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Executives

Jason Starr - Director of Investor Relation

Stephen M. Smith - President and Chief Executive Officer

Margie Backaus - Chief Business Officer

Keith Taylor - Chief Financial Officer

Analysts

Rod Ratliff - Stanford Group Company

Jonathan Schildkraut - Jefferies & Company

Tom Watts - Cowen & Co

Colby Synesael - Merriman Curhan Ford

Jonathan Atkin - RBC Capital Markets

Mike Rollins - Citigroup

Manuel Recarey - Kaufman Brothers

Mark Kelleher - Cannacord Adams

Chris Larsen - Credit Suisse First Boston

Sri Anantha - Oppenheimer & Co

Equinix Inc. (EQIX) Q2 2008 Earnings Call July 23, 2008 5:30 PM ET

Operator

Welcome and thank you for standing by. At this time all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections you may disconnect at this time

Now I would like to turn the meeting over to your host Mr. Jason Starr.

Jason Starr – Director of Investor Relation

Good afternoon and welcome to our Q2 2008 Results Conference Call. Before we get started, I would like to remind everyone that some of the statements that 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 the risks we identify in today's press release and those identified in our filings with the SEC, including our Form 10-K filed on February 27, 2008 and Form 10-Q filed on April 30, 2008. Equinix assumes no obligation and does not intend to update forward-looking statements made on this call.

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

With us today are Steve Smith, Equinix's Chief Executive Officer and President; Keith Taylor Equinix's Chief Financial Officer; and Margie Backus, Equinix's Chief Business Officer.

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

Stephen M. Smith - President and Chief Executive Officer

Thank you Jason and welcome to everyone and I am very happy to announce another outstanding quarter across the board for Equinix and Q2’08. As we passed the halfway point for the year we feel very good about how we are executing against our 2008 plan. The technology trends we have seen for sometime continue to fuel our growth across all regions. Growth of internet traffic increased power and cooling demand, enterprise outsourcing of data center space, as well as the shift to electronic trading and settlement in the financial service sectors its highlighting the importance of reliability and speed which is what Equinix’s services role about.

Underpinning the results we had another strong bookings performance across all of our region, we continue to see strength on our pipeline. With the recurring nature of our revenue models these results are strong booking with high confidence and the guidance we are providing for the full year. So let me hit the highlight for the quarter.

Total revenue for the company was a 172 million. This represents a 39% increase over same quarter last year organically which of course excludes our acquisitions in Europe, and a 9% increase sequentially. Cash flows margins were ahead of our expectations at 62% and 67%organically, due to stronger than expected revenue performance. EBITDA was 69.1 million up 11% sequentially, and ahead of expectations due to discretionary cost management, and up 64% over the previous year organically. Equinix closed a 144 new customers in the quarter, and key wins included the NASDAQ OMX, Chicago Board of Options Exchange, CSC, (Palmone) International, Real Networks, Knight Capital Group and Liquid Capital. We entered the quarter with 2090 customers. Just as a side note, this number excludes approximately 456 customers from the go through acquisition many of which are smaller demand name hosting customers.

In the US business remains strong in all fronts, with outstanding bookings and an increasing share of our growth coming out of the financial sector especially with important new wins such as the NASDAQ, OMX and the CBOE. These contributed to a significant increase in overall bookings from new customers this quarter, representing just over two times the level of new customer bookings in the previous quarter. We also saw continued strong bookings from the installed base representing over 70% of the overall US bookings.

Our results in Europe in the quarter continue to remain strong. We saw solid sequential growth of 12% which excludes the 1.4 million sales allowance adjustment last quarter. We will provide a further update on Europe later on the call.

In Asia, our revenues grew 13% sequentially with a continued strong bookings including new orders from some of our top US customers such as IBM. One other interesting point in Asia we are very pleased with our continued momentum in the interconnection market, as an example we signed a record 610 gig ports in the quarter along with the 25% increase sequentially in the number of cross connection booked. The value of our global reach was certainly evident again this quarter that we closed 34 across regional deals.

Finally, as you saw on todays press release Margie Backaus has a made a decision to transition out of the company towards the end of the year. Margie has been here for approximately nine years and is the key member of the leadership team and has made significant to our overall successful at that time. As many of you know Margie, she would like to speak to you directly about this decision and I think it’s important that she does that. Margie?

Margie Backaus – Chief Business Officer

Thanks Steve and hello everyone. I am sure that today's announcement about my decision to transition out of the company may come as a surprise to some of you. After nine years I have successfully accomplished what I came here to do, mainly be a part of the team that took Silicon Valley dreams and build it into multibillion dollar global market leader.

I am proud of my contribution to our success over the years, but personally its time for new challenge. Clearly the company is in a very strong position and my transition plan includes the completion of several important initiative including participating and finding my successor. After the transition I plan to take some time to recharge and pursue to new opportunity.

Finally I would like to say the one the most important thing to me in my time here has been the deep relationship I have build through the years with my team, our employees and our customers. These relationships have always been a big part of my passion for our business. In addition my work with our investors has been one of the most fulfilling roles with Equnix, I hope that my effort just help make our investors more informed about our business and our market opportunity, and importantly I developed new friendship with many of you which I always carry with me. I am sure I love speaking with many of you personally over the coming week. So with that let me turn over the back to Steve.

Stephen M. Smith - President and Chief Executive Officer

Thanks Margie, we are really going to miss your passion and knowledge of this business. We have great deal of respect for Margie and highly value her contribution to Equinix. We wish her nothing that the best that she makes with transition. I will now turn it over to Keith for a deeper review of the quarter and then I will comeback and spent some time discussing power, European update, quick review of our expansion activity and wrap things up with guidance. Over to you Keith?

