Katrina Rymill - Vice President-Investor Relations Stephen M. Smith - President, Chief Executive Officer & Director Keith D. Taylor - Chief Financial Officer Charles J. Meyers - Chief Operating Officer.

Amir Rozwadowski - Barclays Capital, Inc. Jonathan Schildkraut - Evercore ISI Simon Flannery - Morgan Stanley & Co. LLC David W. Barden - Bank of America Merrill Lynch Michael I. Rollins - Citigroup Global Markets, Inc. (Broker) Jonathan Atkin - RBC Capital Markets LLC Tim K. Horan - Oppenheimer & Co., Inc. (Broker) Michael L.

McCormack - Jefferies LLC Colby A. Synesael - Cowen & Co. LLC.

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

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind you that some of the statements that we'll be making today are forward-looking in nature and involve risks and uncertainties.

Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on March 2, 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 Regulation Fair Disclosure, it's Equinix's policy not to comment on its financial guidance during the quarter, unless it is done through an explicit public disclosure.

In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com.

We would also like to remind you that we post important information about Equinix on the Investor Relations page of our website. We encourage you to check our website regularly for the most current available information.

With us today are Steve Smith, Equinix's CEO and President; Keith Taylor, Chief Financial Officer; and Charles Meyers, Chief Operating Officer, who's dialing in (1:45). 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'd like to ask these analysts to limit any follow-on questions to just one. At this time, I'll turn the call over to Steve..

Okay. Thank you, Katrina, and good afternoon and welcome to our first quarter earnings call. This marks our 49th quarter of consecutive revenue growth, delivering both revenue and adjusted EBITDA significantly above the top end of our guidance ranges as demand for interconnection continues to drive strong performance in all three regions.

As depicted on slide three of our presentation, despite strong currency headwinds, revenues were $643.2 million, up 1% quarter-over-quarter and up 11% over the same quarter last year. Adjusted EBITDA was $305.7 million for the quarter, up 4% over the prior quarter and up 17% year-over-year, delivering a 48% margin.

AFFO grew 28% year-over-year, $221.8 million. We continued to experience strong momentum, delivering solid gross and net bookings and healthy fundamentals, including firm MRR per cabinet on a currency-neutral basis, low churn and strong margins.

I'm extremely proud that we were added to both the S&P 500 and the FTSE NAREIT indices, reflecting our scale, REIT structure and the important role that we play in the technology infrastructure industry. We're also working closely with the other REIT indices as we begin our journey in this new category.

This is our first quarter reporting as a REIT and we are evolving our methods to the market as we diversify our shareholder base.

We believe that many of the characteristics our traditional investor base find attractive about Equinix will translate well into the REIT domain, including our unique portfolio of assets, solid stabilized asset growth, and a long history of success with new development.

We continue to roll out incremental financial data to enable our investors to track and analyze our business, including adding disclosures around NOI, NAV and owned assets. These new segments of revenue, categorized by stabilized, expansion and new, and by owned versus leased, highlight the diversity and strength of our offers.

They also demonstrate how our ecosystems in interconnection translates into strong NOI, stable pricing, and recurring and predictable bookings and returns. We now have over 6,300 customers around the globe, which includes 1,400 customers from our ALOG acquisition, which we now have integrated into our metrics.

Today, 68% of recurring revenues come from customers deployed in more than one region, up from 65% last year, and 82% of recurring revenues come from customers deployed across multiple metros, up from 80% last year, demonstrating the extraordinary strength of our global platform.

Revenue from interconnection grew 17% year-over-year, and we added 5,500 cross-connects this quarter which takes us up to over 155,000 cross-connects across Platform Equinix. Customers in our network, content and cloud verticals are strong drivers of interconnection growth, and we're also seeing growth in interconnection from the enterprise.

Cross-connects from enterprise companies to all other verticals has ramped over 30% year-over-year growth.

Also, our Internet exchange traffic grew over 65% year-over-year and in response to the robust demand for high-bandwidth connectivity, we are now offering 100-gigabit port speeds to complement the 10-gigabit increments that customers have historically purchased and continues to deliver the industry's most complete interconnection portfolio.

This quarter, we opened five new flagship data centers, boosting data center and interconnection capacity in the financial and network hubs of London, New York, Singapore and Toronto as well as a new metro in Melbourne, Australia.

We now have 105 data centers across 33 markets, the largest global retail data center footprint, offering more than 11 million gross square feet of capacity. Given strong fill rates, particularly from cloud providers expanding in Tier 1 metros, we are moving forward with expansions in critical markets.

The majority of our development pipeline for the year is focused on campus expansions and augmenting existing data centers, which helps drive operating scale and improves predictability of returns.

The stability of our business model continues to deliver attractive growth on our new developments and our stabilized assets, which are tracking to over 33% yields on our gross PP&E investments.

We continue to increase the number of owned data centers, including the addition of London-6 this quarter, and owned properties now generate 37% of our recurring revenue and 39% of our NOI.

Many of our owned facilities are in high-demand metros, including Amsterdam, Ashburn, Frankfurt, London and Silicon Valley, and we expect NOI contribution from these assets to continue to grow as we expand in these markets and selectively pursue asset purchases in other key markets.

This quarter, we invested $38 million to acquire four acres of land next to our Silicon Valley campus, which provides important expansion opportunities for this highly interconnected metro.

In Ashburn, with the final expansions of DC10 and DC11 underway, we expect to start developing Ashburn North, a 44-acre plot purchased in 2012 that we intend to build out over the next seven years. Over time, we expect more of our organic growth to come from owned properties as we build out these core campuses.

For the newer REIT investors, business ecosystems inside our data centers are at the heart of our strategic operating model and a significant differentiator for Equinix.

