Equinix Inc (EQIX) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to Equinix' conference call. All lines will be open until we are ready for question and answer. Also today's conference is being recorded. If you have any objections, you can disconnect at this time.

I'd like to turn the call over to Katrina Rymill, Vice President of Investor Relations. Ma'am, you may begin.

Good afternoon and welcome to today's conference call. Before we get started, I'd like to remind everyone some of the statements I will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in the filings with the SEC, including our most recent Form 10-Q, filed on May 1, 2015.

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 regulations for 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, 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 would 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 regularly for the most current available information.

With us today are Steve Smith, Equinix's CEO and President; Keith Taylor, Chief Financial Officer; and Charles Meyers, Chief Operating Officer. Following our prepared remarks, we'll be taking questions from sell side analysts. In the interest of wrapping this call up in an hour, we would like to ask these analysts to limit any follow-on question to just one.

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

Thank you, Katrina, and good afternoon and welcome to our second-quarter earnings call. This marks our 50th quarter of consecutive revenue growth. We delivered both revenue and adjusted EBITDA significantly above the top end of our guidance ranges, our global demand for interconnected data centers drove record net bookings and our second-best gross bookings.

This momentum reflects our strategic position in the digital economy and the value of our global platform in addressing customer needs. Additionally, we are extremely well-positioned to capture a sizeable share of enterprise demand driven by a variety of factors, including the rapid adoption of Hybrid Cloud as the architecture of choice.

As depicted on slide 3, revenues were $665.6, million up 3% quarter-over-quarter and up 10% over the same quarter last year. Adjusted EBITDA was $311.3 million for the quarter, up 2% over the prior quarter and up 13% year-over-year delivering a 47% margin. AFFO grew 18% year-over-year to $221.4 million. The benefits of operational discipline and a strategic approach to meeting customer demand continue to manifest in stable pricing, firm yields and one of the lowest churn quarters on record.

We now have 6,300 customers around the globe, including more than 100 of the Fortune 500. Over 4,000 Equinix employees support our operations, product development and the execution of our go-to-market strategy to offer the only global interconnection platform in the largest retail data center footprint worldwide. With 161,000 cross-connects and vibrant use of our internet and Cloud Exchange offers we sit at the crossroads of the internet where customers locate inside Equinix to innovate and accelerate their businesses.

interconnection is 17% of our recurring revenue, making it a $400 million annual business, $400 million. The scope, scale, reach, and diversity of our platform remain without parallel. We are continuing to invest in systems, processes and people to ensure consistent service delivery on a global basis and manage the complexities associated with a massively scaled retail business rapidly approaching 20,000 customer deployments and generating over 0.5 million customer interactions each quarter.

We are now live across all regions with Equinix Customer One, our initiative to streamline our quote-to-cash process and standardize our products and services worldwide. This is a major milestone in our drive for global consistency and a critical capability to scale our sales engine and provide a high quality experience for customers.

The importance of global selling is reflected in the business we are winning. Today over 50% of our revenue comes from customers deployed globally across all three regions and over 80% is from customers deployed across multiple metros, showcasing how customers leverage Platform Equinix to support their businesses.

Turning to the Telecity acquisition, we continue to expect this compelling combination to deliver solid value to shareholders of both companies. Telecity announced solid quarterly results this morning which were consistent with our expectations. Regarding the regulatory status of the deal, Equinix has received approval of our request to work through the EU Commission to secure clearance for the acquisition, an efficient process that will use a single regulatory authority to evaluate this transaction.

In anticipation of the expected close in the first half of 2016, we have multiple teams working together to map out an integration plan and determine the optimal organizational structures. We continue to believe the deal offers the opportunity to increase networking cloud density to better serve customers and will enhance our existing European portfolio. As it relates to the broader M&A landscape, we have our eye on the consolidation happening in our industry and will continue to be both proactive and highly selective in pursuit of opportunities that we believe complement our strategy and create significant shareholder value.

interconnection is a critical source of sustaining value for Equinix and we continue to invest here in order to maintain market leadership and execute on our highly differentiated strategy, which is centered on creating and curating digital ecosystems. Revenue from interconnection grew 15% year-over-year, and we added over 6,100 cross-connects this quarter, the fourth consecutive quarter delivering at this level.

Connections to cloud providers from buyers across all vertical markets is a strong driver of interconnection and we also see growth in connectivity among content and network companies as the exponential growth in data drives the need for more piering. Our digital exchange has experienced a sizeable increase in both traffic and ports, with a step-up of 158 ports added on our internet exchange. Fiber and ecosystems where multiple customers are interconnected within a data center generate attractive returns.

Our portfolio of stabilized assets continues to grow at 4% and is tracking to over 32% yields on our gross PP&E investments. The majority of our development pipeline is allocated to current campus expansions to meet demands of existing customers and achieve operational scale that maximizes returns while mitigating risk.

Now let me shift to cover the quarterly highlights from our vertical industries. Inside our data centers networks, clouds, IT service companies and enterprises are interconnecting to offer businesses and improve service delivery and performance by putting systems, applications and data closer to end-users. In the network vertical, we delivered solid growth this quarter with network expansions across all regions to support traffic growth and deliver new cloud services.

Network-to-cloud cross-connects doubled year-over-year as providers deploy new routes to connect traffic and services. There are a variety of catalysts generating growth in the network segment, including mobile computing, which is changing how service providers and enterprises interaction. Equinix is benefiting from the proliferation of mobile applications and content with increased demand driving new interconnection activity.

