Equinix Inc

NASDAQ:EQIX

Earnings Call Transcript 2019-Q4

[Operator]

Good afternoon, and welcome to the Equinix Fourth Quarter Earnings Conference Call. [Operator Instructions]

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

[Katrina Rymill, VP, IR]

Thank you. Good afternoon and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and maybe affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 22, 2019, and 10-Q filed on November 1, 2019.

Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter, unless it is done through an explicit public disclosure.

In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures, and the list of the reasons why the company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We have made available, on the IR page of our website, a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about Equinix on the IR page from time-to-time, and encourage you to check our website regularly for the most current available information.

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

[Charles Meyers, CEO and President]

Thanks Kat. Good afternoon, and welcome to our fourth quarter earnings call.

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

The pace of digital transformation continues to accelerate, creating seismic shifts across industries as businesses embrace interconnection as critical to their infrastructure strategy and adopt hybrid and multi-cloud as the clear architecture of choice.

The secular forces driving demand for digital infrastructure are as strong as ever. Data is being created, moved, analyzed and stored at unprecedented levels. These dynamics are expanding the Equinix addressable market as customers seek to distribute infrastructure globally.

Responding to increasingly demanding workloads and the need to locate and interconnect private infrastructure in close proximity to a rapidly expanding universe of cloud-based resources. Against this backdrop, we continue to focus on four critical vectors to position the business for significant value creation in 2020 and beyond.

As it always does, it starts with our people. We will continue to invest, first, in our people, our organization and our culture in order to attract and inspire market-leading talent and service to one another, enabling us collectively to be in service to our customers, to our shareholders and to the communities in which we operate.

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

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

And fourth, we will focus on simplifying and scaling our business, implementing our own targeted digital transformation initiatives focused on increasing operating leverage and enhancing our customer experience.

These areas of focus and our long-term orientation will allow us to widen the mode around our business, enhance our yields and increase service attach rates, enabling us to deliver durable revenue growth and attractive AFFO per share.

Expanding our reach remains a core tenet, and we now operate across 55 metros in 26 countries. As we recently closed our Mexico acquisition and will open new markets this year including Hamburg and Muscat.

The benefit of our unparalleled reach is reflecting in strong cross regional activity, which continues to trend positively with multi-metro customer revenues ticking up 87%. We also continue to make significant progress with our hyperscale strategy, with six announced projects underway across all three regions, and a strong pipeline of customer demand.

We are already looking to expand our European JV and advancing additional JV conversations in Japan and other targeted geographies. This strategy will enable us over time to extend our leadership in the cloud ecosystem, while mitigating strain on our balance sheet and maintaining market-leading returns.

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

Our interconnection differentiation continues to pay dividends as we expand our product set, driving growth and customer value. We now have over 363,000 interconnections and delivered our 12th consecutive quarter of adding more interconnections than the rest of the top 10 competitors combined.

In Q4, we added an incremental 7,400 interconnections fueled by high gross adds to support new streaming services, expanding inter-metro connections and seasonably lower churn. Peak Internet exchange traffic grew by 10% this quarter, also helped by these new OTT video offerings. ECX Fabric is diversifying well as an exchange platform, with over 2,000 customers now connecting their own deployments to over 600 other participants on the platform.

Our longer-term vision for Platform Equinix continues to take shape, influenced by direct feedback from our customers and partners. Our Network Edge offering, which provides customers' access to a number of different virtual network functions provisioned over ECX Fabric is tracking ahead of plan.

And our announced acquisition of Packet represents a bold move to accelerate our strategy to help enterprises quickly and seamlessly deploy hybrid multi-cloud architectures on Platform Equinix.

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

Now let me cover highlights from our verticals. Our Network vertical achieved solid bookings with robust reseller activity from our global NSP partners as well as continued expansion activity across various networks sub segments. New wins include RTI Connectivity, a leading subsea cable operator, extending their solutions in Tokyo and Sydney.

We also launched an expanded partnership with Telstra enabling full API integration with ECX Fabric giving enterprise customers on-demand access to Telstra services across 38 metros. A good example of how we're automating connectivity with key partners to their last mile networks via the ECX fabric.

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

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

Our cloud and IT vertical saw strong bookings led by APAC and double-digit growth in services and infrastructure as cloud customers diversify. Equinix continues to be the clear global leader in cloud connectivity, with over 40% share of total cloud on-ramps and 15 new on-ramps added in 2019, 5 times the nearest competitor.