Ecosystems are simply communities of customers who derive value from locating in the same data center to connect to each other to achieve greater application performance and simplify network architectures. The interconnection created as an ecosystem growth generates higher returns for our sites and increases in value to our customers.

For example, some of our more mature campuses, where ecosystems are established (7:55) are the most profitable and differentiated, and we typically build new assets adjacent to these sites to capitalize on this value while de-risking our returns.

Strong interconnection exists in each of our major metros and sites including those in Singapore, Frankfurt, London, Chicago, New York, Ashburn and Silicon Valley, having over 10,000 cross-connects. About 94% of our co-location square footage is in a metro with at least 1,000 cross-connects or more.

Now let me shift to the quarterly highlights of our top ecosystems. Our high network density continues to create significant interconnection opportunities for a myriad of industries and is driving strong network-to-network cross-connect demand, as service providers use Platform Equinix to extend their networks and generate new revenue.

Our new IBX in Melbourne is a testament to this opportunity, with more than 17 global network providers already committed to deploying in this data center. We are also enabling network service providers to deliver new cloud services by leveraging both the Equinix Cloud Exchange as well as traditional fiber cross-connects.

Mobility remains a fast-growing sub-segment in the network vertical, with mobile providers, including Lycamobile, T-Mobile, and Truphone joining this emerging ecosystem. For the content and digital media industry vertical, we continue to attract top content magnates that are expanding across multiple regions.

Our advertising sub-segment is thriving, propelled by the shift away from traditional advertising towards digital and mobile advertising, placed by transacting on digital exchanges, resulting in a rich and fast-growing ecosystem.

Content and digital media companies are also contributing to significantly – to the parent traffic on exchanges, as well as driving growth in interconnection. Turning to our financial services vertical, we are expanding our electronic trading business across new geographies and asset classes.

Wins include OANDA, a leading Canadian foreign exchange broker that is an ecosystem anchor in our Toronto 2 data center, and BATS, one of the largest equities operators in the U.S., that's expanding in London in addition to consolidating its U.S. matching engines at our Secaucus campus.

Further, we continue to see progress as we diversify our financial services business to insurance, retail banking, and digital payment collectors. We have won several anchors in the emerging electronic payments ecosystem, including a key win with the largest pan-European credit card payment process.

Turning to cloud and IT services, this vertical delivered strong bookings, driven by new wins and expansions with AWS, Cisco, Datapipe, Oracle, and T-Systems.

We are excited about how the cloud opportunity is playing out, and we have another quarter of significant progress as cloud service providers choose Platform Equinix to support rapid global deployment.

The Equinix Cloud Exchange, our interconnection switching platform that enables companies to connect directly, securely and dynamically to multiple cloud and network providers, continues to scale and now has over 120 participants and is live in 20 markets globally.

Turning to the enterprise vertical, we are seeing strong momentum as enterprises move beyond the exploratory phases of cloud and are beginning to re-architect their IT infrastructure to capture the significant cost, flexibility and security benefits of hybrid cloud deployments.

We are seeing strong response from both customers and channel partners through our Performance Hub offer, a solution that distributes an enterprise's data center infrastructure across multiple locations to accelerate application delivery and enable efficient secure access to key network and cloud services.

Over 130 customers have deployed the Equinix Performance Hub solution, and this quarter, we saw strong growth in existing deployments as well as critical new logo wins.

Notably, this quarter marked one of our largest channel deals to date, as we were able to secure a key infrastructure deployment with one of the world's largest providers of athletic apparel, the result of a highly successful joint sales engagement with Datapipe, one of our leading global partners.

Other enterprise wins this quarter include BRB (12:00), a sporting goods retailer; Pella, an automotive component manufacturer; NetHealth UK (12:08) a healthcare company; Red Lobster, an American restaurant chain; Ryder, a transportation and supply chain management provider; and Valmet, a supplier of services for paper and energy industries.

Expanding our global channel program is a top strategic initiative for Equinix, and we are investing significant resources to ensure our partners are well-equipped to deploying compelling IT and cloud solutions for their end customers via Platform Equinix.

Along with technology partners, AWS, Cisco, Google and Microsoft, other companies that have recently joined the channel partner program include ABT (12:40), Datalink and Unitas Global. So, let me stop there and turn the call over to Keith to cover the results for the quarter..

Great. Thanks, Steve, and good afternoon to everyone. Well as they say, the only thing better than a strong Q4 and a recurring revenue model is following it up with a strong Q1, and our Q1 results represent a great start to 2015.

Our global interconnected platform continues to deliver strong gross and net bookings and this drives leverage across each of our regions. Our key operating metrics remained solid, such as net cabinets billing, MMR per cabinet and the MMR churn rate.

And our interconnection trends remain very positive too, both nominally, but more importantly, the value that they bring to the health of our ecosystems. Interconnection revenues now represent 17% of our global recurring revenues, a 17% year-over-year increase with strength across each of our regions.

Also, our key operating margins continued to improve. Each of our gross profit, cash gross profit, adjusted EBITDA and operating profit experienced a nice step-up this quarter. The result, a strong revenue pull-through and lower than planned costs.

We remain pleased with our performance, while consistent with our comments from the last earnings call, we do plan to continue to invest in our go-to-market strategy and other key initiatives through the end of this year.

Yet, given the success of the first quarter, as Steve will discuss shortly, we're now able to increase our adjusted EBITDA guidance on a currency-neutral basis by $17 million for the year.

So, one additional comment before I get into the earnings slides; we're very pleased to have completed our first quarter operating and reporting as a REIT and of course, this includes the issuance of our first quarterly recurring cash dividend.