Mobile operators and major content companies are using Equinix data centers to pier mobile content, aggregate networks, facilitate mobile payments, and deploy roaming exchanges. For the content and digital media vertical, growth was driven by global expansions from players including Criteo, a global French technology company specializing in performance marketing and Tensent, a Chinese media and entertainment and internet firm. We're also seeing an emerging opportunity to support media and entertainment companies that are moving workloads to the cloud leveraging Equinix in the cloud services insider facilities to collaborate on production and editing.

Turning to the financial services vertical, we see continued diversification in this segment with a series of lighthouse wins in insurance, electronic payments, and asset management. New customers this quarter include AIA, a top Asian insurance firm, Currenex, a top 10 foreign exchange that is deploying performance hub, as well as its matching engine in our Secaucus campus and a top five global asset management firm that is deploying across Asia.

Turning now to cloud and IT services, we're experiencing continued momentum across the cloud ecosystem, which drove strong bookings this quarter as major cloud players such as AWS, Datapipe, Oracle and ServiceNow continue to expand. Last quarter we were a major part of both Microsoft's Worldwide Partner Conference and a Google Cloud platform global road show where developers and partners were educated on how to leverage our industry-leading Cloud Exchange capabilities.

Software-based provisioning and control capabilities offered by the Equinix Cloud Exchange are a critical innovation in allowing customers to dynamically create and manage private, secure virtual connections to multiple cloud services over a single port. We continue to see momentum on the Exchange, which is live in 21 markets globally and has over 180 customers provisioned.

In the second quarter, this solution was awarded the most innovative carrier cloud service by light reading, a powerful recognition of our progress and our commitment to delivering steady innovation. To date, our effort to build cloud density inside Equinix has primarily been focussed on private connectivity, particularly for leading infrastructures as service platforms, including AWS, Microsoft Azure and the Google Cloud platform. As customers expand their use of hybrid cloud, we are responding to offer cloud connectivity options that significantly improve the end- user experience for a wide range of software and service applications -- software as a service applications.

Software as a service is the largest segment in the cloud market and is experiencing rapid adoption among enterprises. We have expanded our relationship with Microsoft and later this year we'll begin offering direct access to Microsoft Office 365, breaking new ground with secure private connectivity for one of the most widely used enterprise SaaS applications. We are building features and functionality on the Cloud Exchange to support this application, which paves the way for additional SaaS providers to deliver similar services.

We also continue to expand the diversity of service providers leveraging the Cloud Exchange to deliver services to their customers. This quarter we announced an agreement with Aliyun, Alibaba's cloud computing arm, to provide dedicated and secure direct access to Aliyun's full suite of cloud services.

Turning now to the enterprise vertical, the enterprise vertical delivered record bookings and we are seeing traction in penetrating this vertical as customers seek to rearchitect IT to connect people, locations, clouds and data. We added a record number of new customers, including multiple Fortune 50 firms and secured performance hub wins with Carestream, a healthcare medical device company, and Harmon, a premium audio equipment maker.

Our performance hub solution is now the primary entry point for enterprise clients. Over 190 customers have deployed performance hub to optimize network architectures, distribute applications closer to end-users, enable critical big data use cases and provide efficient, secure, private access to cloud services. By deploying these solutions, customers are reducing operating expenses and improving application performance as well as end-user experience.

For example, a global engineering and construction customer that deployed a performance hub solution at Equinix increased bandwidth per employee by two and a half times. They reduced their operating expenses by 25% and improved application latency by 38%, which was critical for global workforce collaboration. A Fortune 50 industrial conglomerate customer that migrated to a hybrid cloud architecture at Equinix achieved a 30% cost reduction in cloud connectivity per application and over $8 million in annual operating savings.

Turning to our go-to-market strategy, we are expanding our routes to market through our global channel program, which now has over 200 partners, including referral partners, agents, resellers, and cloud and technology partners who are all implementing sell-through and sell-with models. The initial focus is on building the framework, programs and tools necessary to allow partners to effectively embed Equinix as a foundation for their enterprise solutions, particularly with our resellers who today are driving the majority of channel bookings.

For example, Telefonica, a leading global telecommunications provider and an Equinix certified reseller, is helping a key mobile company move to a cloud-based business model. This customer required a large infrastructure enabler to help with their transition to cloud and Equinix delivered a compelling global solution sold through Telefonica.

So as we continue to see broad adoption of the hybrid cloud, we expect an increase in proportion of new growth to come through the channel.

So let me stop there and turn the call over to Keith to cover some of the details and results for the quarter.

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

I'm pleased to have this opportunity yet again to provide you an update on our quarterly performance. Q2 was another very strong quarter with all three regions delivering better-than-expected results. On a normalized and constant-currency basis, EMEA and Asia-Pacific delivered very healthy year-over-year revenue growth at 23% and 26% respectively, while our larger Americas regions produced another double-digit growth quarter of 10% over the same quarter last year.

Our key operating and performance metrics continue to reflect the strength of the value proposition we deliver to our customers. We added 3,800 net billable cabinets in the quarter, the highest level of cabinet installs ever. This is effectively selling the entire capacity of two large data centers in one single quarter. Our MR per cabinet on an FX neutral basis was up slightly to $2,015 per cabinet, or a 1.2% quarter-over-quarter improvement, largely due to increased interconnection activity.

Over the past three quarters the business has shown signs of accelerated growth. Given our success over the first half of the year, particularly the strength of the gross and net bookings, we are meaningfully raising our guidance for revenues, adjusted EBITDA and AFFO. Our updated revenue guidance now implies a normalizing constant currency growth rate of over 15% compared to the prior year, eclipsing last year's growth rate of 14%.

