Equinix Inc (EQIX) 2011 Q1 法說會逐字稿

Good afternoon, and welcome to the Equinix conference call. All lines will be able to listen only until we open for questions. Also, today's conference is being recorded. If anyone has objections, please disconnect at this time. I'd like to turn the call over to Ms. Katrina Rymill, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements that we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements, and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 25, 2011. Equinix assumes no obligation, does not intend to update or comment on forward-looking statements made on this call. In addition, in light of regulation (inaudible) exposure, it is Equinix's policy not to comment on its financial guidance during quarter, unless it is done through an explicit public disclosure.

In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and the list of the reasons [why] the Company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We'd also like to remind you that we post important information about Equinix on the IR page of our website. We encourage you to check our website with the most current available information. With us today are Steve Smith, Equinix's CEO and President, Keith Taylor, Chief Financial Officer and Jarrett Appleby, Chief Marketing Officer. Following our prepared remarks, we will be taking questions from sell-side analysts. In the interest of wrapping this call up in an hour, we would like to ask analysts to limit any follow-on questions to just one. At this time, I'll turn the call over to Steve.

Thank you, Katrina. Good afternoon, and welcome to our first quarter earnings call. I'm pleased to report that Equinix delivered strong financial results in Q1, exceeding expectations across all of our key financial metrics. Revenue was $363 million, up 5% quarter over quarter and 46% over the same quarter last year. Adjusted EBITDA was $167.3 million for the quarter, or a 46% adjusted EBITDA margin, ahead of our expectation. Our net income was $25.1 million, up 77% over the same quarter last year. Bookings during the quarter were solid across all three regions. The pipeline is very healthy with later stage opportunities from each of our industry verticals, with particular strength from cross-border deployments. Equinix demand continues to be strong globally and pricing remains firm across the regions. Our Equinix platform positioning is resonating with customers. There has been significant growth on multi-site customers in the past 12 months. We now have over 73% of our monthly recurring revenue coming from customers deployed in multiple metros and 53% of our recurring revenue coming from customers deployed across multiple regions, highlighting our unique offering. Our customers are using our ecosystems to sell to their customers and our IDX, a network and platform effect that is resulting in interconnection growth.

Before we get into more specifics on the quarter, I would like to take a moment to express our sincere empathy to the victims of the northern Japan earthquake and tsunami. I also like to like to thank our entire Tokyo team for their in incredible dedication and teamwork during such a difficult time. Although two of the nine Japan cable landing stations were impacted, there was no interruption in our data centers or network services, which couldn't have been achieved without the utmost diligence from our Tokyo team. The construction of our Tokyo 3 IBX remains on budget and on schedule to open in the June timeframe. We are watching the developments in Japan closely, with contingency plans in place in the event of power disruptions from rolling blackouts that may occur.

Equinix continues to win in our markets of highly interconnected premium data center space that is in high demand around the world. Our next wave of growth and differentiation will be driven by expanding our global reach and scale, deepening and developing ecosystems, increasing interconnections, expanding our sales force and ultimately implementing global processes systems. We are expanding Platform Equinix, and this week we extended our reach into South America by acquiring a controlling interest in ALOG centers of Brazil for approximately $83 million. ALOG is a leading carrier of intra-code location provider in Brazil that serves over 1,000 customers in its two data centers in Sao Paulo and Rio de Janeiro.

In 2010, they generated over $50 million in net revenues and have been growing at over 25% combined new growth rate for the past three years. This investment into Brazil will allow Equinix to satisfy strong demand from our network content, cloud and financial service consumers looking to establish a presence in this rapidly growing market. ALOG is currently completing phase 1 of a third new data center in Sao Paulo, and we have already seen strong interest from Equinix's customers to expand in ALOG's facility. This investment will provide capacity as we expand into South America and will increase our reach to 95 data centers in 37 global markets, representing a fifth continent with an Equinix presence. We are creating a differentiated global brand that combines our highly of reliable IBXs, global footprint and well developed industry ecosystems into an integrated offering which is not available from our competitors. On top of Platform Equinix, we are building rich ecosystems to support the global digital supply chain. We are also developing new ecosystems, including cloud and mobility, and I would like to review the opportunities and success we've had in these.

Cloud in IT services present significant upside for Equinix. Today we have over 240 cloud providers and over 400 IT service providers across Platform Equinix. There is strong growth in public cloud deployments, particularly service access nodes, and we see enterprises shifting to private cloud deployments for certain applications. Virtualization is also fueling cloud growth, shifting deployments from in-house environments to outsource co-locations deployments across our IBXs.

Slide 4 shows the infrastructure evolution of cloud architecture. Cloud services that are initially deployed from a centralized location run into performance degradation issues as their services are adopted and deployed at a global level. Cloud services need to be deployed with optical geographic distribution and direct proximity to end-users. The value placed on application performance, service level agreement and the end-user experience for cloud services make Platform Equinix well-positioned to support these services. Equinix offers the regional and global scale in highly network environments that are required to deliver a high-quality end-user experience as well as the reliability and security necessary for these outsource deployment.

Turn to slide 5, we're seeing cloud ecosystems develop on Platform Equinix. Managed service providers, system integrators, application infrastructure and platform service providers are deploying a variety of cloud services at Equinix. Within our IBXs, a marketplace of services is developing and these providers connect the vendors with storage, computing, content, networks and others to provide a comprehensive cloud solution to customers, ultimately resulting in interconnection growth for us. Managed service providers and systems integrators such as Carpathia also provide a new channel to target the cloud space and increasingly use Equinix IBXs to deploy their offerings. In April, we announced a collaborative effort with Rackspace and Dell to launch a demonstration and test environment to help accelerate the adoption of OpenStack, one of the leading open-source cloud platforms in the market. This collaboration is the first of several cloud environments we are enabling on Platform Equinix.