We continue to expect to receive our favorable PLR in 2015 and look forward to sharing the news with you when received. Now moving to the slides, as depicted on slide four, global Q1 revenues were $643.2 million, up 1% quarter-over-quarter and up 11% over the same quarter last year. We're now in our 13th year of consecutive quarterly revenue growth.

Our revenues' over-performance was due to a number of factors, including favorable net pricing actions and higher than expected custom installation activities.

Q1 revenues, net of our FX hedges, absorbed a $9.5 million negative currency impact when compared to the average FX rates last quarter and a $1.5 million negative currency impact when compared to our FX guidance rates.

Although currency volatility across all of our operating currencies continues to cause significant FX headwinds, we put in place net cash flow hedges covering greater than 80% of the value at risk related to our EMEA operating currencies. This provides for a smooth flight path into 2016.

Global cash SG&A expenses decreased to $145.3 million for the quarter, primarily due to lower-than-planned advertising and promotion expenses as well as the one-off sales commission expense incurred in Q4 due to the change in our internal policy. We expect our cash SG&A expenses on a quarterly basis to remain roughly flat for the rest of the year.

Global adjusted EBITDA was $305.7 million, up above the top end of our guidance range and up 17% year-over-year. This was driven by stronger-than-anticipated cash gross margins, the result of lower-than-expected utility rates, and the favorable FX hedges in EMEA. Our adjusted EBITDA margin was 48%.

Our Q1 adjusted EBITDA performance, net of our FX hedges, reflects a negative $800,000 currency impact when compared to our average rates used last quarter, and a $3 million positive benefit when compared to our FX guidance range.

Global net income was $76.5 million or diluted earnings per share of $1.34, a strong step up from last quarter which was impacted by the write-off of our deferred tax assets due to the reconversion and a loss in debt extinguishment related to our Q4 financings.

Our Q1 operating cash flow increased over the prior quarter to $232.8 million, largely due to lower cash interest and taxes, and a reduction in our net working capital position. Our Q1 MMR churn was below our expectations of 1.9%, although including ALOG we'll be reporting 2%.

We continue to expect our quarterly MRR churn rate to be at the lower end of our 2% to 2.5% guidance range over the remainder of the year. And one final note before I just discuss the regional performance. Our non-financial metric sheet is now fully consolidated including ALOG, with one exception.

We do not include ALOG revenues in our MRR per cabinet metric, given the level of managed services in the revenue line. Also, as part of the Equinix Customer One initiative, we've upgraded and automated our inventory tracking systems.

Also, we've globally standardized the cabinet equivalent definition and as a result we have updated our cabinets billing by utilization at our MRR per cabinet metrics, including the comparable periods to incorporate this change. As you can see, this change left our operating trends intact.

Now turning to slide five, I'd like to start reviewing our regional results beginning with the Americas.

The Americas had a strong revenues quarter, the result of favorable net pricing actions, lower-than-planned MRR churn and an 8% quarter-over-quarter increase in our non-recurring revenues, largely the result of increased custom installation activity.

Americas adjusted EBITDA was up 4% over the prior quarter and 17% year-over-year on a normalized and constant currency basis, largely due to strong cash gross margins offset in part by the higher seasonal FICA charges. Americas interconnection revenues now represent 22% of the region's recurring revenues, and we added 1,800 net cross-connects.

Americas' net cabinets billing increased by 1,200 in the quarter, and we added 85 exchange ports in Q1, which included the sale of our first six 100-gig ports. Now looking at EMEA, please turn to slide six.

EMEA delivered another strong quarter, with particular strength coming from our Dutch and German businesses, although FX continued to impact our as-reported results. Revenues were up 5% quarter-over-quarter and 19% year-over-year on a normalizing constant-currency basis.

Adjusted EBITDA, on a normalizing constant-currency basis, was up 13% over the prior quarter, and 28% over the same quarter of last year largely due to a 17% quarter-over-quarter decrease in SG&A, the result of a strong U.S. dollar and the $3 million hedge benefit.

Adjusted EBITDA margin increased to 46%, although normalized for the FX benefit, adjusted EBITDA margin would have been 44%. Due to strong traction in our cloud vertical, including momentum from our support of large cloud providers, like Azure and AWS, we had another solid quarter of cross-connects adding 1,500 net cross-connects in the quarter.

EMEA interconnection revenues represent 9% of the region's recurring revenues. EMEA MRR per cabinet was up 2% on a constant-currency basis. Net cabinets billing increased by 900. And now looking at Asia-Pacific, please refer to slide seven. In Asia-Pacific, we had record gross and net bookings this quarter.

Revenues were up 4% over the prior quarter, and up 25% over the same quarter last year on a normalizing constant-currency basis, driven by strong sales momentum in cloud and IT services, enterprise and network verticals.

Adjusted EBITDA on a normalized and a constant-currency basis was up 6% over the prior quarter, and 30% over the same quarter last year, largely due to a 4% decrease in Q1 SG&A, the result of a strong U.S. dollar and lower-than-expected discretionary spending. Adjusted EBITDA margin increased to 50%.

MRR per cabinet, on a constant-currency basis, was up 2% quarter-over-quarter and cabinets billing increased by 900 over the prior quarter. We added a record 2,200 net cross-connects. Interconnection revenues remained at 12% of the region's recurring revenues.

Now as we continue to scale our APAC business, we have eight expansions currently underway across six metros, including new phases of our newly opened IBXs in Melbourne and Singapore. Also, given the success in the Sydney market, we're now proceeding with the building of our Sydney 4 asset to capture this opportunity.

And now looking at the balance sheet, please refer to slide eight. We ended the quarter with $1.1 billion of cash and our net debt remains consistent with the prior quarter.