Also we're very pleased to have completed the first six months of the year operating and reporting as a REIT, including paying our first two quarterly dividends and announcing our third dividend earlier today. We also received a favorable private letter ruling from the IRS in May which, for all intents and purposes, matches the specifics of our desired REIT structure. The PLR ruled favorably on how we classify our revenues and assets. Basically interconnection revenues are qualified REIT income and our data centers are qualified REIT-able assets.

Now moving to the slides, as depicted on slide 4, global Q2 revenues were $665.6 million, up 4% quarter-over-quarter and up 16% over the same quarter last year on a normalized and constant-currency basis. Our revenues' overperformance was due to many factors, including strong bookings activity, higher than expected custom sales order activity, net positive pricing actions and lower-than-planned churn.

Q2 revenues net of our FX hedges absorbed a $5.2 million negative currency headwind when compared to the average FX rates of last quarter. Although currencies remain volatile throughout this quarter across all of our operating currencies, there was no meaningful FX impact when compared to our guidance rates, as the EMEA net cash flow hedges continued to offset a good portion of the negative impact attributed to our stronger US dollar.

Our global cash gross profit increased 2% over the prior quarter, although our cash gross margin decreased slightly due to higher seasonal utility rates. Global cash SG&A expenses increased $149.6 million, due to increased sales compensation expense, given the strong booking activity, and lower-than-planned capitalized IT costs, given the rollout in all three regions of our Equinix Customer One initiative.

Global adjusted EBITDA was $311.3 million, above the top end of our guidance range and up 3% over the prior quarter and 18% over the same quarter last year on a normalized and constant-currency basis, largely due to strong revenue flow-through. Our adjusted EBITDA margin was 47%. Our Q2 adjusted EBITDA performance, net of our FX hedges, reflects a negative $3.3 million currency impact when compared to the average rates used last quarter and a $1.4 million positive benefit when compared to our FX guidance rates.

Global AFFO was $221.4 million, or up 26% year-over-year on a normalized and constant-currency basis. Our Q2 AFFO includes approximately $1.3 million in commitment fees related to the Telecity bridge loan. Global net income was $59.5 million, or diluted earnings per share of $1.03, including the acquisition costs of $9.9 million.

Now over the next few quarters we expect our net income to fluctuate due to acquisition and financing costs related to the Telecity acquisition. Also we'll start to hedge our pound sterling net investment exposure for the acquisition. As a heads-up, when we mark to market the hedges, whether realized or unrealized, the fluctuations will flow into the income statement on the other income and expense line and therefore may cause our go-forward as-reported GAAP earnings to fluctuate.

Global MRR churn for Q2 was better than expected at 1.8%, our fourth quarter in a row at this lower level. As previously stated, MRR churn is inherently lumpy, based on the timing of customer decisions and, therefore, as we look forward, we expect our quarterly MRR churn for each of the last two quarters of the year to range between 2% and 2.5%, which includes some of the MRR churn originally expected to occur in Q2.

Now turning to slide 5, I'd like to start reviewing the regional results beginning with the Americas. The Americas region had a strong bookings quarter, lower-than- planned MRR churn and improved pricing metrics. On a normalized and constant-currency basis, the Americas revenues was up 3% quarter-over-quarter and 10% year-over-year. Americas' adjusted EBITDA was flat over the prior quarter, largely due to higher seasonal utility costs over the summer season, and up 11% year-over-year on a normalized and constant-currency basis.

Americas' interconnection revenues represents 22% of the region's recurring revenues and we added 2,600 cross-connects and 102 exchange ports in the quarter. Americas' net cabinets billing increased by 1,100 in the quarter. For new-builds, we're proceeding with our Dallas Seven project. This build strengthens our value proposition in the Dallas market, while taking advantage of our interconnection density in our other Dallas IBXs.

Now looking at EMEA, please turn to slide 6. EMEA delivered another strong quarter with record bookings. We continue to see strength in our Dutch and UK businesses as cloud service providers continue to deploy across these markets. On a normalized and constant-currency basis, revenues were up 7% quarter-over-quarter and 23% year-over-year and adjusted EBITDA margin was up 7% over the prior quarter and 31% over the same quarter last year.

We had another solid quarter of increased interconnection activity adding 1,300 net cross-connects. EMEA interconnection revenues now represent 8% of the region's recurring revenues. EMEA and MRR per cabinet was up 2% on a constant-currency basis to $1,472 per cabinet. And net cabinets billing increased by 1,500.

Over the quarter, we opened additional phases in our key data centers in Amsterdam, Frankfurt and Paris, and intend to proceed with the next phase of our Frankfort 4IBX to support the underlying demand in this robust and improving market for us.

And now looking at Asia-Pacific, please refer to slide 7. Asia-Pacific remains our fastest growing region, with revenues up 7% over the prior quarter and up 26% over the same quarter last year on a normalized and constant-currency basis, driven by strong sales momentum across all of our verticals. Adjusted EBITDA on a normalized and constant-currency basis was up 10% over the prior quarter and 33% over the same quarter last year.

Adjusted EBITDA margin was up over 50% with strong improvement coming from our Japanese business. MRR per cabinet on a constant-currency basis was essentially flat quarter-over-quarter despite a number of large cloud-based deployments installed over the quarter. Net cabinets' billing increased by 1,200 over the prior quarter and we added a healthy 2,200 net cross-connects. interconnection revenues remain at 12% of the region's recurring revenues. For builds, we opened a new phase in Hong Kong this quarter and we have seven expansions currently underway across six metros as we continue to scale our business across this region.