Keith Taylor - Chief Financial Officer

Thanks, Steve and good afternoon. I’m pleased to provide you with our second quarter results with some additional perspective on the quarters performance against our expectations, also I will give some color on the key trends we look to the latter part of the year.

So let me first start with revenues. As Steve mentioned, our Q2 revenues grew 9% over the prior quarter to $172 million, slightly better than our initial expectations, the results of continued strong booking activity across all three regions. Approximately 38% of our revenues were earned in Europe and Asia Pacific. Unlike last quarter, changes in foreign currency had a relatively small negative impact on our revenues in the quarter.

Now looking specifically at US IBXs that opened in 2007 and the new DC 5 IBX in Silicon Valley expansion that opened up in Q2.

Demand and in particular booking activity was strong in all four of this market and the pricing trends remained consistent or better than our expectations. Revenues attributed to our DC four IBX which is opened in March of 2007 exited the quarter at almost 34 million of annualized revenues. We are on target to achieve the investment plan objectives for this IBX although sooner than expected. Revenues from our new IBXs in Chicago and New York which opened in Q4 of 2007 double to 6.3 million in the quarter, were approximately 29 million when annualized of our June exit rate.

We expect our Chicago and New York revenues to continue to accelerate in Q3 consistent with our strong booking and pipeline in these markets. Our success enabled both of these expansion IBXs to become cash flow positive by the end of the second quarter or within three quarter of opening, ahead of our original expectations.

Looking at churn. With our MRR and cabinet churn we are consistent with our targeted level of approximately 2% per quarter. We continue to expect churn to remain in our target range of 8% for the year. Our quarterly churn metric does reflect some proactive churn or optimization consistent with our efforts to stratify the customer into either network dense or high part IBXs dependent on the customers need.

Next moving on to gross profit and margins. The company recognized gross profit of 17 million for the quarter or gross margin of about 41%. Our cash gross margin was 62% greater than our expectations primarily due to continued strong revenue growth coupled with lower than expect real property tax and utility expense. Our US cash gross margin increased to 69% in the quarter.

Looking forward to Q3 and Q4, our utilities expense will increase in December prior years to reflect the higher seasonal summary and the expected increase of cost related to utility consumption in our key US market, whether in a regulated or unregulated market on a quarterly utility expansion continue to range between 12 and 14% of revenues. We expect our cash gross margin to approximate 61% throughout the remainder of the year, slightly above our initial expectation. This reflect continued strong revenue performance drive from high bookings levels in Q1 and Q2, partially offset by increase cost related the large number of expansion project across all three region, and higher than plan utility expenses.

Looking at revenue for cabinet on a weighted average basis excluding Europe, our average monthly recurring revenue per salable cabinet increase to 1,650 from 1,603 last quarter. We are up about 3% and up almost 8% compared to last year. This reflects continued strong bookings of our higher part cabinet, a continued increase in the amount of power and interconnection sold on average per cabinet and continued favorable pricing environment.

On a regional basis or weighted average price per salable cabinet in the US was 1,748 versus 1,693 in the prior quarter, a 3.2% quarter-over-quarter increase. In Asia Pacific, our weighted average price per salable cabinet was 1,261 an increase over the prior quarter level of 1,230 where 2.5% quarter-over-quarter increase. As mentioned on the last call we are seeing strong market pricing in each of our Asia Pacific market and continued strong growth of our interconnection services.

With respect to Europe our price levels remains strong in each of our market with selected improvement in current market pricing.

Now looking at our SG&A. SG&A for the quarter was 56.7 million, including stock based compensation and depreciation and amortization expenses of 15.8 and 4.1 million respectively. Our cash SG&A was 36.8 million over the quarter are slightly above 21% of revenues, consistent with our expectations. This includes about 1.5 million of cost related to our branding and IT project.

During the second half of the years we expect cash SG&A to grow slightly over the first half spending level as we continue to invest in our SG&A staffing levels or IT infrastructure on our global branding initiatives. Nonetheless, we expect our cash SG&A as a percentage of revenues to continue to decrease throughout 2008 to approximately 20% of revenues in Q4.

Moving on to net income and EBITDA. For the quarter we generated net income of 2.2 million which includes a net loss of 819,000 attributed to the virtue acquisition. Although our net income decreased over the prior quarter, we absorb some specific cost worthy of note. One, a discrete $3.1 million stock based compensation charge in the quarter related to the departure of our two (IHO) founders, a cost that was previously being amortized over 15 month. Two, a negative 3 million quarter-over-quarter swing primarily attributed to currency fluctuation as we remeasure our foreign denominated assets and liabilities. This negative change was offset impart by various currency hedges placed during the latter half of the quarter as we work to minimize future currency rate exposures. A $2.8 million increase in depreciation and amortization expense related to our new operational asset and find these for greater than one million of professional fees and other cost related to our IT initiatives.

With respect to interest expense during the quarter we entered a various interest rates swap arrangement, reflecting our view that both the US and EU interest rate have greater upside pressure then downside pressure. As a result 95% of our interest bearing debt obligations are now fixed at a weighted cash coupon rates of 4.65%. Therefore, as we look forward recognizing that our net results may fluctuate due to the timing of our depreciation and amortization expenses as we complete our additional construction project, we believe we can continue to increase our net income throughout the remainder of the year.

Our EBITDA was 69.1 million for the quarter and 96% year-over-year increase and up 11% over the prior quarter including 11.3 million of EBITDA in Europe. On an organic basis our year-over-year EBITDA increased by 64%.