Our net debt leverage ratio decreased slightly to 2.9 times our Q1 annualized adjusted EBITDA, the result of stronger operating performance and a higher-than-expected cash balance at the end of the quarter.

A significant portion of this cash will be consumed throughout the remainder of the year, largely from the payment of our quarterly dividends and special distribution, the funding of our capital expenditures, and the payment of liabilities on our balance sheet.

We continue to have a tremendous strategic and operational flexibility built into our balance sheet and capital structure. This allows us to continue to plan for growth and meet the funding needs for our shareholder distributions.

Now switching to AFFO and dividends on slide nine, for 2015, we now expect AFFO to be greater than $830 million, or growing 15% on a constant currency basis, the benefit of a strong operating performance and a decrease in our planned net interest expense. Our AFFO payout ratio decreased slightly to 46%.

Also, as noted previously, we paid our first regular cash dividend and expect to announce our Q2 dividend shortly. Important to note that the taxable income from the QRS part of the business ultimately drives the dividend payout requirements. As you may appreciate, there isn't always a direct correlation between AFFO and our REIT taxable income.

As an example, AFFO represents a global consolidated metric, whereas the REIT taxable income solely relates to our QRS entities. We continue to expect to distribute 100% of our QRS's taxable income. Now looking at capital expenditures, please refer to slide 10.

For the quarter, CapEx was $150.1 million, including recurring capital expenditures of $22 million, lower than our guidance range, primarily due to timing of cash payments.

As presented on the expansion tracking slide, we currently have 19 announced expansion projects underway across the globe, of which 18 are cabinets builds or incremental phase builds on over 15 markets. We continue to believe that spreading our capital expenditures across multiple regions in phases is the best way to invest in our growth.

These 19 projects will increase our current inventory by 10%. We expect our recurring CapEx to remain consistent with our prior expectations of $115 million. Turning to slide 11. The operating performance of our stabilized 76 global IBX and expansion projects that have been open for more than one year continued to perform well.

Revenues were up 6% year-over-year and we continue to enjoy healthy yields on the stabilized assets, reflecting the premium value that is placed on these assets. Currently, these projects generate a 33% cash-on-cash return on the gross PP&E invested and are at 84% utilized on our recalibrated available inventory capacity.

So before handing the call back to Steve, I would like to remind you that we've appended our supplemental financial and operating data deck to the earnings presentation starting on slide 16.

There are a number of incremental disclosures including details related to how we segment our business between expansion and stabilized assets over our owned and leased portfolio.

Of note, you'll see that our cash gross profit grew 14% over the prior year, our adjusted cash NOI increased 15% over the prior year to 61%, and our corporate cash SG&A as a percent of total revenues decreased to 9%. And finally, we provided you with the key components to our NAV on slide 30. So now, I'll turn back the call to Steve..

Okay. Thanks, Keith. Let me know cover our 2015 outlook on slide 15. For the second quarter of 2015, we expect revenues to be in the range of $654 million to $658 million, which includes $6 million of negative foreign currency impact compared to average Q1 2015 rates and normalized in constant currency growth of 3% quarter-over-quarter.

Cash gross margins are expected to approximate 68% to 69%. Cash SG&A expenses are expected to approximate $144 million to $148 million. Adjusted EBITDA is expected to be between $304 million and $308 million, which include $5 million of negative foreign currency impact compared to average Q1 2015 rates.

Capital expenditures are expected to be $210 million to $220 million, which includes approximately $30 million of recurring capital expenditures. For the full year of 2015, we are raising revenues to be greater than $2.635 billion or a 13% year-over-year growth rate on a normalized and constant currency basis.

This guidance includes $25 million of negative foreign currency impact compared to prior guidance rates. Excluding this negative impact, the revised revenues is a $30 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 $580 million to $600 million. We are raising our adjusted EBITDA guidance to be greater than $1.23 billion or a 47% adjusted EBITDA margin. This guidance includes $7 million of negative foreign currency impact compared to prior guidance rates.

Excluding this negative impact, the revised adjusted EBITDA is a $17 million increase compared to prior guidance. We expect adjusted funds from operations to be greater than $830 million, a 15% constant currency growth year-over-year, effectively a $26 million raise adjusting for currencies.

We expect 2015 capital expenditures to range between $740 million and $800 million, which includes $115 million of recurring capital expenditures. So in closing, our strong results this quarter reflect the continued strength and momentum in our business.

The global reach of Platform Equinix along with unparalleled network and cloud density and thriving business ecosystems positions us to solve the many challenges faced by today's CIOs.

The strength and uniqueness of our global platform is translating into solid operating performance and the importance of our reach is evidenced by the rapid growth of customers deployed across multiple metros and regions.

Our disciplined execution of our strategy continues to drive momentum as we strike a balance between revenue growth, margin expansion, yield and attractive returns on our invested capital. So, let me stop here and open it up for questions. So, I'll turn it over to you, Leslie..

Thank you. We will now begin the question-and-answer session. And we have our first question coming from the line of Amir Rozwadowski from Barclays. Sir, your line is open..

Thank you very much and good afternoon, folks..

Hey, Amir..

the conversion to the REIT reinvestment and supporting channel expansion. Obviously, if we look at particularly on adjusted basis with your EBITDA guidance there is a tick-up in expectation.

Just trying to think about sort of how the longer term progress margins are particularly when we look at sort of where your longer term targets were and how we should think about the trajectory and the ability to get that level?.

I think it's a great question, Amir. I mean so, most fundamentally we're very much committed as a company to driving towards our 50% EBITDA margin target or better and clearly, we showed a little bit of momentum when we issued our guidance at the first part of this year assuming when you adjusted for currency.

