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Equinix, Inc. (NASDAQ:EQIX)

Q1 2014 Results Earnings Conference Call

April 30, 2014, 05:30 PM ET

Executives

Katrina Rymill - VP of IR

Stephen M. Smith - CEO and President

Keith D. Taylor - CFO

Charles J. Meyers - COO

Analysts

Michael Rollins - Citi Investment Research

Colby Synesael - Cowen and Company

David Barden - Bank of America Merrill Lynch

Gray Powell - Wells Fargo

Frank Louthan IV - Raymond James

Timothy Horan - Oppenheimer & Company

Jonathan Atkin - RBC Capital Markets

Simon Flannery - Morgan Stanley

Operator

Good afternoon. And welcome to the Equinix conference call. All lines will be able to listen only until we open for questions. Also, today's conference is being recorded. If anyone has objections, please disconnect at this time.

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

Katrina Rymill

Good afternoon. Welcome to today's conference call. Before I get started, I'd like to remind everyone that some of the statements I'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 28, 2014.

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 a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com.

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

With us today are Steve Smith, Equinix's CEO and President; Keith Taylor, Chief Financial Officer; and Charles Meyers, Chief Operating Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call to an hour, we'd like to ask these analysts to limit any follow-on questions to just one.

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

Stephen M. Smith

Thank you, Katrina. Good afternoon. And welcome to our First Quarter Earnings Call. We're off to a strong start in 2014 delivering both revenue and adjusted EBITDA above the top end of our guidance ranges. As depicted on slide three in our presentation revenues were $580 million up 3% quarter-over-quarter and 12% over the same quarter last year. Adjusted EBITDA was $260 million for the quarter up 8% over the same quarter last year. We delivered solid results across the regions in our metrics including MRR per cabinet, - and cross connect adds reflect continued health of the business and a competitive edge from platform Equinix.

We continue to be differentiated in the market as the only global interconnection platform which position us as the partner of choice for businesses with significant global requirements. Today 65% of recurring revenues come from customers deployed across multiple regions and that's up from 60% last year. And 80% of the recurring revenues comes from customers deployed across multiple metros, up from 78% last year.

Looking at our top 100 customers 86 are deployed in more than one region across an average of 10 metros. A metric that demonstrates the value of platform Equinix, reflects the very diverse revenue base and correlates with high levels of customer retention. As our customers distribute their infrastructure to improve performance and reduce cost we remain focused on delivering a consistent experience in how we design, build and operate our IBXs as-well-as how we market, sell and support platform Equinix.

We continue to experience momentum across industry verticals and associated ecosystems. The network vertical delivered consistent growth with new bookings from service providers who are expanding their portfolio of cloud service and simultaneously upgrading our infrastructure to 100 gig and support explosive -- demand. Content also delivered strong bookings this quarter driven by global expansions from large players and continued growth of the advertising exchange or the Ad-IX ecosystems. Ad-IX wins include expansions from -- and MediaMath as-well-as new wins including -- a video advertising platform.

In financial services our win with BATS who is consolidating infrastructure in our -- campus is generating continued momentum in our financial ecosystems. This ecosystem remains one of our most diverse with over 800 customers across a variety of asset classes, market participants and information providers. We're also seeing positive signs in enterprise sub verticals including energy, oil and gas, professional services and insurance as-well-as new ecosystems taking shape in high -- deployment which I will cover in more detail shortly.

At the heart of our success is the value we deliver to customers through interconnection. From our earliest days Equinix has focused on building communities among companies who gain business benefits from connecting with each other in a private, secure and high throughput manner.

As shown on slide 4, we've evolved our interconnection portfolio in response to customer demands and now offer the industry's most comprehensive suite of interconnection solutions. Cross connects or point-to-point fiber connections that delivery secure high performance connectivity between customers and represent the core of our interconnection business generating 85% of our interconnection revenue.

Today we've approximately 132,000 cross connects and these connections continue to grow with IT traffic increases which is indicative of the power of interconnections and a sign of the strengthen of our ecosystems. Operating in tandem with cross connects and also fueled by IT traffic growth are the various exchanges we run in over 20 markets around the world. These exchanges enable one-to-many connections and like any exchange the value to an individual customer is driven by the number and quality of participants on that exchange. Companies continue to select Equinix as the most efficient and effective place to exchange traffic.

Our exchange drives over 2.5 terabytes of traffic across 2,200 ports which is twice as many as our closest competitor. Traffic in our exchanges continues to grow over 20% yearly as network, content and cloud customer take advantage of the -- systems across platform Equinix. Combination of large scale exchanges available via both IP and Ethernet protocols and extensive private interconnection inside our IBXs has established Equinix as the global interconnection leader and interconnection remains at the heart of our strategy going forward.

Let me shift gears now and cover the cloud market and the Equinix opportunity. Cloud adoptions continues to ramp creating massive disruptions in how businesses consume IT services and creating significant opportunity for Equinix. We're experiencing a dramatic increase in traffic within the data center as enterprises leverage virtualized infrastructures and move data and applications into hybrid cloud architectures.

Platform Equinix is the home of the interconnected cloud delivering critical hubbing functions where customers seek to achieve rapid time-to-market, reduce capital and lower costs associated with directly accessing public cloud services while simultaneously enabling access to their private cloud. In fact -- index we formed projects that cloud traffic within data centers will triple over the next four years. Enterprises are eager to realize the benefits of the cloud but have significant concerns about relying on the open Internet for business critical applications and data.

With the need for higher performance, security, and control Equinix is seeing customers move critical data and applications off the public Internet taking advantage of the ability to directly connect to major cloud service providers such as AWS where they can achieve significant throughput performance gains.

As depicted on slide five, the tremendous choice of networks and cloud service providers available on platform Equinix has uniquely positioned us to deliver to enterprises the flexibility they need to confidently extend their networks and take full advantage of hybrid cloud.

