Equinix Inc (EQIX) 2019 Q4 法說會逐字稿

Good afternoon, and welcome to the Equinix Fourth Quarter Earnings Conference Call. (Operator Instructions) Also, today's call is being recorded. If there's anyone that has objections, please disconnect at this time. I'd now like to turn the call over to Katrina Rymill, Vice President of Investor Relations. You may begin. Thank you.

Thank you. Good afternoon, and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements 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 22, 2019, and 10-Q filed on November 1, 2019. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of regulation for disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter, unless it is done through an exclusive 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 have made available on the IR page of our website a presentation designed to accompany this discussion along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about Equinix on the IR page from time to time, and encourage you to check our website regularly for the most current available information.

With us today are Charles Meyers, Equinix's CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. (Operator Instructions)

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

Thanks, Kat. Good afternoon, and welcome to our fourth quarter earnings call. We had a strong finish to 2019 and the momentum within the team and across the business is clearly evident, reflecting solid execution of our strategy and indicative of the tremendous opportunity in front of us. We closed over 17,000 deals in 2019, demonstrating the extraordinary scale of our retail go-to-market engine and the differentiated nature of the Equinix value proposition.

The pace of digital transformation continues to accelerate, creating seismic shifts across industries, as businesses embrace interconnection as critical to their infrastructure strategy and adopt hybrid and multicloud as the clear architecture of choice. The secular forces driving demand for digital infrastructure are as strong as ever. Data is being created, moved, analyzed and stored at unprecedented levels. These dynamics are expanding the Equinix addressable market, as customers seek to distribute infrastructure globally, responding to increasingly demanding workloads and the need to locate and interconnect private infrastructure in close proximity to a rapidly expanding universe of cloud-based resources.

Against this backdrop, we continue to focus on 4 critical vectors to position the business for significant value creation in 2020 and beyond. As it always does, it starts with our people. We will continue to invest first in our people, our organization and our culture in order to attract and inspire market-leading talent in service to one another, enabling us collectively to be in service to our customers, to our shareholders and to the communities in which we operate.

Second, we'll continue to evolve and grow our go-to-market engine, targeting the right customers with the right workloads in the right locations, amplifying our reach via the channel and ensuring that our sales and service delivery capabilities continue to be globally aligned and locally responsive.

Third, we will continue to invest in Platform Equinix, expanding our global reach while also adding new services and capabilities that will allow customers to more flexibly combine Equinix's value with that of our partners to more quickly implement hybrid and multi-cloud architectures at the digital edge.

And fourth, we will focus on simplifying and scaling our business, implementing our own targeted digital transformation initiatives focused on increasing operating leverage and enhancing our customer experience. These areas of focus and our long-term orientation will allow us to widen the moat around our business, enhance our yields and increase service attach rates, enabling us to deliver durable revenue growth and attractive AFFO per share.

Expanding our reach remains a core tenet, and we now operate across 55 metros in 26 countries, as we recently closed our Mexico acquisition and will open new markets this year, including Hamburg and Muscat. The benefit of our unparalleled reach is reflecting in strong cross-regional activity, which continues to trend positively, with multi-metro customer revenues ticking up to 87%.

We also continue to make significant progress with our hyperscale strategy, with 6 announced projects underway across all 3 regions and a strong pipeline of customer demand. We are already looking to expand our European JV and advancing additional JV conversations in Japan and other targeted geographies. This strategy will enable us over time to extend our leadership in the cloud ecosystem, while mitigating strain on our balance sheet and maintaining market-leading returns.

Turning to our results, as depicted on Slide 3, revenues for the full year were $5.6 billion, up 9% year-over-year. Adjusted EBITDA was up 10% year-over-year, and AFFO was meaningfully ahead of our expectations for the year. Interconnection revenues grew 14% year-over-year, driven by strong customer response to the Equinix Cloud Exchange Fabric, good traction in our new Internet exchange markets and solid interconnection adds. These growth rates are all on a normalized and constant currency basis.

Our interconnection differentiation continues to pay dividends as we expand our product set, driving growth and customer value. We now have over 363,000 interconnections, and delivered our 12th consecutive quarter of adding more interconnections than the rest of the top 10 competitors combined. In Q4, we added an incremental 7,400 interconnections fueled by high gross adds to support new streaming services, expanding inter-metro connections and seasonably lower churn. Peak Internet exchange traffic grew by 10% this quarter, also helped by these new OTT video offerings.

ECX fabric is diversifying well as an exchange platform, with over 2,000 customers now connecting their own deployments to over 600 other participants on the platform. Our longer-term vision for Platform Equinix continues to take shape, influenced by direct feedback from our customers and partners. Our network edge offering, which provides customers access to a number of different virtual network functions provisioned over ECX fabric, is tracking ahead of plan, and our announced acquisition of Packet represents a bold move to accelerate our strategy to help enterprises quickly and seamlessly deploy hybrid and mostly cloud architectures on Platform Equinix.

By combining Packet's market-leading hardware automation capabilities with our platform, and integrating directly with the ECX Fabric, we intend to create a world-class enterprise-grade bare metal offering that allows customers to rapidly deploy digital infrastructure at the edge with differentiated performance and robust integration to the public cloud. We expect the Packet transaction to close in Q1, and look forward to updating you further on progress of our Platform strategy.

