Interxion Holding NV Management Discusses Q4 2013 Results - Earnings Call Transcript

Mar. 5.14 | About: InterXion Holding (INXN)

Interxion Holding NV (NYSE:INXN)

Q4 2013 Earnings Call

March 05, 2014 8:30 am ET

Executives

Jim Huseby - Vice President of Investor Relations

David C. Ruberg - Vice Chairman, Chief Executive Officer and President

M. V. Joshi - Chief Financial Officer and Principal Accounting Officer

Analysts

David W. Barden - BofA Merrill Lynch, Research Division

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

Michael Rollins - Citigroup Inc, Research Division

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

Milan Radia - Jefferies LLC, Research Division

Michael G. Bowen - Pacific Crest Securities, Inc., Research Division

Operator

Thank you for standing by, and welcome to the Interxion Fourth Quarter and Year End 2013 Results Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, the 5th of March, 2014.

I would now like to hand the conference over to your speaker today, Mr. Jim Huseby, Vice President of Investor Relations. Please go ahead, sir.

Jim Huseby

Thank you, Julie. Hello, everybody, and welcome to Interxion's fourth quarter 2013 conference call. I'm joined by David Ruberg, Interxion's Vice Chairman and CEO; and Josh Joshi, the company's CFO. To accompany our prepared remarks, we've prepared a slide deck, which is available on the Investor Relations page of our website at investors.interxion.com. We encourage you to download these slides to use during this call, if you've not already done so.

Before we get started, I'd like to remind everyone that some of the statements we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by risks identified in today's press release and those identified in our filings with the SEC. We assume no obligation and do not intend to update or comment on forward-looking statements made on this call.

In addition, we will provide non-IFRS measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable IFRS measure in today's press release, which is posted on our Investor Relations page at investors.interxion.com.

We'd also like to remind you that we posted important information about Interxion on our website at www.interxion.com, and on social media sites such as Facebook, at facebook.com/interxion and Twitter at @interxion. We encourage you to check these sites for the most current available information. Following our prepared remarks, we will be taking questions.

Now I'm pleased to hand the call over to Interxion CEO, David Ruberg. David?

David C. Ruberg

Thank you, Jim, and welcome to all. Before we review the fourth quarter and full year 2013. I'd like to take a few moments to comment about what we've accomplished in our first 3 years as a public company.

During the time that Interxion has been a public company, we've consistently produced solid results in the midst of a challenging economic climate. We've achieved these results by successfully focusing on, and executing against our strategic goal of creating communities of interest. We're focused on developing these communities because they provide a host of benefits over time, including higher sustainable organic growth, improved pricing power, lower churn and less expansion risk.

Since the end of 2010, we've increased Equipped Space by over 30%, adding nearly 20,000 square meters across our 11 country footprint. In that same time, we've increased revenue-generating square meters by nearly 40%, adding 16,000 square meters in support of customer demand as our communities of interest have grown.

We have further increased the attractiveness of our data centers by enhancing connectivity, and we recently added our 500th connectivity partner. As a result, quarterly revenue has increased by about 40%.

Quarterly adjusted EBITDA has grown by nearly 60%, and adjusted EBITDA margins have increased by over 450 basis points. We have created substantial value for our shareholders, whether you measure it in terms of stock price appreciation, or net tangible book value per share.

Now let's look more closely at what we accomplished in 2013, and therefore, please turn to Slide 4. Interxion delivered solid performance during 2013. Full-year revenue grew 11% to more than EUR 300 million, and adjusted EBITDA was up 15%, as we continue to expand margins.

Recurring revenue in the Big 4 reporting segment was up 14%. We added capacity in 8 of our markets during 2013, while keeping our utilization rate consistent at about 75%.

We signed contracts with the multiple magnetic customers during the fourth quarter, and it was primarily with cloud service providers. We now have a very large backlog of contractually committed orders with installation dates for late 2014 and into 2015.

In the fourth quarter, the market seems to have changed for cloud infrastructure providers. Almost like a light switch was finally turned on in Europe regarding the cloud. Interest in discussion have turned into contracts. There appears to be an increased urgency, among cloud service providers and systems integrators, as they start to commit resources in anticipation of growth in enterprise demand for cloud services. This increasing demand is based on improved economic growth, and improved business confidence and reduction in the impediments to cloud adoption.

Please turn to Slide 5. Regarding performance in the fourth quarter. Revenue in the fourth quarter continue to grow and adjusted EBITDA margins continue to expand. When comparing results to 4Q 2012, revenue for the quarter grew 7% to just over EUR 78 million; adjusted EBITDA for the quarter grew 8%, almost EUR 34 million; and our margins increased by 40 basis points versus the prior year quarter.

Talking about other KPIs for the quarter. Our sales pipeline remains robust. The bookings, as we indicated before were extremely strong in the fourth quarter. Pricing was in line with the last few quarters. ARPU was essentially flat, and churn from the year was within our historical range of between 0.5% or 0.75% point per month on average were slightly higher in the quarter, in the fourth quarter, as the previously announced churn, resulting from 1 of our top of 15 customers was restructuring their own business was actually completed.