And then coming out of the first quarter, we're able to moderate that up slightly as well. So very pleased with the direction in which it's going. I'd tell you though as you sort of step back, Q2 – in my comments I said, look, SG&A you should expect it to be relatively flat quarter-over-quarter.

So, as a result, what I think you're going to get as you sort of progress through the year absent some of the timing issues that we're going to see in Q2 is a bias towards an upward trend through the latter part of fiscal year 2015. And that positions us very good as we go into 2016.

My only comment would then be to continue to look at and assess where we need to make investments and to the extent that we can create value and further the business opportunity we have in front of us, we'll continue to make those investments.

So I don't want to pre-commit to where 2016 will be, but suffice it to say the direction is very, very positive as we exit 2015..

So perhaps a quick follow-up there; if we think about 2016 then from a directional perspective, given some of the moving factors that have impacted you folks in – or expected to impact you folks in 2015, should we expect that sort of directional upward bias?.

We certainly believe there's an upward bias, but again we want to reserve the right similar to what we did this year.

We took some of the money that we were going – that we were in fact saving from the REIT project and we decided to put it back into the business because it made infinite sense to go invest in our go-to-market strategy and all the components around that.

Again, as we look into 2016, we'll make that decision as we get closer to time but my message to you would be right now there's an upward bias as we exit the year..

Thank you very much for the incremental color..

Thank you. And we have the next question coming from the line of Jonathan Schildkraut. Sir, your line is open..

Good evening. Thanks for taking the questions, two if I may. First, in terms of the revenue outlook for the year, given the 1Q report in the midpoint of the 2Q guide implies a fairly slow ramp in the third quarter and fourth quarter, I don't know, maybe $11 million or $12 million sequential net revenue growth.

So I was just wondering if there's any sort of churn or other things in that number as we look out the remainder of the year that should – that we should be aware of? And then as a second question, you've had another strong quarter of bookings here, and I'm wondering if you might update us on sort of your visibility, level of confidence and so looking into the future, commencement lag, things like that, that allow you to raise the guide for the remainder of the year? Thanks..

Good questions, Jonathan, let me take the first one and then I'll perhaps pass it to Steve or Charles for the second.

I think first and foremost when you look at our guide for Q2 on a revenue basis, when you adjust for currency, so take out the benefit of the hedge that's sitting in revenues in Q1 and you adjust for basically the forward exchange rate, you're looking at about a 3% quarter-over-quarter increase. And so we're happy with where we sit with Q2.

As we look into Q3 and Q4 similar to what – as we came out of last year, we're less comfortable in predicting the amount of non-recurring activity that we have in the latter half of the year. And that's what we experienced this quarter.

Part of the reason for the over-performance is we saw – we did more non-recurring activities than originally anticipated. And I'd tell you that we hold that – we're holding that path forward, sort of bypass through for the latter part of the year as well. That coupled with the fact that there is some seasonality in, just in our booking activity.

So there's a little bit of churn that we know that's forthcoming and yet I feel very comfortable with the 2% to 2.5% range and probably biased more towards again the lower end of the range, but relative to where we've come from we'll have slightly more elevated churn in the latter part of the year based on what we see.

And then the last part is just timing, timing of when we install, and there's a recognition as we roll out our global, our global systems. Like anything, that can create some level of drag and we're just being a little bit conservative right now, until we actually roll those out and start operating it, if you will, with those new systems.

Americas is May; Europe is going to be in the July timeframe, and so we're going to go through that implementation cycle..

And Jonathan, let me start and Charles might have some comments here to add on to this. But on the bookings question and visibility, as you heard from the comments today and from the previous quarter, we've had a very good start, strong start to 2015.

And you see the results in increasing top-line guidance for 13% year-on-year constant currency growth. And across all the industry verticals we're seeing very good activity. We've got good coverage ratios. The pipeline is strong. We're holding yields across all three regions.

The impact of the investments that we've been talking about with channel professional services, the innovation that our marketing team is doing with our product, the enterprise awareness activities, the sales enablement stuff, so all the investments that were bundled into that $20 million message we gave you last quarter, are all taking hold, and you can see the results showing up across all industry verticals.

So, Charles, you may have a comment or two to add to that?.

No. I think you hit most of the key ones from my perspective. I would say that one of the things that is not evident; we did make some adjustments to our sales structure and territory alignment and account allocations in the first quarter, which inevitably creates a little bit of drag. And yet, I think we powered through that, delivered strong results.

And the objective of that alignment was really to ensure that we continue to capture the momentum that we're seeing in the cloud ecosystem overall, both on the supply side with cloud service providers, and on the demand side, if you will, or the buy side with enterprises.

And those two verticals are generating about 60% of our new logos, continued strong momentum in bookings and new wins there, and as Steve said, the key metrics like funnel size, conversion, rep productivity, book-to-bill interval, all looking solid..

Thanks for taking the questions, guys..

Thanks, Jonathan..

Thanks, Jonathan..

Thank you. We have our next question coming from the line of Simon Flannery from Morgan Stanley. Sir, your line is open..

Great. Thanks so much, and thanks a lot for the new disclosure. It's very helpful. I'm looking at page 25, the same-store operating performance and you've broken out the stabilized and expansion. As you mentioned earlier, the stabilized return on gross PP&E was 33%. The expansion is 19%, up from 15%, a nice year-over-year improvement.

Perhaps you could just talk us through how the 19% evolves over time. Is that tied to utilization and is it reasonable to think that that becomes 33% over – or something else, four years or five years in, gets up to that sort of stabilized level? So any color around that would be great..

Simon, just so I'm making sure that you and I are looking at the same thing, so when you're looking at the percent growth year-over-year, when you talk about the 19% in the expansion, is that what you want us to refer to?.