Our enterprise vertical saw healthy and high quality new logo adds with continued strength in manufacturing, healthcare and retail as enterprises build out hybrid architectures. New wins included a Fortune 150 retailer, building out infrastructure to support digital transformation and a global life sciences firm, enabling multi-cloud capabilities.

Our channel accounted for more than 27% of bookings and we are very pleased with the progress we made in building this important go-to-market vector. Two-thirds of our channel bookings are now driven by resellers, with integrated solutions like Performance Hub and ECX Fabric, delivering faster and more predictable order flow.

We're working together with these resellers to more effectively prioritize join offerings to bring mutual customers the benefits of Platform Equinix, enhanced by our partner services. New channel wins this quarter included a win with Telindus for the city of Amsterdam, as well as a win with Optus to support Children's Cancer Institute of Australia with data analytics for genomics research, highlighting how with partners we are truly better together and reminding us of the far reaching impact Platform Equinix in helping make the world a better and healthier place.

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

[Keith Taylor, CFO]

Thank you, Charles. Good afternoon to everyone.

As highlighted by Charles, what a great way to end the year, and an even better way to start a new one, very similar to last year. We delivered $5.6 billion of revenues and as reported increase of slightly under $500 million, compared to last year. We're at 9% year-over-year growth rate on a normalized and constant currency basis. AFFO per share scaled to $22.81 and as reported year-over-year increase of greater than 10% better than our expectations as we drive value on both the top line and at the per share level.

Our core strategy, our go-to-market engine and our team are delivering performance at a very high level as we continue to separate ourselves from our competitors. And our strong fourth quarter performance sets us up nicely to invest in growing and scaling the business in 2020.

We continue to fund organic expansion and new product and services initiatives, while also scaling our go-to-market efforts, these investments are directly attributable to the volume of high quality interconnection rich wins across both our direct and indirect channels.

Our MRR per cabinet metric remained strong, largely due to solid pricing discipline, favorable deal mix and positive interconnection momentum. We have an active construction pipeline, expanding our global platform with 32 projects currently underway across 23 metros in 15 countries.

We'll leverage our recently achieved investment grade credit rating to reduce our future debt service burden, has initially demonstrated by our fourth quarter $2.8 billion debt raise to favorably refinance a portion of our outstanding high yield debt. Our financial strength remains a significant and strategic advantage.

Now let me cover the quarterly highlights. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on Slide 4, the global Q4 revenues were $1.417 billion, up 8% over the same quarter last year, our 17th year of consecutive quarterly revenue growth, a trend that we expect to continue as we look into 2020.

We had our second best gross and net booking quarter, largely due to strong organic performance coupled with net positive pricing actions again, and then some delayed churn. Q4 revenues, net of our FX hedges included a $4 million positive FX benefit due to the stronger euro and British pound in the quarter, when compared to our prior guidance rates.

Global Q4 adjusted EBITDA was $676 million, up 9% over the same quarter last year and better than expected due to lower than anticipated employee costs and utilities expense. Our Q4 adjusted EBITDA performance, net of our FX hedges included a positive $1 million FX benefit, when compared to our prior guidance rates.

Global Q4 AFFO was $473 million, above our expectations on a constant currency basis, while absorbing the seasonally higher recurring CapEx investments similar to last year. Interconnection revenues were very strong across all three regions this quarter, reflecting the benefit of our global platform and diversified product portfolio.

Interconnection revenues now represent 18% of recurring revenues, a significant quarter-over-quarter step up. The Americas and EMEA interconnection revenues are now 24% and 10% of recurring revenues, respectively, while APAC stepped up to 15%, a meaningful increase throughout the year.

Turning to regional highlights, whose full results are covered on slides 5 through 7. APAC and EMEA were the fastest MRR growing regions at 13% and 12% respectively on a year-over-year normalized basis, followed by the Americas region at 4%.

The Americas region saw continued strong bookings both local and export with their high mix of small deals and healthy pricing, and the Dallas market has been a highlight for the Americas business, we've seen healthy performance with our existing Infomart asset and we're eager to complete our new build adjacent to the Infomart, which will be known as Dallas 11, and we closed the Axtel acquisition in Mexico in January, and have already received favorable inbound queries from multinational and carrier communities. We're eager to start our expansion efforts in Mexico, thereby, enhancing our interconnection opportunities between North, Central and South America.

Looking forward, we expect Americas revenue growth to trend upward to 5% or greater, as we progress through 2020. Our EMEA region saw a continued growth throughout 2019, largely driven by our four largest markets Amsterdam, Frankfurt, London and Paris, as multinationals deploy their infrastructure across these major regional hubs.