As shown of slide 6, the proximity advantages of platform Equinix allow companies to move beyond really adopt or use cases like test and developments and empower forward thinking CIOs to leverage the cloud for mission critical workloads. These CIOs understand that latency is critical to application performance and many enterprises are reconfiguring their infrastructure to deploy hybrid cloud allowing them to retain control over critical data and enhancing application performance.

In fact at Equinix we ourselves have deployed a cloud optimize architecture globally to support our own enterprise by connecting to over 40 cloud services. Blending them with our own premise applications to create a hybrid cloud architecture optimized to run our business. While still early in the adoption curve we're seeing more-and-more businesses adopt this next generation IT architectures and leverage our performance hub offer to extend their enterprise, when to increase performance and lower costs. Enterprise wins this quarter include Lego, - and a leading aerospace and defense contractor.

Cloud and IT services remains our fastest growing vertical delivering 15% year-over-year revenue growth. We continue to win business from -- cloud and network customers including a global deployment with Verizon in 15 markets and Microsoft offering its express -- services in 16 Equinix markets.

Today we're extending our leadership with the announcement of the Equinix Cloud Exchange. An advanced interconnection solution optimized to support today's cloud workloads. With Cloud Exchange Equinix is building upon its interconnection heritage to bring together cloud providers and cloud consumers in a new way to realize the benefits of cloud computing.

Turning to slide 7. The Equinix Cloud Exchange extends the investment end and functionality of our Ethernet exchange to enable private secure connections between enterprises, networks and cloud service providers. With this solution enterprises can access multiple cloud and network vendors through a single port interface allowing them to quickly and efficiently deploy hybrid cloud infrastructure.

The Equinix Cloud Exchange enables IT workloads to be virtually provisioned in an automated fashion over a single physical port between multiple parties simplifying and improving integration, security and performance of cloud services. The cloud exchange is supported by a portal which allows CIOs and their infrastructure teams to interact with the exchange in a variety of ways including -- the list of cloud service provider locations by metro and region and self-provisioning virtual circuits to participating providers such as AWS and Microsoft. Available globally in 13 markets today the Equinix Cloud Exchange is expected to be available in 19 markets by the end of the year.

As we continue to focus on solutions for enterprise customers building hybrid cloud environments we expanded our alliance with Microsoft to offer -- route the Equinix Cloud Exchange in 16 markets spanning four continents. This removes many of the complexities and capacity limitations associated with setting up network connections to -- cloud service and enables enterprise customers to take full advantage of the cloud.

We're very excited about the benefits that Equinix Cloud Exchange offer our customers and its potential to strengthen an -- robust ecosystem of cloud and network service providers, delivering services to enterprises. We believe our position as the world's leading interconnection company underpinned by our strong ecosystem of 975 networks, 450 cloud service providers across more than 100 IBXs makes us uniquely qualified to be the home of the interconnected cloud. So let me stop here and turn it over to Keith to cover the results for the quarter.

Keith D. Taylor

Thanks, Steve and good afternoon to everyone. So let me get right into today starting with our bookings. We had a strong growth in net bookings quarter in each of our regions. Better than our expectations and the Americas delivered it's high export bookings activity on record reflecting the importance of our global platform. Also we delivered against both our revenue and EBITDA objectives. More specifically interconnection revenues continue to outpace overall revenue growth increasing by 15% over the prior year with very healthy gross additions for both our cross connect and exchange port offerings.

On a particular note exchange ports added in the quarter doubled across each of our three regions driven by network, content and social media customers. We continue to expect MRR per cabinet yields to remain steady allowing us to meet our targeted operating objectives and financial returns.

Now looking at slide 8 from our presentation posted today. Global Q1 revenues increased to $580.1 million a 3% increase over the prior quarter and up 12% over the same quarter last year. Our Q1 revenue performance reflects that $2.5 million negative currency effect when compared to the average rates used in Q4. And a $400,000 negative currency effect when compared to our FX guidance rates. It's important to note that our FX hedges that we set against the Euro, Pound and Swiss Franc exposure offset the positive FX rate that you may have seen this past quarter by $1.1 million.

Non-recurring revenues increased 14% quarter-over-quarter as we continue to provide customer sales orders and installation activities for our customers slightly greater than our expectations. We expect the custom sales order and installation activity to remain at a higher level for the rest of the year. Total cash cost of revenues were consistent with our expectations and cash SG&A expenses increased to $135.4 million for the quarter including approximately $10 million of REIT-related cash costs.

Total adjusted EBITDA was $260.4 million above the top end of our guidance range although down 1% over the prior quarter primarily due to fluctuations in salaries and benefits and anticipated higher REIT -- costs. Our adjusted EBITDA was 45%, our Q1 adjusted EBITDA performance reflects a negative $1.6 million currency hit when compared to the average rates used in Q4 and a $700,000 negative impact when compared to our FX guidance rates.

MRR churn was consistent with our expectations at 2.3%. As we noted last quarter we expect our Q2 MRR churn to increase. Our current estimate for the quarter is approximately 3%. This increase is solely attributed to the LinkedIn churn as they bifurcate a portion of their infrastructure at the end of Q2.

Given the LinkedIn churn will occur at the end of Q2 the MRR churn will be recognized in Q2 but the revenue impact will be felt in Q3. As mentioned last quarter this MRR churn has been fully contemplated in or 2014 guidance. For the full year 2014 we expect MRR churn to average approximately 2.5% per quarter therefore we expect lower churn in the second half of the year.

Now moving on to our comments on our REIT. We continue to progress with our plans to convert to REIT on January 1, 2015. While we're still awaiting a response from the IRS on our PR request we do not expect to delay to this time frame. On slide 9 we summarized the various expected REIT-related cash cost and taxes. In the second quarter we expect to incur approximately $11 million in REIT-related cash cost. For the year our estimated cash tax liability is now expected to range between $145 million and $200 million.