Now let me cover highlights from our verticals. Our network vertical achieved solid bookings, with robust reseller activity from our global NSP partners as well as continued expansion activity across various network sub-segments. New wins included RTI Connectivity, a leading subsea cable operator, extending their solutions in Tokyo and Sydney. We also launched an expanded partnership with Telstra, enabling full API integration with ECX Fabric, giving enterprise customers on-demand access to Telstra services across 38 metros, a good example of how we're automating connectivity with key partners to their last mile networks via the ECX Fabric.

Our financial services vertical achieved its third-highest bookings led by capital markets providers and large multinationals as cloud adoption accelerates. New wins included a top 3 Nordic bank rearchitecting their global network for digital payments and a Fortune 500 financial advisory firm transforming their network topology.

Our content and digital media vertical saw record bookings, led by APAC and strength in gaming, publishing and e-commerce, as cloud adoption continues to shape this vertical. Expansions included a Fortune 500 media company, expanding to launch new OTT delivery services, and a multinational conglomerate building out its edge to support growing multiplayer online gaming in South America.

Our cloud and IT vertical saw strong bookings led by APAC, and double-digit growth in services and infrastructure, as cloud customers diversify. Equinix continues to be the clear global leader in cloud connectivity, with over 40% share of total cloud on-ramps and 15 new on-ramps added in 2019, 5x the nearest competitor. Our enterprise vertical saw healthy and high-quality new logo adds, with continued strength in manufacturing, health care and retail, as enterprises build out hybrid architectures. New wins included a Fortune 150 retailer, building out infrastructure to support digital transformation, and a global life sciences firm, enabling multi-cloud capabilities.

Our channel accounted for more than 27% of bookings, and we are very pleased with the progress we made in building this important go-to-market vector. 2/3 of our channel bookings are now driven by resellers with integrated solutions like Performance Hub and ECX Fabric delivering faster, more predictable order flow. We're working together with these resellers to more effectively productize joint offerings to bring mutual customers the benefits of Platform Equinix enhanced by our partner services.

New channel wins this quarter included a win with Telindus for the city of Amsterdam as well as a win with Optus to support Children's Cancer Institute of Australia, with data analytics for genomics research, highlighting how with partners we are truly better together, and reminding us of the far-reaching impact of Platform Equinix in helping make the world a better and healthier place.

Now let me turn the call over to Keith to cover the results for the quarter.

Thanks, Charles. Good afternoon to everyone. As highlighted by Charles, what a great way to end the year and an even better way to start a new one, very similar to last year. We delivered $5.6 billion of revenues, and as reported, increase of slightly under $500 million compared to last year, or a 9% year-over-year growth rate on a normalized and constant currency basis. AFFO per share scaled to $22.81, and as reported year-over-year increase of greater than 10%, better than our expectations as we drive value on both the top line and at the per share level. Our core strategy, our go-to-market engine and our team are delivering performance at a very high level as we continue to separate ourselves from our competitors. And our strong fourth quarter performance sets us up nicely to invest in growing and scaling the business in 2020.

We continue to fund organic expansion and new product and services initiatives, while also scaling our go-to-market efforts. These investments are directly attributable to the volume of high-quality, interconnection-rich wins across both our direct and indirect channels. Our MRR per cabinet metric remained strong, largely due to solid pricing discipline, favorable deal mix and positive interconnection momentum.

We have an active construction pipeline, expanding our global platform with 32 projects currently underway across 23 metros in 15 countries. We'll leverage our recently achieved investment-grade credit rating to reduce our future debt service burden, as initially demonstrated by our fourth quarter $2.8 billion debt raise to favorably refinance a portion of our outstanding high yield debt. Our financial strength remains a significant and strategic advantage.

Now let me cover the quarterly highlights. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on Slide 4, the global Q4 revenues were $1.417 billion, up 8% over the same quarter last year, our 17th year of consecutive quarterly revenue growth, a trend that we expect to continue as we look into 2020. We had our second best gross and net booking quarter, largely due to strong organic performance, coupled with net positive pricing actions again, and then some delayed churn. Q4 revenues, net of our FX hedges, included a $4 million positive FX benefit due to the stronger euro and British pound in the quarter when compared to our prior guidance rates.

Global Q4 adjusted EBITDA was $676 million, up 9% over the same quarter last year, and better-than-expected due to lower-than-anticipated employee costs and utilities expense. Our Q4 adjusted EBITDA performance, net of our FX hedges, included a positive $1 million FX benefit when compared to our prior guidance rates. Global Q4 FFO was $473 million, above our expectations on a constant currency basis, while absorbing the seasonally higher recurring CapEx investments similar to last year. Interconnection revenues were very strong across all 3 regions this quarter, reflecting the benefit of our global platform and diversified product portfolio. Interconnection revenues now represent 18% of recurring revenues, a significant quarter-over-quarter step up. The Americas and EMEA interconnection revenues are now 24% and 10% of recurring revenues, respectively, while APAC stepped up to 15%, a meaningful increase throughout the year.

Turning to regional highlights, whose full results are covered on Slides 5 through 7, APAC and EMEA were the fastest MRR-growing regions at 13% and 12%, respectively, on a year-over-year normalized basis, followed by the Americas region at 4%. The Americas region saw continued strong bookings both local and export, with a high mix of small deals and healthy pricing, and the Dallas market has been a highlight for the Americas business. We've seen healthy performance with our existing Infomart asset, and we're eager to complete our new build adjacent to the Infomart, which will be known as Dallas 11. And we closed the Axtel acquisition in Mexico in January, and have already received favorable inbound queries from multinational and carrier communities. We're eager to start our expansion efforts in Mexico, thereby enhancing our interconnection opportunities between North, Central and South America. Looking forward, we expect Americas revenue growth to trend upward to 5% or greater as we progress through 2020.