EMEA, again, had robust billable cabinet additions and firm deal pricing, as reflected in our solid MRR per cabinet metric. Export bookings continued to remain high across the region and for the first time ever EMEA export bookings were greater than their import bookings, a reflection of the continued globalization of our go-to-market activities. And Asia-Pacific region, saw record bookings with an uptick in small deal activity and strength in our Australian markets.

Also, our investments in new markets like Seoul are progressing well, and we're starting to see the front edge of a new ecosystem developing as key domestic NSPs deploy their infrastructure into these assets.

And now, looking at the capital structure. Please refer to Slide 8. At year-end, our unrestricted cash balance was approximately $1.9 billion, which included about $344 million of cash that was used in January, to redeem the remaining portion of the debt refinance, in November, 2019.

Our net debt leverage ratio was 3.7 times at Q4 annualized adjusted EBITDA, within our targeted range. We continue to expect to drive substantial interest savings into our AFFO per share metric, as we refinance our currently outstanding debt over the next 12 months, taking advantage of current market conditions. As you would expect the Nashville trade-off will be the cost attributed to the call premium or make whole provision offset by the present value of the future interest savings.

Of course, we want to make each of these transactions net present value positive, while negotiating the best terms and conditions for the business. To be clear, there is no benefit attributed from our future refinancings in the current AFFO per share guidance.

Turning to Slide 9. For the quarter, capital expenditures were approximately $715 million, including recurring CapEx of $81 million, we opened nine new expansion projects in the fourth quarter, including new IBXs in Melbourne, Singapore and Sydney, while we added another 13 projects for expansion tracking sheet. This gives you a sense of the level of activity in the business and the speed that we're building in filling capacity.

We continue to expand our ownership acquiring additional land for development in Frankfurt and purchasing - and we purchased our Toronto 2 IBX, revenues from owned assets increased to 55%. Our capital investments delivered strong returns as shown on Slide 10.

Our 136 stabilized asset increased recurring revenues by 3% year-over-year on a constant currency basis, while total stabilized asset revenue grew 2% due to lower non-recurring revenues this quarter versus the prior year. We expect our stabilized asset growth rate to trend up to 3% to 4% in 2020. And similar to prior years, we'll update the stabilized assets summary on the Q1 earnings call.

Our stabilized assets are collectively 84% utilized and generate a 30% cash-on-cash return on the gross PP&E invested. And please refer to slides 11 through 15 for our summary of 2020 guidance and bridges. Do note our 2020 guidance includes the anticipated financial results from the Axtel acquisition, but does not include any financial results related to the pending Packet acquisition.

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

We expect 2020 adjusted EBITDA margins of 48%, including integration - sorry excluding integration costs the result of strong operating leverage in the business, offset in part by expected higher utilities and property tax expense and a meaningful investment in our go-to-market and product organizations.

Also we expect to incur $10 million of integration costs in 2020, to finalize the integration of the various acquisitions. 2020 AFFO is expected to grow 11% to 14% compared to the previous year and our AFFO per share will grow 9% to 11%, excluding any benefit attributed to future refinancing activities. And we expect our 2020 cash dividends to increase to approximately $912 million, a 10% increase over the prior year or an 8% increase on a per share basis.

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

[Charles Meyers, CEO and President]

Thanks Keith.

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

And as we undertook these changes, we communicated tirelessly and engaged our teams around the globe to be a part of rearchitecting our collective future together, achieving record levels of employee engagement, market leading organizational health scores and being recognized as a global leader and sustainability.

We aggressively worked the balance sheet side of the business raising more than $4.5 billion in debt and equity, and achieved an investment grade credit status. We delivered on our commitment to form a hyperscale JV, joining forces with a world-class partner to advance our cloud aspirations, while avoiding undue strain on our balance sheet. And the market is taking notice, as we were recently recognized by IDC MarketScape, as the top leader in their inaugural worldwide colocation and interconnection vendor assessment.

In 2020, we'll continue our focus on evolving Platform Equinix, adding new capabilities and service offerings to better meet the digital transformation needs of our customers. We'll continue to scale our global multi-channel sales engine to support growing bookings and will focus on providing a more seamless and globally consistent digital experience for our customers to improve the adoption and consumption of Platform Equinix.

I am as excited as ever about the future of Equinix, an honored to work with our dedicated teams around the world in service for our customers, to our communities and to our shareholders. So let me stop there and open it up for questions.

[Operator]

[Operator Instructions] Our first question will come from Jon Atkin with RBC. Your line is now open.