Turning to slide 10. I'd like to start reviewing our regional results beginning with the Americas. The Americas region delivered solid regional gross booking and exported a record level of activity to the other two regions. A testament -- to the success of our global footprint and service offering. Consistent with our expectations the Americas revenues increased 2% over the prior quarter and up 9% over the same quarter last year on a constant currency basis.

Moving to the Americas adjusted EBITDA but first a reminder. The Americas region continues to be fully burned with the corporate functions including corporate projects such as REIT conversion and -- customer one. Given this Americas adjusted EBITDA on a constant currency basis was down 6% over the prior quarter and up 5% year-over-year. Americas adjusted EBITDA margin was 45% for the quarter.

The sequential decline in adjusted EBITDA was primarily due to the partial reversal of our 2013 corporate bonus approved in Q4 and the -- reset in Q1 as-well-as higher than typical utilities expense due to the harsh winter across many parts of the U.S. We expect the Americas adjusted EBITDA margin to trend back to our Q4, 2013 level effectively 49% as we progress through the year. Americas net billing cabinets decreased by 100 in the quarter -- due to timing of customer installation and cabinet churn a similar phenomenon to what we experienced a year ago.

While our MRR per cabinet remains steady at very attractive levels. Americas added 800 net cross connections in the quarter slightly lower due to our suite migration in our New York -- asset located in 111 8th avenue.

Absence of one-time events in the quarter Americas cross connect adds were above the four prior quarter trends. Equally important we added 106 exchange ports in the quarter which is more than we added in all of 2013 driven by demand from content network providers reflecting the competitive differentiation we have with our Equinix exchanges. Interconnection revenues as a percent of the regions recurring revenues increased over 20%.

Now looking at EMEA please turn to slide 11. EMEA revenues on a normalized and constant currency basis were up 3% quarter-over-quarter and up 19% year-over-year and reflect strong performance particularly in the UK and Netherlands as large multi and cross regional deals continue to benefit the region. Adjusted EBITDA on a normalized and constant currency basis was up 4% over the prior quarter and up 24% over the same quarter last year.

Adjusted EBITDA margin increased to 42% despite a number of one-off adjustments booked in the quarter. Absent these adjustments EMEA adjusted EBITDA would have been 44%. EMEA interconnect revenues increased 9% over the prior quarter and up 36% over the same quarter last year largely driven by the UK market to provide us our large increase in exchange port and fixed antenna service offerings. We added 1,300 net cross connections in the quarter and net cabinets billing increased by approximately 800.

We continue to expand in Europe progressing with our next phase in Amsterdam - . Located in -- Amsterdam -- is one of the world's most modern locations and designed to new standards and sustainability.

And now looking at Asia Pacific please refer to slide 12. Asia Pacific revenues were $98.6 million. Revenues on a constant currency basis increased 7% over the prior quarter and up 15% over the same quarter last year, driven by strength in our content cloud and network segments.

Adjusted EBITDA on a constant currency basis was up 10% over the last quarter and up 6% over the same quarter last year. MRR per cabinet on a constant currency basis remained strong and cabinets billing increased by 900 compared to the prior quarter. We added a record 1,500 net cross connects in the quarter and interconnection revenues remained at 12% of the region's recurring revenues.

In 2014 we are expanding across all seven Asia Pacific metros which include the recently opened phases In Tokyo and Sydney. For new builds we are proceeding with the second phase of our new IBX in Osaka driven by strong interest from the cloud and content customers as well as expanding in Singapore with an additional bay in Singapore too.

And now looking at the balance sheet please refer to slide 13. We ended the quarter with over $1 billion in unrestricted cash and investments on our balance sheet. Our current liquidity position continues to remain healthy. Our net debt leverage ratio increased slightly to 3.1 times our Q1 annualized adjusted EBITDA.

We also repurchased 732,000 shares for $127 million of Equinix stock through last Friday. Our stock repurchase program has offset at least in part this year is attributed to the convertible debt exchange agreement we entered into last week.

Now switching to slide 14. Q1 operating cash flow increased over the prior quarter to $171.7 million. Even though our DSOs increased to 33 days in the quarter, a trend we expect to reverse in Q2. For 2014, we continue to expect adjusted discretionary free cash flow, excluding REIT-related cash costs and taxes ranged between $620 million and $650 million and adjusted free cash flow to be greater than $200 million.

Now looking at capital expenditures, please refer to slide 15. For the quarter capital expenditures were $105.9 million including ongoing CapEx of $44.9 million, below our current guidance due to timing of cash payments. We opened four new IDX phases in the first quarter including Dallas 6, which is a new build. We now currently have 12 announced expansion projects underway across the globe of which 10 are campus builds or incremental phase builds.

At this point let me turn the call back to Steve.

Stephen M. Smith

Okay, thanks Keith. Let me now shift gears and cover our outlook for 2014 on slide 16. For the second quarter of 2014 we expect revenues to be in the range of $594 to $598 million. Cash gross margins are expected to approximate 68% to 69%. Cash SG&A expenses are expected to range between a $135 million and a $139 million. Adjusted EBITDA is expected to be between $267 million and $273 million, which includes the $11 million in costs related to the REIT conversion.

Capital expenditures are expected to be $165 million to $175 million, including $60 million of ongoing capital expenditures. For the full year of 2014 we are raising revenue to be greater than $2.395 billion or greater than 11% year-over-year growth, which includes $7 million of positive foreign currency benefit compared to our Q1 guidance range.

Total year cash gross margins are expected to be 69%, cash SG&A expenses are expected to range between $530 million and $550 million. Adjusted EBITDA is expected to be greater than $1.105 billion which includes $3 million of positive foreign currency benefit compared to our Q1 guidance range and also includes $37 million in cost related to our REIT conversion efforts.