Our EMEA region saw continued growth throughout 2019, largely driven by our 4 largest markets: Amsterdam, Frankfurt, London and Paris, as multinationals deploy their infrastructure across these major regional hubs. EMEA again had robust billable cabinet additions and firm deal pricing, as reflected in our solid MRR per cabinet metric. Export bookings continue to remain high across the region, and for the first time ever, EMEA export bookings were greater than their import bookings, a reflection of the continued globalization of our go-to-market activities.

And Asia Pacific region saw record bookings with an uptick in small deal activity and strength in our Australian markets. Also, our investments in new markets like solar are progressing well, and we're starting to see the front edge of a new ecosystem developing as key domestic NSPs deploy their infrastructure into these assets.

And now looking at the capital structure, please refer to Slide 8. At year-end, our unrestricted cash balance was approximately $1.9 billion, which included about $344 million of cash that was used in January to redeem the remaining portion of the debt we financed in November 2019. Our net debt leverage ratio was 3.7x our Q4 annualized adjusted EBITDA within our targeted range. We continue to expect to drive substantial interest savings into our AFFO per share metric, as we refinance our currently outstanding debt over the next 12 months, taking advantage of current market conditions. As you would expect, the national trade-off will be the cost attributed to the call premium or make-whole provision, offset by the present value of the future interest savings. Of course, we want to make each of these transactions net present value positive, while negotiating the best terms and conditions for the business. To be clear, there is no benefit attributed from our future refinancings in the current AFFO per share guidance.

Turning to Slide 9. For the quarter, capital expenditures were approximately $715 million, including recurring CapEx of $81 million. We opened 9 new expansion projects in the fourth quarter, including new IBXs in Melbourne, Singapore and Sydney, while we added another 13 projects for expansion tracking sheet. This gives you a sense of the level of activity in the business and the speed that we're building and filling capacity. We continue to expand our ownership, acquiring additional land for development in Frankfurt, and purchasing -- and we purchased our Toronto 2 IBX. Revenues from owned assets increased to 55%.

Our capital investments delivered strong returns, as shown on Slide 10. Our 136 stabilized assets increased recurring revenues by 3% year-over-year on a constant currency basis, while total stabilized asset revenue grew 2% due to lower nonrecurring revenues this quarter versus the prior year. We expect our stabilized asset growth rate to trend up to 3% to 4% in 2020. And similar to prior years, we'll update the stabilized asset summary on the Q1 earnings call. Our stabilized assets are collectively 84% utilized and generate a 30% cash-on-cash return on the gross PP&E invested. And please refer to Slides 11 through 15 for our summary of 2020 guidance and bridges. Do note, our 2020 guidance includes the anticipated financial results from the Axtel acquisition, but does not include any financial results related to the pending Packet acquisition.

Starting with revenues, we expect to deliver an 8% to 9% growth rate for 2020, delivering over $6 billion in revenue, a reflection of the continued momentum in the business and the opportunity that we see in front of us. Our 2020 revenue guidance includes $18 million to $22 million of revenue attributed to Axtel. And MRR churn is expected to remain in our targeted range of 2% to 2.5% per quarter for the year.

We expect 2020 adjusted EBITDA margins of 48%, including integration -- sorry, excluding integration costs, the result of strong operating leverage in the business, offset in part by expected higher utilities and property tax expense and a meaningful investment in our go-to-market and product organizations. Also, we expect to incur $10 million of integration costs in 2020 to finalize the integration of the various acquisitions. 2020 FFO is expected to grow 11% to 14% compared to the previous year, and our AFFO per share will grow 9% to 11%, excluding any benefit attributed to future refinancing activities. And we expect our 2020 cash dividends to increase to approximately $912 million, a 10% increase over the prior year or an 8% increase on a per share basis.

So let me stop here. I'll turn the call back to Charles.

Thanks, Keith. In closing, 2019 was a great year for Equinix. We took significant strides and continued to execute effectively on the ambitious agenda we outlined to you at our Analyst Day in 2018, positioning the business to effectively scale and capture the enormous opportunity ahead. We dramatically scaled our go-to-market machine to capture the rapidly growing enterprise opportunity. We embarked on a broad change agenda to drive consistent global execution. We added significant talent to respond to the technology shift shaping our industry, including 2 outstanding additions to our Board in Sandra Rivera from Intel and Adaire Fox-Martin from SAP.

And as we undertook these changes, we communicated tirelessly and engaged our teams around the globe to be part of re-architecting our collective future together, achieving record levels of employee engagement, market-leading organizational health scores and being recognized as a global leader in sustainability. We aggressively worked the balance sheet side of the business, raising more than $4.5 billion in debt and equity and achieved an investment-grade credit status. We delivered on our commitment to form a hyperscale JV joining forces with a world-class partner to advance our cloud aspirations while avoiding undue strain on our balance sheet.

And the market is taking notice as we were recently recognized by IDC MarketScape as the top leader in their inaugural Worldwide Colocation and Interconnection Vendor assessment. In 2020, we will continue our focus on evolving Platform Equinix, adding new capabilities and service offerings to better meet the digital transformation needs of our customers. We will continue to scale our global multichannel sales engine to support growing bookings, and we'll focus on providing a more seamless and globally consistent digital experience for our customers to improve the adoption and consumption of Platform Equinix.

I'm as excited as ever about the future of Equinix and honored to work with our dedicated teams around the world in service to our customers, to our communities and to our shareholders.