Please turn to Slide 6. We again executed well on the operational front, servicing customer demand from our carrier-rich and cloud neutral data centers. We opened 2 new expansion projects in our Rest of Europe reporting segments during the quarter, adding 500 square meters in Zurich and another 300 square meters expansion in Vienna, for a total of 800 square meters in the quarter.

We ended the year with over 80,000 square meters of equipped space, adding 6,100 square meters in 2013. During the fourth quarter, we installed 600 revenue generating square meters, and keeping our utilization rate at 75%.

For the year, Interxion installed 3,500 revenue generating square meters.

Please turn to Slide 7. During 2013, we expanded in 8 of our 11 countries, and we've open projects in 2 other countries in the first quarter of this year. These bills are in response to continuing trust customer demand that we see across to our footprint.

Amsterdam has been one of our strongest markets in the last few years and in early December, we announced construction of Amsterdam 7, which, when complete, will provide 7,300 square meters of equipped space and over 30 megawatts of customer power. The initial response to Amsterdam 7 has been very positive, and we've exceeded our normal bookings targets for our new builds. As a result of committed customer orders, we're building the first 4 phases and adding 4,600 square meters of equipped space. The first 1,000 square meters opened early in the first quarter, and demand in Amsterdam has to date been largely driven by cloud service providers, looking to serve the growing European market.

Frankfurt has also been another one of our strongest markets over the past couple of years, with demand coming from cloud service providers in particular. We opened Frankfurt 9 earlier in this quarter, and now expect the first phase of Frankfurt 8 to open in Q2, 2014, with the second phase scheduled for the fourth quarter of 2014.

We also opened new capacity earlier this quarter in Brussels and Stockholm, and with our expansion in Brussels, we've now expanded in every one of our markets since our IPO.

Earlier today, we announced 2 new projects, which are being built in response to customer orders. Stockholm 3 and Vienna 2, both of which will open in the fourth quarter of this year. Stockholm is being driven by strong demand from the cloud, digital media, and financial services segments. Stockholm 3 will be our fourth project in Stockholm since the beginning of 2012, and will add approximately 900 square meters of space, and 1.5 megawatts of customer power.

Recently, we've experienced strong demand at Vienna, where Interxion is the leading connectivity rich player. Vienna is a key hub servicing, both Eastern and Southern Europe and in addition to domestic demand. Our Vienna campus serves over 100 carriers and ISPs, and is an important part of interactions pan-European cloud connectivity communities. Vienna 2 is scheduled to be 5,000 square meters of revenue -- of equipped space, with 11 megawatts of customer power, when fully build out. The first 600 square meters, phase is scheduled to be available in the fourth quarter, with the second 600 square meter phase planned for the first half of 2015.

Overall, we currently have 8,200 square meters of new equipped space scheduled to become operational in 2014, with nearly half of the space scheduled to open in the fourth quarter.

It is important to note that nearly 70% of our 2014 expected CapEx, is being deployed in response to customer orders.

Please turn to Slide 8. I believe our 3-tiered go-to-market approach, which includes HQ business development, HQ international sales segment specialist, and local countries journalists is working well, and seems to be the right structure to successfully deliver against our communities of interest strategy.

In 2013, we added more than 200 new customer logos, further strengthening the power of our communities. Our communities deliver competitive differentiator in the marketplace, and are beginning to demonstrate durability to be powerful organic growth engines, based on the network effect that they've developed over time.

The managed service or cloud provider segment continues to be our fastest-growing segment, and we expect that this trend to continue. The significant new contract wins in the fourth quarter are evidence that cloud service providers are investing today to enable enterprises to make the transition to cloud solutions.

I believe that it is our segment expertise combined with our pan-European footprint, strong operational execution and rich connectivity that has allowed Interxion to develop strong partnerships with these and other magnetic customers, and ultimately lead to Interxion winning these contracts.

We will continue to work with these and other magnets to build our communities of interest in preparation for the meaningful growth and enterprise customer adoption, a hybrid cloud solutions that we expect to see in 2015 and beyond.

I would now like to turn the call over to Josh.

M. V. Joshi

Thank you, David, and welcome to everybody on the phone and online. I'd like to start by discussing the group's fourth quarter results, with some additional color on our 2 reporting segments. I'll follow that with a review of our financial performance for the year, including capital expenditures, cash flow, and a balance sheet.

So starting with the fourth quarter. Please turn to Slide 10. Interxion finished 2013 with a good fourth quarter, continuing our track record of consistent quarterly execution. Total revenue in the fourth quarter was EUR 78.2 million, up 7% organically compared to the fourth quarter 2012, and slightly up sequentially. On a constant currency basis, total revenue was up 8%, year-over-year.

Recurring revenue in the fourth quarter increased to EUR 74.4 million, an 8% year-over-year increase and 1% sequential increase, and was 95% of total revenue. On a constant currency basis, recurring revenue is up 9% year-over-year, and up 1% sequentially.

Nonrecurring revenue was EUR 3.7 million in the fourth quarter, well within our typical quarterly range of between EUR 3 million to EUR 4 million. Though down 14% year-over-year, against a very strong prior period quarter, and down 4% sequentially.

Recurring monthly ARPUs on a per square meter basis were essentially flat, sequentially. As we discussed before, there were a number of factors in addition to pricing that contribute to the development of recurring ARPUs overtime. With the customer uptake of energy, having a meaningful impact on ARPU growth, as well as geographic mix and deal size. Growth in energy uptake by customer has trended lower throughout 2013, and revenue from metered energy was flat sequentially in the fourth quarter.