Turning to our balance sheet, our balance sheet cash gross at the end of Q2, our unrestricted cash balances totaled 324.7 million, essentially no change over the prior quarter, despite the continued investment in our expansion IBX project. This cash balance along with our expected operating cash loans and the draw down of additional debt under our European and Asia-Pacific financing fully fund all of our announced expansion project including additional capital expenditure related to our New York Phase II project. Under the current years operating plan and forecast, including the announced expansion and updated views are ability being manage our working capital; we expect unrestricted cash balance to approximate 260 million at the end of 2008.

Next moving to operating cash flows. Our net cash generated from operating activities was 66.5 million for the quarter, again reflective of the expected correlation to our EBITDA results despite a large interest payments made during the quarter. We continue to remain focus on financing activities in each of our three regions which resulted in an improvement and our global DSO metric for the quarters to 33 days. While we manage the outlook cash related to our vendor obligations.

Looking at the remainder of the year, we expect our cash flows from operating activities to continue to scale over the growth and our EBITDA. Cash used for investing activities was 108.4 million for the quarter. During the quarter we spend 84.5 million on capital expenditures, lower than anticipated given the timing on certain projects. A capital allocated for these projects will be spent during the second half of the year. Also we reduced our accrued property and equipment balance by 23.2 million.

Cash generated from financing activities was 41.9 million for the quarter; primarily derive from the draw down of 35.6 million of fund from a Chicago construction loan and our European and Asia-Pacific financing line. In addition, we generated 12 million in proceeds from our employee stock plan, offset impart by 5.7 million use of funds to repay debt and other financing activities.

So now let me turn the call back to Steve.

Stephen Smith - President and Chief Executive Officer

Thanks Keith. I would like to take a few minutes provide you a brief update on several developments that many of you have been asking about. First, given market news about energy and power cost and its importance to our business, if I was worth spending a few moments here. As most of you are aware power has historically been the largest variable cost component of our business at approximately 13% of our revenues.

As a result, this has always been a high point of focus gross on our day-to-day execution. As we said in the past the large majority of our customer agreement including our high density power customers allow us to react the changes in our underlying cost structure with price increases. Of course we’re going to be smart about this and as we’ve done with any pricing crisis over the past several years. We will look at the total relationship with the customer across all of our market and make decision on a case-by-case basis. As an example of how we are managing this, we have recently raised list pricing for new power orders in selected US markets. As a company we spend a lot of kind actively managing this important cost component and we believe we have a thorough understanding of what it means to our business. An important takeaway is that we don’t see any energy cost negatively impacting our ability to deliver the objective as outlined in our cash gross margin and EBITDA target and our long term operating plan.

Now lets move on to an overall update on Europe. It’s now been over years since we announced the acquisition of Europe and our progress in this region continues to exceed our original expectations. The integration has progressed well and customer churn remains low. George is now on the ground fulltime joining the team and immersing himself into our opportunity there. We are pleased to announce that both our London 4 phase 2 and our Paris 2 expansions are now opened and seeing significant bookings in installation activity. We expect to see a significant ramp in revenue and EBITDA in these markets by year-end which would translate into strong contribution to our 2009 results in Europe.

Our remaining projects in Frankfurt and Amsterdam are on track for Q3 openings. The first phase of Frankfurt 2 expansion is already more than 2/3rd booked and our expansion in Amsterdam has a strong sales pipeline and we are anticipating a high reserve rate by the end of the quarter and its important new market. We’re also pleased with the progress in building our interconnection business in Europe. Relationships are in place with the major exchange in Amsterdam the MPEX and two exchanges in Germany, the (detex and the outex). Also we’ve re-launched our Swiss exchange with that of redundancy and new customer tools. I am pleased to announce that the mark is now in place with our links partnership as they’ve informed us their membership that they are expanding to our London 4 IBX while we complete the final agreement.

As we also announced today, we launched the Equinix Exchange Service in Paris with initial customers already under contract. With this progress, we can now provide interconnection and peering services to our customers at all five of the countries in the Europe that we operated.

Now just a quick note on expansions outside of Europe. Both our Q2 expansions in the Silicon Valley and the DC metro area are now open and customers installs have begun. All other expansion projects in the US and Asia remain on schedule. As you saw on today's release, we made a decision to move forward with New York 4 Phase 2 to support the significant demand we continue to experience with our financial exchange service. This will add approximately 1100 cabinets of capacity there with an increase level of power density to 5 kilowatts per cabinet.

As mentioned on our last call, we continue to expand this investment -- we expect this investment to be between 80 to 90 million in CapEx of which we expect approximately 50 million of this to be incurred in 2008. We expect this phase to be completed in Q2 of 2009.

Now shifting to guidance, as you saw on today's release we’re lifting our annual guidance. We now expect revenues to be in the range of $700 to $710 million, an increase of 12.5 million at the midpoint from our previous expectations. We now expect cash gross margin to be approximately 61%, with the high end of our previous range. Cash SG&A will be approximately a 148 million. We’re increasing our EBITDA expectations to now be in the range of 280 to 286 million, an increase of 8 million at the midpoint. We are increasing our 2008 CapEx guidance to 450 to 460 million which reflects the incremental 50 million for the second phase of our NY4 expansion, and 30 million of CapEx associated with our LA4 expansion IBX which was not previously included in our 2008 CapEx guidance. The LA4 project is still expected to total a 110 million. Ongoing CapEx remains at 60 million.

Now for the third quarter, revenues are expected to be in the range of a 180 to 184 million. Cash gross margins for the quarter are expected to be approximately 61%. Cash SG&A is expected to be approximately 38 million. EBITDA is expected to be in the range of 70 to 74 million. Total CapEx for the quarter is expected to be between a 125 and a 130 million which includes approximately a 100 to 105 million and expansion CapEx.