So let me stop there and open it up for questions.

Our first question will come from Jon Atkin with RBC.

I wanted to ask an operational question and then a question about xScale. So on the operational side, I wondered if you could call out any trends that you saw around sales cycles lengthening or shortening closing rates. Any different than what you've seen in book-to-bill that is any different from what you've seen historically?

Sure, Jon. I'll take the first one -- and maybe first couple, and maybe you can comment on book-to-bill. The -- in terms of win rates and sales cycles, I wouldn't say any meaningful change. I do think maybe we're getting a bit better. I think that our targeting of the enterprise -- in the enterprise space, in particular, continues to improve. And I think we're probably seeing perhaps some shortening of sales cycles. But they're still -- I think we're still fairly early in terms of customers thinking through their long-term hybrid multicloud architectures. And so oftentimes, they are -- they do continue to be longer sales cycles. Once landed, I definitely think we're seeing a shortening in terms of their ability to expand their wallet share, or us expand wallet share with the customers.

And then win rates, I think, are probably pretty stable. If anything, I think, going up. We're -- again, we're doing a really nice job. I think, of targeting. I think our value proposition continues to resonate with customers, and overall, we've been very pleased with the performance of the go-to-market engine.

Sorry, Jon, I just want to make a mention of the book-to-bill. There's no meaningful change in our book-to-bill. In fact, as Charles said, once we land them, we tend to move very fast to install the customer. But what I would tell you is no surprise, when you look at our -- this quarter relative to -- so Q4 relative to Q1, the timing of different events caused us to report our revenue slightly differently. So the timing of when you book something versus when you might churn. And so, as an organization, I think we're seeing exactly -- as it's happening exactly as we planned, but there is no meaningful shift in what I call book-to-bill interval in the business.

And then one more operational question, just in terms of churn. And as you look at 2020, are there any influences this coming year different than we saw in 2019 related to customer migrations or really anything else?

No, I would say it's a pretty linear sort of extrapolation of what we saw last year. I think some of the pressure, for example, on stabilized asset growth is coming from the fact that there is some level of cloud substitution, that's something I've talked about before. But it's really a matter of, I think, people kind of really figuring out what their workload sort of distribution is going to be between private and public infrastructure and making those adjustments. But as we said, we've been able to comfortably kind of live within the 2% to 2.5% range, and we continue to feel comfortable with that going forward.

And then my xScale question is just any sense around timing around JV arrangements outside of Europe? And how they might differ structurally from what you have in place already? And then for xScale Europe JV that's already in place, how do we think about the impact on AFFO per share?

Yes, I'll let Keith take the latter, but the -- in terms of timing, we've learned not to draw too bright a line because the complexities associated with sort of getting these things closed out from a tax and treasury and REIT standpoint and various other factors always seems to be more than we think. But I would say that I think we're making really good progress. Jim and Eric and the whole xScale team along with a lot of -- an army of people on our tax and treasury teams and various other elements within the organization are working hard on getting those things going. I think you're going to see good momentum during the course of 2020 for us on the xScale side.

And then as it relates to the impact on the quarter on xScale, the largest impact that you really saw was the amount of cash that came into the business. As you recall from the Q3 earnings call, we had $355 million of cash come on to our balance sheet. And there's roughly EUR 60 million of what we refer to as milestone payments that would come over the next sort of 12 to 24 months in the business. As it relates to the operating performance, we're just really getting started, and this is going to be, I think, an appropriate -- a really good discussion at the June Analyst Day, just giving everybody an update on how we're performing. But it's as good, if not better, than we anticipate and the momentum that Jim and his team see in the marketplace is substantial. So from our perspective, there's no surprises, and nothing meaningful running through the fourth quarter results.

Our next question will come from Phil Cusick with JPMC.

Can you dig into what gives you the confidence in the 2021 expansion and development after what looks like a robust 2020 plan as well?

Yes. I mean, I think it's just -- if you look at multiyear view on the business, we probably -- I think right now, we have a better multi sort of longer-term view of the customer opportunity in the funnel than we've ever had. And so I think that if you look at fill rates and the trajectory on our fill rates, if you look at sort of any, I think, underlying industry drivers in terms of the pace of adoption of cloud, you look at what's happening in terms of overall data volumes, you look at the impact and influence of things like AI and IoT, I think you start to see the front edge potentially of 5G increasing sort of both traffic and overall sort of data volumes.

And so I continue to think that the secular forces driving the overall demand for infrastructure are strong. We're hearing that from our customers and we're hearing them be very responsive to our sort of long-term vision for the platform, and that includes the expansion of capabilities and services as well as our plans for geographic expansion over time. So the combination of all those things continue. Obviously, '21 is a bit far out, but we feel very good about the projects that we have underway right now and the fill rates that we're going to -- that are supporting those investment decisions. And I'm super optimistic that '21 will be just as exciting.

And Phil, if I can just add to what Charles said, the beauty of our plan, too, is we've got 32 projects underway across 23 different markets. So it's the diversity of our investment, and they're coming in different shapes and sizes based on the demand profile of a given market. So we feel we have that visibility. It is a little bit far out, as Charles referred to, but given the strength of our pipeline and the momentum that we saw in 2019 coming into 2020, and the depth of our pipeline and the opportunity set, that's what gives us the confidence to continue to build, particularly in some of the markets where we're one of the few that is building.

Our next question will come from Erik Rasmussen with Stifel.

