. And, Steve --

Erik, I would tell you on top of that, you know, undoubtedly, there's going to be some procurement policies on and of these guys where they're going to want dual suppliers, but our intelligence to date suggests that just not a material issue for us and we're going to stay deployed in both sets of centers in these markets. We've done a lot of work in the in that area as we looked at this thing.

And Steve what kind of market share do you have in the neutral colocation market? Do you have any sense for that?

All the way up at the -- if you look at the broader data center market, as I described it earlier, it's low single digit, if you include all of the hosters, and the 350-plus companies that we talked about. So it's -- it's a low to medium probably single digit. I don't have that number in front of me right now, but it's not a big number.

But you would have not a sense for what -- a lot of that is carrier centric. You don't have a sense for what the neutral, what your market share in neutral colocation fee would be, do you?

Doesn't really get cut that way. The industry analysts cut it several different ways, and the way we pay attention to it is all the internet-related data service centers around the markets, and that's kind of how we look at it.

Okay. Very good. Thank you.

Thank you. Next we have Gray Powell from Wells Fargo Securities. Sir, your line is open.

Hi, everyone. Thanks for taking the questions. I just have a couple of quick ones. At your analyst day back in May, you said that 2009 guidance implied about a 17% reduction in net bookings from 2008. Now that we're closer to the end of the year, I was wondering if you could just give us an updated number for 2009, and then looking forward, do you have a sense of what net bookings for the next 12 months will look like relative to 2008?

So let me take that one, Gray. I would tell you that basically the bookings expectation is relatively on target. We probably booked a little bit more on the gross -- on a gross basis, but that was offset by higher than expected churn. And so when I looked at the total year, we're roughly in the same zip code as we originally anticipated, so down about 17% 2009 over 2008. All that said, we also recognize that there was some delayed billing, as you know, that the book to Bill interval that we talked about, that increased, and so that, of course, up packeted the revenue somewhat.

As we look to 2010, without giving you specific numbers, it's fair to say, and Steve alluded to this, our future bookings number in the U.S. was a record for us. Q3 was as good as Q2. We continue to believe that we have a strong pipeline. So from our perspective, we're going to take our capacity and fill it up as quickly as we have. That's our perspective. but to see how that sort of transpires into a quarter over quarter or a year over year basis, we haven't actually modeled that out, because we're going to have to look at the inventory that's available and what new assists come on line and when and how that impacts us. So, again, hopefully that give use since of what has transpired over '09 and the first part of 2010.

No, that makes a lot of sense, and I guess just as a follow-up. You guys are accelerating your expansion. So would it be possible just to tell us like the percentage of new sales or incremental revenue that's generated in a facility that was opened within the last 12 months?

We don't do that anymore, primarily because we've been filling them up so darn fast, and when you look at that's relative to the overall basis, it became an irrelevant number for us. We try to tell you, from day one, when we open up a data center, what capacity is and then what percentage of that capacity has been booked or reserved, and then as we move through time, and we typically over the next two to three quarters will you know how we're doing relative to that dill rate. Clearly if we're introducing to a new market we're doing extremely well, and if you looked at the beginning of 2009 and where we are, we're investing in think 16 of our 18 markets either announcements or builds, so gives you a sense that we're filling up all of our capacity as a fair clip.

Great. Thank you very much.

Thank you.

Thank you. Next we have Mark Kelleher from Brigantine Advisors. Sir, your line is open.

Hi, guys, thanks for taking the question. Most have been asked and answer bed, but I was just curious when you know broke out the segment revenue, you didn't mention the government. You system of said that there's and strength coming through, and you were looking for and good things there, but I didn't see it in the buckets, I was wondering if you could kind even square that up and give his and insight into what the government is doing this day.

Sure, Mark, we have historically bucketed our customer revenue into four verticals -- digital media/content, enterprise and the resellers in the second bucket, and then the third one being financial services, and then the electronic trading as a subsegment inside of that, and then fourth, network. And so historically, we have parked the government type business in the enterprise vertical, and we weren't as targeted, with our DC campus, I think you guys know that we're in that market, and so we've it's a very active market, but typically the other three financial network and digital media has kept our pipeline very full there.