We look forward -- or expect recurring ARPUs to tend towards flat to hope perhaps slightly down over the course of the year, predominantly driven by geographic and deal mix. This is fully factored into our guidance for the year.

Turning to costs. Cost of sales was well controlled in the quarter, helped in part by the usual seasonally lower costs during the colder months. In the fourth quarter, cost of sales was EUR 31.4 million, up 8% over the fourth quarter last year, and 2% lower than the third quarter of 2013.

Gross profit was EUR 46.8 million, an increase of 6% year-over-year, and 1% sequentially, with gross margins at 59.9%, up 70 basis points, sequentially.

Sales and marketing costs have increased to EUR 6.4 million in the fourth quarter, an increase of 16% year-over-year, and up 16% sequentially. Now as David mentioned earlier, the fourth quarter was a very strong bookings quarter and our sales commission expense is reflected that. Going forward, 7% to 8% of revenue is still the kind of range, we would typically expect to see.

Other G&A costs at EUR 6.7 million have come down 8% year-over-year, and down 6% from the previous quarter. We'll continue to manage our cost tightly over the year, as a percentage of revenue and in the fourth quarter.

Other G&A costs were slightly below our typical range of 9% to 10% of revenue.

Adjusted EBITDA was EUR 33.8 million, an increase of 8% year-over-year, and slightly up sequentially. Adjusted EBITDA margin of 43.2% in the fourth quarter was up 40 basis points year-over-year, and 10 basis points sequentially.

We reported an 11% sequential decrease in depreciation and amortization in the quarter at EUR 13.5 million.

In the fourth quarter, we concluded our reassessment of the useful lives of the main data center components, which resulted in adjustments to the useful lives of several asset categories.

The overall impact of these changes in the fourth quarter was to reduce depreciation and amortization by approximately EUR 2 million. Taking this into account, the underlying year-over-year increase in these non-cash expenses relates to our new facilities that became operational over the past year, and is consistent with the increase in the gross cost of data center assets held on the balance sheet.

The fourth quarter finance expense was EUR 5.6 million and significantly lower than the EUR 38.1 million in the third quarter, which included EUR 31 million of onetime costs, as a result of the refinancing completed on July 3 of last year.

Interest capitalized in the quarter was EUR 0.4 million compared to EUR 1.3 million in the same quarter last year, and EUR 0.3 million in the third quarter.

The fourth quarter income tax charge was EUR 3.7 million, which represents an effective tax rate of 27%. The adjusted LTM cash tax rate was 19%. Since the beginning of 2012, our LTM cash tax rate has been slowly, but steadily creeping up. And as we've highlighted on previous calls, all things being equal, we'd expect this trend to continue over the next 2 years or so, as we utilize our tax shield.

Reported net profit in the quarter was EUR 9.8 million compared to a profit of EUR 5.6 million in the same quarter last year, and a loss of EUR 16.5 million in the third quarter.

Now after removing the effects of the onetime items, I just reviewed, adjusted net profit in the quarter was EUR 8.5 million, up 29% year-over-year, and up 20% sequentially. We provided reconciliation to adjusted net profit in the appendix to the presentation.

Reported earnings per share was EUR 0.14, up 72% year-over-year, adjusted earnings per share was EUR 0.12 in the quarter compared to EUR 0.10 in the third quarter and fourth quarter of last year.

Now let's take a closer look by reporting segment. Please turn to Slide 11. Looking at the Big 4, recurring revenue grew 8% year-over-year, 9% on a constant currency basis and up 1% sequentially. Total revenue was up 8% year-over-year, and up slightly sequentially. The top 15 customer churn that I've talked about on previous calls, finally completed their restructuring earlier in the fourth quarter. Big 4 revenue represented 63% of the company's total, in line with what we have seen over the past several quarters. Our Amsterdam and Frankfurt campuses were again the strongest performance during the quarter.

Big 4 adjusted EBITDA grew 9% year-over-year, and was flat sequentially. We experienced margin growth in the Big 4 over the past year with adjusted EBITDA margins of 54.4%, up 80 basis points year-over-year.

Margins were slightly down from the previous quarter, due in part to increased sales compensation from the strong fourth quarter bookings.

Looking at the Rest of Europe. The underlying results are encouraging and we can see steady progression. Recurring revenue was up 7% year-over-year, and up 1% sequentially. Total revenue was up 6% year-over-year, and slightly up sequentially.

Adjusted EBITDA was EUR 15 million with margins of 51.1% and like the Big 4 markets was impacted in part by increased sales compensation cost in the quarter due to an outstanding quarterly bookings performance in the segment. Levels of activity in the Rest of Europe segment continue to vary across markets. And Stockholm, once again, showed strength in the quarter.

Please go to Slide 12, where I'd like to spend some time on the full year results. For the year 2013, total revenue was EUR 307.1 million, an increase of 11% year-over-year. Consolidated nonrecurring revenue was down 11%, against last year's record performance. Consolidated recurring revenue was EUR 291.3 million, up 13% year-over-year on a constant currency basis.