As it relates to your 2020 guidance, it's sort of like a 2-part question, but have you turned the corner with the Verizon assets? And is this the year you're starting to see growth? And then within that, it sounds like you're a little bit more confident in the Americas, 5% or greater. What's driving this sort of positive dynamic? And then what's sort of the long-term growth rate that you'd see or sustained rate on that business or region?

Yes, I do think we have -- one of the factors -- certainly, Verizon has been one of the factors that has been delaying, I think, sort of a bit of a growth headwind to the region. Now that's been a net economic benefit to the company. So we're not complaining about it. But it has been a bit of a churn because -- or a bit of a headwind as that churn continues to drive through. But again, we feel like we're going to be able to see a return to growth; as Keith indicated in the script, I think that we feel like, as we move towards the end of the year, we're going to be looking at greater than 5%. And I think the strength of the go-to-market engine in the Americas, selling across the world continues to be substantial. And so I do think the Americas business, we feel a level of optimism there, that we're going to sort of get through some of the remainder of the churn tail on Verizon and really see that business pick up a bit in growth.

And Erik, we've always said this, certainly in the investor conferences that Charles and I and others go to, we always can grow the business faster if we want. But it's what we do is the pricing discipline, Charles referred to going after the right customer, right application and the right IBX, and being disciplined in going after those interconnection-rich opportunities that really cause us to feel very comfortable on what our guide is. And recognizing, yes, we certainly can go do a lot of very substantial hyperscaler deals in the Americas. But we think that would be value-destructive for our business. And so we focus that opportunity in our hyperscale initiative with our JV partner in other parts of the world, where we can get an appropriate return alongside our partners. But I think it's the discipline that we bring to the Americas region that gives us the confidence that we don't have to go stretch ourselves here. We're -- it's a very good and very successful business, and we want to keep on doing what we're doing.

Yes. One last comment I'd make, Erik, is that we noted in the script, the continued globalization of the selling engine is a really important thing, and something that Karl and Mike and team have really focused on in terms of making sure that we're, as I always used to say, we're making sure that every rep selling every data center every day, right? And that they're out there positioning the full global platform. We saw EMEA have a -- for the first time, sell more outbound than they got inbound. And that's a really positive step for us. It really shows the strength. And those are the things that when you have the global platform and companies, large companies perhaps that are headquartered elsewhere sort of -- that are driving demand into all our regions, including the Americas, I think that's going to be a contributor to growth.

Great. Maybe just as my follow-up, this is more of maybe a bigger picture theme, but are you seeing any shifts in the underlying trends in the industry that are giving you the increased confidence in sort of how you are positioned in your ability to achieve your current long-term growth objectives?

Yes, I mentioned a number of them. I think -- I guess I would put sort of an overall umbrella frame or overall frame around it in the context of digital transformation. Digital transformation is an absolute priority at a Board and senior executive team level in virtually every company that we're talking to and targeting. And so it matters a lot to them. They're thinking hard about how to drive digital transformation in their business and how to deploy infrastructure to support that.

And so I think, one, that focus on digital transformation. And that's happening because of these various trends, people, for example, seeing AI as central to their ability to create competitive advantage. They're using -- they're viewing data as central to their ability to create competitive advantage. And they're just -- they're investing behind a lot of these trends and they're needing to deploy infrastructure globally to have their infrastructure work and their applications to operate as they're designed. And so I think -- that's sort of the secular backdrop and then you bounce against that sort of the Equinix position, which was we have this unique position, I think, in terms of being able to really promote and accelerate the hybrid and multi-cloud as the architecture of choice.

There are -- many customers are, in fact, using us as an avenue to access the cloud to move workloads between cloud resources and then to place their private infrastructure. Even if that private infrastructure may be getting smaller than it used to once be when it was living inside their enterprise data centers, they're taking what remains as private infrastructure, and they want to place it in direct proximity to the cloud. And that's really what I think Equinix does better than anybody else in the world. And so I think those are -- there's a variety of both secular trends as well as sort of our own market position that combined to give you a sense of optimism for the road ahead, which is exactly why we're continuing to invest behind the platform, invest behind the go-to-market engine and excited about what lies ahead.

Our next question will come from Aryeh Klein with BMO Capital Markets.

It looks like EBITDA margins are coming in a bit in 2020. Keith, can you maybe parse through the impacts in a bit more detail, how much from higher utility expenses, taxes? And then the meaningful investments in the go-to-market strategy that were alluded to. Can you talk to where those investments are being made?

Maybe -- Aryeh, this is Charles, maybe I'll jump in and just give you the broader context for, I think, our decision in terms of how we're guiding on the margin, then Keith can add any color there. But if you look at 2020, it's pretty similar to what happened in '19. In both years, we showed significant operating leverage, but we saw some specific items that impacted our ability to drop that through to the bottom line. In '19, it was projections on utility costs, combined with some pretty significant expansion drag that -- last year that led us to guide to a roughly flat margin line.

As you know, we ended up delivering expansion in 2019, finishing at about 48.5%, because the utility trend was, frankly, a bit better than we projected. But we are seeing those utility increases materialize, not just in EMEA, but in some of our other markets as well. And those, combined with the property tax increases compared to '19, those things together consume most of the operating leverage. So we were kind of left in the position of either offering up some modest margin growth and not investing in the business, or funding the key investments and guiding to a flatter margin, and we did that. And that's -- obviously, we chose the latter. We feel like it's our job to maximize long-term value creation, and we're confident that bringing up the dollars to invest in the platform evolution, growing the go-to-market engine, driving our own digital transformation are all things that are going to help us sustain AFFO per share growth. And frankly, that's our lighthouse metric, and we feel like it would be irresponsible not to invest behind the momentum that we have right now.