Now looking at the balance sheet, please refer to slide 8. At the end of the quarter, we added $436 million of unrestricted cash and investments, a large decrease over the prior quarter, principally due to the funds we escrowed for the Telecity acquisition and the increasing capital expenditures. Our net debt leverage ratio increased to 3.4 times our Q2 annualized adjusted EBITDA, the results of reduced cash levels and an increase in capital lease obligations.

As we look forward, we expect our pro forma net debt to adjusted EBITDA to temporarily creep above our stated target of 3 times to 4 times to 4.5 times due to that Telecity acquisition. Although, given the cash flow attributes of our model, we should return to our target range over a reasonably short period of time.

Now switching to AFFO and dividends on slide 9. For 2015, we're rating our expected AFFO guidance to now range between $850 million and $860 million an effective dollar increase of $25 million over prior guidance or a 19% increase year-over-year on a normalized and constant-currency basis, the result of strong operating performance. Our AFFO guidance now includes approximately $6.8 million in costs related to the bridge loan.

Also today we announced our Q3 dividend of $1.69 a share, consistent with our prior quarterly dividends. Our AFFO payout ratio equates to 45%. As we look beyond 2015, our REIT transitional year, we continue to believe that both organic and inorganic growth will be the primary ingredient for the steadily growing cash dividend, as well as moving more assets from the taxable REIT structure to the qualified REIT structure.

Now looking at capital expenditures, refer to slide 10, please. For the quarter, capital expenditures were $221.3 million, including recurring CapEx of $27 million. Given our strong and above-expected performance year-to-date, we're closely assessing our inventory and fill rates across our tier 1 markets.

It is our expectation our capital expenditures will now remain at the Q2 levels for the remainder of the year and, therefore, we're raising our non-recurring or expansion CapEx for the full year to now range between $685 million to $735 million. Recurring CapEx is expected to remain consistent with our prior expectations at $115 million. As presented on the expansion tracking slide, we currently have 15 announced expansion projects underway across the globe, of which 14 are campus builds or incremental phase builds. We're currently building across 11 metros worldwide, focusing on investments where we can deliver a differentiated offer and generate attractive returns, prioritizing those markets that support our key ecosystem objectives.

And finally turning to slide 11, the operating performance of our stabilized 67 global IBX and expansion projects has been open for more than one year, delivers steady as-reported revenue growth of 4%, a decrease over the prior quarter, primarily due to a stronger US dollar. Currently these projects generate a 32% cash-on-cash return on the gross PP&E invested, reflecting the premium value these mature campuses deliver, particularly where ecosystems are especially vibrant.

I'll turn the call back to Steve now.

Okay, thanks, Keith.

Let me now shift gears and cover the 2015 outlook on slide 15. For the third quarter of 2015, we expect revenues to range between $681 million and $685 million, a normalized and constant-currency growth rate of 3% quarter-over-quarter, which includes negligible foreign currency impact when compared to the average FX rates in Q2 2015.

Cash cost margins are expected to approximate 68% to 69%. Cash SG&A expenses are expected to approximate $150 million to $154 million. Adjusted EBITDA is expected to be between $313 million and $317 million, which includes a $1 million negative foreign currency impact when compared to the average FX rates in Q2 2015.

Capital expenditures are expected to be between $222 million and $242 million, which includes approximately $32 million of recurring capital expenditures. For the full year of 2015, we are raising revenues to range between $2.685 billion and $2.695 billion, a 15% year-over-year growth rate on a normalized and constant-currency basis, which includes negligible foreign currency impact when compared to prior guidance rates. The revised revenues are a $55 million increase compared to our prior guidance.

Total year cash gross margins are expected to approximate 69%. Cash SG&A expenses are expected to approximate $595 million to $605 million. We are raising our adjusted EBITDA guidance to range between $1.25 billion and $1.26 billion, or a 46.7% adjusted EBITDA margin.

This guidance includes $2 million of positive foreign currency impact when compared to prior guidance rates, or a normalized and constant-currency growth rate of 18%. Excluding this positive currency impact, the revised adjusted EBITDA is a $23 million increase compared to prior guidance.

We expect adjusted funds from operations to range between $850 million and $860 million, or a normalized and constant-currency growth rate of 19%. We expect 2015 capital expenditures to range between $800 million and $850 million, which includes $150 million of recurring capital expenditures.

So in closing, we delivered a strong first half and are delighted to see momentum across all our industry verticals and geographies as customers continue to select Platform Equinix as the key enabler of IT transformation. We are pleased with our team's discipline and execution and the strength of our ecosystems is translating into solid revenue growth, firm pricing and expanding margins, all of which combine to give us the financial fire power to continue to invest in our global service delivery model and develop innovative solutions. Our operating performance reflects the significant role we play in a rapidly evolving digital economy and we will continue to focus on creating sustainable value for our customers and our shareholders.

Let me stop here and open it up for questions, so I'll turn it back over to you.

(Operator Instructions)

David Barden, Bank of America.

Hey, guys, thanks for taking the questions. Good quarter. I wanted to ask maybe three, if I could. Just first, Keith, I think you talked a little bit about North America, or maybe this was global, on pricing -- net positive pricing activity. I was wondering if you could talk a little bit about whether that is more geographic or contract specific?

Second, I think the commentary, Keith, around the churn, around 2% to 2.5% is a bit higher than we would normally expect. If you could address -- if there is some specific expectations that you have for that, or is that just a general conservative estimate?