It's the cash return on gross PP&E, the last column on that page..

Okay. Okay. Generally from our perspective, I think there's a couple of things. Clearly, as you think about our stabilized assets, again those are assets that have been – all phases have been open for more than one year, and effectively that one year for us is January 1 – starting January 1, 2014, looking at that relative to the expansion activity.

Our sense is when you think about expansion, because an expansion could be two, three and, in some cases, four more phases, you can appreciate that the net sort of the drag, if you will, perhaps taking on that full obligation whether it's a lease, whether it's the land and other related costs.

Until you get more to more fully utilize, you're not going to get the economic return that you're looking for relative to a stabilized asset. So as a result, this is a path, if you will, that's very consistent with our expectation, recognizing there's a relatively large portfolio of assets. There's 31 assets in the expansion bucket.

They're going to be at all different levels of delivery, if you will. And so probably leaving it with you, I think you're going to see that number move up and towards the 33% as we continue to pass time and then fully utilize those assets.

And the other thing I'd leave you with is the team has done a very good job over the years recognizing stabilized assets are only 84% utilized, the team does a very good job of optimizing the assets. So not only do I continue to expect the expansion to move up, quite openly we also expect the stabilized to move up into the right as well..

Great. That's helpful. Thank you..

Yeah, the only color I might add to it, Simon, is that I think there's – if you look at the mix of the stabilized asset group there and the expansion asset group there, there would certainly be no reason to believe that the long-term performance would be meaningfully different since they're likely to have similar mixes.

And so it's just a matter in some cases if they're very large, large-scale projects, it may take a longer period because they're multi-phases of investment but would trend towards that endpoint..

Great. Thanks..

Thank you. And we have our next question coming from the line of David Barden from Bank of America. Sir, your line is open..

Hey, guys. Good quarter. Thanks for taking the questions. I guess two if I could. Just, Keith, number one on the dividend, obviously we don't see the QRS or kind of have a picture of where the growth trajectory for the QRS which is going to fuel the dividend growth is.

Could you kind of address what we should be expecting on that front and whether you have an appetite to reflect the QRS growth in a quarterly or annual fashion in the dividend? And then the second question on the balance sheet, we've dipped now below the long term leverage target; if you went back to the midpoint, we could buy back 5% of the stock.

You've been very cautious about using the balance sheet as you kind of went into the reprocess, because there were obviously reasons to kind of be cautious and keep dry powder, but what can we expect Equinix is going to do for shareholders in terms of using that balance sheet on a go-forward basis? Thanks..

Two very good questions, David. Let me start with the dividend.

I think first and foremost, as you know, when we issued our dividend at roughly $1.69 per share on a quarterly basis and we said annualize that at $6.76 per share, or roughly a 3% yield where the stock was trading at the time, and so we're very, very comfortable with that, recognizing this is the transitional year for us as a company, transition in the sense that we're being very mindful of the assets that should be inside the Q and those assets that sit outside in the T, primarily to limit the amount of taxes we pay and certainly at the same time meet the REIT requirements.

So what I would like to leave you with at least for 2015 is right now make the assumption at least for next quarter that we're going to hold things stable.

As we look forward, as you think a little bit about the assets that sit outside of the Q, so you have Canada, Australia, Singapore, and Hong Kong, which are the big four, that's going to give us the flexibility to change, if you will, the dynamics in what that dividend will be, in addition though to effecting the growth.

It's fair to say that a lot of the assets, particularly Europe, which most of Europe sits inside the Q, that's going to continue to grow. And as we said on a currency adjusted basis it grew 19% this quarter over same quarter last year, and all of last year grew at 21% over the prior year.

So we're very confident and comfortable that we think that there's going to be good, if you will, growth in the Q, so that that allows us to continue to manage, if you will, the dividend on a go-forward basis. As it relates to balance sheet, you're absolutely right. It's – we sort of anticipated that this question might be forthcoming.

Part of the reason I put in disclosure is that a good portion of the cash that sits on the balance sheet, the $1.1 billion, just from what we see today a good portion of that's going to get fully consumed. And that's effectively – we consume almost – for all intents and purposes, that reflects one turn, if you will, of net leverage.

And so from our perspective, if we consume that capital, which we – or cash, which we intend to, our leverage is going to get into a much more, it'll get within the guidance range that we have shared with you.

And then the last piece I would tell you is to the extent we always – it's fair to say we always think of highest and best use of our capital, and right now given the success that we're seeing in the business, if anything you're going to see more of a bias towards continuing to invest in our future, which means investing more in the capital expenditure side of the equation and less about maybe some of the other alternatives we could use with the cash..

Great. Thanks, Keith..

Thank you..

Thank you. And our next question is coming from the line of Michael Rollins from Citi. Sir, your line is open..

Hi. Thanks for taking the questions. Just two if I could, one follow-up and an additional question.

So when you're talking about I think the utilization of the stabilized assets and the opportunity to increase utilization on the expansion assets, where do you see the long-term utilization for stabilized assets? What's the mature level that you think on average each asset can get to? And then secondly, if you could talk a little bit more – at the beginning of the call, I think, Steve, you mentioned that part of the revenue growth in the quarter was based on some favorable pricing.

I'm curious if you can go into little bit more depth as to where you saw the pricing and maybe what was different about this quarter maybe relative to the last few quarters in terms of the pricing commentary? Thank you..

So let me take the first one, then I'll pass it to Steve and Charles for the second one. As it relates to stabilized assets, right now as I said we're at 84% utilized.

I think for all intents and purposes we would target between we think 90% or greater, and realistically somewhere between 90% and 95% is a realistic assumption that we should be able to drive our utilization level to.