We expect 2014 capital expenditures to range between $550 million and $650 million, including approximately $200 million of ongoing capital expenditures. So in closing we are off to a strong start in 2014 and are well positioned to deliver profitable growth while continuing to invest and innovate to fully realize the benefits of our global interconnection platform. We sit at the heart of the rapidly evolving digital economy and are the only data center company that brings together an extensive global footprint in the existing relationships with thousands of network, cloud, constant and enterprise customers.

Hybrid cloud is emerging as the clear IT architecture of choice for service providers and enterprises alike and we see this as a unique opportunity to capitalize on our market leadership. We will continue to invest in this opportunity by building next generation interconnection solutions and building a robust cloud eco-system that will meaningfully increase the inherent long term value of the business.

So let me stop here an open it up for questions. Rachel I'll turn it back over to you.

Question-and-Answer Session

Operator

Okay. And our first question comes from Michael Rollins of Citi Investment Research. Please sir you have an open line.

Michael Rollins - Citi Investment Research

Thanks. Two questions. First if you could just go through the sales force and the size and the productivity and just -- areas of strength. And then I am looking at the sources of weakness within it. And then as well I'll just follow-up -- to the second question, please.

Stephen M. Smith

Okay. Mike I'll start out and we can pile on here. So generally speaking from a sales and bookings productivity standpoints. There is good steady state productivity and as you guys that we've said in the past quarters the ramp is bi-vertical. But we do have a high level of competitiveness going on particularly we're staying very disciplined in our deal reviews as you guys see in our MRR per cabinet results.

We do still believe there is upside as our reps continue to mature and we get better at our offerings that we're expanding as we talked about today we become more adept at -- the enterprise and as the cloud unfolds. So I think the team believes there is still more upside for the reps around the world. So overall there is a lot of positive momentum from our exit rate in fourth quarter and certainly the good start we had here in this quarter.

We haven't talked a lot about this but Charles has probably reported this we're augmenting our direct sales force which is around 220 to your specific question, Mike to-date -- heads in the direct sales engine. We starting to augment that with an indirect channel that we're starting to sell through and with platform partners and resellers as-well-as working with some referral partners to help generate new leads. There is a lot of activity going on both the direct and indirect front that total headcount on -- heads will probably go towards 240 maybe up to 250 as you think about full year into the year.

So as Keith mentioned in his script we had very good results first quarter across the three regions. Actually in Americas they have the gross bookings since Q4 of '12 and as he said they had very good export bookings. And actually in the other two regions we exceeded both our growth in net bookings planned. So really good results in the quarter pipeline healthy, coverage ratios look good, conversion rates are up. So generally speaking sales engine is doing very well.

Keith D. Taylor

Yeah, Mike Charles had said to your question about performance across verticals. Good consistent performance again both regionally and vertically. I think particular strength as we've noted in the script and associated with the cloud opportunity and continuing the scale. Enterprise as we had said in the past little longer sales cycle we're really seeing some significant lighthouse wins continuing to see those and beginning to ramp and implement those in ways that are delivering the benefit to customers which we now intend to kind of repackage in the case study to push back out through both our direct channel and our partner channel that we think will accelerate that opportunity.

Pretty good solid performance across the verticals and across the regions and again really strong performance from a global perspective.

Michael Rollins - Citi Investment Research

And let me just follow-up with the second question. On the REIT side you said there wasn't an uptick on the PLR but have you learned anything new from your advisor or the process, is there any further details on timing or expectations that you may have that you could share with us this evening?

Stephen M. Smith

Well not allowed Mike but as Keith said in his script we're full speed ahead with all the system and process work to drive us towards that conversion of January 1, 2015. So as all of your probably saw over the last couple of weeks there was a good news with -- and CBS -- getting -- launch. And so with PLR starting to be issued that obviously is good to see that -- broken. But we don't have any specific update other than the IRS has informed us that it's actively working our PLR request and will respond in due course. So we don't expect as mentioned in the script any delay in the ruling on our PLR and we're full speed ahead towards 1-1-15.

Michael Rollins - Citi Investment Research

Thanks very much.

Operator

Our next question comes from Jonathan [inaudible]. Okay, sir you have an open line.

Unidentified Analyst

Thank you. Thanks for taking the question. Steve, I thought you did a great job of laying out sort of the density of the cloud platform that you are pulling together and how it could attract enterprises. We are hearing more and more about sort of the similar types of approaches from other folks and it seems like everyday somebody announces a connection to the platform or connection to AWS, and so I was wondering if maybe you could give us a little bit more perspective in terms of why somebody would be drawn to your cloud platform versus some of the others and then in terms of how you go in and get to the customers. Is this an outgoing call or is this sort of a responsive call in terms of putting out the offer to customers.

And then I did have one detail question, just to make sure I understand the linked in churn, it looks like it's about the bumped churn by 50 bps relative to MRR or the recurring revenue base, it's $2.5 million or $3 million worth of impact in the third quarter. Thanks.

Charles J. Meyers

Yeah, I'll start with the front part relative to the cloud opportunity, agreed there is a lot of energy in the market, I think that people are -- lot of enterprises looking to capture the benefits of the cloud and I think there are a lot of people chasing after that. But what is very clear is that hybrid cloud has emerged as the IT architecture of choice.

And I think specifically to your question as to how -- what we do is differentiated the reality is that in order to capture those benefits the geographical reach of our platform the network density of the platform, the cloud density that already exists inside our centers with the 1,200 plus cloud service providers and 450 plus pure play cloud providers represent a very unique value proposition in terms of being to access that cloud density, to be able to get to the right network providers across the globe that are needed to generate the global reach that these customers need, to reach their end users. So I think it's a very differentiated opportunity.