And my last question maybe, Steve, strategically, I think we understand what Equinix is trying to do, become, really create these platforms, connect businesses to the cloud, and be that glue. I think it's harder to see quantitatively in the Business in terms of whether it's working and how it's contributing to revenue growth. If you could put some meat on the bones quantitatively around watching this strategy unfold, it would be super helpful. Thanks.

Great. Good questions, David. First and foremost, as it relates to net positive pricing actions, we, as a Company, we continue to monitor how we perform as we renew our contracts with our customers. And clearly there are times there are negative pricing actions and, of course, there is positive pricing actions.

Over the last few quarters, the message that we have been delivering is, globally, we're seeing net positive pricing actions, which means the price increases are outweighing, if you will, the price decreases. So, it is a global phenomenon. You can see it across effectively the price points, the MRR per cabinet yields across all three regions.

The second question that I'll take is on churn. When we looked at the year, certainly we were very, very pleased with how we performed in Q1 at 2%. We were delighted with what we saw in Q2, 1.8%, but we really were trying to guide for the total year at somewhere between 2% and 2.5% per quarter. And we said the bias is likely to the lower end. With our overperformance in Q2, we recognize that some of that is timing based and, therefore, we're forecasting it in Q3.

Equally, there is a churn that's going to take place in Europe that we are fully aware of, and had planned for, where a customer had taken down a sizeable piece of space in one of our important data centers, and it was going to get relocated this year. And this is something that was planned for from the outset, and so we are going to absorb that churn in our Q3 and, therefore, Q4 results. And so, there is nothing fundamental going wrong with the Business, and nothing fundamentally causing us concern around the churn area. In fact, it is the exact opposite; we see great momentum, but recognizing that churn is lumpy and it is sometimes based on how customers decide to notify us and why they churn sometimes causes it to get a little bit more allocated to one specific quarter or period, but nothing to be concerned about.

And, David, on the third component of your question, couple of thoughts here. First of all, in the quarter, this quarter, almost -- a little over 30% of our bookings this quarter came from cloud and IT services, and almost 17% of the bookings came from the enterprise vertical. So, in terms of creating this cloud environment to attract enterprises, that is unfolding as we expected, and some of the stats that I spouted out to you, you heard that we've had good success with both enterprises and in the cloud vertical.

The other industry verticals continue to still underpin good growth. So, we have got solid growth across content and digital media, financial services and the network suppliers, all -- actually also pursuing cloud with their end customers, so that we're seeing the same trends as we think about the cloud, how it is affecting everybody. So, we had record net bookings this quarter.

You heard me talk about key wins with the Fortune 50. We're getting use cases and success stories built with big profile companies in several of the industry segments that make up the enterprise. We're starting to crack into the Fortune 500, as I mentioned. We have got performance hub wins being deployed across multiple industry verticals.

The overall strategy to become the enabler of this transformation to the cloud computing paradigm shift is working. The indirect channel is starting to show up for us. We are seeing these enterprises take advantage of the hybrid cloud at Equinix. Actually, our acquisition that Charles and his team oversighted with this company called Nimbo -- we are starting to see the professional service traction take place to help companies bridge and find the hybrid cloud. So, there is good progress across lots of fronts here -- lots of new logos.

Charles, I don't know if there is anything you would add to that?

No, I think you hit most of them. It is a little hard to see the impact at the macro level of the publicly reported metrics. But I think as we dig down into the operating metrics that we're tracking on a week-to-week, month-to-month basis, I think we're definitely seeing the momentum in the numbers that we feel more intuitively. And I think that includes, as Steve said, enterprise bookings over-indexing relative to the revenue proportion. So, that is a growing area.

Enterprise and cloud combined actually combining for the majority of our new logo capture, and so we're having success on both the supply side, or the cloud ecosystem, and now increasingly on the demand side. Good traction in the channel with getting that additional reach into the enterprise. And again, seeing overall very solid results in interconnection, including what we track, which is interconnection between subsegments, meaning, for example, enterprise to cloud, cloud to network, et cetera, with really cloud being a primary driver point there. So, the underlying metrics are definitely indicating some good, solid momentum.

Got it. All right. Thanks, guys.

Michael Rollins, Citi Investment Research.

I had one follow-up and one question. The follow-up is just the FX impact sequentially in the quarter -- can you break that out between the gross FX impact and the hedge?

And then, just more broadly, as you look at the performance in the second quarter, and you look at the guidance for the year, how much of the improvement was from non-recurring revenue, which, from my understanding, you were looking to decline over the next few quarters after some strength in that metric in 2014, and how much is from the recurring revenue? Thanks.

Yes, so, Mike, as it relates to the non-recurring activity, we saw a slightly elevated NR activity this quarter; it was roughly up $5 million over what we saw in the prior quarter. And so, again, recognize when we had our guidance we knew what -- we knew how we thought we were going to perform. And so, it was generally, and most of that was embedded in our forward guidance, but we certainly are more elevated than we originally anticipated at the beginning part of the year.

And if you recall, when we talked, again, two quarters ago or off the Q4 earnings call, at that time we're saying that we're roughly $5 million below on a quarterly basis. So, all that being said, a lot of the growth that you're seeing and the raise in the revenue line, it is attributed, a long part, to the non-recurring activity. So, that's up, again, probably $15 million higher than we thought. The rest is coming from the fact that we're booking more, we're booking faster in the quarter, we're getting the price points, and we didn't experience the churn that we anticipated, and that has been the real driver of our success. It is more coming from the MRR, less coming from the NRR.