[Jon Atkin, RBC]

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

[Charles Meyers, CEO and President]

Sure, Jon, I'll take the first one and maybe - first couple and maybe you can comment on book-to-bill. In terms of win rates in sales cycles, I wouldn't say any meaningful change. I do think, maybe, we're getting a bit better I think that our targeting of the enterprise in the enterprise space in particular continues to improve. I think, we're probably seeing perhaps some shortening of sales cycles, but there is still - I think we're still fairly early in terms of customers thinking through their long-term, hybrid multi-cloud architectures.

And so, oftentimes, they are - they do continue to be longer sales cycles. Once landed, I definitely think we're seeing a shortening in terms of their ability to expand their wallet share or us expand wallet share with the customers.

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

[Keith Taylor, CFO]

Jon I just want to mention of the book-to-bill. There is no meaningful change in our book-to-bill, in fact, as Charles said, once we land them, we tend to move very fast to install the customer. But what I would tell you is no surprise when you look at our - this quarter relative to - Q4 relative to the Q1. The timing of different events causes us to report our revenue slightly differently. So the timing of, when you booked something versus when you might churn.

And so, as an organization, I think we're seeing exactly - as is happening exactly as we planned. But there is no meaningful shift in what I call the book-to-bill interval in the business.

[Jon Atkin, RBC]

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

[Charles Meyers, CEO and President]

No, I would say it's pretty, pretty linear sort of extrapolation of what we saw last year. I think some of the pressure for example on stabilized asset growth is coming from the fact that there is some level of cloud substitution, that's something I've talked about before, but it's really a matter of - I think people kind of really figuring out what their workload sort of distribution is going to be between private and public infrastructure and making those adjustments.

But as we said, we've been able to comfortably kind of live within the 2% to 2.5% range and we continue to feel comfortable with that going forward.

[Jon Atkin, RBC]

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

[Charles Meyers, CEO and President]

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

[Keith Taylor, CFO]

And then, just as it relates to the impact on the quarter on an xScale, the largest impact that you really saw was the amount of cash that came into the business. As you recall from the Q3 earnings call, we had $355 million of cash come onto our balance sheet and there is roughly €60 million of what we refer to as milestone payments. They would come over the next sort of 12 to 24 months in the business.

As it relates to the operating performance, we're just really getting started, and this is going to be I think an appropriate and really good discussion at the June Analyst Day, just giving everybody an update on how we are performing. But it's - it's as good, if not better than we anticipated and the momentum that Jim and his team see in a marketplace is substantial.

So from our perspective, there is no surprises and nothing meaningful running through the fourth quarter results.

[Operator]

Our next question will come from Phil Cusick with JPMC. Your line is now open.

[Phil Cusick, JPMC]

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

[Charles Meyers, CEO and President]

Yes, I mean I think it's just, if you look at multi-year view on the business, we probably - I think right now, we have a better multi sort of longer term view of the customer opportunity in the funnel than we've ever had.

And so, I think that if you look at fill rates and the trajectory on our fill rates, if you look at sort of any I think underlying industry drivers in terms of the pace of adoption of cloud, you look at what's happening in terms of overall data volumes, you look at the impact and influence, sort of things like AI and an IoT, I mean, I think you start to see the front edge potentially of 5G increasing sort of both traffic and overall, sort of data volumes.

And so, I continue to think that the secular forces driving the overall demand for infrastructure are strong. We're hearing that from our customers and we're hearing them be very responsive to our sort of long-term vision for the platform and that includes the expansion of capabilities and services as well as our plans for geographic expansion over time.

So, the combination of all of those things continue. Obviously '21 is a bit far out, but we feel very good about the projects that we have underway right now and the fill rates that we're going to - that are supporting those investment decisions and I'm super optimistic that '21 will be just as exciting.

[Keith Taylor, CFO]

And Phil, if I can just add to what Charles said. The beauty of our plan too is we've got 32 projects underway across 23 different markets. So it's the diversity of our investment and they're coming in different shapes and sizes based on the demand profile of a given market. So we feel we have that visibility. It is a little bit far out as Charles referred to.

But given the strength of our pipeline, the momentum that we saw in 2019 coming into 2020 and the depth of our pipeline and the opportunity set, that's what gives us the confidence to continue to build, particularly in some of the markets where we're one of the few that is building.

[Operator]

Our next question will come from Erik Rasmussen with Stifel. Your line is now open.

[Erik Rasmussen, Stifel]

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

[Charles Meyers, CEO and President]

Yes. I do think we have that one of the factors, certainly Verizon has been one of the factors that has been delaying, I think the grow or sort of a bit of a growth headwind to the region. Now, that's been a net economic benefit to the company. So we're not complaining about it. But it has been a bit of a churn because that - there's a bit of a headwind as that churn continues to drive through.