Another ecosystem where we have traction is mobile. Wireless is another form of access technology, and Equinix always benefits from new ways to connect to the Internet. Mobile usage is skyrocketing and mobile traffic is predicted to double every year through 2014. Whether it's smartphones, tablets or laptops, all of these devices are placing more bandwidth demands on the Internet to Equinix's benefit. Wireless towers of aggregation point for mobile traffic which is then transferred to wireline networks that connect inside of Equinix's IBXs. Presiding within our IBXs in creating our mobile ecosystem for some of the most popular mobile applications the providers of mobile back haul, enabling services for mobile billing, messaging and interoperability, essentially, the mobile value chain, which is shown on slide 6. Equinix's mobile ecosystem has a diverse mix of customers in all aspects of mobile enabling, and our customer base has close to 100 pure plays and over 150 adjacent customers that are operating in our IBXs today across these categories.

Four of the top five US smartphone platforms reside in our data centers, the foundation for providing functionality to their operating system. A few examples of functions enabled in Equinix are backup use -- backup of user data and profile information, the download of mobile applications and operating systems updates. Also, three of the top five mobile OEMs enabled services for handsets at Equinix by accessing value chain partners such as social media sites, cloud services, CDNs and streaming media. Our ecosystem of networks, cloud services, content and applications form a rich environment for achieving high performance and reducing costs for mobile companies. The growing mobile market is [finding] new business and applications which require data center space and connectivity. We are actively targeting these new companies including mobile advertising and location awareness, to storage for digital assets and video broadcasting.

Slide 7 showed the ongoing evolution of mobile infrastructure. Mobile today looks like wireline did 12 years ago, with the majority of traffic being routed over long haul network, creating massive inefficiency. The deployment of 4G technology, such as LTE and WiMAX , will exponentially increase mobile traffic and place tremendous strains on existing wireless networks over the next few years. More spectrum at the edge will require significant increases in bandwidth to the wireless towers and between networks. And ultimately, to popular content applications to ensure a positive end-user experience.

With the massive increase of mobile traffic, the old architecture will be difficult to scale. Instead, traffic will be need to be exchanged locally in multiple metros to ensure mobile users are as close as possible to the content and applications to achieve congestion -- to alleviate congestion. We believe the mobile architecture will evolve to look like traditional wireline access backhoes using our IBXs for IP traffic exchange, self performance and scaling issues. Although this is still early in the cycle, mobile network operators are beginning to directly tier in high traffic destinations at Equinix sites, and we believe this trend will gain momentum with the rollout of 4G. Equinix's distributed footprint enables better network performance, lower cost and scalability as traffic grows. Some of the tier 2 locations required through switch and data will be critical for both mobile and cloud customers deploy a distributed architecture at their metro level to localize traffic.

To pursue the growth across all of our industry verticals and ecosystems, including new ones such as cloud and mobile, we're also expanding our sales engine around the world to increase our market coverage of accounts. We have made significant progress in our sales hiring program in Q1 and expect to substantially complete our sales force expansion by Q2. I am also very pleased with the quality of the team that we are bringing on board. The new global account management team is in place, and we are better aligning our sales team with our customers' industry segment. We are changing the sales conversation with our customers from just data center space power and interconnections to selling at a business and application performance level.

We've also launched our Channel Alliance program with partners such as Carpathia, Dell and Rackspace, and we'll broaden our reach in 2011 with additional partners. Sales force expansion is really about preparing for growth in 2012 and 2013 as we continue to raise our revenue goals, target new business across our vertical markets and more fully leverage global advantages of Platform Equinix. Let me stop there and turn it over to Keith to provide the results for the

Great, thanks , Steve, and good afternoon to everyone on this call today. I'm pleased to provide you with a review of our first quarter results including an update of the regional performance. Additionally, given the strength of the first quarter, I'll take this opportunity to highlight some of the one-off or nonrecurring benefits we experienced over the quarter, essentially providing you with a normalized set of key performance and operating metrics.

Starting on slide 8 from our presentation posted today, our financial results for Q1 exceeded expectations across each of our key financial metrics. Global Q1 revenues were $363 million, a 5.2% quarter over quarter increase and up 46% over the same quarter last year, above the top end of our guidance range. Our quarterly revenues included about $4 million of one-off or nonrecurring benefits in the quarter. For the quarter, foreign currencies continue to be volatile. We have positive revenue benefits of about $1.5 million when compared to the average rates used in Q4 and about $1.2 million when compared to the guidance rates used. On a normalized basis, our revenues would've been approximately $359 million for the quarter, and when taking into consideration the $2.8 million goods for resale in EMEA last quarter, our normalized revenue growth would've been 4.8%, above our expectations.

Also, it's worth noting our backlog. The contractual bookings not yet billing by the end of the quarter saw a meaningful increase relative to our prior quarter levels. On a regional basis, each of our operating units performed better than expected with particular strength in the Americas. Also, pricing remains firm across each of our markets. For Q1, global MRR churn, including switch and data, approximated 2.4%, more than a consolidated churn recorded over the prior four quarters. We continue to remain confident that churn will moderate downwards over the next three quarters of the year and should approximate an average of 2% per quarter, or about 8% for the year.

Global cash gross margins came in at 66% for the quarter, ahead of our expectations. We benefited from more than expected utility, repairs and maintenance and real estate tax expenses. In part due to a $1.5 million one-off benefit attributed to prior rebates and tax refund, as well as lower than planned salaries and benefits expense. Some of the costs related to the lower spending in Q1 will be rolled into Q2 and the rest of the year. Offsetting our strong performance was expansion drag across our three regions. For the quarter, the net cost attributed to certain expansion projects totaled $3 million. Global cash SG&A expenses were less than planned at $73.1 million for the quarter, reflecting a slower than expected uptake in our hiring program across many of the functional areas. Global adjusted EBITDA was $167.3 million for the quarter, an adjusted EBITDA margin of 46%, again, better than we expected. Adjusted EBITDA on a normalized basis after taking into consideration the nonrecurring or one-off benefits previously noted would've been about $162 million, including an FX benefit from $500,000 in the quarter.