As it relates to the question on FX, as I said in my prepared remarks, our net exposure on the revenue line relative to Q1 activity was a benefit of $5.2 million -- sorry, it was a negative -- it was a headwind of $5.2 million on the revenue line, $3.3 million on the EBITDA line. When we look at the net hedge impact quarter over quarter, it's basically a negative $700,000 on the revenue line, and basically a negative $400,000 on the EBITDA line. Again, that is taking the hedge that we had in place in Q1 or the benefit of the hedge we had in Q1, and then offsetting it by the benefit in the hedge we had in Q2.

Okay. Thanks very much.

Jonathan Atkin, RBC Capital Markets.

Thanks. So, on the Telecity transaction and the regulatory scrutiny that's currently taking place at the EC level, I wondered if you would go into a little bit more detail. Are we looking at this combination purely on a regional level or also at a national level? And is there any national-level review by country-level governments that goes on concurrently for the review -- to the EC-level review.

And then on a related topic, just M&A, given the situation with Digital Realty and Telx and you are a top customer of each of those companies -- just wondered how to think about the potential strategic or even commercial impacts on your Business from that combination?

Sure. Why don't I start, and then Keith and Charles, why don't you guys chime in here.

Let's start with the Telecity question, Jonathan. As I mentioned in my comments, we're moving forward at the EU level with the EU commission, which we think is going to be a more efficient process because we're dealing with a single authority. So, that's the approach versus going country by country. So, it will be a little bit more efficient, we believe. We got the approval to move forward with the antitrust review at that level. I think that was the nature of your question. And we're well into that process. So, we're full speed ahead with that interaction, as we speak.

That doesn't change any of the timing for this. We're still anticipating a first-half 2016 close. And all of the other commitments we made to you around value-creation sources, et cetera -- nothing has changed on any of that.

The work that we're able to do now because of -- the rules around the UK take-over panel is that there is integration planning going on, as I mentioned, Jonathan, and we've actually put retention and incentive programs in place. And as you heard on the results this morning, Telecity is moving forward in a good format and a good fashion. So, I think we're very happy with what we see here, and all the planning is on a good path. (multiple speakers)

Just specifically to your question, there is no parallel review at a national level. The countries were provided an opportunity to object to an EU review; forewent that objection, and have now yielded to essentially the European Commission to do the review.

Yes, yes, thanks. And then -- does that answer your question, Jon?

Yes, it does.

On the first part? So, on the M&A stuff, obviously we have our eye on the M&A -- or on the consolidation activity going on in the industry. And as a team, I would tell you that we're continuing to be very thoughtful about where we focus and how we create shareholder value and how we continue to expand our global leadership position. So, we're going to remain, as I mentioned in my comments, very proactive but highly selective on where we focus our attention.

We were obviously well aware of the Telx transaction that was taking place. I won't make really any comments about that, other than to tell you that our interests remain the same. We're going to try to scale this platform globally. We're going to try to deepen our interconnection and network density as we look at M&A activity, and we're going to continue to try to capture the cloud and enterprise marketplace that we talk so much about.

So, we'll continue to -- we compete with both those entities around the edges, as you know. We'll continue to compete on the basis of our own merits. And the value creation that we deliver to our customers. I think we feel good about the platform we have in place.

I would tell you that our belief internally is that the platform that we have around the globe is very difficult to replicate. The degree of difficulty to replicate globally at an at-scale level consistent with the service delivery that we deliver around the world with the services that we have is extremely high. So, we feel confident that we're well positioned to continue to compete, even with this combination.

Jonathan, I would add that you mentioned specifically the fact that we are indeed a significant customer to both of those companies, and we would expect that to continue to be the case. Because, in fact, that represents the continued momentum of our Business. In the case of BLR as a landlord, we have secured very long-term contracts to allow us to maintain strategic control of the assets that are critical to our future and to us executing on our strategy.

And in the case of Telx, in order for us to prosecute our interconnection business, in some instances we are using them to provide some of the services in terms of the interconnection going through certain meet-me rooms. And because of the momentum in our Business, we're actually contributing to their interconnection because of that momentum. And so, may that continue. We certainly like that.

But in terms of the competitive threat of that, and what the combination looks like, again, I would go back to Steve's comments, which is, our customers are really continuing to respond to our value proposition, looking for global access to rich network connectivity, which we believe we provide in a best-in-industry basis, diverse, secure, high performance, private connectivity to cloud service providers around the world, which we also provide. And then, consistent, scalable operations that can respond to their rapidly changing requirements; something that we've invested a boat load of money in, and that we have a lot of people around the world ensuring that they can do with excellence day after day. We feel good about our ability to compete effectively with the combination of any players -- any set of players in the industry.

Thank you. And then just a quick question on sales: You mentioned the channel, and I wondered what portion of bookings this quarter, compared to prior quarters, came from indirect partners? And then, on the direct side, can you give us an update on the sales, headcounts versus the prior quarter?

We haven't really typically broken out the specific percentage of indirect channel bookings, but I will say that it is on the rise. And, in particular, our reseller community, with whom we are engaging in sell-with motions, the market is still somewhat immature. That is the reality.

The enterprise market are still looking for solutions to their adoption of hybrid cloud, and that means they typically engage with us and with partners to deliver a more complete solution, and we're seeing really good success with our key resale partners. So, that's where the real momentum is in our channel efforts.

As it relates to the direct side, about 220 quota-bearing heads worldwide. We will look to probably increase that on the margin where we're seeing success in certain markets, and that is true in all three regions. In fact, I just recently reviewed with each of our regional Presidents, their plans as it relates to adding sales headcount in response to market conditions. And all of them, in a quite disciplined fashion, are looking to do that, where we believe we have latent demand that we can capture in the market.