Got it.

Keith, any color you want to add?

No. I mean, I think you hit it square on the head, so.

All right. Maybe shifting gears a bit. Does the Packet acquisition reflect a shift in M&A strategy in any way? Should we expect future acquisitions to be more focused on the services front versus maybe new markets, given how many you're already in?

No, I wouldn't call it a shift. I'd call it an augment. It's a -- look, we're going to continue to view geographic expansion of the platform as a strategic priority for us, and where that can be done in a value-creating way via M&A, then we certainly will think about doing that.

So we've talked about the fact that we still have additional -- additions to our platform from geographies -- geographic coverage standpoint that we'd like to make, and I think M&A will be a vehicle for us in that regard. Having said that, I also -- I do think that's an augment. You saw Packet as really the first of really a capabilities type of acquisition. We're super excited about what they bring to the table, what that is going to allow for us in terms of bringing an enterprise-grade bare metal offering to the table that is really going to be responsive to customer needs and will help animate our core value proposition in really compelling ways and ways that our customers are asking for. So -- and as for whether or not we might see other things that look like that, that are more capabilities-oriented, I would certainly say that's a possibility for us. We're going to continue to build, buy or partner as we need to to execute on the strategy, and to make sure that we can capture the opportunity in front of us.

Aryeh, one of the things I'd just add on, maybe just making one other comment just about the EBITDA margins. Because one of the things is, we do recognize that there are these higher costs that are going through the financials. But if you look at it on a quarterly basis, Q1 theoretically will be our lowest guide. And then as each quarter goes by through the year, you would see an improving EBITDA margin. And so it gives you a sense that, with the operating leverage of the business, that we're realizing plus recognizing these costs, but for the momentum that we foresee will cause our margins to continue to go up. So when we enter 2021, obviously, we're not -- we'd be in a better position than we are coming out of Q1.

Our next question will come from Colby Synesael with Cowen & Company.

Great. Maybe just a few housekeeping items, just to start off. First off, on the greater than 5% Americas growth, that should be thought of as like a fourth quarter 2020 growth number, right? Not a full 2020 over 2019 number, correct?

Yes. We see it growing throughout the year, as we're trying to say. So I think it's more second half than a first half.

Okay. And then the next question, you mentioned, I think, 3% to 4% stabilized growth. Is that recurring stabilized growth? Or is that total stabilized growth?

Recurring.

Okay, recurring. And then you had previously guided to greater than 50% EBITDA margins by 2022 at your 2018 Analyst Day; is that still your expectation?

Well, since that time, Colby, we had sort of -- we had put more perhaps uncertainty around the exact timing. I think our posture over the past 1.5 years or so has really been that we believe that 50% is achievable, but that we're not willing to trade off sort of long-term value creation for achievement of a near-term margin objective. And so I think that we still believe it is achievable. I think our primary focus as a team is going to continue to be long-term value creation. And by the way, that does not mean we have, in any way, shape or form, lost focus on driving operating leverage. It's a key priority for us to allow us to invest in the business and still deliver the financial results we need. But right now, I wouldn't want to put a particular time line on the 50%.

Okay. And then just my last one, cabinet adds. So cabinet adds in 2019 were lower in aggregate across all regions total versus 2018. And in this most recent quarter, you added a decent amount of cabs to your inventory. And we really didn't see any meaningful acceleration in installs, and your utilization rate actually came down again, and I think now it's slightly below 80%. What's your expectation for cabinet adds? You mentioned 32 expansions that are ongoing. How should we think about that number maybe on a year-over-year basis in '20 versus '19? And how big of a focus is that metric for you guys when you look at the performance of the business?

Yes. I mean, I think there's a couple of things. One, there's always some level of volatility in it, and that's why we've always encouraged people to look at the rolling 4 quarter. Having said that, even when you look at a rolling 4 quarter, I think you're seeing some downward pressure. And I think that is primarily a factor of a couple of things: one, it's really a factor of execution -- it's a reflection of execution of the strategy, frankly; and by going to the xScale product, that is going to take some really lumpy things out of the mix. If you look at the nonfinancial metric sheet and you look at Asia, which was, I think, Q1 of last year, it was like, if memory serves, 5,700 cabs or something crazy. And a lot of that was stuff that we would be pushing off into xScale. And so I think that the mix of business is going to shift probably to put a little downward pressure on cabinet.

I think, by the way, we have sized our capacity investments in all of our new builds to reflect that strategy. So we didn't overbuild and we didn't go, "Oh, (expletive), well, we didn't -- and now we got too much." We -- that was always our plan. And so I think you're going to see a little bit of movement in utilization as new capacity comes online, but I think the -- if you take the last few quarters, you're probably -- and average them, you're probably seeing a reasonable reflection of what we're going to do from a cabinet adds perspective. And again, you'll always see a little bit of lumpiness in that. But I do think there's a little bit of downward pressure, but I think that should not be viewed as a negative. It should be viewed as a really a reflection of the strength of the core strategy and how we're delivering against it.

Our next question will come from Michael Rollins with Citi.

First, can you give us an update on where your customers are from a grooming perspective for interconnection, and how that could play over the course of the year? And then just taking a step back, are you seeing any change in demand for the markets and data centers kind of below the original primary interconnection points that have been part of the heritage Equinix story for a long time? And just curious, given the trends that you talked about, if there's just an expansion of interest in where customers want to locate their infrastructure?