Our global net income was $25.1 million, and we generated $0.53 per share on a diluted basis. Net income includes an FX unrealized gain of $1.6 million related to our Brazilian real hedge that we put in place to fund our portion of the ALOG acquisition. In total, we'll recognize a gain on our hedge of about $2.8 million and as of this week, it's been fully realized.

In the quarter, US dollar weakened against all of our operating currencies with the recent movement in our key operating currencies adjusted our Q2 guidance rate to be $1.45 to the euro, $1.64 to the pound, Singapore $1.25 to the US dollar. Our updated global revenue breakdown by currency for the euro and pound is 14% and 8%, respectively, and the Singapore dollar represents about 6% of our global revenues.

Now I'd like to take a quick review of the regional results for the quarter, including a bit of color on the known financial metrics. Just a note, starting this quarter, given the close of the ALOG acquisition, we've now updated our regional naming convention to the Americas, EMEA and Asia-Pacific.

Now please turn to slide 9. Americas revenue groups 5% quarter over quarter to $232.5 million. [Half] gross margins were up 70%, up over the prior quarter. Adjusted EBITDA was $113.5 million, a quarter over quarter increase of 11%, driven by improving gross margins, in part due to the tax refund utility rebate noted previously. Also our Americas hiring plans, although progressing well, is behind and as a result, lower than expected spend in the quarter. America cabinets billing increased by over 2,000 in the quarter to 36,800, a significant increase over the prior quarter and reflects the strong bookings we experienced over the past several quarters. As noted previously, a portion of the booking activity remains in backlog and will be converted into revenues over the next three quarters. Equally important though, our pricing remains firm in the Americas. We remain comfortable with our pricing in each of our markets, recognizing pricing will vary from market to market vertical to vertical and customer to customer. We remain focused on attracting the right customer with the right application into the right IBX. This ultimately supports our ability to obtain the appropriate pricing for each of our IBXs. Also, as noted on the last call, we remain very comfortable with our pricing levels. Although you should expect MRR per cabinet to ebb and flow from the current levels, some of the factors affecting this metric may include the number of (inaudible) services per average cabinet or the installation interval of these services, the number of cross-connects or other interconnection services attached to a cabinet, or simply fluctuations in foreign currency.

During the first quarter, our America's cross-connect increased by 1,527 over Q4, and interconnection revenues remained at 21% of recurring revenues. Our financial ecosystem is fueling rapid cross-connect growth in the New York metro, which is now the largest metro per total cross-connect volume.

As part of the success today, we announced two expansion projects in the region, New York 5 and phase 2 of our Chicago 3 IBX. These plant expansions are in response to strong demand across these markets.

Finally, as mentioned in the prior earnings call, we'll stop providing detail and switch and data financial and operating metrics after this earnings call, but given our brief comments on the Q4 call, we wanted to close the loop and give you a quick update. We're pleased to report that switch and data revenues increased to $60.3 million for the quarter, with booking activity in virtually all of the switch and data IBXs. We saw particular strength in Atlanta, DC, New York, Seattle and Toronto markets. This is the first meaningful increase in revenues over the last four quarters, and our largest booking quarter since the acquisition. Also, switch and data adjusted EBITDA margins approximated 48%. The integration of the switch and data business should be complete next month, and we now expect to realize cost synergies of $22 million from the acquisition. At maturity, we believe the revenues related to switch and data assets should generate over $300 million of annual revenue with adjusted EBITDA margins greater than 50%.

Now looking at EMEA, please turn to slide 10. EMEA had a strong quarter with revenues up 4% sequentially, or 3% on a constant currency basis, including a $1.8 million one-off customer settlement payment. As a reminder, EMEA Q4 revenues included a $2.8 million custom installation fee, normalized EMEA revenue was up 5.2%, adjusted EBITDA increased to $30.6 million for adjusted EBITDA margin of 37%, an increase of 10% quarter over quarter. During the quarter, EMEA region's net building cabinets increased by about 900, reflecting strong bookings performance across many of our markets and verticals.

EMEA's average price per sellable cabinet equivalent is firm, and we continue to win strategic customers deployments over many markets in many verticals. Interconnection revenues increased 8% quarter over quarter and remain at 4% of the region's recurring revenue. Also, we added 340 cross-connects for the quarter, lower than last quarter, partially due to customer migrations in Switzerland. We remain pleased with the level of interconnection and exchange port activity in the region. We continue to see strong demand in Amsterdam, Frankfurt, London and Paris as we invest and scale our business in each of these markets. We see positive growth in our financial vertical with non-banking customers and in our cloud and IT services vertical, Including today's announcement of our Frankfurt 2 phase 3 expansion, we now have sizable expansion projects underway in each of our big four markets in this region.

And now looking at Asia-Pacific. Please refer to slide 11. In Asia-Pacific, revenues improved 6% sequentially and 4% on a constant currency basis. Adjusted EBITDA was $23.2 million, up 24% sequentially, reflecting strong revenue growth and lower cost of revenues and SG&A spend in the quarter. Cabinets billing increased by 330 over the prior quarter, and overall unit pricing remains steady. MRR per cabinet increased 2% on a quarter over quarter basis and up 16% year-over-year, largely due to increasing interconnection revenues and favorable currency trends. Interconnection revenues in the region increased 8% quarter over quarter and now represent 12% of Asia-Pacific's recurring revenues. During the quarter, Asia-Pacific added 823 cross-connects.

Now, looking at the balance sheet data. Please refer to slide 12. Our cash and investments balance approximates $457 million, a decrease over the prior quarter, largely due to the transfer of cash to a restricted cash account associated with the Paris 4 expansion project and cash used in other construction projects. Our DSO continues to remain low at 30 days. Looking at the liability side of the balance sheet today, our total debt approximates $2.1 billion, about half of this debt comprised of convertible debt. Our current net debt leverage ratio is approximately 2.5 times our Q1 annualized adjusted EBITDA. We feel the 3 to 4 times net leverage is an appropriate target for the business, so we believe we have quite a bit of flexibility on our balance sheet.