In terms of the go to market there is probably a ways we will go to market today, a strong focus on continuing to direct basis go after the light house accounts that we think are going to be the thought leaders in the industry and are really going to drive through incremental demand from others who are looking to follow their lead. So that's happening on a direct basis. And we do that both direct and from an outside and an inside perspective. So there is calling activity that we marry up with our field force for an inside outside type of approach which is pretty common in this type of go-to-market design.

And then we are beginning to ramp the channel and there are a lot of companies out there that have extensive reach into the enterprise and as we make these offers like network performance and cloud exchange more channel ready we will push those into those partners and there's simply no way that we are going to achieve the market penetration that we want in terms of reaching enterprises with 230 odd quota bearing heads across the globe and so ramping that channel up and putting the offers into the hands of partners is going to be credible.

So that is the first part now I will let Steve or Keith take over.

Stephen M. Smith

I'd add Jon to the question to what Charles said, I think he had it dead on but I'd add that one of the differentiators of the fact that we have an exchange platform deployed in 20 markets, almost 20 markets today. So other people are talking about building something, we are extending and enhancing our current Ethernet exchange fabric to just address this multi-cloud, multi-network feature requirement that we are starting to see.

So we are going to drive to a higher level of interoperability, we are going to have portals, we are going to have self-provisioning, we are going to have API development, so there is a lot of development going on underneath the requirements that we are getting from these big announcements that we are making. So the Verizon and the AT&Ts and the Microsoft and AWS requirements are driving us to develop a much higher level of capability that just doesn't exist in the market.

So I would tell you there is real differentiation because there is real capability out there today that we are just enhancing that doesn't exist with many of the other competitors. So Keith if you want to add…

Keith D. Taylor

And Jon then on the linked in just to give you a perspective, so in Q2 is going to add roughly 70 bps to the churn. So absent linked-on our churn would be roughly 2.3%. At least that's our estimate for this quarter. And so on an average basis for the year it would take the average from 2.5% per quarter as I said to roughly 2.3% per quarter. From a revenue perspective…

Unidentified Analyst

That's really helpful, thank you.

Stephen M. Smith

Okay. Good.

Operator

Okay. Our next question comes from Colby Synesael of Cowen and Company. Sir you have an open line.

Colby Synesael - Cowen and Company

Hi. Great. Actually I had two somewhat similar questions. As it relates to the cloud exchange is that technologically than your Internet or Ethernet exchanges or something out there that is just a rebranding effort. And then as part of that are you considering actually connecting your facilities not just within a region which I think you already did but actually from region-to-region to potentially have more of a distributed network architecture that some of those enterprises might want.

And then as it relates to LinkedIn and Keith sounds like you're going to say something out but I'd love to hear what that was but also just from a metrics perspective I was wondering if you could kind of us give us a sense how many cabs or cross connects we should think about so you can properly model this into our models? Thanks.

Stephen M. Smith

Yeah Colby I'll start and let others jump as well. The absolutely the cloud -- represents an incremental technology investment on our part and much more than expansion or rebranding. As Steve indicated essentially we're building off of the existing Ethernet and Internet exchanges by beginning to integrate those exchanges and have invest significantly in terms of ATI development to really allow for interoperability automated provisioning, circuit provisioning on a realtime basis et cetera.

So there is a lot of investment that goes in well beyond what we've in the Ethernet exchange platform. So we're excited about that and there are actually future extensions of the technology that we will look forward to sharing at our Analyst Day in June that will give you a better picture of things. So very exciting and now we're getting really great response from our customers already.

Charles J. Meyers

And Colby on the second part of your question. I was going to mention just dealing with the revenue aspect of LinkedIn, so as I said this is really going to affect us in Q3 not really much in Q2. So the impact of losing that piece of the business is roughly $4 million for the quarter and the Q3 quarter. Then on a range as it relates to sort of the cabinets think of it in the order of magnitude of sort of 500 to 600 cabinets but they were dense cabinets. And so when you look at it on a pricing basis it's relatively rich MRR for cabinet number over that 500 to 600 cabinets.

Now all those 500 to 600 cabinets I'd tell you that we've already ear marked replacement customers for all those cabinets, they have not billing yet, they have been identified and allotted the capacity but we've not yet provisioned or sold them out -- contraction. And again those are very high -- dense cabinets that we had deployed in LinkedIn.

Colby Synesael - Cowen and Company

And any cross connected impact on it that we should think about it?

Charles J. Meyers

To be quite open typically when you see a deployment of that magnitude is very typical to see much density from a cross connect perspective. There is certainly going to be some cross connect but if the on the margin inches it's not going to move in any direction.

Stephen M. Smith

Yeah that's right, it's empowered ends but not air connection done.

Colby Synesael - Cowen and Company

Great. Thank you.

Stephen M. Smith

I did miss one piece of your question Colby relative to connectivity inter region connectivity. All I'd say is that I think we actively are looking at how we continue to deliver connectivity between our assets in a way that's responsive to the customer need. And so obviously we look at that more or so at a metro level first and then within the region. But what we want to be able to do is make sure that as companies deploy with us on a global basis which by the way the script talked about 86 of our top 100 customers deployed across an average of 10 metros globally.

That means that what they want to do is deploy in a place that fits best with their needs but be able to gain access to the services, cloud service providers, networks et cetera that they need more globally. So that's going to require us to continue to assess our connectivity in our interconnection portfolio. But our initial focus is more on the metro and within the region.

Operator

Okay. Our next question comes from Mr. David Barden of Bank of America. Sir you have an open line.

David Barden - Bank of America Merrill Lynch

Hey guys. Thanks. So Keith I guess my first question is just on the guidance typically is but if I look at the midpoint of the second quarter revenue guidance and I added to the first quarter and then I subtracted from the full year guidance. The implication is that the third and fourth quarters will grow revenue assuming no currency changes about 15 million per quarter. Last year you had currency headwinds that were fairly strong and you grew revenue each quarter in the second half 18 million on average.

