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.

David William Barden - Bank of America Merrill Lynch Michael I. Rollins - Citigroup Global Markets, Inc. (Broker) Jonathan Schildkraut - Evercore Group LLC Jonathan Atkin - RBC Capital Markets LLC Michael L. McCormack - Jefferies LLC Simon Flannery - Morgan Stanley & 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 have 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'd like to remind everyone that some of the statements that we'll be making today are forward-looking in nature and involve risks and uncertainties.

Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-Q filed on July 31, 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 IR page of our website. We encourage you to check our website regularly for the most current available information. With us today are Steve Smith, Equinix's CEO and President; Keith Taylor, Chief Financial Officer; and Charles Meyers, Chief Operating Officer.

Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call within 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 third quarter earnings call. We delivered another strong quarter, as the power of our global platform, as well as, the depth and breadth of our digital ecosystems are translating into sustainable growth, including record net bookings, stable yields, and healthy interconnection activity.

Our bookings momentum in cloud and enterprise reflects our position, as a key enabler, of IT transformation. Cloud service providers are choosing platform Equinix to scale their infrastructure globally, and enterprises are increasingly turning to us, as a partner in adopting hybrid and multi-cloud, as part of their next-generation IT architectures.

As depicted on slide three, revenues were $686.6 million, up 4% quarter-over-quarter, and up 17% over the same quarter last year, on a normalized and constant currency basis.

Adjusted EBITDA was $321.5 million for the quarter, up 3% over the prior quarter, and up 20% year-over-year, on a normalized and constant currency basis, delivering a 47% margin. AFFO grew 17% year-over-year, on a normalized and constant currency basis to $210.4 million.

With 169,000 cross-connects, and 4 terabytes per second of traffic, on our Internet Exchanges, which are growing at 33% year-over-year. Equinix is benefiting from the strong secular trends, and momentum, as businesses are becoming increasingly interconnected.

A recent industry survey of over 1,000 CIOs and other IT leaders globally, showed the number of enterprises deploying direct interconnections is poised to more than double, to over 80% by 2017. Enterprises that have already moved to interconnected solutions, reported significant value creation, from enhanced application performance, and cost savings.

Clouds continue to be the fastest growing interconnection destination at Equinix, although strong growth was delivered from all ecosystems.

We added a record 7,000 cross-connects this quarter and revenue from interconnection grew 21% year-over-year on a constant currency basis, meaningfully outpacing overall revenue growth as we mature our ecosystems and penetrate new markets.

Our digital exchanges saw another quarter of record traffic in provision capacity growth, including the addition of a 172 ports on our Internet Exchanges.

This includes 24, 100-gig ports doubling the provision capacity added in any previous quarter, and an important reflection of the confidence our customers have in our Internet Exchanges and our role in connecting network traffic. We expect continued traffic growth as this 100-gig capacity is absorbed into peering architectures.

Internationally, we are augmenting strong organic growth with our planned acquisitions of Bit-isle and Telecity to build market leadership, increase capacity, enhance cloud and network density and grow customer ecosystems across Europe and Asia.

Turning to slide four, as announced in September, we are acquiring Bit-isle, a co-location leader in Japan for approximately $280 million. Japan is one of the world's largest co-location markets and for several years, Equinix has been evaluating how to accelerate our leadership in this market.

With this acquisition, Equinix will become the fourth largest data center operator in Japan. Bit-isle's facilities are adjacent to our carrier dense sites in Tokyo and Osaka, giving us customer ready capacity as well as the opportunity to scale platform Equinix in this increasingly constrained but important global market.

Bit-isle also complements our cloud and network service provider customer base with a strong Japanese enterprise and systems integrator customer set, including some of Japan's largest companies.

With Bit-isle, Equinix also adds strong local expertise to help drive success in Japan and we look forward to completing this transaction in the fourth quarter.

Turning to the Telecity acquisition, we're excited about this compelling and unique opportunity to expand our presence in key markets in Europe, delivering significant value to our global interconnection platform.

Regarding regulatory status, we are seeking approval from the European Commission and we have had ongoing dialog over the past several weeks to review the transaction. Based on those discussions, we have proceeded with a formal offer to the Commission with proposed commitments, which are now being market tested.

We expect to hear a response by November 13 and are of the view that this transaction should be cleared during its phase one review, based on those commitments. Our pre-close work streams are progressing well and will remain on track for a first half 2016 close.

In addition to our acquisitions, the Equinix global platform continues to grow organically as customers leverage our broad geographic reach to deploy applications that serve their employees, partners, and customers across the world.

Today, 54% of our revenue comes from customers deployed globally across all three regions, and over 83% is from customers deployed across multiple metros, a reflection of our differentiated global reach.

We continue to invest in international markets to meet growing global demand and seek critical business ecosystems that will deliver incremental growth and value. We're currently building across 12 metros worldwide, focusing on our investments, where we can deliver a differentiated offer and generate very attractive returns.

Globally, we have 13 announced expansion projects underway, of which 12 are campus builds or incremental phased builds, which helps mitigate risk while driving returns. We continue to increase the number of owned data centers, including purchasing the land for our new build in São Paulo.

Owned properties now generate 38% of recurring revenue and 39% of NOI. And over 93% of NOI is generated by owned or leased properties or lease expirations extended to 2029 or beyond. Shifting gears, let me address our continued investment in green technology.

We believe it is our responsibility to power the digital economy in an environmentally sustainable way, both to serve the needs of our customers and to protect the communities in which we operate. This quarter we signed a power purchase agreement for solar power with SunEdison.

This purchase of 105 megawatts ensures the generation of renewable power equaling 100% of the energy for Equinix's California data centers.