As we assess how to best allocate our capital, our clear priority is to invest in growth with organic and inorganic, assuming appropriate financial returns. Yet given the size of the business and the a level of the cash generated from our current operations, we will also be assessing other ways to create shareholder value. One of the ways to create this value is settle our 2.5% converts, which are due in 2012, with cash. This will avoid 2.2 million shares of dilution. Besides our 2012 converts, we have an additional 6.2 million shares attached to our other convertible debt instruments that may convert into equity through 2016. Although we have no specific plans related to these two other convertibles, we will further assess how to avoid or limit dilution from these two instruments.

Additionally, as we scale the business and drive EBITDA towards $1 billion or greater, this allows us to raise the ceiling on our debt capacity. This will also provide us other opportunities to drive our shareholder returns. And it is worthy to note, when you think about 2011, under current course and trajectory, we can see our adjusted EBITDA exit the year near $800 million. And thankfully, assuming 3.5 times net leverage recognizing that we wish to maintain appropriate level of cash on the balance sheet for strategic and operational flexibility, our net debt capacity could increased to $2.8 billion. Today, our net debt is running at $1.8 billion. One final point. To the extent we put incremental debt on the books, you should expect us to focus on straight debt and avoid any equity links financing sources.

Looking at slide 13. As we've historically said, the cash flow attributes of this business are extremely strong and track nicely to our adjusted EBITDA. This quarter, our operating cash flows were greater than $115 million for the quarter, despite the semiannual interest payment for our high yield debt and the funding of our annual compensation and intensive plans. Our Q1 annualized discretionary free cash flow was approximately $330 million. We anticipate that our discretionary free cash flow will continue to trend upwards throughout the year. We estimate our 2011 discretionary free cash flow to be greater than $400 million.

And finally, looking at slide 14. For the quarter, our Q1 capital expenditures were $172.5 million. Also, we invested $15 million for the purchase of the Paris 4 land and building. In total, we were in line with guidance. Ongoing capital expenditures were slightly greater than expectations of $32.7 million, primarily due to success-based customer installation and some new product development CapEx. As a reminder, ongoing capital expenditures includes success based CapEx, a large portion of which is paid for by the customer. This CapEx trends with the level of booking activity, and we expect the bookings level to increase in the second half of the year. Maintenance CapEx. This is typically incurred to extend or address end of life issues for some of our equipment. Reliability and redundancy CapEx, this is CapEx simply used to increase the reliability of our IBX for our customers, and efficiency and optimization CapEx, this is a newer bucket of CapEx in the ongoing bucket allocated to drive increased efficiency in IBX, and it's tagged with an ROI expectation. Let me turn the call back to

Thanks, Keith. Now I'd like to outline our targeted returns around expansions and provide guidance for 2011. As the number of investors have asked about our expansion decision process, I would like to reiterate how we determine when to move forward with an expansion project. Each quarter, we compile a fill rate analysis of all of our IBXs reviewing inventory, bookings and projected demand for that particular region. The decision to proceed with an expansion has to pass three internal gates, which include a regional review, a corporate level review that includes both the CEO and CFO and finally, a board of directors real estate committee approval. Considerations include analysis of the economic returns, competitive landscape, pipeline, bookings, pricing, current and projected fill rates, as well as customer demand. We target a 10 year IRR of 30% to 40% when approving new expansion investments independent of region, which remains unchanged from past expansion projects. Also, we expect to realize a full return of our capital investments within a five-year time period. Our goal is to bring on additional capacity just in time before we run out of inventory in an IBX core market, assuming it meets our returns target.

Line 15 is a summary of our investments have performed so far. It is a returns analysis of all organically opened IBXs in the US through Q1 of 2010. For these 21 IBXs, our investment of $1.6 billion currently generates about $670 million a year in revenue, with an average of 75% cash gross profit margin. Ongoing capital expenditures include maintenance CapEx on less than 3% of revenue. This means we are generating $0.5 billion in annual cash gross profit from these assets, generating an unlevered cash-on-cash return on investment of 32% and yet, only at 80% utilization. At 95% utilization, these IBXs would be generating an unlevered return of 38%. We're very pleased that our investments continue to track with our target returns branch.

Now, let's move on to our second quarter of 2011 guidance on slide 16. Although we will be consolidating ALOG in Q2, we are not including it in current guidance and will provide more details on the July earnings call. For the second quarter of 2011, we expect revenues to be in the range of $376 million to $378 million. Cash gross margins are expected to be approximately 65%. Cash SG&A expenses are expected to be approximately $76 million. Adjusted EBITDA is expected to be between $166 million and $170 million. Capital expenditures are expected to be between $220 million and $240 million from [profit] of approximately $40 million of ongoing capital expenditures and $180 million to $200 million of expansion capital expenditures.

For the full year of 2011, we expect total revenue to be greater than $1.525 billion, or 25% growth. Total year cash gross margins are expected to range between 65% and 66%. Cash SG&A expenses are expected to be approximately $315 million. Adjusted EBITDA for the year is expected to be greater than $685 million.

Shifting now to 2011 capital expenditures. With the announced expansions in Chicago, Frankfurt, Paris and New York IBXs, momentum in our ecosystems and fill rates going 2012, we are deploying additional expansion capital in both EMEA and the Americas for 2012 growth. We are also evaluating projects in our existing key markets around the world where our momentum and fill rates are also strong.

With these additional expansions in mind, I'd like to now provide a full view of our anticipated expansion capital for 2011. This reflects our best thinking on our actual spend in the year for projects we both announced and are contemplating in our expansion road map. As a result, we are raising our expected expansion capital to a range of $500 million and $550 million. We are raising our ongoing CapEx to approximately $115 million as a result of success based CapEx type strong bookings and installations, as well as initiatives around energy efficiency and IBX optimization. This brings our total CapEx guidance for 2011 to a range of $615 million to $665 million. These investments reflect the confidence we have in our momentum and go forward opportunities. They will now provide the capacity to support greater than $2 billion in revenues, which we are now targeting for the year 2013.