We're now being invited into opportunities that are very network centric. There are a couple of large procurements that we're partnered up with some SIs, and they look very attractive, and I think it's just on the back of what's going on, which we're all reading the same newspaper, so we're benefiting from that. We haven't targeted it, but we're going to get a little more focused. We did an assessment here over the last quarter about the opportunity there and we've educated ourselves that there's a little more opportunity to get a little more focused in that vertical.

Could you maybe break oust what percent of the enterprise is the government?

No, we don't really do it. I can tell you that it's less than 50, but more than 20 clients that are in that vertical today, so we have accumulated over time. Now, that's just US federal government. If I go around the world and look in to Europe and Asia, we're obviously picking up local government business every quarter, but, no, we haven't really carved it out as a percentage.

Okay. Thanks.

Yes.

Thank you. Our next question is from Simon Flannery from Morgan Stanley. Sir, your line is open.

Thanks very much. Good afternoon. If we can come back to the gross bookings, I think you know said Q3 in the US was equal to Q2, which itself was a record. Can you talk a little bit more about to what extent it's coming from new customers versus existing customers starting to spend again, and what's your general take on sort of the macroenvironment and the confidence level of the CIO or IT manager level, are you seeing people saying okay, we've somewhere to take the 30, 40% out of our IT budget, and this is the time we want to move to a colocation type model, and any changes in behavior there? Thanks.

Yes. Good question. I would say in the U.S. markets, we're pretty flat quarter over quarter. New logos, we're in the 50 to 60 range.

Percent, or numbers.

That's number of new logos, and that's been fairly steady. It's gone up quite a bit this past quarter in Europe, so we picked up significant more new logos in Europe, and then I tell you it's pretty steady in Asia quarter on quarter. So the trends are picking up. There's no question that less stuff is being delayed, less stuff is getting run upstairs to CEOs and CFOs for decisions, and I think the historical decision cycle is starting to get back to normal historic rates. So all in all, Keith and I are pretty darn happy with the pace of bookings at a gross level, and as Keith described, we've had a little more churn, very, very manageable, so all the way down at the net level.

And is that mostly companies going out of business, or going to another facility? What's the driver of that?

The majority of the churn, Simon, actually comes from basically consolidation, so customers that would consolidate through an acquisition, or insourcing or financial distress, we typically don't lose customers from a share shift perspective, so that's the real positive. And I think when Steve refers to number of new logos, one, we saw an increase in this quart are over last quarter, which was real positive, but you have to recognize that 80% plus of our bookings this quarter came from the to install base, and when you reach higher occupancy on our data centers, you tend to sell more to the install base than you do to the new logos, because you have the capacity. And so that has transpired, and, as I said, more logos this quarter than last quarter.

All right. Thank you.

Thanks.

Thank you. Our last and final question comes from Chad Bartley from Pacific Crest. Sir, your line is open.

Thank you very much. Question as it relates to the Switch & Data acquisition. I realize you guys don't want to talk too much, but as you look at some of the metrics, there's a pretty big difference in the two companies' utilization rates and their MRR per customer. Can you talk about why there's such a gap there, and then is that an opportunity to help drive revenue growth, revenue synergy?

Yes, I -- I would tell you, I think last quarter, I think Keith and his team were in the low 60s in utilization. We've been in the low 80s. I think the combined efforts between our two sales organizations and the demand we've talked about today, I think both Keith's team and our team feel we're going to be able to accelerate the utilization of these facilities, particularly if these key markets I mentioned, Dallas, New York, and Silicon Valley. So we feel good about they have ability to leverage the sales momentum we have here with the capacity that Keith's team will bring to the combination.

Chad the other thing, and I'll tell you that when you look at the two relative businesses, you have to recognize we have a lot of large footprint, and when you compare our inventory relative to the inventory of Switch & Data's, you've got to appreciate that there's some very sizable deals in our portfolio. So when you look at the average unit of volume per customer, we're able to -- of course we have been and we are able to sell of size, whereas the Switch & Data team, as you know can recognize, have a large build today in New York, and an expansion that's taking place in New York, and some other meaningful locations, but not of the size of 300 and 400,000 square feet where you can sell a relatively large footprint So when you look at all of the averages, everything think that's part of then reasons why you would see a delta on the price point -- not the price point, the average revenue per customer.

Very helpful. Thank you both.

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

Thank you all for participating in today's conference. You may disconnect your line.