But again, we feel - we feel like we're going to be able to see a return to growth as Keith indicated in the script. I think that we feel like as we move towards the end of the year, we're going to be looking at a greater than 5%. And I think the strength of the go-to-market engine in the Americas selling across the world continues to be substantial.

And so, so I think that, I do think the Americas business, we feel a level of optimism there that we're going to sort of get through some of the remainder of the churn tail on Verizon and really see that business pick up a bit in growth.

[Keith Taylor, CFO]

And Erik, we've always said this certainly in the investor conferences, that Charles and I and others go to. We always can grow the business faster if we want, but it's - it's what we do as the pricing discipline. And Charles referred to going after the right customer, right application, the right IBX and being disciplined and going after those interconnection rich opportunities that really cause us to feel very comfortable on what our guide is, and recognizing - yes, we can certainly can go do a lot of very substantial hyperscale deals in the Americas.

But we think that would be value destructive for our business. And so, we focus that opportunity in our hyperscale initiative with our JV partner in other parts of the world where we can get an appropriate churn alongside our partners.

But I think it's the discipline that we bring to the Americas region, it gives us the confidence that we don't have to go stretch ourselves here. We're - it's a very good and very successful business and we want to keep on doing what we're doing.

[Charles Meyers, CEO and President]

Yes. One last comment I'd make Erik is that we noted in the script, the continued globalization of the selling engine is a really important thing, is something Karl and Mike and team have really focused on in terms of making sure that we're as I always used to say, we're making sure that every rep selling, every data center every day, right, and that they're out there positioning the full global platform.

We saw EMEA have a - for the first time sell more out outbound than they got inbound. And that's a really positive step for us. It really shows the strength. And those are the things that when you have the global platform and companies, large companies perhaps, they're headquartered elsewhere sort of - would that - that are driving demand into all our regions, including the Americas. I think that's going to be a contributor to growth.

[Erik Rasmussen, Stifel]

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

[Charles Meyers, CEO and President]

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

And so I think, one, that focus on digital transformation aim - and that's happening because of these various trends. People, for example, seeing AI is central to their ability to create competitive advantage and they're using - they're viewing data as central to their ability to create competitive advantage. And they're just - they're investing behind a lot of these trends and they're needing to deploy infrastructure globally to have their infrastructure work and their applications to operate as they're designed.

And so I think though - that's sort of the secular backdrop, and then you bounce against that sort of the Equinix position, which was, we have this unique position I think in terms of being able to really promote and accelerate the hybrid and multi-cloud as the architecture of choice.

There are many customers are, in fact, using us as an avenue to access the cloud, to move workloads between cloud resources and then to place their private infrastructure, even if that private infrastructure maybe getting smaller than it used to once be when it was living inside their enterprise data centers, they're taking what remains as private infrastructure and they want to place it in direct proximity to the cloud, and that's really what I think Equinix does better than anybody else in the world.

And so I think those are - there is a variety of both secular trends as well as sort of our own market position that combined to give you a sense of optimism for the road ahead, which is exactly why we're continue to invest behind the platform, invest behind the go-to-market engine and excited about what lies ahead.

[Operator]

Our next question will come from Ari Klein with BMO Capital Markets. Your line is now open.

[Ari Klein, BMO Capital Markets]

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

[Charles Meyers, CEO and President]

Maybe, Ari, this is Charles. Maybe I'll jump in and just give you the broader context for I think our decision in terms of how we're guiding in the margin, then Keith can add any color there. But if you look at 2020, it's pretty similar to what happened in '19. In both years we showed significant operating leverage, but we saw some specific items that impacted our ability to drop that through to the bottom line.

In '19, it was projections on utility costs combined with some pretty significant expansion drag that last year that led us to guide to a roughly flat margin line. As you know, we ended up delivering expansion in 2019, finishing at about 48.5%, because utility trend was frankly a bit better than we projected. But we are seeing those utility increases materialize, not just in EMEA, but in some of our other markets as well.

And those combined with the property tax increases compared to '19, those things together consume most of the operating leverage. So we are kind of left in the position of either offering out some modest margin growth and not investing in the business or funding the key investments and guiding to a flatter margin and we did that - and that's obviously we chose in the latter.

We feel like it's our job to maximize long-term value creation and we're confident that bringing up the dollars to invest in the platform evolution, growing the go-to-market engine, driving our own digital transformation are all things that are going to help us sustain AFFO per share growth, and frankly, that's our lighthouse metric and we feel like it would be irresponsible not to invest behind the momentum that we have right now.