In closing, our business has performed extremely well and we are in a strong competitive position. We're scaling the business to target global growth in markets that meet our returns criteria, and having inventory in our markets is crucial to meeting customer demands. Whether it's in mobile, video or IP traffic, Internet growth is propelling demand for platform Equinix and positioning us to grow our customers to be able to operate and win on a global basis. The bottom line is that we see the opportunity to become the pre-eminent leader in industry, and we are seeing the demand to make this happen and have decided to continue to invest to support that agenda. The $2 billion revenue target is simply the near-term milestone in our longer-term opportunity. So, let me stop there and open it up for the call. Back over to you, Susie.

Thank you. (Operator Instructions). One moment please for the first question. The first question is from Chris Larsen of Piper Jaffray. You may go ahead, sir.

Hi, thanks. First question for Keith. You had a sequential decline in your operating expenses, despite the fact that you added a bunch of cap ease and brought on a new facility. You mentioned a little bit about salary. What else drove that lower OpEx, sequential decline in OpEx? And then secondly, in the notes, you had something about a restructuring charge, and that was different -- called out different in the acquisition cost. What specifically was that?

Okay, great question. So Q4, like anything, when we give our guidance off the Q4 call, we said that at the time it was up $300 million of SG&A. We knew that the expenses were going to be somewhat flat as you look through 2011. That all said, when you go into specifically Q1, we got $1.5 million of rebates and refunds, specifically around the tax rebate. It's based in Silicon Valley, and so got a recovery of roughly $1 million, but we also get occasionally rebates from the power utility provider given certain programs that we have in place. That was $1.5 million of benefit. You just couple that with the fluidity of when and where we spend our repairs and maintenance programs, and the expenses associated with that gives you a sense that you can have a little bit of movement in any given quarter.

When it comes to the restructuring question that you had, the biggest issue -- we only -- the biggest issue, we have one asset that continues to have a restructuring charge attached to it, and that's an adjacent building to our New York 2 property. And so that ebbs and flows ever quarter, and any time that we have to revisit our assumption, any adjustment to that liability goes through the restructuring line, because that's where it's originally classified. If you go into our 10K or 10-Q, you'll see that there is roughly a $5 million or $6 million, I think it's $5 million or $6 million restructuring charge that still sits there and will get paid out over time. It's the adjustment for that assumption.

Excellent. And then a question for Steve. EC2 had some problems over the weekend, Amazon's EC2. What are the long-term implications of that? Does that change anything, whether it's a customer demand as it accelerated, decelerated? Do you have any thoughts on what the implications of that might be, or have you seen anything from customers as a result of that?

Well, not yet, Chris, and as you can imagine, we've been talking about it quite heavily as I'm sure everybody is that's in the middle of the space. But not surprising to us was the amount of volume they have, that they're going to be the first people running into the new technical issues, our understanding it was the software upgrade that had some issues. It was completely unrelated, as I hope everybody knows in this phone call, to any the deployments in our data center. It had nothing to do with what we were doing. They're deployed in several of our centers, so it was a software issue. With the scale and volume they have, I'm sure they'll work through that. There are a very important customer to us, and we're there to help them figure that out where and when we can. I don't think at this point it's -- our belief is it's way too early, Chris, to think that this is going to slow down the pace of cloud or -- I think it is part of the growing pains of a new technology.

Thanks. That' s very helpful. Thank you.

Next we have David Barden of Bank of America. Your line is open.

Hey, guys. Thanks for taking the questions. Congrats on the execution this quarter. I guess two questions, I guess, Keith, if I could, mostly related to guidance. Number one, looking at the normalized number 4Q to 1Q, it looks like we had about a $13 million EBITDA increase. The midpoint of the second quarter guidance is a $6 million increase. In order to get to $685 million kind of EBITDA number, it feels like we see a slowdown to $4 million of sequential EBITDA growth relative to a history that's much stronger than that. Based on what -- you guys talked about record bookings et cetera, it seems like you're teeing up a very meetable year, even though every I think every single estimate on Wall Street is below the number. So, if you could talk to that, that would be helpful.

And then the second question would be, I think you've talked in the past about a conviction that revenue can accelerate in '12 versus '11 because of the expanding portfolio and the salespeople. Your first quarter annualized revenue growth rate was about 20%. The street's looking for 15%. Could you talk about where you see the potential disconnect there? Thanks.

Great question. I think what's most important, Steve alluded to it a little bit, we are investing very heavily in those sales, so when you think about it from a cost perspective first, we have not yet -- we're still absorbing, and will meaningfully absorb in Q2 and Q3, the full impact of all of our new sales programs, and that includes of course, the individuals that all the programs get attached to those salespeople. And so recognizing that we have to figure out exactly how that's all going to time out and how we're going to invest, we give you the guidance that we want to still be a greater than number, so we give you greater than 685. Now, it's fair to say though, when we look to the backend of the year, and I sort of alluded to it in my comments, we see the back of the year being meaningfully -- we see an uptick in the back of the year, and it's really -- it should start to take hold, or take root, if you will, in Q3 and really accelerate in Q4, and we had a great first quarter.

We had a good Q4 last quarter, but great first quarter. We're setting up ourselves up for a nice Q2. But you've got to recognize that some of that revenue has not yet installed, that's why I made a comment on backlog. And so support, as you think about the year, we're setting ourselves up to have a big 2012. And if we exit at a rate roughly that we think we can, we have a meaningful staff up in, not only the numbers that Steve would be expecting on an EBITDA basis, but you also could have an impact on what revenue would look like. And again, it's going to tie directly to that sort of Q4 and of course, more specifically, that December exit rate this year. We feel very good about the numbers we're giving you today, and we'll continue to refine that as we get more and more data and we have more time under our belt.

And so just keep -- go ahead, Steve.