Recurring revenue in the Big 4 markets, grew 16% constant currency, a strong performance, especially, when you consider it's all organic growth. In the Rest of Europe, recurring revenue growth was at 9% constant currency for the year. A solid performance given the macroeconomic headwinds, this segment continued to face during the year, and these headwinds looks that to persist for a few quarters yet.

Gross profit was 12% higher year-over-year. Revenue growth continued to outpace growth in direct costs, despite the added cost burden of opening a new data center and 6,100 square meters of Equipped Space. As a result, gross margins expanded by 40 basis points to 59.6% for the year.

Adjusted EBITDA was EUR 131.8 million, a 15% increase over 2012. Adjusted EBITDA margins continue to grow and finish the year 140 basis points higher at 42.9%.

Going forward, we continue to see scope for margin improvement over time. At the midpoint of our guidance, we're looking to deliver about 100 basis point improvement in adjusted EBITDA margins in 2014.

Net finance expense for the year increased to EUR 57.5 million compared to EUR 17.7 million in 2012. The one-off costs associated with the refinancing amounted to EUR 31 million. And during the year, we have capitalized EUR 1.7 million of finance costs compared with EUR 9.2 million in the prior year. This represents the completion of important construction activity towards the end of 2012, and a lower level of construction for most of 2013.

Income tax expense decreased to EUR 6.1 million compared to EUR 15.8 million in 2012. Our effective tax rate increased to 47% compared to 33% in 2012.

Now normalizing, when we normalize the income tax expense for the one-off refinancing costs, the effective tax rate for 2013 was around 30%.

Reported net profit comparison was affected by the onetime refinancing cost that we incurred in the third quarter, as well as the one-off items in the year 2012.

Adjusted net profit for the year, grew 4% on an EPS basis. As I've mentioned before, we provided a chart in the appendix of the presentation, which sets out a full reconciliation for you.

Please turn to Slide 13. Over the last few years, we have steadily and consistently increased our adjusted EBITDA margins each year. We've achieved this through the natural operating leverage inherent in our data center business model, and through tight cost control. We've seen 640 basis points of margin improvement over the last 5 years, and we continue to target steady annual growth in our adjusted EBITDA margins of around 100 basis points.

Moving to Slide 14. Let's discuss our capital expenditures. Capital expenditures, including intangibles totaled EUR 55.3 million during the fourth quarter, which brought the total invested in the year to EUR 143.4 million.

We invested EUR 93.7 million in our Big 4 markets, with the lion share invested in Amsterdam and Frankfurt. We invested EUR 47 million in our Rest of Europe markets, with the largest investment being made in Sweden. We also opportunistically purchase our Brussels data center for about EUR 11 million towards the end of the fourth quarter.

Please turn to Slide 15. Summarizing the movement in actual cash during the year. Interxion generated EUR 102.7 million from operations compared to EUR 111.7 million last year. Working capital has increased in the year, and more than half of the increase took place in the fourth quarter. This was in part due to VAT timing differences, driven by the uptick in capital expenditure. And also in part due to a delayed customer payment, which was received just after the end of the quarter. And with an increased level of capital expenditure in the fourth quarter of 2013 and in the first quarter of 2014. We expect working capital movements to continue to be lumpy during 2014.

We paid EUR 30.1 million in net cash interest in taxes and invested EUR 143.4 million in capital expenditures. We received net proceeds of EUR 15.5 million from mortgages entered into during the year, received EUR 4.5 million from the exercise of stock options, and raised EUR 29.2 million in additional proceeds net of costs, when we refinanced the bonds in July. This left cash and cash equivalents of EUR 45.7 million at the year end.

Borrowings at the end of the quarter were EUR 363 million, made up mostly of the 6% notes, along with EUR 45 million of mortgages and capital leases.

Gross leverage remained low at 2.8x adjusted EBITDA, with net leverage of 2.5x adjusted EBITDA. We're pleased with our efforts to improve our balance sheet thus far. Our balance sheet provides us with significant financial flexibility and attractive maturity profile, and a decrease in cost of capital. As we stated before, reducing our cost of capital has been a key strategic focus for Interxion, and we've done that through the bond refinancing in the third quarter and through taking on mortgages at attractive rates.

On an ongoing basis, the blended all-in cost of debt, excluding amortized fees was reduced from over 9% at the beginning of the year to less than 6% by year's end.

Over the last few quarters, the company's extended debt maturities with about 94% of our debt maturing in 2018 or beyond, and improved our financial flexibility through our RCF that we expanded to EUR 100 million in the third quarter.

Now at the year end, the RCF remained undrawn. Since the year end, however, we have drawn an amount of about EUR 20 million on the RCF.

Please turn to Slide 16. Interxion continues to execute a disciplined investment strategy to secure superior long-term cash returns. As we ended the year, we added Dublin 2 and Frankfurt 6 to our portfolio data centers that were at least 3 years old. These 28 data centers, represent 66,700 square meters of Equipped Space, they are about 78% utilized. The annual cash return of these data centers was EUR 173 million in 2013, or 28% annual cash return for the year.

With that, I'd like to turn the call back over to David.