This agreement will increase our use of green energy sources from 30% to 43% of our data center footprint, and represents significant progress towards our stated long-term goal of using 100% clean or renewable energy. Now, let me cover the quarterly highlights from our industry verticals.

Network operators continue to expand their infrastructure as they implement 100-gig platforms and augment their networks to deliver new services for mobile, content delivery, video streaming and cloud-based services.

A resurgence of subsea cable projects is also creating opportunity for Equinix, helping service providers accelerate returns by terminating cables directly into our IBXes. Equinix is working with AquaComms who is deploying one of the first trans-Atlantic subsea cables in more than a decade to meet increased bandwidth needs for global businesses.

Our New York and London data centers will serve as the carrier neutral, low latency network access points to this cable system. In addition, our West Coast data centers will anchor the new trans-Pacific subsea cable system named FASTER.

This new cable route will be one of the longest high-capacity routes in the world, and will be backhauled into four of our data centers in Silicon Valley, Seattle and Los Angeles.

In the content and digital media vertical, we continue to see consumer content companies architect their delivery infrastructure via platform Equinix to respond to cost and performance imperatives driven by the demands of today's mobile users.

Growth was driven by global expansions from players including Baidu, a Chinese web services company and Créteil, a French company specializing in performance marketing, as well as new wins with three of the largest consumer application providers in music, social networking and accommodations.

Advertising and e-commerce sub-segments continue to be our strongest growth performers in this space.

Turning to the financial services vertical, we see continued diversification in our financial services business with additional wins from Australian Securities Exchange operations, a global financial market exchange as well as wins with a leading global insurance syndicate and one of the largest banks in the world.

We also had lighthouse wins in digital payments and we see encouraging signs of ecosystem formation in this area.

Turning to cloud and IT services, we are experiencing continued momentum across the cloud ecosystem, which drove strong bookings this quarter as major cloud and IT players, such as AWS, Cisco, Dimension Data, and EMC continue to expand and our relationship with Rackspace extended to include their participation on the Equinix Cloud Exchange.

With over 240 customers provision, we continue to see momentum on our Cloud Exchange, our cloud interconnection solution that allows customers to dynamically create and manage private, secure virtual connections to multiple cloud services over a single port, simplifying cloud migrations and enabling workload mobility from cloud-to-cloud.

We're pleased to announce we are also collaborating with Oracle to enable high performance global direct access to Oracle's full suite of cloud services across six markets.

This will allow customers to easily create connections to Oracle's cloud-based business applications while reducing the application latency often associated with traditional cloud access.

As one of the largest cloud providers, the addition of Oracle Cloud to the Equinix Cloud Exchange strengthens our ability to deliver unrivalled choice to our customers. In October, Equinix worked closely with Microsoft to launch a private Azure ExpressRoute connection to Office 365 through the Equinix Cloud Exchange.

Office 365 is one of the most requested applications by enterprises and leveraging ExpressRoute via Cloud Exchange dramatically improves the performance and security of Office 365. We're now offering this solution across all 16 metros where ExpressRoute is available on Cloud Exchange and have seen very strong interest.

Turning to the enterprise vertical, the enterprise vertical delivered record bookings, and we are seeing continued traction in penetrating this massive addressable market. Notably as of the third quarter, enterprises became our largest source of new customer adds with traction in transportation, manufacturing, logistics, and healthcare.

Over 250 customers have now deployed our Performance Hub solution to optimize network architectures and drive application performance by securely and efficiently connecting to network and cloud services.

Turning to slide five, our enterprise go-to-market strategy is based on four use cases for people, clouds, locations, and data that allow us to effectively solve enterprise pain points by making the transition to an interconnection-oriented architecture.

Whether it's deploying applications to distributed users or leveraging data intensive analytics, enterprises are facing challenges around security, networking cost and performance that we are helping them solve. For example, a global media and software customer worked with Equinix to solve inefficient and insecure access to multiple cloud providers.

By deploying a distributed hub infrastructure inside of Equinix and connecting privately to multiple clouds, this customer benefited from a 25% reduction in latency and a 50% reduction in OpEx per application.

Our global reach as well as networking cloud density represent powerful and difficult to replicate advantages in servicing the demand for multi- cloud. But translating these advantages into customer acquisition and market share capture, requires a continued evolution of our product and go-to-market capabilities.

We have made significant progress in 2015 with our Performance Hub and Cloud Exchange offers and will continue to expand our portfolio of high impact, channel ready offers to help enterprises satisfy their hybrid cloud aspirations.

On the go-to-market front, we continue to drive productivity improvements in our direct selling teams, and are investing in parallel in our channel and partner program to dramatically expand market reach and enable the delivery of more complete solutions to meet key customer requirements.

We're pleased with the progress of our channel initiatives and continue to see partner bookings grow as a percentage of our overall sales. So, let me stop here and turn it over to Keith, to go through the results for the quarter..

Great. Thanks, Steve. Good afternoon to everyone on the call. We had another great quarter and the value of our platform as reflected in the health of our key operating metrics continues to rise. We had once again strong gross and net bookings and our MRR churn remains at the lower end of our guidance range.

Consistent with the last four quarters, we had positive net pricing actions, and we recorded the highest increase in net cabinets billing in our history, adding 4,700 incremental billing cabinets in Q3, more than double the average quarterly rate in 2014. Our MRR per cabinet on an FX neutral basis remained firm.

We're delighted with the interconnection activity in the quarter, and we added significant new cross-connects and exchange ports. Interconnection revenues as a percent of our recurring revenues continue to pick up across each of our regions.

So, based on the strength of our gross and net bookings activity, as well as the continued momentum across our business, we are once again raising our guidance expectations despite the continued strengthening of the U.S. dollar for each of revenues, EBITDA and AFFO for Q4 and 2015.