I had another point, Dave, the key point, as you guys know, and we have been pretty clear, I think, on the fact that we're trying to get this done, the hiring done by Q2. And the productivity of this, of the positional sales heads, we're also hoping to be a little bit quicker than that typical nine-month productivity cycle we've seen in the past. We're bringing people in by industry vertical, they're very knowledgeable of the of the business, they're learning very quickly and as Keith just suggested, we'd like to see some productivity out of this sales (inaudible) as we get to the fourth quarter. But as I stated in my comments, this is really aimed at 2012, 2013.

Okay, great . That's great, guys. Congrats,

Next we have Frank Lawson of Raymond James. Your line is open.

Great, thank you. Can you give us a little bit more color on the stake in the Brazilian assets? Give some revenue and some other metrics. And then looking forward, what sort of further investment are you looking to make down there? Is there just expansion of their existing data centers, or is this giving you an opportunity to do some greenfield builds in Brazil?

Hey, Frank. I'm sorry, we sort of lost a little bit on your question. Would you repeat the question, please?

Yes. Just looking at the Brazilian assets, if you could give us a little bit more color on the revenue and some of the metrics there and then going forward, where do you see, from an expansion standpoint, do you see expanding those data centers as giving you a platform to jump into some greenfield builds? And what's the further thoughts in Brazil?

Again, a great question. Although, as you know, we just the closing transaction this week, clearly, there are already expanding in a third data center that we expect to open in the not-too-distant future, so that's really the first stage of future expansion. But certainly, the second piece is they're incremental to that expansion property. You can add a lot more cabinets. We can certainly scale in the Sao Paulo market, so we feel very, very good. It's just a little bit early, given the closing just happened this week to get into the specifics. And what we really want to do is set up the July call for giving you much more clarity around this acquisition. But clearly, as Steve alluded to, we're very excited about this opportunity, and we have a number of customers who already have expressed a strong interest in going to that market with us.

Okay. And then just one of the question, saw a little bit of upside to ARPU, any particular reason you're seeing better pricing currently or seen some improvement?

I'll respond and I'll let Steve jump in. Fair to say, we're focusing on the right customer. I think you've heard us pound the table on this one a lot as of late. We feel very good about the verticals that we're going after. Certainly, when you think about the financial or cloud and IT services and for that matter, network, whichever vertical you look at, just making sure we're getting the right deployments in the right, as I said, the right data centers or IBXs. And so from our perspective, having sort of strong intelligence. Jarrett running the marketing organization, giving us a lot good leads and linking that back into our key verticals gives us the confidence we're going after that right customer at the right price point. I'll tell you it's more about focus, but we've also got to recognize, as I said, when you think about the switch and data assets, which are now going to be fully embedded in the Americas region, there are some lower pricing markets and there's some higher pricing market. And so what we're really going to focus on is getting the right price point, given the market that were serving or the vertical that we in. And so our confidence today is just really about focus and knowing that we have a good solution for many customers.

I can build on that, Keith. Interconnection growth is driving that as well. I think customers came for the network effect, coming to connect the networks, but our big growth now is financial connecting the financial, enterprise, the cloud. It's the community or the platform effect and we're really getting. That's showing up in interconnection numbers, and it's helping us with the ARPU was well.

Generally pricing strength tends to follow ecosystem targeting, so wherever we're deep into an ecosystem, we're generally going to have strength, and so that can vary by market. If you're in an ecosystem and you're doing exactly those interconnections that Jarrett pointed to, we're going to tend to have some less price sensitivity.

Okay great. Thank you.

Next we have Clay Moran of Benchmark. Your line is open.

Good afternoon. A couple questions. First on M&A, just wanted to get your updated thoughts now that switch and data is integrated and doing better on expansion through acquisition. Do you still favor just doing a one-off data centers, or would you look at something more sizable, and can you give us a sense of where private market values are today? And then secondly, more of a technology question, just wondering what you think the effect of modular data centers and the Facebook open data center has on the industry and on Equinix?

Let me -- this is Steve. Let me, Clay, start off, and then Keith can add some color here. From an M&A standpoint our position is unchanged in that we will -- we're continuing to scale into critical regions and again, we feel like we're in pretty strong position in the Americas. The Brazil decision has been at the top of our list for some time in terms of a market. Our European and Asian teams are continuing to look in a couple markets in each of those parts of the world. And so smaller bolt-on tier 2 like, Brazil like type opportunities that are opportunistic are probably closer to the sweet spot today. They're more digestible, they're more manageable, and that's where our focus has been. That' s not to exclude that there might not be an opportunity for a larger transaction some day. But our focus right now is to put ourselves in markets where there's customer demand, where there's ability to put our differentiated value proposition to work and be able to extend scale and reach. You want to add anything on the private market values Keith?

In the end (technical difficulties) private market values, clearly there's certainly a lot of private equity in the space. In some cases, they're paying a relatively high multiple. We can't focus on that. We're really focused on running our business and getting the right economic return for the investment, whether it's through an organic build or whether it's through an inorganic bolt-on acquisition. But we're comfortable that we as a Company will focus on the returns that are important for our shareholders to get -- to create value for that shareholder base.

And in terms of the modularity theme, very, very important. Our technical teams have been tracking and watching and working with modularity for quite some time. I would tell you in some of the new builds that we're doing now, Silicon Valley and New York, there's modular designs built into those for additional power when and if needed. We've obviously paying attention to the new announcements in the market, we have relationships with many of those companies today. Our technical teams spend time with them. It's an important factor, and it's probably the biggest issue that our CT organization is paying attention to. We're not unfamiliar with what Facebook or IO or any of the other players are doing. Our folks are very familiar with all of these activities, and so there's good relationships there. They have good customer relationships with us. We have a pretty open dialogue with them on a technical front, so it is an important trend, and we are paying very close attention to it.

Okay. Thank you.

Next we have Jonathan Schildkraut of Evercore Partners. Your line is open.

Great, thank you for taking the questions. I guess I'd like to start with the sales force hiring. I think over the last couple of quarters, the -- Equinix has been out there looking to ramp the sales force, and I know that last quarter we thought that much of this would be done in the first quarter. I was wondering if you might take us some through some of the challenges you've had in maybe scaling the sales force to the level you want, and then maybe some color on the success that you've had thus far with the people you have brought into the team.