So as we began our planning activities for 2009, we continue to see a very strong opportunity to extend our market leadership. And as a result, we are broadening our leadership team to help us scale on a global basis. First with Eric Schwartz in his new role we have hired a very session leader name Mark Adams to lead our corporate development activity. Mark comes to us with over 20 years experience across various segments of the high-tech industry including key roles with McKenzie, GE Capital, Adaptec and most recently at electronic for imaging. Second we are near in completion of active search for a Chief Information Officer which will be a new global role in Equinix will oversee our IT infrastructure and applications on a worldwide basis.

Finally, we pleased to recognize that Dave, our Head of Engineer many of you had met at our analyst events has been promoted to Chief Technology Officer. In this important new role he will be responsible for developing the blueprint of the IBXs of the future evaluating the evolution of power and cooling technology, and ultimately ensuring that will remain leading edge for our customers next generation technology deployment.

With all this momentum and strong visibility we have into our customers demand, we continue to see a great opportunity in front of us. I have got several meetings with some of our key customers over the past few months and they have emphasize their desire for us to stay focus on our core business, provide them continuous growth while maintaining the highest levels of operational reliability.

At the end of the day to provide these levels of service its all about people and execution. The Equinix team has consistently demonstrated our ability to meet comments to our customers and our shareholders and you can expect this to continue to deliver both on a go for basis. So with that Jerry I think I would like to open it up for questions.

Question-And-Answer Session

Operator

Thank you. (Operator Instruction). Our first question comes from Rod Ratliff. Sir, your line is open.

Rod Ratliff

Thank you. Nice quarter guys.

Stephen Smith

Thanks Rod.

Rod Ratliff

Steve, would you give me kind of an update on how tight available space is in the more key markets? I mean I know we announced some more expansion plans today. But particularly New York, Chicago, Ashburn, Silicon Valley, and say Atlanta, how quickly could more space that’s not really kind of ready to go be up and ready for occupancy?

Stephen Smith

Well, I would tell you that varies market by market, but let's just -- let's start in the US market. And Rod, I think your question is of our announced expansion, how quickly are we do expect build rates to happen where we have to announce further expansion or…?

Rod Ratliff

Well, I guess what I am driving at here is, for instance, in New York forum, we were all there last fall that was a great big wall and a bunch of empty floor space that didn’t have any cabinets installed.

Stephen Smith

Yeah.

Rod Ratliff

That’s kind of where my mind is on the question?

Stephen Smith

Okay. Just as we announced, we are proceeding ahead with our next phase in New York and again that’s driven by the demand that we described here previously. So we will proceed ahead and it's got a heavy dose of financial services industry focus there.

Rod Ratliff

Sure.

Stephen Smith

And then again there is a third phase that’s available there as we told you from the get go.

Rod Ratliff

Right.

Stephen Smith

So in that market probably the highest demand we have seen in the US markets across the other five sites. Where In LA, we are in good shape because of the new builds that we’ve got going on in LA. Chicago, when we see the triggers that will cause us to do with New York will make that announcement for the next phase in Chicago. The DC market with five opening at the end of this month, we are in good shape in that market. And then as you -- Dallas, we pretty much made any decisions in Dallas to make any particular moves in Dallas at this point, but we have got with some recent term, we have got some opportunity to provide some space in that market.

Margie Backaus

Hey Rod, it's Margie.

Rod Ratliff

Hey Margie.

Margie Backaus

How are you doing? The other thing I would say is just as we look across all of those markets and the strength of the pipeline in those, as we continue to look at demand, what's applicable to addressable market for us and understanding the difference between the rebuilds that are now.

Rod Ratliff

Right.

Margie Backaus

What I would tell you is even with the demand discussions we are all having with customers right now and how that’s reflect in the pipeline, things are about as strong as they have ever been. I think you guys will continue to see announcements made by the REITs, made for wholesale build in some of our market. But again, we track those extremely closely and the majority of the capacity is coming on in these markets is mid '09 maybe, most of it now beginning of '10 and some of the funding for those I think remains somewhat questionable. So we continue to be very very happy with what we see as a big gap and find demand still in the markets we are in and I think the pipeline proves that out as we sit here today.

Rod Ratliff

Thanks. The Asia Pac price strength, is that more or less directly attributable to the interconnect uptake that you announced earlier and you seem to be pretty pleased with?

Stephen Smith

Rod, I would tell you that certainly that’s part of it, but the lion share of what we are seeing growth is really on spot pricing related to colocation. No different than what we have seen in the US and some markets in Europe, the supply, the amount of capacity in certain markets is does not nearly meet what's demanded from our customers and as a result the spot pricings moved up very very dramatically; in some cases 100% when you look back two years.

Rod Ratliff

One last housekeeping question before I stop hogging the call up here. Keith, given the uptick at the one-time stock comp charges that you guys booked in the second quarter. Can we expect stock comp levels to more or less revert to the sort of the previous guidance level?

Keith Taylor

Yeah, Rod that was a discreet $3.1 million adjustment just for the two founders of IX Europe that would have been spent over the next -- over a 15 month period as it stood. So from your perspective you can assume that it is going to decrease going forward.

Rod Ratliff

Great. Congrats again. Thanks a lot.

Keith Taylor

Thanks Rod.

Operator

Thank you. Our next question comes from Jonathan Schildkraut. Sir your line is open.

Jonathan Schildkraut

Great. Thank you for taking the questions. I only have a few, but I also wanted to express my gratitude to Margie in the five years that I have been covering Equinix, its been a great pleasure to work with you and you have been extremely helpful in getting to understand the story. So, thank you.

Margie Backaus

I appreciate that Jonathan.