David C. Ruberg

Thank you, Josh. During recent earnings calls, as useful part of the presentation to amongst other things, discuss why we believe the fundamentals of the European carrier-neutral co-location industry, continue to be robust and to outline the opportunity, we see as enterprises look to migrate to the cloud. Given the positive change of the market tone around the cloud, we have experienced in the fourth quarter, I thought, it would be helpful to further expand on these views today.

Please turn to Slide 18 and recognize that this is an indicative slide. If we remember from our previous earnings call, we believe that there are 3 primary sources of demand for carrier-neutral co-location services: IP traffic growth; business growth or economic environment; and cloud migration. Our expansion in Europe has been that the IP traffic growth has been the primary driver of growth over the last several years, and it's broadly the same in the U.S. as in Europe.

The U.S. economy's relative resilience over the last few years, and more recent signs of an improving economy have created a more robust environment in the U.S. for business growth, the second engine that we've experienced in Europe. As a consequence, U.S.-based companies be they cloud service providers or enterprises have been more willing to make the required investments to enable or pursue cloud migration, which is the third engine of growth. They've done this more than European companies at the present time.

We've observed that investment and deployment of large scale cloud offerings in the U.S. by cloud service providers accelerated some time ago, with the onset of real enterprise migration following about 12 months later.

Based on the higher levels of order that we sold during the fourth quarter and talking to our partners and -- in the fourth quarter and momentum, which is continued into the first quarter of 2014. We are now seeing cloud service providers making similar investments and deployments in Europe.

However, the European macroeconomic situation in a more fragile, but improving business confidence are still limiting enterprise investment decisions making here in Europe. As a result, we anticipate that the onset of significant enterprise migration will take slightly longer than the 12 months observed in U.S. more likely 12 to 18 months. We feel Interxion is very well positioned to capitalize on this opportunity as it develops and believes that it's supported by our very strong bookings performance in the fourth quarter and momentum of these activity in early 2014.

We are proud that major service providers are choosing Interxion as a trusted partner for the delivery of these services. Our facility flexibility, ease of doing business, and a shared vision and understanding of enterprise customer needs places us at the heart of their go-to-market strategy.

These magnets are the founding members of our cloud communities of interest, and we believe their presence will draw in the enterprises. Similarly, we believe Interxion can deliver significant value for an enterprise deploying as private or a hybrid cloud platforms within our facilities. Interxion's business model enables us to build and maintain our data centers at a value proposition that is more attractive than enterprise can deliver to achieve individually. It goes beyond total cost of ownership, Interxion delivers even more value than simple cost savings as the enterprise benefits from our expanding cloud community ventures, ensuring that we'll future proof its IT roadmap by direct access to the key cloud service providers.

As enterprise cloud migration evolves, we can similarly add value to the platforming or enterprise strategic applications. We think of these as requiring real-time performance, which in turn can drive significant value and competitive advantage to the enterprise customer if they are housed in the right location with the right connectivity, power and other characteristics.

The race to real-time is on, and Interxion can deliver the superior performance that allows enterprises to build and manage the real-time applications. We believe that we entered 2014 in a very good position, having signed key magnetic customers, who will, in turn, over time, draw enterprises into our cloud community and drive organic growth going forward.

Please turn to Slide 19. Before getting into the specifics, our guidance for 2014, I'd like to remind you about our guidance philosophy. Our approach is to provide annual guidance for revenue, adjusted EBITDA and CapEx on our 4Q call, and publicly update that guidance as necessary during the year.

Therefore, for 2014, we expect total revenue to be in the range of EUR 334 million to EUR 344 million. We expect adjusted EBITDA to be in the range of EUR 145 million to EUR 152 million, and we expect our capital expenditures to be between EUR 140 million and EUR 160 million, nearly 70% of that amount, which will be going to service secured orders.

I will, once again, like to thank our employees and all of our countries for staying focused on our customers and continue to deliver strong results throughout 2013 and so far, into 2014.

I would also like to thank our shareholders and our bondholders and our customers for their continued support.

Now let me hand the call back to the operator to begin the question-and-answer segment, and therefore, operator can you please read out the instructions to register questions from the call.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of David Barden of Bank of America.

David W. Barden - BofA Merrill Lynch, Research Division

I guess, 3, if I could. For -- Starting with maybe Dave or you, Josh. The fourth quarter does look like we saw some slippage relative to new cabinet or new revenue-generating square meters coming in, came in at the very low end of the guidance. Could you talk about some of the factors that contributed to that what appears to be slippage? But on the other hand, it sounds like you had a really strong bookings quarter and you're pretty happy about how, especially the cloud momentum is building. Maybe Dave, could you talk about the economics around these cloud deals? Are they similar, slightly less than or slightly better than the kind of run rate deals you've been signing? And then lastly, Josh, obviously, 2014 is going to be another funding deficit year. Is the plan to use the revolver over the course of the year? Or will you be coming to the market with kind of a more of a lockdown financing strategy?

M. V. Joshi

Let me deal with the revenue-generating and the other -- the final question. I'll let David deal with the economics of the cloud deals. In terms of Revenue Generating Space, David, quarter-on-quarter, it's very lumpy. We've seen significant highs and lows actually substantially lower than what we've seen in this quarter. Specifically, we did highlight the fact that the top 15 customer was going to be coming out during the course of this quarter, and so it finally restructured. So that was part of it, but I don't usually necessarily read anything more than that into the numbers, they do just tend to be lumpy. Looking at the -- our funding, the situation that we're in at the moment is that the RCF that we've got in place gives us enormous flexibility to handle our cash flow, ebbs and flows, and so we will continue to use as designed. Our current business plan remains fully funded, and so I think that we're in pretty good shape at this point.