Sure, Jonathan. I'll l take that. We knew that that was going to take us a little bit of time to screen for the right talent that we were looking for, and we hired a professional services firm to do that for us. Much of the time in late Q4 in early Q1 was focused on screening and interviewing, and we've continued thousands of candidates for these roles. We've got a final effect, just like we do in our pipeline. And so we're in a mode now of hiring, and we've got a great start in the first quarter. And the order of magnitude that the change in quota bearing sales account, that we're roughly going to add 35 to 40 in the North America market, call it 20, give or take 20 in Europe and somewhere in the eight to 10 range in Asia. So that's the order of magnitude, and we're well down the path.

We will ramp up in Q2, and very excited about the talent we're bringing in, Jonathan. It's going to change the game and raise the profile of the sales force in this Company. We're going to go build the best sales force in the industry -- in our industry. We are really excited about the level of talent we're bringing in. And like I said earlier to the previous question, the productivity of this people we believe is going to go quicker and the end result is, we believe we're going to have one of the most knowledgeable and capable sales engines in the market.

Are these other -- coming from other players in the space so most of these other people are coming over with a relationship database and experience in the space, or are they coming in from tangential markets, or fresh out of school? What are you really targeting?

No. These are experienced sales people that have carried a bag, have been successful at other companies. They're coming in by industry vertical, so they're coming in with knowledge of customers in those verticals and their ramp time is very, very quick. They're familiar with the data center business, they're familiar with networks, they're familiar with our value proposition, and that's why I think we're going to see quicker connectivity of these folks and a quicker productivity. We're pretty excited about what's happening. I'm very -- I've met most of them. We'll bring them in here for a week the first week we bring them on. And our entire leadership team is exposed to them, and we have a lot of energy momentum around that. So, pretty exciting. And our global account program has been a completely staffed at the management level, and we're attacking our biggest and most sophisticated global accounts in a much different fashion than we have in the past.

Great. I had a question about churn, we were all looking for churn, I think, to come down this quarter. It did come down 10 basis points and certainly, when we talk to players in the space, we hear that the Company's -- Equinix is doing a good job or better job retaining customers, and I was wondering if you could kind of take us through how churn turned out of the quarter relative to your expectations and maybe where there's some variances. And then some color on the relationship between pricing discounts versus customer loss embedded in that churn number.

Let me take the first part, Jonathan. I would tell you that, again, I was looking at the averages and like anything, we planned our churn similar to how we plan our bookings and we look at net numbers. And sometimes something will happen that will come into the quarter that will come out in another quarter. Overall, we feel -- we actually feel very confident, and I tried to work that into the script that we feel confident, although maybe sort of 0.001% or 0.002% higher than we originally expected this quarter, that for the year, we seem to be looking very, very good. Part of it is because we're focused on trying to maintain the customer. There's customers, as you know, and we'll talk about it a fair bit, that will bifurcate or will do other things or in some of the cases is consolidation, and we're working with the customer to try and mitigate as much as possible a loss of revenue. And so our focus as a team, and this is on a global basis, but particularly in the Americas, is making sure that we will work very closely with a customer not to churn. We remain quite confident that the next three quarters are going to be better churn quarters for us. But it is -- I have to tell you though, it is lumpy, and sometimes it's going to fall into the last month of the quarter versus the first month of a new quarter, and we just have to deal with that. And where possible, we'll make sure that we guide you to it. But we feel good about our churn position right now.

Have you made any changes to your compensation plans relative to the sales force in order to sign-up renewals and things like that, or --

Yes. But we've been doing that consistently, Jonathan. We are doing that for a lot -- we have a lot of incentives, cross-border churn reduction and yes, the simple answer is we've got pretty sophisticated incentive programs around the world that do all of that.

The next question is from Jason Armstrong of Goldman Sachs.

Hey, guys, it's Scott Goldman on for Jason. Two questions I guess, looking at some of the data you provided on the same IBX information, if you kind of compare that to what you guys laid out back at the analyst day, it looks as though there's maybe been a slight drop-off in utilization but the same time, you've actually seen IBX revenue growth accelerate. So, wonder if you can maybe provide a little bit more information about what's going on in those same IBXs that allows you to grow or accelerate revenue growth in the face of maybe slightly lower utilization and just in context of that utilization, what's going on with churn there. And then secondly, maybe you could comment a little bit about what we saw on the European cross-connects. Looks like there was a little bit of a drop-off in terms of the number of cross-connects added this quarter versus the very healthy run rate you've been running at for the last few quarters. Just seeing if there's anything there that we should be thinking about. Thanks.

Good question, Scott. I think you can take it to the highest level. The reason that you see the numbers vary a little bit from what we did at the analyst day and what we did, I think it was on the Q2 earnings call last year, is now that we're looking at it from anything prior to Q2 2010, we brought new assets. And because of those new assets, we have one that we've sort of publicly said has not performed as well as some of the other assets, our LA 4 property. It has a large cost basis, when you put that into the numbers, it has an impact. And although we're excluding today, we see that probably at the bottom of the page from a sizable perspective is a DC 6 or Silicon Valley 5 in last two phases of New York 4, for all intents and purposes. So, I feel very good about the numbers. We feel very good about where we are from a utilization perspective, because we're bringing in some of those -- some additional assets. You're also now seeing the revenue capacity in the margin potential of those assets. That's what I feel. I don't think churn's a big issue on this one. Certainly, it's an umbrella issue for all of our revenue activity, but churn per se as it relates to this analysis hasn't really impacted in any meaningful way.

Scott, I think the only thing I'd add is I think the point that that last bullet on slide where you see the percent growth has gone up since we talked to you at the analyst day, I think a percentage point or two, and it's really underpinned, as Keith is suggesting, by interconnection growth, power growth, the typical volume stuff that we see that helps the revenue growth. That's what you're seeing in the growth in those older IBXs.