Jonathan Schildkraut

A couple of quick questions here, Rod hit a few. It looks like in the Phase II in New York 4, it looks like less cabinets in the original phase, and I am wondering if does that mean Phase III which I guess was suppose to be a third of the building would also be about 1100 cabinets or is there something special on Phase II that we should know about?

Stephen Smith

I don’t think so, I think it's driven primarily by the higher density of cabinet footprints that we decided to go with the 5TW, it’s certainly an element of that Jonathan.

Jonathan Schildkraut

All right, great. Also when we think about the New York market, I guess the -- kind of think of back here though, the original Chicago facility opened up I think in 2003 about five years ago and I was wonder if you could give us a sense, because at that time I think you had two anchor tenants and I was wondering if you could give us a sense as to you know, your anticipation of maintaining those anchor tenants, we come to a five year anniversary and I think that they were five year contracts initially and what might happened to that space? So thanks.

Margie Backaus

Sure. This is Margie. Yeah I think in terms of the anchors we sell in NY2, you guys are all pretty much well aware of who those anchors are, it’s actually only one of them and then we had another anchor in NY4 that we announced as well. But I think overall that continues to be really strong customer for us and we don’t see any big changes in that relationship over time. I will tell you given the strength of that market and how quickly we saw the acceleration and demand in NY4, any space we would possibly get back in NY2 would be welcome at this point. I think New York does between New York 2 and New York 4 that is the common absolute hub and magnet for some of the matching engines and the exchanges two big once which we announced today, I am sure you took note of Jonathan. But I think that relationship with that customer remains extremely strong to this day. And I think like any big customer they are going to even flow based on their own infrastructure requirements and you know, any space we could get back and the building that are full their we certainly would welcome and we can build it up pretty readily right now.

Jonathan Schildkraut

Great. Final question, in the past Margie you tried to give us some sense as to the amount of traffic that was passing through your network and access point system maybe relative to a year ago, which kind of give us a sense as to and maybe an increasing importance of the Equinix data center in the underlying internet infrastructure. Can we get a similar type of metric?

Margie Backaus

Sure, yes well. Jason is looking for last year's, but I can give you the one right now, it’s 225 gig is what we saw in the quarter. The one thing I will tell you that I think is interesting going on as we continue to see nice adds from cross-connect is you know, as customers continue to buy, we sell 12, 10 gig ports in the quarter just to give you that stat as well. But as you will continue to see kind of people switching from necessarily putting traffic on ports to cross-connect, they don’t want -- that’s a good metric to look at year-over-year, but just understand that as customer continue to grow their traffic arcaded peers, but they often call that traffic often go to cross-connect. So just be aware of that and just take that as a directional number and not you know, completely depending on what's going on with the internet traffic.

Stephen Smith

Yeah Jonathan the traffic exchange last year Q2 ballpark was approximately 150 gigabits, and again that’s just a US and again would exclude any kind of traffic of the cross-connect and things like that.

Jonathan Schildkraut

All right. Thank you for taking the questions and thanks for the answers.

Jason Starr

Thanks Jonathan.

Operator

Our next question comes from Tom Watts. Sir your line is open.

Tom Watts

Congratulations everyone.

Stephen Smith

Thanks Tom.

Margie Backaus

Thanks Tom.

Tom Watts

What are the major real estate firms recently indicated that they were seeing I think as they praise fewer requests for data center space in the London market. And maybe you could just commented -- I will assume since the largest portion of your customers, large portion of your demand comes from your existing customers they wouldn’t be going through brokers, but maybe you could comment to what extent is that reflected different markets than you are looking at and could they be -- is there a divergence of two different segments of the market, one that perhaps is slowing or not picking space versus the one that you service continuing as strong?

Stephen Smith

Tom, I think the general difference is the debate or the representation of wholesale versus retail or you want to call it enterprise market. So as we have stated on previous calls, we continue to study the facts out there. A lot of the builds going on around the world including the markets you mentioned is heavily driven by wholesale builds that are catered to big enterprise deployments. And so we get looked at some of that stuff while a lot of those clients prospect to come to it, but our focus is still heavily focused on retail with a good mix of interconnection based clients. Occasionally, we are going to look at an enterprise deployment that makes sense but our orientation is a little different than just a big enterprise big block of power purchase like a wholesale enterprise client would be looking for so.

Margie Backaus

And just to put an explanation point on what Steve just said, I spent a lot of time talking to investors about that report when it came out. And I think the takeaway for us was that, yes it may absolutely be true that there is a slowdown in purely outsourced enterprise data centers as they preserve capital and turn to insourced data centers as they preserve capital and turn it to outsourcing and I think that’s really what we think continue to drive our growth in London. I mean for us there is absolutely no slowdown in London in terms of demand and/or pricing and so I think that’s what you are saying and I think that’s non unexpected.

Stephen Smith

The other aspect, Tom, could be a lot of our customers obviously deploy with us and also deployed inside of that type of facility for their server firms or that kind of business. So that’s not unlikely that you are going to -- big customers are going to use both of us for the type of support they need today.

Tom Watts

Okay. Then on a different topic. I think last quarter you mentioned that you'd seen record order growth of 12% if I recall. What would a comparable figure be for Q2?

Keith Taylor

Yeah, I am not sure. We don’t -- as you guys know, we don’t really sort of percentages around on order growth, but in the US market we had another record performance on bookings and very very strong performance in the other two regions. So we don’t really add much more color in that, Tom. But I would tell you that the pipeline and the bookings performance continues to exceed our expectation.

Tom Watts

Okay. Thanks very much.

Stephen Smith

Thanks Tom.

Operator

Our next question comes from Colby Synesael. Sir, your line is open.