David C. Ruberg

David, I'm going to take this opportunity based to your question to address it in a much larger fashion. These companies that we're dealing with, these cloud service providers have very strong balance sheets, and they're usually accustomed to doing things themselves in their own way. Building and running data centers is one of the core competencies and they know what they're looking for. So when they need to go outside and trust you with some of their most valuable assets. If they have a choice, they prefer to work with partners, not vendors and there's a big difference. Many of these installations that we're talking about are relatively small compared to what they normally deal with. And so I want to dissuade people from this. So sometimes, people think cost is important and it is, but it's usually not the deciding factor. They look for partners who understand the business and their problems, meaning, people who can anticipate what's happening and get ahead of the game. People who have a growth plan that is agile enough to meet the changing needs, not only their infrastructure, but more importantly, of the customers that they want to draw to their platforms. And people who can help them create value. There's also a long list of operational issues that I could add to this list, but when they installed their installations in these applications with you, they just don't turn churn out. What they're really looking for is to see if they can trust you to perform on many fronts not only today, but tomorrow and the next day. And so the summarizing all of that, there's been a lot of rumors circulating, there's been a lot of buzz that to get these kind of customers, that it's all pricing driven, and that's just not true.

David W. Barden - BofA Merrill Lynch, Research Division

So Dave, if I could just have a quick follow-up on that. So it sounds like you're trying to make the point that these magnetic cloud deals, although they are magnetic, they are not necessarily big, large, price-sensitive types of transactions that you feel pretty good that these are fitting the economic profile that you've built to date?

David C. Ruberg

David, first of all, they're all over the place. There are big, there are little, there are some that are a couple of cabinets. All of them fit into our IRR return or focus on generating cash returns and enhancing shareholder value, yes. What's really neat is that sometimes you have to deviate from that in order to get future growth or opportunity. We have not deviated, have not had to deviate in any way, shape or form. We've taken no bad deals.

Operator

Your next question comes from the line of Jonathan Atkin of RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

Yes. I wondered if you could give us a view as to churn in 2014? And what kind of impacts that you're embedding in your guidance?

M. V. Joshi

John, we've seen churn for the last, I don't know, 6 years at around 0.5% to 0.75% per month on average, and that's exactly what we put into the plan for 2014. Been a very consistent business model, maybe quarter-on-quarter it might be lumpy, but on a yearly basis, it's very consistent. I hope that answers your question.

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

And then with regards to the CapEx, can you give us a flavor, I think, we can tell from your expansion sheet, but how much of this is adjacent developments on existing campuses versus brand new campuses and that gives us the flavor for kind of the capital efficiency at some of the revenues that's going to come off, they're going to be generated from those sites?

M. V. Joshi

Yes, it's 100% adjacent. So we're planning for a very strong efficiency. Our philosophy John, is to try to build our data centers on campuses. To try and take advantage of the communities of interest that are existing there already, and that's, I think, why as you try and identify magnets and they go into one data center, as you develop other data centers, what you're trying to do is to look for the return on investment over the entire campus over time and that seems to work very well for us.

David C. Ruberg

And Jonathan not only...

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

And then finally -- I'm sorry, go ahead.

David C. Ruberg

Not only for us, but there's a residual benefit to our customers. They like this as well, so it allows them to focus their resources, particularly as they continue to grow. So it benefits both of us. Now it creates a little of a problem, it's sometimes in Europe a little difficult to find space adjacent. So you have to look out years in advance, but the benefits are outstanding.

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

And then, there was a margin pressure year-on-year in rest of Europe, and then margin pressure in the Big 4 quarter-on-quarter, if you could maybe just comment on what will influence more there.

M. V. Joshi

Pretty much, the pressure in the quarter came from increased sales compensation expense, broadly speaking. And I see that as a pretty good reason for the pressure overall.

Operator

Your next question comes from the line of Michael Rollins of Citi investments.

Michael Rollins - Citigroup Inc, Research Division

First question is if you were to look at what you put in your business plan, for the facility or your portfolio facility getting the full utilization, based on what you have built today, and what you have in the plans to build that you've publicly announced, how big is that revenue opportunity? Where can that revenue number get to from where it is today, over the longer term? Second question is, and forgive me if you talked a little bit about this, but you did mention that you were having some bookings in cloud that was deployed later in the year. Is that an extended book-to-bill cycle? And then, does that affect the loading factor of revenue, where it maybe more back-end loaded?

David C. Ruberg

Okay, we're now very quickly calculating to answer your first question. The second one, the answer is yes. Our traditional book-to-bill ratio has seen a little bit of change, given the bookings that we took in the fourth quarter, it takes time for us. These are not specialized designs for anybody, but there is planning that goes into some of this, based on our part and on the infrastructure provider's part, and then there is substantial amount of testing to verify the qualifications are met. And in some cases, we just didn't have the space and have to build it. So yes, we're very happy with the fact that people have looked at us. Normally in this business, if you don't have the space available in the next 3 to 6 months, you don't get the order. And the fact that people recognize the value of our communities and our ability to grow with them over time, we've seen people who give us more lead time to develop the facilities, and that's changed the book-to-bill ratio.