Mike, what was the first part again? I'm sorry. I was thinking about the second one.

On the grooming perspective for interconnection.

Okay, got it. Yes. By the way, it sounds like a cold got you, so I hope you're feeling better. The grooming, I would say that we're -- again, particularly as it relates -- the biggest interconnection grooming tends to come either in the form of 10 to 100 migration for really large interconnection consumers. And as I said, I think that the really big ones have already come through the process, particularly in the U.S. and when I say the U.S., they're really U.S.-based companies, but they've really sort of largely embarked on their global grooming already. So I think we're -- I used the words that we were going to probably see it tapering through 2020. I think that's still the case. We saw fourth quarter was -- we did not see what we thought we might see, which was something that happened fourth quarter of last year of '18, which was we felt like the network moratoriums really kept people from -- we saw really a Q3 to Q4 that was roughly kind of linear to roughly flat.

But bottom line, I think that we'll see some tapering of that. I think a lot of our customers are very advanced. And then the other major form of grooming you see is when carrier consolidation occurs. And we've seen some of that over time, but I wouldn't say that we're seeing any sort of acute levels of that. So I think that, on balance, over the course of 2020, that's something that we'll see improve. And I think we're going to see -- and we've kind of guided to the 7,000 to 9,000 on interconnections. That typically is made up of sort of 5,000 to 7,000 on physical cross-connects, and then, call it, in the couple thousand range on virtual.

I think we're going to see virtual continue to climb, although there's a bit of a mix there in terms of how people -- what speeds they're buying at and those kinds of things. But overall, I think it will taper off, and we'll see it really -- I think we'll see a strong interconnection year. I mean this last quarter was a really strong interconnection quarter. We're really, really pleased with the performance of the business.

And then your second question, as to sort of the mix of demand from sort of first tier interconnection-rich campuses in locations versus others, I do think that there is -- one of the things that has really helped us, Mike, is that we extended the ECX Fabric and interconnected all of our facilities. And so now people still have the ability to on-ramp to the broader ecosystem from any of our facilities, and that our people have -- our teams have really been able to work that into the selling. And so let's face it, it's the Ashburns and Silicon Valleys and Frankfurts and Londons and Amsterdams that continue to drive big investment and really big growth. But some of these -- some of the second markets or even the second -- more of the second-tier facilities within primary markets, I think that the Fabric has been a help for us in terms of making sure that we're monetizing those effectively.

Our next question will come from Frank Louthan with Raymond James.

Following up on the Packet questions, are there any other products that you think that you need to have in your arsenal there to service the customers? And in the past, you sort of skewed things that might compete with your customers; are you rethinking that to a certain extent maybe with network or other things?

Yes. Well, we had talked, and as we've sort of laid out our Platform -- our evolving Platform strategy in the past, we've talked about this edge services layer, and we talked about network edge, compute edge, edge data, edge security, et cetera. We think there's opportunities for us in all of those and it will be a mix of things that we will deliver ourselves, which we did with network edge, and which we did -- with which we now are facilitating via the Packet acquisition with some level of edge compute. But we also think there will be perhaps even more of those that are edge-based services that represent combinations of our value with third-party value and partner value. And so -- which gets me to sort of the second part of your question, which is are we kind of -- we have -- we typically have had a position where we are a bit of a neutral player. And I think that serves us well. And we've always been about choice and optionality in making sure customers can select from the providers that they want. And I don't think that, from a philosophy standpoint, changes a bit for us. And so we're going to continue to embrace that. We're going to continue to invite partners in to deliver value.

In some cases, if customers are pressing us to deliver services that they want to see from us, then we're going to seriously consider that, if we think those are areas where we have the capability to play, the permission to play and that they'll deliver the very kinds of returns. And so it's going to be an evolution of our strategy. But I think that we're going to continue to be about building ecosystems where people can bring value, combining with what we do and solve customer problems. So I'd encourage you to come to Analyst Day, which I'm sure we'll see you there in June, and I think we'll probably have a little bit more meat on that bone that we can share with you.

Our next question will come from Simon Flannery with Morgan Stanley.

Keith, just on the leverage, you've obviously done a nice job bringing that down. How are you thinking -- I know the 3% to 4% range, but given where interest rates are, is it more optimal to stay in the upper half of that range? And are you seeing any opportunities to build in, buy in more of your real estate?

And then for Charles, on the build timing, the point on funnel visibility was very helpful. But there's a lot of stuff, 18-plus, even 24 months out. What's the thought process around that? Is any of that driven by construction or other complications? Or is it really just phasing the buildings out there? And I'm thinking of some of the stuff like the Amsterdam moratorium and stuff, are you seeing any other municipalities looking at some of those issues?

Sure. Okay, Simon, so let me take the first part, and then we'll push it to Charles for the second part. First, on leverage. Right now, we're 3.7x levered; clearly that's well within our guided range. And historically, we said 3 to 4, but after we got a credit rating upgrade, we always felt that we probably play at the higher end of that range. But truthfully, when you just look at the operating leverage in the business, as you look forward over a number of years, all else being equal, you're going to be in a deleveraging scenario. Or said, differently, it's going to give you the flexibility to choose how you deploy that capital and keep leverage at an appropriate level.