Are there any reasons to believe that your ability to generate revenue the second half of this year is currency neutral less than your ability to generate revenue in the second half of last year on a sequential basis? And then the second question if I could just kind of I know if touched on it couple every times. But I think may be Steve or Keith just generally speaking if you kind of looked for the soft spot and result it was North American cross connect slows down MRR is flat down on tiny amount the billable cabinets went down. And it just looks like basically North America didn’t grow in the first quarter.

So kind of can you read this that it is growing and that it will grow and little support kind of giving to your guidance for the year? Thanks.

Keith D. Taylor

Sure. So let me take the first part and David then I think Charles will step in and talk a bit about America that we can plan on accordingly. I think it's first it's important to know that when we strip or way all that sort of one else in the currency in Q1 we originally guided to roughly 2.1% at this point of guidance in Q1 2.1% growth rate coming at Q1 when you adjust for currency you adjust for sort of one of nature of you may have some custom fills order worked in the first quarter. We really adjust we grew by 2.6% , so when I think that and that includes the midpoint of that a Q2 guidance being 596 million.

When I adjust for currency I take out the impact of the Q1 custom sales orders recognize we’ll get some we still get some in Q2. We are going to go back to roughly by 2.7% that leads me than to grow we are going to go for the rest of the year and more to your point what’s your question.

Clear there is a couple of things number one we increased our guidance and then reflect to three things. Number one our currency was working on a favorite for $2 million to $7 million as you know. Secondly we had not paid in our performance in Q1 and so we took that to the bank in addition we had a three incremental million dollars per quarter for the later three quarters of our guidance period year. They give you $50 million and then commit for guidance this quarter. I want to note though we said this is going to be greater than 2395.

And so when you draw the relationship to how we are going to perform this year versus last year we are deploying if you will the same strategy we think we can do better than that with the one point that I want to make. When you think about the latter half of the year the second half of the year guidance it is going to be impacted by the link insured in it is going to happen one tail school. We get -the entire Q2 quarter of LinkedIn revenue but we will lose that benefits starting at the beginning of Q3 and so you feel that impact very much like Asia Pacific did with the large content -- that last time Q1 of last year so they sort of separate through that one.

So my general pointing is that we feel good about 23 then 2395 I think it reflects an opportunity to continue see some upper growth in the back half of the year despite what I’ve just said.

Charles J. Meyers

Yeah this is Charles I’ll take the question relative to the North American business. What I would say is that essentially if you look at the metric in the three you mentioned specifically are on cash billing cross connect adds and yields of cabinets. I think you are seeing a confluence of events that impact the measures and it really doesn’t reflect I think the health in trajectory the business overall. We are pretty we are very comfortable it is continuing to grow yield continues to be at very attractive levels. Casual filing as you see if you look at the external metrics tracking to see it's we had the same kind of phenomena a year ago where we had a debt of about an almost identical and debt of about a 100 cabinets.

And as we’ve said that and have said a number of time it's really a matter of the timing of installs and timing of turn that really make that metric a bit more valuable. So it's not something that we believe is a cause for concern, there is probably some effect there associated with some strategic wins that we’ve had towards the end of last year and in Q1 that are probably on slightly longer ramps that affects our book to bill a bit but again we don’t see it as a fundamental degradation of the house and format in trajectory of the business.

I mean relative to cross connect adds also very much a series of kind of one-time events, some known grooming that occurred and then specifically as we mentioned us having to move out of the suite in the now Google owned 1-11/A, which is a very inner connection dense facility and required a lot of migrations of customers to different suites, a process that is ongoing but if you take out those one-time events we are actually above the fourth quarter trend on cross connects for the Americas and again feel very good about that.

And you add to that our court volume which has accelerated extremely well over the last couple of quarters and we feel like there is a strength to the business there particularly on the interconnection side continues to be very good. Bookings were solid for the regional bookings and extremely strong for the exports. So again we are seeing good overall production from the team and we expect the Americas business to continue to be competitive and perform well.

David Barden - Bank of America Merrill Lynch

Great, thanks guys. Appreciate it.

Operator

Okay, our next question comes from Mr. Gray Powell of Wells Fargo. Sir, you have an open line.

Gray Powell - Wells Fargo

Great, thanks for taking the questions. Just a couple if I may. So on the passage you guys have put up some very good cloud customer case studies, like Four Square and Box. I am curious, do you see an increase in pace of demand from companies that grow up on the AWS, hit a certain maturity level and then co-locate with Equinix to improve performance. And then without getting too customer specific, how big can a cloud customer's deployment with you be, relative to their total infrastructure needs?

Stephen M. Smith

Why don't -- I will take the first cut at that and then you guys can jump in. Absolutely we see a trend towards customers that are attracted early on to the sort of variable costs trying to ramp the time to market benefit that public cloud implementation can offer. But typically those that begin to scale rapidly find two things, one that the economics of public cloud at a certain utilization levels begin to become sort of burdensome and substantially less attractive than going with full [pay model] and putting their own infrastructure in place.

And number two they struggle with the customization requirements or their ability to customize and respond to the evolution of their application in a public cloud environment. As a result almost inevitably what they move to is a hybrid cloud environment. They leverage, they continue to leverage the public cloud particularly for university type workloads or efforts where they are unsure about the growth or performance of an application and they often started out in public cloud and then move into a hybrid cloud environment.

So that's absolutely something that we see. We expected that trend will continue. And then relative to the size of the deployment it is -- I would say in fact we commented that our average size deployment in Equinix is coming down. And that is because people generally are going to one, even within a colocation or an owned infrastructure environment are moving to multi-tiered architectures and they would typically put their network nodes and their service nodes which are, where they need the network density application performance et cetera inside of Equinix facilities and then may locate larger footprints implementations elsewhere where they can get substantially more aggressive rates.