And as we finish the year on this strong note, this clearly positions us for a solid start to 2016. Our updated revenue guidance now implies a normalized and constant currency growth rate of over 16% compared to the prior year, the highest annual growth we have seen since 2012. Now moving to some comments on the acquisitions.

We continue to progress with both our Telecity and Bit-isle transactions. The Bit-isle share tender period closed this past Monday and we are happy to note that 97% of the Bit-isle shares were tendered. We expect to acquire the remaining shares of Bit-isle by the end of the year.

The Bit-isle transaction will officially close in early November, and we'll report their results in our consolidated financials from that point forward. Please note, we have not included Bit-isle in our guidance. And accordingly, we'll update you on the financial results on our next earnings call.

As stated previously, we expect Bit-isle to create significant value for our shareholders and to be accretive to Equinix's AFFO per share upon close. Also we're continuing our journey as a REIT, and in August, Equinix was added to the MSCI US REIT Index as the largest data center REIT.

We remain pleased with the diversification of our shareholder base as many REIT investors joined our traditional technology investor base. Given the changing investor mix, we'll work to clearly message our story to both these investor groups. So now moving to the slides.

As depicted on slide six, global Q3 revenues were $686.6 million, up 4% quarter-over-quarter, and up 17% over the same quarter last year on a normalizing constant currency basis. Our revenues over performance was due to strong bookings activity and net positive pricing actions.

Q3 revenues net of our FX hedges absorbed a $4 million negative currency headwind when compared to either the average FX rates of last quarter or our prior FX guidance rates. Given the continued strength of the U.S.

dollar, our updated 2015 guidance now includes incremental FX headwinds of $13 million on the revenue line and $4 million related to adjusted EBITDA when compared to our prior FX guidance rates.

Therefore, our current 2015 revenue guidance now absorbs $138 million currency headwind while EBITDA is negatively impacted by $56 million when compared to the average rates used in 2014. As we look to 2016, we continue to believe the U.S.

dollar will remain strong and create some level of headwind when compared to the average rates in 2015 in addition to the averaging down of our current hedge positions. We'll update you on the estimated impact of FX on the next earnings call.

Global adjusted EBITDA was $321.5 million, above the top end of our guidance range, and up 3% over the prior quarter and 20% over the same quarter last year on a normalized and constant currency basis, largely due to strong revenue flow through. Adjusted EBITDA margin was 47%.

Our Q3 adjusted EBITDA performance net of our FX hedges reflects a negative $800,000 currency impact when compared to the average FX rates from last quarter and a $500,000 positive benefit when compared to our FX guidance rates. Global AFFO was $210.4 million.

Excluding the $11.6 million FX loss related to net investment hedge for the Telecity acquisition and $4 million of incremental financing cost related to both the Telecity and Bit-isle acquisitions, AFFO on a normalized and constant currency basis increased 2% over the prior quarter.

As a reminder, we've hedged the majority of our pound sterling net investment exposure related to the Telecity acquisition. When we mark-to-market these hedges whether realized or unrealized, the fluctuations will flow through net income on the other income and expense line and therefore affect AFFO and other reported metrics until we close the deal.

As we look forward, we'll continue to keep you updated on the impact of this hedge position and how it affects our AFFO metric. Global net income was $41.1 million or diluted earnings per share of $0.71, including acquisition cost of $13.4 million and the $11.6 million FX loss in the Telecity acquisition related hedge. And finally moving to churn.

Global MRR churn for Q3 was 2%, our fifth quarter in a row at this lower level. For Q4, we expect the quarterly MRR churn to be at the high-end of our range between 2% and 2.5%, which includes some of the MRR churn originally expected to incur in Q3.

Now turning to slide seven, I'd like to start reviewing the regional results, beginning with the Americas. The Americas region had a strong bookings quarter, lower than planned MRR churn and favorable pricing. On a normalizing constant currency basis, the Americas revenues were up 4% quarter-over-quarter and 13% year-over-year.

Americas adjusted EBITDA was up 2% over the prior quarter and up 12% year-over-year on a normalizing constant currency basis. Americas interconnection revenues represents 22% of the regions recurring revenues and we added 3,500 net cross-connects and 78 exchange ports in the quarter. Americas net cabinets billing increased by 1,500 in the quarter.

Also we're proceeding with a new build in São Paulo, the financial capital and the main data center market in Brazil. This will be out third IBX in the São Paulo market and a fifth IBX in the Brazilian market. Equinix purchased a land for São Paulo III, consistent with our desire to own more of our IBXs as we expand the business.

We also broke ground on our Ashburn North campus, undeveloped land that we will also – pardon me – that we also own next to our current Ashburn campus, which is the largest Internet Exchange points in North America. Equinix currently has 10 IBXs in Ashburn and the surrounding area.

This new campus, which we plan to develop over the next few years will effectively double the capacity we have in this market. Now looking at EMEA, please turn to slide eight. EMEA delivered another strong quarter with record bookings with particular strength in the French and Dutch markets.

On a normalizing constant currency basis, revenues were up 3% quarter-over-quarter and 22% year-over-year and adjusted EBITDA was up 4% over the prior quarter and 26% over the same quarter last year. We had another solid quarter of increased interconnection activity, adding 1,800 net cross-connects.

EMEA interconnection revenues represent 9% of the regions recurring revenues. EMEA MRR per cabinet was flat on a constant currency basis and net cabinets billing increased by 1,800. Given the strong performance in our key markets, we plan to move forward with additional expansion phases in both Amsterdam and London.