[Ari Klein, BMO Capital Markets]

Got it.

[Charles Meyers, CEO and President]

Keith, any color you want to add?

[Keith Taylor, CFO]

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

[Ari Klein, BMO Capital Markets]

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

[Charles Meyers, CEO and President]

No, I wouldn't call a shift, I'd call it an augment. It's a - look, we're going to continue to view geographic expansion of the platform as a strategic priority for us and where that can be done in a value creating way via M&A, then we certainly will - will think about doing that. So we've talked about the fact that we still have additional - additions to our platform from geography - geographic coverage standpoint that we'd like to make, and I think M&A will be a vehicle for us in that regard.

Having said that, I also, I do think that's an augment you saw Packet as really the first of a really a capabilities type of acquisition. We're super excited about what they bring to the table. What that is going to allow for us in terms of bringing an enterprise-grade bare metal offering to the table that is really going to be responsive to customer needs and will help animate our core value proposition in really compelling ways, in ways that our customers are asking for.

And as for to whether or not we might see other things that look like that, that are more capabilities oriented, I would certainly say that's a possibility for us. We're going to continue to build by our partner as we need to execute it on the strategy and to make sure that we can capture the opportunity in front of us.

[Keith Taylor, CFO]

Ari, one of the things I'd just add on maybe just making one other comment just about the EBITDA margins, because one of the things as we do recognize that there are these higher costs that are going through the financials. But if you look at it on a quarterly basis, Q1 theoretically will be our lowest guide and then as each quarter goes by through the year, you would see an improving EBITDA margin.

And so it gives you a sense that with the operating leverage in the business that we're realizing plus recognizing these costs, but the momentum that we foresee will cause our margins to continue to go up. So when we enter 2021, obviously we're in a - we'd be in a better position than we are coming out of Q1.

[Operator]

Our next question will come from Colby Synesael with Cowen & Company. Your line is now open.

[Colby Synesael, Cowen & Company]

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

[Charles Meyers, CEO and President]

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

[Colby Synesael, Cowen & Company]

And then the next question, you mentioned I think 3% to 4% stabilized growth.

[Charles Meyers, CEO and President]

Yes.

[Colby Synesael, Cowen & Company]

Is that recurring stabilized growth or is that total stabilized growth?

[Charles Meyers, CEO and President]

Recurring.

[Colby Synesael, Cowen & Company]

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

[Charles Meyers, CEO and President]

Well, since that time, Colby, and we had sort of you had put more perhaps uncertainty around the exact timing, I think our posture over the past year and a half or so has really been that we believe the 50% it's achievable, but that we're not willing to trade off sort of long-term value creation for achievement of a near-term margin objective.

And so I think that we still believe it is achievable. I think our primary focus as a team is going to continue to be a long-term value creation, and by the way, that does not mean we have in any way shape or form lost focus on driving operating leverage. It's a key priority for us to allow us to invest in the business and still deliver the financial results we need, but right now I wouldn't want to put a particular timeline on the 50%.

[Colby Synesael, Cowen & Company]

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

[Charles Meyers, CEO and President]

Yes, I mean, I think there's a couple of things. One, there is always some level of volatility in it, I mean, that's why we've always encouraged people to look at the rolling four quarter. Having said that, even when you look at our rolling four quarter. I think you're seeing some downward pressure, and I think that is primarily a factor of couple of things. One, it's really a factor of execution. It's a reflection of execution of the strategy, frankly.

And by going to the xScale product, that is going to take some really lumpy things out of the mix. If you look at the non-financial metrics sheet and you look at Asia, which was I think Q1 of last year, it was like if memory serves 5,700 cabs or something crazy. And a lot of that was stuff that we would be pushing off into xScale.

And so I think that - I think the mix of business is going to shift probably to put a little downward pressure on cabinet adds. I think by the way we have sized our capacity investments and all of our new builds to reflect that strategy.

So we didn't overbuild and then go - while we didn't - and now we got too much. That was always our plan and so, so I think you're going to see a little bit of a movement in utilization as new capacity comes online, but I think the - if you take the last few quarters, you're probably - and average them, you're probably seeing a reasonable reflection of what we're going to do from a cabinet adds perspective.

And again you'll always see a little bit, of lumpiness in that, but I do think there is a little bit of downward pressure, but I think that should not be viewed as a negative. It should be viewed as a really a reflection of the strength of the core strategy and how we're delivering against it.

[Operator]

Our next question will come from Michael Rollins with Citi. Your line is now open.