Colby Synesael

Great, thank you. I had a few questions. One relates to expansion, you guys obviously mentioned a new one today. With future expansions those that you have already talked about and those that you haven’t necessarily announced yet, do you guys think that can you envision I guess maybe over the next year or two having to go back to the financial market to raise funding for those expansions or do you think that internally you are going to have enough cash flow to generate the cost of those? Also I wanted to get a little bit of an update on your view in terms of REIT status. Is that something that you guys think at some point you are going to pursue and have you guys done anything around that? And then final question on European growth. It looks like you decelerated from Q1 to Q2 versus Q1 to Q4 is that simply foreign currency or was there something else there?

Keith Taylor

So let me take your questions. First and foremost, as it relates to capital, clearly as you know we don’t really comment on any future financing, but I did try to articulate and at least in my prepared remarks that #1 between the cash that we have on the balance sheet, in fact you can draw a very tight line I believe today between operating cash flow and EBITDA plus the fact we still have capacity in our debt line. But we are in the position to fully fund not only what we have announced but there is also the opportunity to fund future expansion. Now clearly the proviso to that is that depending on how much expansion we do while we determine how much capital we need and -- but today I would tell you that we have sufficient capital to address what we have announced and some more.

As it relates to the REIT status, I think it's important to know that certainly something that we continue to think about, we have heard it from a number of the analyst communities and some of our investors and that will be something that we pursue, but we haven't spend a lot of energy over that matter in the last quarter. Then as it relates to Europe, there is a couple of interesting notes. Certainly when you look at Sterling European, have you certainly the impact on sterling and is that we had a slight decrease and negative impact in currency in the second quarter that was driven by offer guidance where currencies went on sterling basis. In addition we have the UBS onetime pick up in Q1 and so that, of course, that pick up wasn’t realizing in Q2. So when actually adjust revenues for those two items you’re effectively seeing good growth quarter-over-quarter, and we’ll also I will also tell you that we are – we’re constrained, we’re expanding quite aggressively in our European market, and in some cases we are constrained and because of that is going to influence our growth going forward. So we are going to very mindful on bringing those assets online as soon as we can.

Colby Synesael

Great thank you.

Operator

Our next question comes from Jonathan Atkin. Sir your line is open.

Jonathan Atkin

Hi, yes couple of questions. One is did you talked about strong booking trends on some of the cities on the continent in Europe, Amsterdam, Frankfurt and Paris specifically. And I wondered if there is any meaningful difference that you’re seeing in pricing levels amongst those markets as well as demand, also more probably curious which of your markets are seeing the most amount of incremental competitive supply including both wholesale and retail data centers that are being built out?

Keith Taylor

Jonathan – particularly anyone region or just in general?

Jonathan Atkin

In general, we have lot of questions.

Stephen Smith

Yeah, let me give you just some spot information in Europe, London I would tell you still is active and the thought is we have been signaling in the past, we have strong pricing in that market today, some of it driven by the fact was driving more business into our newer facilities that are higher density in London 4 versus London 2 or 3. So that’s helping a ship. In Germany versus the UK market or even the Swiss market its lower in absolute terms of pricing but its improving, France pricing is stable for us and we are seeing some growth there. In Switzerland much smaller market force, but it remain very stable and very high, and then of course, in Netherlands we’re just getting started and we’re -- so far what we’re seeing our price is inline with our price expectations. I guess in Asia market just very quickly still seeing good strength in the Tokyo market, we’re very focused on the inter in that market mostly in Hong Kong and Singapore more towards the financial services business, we’re seeing very good prices on new customers installation there. And in the US market, I think across the board I would say we’re pretty strong and most active in 4 or 5 those market out of the 6, and I wouldn’t say there is any trend that I am seeing Keith that I think will turned it up or down, I think we’re selling from new installations, we’ve had a big up tick and new customers which again I think is another indication of the market desire for this kind of business model with the amount of new customers that are looking at its type of offering, so we are very strong in that new customer pricing.

Keith Taylor

John?

Jonathan Atkin

That’s okay.

Keith Taylor

Sorry just back to sort of a, partially to answer your second question, when the release to supply and I think Margie alluded to it earlier on, we’re not – we still feel we’re in a market where there is insufficient supply to meet the demand and so, we are not feeling any particular any great pressure in any given market, but we do recognize in some cases that there is new supply coming on with our general message to the investor basis that we’re are not seeing in a meaningful way that it's causing us to have any concerned over our booking trend hope for that matter our pipeline, and a result we’re continuing to martial forward as we have anticipated.

Jonathan Atkin

Okay and then as the Steve mention the uptick in new customers can you refresh us on where you are for the quarter on the breakout of incremental revenue that came from new versus existing customers? And then may be comment a little bit on how many of your winds where multiside or even reached across the various regions? And then who are you displacing when you sign on these new logos, are you displacing another provider data center space or is it usually an internal resource or is it just expansion needs that you’re meeting when you make these sales?

Keith Taylor

Well the first point I would tell you that roughly 70% of our new booking activity came from installed based. So slightly, a slight decrease of where we where before, but it really drive at these point home that Steve made there is a 144 new customers across all of our market that came into the Equinix side. So from that prospective we are extremely pleased, when I look at absolute dollars, so what we book from existing customers this quarter versus last customer, its effectively the same. So, as Steve said we’ve had another great quarter of bookings and in absolute dollar basis we’re seeing the same level come from the new installed basis. And from on if you talk about new customers that came in to the business the 144 new customers we had on bookings, about a third of those came from share shift. So coming out of other kind of retail providers, and about two-thirds came of new. The one note o would make is of those new customers we had a couple of very significant wins that we want against tough competitors at prices premium to their offering. So I think that continuous to show the overall strength, the value proposition of those customers.