This includes the next phase of London 6, the new build in our Slough campus that only opened earlier this year. And now looking at Asia-Pacific, refer to slide nine please. Asia-Pacific continued its rapid growth as customers continue to deploy into this region.

Revenues were up 6% over the prior quarter and 26% over the same quarter last year on a normalizing constant currency basis. Adjusted EBITDA on a normalized and constant currency basis was up 6% over the prior quarter and 37% over the same quarter last year. Adjusted EBITDA margin was 52% with strong flow-through from the revenue line.

MRR per cabinet on a constant currency basis was down slightly quarter-over-quarter, which included a large number of billable cabinets being installed. Net cabinets billing increased by 1,400 over the prior quarter and we added a healthy 1,700 net cross-connects. Interconnection revenues stepped up to 13% of the regions recurring revenues.

For builds, we opened a new phase in Hong Kong and Singapore this quarter and currently have five expansion projects underway across four countries. And now, looking at the balance sheet, please refer to slide 10.

Unrestricted cash and investment decreased this quarter to $340 million, largely due to our continued investment in CapEx and the payment of our third quarter cash dividend. Our net debt leverage ratio currently is 3.4 times of Q3 annualized adjusted EBITDA.

As we look forward, we continue to actively review our capital structure and financing needs, largely due to the planned acquisition of Telecity and soon to close Bit-isle transaction. But, as well as we continue to just stay at the level of investment as we spend our platform to support the trajectory of our business.

Now, switching to AFFO and dividends on slide 11. For 2015, we're raising our expected AFFO guidance to now range between $866 million and $870 million, an effective dollar increase of $29 million over our prior guidance or a 24% year-over-year increase on a normalized and constant currency basis.

Our AFFO guidance, as mentioned previously includes the impact of the Telecity net investment hedge in Q3, but no, our updated AFFO guidance does not make any assumption for Q4 relating to the net investment hedge for Telecity.

Also today, we announced our Q4 dividend of $1.64 a share – sorry, pardon me – $1.69 a share, consistent with our prior quarterly dividends. Our AFFO payout ratio remains at 45%. Our previously announced 2015 special distribution of $627 million will also be paid in the fourth quarter in a combination of up to 20% in cash and at least 80% in stock.

Do note, by the virtue of the special distribution being paid before the Q4 quarterly cash dividend record date, we're effectively increasing our quarterly dividend by 3% as the 1.7 million incremental shares from the distribution will have already been issued to our shareholders. Now looking at capital expenditures, please refer to slide 12.

For the quarter, capital expenditures were $216 million, including recurring CapEx of $26 million. Given our rapid fill rates and over performance year-to-date, we're closely assessing our inventory and expect to continue to invest to support our platform.

We're narrowing our 2015 CapEx guidance to the top end of our prior range of $830 million to $850 million. Turning to slide 13.

The operating performance of our stabilized 67 global IBX and expansion projects that have been opened for more than one year delivers steady as reported growth of 6%, an increase over the prior quarter and more closely aligned with our expectations.

Utilization of these assets increased to 86%, up 2% over the prior quarter as we filled additional capacity in these stabilized assets with particular high absorption in London, Munich and Silicon Valley markets.

At the end of Q3, our stabilized projects generated a 33% cash on cash return on the gross PP&E invested, reflecting the economic value these stabilized campuses deliver. So with that, let me turn it back to Steve..

Okay. Thanks, Keith. Let me now cover our 2015 outlook on slides 14 to slide 17. Note that, the following guidance does not include the Bit-isle transaction that is expected to close in Q4.

For the fourth quarter of 2015, we expect revenues to range between $701 million and $705 million, and normalized and constant currency growth rate of 3% quarter-over-quarter, which includes $4 million negative foreign currency impact when compared to the average FX rates in Q3 of 2015. Cash gross margins are expected to approximate 69%.

Cash SG&A expenses are expected to approximate $153 million to $157 million. Adjusted EBITDA is expected to be between $328 million and $332 million, which includes a $4 million negative foreign currency impact when compared to the average FX rates in Q3 of 2015.

Capital expenditures are expected to be between $242 million and $262 million, which includes approximately $34 million of recurring capital expenditures.

For the full year of 2015, we are raising revenues to range between $2.696 billion and $2.7 billion, a 16% year-over-year growth rate on a normalized and constant currency basis, which includes $13 million of negative foreign currency impact when compared to our prior guidance rates.

The revised revenues are a $21 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 $601 million to $605 million. We are raising our adjusted EBITDA guidance to range between $1.267 billion and $1.271 billion or a 47% adjusted EBITDA margin.

This guidance includes $4 million of negative foreign currency impact when compared to prior guidance rates or a normalized and constant currency growth rate of 19%. Excluding this currency impact the revised adjusted EBITDA is an $18 million increase compared to prior guidance.

We expect adjusted funds from operations to range between $866 million and $870 million or a normalized and constant currency growth rate of 24%. As noted by Keith, this guidance does not include the impact from the Telecity transaction hedging for Q4, although, this will continue to impact our as-reported AFFO results.

We expect 2015 capital expenditures to range between $830 million and $850 million, which includes $110 million of recurring capital expenditures. In closing, we are expanding our market leadership and driving disciplined execution of our differentiated strategy.

We believe that the strength of our digital ecosystems and the global breadth of our interconnection platform create a powerful fly wheel to fuel our business and drive IT transformation.

Our role as an enabler of the hybrid and multi-cloud represents a powerful near-term catalyst for enterprise penetration and we will continue to invest in this significant opportunity. We are working to accelerate our alignment and agility as an organization and look forward to updating the market as we progress with these initiatives.

So let me stop here and we'll open it up for questions. So back over to you, Bob..