Michael Rollins - Citigroup Inc, Research Division

And if I could just follow-up on the competitive side of the business, you talked before that the bigger competitors in the pan-European markets that you've faced, are you seeing any changes either in those larger competitors or in some of the smaller, more fragmented competitors in your markets? I mean, consolidations that you see happening? Or change in the number of big and small providers? If you can give us maybe just a little more flavor of what you're seeing on that front?

David C. Ruberg

As an example, London has seen an influx, quite a few purportedly retail-orient companies, funded by private equities. We see no change in the competitive landscape with their presence. The other two that we've talked about repeatedly are tough competitors, and I think you cover both of them. The one that's most visible to us is the one that comes from the United States. They sit in a more robust economic situation. They're dealing with enterprises that are many global in nature and they have a pretty good indication of what's transpiring. So have they changed? You can read their press and you can see what their thoughts are. Sometimes, they change to make themselves look more like we do. I noticed that they've adapted some of our terminology. So in terms of the impact on us, of their changes, nothing. Do we answer your question?

Michael Rollins - Citigroup Inc, Research Division

Yes, and then just we have that number on the revenue.

M. V. Joshi

Mike, the -- our focus is trying to look for the cash returns on the investments that we make. Now if you look at how many square meters that we've got at the end of the year, it's just over 80,000, and when you look at the maximum equippable square meters, we're running not far short of potentially around 100,000 square meters of just what we've got in our books, and that doesn't even include the land that we've been building -- the land bank that we have in Frankfurt going forward. We have looked, as David said earlier, we look forward quite a long way in terms of what the potential opportunity is. And the way that we look at that is to say, okay, well, there's a significant opportunity there, there's significant opportunity to grow our volumes. Significant opportunity as they develop into sort of 80%, 85% utilized data center space for the revenue to potentially grow from increased energy and power capacity utilization, and then to drive something like 30% annual cash returns from it. So I'm not putting a number out there, but I think that the opportunity is significant.

Operator

[Operator Instructions] Your next question comes from the line of Jonathan Schildkraut of Evercore.

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

I guess, I'd like to focus my one question on 2014, and maybe understanding the dynamics of revenue growth. I'd say this quarter was a little surprising in terms of the MRR and cabinet -- pardon me, square meters trends versus what we're expecting. And as we look out to next year, I'm just trying to understand the balance that is embedded in your expectations, which is predicated on square meter sales versus pricing or MRR gains. Historically, you sort of laid out this vision of MRR maturity and growth over time, and given the strong cabinet ads in 2012, MRR -- square meter ads in 2012 and sort of a slowing towards the end of this year, I guess, I would've expected MRR to have been a little stronger, although there may have been some reflection of the MRR of the 1% customer churn.

M. V. Joshi

There are several components to what you're asking. One of the things that we would've expected over the year would have been the development of metered energy usage. And I think that, that's partly economy-driven over the course of the year in Europe in terms of how that's utilized. And I think I said in my prepared remarks that energy was essentially flat and revenue from energy was flat quarter-to-quarter. I'd like to remind you that back in 2012, we talked about -- we had a lot of square meters come on, but we also took on a large customer that was actually purchasing power directly. That was the first time we've ever done it. And we've never done it again. But nevertheless, one needs to take that into account when you're thinking about how our office would've develop this year and indeed how they develop going forward. The underlying dynamics, and that's kept the chart in the appendix to the presentation, the underlying dynamics have not changed. We continue to see the development of people purchasing space from us and then purchasing power capacity and then energy over time. We've had a very good fourth quarter, I think. And as we look forward in terms of our guidance, there are some perspectives. I think, again, if you look at the way that we're deploying the capital in this space, it's probably going to be more of a second half weighted year on the top line. And the other thing that I would point out is that classically, given the seasonality of our business, we always see some element of margin slowdown in the first quarter and that is to be expected. But again, we've given the guidance for the year, as a whole.

David C. Ruberg

Keep in mind that one of -- a large portion or a substantial portion, or a meaningful portion of our revenue comes from metered power. We've kind of given up trying to forecast when this is going to improve, because this really is economic situation dependent. You have someone that's got 5 cabinets or 10 cabinets, and their business isn't doing that well, these machines go into sleep mode. So that has had an impact. The key for us is that, the people are anticipating this year and next year. The people that buy space are anticipating that their businesses will pick up. And therefore, they are buying space and power reservation for us, whether returns immediately into or 6 months or 9 months from now into them actually consuming the power is a different story.

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

Okay. For my follow-up question, I'd like to know if some of these long-dated commencements that you highlighted for the end of this year and the beginning of next year, if you give us a sense as to whether that was coming from demand within the existing base or if these were new customers? Or if there was a balance between the two?

David C. Ruberg

Both. And then quite honestly, I think the numbers show that the demand that we've got in the fourth quarter, represents what we've seen historically, which is probably 60% or 70% coming from our existing base, and 30% from new customers.

M. V. Joshi

That's right.

Operator

Your next question comes from the line of Milan Radia of Jefferies.