I think that's an area of comfort, Michael, that over a period of time recognizing some of these assets we're very selective in how we fill them up.

And what I mean by that, if it's a network dense asset and we don't have a lot of incremental capacity, we're willing to let that asset sit there for a period of time looking for the right customer with the right application to go into that asset. And so once we get there, I think it's reasonable to assume you're 90%-plus utilized..

And on the revenue growth and favorable pricing, Mike, I'll just give you a little color, and maybe Keith and Charles might have something to add. But I mentioned in my comments in the beginning that yield across all regions continues to be strong, and actually, our global yields was up $40 or 2% quarter-on-quarter on a constant currency basis.

So that was roughly 0.5% in the Americas, 2% in Asia and Europe, so pretty strong pricing in the regions, primarily because of the focus that our sales and marketing teams have on targeting specific workloads and focusing our value propositions around that type of application workload.

And as – historically as we've always mentioned, blended in with that, where appropriate we're pursuing larger magnetic footprints that are helping the overall ecosystem value.

And you should expect us to continue to compete for those, that'll advance our cloud agenda, but generally speaking we're doing a very good job of qualifying and bringing the right types of workloads into the right locations, and that's served us very well from a churn perspective and that's served us very well from a MRR per cab, and we expect it to remain firm, going forward..

Thanks..

All right. Thank you. And our next question is from Jonathan Atkin from RBC. Sir, your line is open..

Yes. I wonder if you could comment on M&A, just given some of the recent news around (47:04-47:09) and then, thinking about kind of the European Telecity Interxion situation.

Any reaction from your customer, any commercial changes that you're seeing (47:18-47:23)?.

Jonathan, we did not hear all of that. I think I have the gist of your question, which was to comment on M&A and the activity we see around the world.

Is that the gist of it?.

Yeah. M&A, and then specifically whether your European business is seeing any impacts from the pending deal going on in Europe between Interxion and Telecity..

Yeah, sure. Sure. I'll start and maybe Charles, you might – if you have anything to add, please jump in here. Fair to say, guys, that we have our eyes on the same consolidating activity that you're all reading about in our industry.

We're still focused, as I mentioned last quarter, on our inorganic strategy to extend our current leadership position around cloud and network density, secondly around scaling our platform, and then third around enhancing our interconnection position.

So we're always evaluating options to accomplish those three objectives, and we'll continue to do that. And if there was a transaction that might complement that strategy and create significant shareholder value, you should feel confident that we'll consider it.

But in terms of our Europe business, we're continuing to be very pleased with what's going over there. And our results off last quarter and certainly this quarter, as we mentioned in previous calls, our business in Europe grew 21% last year. And on a first quarter year-on-year basis grew 19% in this first quarter.

So our European business, because it's connected to a global platform, is growing faster than the broader EU market. And as you also heard we have significant momentum on interconnection in Europe. So all in all, yes, we're watching this stuff and our business in Europe we're very happy with..

And then on the cloud growth, I'm interested, is that becoming more indexed towards top five global platforms? Or is that more diversified or becoming more diversified to smaller cloud operations?.

Charles, do you want....

I'll take that, Steve. I think it's a combination of those things. We certainly see strong momentum with I would say the top six to eight cloud providers that I think you would immediately think of. And they are – most of them are deploying now with us in anywhere from 8 to 16-plus markets around the world.

And we're seeing significant activity, not only in their deployments but I think more excitingly cross-connect activity and Cloud Exchange activity driving interconnection back to those clouds from within our facilities, which is really the essence of the sort of building the cloud ecosystem.

And so – but then we also are really seeing good new logo capture and growth with existing new logos in a bit more of the longer tail around cloud service providers in a variety of forms.

And so I think it's both, and I think both are really critically important because I think that what we're seeing is that those big magnets like an Azure or an AWS are often the catalyst for somebody to say, yes, I need high bandwidth secure connectivity into these cloud providers as I begin to move workloads into the cloud.

But then they – as they evolve their hybrid cloud they really want access to a much broader range of cloud services as quickly and cost-effectively as possible and the ability to seamlessly and efficiently move workloads across various cloud providers. So both seeing good momentum and both critical to long-term health of the ecosystem..

Thank you very much..

All right. Thank you. And we have our last question coming from the line of Tim Horan from Oppenheimer. Sir, your line is open..

Thanks, guys.

Do you expect the average size of the customer to keep getting – maybe start getting smaller at this point as you move more to the enterprise market? It seems like you've kind of focused on the major cloud providers the last couple years, building up the cloud exchanges and, correct me if I'm wrong, but I'm assuming enterprises are now starting to use you guys to connect to these exchanges.

And I guess have we hit the tipping point with enterprises? Thanks..

Yeah, I'll start, Steve, and if you or Keith want to jump in. I would say yes. I think that the business will trend that way over time. I wouldn't say we've reached a tipping point per se in that I think we have a lot – are in the very early innings of enterprise adoption of hybrid cloud. But again, we're seeing good momentum.

Our lighthouse accounts are showing very strong land-and-expand type performance with some of our key customers, starting with two to three locations and rapidly expanding in their Performance Hub implementations to 6, 10, even 20 sites.

And so what I think we will see is an extremely favorable trend for us, which is average deal size for a new – or average implementation size perhaps trending somewhat down, although balanced in part by the fact that we're going to continue to selectively pursue strategic large footprint type activity where it's really accretive to the strategy.

But I think, we will see average implementation size trend down as we really gain some traction in the enterprise, both through our direct force and our channel. But interestingly, I think that the – we'll begin – we'll be able to grow those customers over time and so see the average billing volume for a customer continue to be strong.

So I do think we will see that trend. I think it's a very favorable trend potentially for our yield over time. But I think it's still very early days..