[Michael Rollins, Citi]

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

[Charles Meyers, CEO and President]

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

[Michael Rollins, Citi]

Update on the grooming…

[Charles Meyers, CEO and President]

Phase grooming. Yes, okay got it.

[Michael Rollins, Citi]

The interconnection grooming. Thanks.

[Charles Meyers, CEO and President]

Yes. By the way it sounds like cold got you, so I hope you feeling better.

[Michael Rollins, Citi]

Thanks you.

[Charles Meyers, CEO and President]

The grooming, I would say that we're, again, particularly as it relates - the biggest interconnection grooming tends to come either in the form of 10 to 100 migration for really large interconnection consumers.

And as I've said, I think that the really big ones have already come through the process and particularly in the U.S. and when I say the U.S., they are really U.S. based companies, but they have really sort of largely embarked on their global grooming already.

So I think we're - I'd use the words that we were going to probably see it tapering through 2020. I think that's still the case. We saw fourth quarter was - we did not see what we thought we might see, which was something that happened in fourth quarter of last year of '18, which was - we felt like the network moratoriums really kept people from - we saw really a Q3 and Q4 that was roughly, kind of linear or roughly flat.

But bottom line, I think that we'll see some tapering of that, I think that - a lot of our customers are very advanced and then the other major form of grooming you see is when carrier consolidation occurs. And we see, we've seen some of that over time, but I wouldn't say that we're seeing any sort of acute levels of that.

So I think that on balance over the course of 2020 that's something that we'll see improve. And I think we're going to see - we've kind of guided to the 7,000 to 9,000 on interconnections, that typically is made up of sort of 5,000 to 7,000 on physical cross connects and then call it in the couple of thousand range on virtual. I think we're going to see virtual continue to climb, although there is a bit of a mix there in terms of how people - what speeds they're buying at and those kind of things.

But overall, I think it will taper off and we'll see a really - I think we'll see a strong interconnection year. I mean this last quarter was a really strong interconnection quarter, we're really, really pleased with the performance of the business.

And then, your second question as to sort of the mix of demand from sort of first tier interconnection rich campuses and locations versus others. I do think that there is - one of the things that has really helped us, Mike, is that we extended the ECX Fabric and interconnected all of our facilities. And so now people still have the ability to on-ramp to the broader ecosystem from any of our facilities and there are people - our teams have really been able to work that into the selling.

And so let's face it, the - it's the Ashburns and Silicon Valleys and Frankfurts and Londons and Amsterdams that continue to drive big investment and really big growth, but some of these - some of the second markets or even the second - more of the second tier facilities within primary markets, I think that the Fabric has been a help for us in terms of making sure that we're monetizing those effectively.

[Operator]

Our next question will come from Frank Louthan with Raymond James. Your line is open.

[Frank Louthan, Raymond James]

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

[Charles Meyers, CEO and President]

Yes, well, we had talked in and as we've sort of laid out our platform - our evolving platform strategy in the past, we've talked about this edge services layer, and we talked about Network Edge, Compute Edge, Edge Data, Edge Security, etc. We think there is opportunities for us in all of those and it will be a mix of things that we will deliver ourselves, which we did with Network Edge and which we did - which we now are facilitating via the Packet acquisition with some level of Edge Compute.

But we also think there will be perhaps even more of those that are Edge based services that represent combinations of our value with third party value and partner value. And so, which gets me to sort of the second part of your question, which is - are we kind of our - we have - we typically have had a position, where we are a bit of a neutral player. And I think that serves us well and we've always been about choice and optionality and making sure customers can select from the providers that they want.

And I don't think that from a philosophy standpoint changes a bit for us. And so we're going to continue to embrace that, we're going to continue to invite partners in to deliver value. In some cases if customers are pressing us to deliver services that they want to see from us, then we're going to seriously consider that.

If we think those are areas where we have the capability to play, the permission to play and that they'll deliver - very kinds of returns. And so it's going to be an evolution of our strategy, but I think that we're going to continue to be about building ecosystems, where people can bring value, combining with what we do and solve customer problems.

So I'd encourage you to come to Analyst Day, which I'm sure we'll see you there in June and I think we'll probably have a little bit more meat on that bone that we can share with you.

[Operator]

Our next question will come from Simon Flannery with Morgan Stanley. Your line is now open.

[Simon Flannery, Morgan Stanley]

Keith just on the leverage, you've obviously done a nice job bringing that down. How are you thinking, I know the 3 to 4 range, but given where interest rates are, is it more optimal to stay in the upper half of that range. And are you seeing any opportunities to build in - buy in more of your real estate? And then for Charles on the bill timing, the point on funnel visibility was very helpful. But there is a lot of stuff 18 plus even 24 months out. What's the thought process around that? Is any of that driven by - in your construction or other complications, or is it really just phasing the buildings out there? And I'm thinking of some of the stuff like the Amsterdam moratorium and stuff. Are you seeing any other municipalities looking at some of those issues? Thanks.