And then you combine that with moving beyond multi-tiered architectures into true hybrid cloud. And I would say that we are going to see more sort of small to mid-size implementations but we are going to see a couple of factors that go with that. One they are going to be multi-metro, multi-region and as we said that is very frequently 8, 10, 12, 15 locations globally, number one and number two they tend to be more inter-connection dense and therefore perform better from a yield per cabinet basis.

And so that's really the essence of our strategy that improves customer retention. It is really the strategy that we believe is going to allow us to continue to mitigate churn and grow both the top line and the bottom line.

Gray Powell - Wells Fargo

Got it, that's all.

Charles J. Meyers

Greg, I'd add one point to that, obviously I can't share with you our top customer activity but if you just look inside our top 10 customers half of those customers today are almost pure cloud type workload deployments and it's just -- and it's going to get bigger and bigger. So if you worry about EPS and how big can these deployments get about names of customers some of this -- from our biggest customers is almost peer related work load. So it is really shifting.

Gray Powell - Wells Fargo

Got it. Okay. That's very helpful. Thanks. Just a modeling question if I may. So if look at your footnotes and just back out great OpEx in 2013 and 2014 EBITDA guidance. Margins last year would have been just over 47% yet the footnote saying they guide for 2014 implies 48%, should we think about that a 48% as sort of a starting point when looking out into 2015?

Stephen M. Smith

I agree as we said on last call we actually we see ourselves -- back of the year we should be getting up to this sort of that level of margin. Recognizing obviously would -- two major programs by that point. I am just -- how the costs are going to fall in 2015 is probably a little bit premature but certainly gives you a pretty good indication of what we think we can do entering 2015. And so I feel pretty good about that level of guidance.

Gray Powell - Wells Fargo

Okay. Thank you very much.

Operator

Okay. Our next question comes from Mr. Frank Louthan of Raymond James. Sir you have an open line.

Frank Louthan IV - Raymond James

Great. Thank you. On the bookings can you quantify and give us an idea of kind of where they have been trending and where the upside was. And then looking at some of the non-recurring revenue a little bit higher and we're looking for it does that imply a kind of better growth from installed maybe later in the quarter that we should expect some revenue from how should we think about that trend?

Charles J. Meyers

Yeah -- I think we saw as I said earlier our bookings performance was pretty consistent. So it wasn't like we had pockets of weakness in particular really saw good pocket of strengthens we did see a continuation of the trend in terms of strength on the cloud side and we saw solid performance across the regions as Steve indicated. And again without giving detail we don't normally give we would just simply say that we delivered against our internal targets and felt very good about the bookings quarter overall.

And from an MRR perspective yeah we absolutely are seeing an interesting trend which is we've become we've tried to focus very much and saying look how can we meet the install requirements in some of the other custom -- requirements of our customers. As a way not only to capture that revenue but as a way to be a more holistic trusted advisor to those customers. And so we see it very much as win-win it is incremental revenue process but a less attractive margin than our normal MRR but nonetheless very strong from a contribution perspective and something that continues -- some improve our account position with the customers overall. So as we said it seems to be going very, very well and we see that continuing throughout calendar year.

Stephen M. Smith

If I could just add. I'd say that two regions that sort of benefited the most was the Americas roughly $- million of net benefit in the quarter that we recognized 50% of that would be I am sorry $1 million of that would have been in the Americas and roughly $2 million in Asia Pacific related to more specifically to Singapore environment. So that's where the sort of the $3 million uplifts had come. Again as Charles alluded to we tend to get lower margins on that type of business but it is very attractive business to us and that's reflected in our results.

Frank Louthan IV - Raymond James

Yeah. Thank you.

Operator

Okay. Our next question comes from Mr. Tim Horan of Oppenheimer. Sir you have an open line.

Timothy Horan - Oppenheimer & Company

Hi. Thanks guys. Two questions from me. Steve you alluded to the environment is really intense. Is the intensity increasing or do you think it will sort of decline a little bit what are you seeing from the open Ethernet exchanges -- at this point? And then I just want to follow-up on the cloud.

Stephen M. Smith

Could you repeat the first part of that question I didn't.

Timothy Horan - Oppenheimer & Company

Oh, sorry. Is the competitive intensity increasing or decreasing at this point has it peeked or you think it's the supply that's kind of hitting the market is that slowing down at this point?

Stephen M. Smith

Well certainly varies by region. We're significantly advantaged as you heard us talk about -- global requirement -- consistency. But the competitive intensity is heavy it's heavy in Europe, it's heavy in a metro certainly it's been more capacity that's come on board last two, three, four years. And so yeah we're competing for pretty much everything. But where you see a requirement, require multiple metro and multiple region types of port we start to find ourselves in significantly advantage. But I mean you have to go market by market to give you the competitive intensity texture it really varies market by market.

Timothy Horan - Oppenheimer & Company

Well then this is inverse or is it fairly stable.

Stephen M. Smith

Probably stable I think the big -- tab in the last couple of years and is predominantly wholesale and I think we talked about that as expensively over last several quarters around the larger footprints there is much more wholesale capacity out there. But the type of retail network mutual global capacity that we bring on to the market still has put us in a very, very good position for the type work we need mission critical global footprint connectivity type issues are I think we are still in a big advantage there.

Timothy Horan - Oppenheimer & Company

Thanks and then as sort of hope on clouds much for that looks like great opportunity. Two questions there one do you think there are going to be dozens of different cloud providers are going to want to connect to this exchange you know everyone talks about the top two or three. But what you are seeing out there from others? And secondly IEE and bunch of others are trying to work on cloud standards kind of standardize storage and then processing definitions to make things more interoperable. And are you going to try that will enable more standardization and more if your operability is it really just more focused on the network connectivity? Thanks.

Stephen M. Smith

Well Charles now take a quick at that. So on the standards certainly one of the requirements we are seeing out there is a requirement for common interfaces to drive the interoperability as you referred to it. So there is a clear opportunity for us with our cloud exchange to simply that interface for customers coming in with very complex requirements and we will do that to elute it to the earlier question that came out. And so yes there is there will be standardization driven not much different then we saw thirty years ago we went from mainframe to many and then we went to client serve and then we went to the desktop.