Jonathan Atkin

Can you talk about the trend on multi sides as a mix or the single site win that you mostly were starting on at least initially the new bookings?

Keith Taylor

For new bookings I think its probably mostly single site of your kind of percentage, to kind of percentage, but I don’t know if we would look at that. But I can tell you I think last quarter we were 10 deals of across regional and I think that step up significant as I mentioned in my remark. So we are seeing multi region, multisite deployment from a lot of these multinational customer, and I think it’s again, it’s another statement in support of wanting and needing to be serviced on a global basis.

Stephen Smith

And Jonathan typically what happen as you could appreciate, what’s the customer install, part of the reason that we get such a large up tick on a go forward from a installed base, is that customers buying new services either than existing IBX or they moving with this geographically or internationally, and so, that’s where we get benefits. So its not typical -- its not say we don’t get, but it does not typically get multisite deployment from the (Inaudible).

Jonathan Atkin

Right, thanks very much.

Operator

Thank you and your next question comes from Mike Rollins, sir your line is open.

Michael Rollins

Hi good afternoon

Keith Taylor

Hi mike.

Stephen Smith

Hi mike.

Michael Rollins

Just couple of questions, I guess I will give you one a time to make it easier. First, I was just wondering if you give us some numbers around the Tokyo and Singapore revenue, over the last couple of quarters you’ve given some disclosers on that, I was wondering if there was an update on that front in terms of the new centers that you’ve launched?

Stephen Smith

Concerning just as the phases you’re referring to Mike.

Michael Rollins

Yea, I think last quarter I think you may have mentioned that it was may be $2.2 million of revenue, let me double check as well from this new center, I was just wondering how they’re doing relative to the Asia portfolio?

Jason Starr

Yeah Mike this is Jason, we put some update on the expansion sheet on the website, yeah, we typically don’t breakout revenues per new site, I don’t know what Keith put in his prepared remarks on actual rates and things like that some of the new than more of the US site.

Margie Backaus

But anecdotally totally they’re both doing outstandingly well in terms of installed and booking rates in to those centers.

Michael Rollins

Thanks second question on Europe, I was just wondering if you can give us, I know you gave a lot of context around what was happening in Europe around some foreign exchange and as well as where you are in some of the country. Can you tell us, I think back in the fourth quarter you gave us a statistic about what percent of the revenue capacity is currently booked in Europe, can you give us an update on that front, and within that contact is there a specific dollar number that we should be thinking about in terms of the revenue impact from FX in the second quarter?

Stephen Smith

Yeah, let me deal with the second question first if I may. Number one, I did mentioned that it was relatively insignificant impact to revenue from currency movement relative to our guidance. And having said that the size is for you, it was probably, roughly a negative $200, 000 impact in the quarter related currency, by was there was two primary currency that went against this or depreciated relatively to the US dollar that being sterling and Japanese end. Euro spent a little bit in the quarter as did the Australian dollar. So from that prospective when I looked at the basket of currencies relative to what we guided that was the relatively modest and then significant impact. As you go to sizing of the European footprint, we add a point that is relatively consistent across all of our markets, we’re almost in the range 80% contracted. If they look at a little bit differently in Europe then we do in the US because of the install base, it is roughly an 18% contracted.

Having said that we used to size that it was a 160 to 170 million in 2008 related to the European revenues, I would tell you today that that numbers increase quite significantly in part because of the virtue acquisition and in part just because of momentum that we’re seeing in the European market and I will take today up to 170 to 180. And then just focusing on the US for a moment you saw in the quarter, if you look at colocation revenue per average cabinet, does that colocation revenue per cabinet accelerated significantly in the second quarter. And I was wondering if you could talk a little bit about whether that was pricing, whether its was just customer install is being completed and how should we think about the mix over the second half of the year between pricing and volume.

Keith Taylor

Mike, and I just want to clarify. Are you referring just to the European market or the entire market?

Michael Rollins

I am sorry in the US portfolio, just taking colocation piece?

Stephen Smith

Yeah, I will tell you there is couple of things, clearly as you know, a lot of the new assets that were brought online are what we call high priority or higher service assets and as a result we are charging 1800 to $2200 per cabinet. So we have seen a great uptick in DC and DC of course a perfect example of that where we are reaching our capacity level, we actually did in Q2 at 34 million of annualized off of that asset. So it gives you sense that we are seeing great moment there. We have certainly seen great moment in our New York 4 Phase I asset. So we are getting the benefit of higher priority assets selling into the market. Clearly the customers are continuing to buy interconnection services or more interconnection services on average per cabinet. So that’s benefiting us as well. And then just generally speaking the pricing trend we have not seen any -- just as per se we see pricing firm or better than we expected. And as a result our price points have continued to rise on average per cabinet.

Michael Rollins

And then just a last question for you is on Los Angeles, you talked about the acceleration in CapEx into '08 from what was originally planned for 2009, is that being demand driven to launch this center sooner or there are other factors driving this shift in CapEx into '08 from 2009?

Stephen Smith

What we did Mike, one of the things when we originally launched the new -- the Los Angeles 4 project, we originally said roughly 20% would be spent in '07 and 80% in '08. We didn’t -- because of the delay related to the environmental permitting, we really didn’t update the guidance. But to give you a sense of what happened, so starting in 2008 we feel a lot closer you know, we feel closer to being able to launch the construction activities in Los Angeles, we originally had $43 million of CapEx attributed to that project for 2008. We are now increasing that to 73 million, hence the $30 million increase and we are keeping the project size still at a 110 million. Essentially what we are saying is 73 million will be spent this year's 37 million will spent next year. We as a company certainly are trying to accelerate as much as we can. As you know, we did delay project. So we are going to try and bring as much of this project online or we are going to spend as much of this project as we can in 2008 in anticipation of opening it as soon as we can.