Thank you. Our first question speaker is from Mr. David Barden from Bank of America. Your line is open sir..

Hey, guys. Thanks for taking the questions. Appreciate it. Good quarter. I guess, first question, I guess, Steve, would be, with respect to some of the comments on the Telecity deal and the November 13 decision that we're expecting from the EU.

Obviously, there was a big filing about commitments that you guys have made with respect to closing the transaction and you spoke about some market testing of these commitments.

Could you elaborate a little bit on what they are and if they affect the economics of the transaction in any material way? And then I guess, second, Keith, just on the hedge for the European market, obviously, it was a decision that you took at the beginning of this year. It's paid off to be relatively aggressive hedging the EU currency blocks.

Are you planning to continue in 2016 a fairly aggressive static hedge or are you going to be a little bit more dynamic in how you think about currencies and where you think the incremental moves are going to go and how aggressive are you planning on being with respect to the hedges in the European market? Thanks..

Okay, David. Thanks. Let me start with the first one, and Keith, we'll hand to you for the second piece. So, David, we're somewhat limited in what we can provide color on around the Telecity situation, but let me tell you what we can share with everybody.

So number one, we are moving forward with the EU Commission and targeting a regulatory clearance in Phase 1. We've had, as you would expect, ongoing dialogue with the Commission over the past several weeks and have had very good interaction.

Based on those discussions, we have proceeded with a formal offer of proposed commitments as noted in our recent 8-K.

So for a variety of reasons, we cannot comment much further on the nature of those commitments, but we remain optimistic about a Phase 1 clearance of this transaction and a first half 2016 close, that is in line with our previous guidance.

And we do expect a response from the Commission by November 13 and then we'll update you accordingly after that point..

I feel like that's already written on a piece of paper in front of you, Steve..

Yeah. Well, we're somewhat limited, David, as you might expect on sharing any color on the activity until we get to the November 13 timeframe, so they have a 10-day working day period to do the market test, and that's the period we're in now..

Okay..

David, let me just move forward then just on your questions around the hedge. First and foremost, the piece that's affecting the AFFO, which was not in our prior guidance and again, it can fluctuate quarter-to-quarter, that relates to us hedging out our net investment exposure for the acquisition of the Telecity asset.

And so, as you can appreciate, that will continue to fluctuate until we close. So if you will – the net – the loss that we experienced this quarter, the offsetting impact sits inside – will sit inside purchase accounting when we actually close the transaction.

If I was to actually – if I was actually to use the same exchange rates – if I use the spot exchange rate today for effectively the transaction, that $11.6 million, sort of loss would turn into a gain, if it was this quarter. So, it gives you a sense of the volatility because it's almost a $1 billion hedge.

As it relates to our ongoing monitory hedges and our balance sheet hedges as well as the embedded derivatives that we do, as a company, we're still going to continue to hedge where we can somewhat aggressively. And why we want to do that, we think there will continue to be strength in the U.S. dollar.

But as you'll recall, we hedge out now anywhere from six to eight quarters. We feather them in, and of course effectively it's smoothing out the impact of how the currencies are going to move. In this case, we've been clearly a net beneficiary of our hedging through fiscal year.

Despite where currencies have gone, we've been a net beneficiary of hedging. And so, we want to continue to use that where appropriate. There's some markets that we will not hedge. As we've said, it's just too darn expensive; Brazil is that one example.

And again, the majority of our hedges, anytime you think of our European hedge, it's already going through our results. When you think about – it's going through our result, pardon me, it's going through – and we get proper hedge accounting.

When we go to Asia, all of that stuff we report basically, we report as for the gains and losses in the P&L below the line. So, we'll try and be really transparent over the next little while on our hedging positions.

We're certainly going to be very clear as we move to close our planned transactions, not only because of the influence that new currencies will have or the increase in currencies will have exposed to as it relates to yen, sterling and euro. But most of that will take place as or when we close the transactions for Telecity and Bit-isle..

All right. Awesome. Thanks, thanks, guys..

Thank you..

Our next question is from Michael Rollins from Citi. Your line is open..

Hi. Thanks for taking the question. Was wondering if you kind of look back over the course of the year, if I remember correctly, your original constant currency revenue guidance was around 12% for 2015. And you mentioned in this deck that it's around 16% today.

I'm wondering if you can give us a bridge to what the sources of outperformance were, regionally – maybe by vertical? And at the same time, are you seeing some segments underperform where you thought they would be? Thanks..

Let me take one piece of it, Michael, and then I'm going to defer – I'm going to look at Charles and Steve for some other color. So, I want to make sure that we're clear with everybody on what we did.

When we started out the year, as you will recall, we said that we could do greater than and clearly – so, when you look at our internal plan relative to what we performed, we felt we could do a bit better than the guidance that we delivered because those are greater than – that all said, as we progressed through the year, there's a number of things that worked very much in our benefit.

Number one, we are booking a little bit more in the gross line than we originally anticipated, so that's net positive. Second piece is, churn is not as great as we anticipated, and you've seen that in each of our actuals relative to our quarterly guide, so we get the benefit of churn. Three, our net pricing actions are positive.

And again, as I said, we've had steady quarterly flow of net pricing actions, and that's – that does wonders – wonders for the revenue line.

Four, we've done more, more than we originally anticipated, on the non-recurring line in this quarter, sorry – pardon me – Q3, as we guide forward for Q4, we're going to do roughly $40 million on the non-recurring line, so it gives you a sense that that was – that was a lot higher than we originally anticipated to that – it's probably to the tune of $30 million odd.

And then the fifth thing I'll tell you is, the sales leadership has done a real good job of better managing the booking and billing activity through the quarter.