So, that won't be a huge number, but we think that given the momentum we have in the market now, we would continue to add. But we're at 220, and I would expect another perhaps 20 or 30 heads to come in over the next several quarters, based on continued momentum.

Thank you.

Jonathan Schildkraut, Evercore ISI.

Great. Good afternoon. Thanks for taking the question, guys.

So, listen, I guess I have one question about the guidance, and then just one question about where the stock is. So, on the AFFO side, you guys have done about $440 million, a little north of that, through the first half of the year. And the guide for the full year implies, obviously, a deceleration in the back part of the year. And just looking at where your EBITDA guidance is, it shows steady progression as we go through the course of the year. So, I would just like to get a sense as to what's happening from the EBITDA down to the AFFO line from a translation perspective that wouldn't have the same similar growth pattern.

And then I'll come back for a second. Thanks.

Yes, Jonathan, I think the biggest change -- if I give you a bridge of the operational performance -- if I look at AFFO and give you a bridge of the operational performance and we say, look, we're improving and, yes, this will continue throughout the remaining part of the year, but offsetting that are two things. Number one, and the biggest thing, is really interest expense. And part of that interest expense is attached to basically the $7 million for the commitment fee that we're paying on the bridge fee for the Telecity acquisition.

But part of it is when we actually put in more capital leases, we take it from operating to capital, we have some impact there. When we take large projects like we had -- we had the big five projects in Q1 that went live, and that was, as you recall, Singapore 3, Melbourne 1, Toronto 2, New York 6 and London 6, interest that was otherwise capitalized in those transactions now also moves into, if you will, the operating line and that affects AFFO.

Principally speaking, we continue to see continued momentum in our ability to drive up the EBITDA. And generally speaking, AFFO will translate with that over a period of time, but there is some anomalies that are taking place over the latter half of the year, primarily because of our construction activity and the acquisition.

Okay. Great. So, look, since the last time we got on a call, you guys have gotten the PLR, which I think everybody was pretty excited about. And earlier in the year, there was a lot of progress on index inclusion. The RMZ is still out there.

I think the last time we spoke, you guys were still looking for your GICS code to get changed. Maybe can you take us up to date as to where that process is and how we might think about new index inclusion through year end would be helpful. Thanks.

Sure, Jonathan. This is Steve. I'll give you just a quick update. As you know, we were added to the FTSE NAREIT index, which happened pretty quickly. I think it was March time frame.

The GICS code did change in June of 2015. We're now in the specialized REIT sector. And they do quarterly reviews. And I think the selection time frame -- Katrina and Paul are working hard on that, but I'm not sure when we're clear on when -- which quarterly review will be considered.

Also, the team is staring at the iShares Dow Jones REIT index. We've made initial contact, but have somewhat limited visibility in terms of how that is going to proceed.

So, those are the three activities we've had going on. They do quarterly reviews, and we have been tracking that and we'll track that pretty closely.

All right. Great. Thanks for taking the questions.

Simon Flannery, Morgan Stanley.

Thank you very much. Steve, you talked about the industry M&A going on and that you would be selective, but you'd certainly look -- so, perhaps you can just expand on that comment. I think most of your expansions have been, as you said, campus builds and existing metros. Obviously, Telecity gets you some new markets in Europe. But are you looking -- give us some color -- are you looking to perhaps get into new markets in Asia or other locations?

And then, it is nice to see the acceleration up to that 15% level. I think in the past you've talked about a TAM that is growing high-single, low-double digits. Is your share gain accelerating, or do you think the growth rate of the TAM has also picked up? Thanks.

Sure. Let me start, Simon, and Keith and Charles can chime in here.

But on the M&A color, as I mentioned to the previous question earlier here, I think from David, our focus on M&A activity is active. We have an active game board. We have three heavy filters that we tend to put any regional input through, which is -- can it scale the platform? Can we enhance our interconnection and network density, secondly? And then thirdly, can we do something that will accelerate our capture of cloud and enterprises to come in and connect to the cloud.

So, most of our activity -- we put most of the deal flow through those three lenses. And if you go back and look at our 10 or 11 acquisitions, we can point to some combination of those three things.

I would tell you most of the activity is outside of North America. Latin America, as I've mentioned to you guys in the past, is of interest to expand the platform beyond Brazil, when and if the opportunities exist. In Asia, we're continuing to look at going deeper into China. We're working very hard in that market to try to expand beyond our footprint in Shanghai, and that's of high importance to us.

India will remain on the radar scale for us, but India -- finding the right partner and the right timing has proved challenging. But across other parts of Asia there are opportunities. And then in Europe, I think the Telecity activity is going to consume us, as you might imagine, but put us in six, seven new markets and strengthen our footprint in the existing markets.

That is where our focus is today. I think someday you're going to see us show up in South -- probably to start in South Africa as we head to that part of the world, and there will be opportunities there that might broaden our reach in that part of the world.

As far as the TAM is considered, Charles do you want to talk about the TAM?

Sure. I think, obviously we're encouraged and delighted with the acceleration in the Business, and achieving that 15% growth rate is something we feel very good about. We do think that that reflects a combination of factors that include us continuing to gain share. But obviously when you think about TAM, it is always a matter of how you were defining it.

I think what we would say is that the TAM for the portion of the market that we believe is particularly relevant to us where our value proposition is strongest is, indeed, accelerating. And we think that it is accelerating due to the fact that enterprises are, in fact, adopting hybrid cloud as the IT architecture of choice. And so, as we look at offers like our Performance Hub solution, Cloud Exchange, being able to really enable and empower companies to do these hybrid cloud kind of architectures, and implement them inclusive of the professional services required to get them there, we believe that market is indeed -- the total addressable market there is indeed accelerating, but we also think we're capturing additional share. It is probably a combination of those things.