Milan Radia - Jefferies LLC, Research Division

A couple of questions actually. First was just following up from that previous dialogue. In terms of the large cloud-centric deals that you talked about, and the dilution to the MRR, I guess, it would be the case that these are sophisticated customers, typically starting off at very low powered entities. So presumably, way below potentially 1 kilowatt per square meter. What is the nature of the discussion or contractual arrangement that might even be placed in place with these customers as to when they sort of ramp-up their power take up? Is there something that they're in position to predict and give you some indications as to take a look it happens 18 months after initial installation, which say in Amsterdam 6 might have been in December 2012, for example?

David C. Ruberg

That's an interesting question. You used some words in there that I've never used inside. I can't go back and explain which ones I'm referring to, but some of these are not large deals. You made some assumption. These are all kinds of different structures, and there are people sometimes that reserve space because they want to be in the data center and they've heard that other people are there and are chewing up space. So it's not just big deals. They're big deals, they're small deals, all right. These are people that are anticipating over the next couple of years, they want to have contiguous space. We don't just give it away. So I wanted to address that first. Second of all, yes. A lot of these people start out with maybe 1 kilowatt per square meter with the right to overtime to come to us and say, okay, now I want 1.5, now I want 2, I want 1.75, and so can they predict it? That has been the real issue, nobody has been able to predict this. What we've seen now is a willingness to deploy the capital. Primarily coming from company's in United States and whether they be cloud providers or enterprises that are willing to take more of a risk than they were in the past and start to deploy, whether they consume the energy and power right away doesn't seem to be as great a concern to them now as to getting the capital in place should that happen. It's a whole lot easier to turn up the equipment than it is to place the equipment.

Milan Radia - Jefferies LLC, Research Division

Okay. And then the second question was too really around that 70% of CapEx comment, and tying that into bookings that are kind of in place customer requirements. So is there -- that's about EUR 105 million, I guess, at the midpoint of the CapEx guidance range. Is that sort of, can that be tied directly to a specific bookings type figure? Or some other indication of what the quantity of revenue opportunity around that customer equipment -- commitment is?

David C. Ruberg

Not directly, because if we build a new data center, sometimes the CapEx that goes into the data center is front end loaded, so you can't tie that directly, okay?

Operator

Your next question comes from the line of Michael Bowen of Pacific Crest.

Michael G. Bowen - Pacific Crest Securities, Inc., Research Division

One of the things, Dave, that we've noticed over here, at least in the U.S. is that it seems like some of the enterprise budgets are potentially being set much later then we've seen in many, many years. So I was curious with regards to the enterprise customers in Europe, whether you're seeing any of that and whether that's having an impact? And then secondly, with regard to margins, can you expound a little bit about how your sales forces comps? Because obviously, your bookings were stronger, but your margins being lower, I understand if you're seeing front end sales comp cost, but how much of the sales comp is actually booked in the beginning before the revenue begins? That will be very helpful.

David C. Ruberg

Okay. I was thinking about the answer.

M. V. Joshi

Well, let me this deal with the sales comp question. Michael, we tend to accrue almost all of the sales comp at the time that the sale is made. Although the actual payment of the sales compensation is different based on first, when the contracts signed, and then when the first invoice is sent out. So I hope that answers that question.

David C. Ruberg

All right, it was an interesting question, the IT budgets. I'm not sure what you meant by the fact that the budgets are getting set later in the United States, but one of the advantages of having partners, the partners that we have in the United States is we get, even though we don't provide service there, we get some input. And the U.S. IT budgets are expanding enough to allow for the experimentation to move to the cloud. We have not yet seen that in Europe. What we're still seeing, at least so far now is the European-based companies are still focused on reducing their expenses. And not in improving, and I don't want to get in trouble here by making this general statement, but I haven't seen a whole lot of indication yet that the economies have recovered enough that these guys can now focus on improved productivity or improved effectiveness its more still on cutting costs and reducing their costs. What we are seeing is a lot of the infrastructure providers from the United States deploying capital, and that's being driven a lot by the U.S. enterprises wanting to -- they have the European operations coming to Europe, so did that answer your question?

Michael G. Bowen - Pacific Crest Securities, Inc., Research Division

Yes, that's helpful. I think in the U.S., what we've seen is that it's more of a timing issue. If I hear you correctly in Europe, there's a lag factor between Europe and the U.S., so it's not really a timing issue per se, it's that they're moving toward the cloud and if anything, my question might apply next year, if you will. So yes, that's helped very much.

David C. Ruberg

Yes, there's always been a lag, okay? And again, as we tried to indicate in that slide on 18, on Slide 18, we tried to portray that. Again, what has to change first his sentiment. Sentiment changes first and then investment follows, okay? And the sentiment in the United States, again, appears to be a little more robust than it is here. In Europe, it's still a little bit up-and-down, and so it's a little more cautious, and I think we all know what's happening in Eastern Europe and that hasn't had an impact on us and we have no exposure to that, but it does influence people's investment decisions.

Jim Huseby

That concludes our conference call, everybody. Thank you very much for joining us and we'll speak to you again in a couple of months. You may now disconnect.

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InterXion Holding N.V. (INXN): Q4 EPS of €0.14 beats by €0.02.

Revenue of €78.2M (+7.3% Y/Y) misses by €1.62M.