So, as we measure ourselves, and we call them banana charts, those banana charts look more like a straight line from where we're getting, a more – a more steady flow of revenue throughout the quarter instead of it all being back-ended.

And between those – those five things I've all added, so bottom-line, I'd just tell you, there is not any one thing from, from a financial perspective – what I'll defer to Steve and Charles, you want to talk about the verticals and the like..

Yeah, let me get – and Charles you may have something else to add, but let me give you a vertical orientation to that, Mike. Whether it's bookings or revenue, let me give you a recurring revenue, kind of picture Q3 of 2015. Our cloud revenue, recurring revenue, is approaching 28% of total revenue in the company.

So, you can obviously see there's growth in the cloud and IT services segment. The other big mover has been enterprise. We've gone from high-single-digit of our recurring revenue now to approaching 12% of our revenue in the enterprise vertical.

We're still getting good growth in the other core verticals, but the big movers has really been around the core story that we've had last several quarters is the cloud and enterprise activity that we see around our cloud exchange and around the uptick on in those two verticals..

Yeah. Maybe a little more color again. One, I think regionally, we've had strength across all three markets obviously with Europe and Asia in particular growing faster, but really very strong growth in the Americas given the overall size of the business.

As Steve said, there are strong bookings across the board also as I think I mentioned in the last call, cloud and enterprise in particular are over-indexing meaningfully in bookings, meaning that comparing our percentage of bookings coming from those segments to the percentage of the installed base, those are really growing faster.

But that's not – that over-indexing isn't caused by weakness in the others, it's really caused by strength in that particular ecosystem taking shape. And then the other thing I guess I'd point to as you can see, interconnection, we just said is a 21% grower on a constant currency basis compared to 15% or 16% overall.

And so again, interconnection is also over-indexing significantly, which obviously has a materially positive impact to the business. And if you look at it and you unpack that a bit further and peel the onion back, it's really strong across our ecosystems.

So, what I would say is in network, for example, we're actually seeing good strength on a net cross-connect basis, driven in part by really some of the grooming activity that occurred over the last couple of years subsiding and now actually networking – network providers and carriers really looking to add to their service portfolio in a variety of ways, which is increasing their appetite for interconnection.

And now, also cloud is our fastest growing sort of end destination for interconnection, which I think is further evidence that that ecosystem is really starting to take shape. And that the secular trends are just extraordinary.

If you look at the momentum in our Internet Exchange in terms of the port volumes and the – and how those translate into traffic growth, it just continues to say that mobile Big Data, Big Data and analytics, social media, et cetera and how people are really architecting to deliver greater levels of application performance in a hybrid multi-cloud world, really all adding across all the verticals.

So I don't think there is any particular segment that has underperformed. I think there are some that are evolving, how people use us in the content and digital media sector has changed.

One of the things, and it's been several years now, where some of those larger players moved to these multi-tiered architectures, which has really been a net benefit for us, has opened up capacity that we resold at higher rates and really they are using us more for content delivery, private CDN type implementations, hubbing applications and interaction between the cloud and the content and digital media world particularly in the advertising segment.

So, really strong performance across the board..

Thank you very much..

Sure..

Our next question is from Mr. Jonathan Schildkraut from Evercore. Your line is open..

Great. Thank you for taking the questions. I was wondering, Steve, if you could spend a little bit more time talking about what's happening with these enterprises that are coming in to plug into the hybrid and multi-cloud environments.

On average, maybe how many different clouds are plugging into, how involved is Nimbo or your other sort of tech professionals in helping these people onboard? And then, I'm wondering if there's any relationship between what we're seeing in terms of the enterprises taking advantage of that ecosystem and some of the net pricing actions on the positive side that you guys have been talking to? And in fact, if there's any additional color in terms of breaking down those net positive pricing actions, that'd be great too.

Thank you..

Sure. Why don't I start out here and then you guys can add around the edges? So with the enterprises, the primary draw with us right now, Jonathan, as most people on this phone know are with the large IaaS cloud providers, it's AWS, Microsoft, with Azure and the work we're doing with Office 365, Google, IBM, SoftLayer.

And then there's a variety of other providers, SaaS and other infrastructure providers.

But as you all know, the primary uptick today, as many of those enterprises are connecting to the larger IaaS providers, because that's where – we're making that really easy for them to do and it's highly secure and it's helping performance of applications, it's helping latency and all the things we've been talking about for years.

So, it is the draw. The sales teams are setting a hook, as you've heard us talk about, with our network – with our Performance Hub offering.

We very quickly transitioned into how we can connect them to the cloud exchange to see the cloud providers on the other side and then most of use cases and success stories that we're building are around everything we've described in our prepared remarks.

I mean, we have a lots of use cases now, where we're approaching a 110 Fortune 500 companies now, that are in the house.

So we're seeing great traction now with enterprises and the stories resonate, and so the two primary offerings that we've built the story around the last several quarters, the Performance Hub, which helps network optimization and application performance, I think obviously connecting to the cloud exchange to see the clouds is the primary driver.

Nimbo is still early days, Charles can provide a little color on that.

But it is starting to work where companies need to have a plan to find the multi-cloud or figure out how to take advantage of the hybrid cloud, they are coming to us, we're connecting those dots internally, we are helping them build those architecture plans and helping them build their transition plan, so that's to starting to happen.

Pull through will start to happen for colo as it matures. And generally the ecosystem as Charles just described is a major draw here. And as we're getting deeper into the enterprises, as I mentioned in the prepared remarks, we're seeing a big uptake in the interconnected requirements for enterprises across multiple industry verticals.

Charles?.

Yeah. I would add I guess a few things.