So we feel very, very confident that we're appropriately levered. We think with just the growth of the business, that we would otherwise delever, again, all else being equal. And we know that we can then borrow money, we can borrow money today and in all likelihood, tomorrow at a much lower cost than we're incurring today. And that's what gives us -- again, we're trying to be very clear with our AFFO per share that the interest burden that we're bearing today relative to what we'll bear tomorrow is more substantial. And you just can do the math on the $3 billion worth of euro debt, or the $2 billion of high-yield debt that's yet to be refinanced. The substantial savings that can be realized from just refinancing those today at current rates versus where the rates may eventually go is substantial to the AFFO per share.

As it relates to buying some of our real estate, we're always looking at it, but it's a buy versus lease decision. And it's really about economic control of the assets. But absolutely, to the extent there's something out there that makes sense, we'll be active. Particularly when we look at the lease costs of our -- the lease costs that we're bearing in the contract with our landlord. And so that's just -- let me just assure you, that's something that we'll continue to look at. We have a very strong real estate organization inside our company, and we remain active at looking at our properties.

And then on the build, yes, I get the gist of that question. Obviously, some of those are a little bit more protracted in terms of their delivery time frames. Some of that is just markets where, for a variety of reasons, it's more difficult to get things done from a permitting perspective, from a power perspective. It's oftentimes power that is the -- and the availability of power that dictate the time line on these things. But generally, we are building phased projects. So we have a level of confidence in terms of not putting too much capacity into the market out -- in the get-go. Unless those are xScale that are fully presold, in which case, obviously, if we -- if there's a presold, we want to get them built out as quickly as possible.

I would say that, from a construction standpoint, it's a robust market. And so there are -- I do think part of it is just macro forces, which is the demand for labor, for example, in these markets is high. And so that is an area where I actually think we end up being differentiated, because we kind of often can get to the front of the line because we have a history of having done 4 or 5 or 8 or 10 projects with somebody. And when we say, "We need your best teams," we often get them. And so -- but there are some protracted time lines. It's something that I think Ralph and our construction teams globally are continuing to work on. There are also some times where there's specific circumstances, whether that will be, for example, Olympics, that is often something that sort of changes the circumstances of a particular bill. But I wouldn't say right now it's anything in terms of extending project time lines due to supply chain challenges or anything like that. But there are some that are further -- definitely further out there in time.

Our next question will come from Jon Petersen with Jefferies.

Great. In the press release, talking about cross-connect adds, you guys called out new streaming services as a big demand driver. I'm kind of curious with your experience with some of the streaming services that have been around for a few years that I'm sure you have as customers, kind of what the ramp is in terms of how they add cross connects? Is it -- are you guys kind of expecting this one big wave when they launch the product? Or is it kind of a steady stream of demand going forward?

Well, you're right. We have -- we do have experience in this area. But I would say the dynamics of those, and also, potentially the market power of the players involved are different. And I think if you look at public information in terms of what some of these services have done, they have been exceptionally successful in terms of subscriber acquisition. So I'm not sure I would apply any prior experience necessarily to these things, but they're very thoughtful organizations. We work very closely with them in terms of capacity planning, and we're excited about what we think those could imply in terms of continued sort of tailwinds really for the interconnection business.

Okay. And then maybe to kind of come back to the leverage and equity needs potentially, it looks like the 2020 guidance assumes no equity issuance. I think last year, you initially gave guidance that didn't assume equity issuance, and then you did. And so I'm kind of curious what your sources of capital needs are for equity throughout the year. Should we expect you guys to dribble out through the ATM or any other -- anything else?

Again, in 2019, we really -- we sort of front run the process as far as raising equity sooner in the year than we originally anticipated. And then, as you know, in the back end of the year, we raised a little bit more debt than we needed to, went to refinance the debt that we were taking out, but to put some cash on the balance sheet which was really a precursor to funding for 2020. And so we're in obviously a very good position from a cash and liquidity perspective. And we're going to take this posture, it's always about creating long-term shareholder value. But we also believe that it's a combination of debt and equity that's got us to where we need to be. Obviously, debt is the cheapest form of capital today, and we're going to continue to look at the markets on that basis. There's nothing imminent. And as you also know, we have an ATM program that still has capacity on it, $300 million of the current ATM program still has our availability. And so if we were to draw on capital for any purpose, it will be a combination of both, and we're going to be very strategic about those decisions as we have in the past.

Our last question will come from Nick Delito (sic) [Del Deo] with MoffettNathanson.

A question on Packet, to start. I think people generally understand where the sustainable competitive advantage for core Equinix comes from. How would you describe the source and durability of the competitive advantage for Packet?

Great question, Nick. Because the great answer to it, I think, is that it's actually the Equinix value proposition. If you look at it, Packet is really a reflection of shifts in how people want to consume our value proposition. Our core value proposition is -- it continues to be what it has been, superior global reach, advantaged access to scale digital ecosystems, to drive cost and performance, the most comprehensive interconnection portfolio in the business and an unparalleled track record of service excellence. And we have, for 20 years, been animating that value proposition with colo.

But what Packet allows is for us to essentially animate that same -- those same value propositions via a different consumption vehicle for our customers. And so the durable advantage still relies -- it still resides very much in what core platform Equinix delivers, and the bare metal service, obviously, we're going to need to deliver a, from a usability perspective and from an API-integration perspective and the efforts and capabilities that Packet has to -- for automation and integration with the software ecosystem with the likes of VMware, et cetera. Those are all things we're going to leverage to make sure that that's a really competitive bare metal offer. But it's the powerful part about this is it's unlocking and extending and increasing the addressable market for the core Equinix value proposition.

Great. That concludes our Q4 call. Thank you for joining us.

This concludes today's conference. All participants may disconnect at this time. Thank you for your participation on today's conference.