Thank you..

Thank you. We still have a next question coming from the line of Mike McCormack from Jefferies. Sir, your line is open..

Hey, guys. Thanks. Maybe, Keith, just a clarification on some of the cost being brought into Q2, which I'm assuming are in the guide.

But the utilities, the discretionary spend, and the merit increases, I assume that's all part of the guidance, the $308 million? And then secondly, the interest expense decrease and revised capital interest, can you just give us a little more clarity on that?.

Sure. Yeah, Mike, you're dead on. Just as we look to Q2, so not only do we have the merit increases that took effect in March, so we see that, if you will, the cost associated with that moving into Q2 and beyond, we have all the new head count, so all the – of the new hires. Then we have a higher utility line coming in in Q2 as well.

As you know, typically from a seasonal perspective, our highest cost of utility comes in the second quarter and the third quarter in the Americas region. And so we're absorbing roughly another, if my memory serves, it's another $6 million to $8 million of utilities in the second quarter relative to what we were going to spend in Q1.

And then there's – we're continuing to progress with our integration of the ALOG investment. And so we spent about $1 million in Q1 on the ALOG integration and so we expect to spend more in Q2 also with the rollout of our eco initiative.

All that to say is there's some timing and, therefore, that's why you see – despite that you see some step downs costs that we had in Q1 will be replaced with costs that I just talked about in Q2. And then we think that we can hold our SG&A relatively flat for the rest of the year.

As it relates then to just the net interest expense my reference to the fact that there's a certain amount of interest that gets capitalized into our assets and it was roughly a $12 million change from what we previously disclosed.

And because of that, although you see an improving AFFO the real value of the AFFO increase at this stage of the game was the improved operating performance. $10 million was really to capitalization and that, of course, that has no meaning.

Even though our AFFO payout ratio goes down, there is no fundamental shift that really took place because that capitalized interest it gets treated differently for tax purposes. So that's the primary reason for the interest step down..

Okay. Thanks, guys..

Yeah..

Thank you. And our very last question coming from the line of Colby Synesael from Cowen & Company. Sir, your line is open..

Great. Thank you for fitting me in. So I just want to talk about the competitive landscape for a moment.

It seems like there's just a lot going on, whether it's some of the wholesale guys trying to offer more retail products, everybody I guess to some degree trying to offer some form of interconnection whether it's with Open IX or their own exchanges, increasing demand it seems like for colocation facilities in Tier 2 markets, even metered power to some degree seeming to squeeze into the sub-500 kW type deals.

I was wondering if you could just comment on what if any impact you're seeing from some of these trends that I just mentioned.

And then the second thing is as customers do start to ask for more flexibility in what they want from you, whether it's in terms of what we'd refer to as wholesale space or bigger space or perhaps even different power requirements, is it going to require that you start to be more flexible in how you build your facilities? And could that over time change the cost on a per megawatt basis that you're investing when you build out a facility? Thanks..

Yeah. We're seeing all those things, Colby. Charles, do you want to take a crack and I'll....

Yeah. I'll jump in, you guys can add color. You're right. Steve's absolutely right. We're seeing all those things at some level, although what I would argue is that continued – we've said over and over again we're focused on getting the right applications, right customers with the right applications into the right assets.

And that really centers around this sort of ecosystem-centric strategy. And so I think if we're disciplined in that strategy I think that we see that the dynamics of the – some of the competitive things that you're – that you referenced have a much lesser or more marginal impact on our business.

I think that you're right, certainly wholesalers – some of the wholesalers are indicating a desire to – and offer smaller footprints and begin to dabble in the retail space. As I've said on a number of calls before, the requirements to operate a world-class at-scale retail business and the investments necessary to do that are substantial.

And I think what we're finding is that customers who really need the application performance, the global reach, the mission critical reliability for these retail-type applications are typically choosing Equinix based on the superior value delivered.

And so while I think there's probably some, as I've said, minor overlap between our businesses in terms of workloads that could be pursued by those types of players, if we're consistent and disciplined in our strategy I think we're seeing relatively limited impact.

You mentioned Open IX and a broader desire for people to talk about it and try to offer interconnection. I think that's also true, but I think the substance that we see in the market as compared to the hype and the PR, we see a big difference between those things.

And I think we feel very confident that we have a – the interconnection portfolio in terms of both offers and reach that really is delivering the value to customers. So again, we see very limited impact there. In fact, the momentum continues in our IX, our Internet Exchange offering.

We've sold more ports in the last four quarters than we did in the last several years, and really continuing to see incredible strength in that market. So customers are kind of voting with their wallets.

So – and then to the last question about is our need to and our desire to at least be able to in a targeted way pursue large footprint opportunities that we think are strategic control points, does that modify the way we think about our facilities? I would say yes to some degree, but that and a number of other factors have us constantly revisiting whether or not the design of our facilities and our ability to implement a flexible architecture and one where we can match capital spend as quickly and as closely to demand as possible, that's always an objective of the business.

And so we definitely have resources. And in fact, have increased the number of resources we've spent looking at that opportunity. And we think we will continue to evolve the offer to be as just-in-time as possible and as flexible as possible to meet the range of requirements that our customers are asking for..

Yeah. Thanks, Charles. Colby, that was very thorough. And I – the only thing I'd add to that to – it was a great question because there's a lot of activity going on.

I think, as I said in the comments in the beginning today, our strategy is working, you see the results from the firm yield and the other metrics, interconnection continues to grow, we feel like we're executing on all the right items, so you should expect us to continue this, more of the same..

Great. Thank you..

Thank you. That concludes our Q1 call. Thank you for joining us today..

And that concludes today's conference. Thank you for participating. You may now disconnect..