One, I'd point you to slide five in the deck around those four use cases that we're really starting to see take hold and importantly the bottom of that page which talks about the sort of quantifiable proof points of how enterprise customers in particular are creating value by using platform Equinix to implement a hybrid cloud and multi-cloud kind of strategy.

It is definitely a longer and more complex sales cycle. We are clearly prosecuting the market from the top-down, meaning sort of targeting the top of the enterprise pyramid and as I said, probably more sophisticated enterprise buyers. Nimbo is having an impact.

The interesting thing is I would say that there is virtually nobody at the top of that enterprise pyramid that we're engaged with, that is not already using or considering to use of either AWS or Azure or Google Cloud as a fundamental part of their hybrid cloud architecture.

I mean, our Nimbo team is very well-positioned to help them through how to migrate applications into a hybrid cloud environment. Our solution architects, which we have now – we expanded significantly over the last couple of years.

This quarter was actually the largest – we track the percentage of deals that they impact in our bookings and this is the largest quarter ever in terms of percentage of deals impacted and directly touched by that group.

So definitely having an impact, still early innings I think in the overall evolution, but at least my experience in terms of how enterprise technology markets proceed, I think we're very much seeing this sort of early stage of lighthouse wins, which then begins to translate to the mid-market taking hold, particularly through channel, which also is proceeding well.

So continue to be excited about that, but page five is I think a great place to look in terms of what's really attracting these customers..

Thanks.

And did you guys talk about the positive pricing actions and where that's coming from?.

Yeah, I think on balance what you're seeing is that we are pretty rigorous about implementing annual price increases into our contracts and because we have I think increased the level of discipline around installations we're taking into the facilities and as we say, right applications – right customer, right applications, right assets, what we're seeing is the churn is mitigating and also the sort of price pressure upon renewal when you're talking about high-value implementations is substantially sort of mitigated.

And so, as a result what we were seeing, which is potentially a – that flipped on its head, is really now seeing that the price actions and the price increases really giving us a net benefit versus any kind of pressure on renewals, so. And I think that reflects also in the churn line..

All right. Thanks for taking the questions..

Thanks, Jonathan..

Thank you. Our next question is from Mr. Jonathan Atkin from RBC Capital Markets. Your line is open..

Thanks. So, for Keith, I've got a question regarding slide 13 and the stabilized IBX comparison.

I think that's a global slide and I wonder if you can just update us on a regional basis, how the cash-on-cash returns would compare for stabilized IBXs in EMEA versus Asia-Pac versus Americas? And then, kind of the same question for kind of the organic revenue growth that you're seeing across the regions in stabilized assets.

And then, the second question is just around the indirect channel and you talked about an increasing portion of the bookings coming from agents and resellers and so forth and I wondered, are you still at the point where you're establishing that network of partners and broadening it or are you focusing more on depth within your existing set of indirect partners? Thank you..

Yeah, Jonathan. Let me take the second one first and then, I'll kick it back to Keith to hit the first one on slide 13. We are definitely expanding the overall scope of the partner program, but I will say is that what we are doing is starting to focus our efforts more on what we believe the really high impact partners are.

There's a set of a particularly sort of capable resellers that bring a very complete solution in the cloud space to customers who are looking to use us, again, as a hybrid cloud, sort of multi-cloud hub and we're having real success in terms of working with those partners to penetrate large enterprise customers.

But we are selectively looking to expand that reseller base. Probably not a lot of focus on – I think we've got a pretty good set of referral and agent type partners that we're working with and those continue to be a solid source of lead generation for us.

But our focus really is on the real value-added resellers and on our partnerships, our evolving partnerships with the technology platform players. So, we've got some nice success in the market with both AWS and Microsoft in terms of sell with type of motion with them.

And that's something I think we'll continue to put a lot of energy and in fact we're increasing our field force now to really accelerate the investment in that.

And we think there's a lot of upside in that, so continuing to grow, but probably more focused on generating more volume from our productive partners at this stage rather than a focus on more partners..

So, Jonathan, just on your first question as related to where we're seeing the growth across the regions. The 67 stabilized assets, it's broken down and again it's on page – if you look at page 27, 28 and 29 of the deck that we shared with you. We break down where the assets are.

I don't actually have the specifics on a region basis on the revenue growth, but let me just give you some broad color. As I said, when you look at the Americas, it's growing roughly 10%, you've got Europe growing roughly 22% year-over-year and then you've got Asia growing 26% year-over-year.

You can see where the stabilized assets are and where we're investing. I think it's something that we'll have to – as we think about the question, we'll have to probably respond offline to that specific request.

But as Charles alluded to, let me just give you some color in the sense that as we commented on, we're filling up our capacity in a very meaningful way. As we said 4,700 cabinets sold this quarter, our utilization levels are moving up. We can see it across our inventory base. We're looking at our expansion activities.

So suffice it to say, we're seeing good growth across the organization, across all three regions and so I'm very excited about where we are. But to give you a specific right now, I don't actually have that at hand and so we'll take that as a to do..

It's a probably a little dangerous speculation, but what I would say is the likelihood is because of the strength of the interconnection business in the Americas and the higher average price point of interconnection on a unit basis, I would guess that you're going to see slightly higher stabilized yield – growth rates in those assets, but again, we'd have to break that down.

But we are seeing good momentum also in interconnection in the other two regions. And again, you see continued power uptake in all of those facilities as well, so it's going to be a blend of those things, but I think I would say there is strength across the board..

And then just real quick on Bit-isle, what would be a typical integration timeframe for that size of acquisition from both an IT and organizational perspective? Are we talking months or quarters before we see full integration?.

Yeah, it'll take a little bit long. This is Steve, Jonathan. It'll take a little bit longer than a typical integration plan in Japan, just due to the culture and the language barriers, et cetera.