[Keith Taylor, CFO]

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

So we feel very, very confident that we're appropriately levered, we think to adjust the growth of the business that we will - we would otherwise delever again, all else being equal. And we know that we can then borrow money, we can borrow money today and all likelihood tomorrow at a much lower cost than we are incurring today, and that's what gives us - again, we're trying to be very clear with our AFFO per share that the interest burden that we're bearing today, relative to what we'll bear tomorrow, is more substantial.

And you just can do the math on the $3 billion worth of euro debt or the $2 billion of high-yield debt is yet to be refinanced, there's substantial savings that can be realized from just refinancing those today at current rates versus where the rates may eventually go is substantial to the AFFO per share.

As it relates to buying some of our real estate, we're always looking at it, but - it's a buy versus lease decision and it's really about economic control of the asset, but absolutely to the extent there is something out there that makes sense, we'll be active.

Particularly, when we look at the lease costs of our - the lease cost that we're bearing in the contract with our landlord. And so that's just, let me just assure you that's something that we'll continue to look at, we have a very strong real estate organization inside our company and we remain active at looking at our properties.

[Simon Flannery, Morgan Stanley]

Thanks.

[Charles Meyers, CEO and President]

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

I would say that from a construction standpoint, it's a robust market. And so there are, I do think part of it is just macro forces, which is the demand for labor for example in these markets is high. And so that is an area where I actually think we end up being differentiated, because we kind of often can get to the front of the line, because we have a history of having done 4 or 5 or 8 or 10 projects with somebody. And when we say, we need your best teams, we often get them.

And so - but there are some protracted timelines, and it's something that I think Ralph and our construction teams globally are continuing to work on. There are also some times where there is specific circumstances. Whether they'll be for example Olympics, that is often something that sort of changes the circumstances of a particular build, but I wouldn't say right now it's anything in terms of extending project timelines due to supply chain challenges or anything like that, but there are some that are further definitely further out there in time.

[Operator]

Our next question will come from Jon Petersen with Jefferies. Your line is now open.

[Jon Petersen, Jefferies]

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

[Charles Meyers, CEO and President]

Well, you are right, we do have experience in this area, but I would say the dynamics of those and also potentially the market power of the players involved are different. And I think if you look at public information in terms of what some of these services have done, they have been exceptionally successful in terms of subscriber acquisition. So I'm not sure, I would apply any prior experience necessarily to these things, but they're very thoughtful organizations.

We work very closely with them in terms of capacity planning and we're excited about what they - what we think those could imply in terms of continued sort of tailwinds really for the interconnection business.

[Jon Petersen, Jefferies]

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

[Charles Meyers, CEO and President]

Again in 2019, we really, we sort of front run the process as far as raising equity sooner in the year than we originally anticipated. And then as you know in the back end of the year, we raised a little bit more debt than we needed to, want to refinance the debt that we are taking out, but to put some cash on the balance sheet, which was really a precursor to funding for 2020.

And so we're in a - obviously a very good position from a cash and liquidity perspective and we're going to take this posture is always about creating long-term shareholder value and - but what we also believe it is a combination of debt and equity that's got us to where we need to be.

Obviously at - pardon me, debt is the cheapest form of capital today and we're going to continue to look at the markets on that basis. There is nothing, nothing imminent. And as you also know we have an ATM program that still has capacity on it $300 million, of the current ATM programs still has our availability. And so if we were to draw on capital for any purpose, it'll be a combination of both and we're going to be very strategic about those decisions as we have in the past.

[Operator]

Our last question will come from Nick Del Deo with MoffettNathanson. Your line is open.

[Nick Del Deo, MoffettNathanson]

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

[Charles Meyers, CEO and President]

The great answer to it I think, is that it's actually the Equinix value proposition. If you look at it, Packet is really a reflection of shifts in how people want to consume our value proposition. Our core value proposition is - continues to be what it has been, superior global reach, advantage to access the scale, digital ecosystems to drive cost and performance, the most comprehensive interconnection portfolio and the business and an unparalleled track record of service excellence.

And we have for 20 years, been animating that value proposition with Colo but what Packet allows is for us to essentially, animate that same - those same value propositions via a different consumption vehicle for our customers.

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

[Katrina Rymill, VP, IR]

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

[Operator]

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