The next shift is cloud as a -- shift and there is going to be standards in common interfaces and methodologies and all kinds of things that are typical with the technology -on ships so yes and we will help associate that.

Charles J. Meyers

Yeah and like to hit on two other portions of your question. One I don’t there will be dozens I think there will be a 100’s cloud service providers in fact there are already as we said we have 450 plus service providers in our environment today. And the number of them they will in the evolution of our technology platform which you get we will share further in June is that we are going to have we are going to integrate them in a way that is going to allow access to all of those post to be after participate in the exchange. And if you look at even us as a relatively modest size air price we already today access over 40 cloud service providers and use them as part of our overall IT infrastructure be our own hybrid cloud.

And so we have talked to customers' larger enterprise customers global multinationals to literally count the number of product service providers they are already using in the 100s. So we think it's well beyond that and will be a multi 100s of providers that are involved and even a much larger number of participants. And then the other thing that you mentioned briefly but I talked about that with at some link in the last call entering some of the reasons as why we feel very comfortable with our position there.

And I guess what I would say is we continue to feel like we are highly differentiated. And if you look at the results in terms of the port volumes that we are driving through the pipeline I think the results are really big for them in terms of the competitiveness of that platform.

Timothy Horan - Oppenheimer & Company

Thank you.

Operator

Okay. And our next question comes from Mr. Jonathan Atkin of RBC Capital Markets. Sir you have an open line.

Jonathan Atkin - RBC Capital Markets

Thank you. So I do want to ask what’s driving the growth and exchange force is the customer profits is changing is the pricing driven are you repackaging the products and lot of it's predates to your cloud exchange announcement from this mornings. I am just interested in kind of the some of the moving parts there round the mix shifts. And then you had some bills leadership transitions in Germany and at China and I look I you kind of give us an update on what’s happening in those markets.

Stephen M. Smith

Always -- I’ll talk first relative to the Open IX not to the RIX force in that momentum there. Its combination factors really I think it's one the continued growth of the number of testing’s on that and the value prepositions that delivers to those customers. And as we have said before we continuously asses the pricing and of our products in the market and so there has been some adjustments pricing allows us to continue to be extremely competitive and I think just overall those are probably the key factors that have really driven that.

And I think there is a demand side in fact some demand side factors as well which is some of the evolution over the top and other things that are driving interconnection and connectivity requirements for both our actually just increasing the appetite for IT traffic exchange. And so there is a demand side phenomena we're meeting that up with continued investment in the platform as-well-as ensuring that we remain competitive from a price standpoint and that's really serving us well.

Charles J. Meyers

And on the second question particularly in Germany. We have a whole new team we're very stabilized in that market now we have new leadership country management level sales operations and in the finance part of the organization. So jobs – on that front I think this leadership team here has high expectations that, that business will get back on track record that what we've experienced in past years. So we're very stabilized there, very impressed with the new leadership team and it's heading in the right direction and had a very good quarter.

And then you asked about Shanghai we did put a new leader in Shanghai and he is just getting started but high hopes and – the executive growth in that market we're starting to see in the MNC activity pickup and we're actually starting to find some business in the local market there which was unexpected. So I think we have also high expectations that we will continue to scale that business.

Jonathan Atkin - RBC Capital Markets

Thank you.

Operator

Okay. Our final question comes from Mr. Simon Flannery of Morgan Stanley. Sir you have an open line.

Simon Flannery - Morgan Stanley

Great. Thanks a lot. Thanks for fitting me in. You talked about the BATS win again, can you give just give us some sense of what's that in Q1 or what's the timing and any sizing around that. And just generally on – headlines around the high frequency trading can you just drill down on your financial services segment how much is sort of electronic trading, how much is high frequency related? Thanks.

Stephen M. Smith

Yeah. Let me start and Charles then you may fill in some holes. On the BATS win, Simon significant wins for us as we mentioned in the comments today. The momentum has picked up around that deployment that's happening in our – campus. And we're starting to see BATS deploy, we're starting to see a lot of activity from customers that are going to connect into that. So it's really picked up the momentum particularly in the – campus. So big, big win for us with that assets.

On the high frequency front we're in a position given that we're servicing so many different clients and as you guys know we're up over 800 financial services clients of which I think a 150 or so are due to the exchange trading venues. We're significantly advantaged here because of the multiple asset classes and geographies and trading styles that we covered today with all the different client bases. So we're not suspect to any one part of that having regulation put in.

So we feel pretty good about that I think we're going to remain trading – so we're helping these companies not just take advantage of trading faster but trading smarter. That approach is definitely being successfully as we're seeing we're buffering ourselves so many downturn in any specific market instrument asset class or trading style. So we're in a good position there and the diversity of the client base is an advantage and quantitatively it's roughly 1% of our global revenue could be – as high frequency trading type on business. Very difficult to have full visibility of all the trading styles and we don't have any of them in our top 50 customer.

So it's very little impact to us at the end of day but we're working with all these companies to try to help them satisfy the requirements the regulations as they come down.

Simon Flannery - Morgan Stanley

That helps. Thanks.

Charles J. Meyers

Little more color on the timing of BATS. Well, all I'd say I give you more information then – will comfortable with the areas they are consolidation their infrastructure and they have noted that publicly. And as a result I think we're going to see sort of series of opportunities for momentum where we can continue to consolidate our parties into our ecosystem. And so we're seeing that now in sort of the first wave very have had some great wins already, the funnel is building nicely. And again it's one of the factors contributing to our confidence about the remainder of the year and our to the adjustment of our guidance.

Simon Flannery - Morgan Stanley

Thank you.

Katrina Rymill

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

Operator

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

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