Great. And on the European cross connects?

So generally, as you can appreciate, cross-connects move the ebb and flow and as I said, this quarter was a little bit lower than we saw on prior quarters, part of it just being due to migrations. We moved some customers into our new data centers, and so when customers move to new data centers, at times there can be a lot of pruning. And so what you're seeing there is improving activity. But overall, when I look at the Mark -- I'm sorry, the March exit rate of cross-connect activity and looking to sort of the first part of Q2, it's back to its normal level. It's more fundamental, just to migrations that took place is customers needed to scale their business and move into a newer, more power advanced environment.

That's great, thanks a lot for the detail, guys. (inaudible) I'm sorry, what was that?

I'm sorry, there were important customers who were cross-connect heavy, so.

Okay, great . Thanks, Keith, appreciate

Yes.

And next we have Gray Powell of Wells Fargo. Your line is open.

Hi, guys. Thank for taking the questions. Just a couple. So, with a Savvis and Terramark being acquired by larger telcos this year, do you think that creates any temporary disruption, or I guess I should say, any temporary opportunity for you to gain share against a potentially distracted competitor? And then longer-term, how do you think these deals impact the competitive environment?

Gray, this is Steve, l'll take that. I think it's a good question. Again, it's obviously relevant with all the financial services consolidation in the telco consolidation. We have a couple thoughts here as a leadership team. One, generally speaking, we consider all of this to be a sign of the good health as these industries continue to evolve and provide value-added services to their customers, so we believe that this will support long-term health of the market and create opportunities for us.

The bottom line for us is we think it's going to create opportunities for us. We find ourselves in a very good position today in that we're quickly becoming the only network neutral global player that is positioned to house all these ecosystems that we continue to talk about in cloud, electronic trading, mobility, video, Internet. And so we like the position we see. Quite frankly, the 2011 CapEx is a reflection of our belief in this opportunity. Generally speaking, we like the position we're in. We like the fact that we're scaled and reached to be able to satisfy all of this consolidation that's going to go on. And the growth is so strong from all these the secular trends that it's going to outstrip any concern we would have in customer grooming or different -- taking away of business from us. It's a very large market we're playing, it's growing very fast, our offering is very differentiated, we like where we're sitting today.

Got it. That' s very helpful. Thanks. And then just another question, just looking at your statistics, it looks like your average customer typically has like 11 cabinets, or call it 40-killowatts of power. But it's very squarely a retail customer. Can you talk about what percent of your bookings typically come from larger deals, say over 200-killowatt type deals? And then obviously, you guys had a big cabinet addition number in the Americas. Was that just like general strong demand, or did you possibly do like one or two larger deals?

Generally Gray, I would tell you that the overall trend is that larger deals are going down. And it's generally driven by the fact that we're very industry vertical focused, we're very ecosystem focused. We're very focused on interconnection type deals. A sweet spot of our size deals is a much smaller footprint. When you get up into the 200 cap -- or 200 KW type size deal, you are starting to creep into where some of the wholesale players could participate, and we will occasionally be in that zone if it's a strategic deal and it's critical to an ecosystem. But more and more, what we're seeing as we are evolving the sales force is that we're focused on a much different part of the market, and our value proposition is focused on the smaller deployment and lots of them.

Got it. Thank you very much.

Our final question comes from Simon Flannery of Morgan Stanley. Your line is open.

Thanks very much. Good evening. I wonder if you could just review the CapEx guidance rates in a little bit more detail. I think you explained last quarter the rigorous, I think, quarterly process you go through looking at your fill rates and your projected demand and just talk about what really were the key elements driving this. And how can we feel like -- that you sort of banded this for the year end and you've got enough of a buffer to make sure that this is really as high as it is going to go? And what does this imply for 2012? Are we likely to go back to a much and lower number in '12, or we may stay at an elevated number if the demand trends you're seeing continue? Thanks.

Yes, thanks, Simon. Good question. First of all, our view we presented to you today in our guidance is our best full year view, it's our best intelligence about what 2011 will look like for the Company. And it was really underpinned by four key projects since we last spoke to you. The New York, Chicago, Paris and Frankfurt decisions are sizable decisions. You can look at that expansion sheet -- tracking sheet that we post. We're also seeing very, very good bookings in fill rate and pipeline in Amsterdam and in our VC market. We've got a lot of activity going on in the big critical key markets, that really is the underpinning assumption underneath this. It does reflect the tremendous growth and vitality that we're seeing in our targeted ecosystems. For example, in New York at our New York 4 asset, we're 92% committed today. That's a very large facility, as you all know, and it underpins the decision for the next build. And as I think Keith mentioned in that metro, that is become our largest interconnection market globally.

Let me see, another one might be in our Frankfurt market where we house a very large -- the largest matching engine in that country, just demonstrates the strength of the financial ecosystem there and the hundreds of members that are connecting to that. It really is market by market driven, quarterly fill rate analysis driven. We had a very good cabinet fill rate in North America this quarter, over 2,000 as you saw. I'm not sure historically, that may be one of strongest quarters historically as a Company. So yes, these quarterly reviews, we're still going through the same level of rigor. We're still building in phases, so we're providing maximum flexibility for ourselves. But we, as I stated in my closing, we see a very large opportunity to really become the preeminent leader in our space, and we see the demand to underpin it, and we've made the decision to support that agenda. And that's where we're headed.

And then any thought on '12 at this point?

Some of the cost -- some of the investments that we're making right now, Simon, the costs will go into '12 but overall, it's a little bit early. But it's fair to say that we are making a big investment this year. They are strategic. A lot of the big assets will come on line in the 2012 time period and remain confident that we'll continue to have the same level of focus on any future expansions, as Steve noted.

Great. Thank you.

Mr. Smith, do you have any additional comments?

No, Susie. Thank you very much, and thank you for all the participants on the call. Thank you for your time, and we'll end it here.

Thank you. At this time, you may disconnect. The call has ended.