There's a fairly sizable team that we're picking up, and there's pretty significant language challenges, but we'll convert the financials, the IT pretty quickly, but we're going to take our time with branding decisions and marketing decisions and go-to-market decisions, and the plan is being built now, but it is going to be a little bit longer than a typical integration just because of those complexities..

Thank you..

Our next question is from Mr. Mike McCormack from Jefferies. Your line is open..

Hey, guys, thanks.

Maybe just a quick comment on the combined DLR/Telx, as far as competition goes, any change there? And then I guess secondly on the Asia-Pac margin expansion has been really steady and increasing, your just thoughts on drivers there? And then how high can those margins go in APAC?.

Well, why don't I start with the DLR/Telx, just a couple of thoughts and then Charles, you probably have a thought or two you could add, but I think our general belief across the company is that the combination will not change the competitive landscape meaningfully, and I think they understand and I think the market understands that the degree of difficulty to – attempt to – I think the question is getting at, can they replicate what's been going on here for 17 years? And I believe the degree of difficulty to replicate a global at-scale platform that has the consistency of service delivery and full portfolio of services that we built in 17 years is a pretty high bar to attack and huge investment in some fairly unfamiliar areas to get a global retail business up and running.

So, I think it's going to help in their Americas business for sure, but there's a lot between the wholesale and retail when you talk about what happens between the executive suite and the assets on the frontlines that really matters, and I think there's a lot of work to be done there and that's where Equinix spends a lot of time.

Services, all the stuff you're hearing about today is really our sweet spot and the core difference I think between a retail and a wholesale model..

Yeah. I mean, just same themes I think, but in the end, competition isn't about what we're saying on investor calls or analyst days or anything else, it's about what happens at the customer and it's about – and competition is created.

If there is a company that can provide a reasonably comparable solution to a customer requirement and in that regard I've maintained and continue to maintain that the competitive overlap between our businesses and that of DLR even in a post Telx world remains very small.

So, digital is a good choice and a very credible provider for companies who have very large footprint requirements that are part of a multi-tiered architecture and we've seen that dynamic play out for several years now.

And if customer needs good reliable space and power in large chunks at competitive prices then digital is going to be an effective provider, given their cost of capital and their reach.

But if they're looking to architecture, IT infrastructure to improve application performance, reduce network costs, enable hybrid multi-cloud, then they typically need a highly distributed environment, and that requires global reach, broad and deep network and cloud density, and a level of retail scale and delivery capability that we've invested hundreds of millions of dollars in over the years and have 4,000-plus employees delivering globally.

So, we feel very good about our ability to be effective with the customer in terms of meeting their needs and that's the critical piece. So, bottom line is, we don't see a ton of competitive overlap between the businesses..

Okay..

So as it relates to your question just on the margin for Asia-Pacific.

Clearly, we saw a great result this quarter of 52%, part of the metaphor we're seeing albeit, it might be something that will not continue on an extended period of days or time period is that with the weakening of the Singapore dollar, there's a number of contracts that we have in Singapore that are U.S.

dollar denominated and so with your cost in one currency and your revenue in another, that bodes very well when it's going the right direction. We do hedge against that, but the bottom line we're getting some tailwind from that.

In addition, there was some one-off utility benefits roughly of $1 million in Singapore and Hong Kong that we were able to achieve this quarter. But I think more fundamentally to your question, Mike is that look the Asia-Pacific region is running – roughly 13% of its revenues are in the form of interconnection. The Americas is roughly 22%.

It would not surprise me to see the Asian market continue to move its margins up into the right as it continues to fill its assets. But I don't think you'll get to the same level of the Americas, which is roughly 62% today excluding the corporate overhead cost.

And so, we see it moving up towards, I would think the mid-50%s over an extended period of time, just like I would see Europe moving up a little bit to roughly the 50% mark, and then of course the Americas is at the highest level.

So as an organization, I think increasing our – sorry, filling up our capacity, looking to bend our cost curve, and run the organization more efficiently, I think it bodes well for our overall targets of continuing to scale and drive margin into the business..

Great. Thanks..

Thank you. Our last question will come from Mr. Simon Flannery from Morgan Stanley. Your line is open..

Great. Thanks a lot for fitting me in. I think Keith you said that churn would be at the higher end of the 2% to 2.5% range.

Can you just provide a little bit more color around that and is that sort of coming through the quarter or is it coming at the end of the quarter as we think about the guidance that you've given and then perhaps just thinking forward into 2016, should we still think about that 2% to 2.5% range, it's sort of been up and down quite a bit, been good for a few quarters, this is going to be the highest in a little while, some color on that would be great?.

Yeah. Simon,, I'd have to say clearly, as we've said in the past, sometimes churn is lumpy and as much as we anticipated churn activity this quarter, we said on an earlier call, there are some deals that are still coming. They're larger than the average, let's put it that way.

And so there's one deal where we said in European markets, where a customer was going to relocate to their own data center. We knew we'd have them in one of our facilities for a couple to three years. That time period has ended, and so we're anticipating that move, albeit, it has been delayed.

And so I'd tell you it's going to happen at the backend of the quarter. And so, we'll recognize the churn this period. As we look forward, I'd tell you there's no reason for us to come off. At this point our churn metrics for – I'm sorry, our guidance for 2016, I think is very reasonable to assume anywhere between 2% and 2.5%.

But we'll fully update you on that on the Q4 call once we have the clarity, but there's nothing that's sitting out there that's of a concern. And so I think an average of somewhere between 2% and 2.5% per quarter is very reasonable to assume in your models..

All right. Thank you..

Thank you. That concludes our Q3 call. Thank you for joining us..

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