I would say that when we said that the macro market was high-single, low-double digits, I think that we are seeing, I think, above that in terms of targeted markets around this enterprise IT transformation and cloud adoption. But we also, I think, are getting more than our fair share of that. So, I think we continue to overperform relative to the market, and expect that that will continue in the future.

Great. Thank you.

Colby Synesael, Cowen and Company.

Great. Thank you. Two questions, if I may?

One is: I was hoping to get an update on your Business Suites strategy. How many markets you're in with that product now, perhaps the percentage of revenue that's being driven off of that, what customer demand has been?

And then the second question is more housekeeping and tied to the model: Can you just tell us what share count we should be using for 2015 AFFO per share when we're putting that into our model? Thanks.

Why don't I take the first one, and then I'll obviously kick the second one back to Keith.

So, Colby, as you know, Business Suites is something that we responded to in evolving market demand, in terms of people looking to implement multi-tiered architectures. And that continues to be a phenomenon that we see. As you know, we have continued to have a very strong discipline around right customer, right application, and the right assets. And, frankly, it's that discipline that's driving the pricing behavior that Keith talked about earlier, and driving the churn dynamics that we're seeing, which is improvements in both of those areas.

But as it relates to Business Suites, we've seen some success in that. It is really in a small number of markets. We've really implemented a product like that essentially in Ashburn and in New York. And even in those markets, we're evolving it based on our updated understanding of the customers' requirements.

And so, what we're finding is that we're now implementing a more complete hybrid cloud solution that often looks like a Performance Hub implementation, which is a smaller implementation, more network-dense, more rich in connectivity to other clouds, but often paired with a slightly larger implementation that may be in an adjacent site or in a different metro that allows them to put certain applications there that allow them to really fully implement hybrid cloud. And so, we're evolving it a bit.

We continue to build out sites that we think can support that sort of multi-tiered architecture. You will see upcoming announcements from us relative to how our product set is evolving to meet that demand. And we feel very good about what we're doing to really support the complete need of the enterprise customer.

Colby, on the second question, I'm going to refer you to two slides. On slide 14, we give an appropriate bridge of our AFFO, and, consistent with my comments that I made to Jonathan earlier, you can see how AFFO plays itself out for FY15. Effectively, AFFO is going to run at the same rate -- with increased AFFO at effectively the same rate as we increased EBITDA for the remaining part of the year.

As it relates to share count, I refer you to page 33, which gives you our fully diluted, weighted average share forecast. And we give it to you in all different shapes and sizes, so that you can look at it based on what your needs are from an actual number to a weighted average number to a fully diluted number. So, I think that will be a good representation for you to use. And to the extent there is any follow-up questions, happy to take that, or Katrina and Paul will be happy to talk to you about it as well. Page 33 is a pretty detailed analysis of our diluted share position.

Looks like, then, I should be using the 59 million and I guess, what, and change for -- I guess for the full year?

Yes, 59 million, if you -- 59 million if you're going -- when you look at a fully diluted basis with convertible notes. If you want to look at it differently on -- those notes will convert in 2016. But you want to think a little bit about what might happen with the special distribution, which is, theoretically it will be probably a Q4 event for us. You know, you're in the 59 to 60 million shares zip code.

Great. Thank you.

Okay, Colby, thanks.

Mike McCormack, Jefferies.

Hey, guys, thanks. Maybe just a quick comment on the Asia-Pac MRR per cabinet: I know, Keith, I think you said you had some pretty large cloud deployments. How should we think about that as we go through the back half of the year? Do you expect more big clouds coming in there that would continue to weigh on that?

And then maybe just a broader question on REIT investors and your recent conversations -- their appetite and interest in the Company?

Sure. I think, Mike, just to address the first question, again, the Asia-Pac region, you can see by the level of growth that they've experienced both on an as-reported and on an FX-neutral basis has been quite substantial. And as a result, you've also seen the amount of activity that they're actually selling into the IBXs. So, any time you have that type of growth, that type of volume going through the system, it takes time, if you will, for the interconnection and the other services to catch up. So, that is one aspect of it.

The second aspect, of course, we have been very, very successful in Singapore with our cloud deployment. And because of that, you tend -- it comes in size, and when it comes in size it generally comes at a different price point. And so, that also is a little bit dilutive to the overall message. And then, of course, currency is equally causing some fluctuation.

So, overall, we're pleased with what we see in Asia-Pacific. We're not surprised by the price points we're at. And going forward, depending on the momentum, I would tell you that we would expect firmness across the board, whether it is Asia or the other regions, on our average yield per cabinet.

And then, I'm sorry, I've lost track of the second question -- on the REIT investors?

Yes, just the appetite on the recent feedback you've been getting.

Overall -- look, it is no surprise to you that we're meeting with a number of REIT investors. Katrina and Paul do a good job of looking out for those type of investors who have taken a broad interest in basically our story. We think it is a very compelling story, as we have said before. We're going to mix yield with basically a faster-growing company, and that's evidenced by our results posted today and our forecast for the rest of the year.

We think we can deliver a total shareholder return to all our investors, but particularly those REIT investors who like our story, in a very meaningful way. So, from our perspective, we will continue to focus on them. We are gaining momentum. We certainly have interest in our story, and we spend a lot of energy talking with those investors.

Great. Thanks, guys.

Great. Thanks, Mike.

Thank you. That concludes our Q2 call. Thank you for joining us.

That concludes today's conference. Thank you all for participating. You may now disconnect.