Michael Rollins

Great. Thank you for all the details.

Keith Taylor

Thanks.

Stephen Smith

Thanks Mike.

Operator

The next question comes from Manuel Recarey. Sir your line is open.

Manuel Recarey

Thanks and good luck Margie what you have next endeavor is.

Margi Backaus

Thank you very much.

Manuel Recarey

Two quick questions and most of mine have been answered. You had spoken about I think it was on 70% of the incremental came from existing customer which is the step down. As we look forward do you expect that to kind of be more of the trend of do you expect to reversal back to the 80 plus percent?

Stephen Smith

Yeah, I mean I don’t know what if we could have enough quarters looking back on a trend. I think the good sign of that is to get a lot more new customer demand showing up, it’s testimonial to the pressures going on inside the company today with CapEx and data centers becoming absolute, everything revolving, reading about from a trend standpoint, you know, I think we will stay somewhere in between that 70s to the 80, 85% on existing, it will probably fluctuate back and forth.

Manuel Recarey

Okay, but its definitely great, that’s a good time. And then Marg you made a comment about as you look even to new capacity or other new capacity coming on in like late '09 or 2010, you kind of suspect about the financing of that, are you seeing actual push back or is it just you know, kind of looking at the companies and their outlook?

Margie Backaus

Yeah, the project that were suppose to start coming online, they are literally if you drive by this project they are not yet shoveled on the ground, so that tells you either something has gone wrong in their construction plan or the stuff just not get funded and I would tell you its probably will be based on everything we hear. So there is solid evidence of that as we are pretty close to what's going on the supply side on the city by city basis.

Manuel Recarey

Okay, thanks.

Margie Backaus

Thank you.

Keith Taylor

Thanks Manuel.

Operator

Make sure is this Mark Kelleher?

Mark Kelleher

Yes.

Operator

Okay. Your line is open sir.

Mark Kelleher

Thank you. Most of my questions have been asked and answered. But just going back to the build out in the US. There is 1,700 cabinets in LA 4 and 1,100 in New York 4 coming online around June of next year, is that right?

Stephen Smith

Q2 '09.

Mark Kelleher

Right. In the Q2 timeframe. Can you tell us what the build out -- how many cabinets in the US are coming online per quarter between now and then not counting those two buildings?

Stephen Smith

Yes. If we look, there is a spreadsheet also for everybody on the website. What's remaining in the US, as you got, LA 4 come online in Q2 of '09 and Europe 4 Phase II come online of Q2 of '09 as well.

Mark Kelleher

Okay.

Keith Taylor

And that’s gets to total 2,800 cabinets in the US.

Mark Kelleher

Okay.

Stephen Smith

And then of course there is room in the second phase of LA 4 and also New York 4 for an incremental expansion too, some of the demand continues.

Mark Kelleher

Okay. And DC 5 as well?

Stephen Smith

DC 5 building now.

Mark Kelleher

Right. Okay.

Stephen Smith

Silicon Valley 2 Phase II. And the US is just two projects that will come online between now and Q2 of 2009 and certainly as you know we have got -- we have on the investor website the activity across all of the three regions. There will be more capacity coming online both in Asia Pacific and in our European markets.

Mark Kelleher

Okay. That’s all I have. Thanks.

Stephen Smith

Thank you.

Operator

Our next question comes from Chris Larsen. Sir, your line is open.

Chris Larsen

Thanks and I also did want to say thank you Margie and wish you the best of luck in future.

Margie Backaus

Thanks Chris.

Chris Larsen

Yeah. A couple of things, one of the questions, you mentioned a lot about financial services and the strong demand. We are all watching the they have been highly attuned to the issues going on there. Is there any sort of weakness or change in demand that you have seen over the last couple of weeks that would suggest that the five serve areas pull back at all? And then secondly on the New York 4 Phase II, is there any thought to perhaps bringing on Phases II and III at the same time, would there be a cost benefit and/or it seems like you may possibly run out of space in Phase I before Phase II comes online. Is there any thought in accelerating Phase III to get that online as Phase II comes online and is there an impact to sales and not having to the sales people of not having a product to sale? And then if I listen to what you talked about the one-time oriented adjustments, as I look at the EBITDA figure for this quarter, it almost seems that on above the non cash line actually that EBITDA would have been $1 million higher had it not been for all those one-time things, some of them netting out and the only one being 1 million negative against you. Is that right? Thanks.

Keith Taylor

Okay.

Stephen Smith

I would tell you Chris on the financial services segment and of course I think as we have signaled inside of that a subsegment with the trading systems we are having a lot of success and there is a lot of activity there. So it's an ecosystem that looks a lot like the core ecosystem that runs underneath our interconnection business. So I think from that standpoint we are seeing a lot of activity, but in some big markets where big financial institutions are like Hong Kong and London and Frankfurt and Singapore, we are also seeing just general demand from them still. So from our perspective no let up in demand in that segment, no signals really at all. You are very hindsight from the New York 4 situation and I would tell you, yes there is a benefit to putting two phases together from a cost standpoint, from a sales standpoint and probably from a further standpoint. So I would tell you to stay tuned. We are looking at that very very closely and it's a high demand market and we are studying it.

Keith Taylor

Then Chris, as it related to your question just on EBITDA, clearly we have been investing fairly heavily in Q2 relative to Q1 in a number of different areas. But the one item that we did call out specifically was the IT and some branding and so we have spent more money than we originally anticipated and it's also fair to say in Q1 without getting into the smaller tune growth, there was a roughly $1.4 million benefit attributed to the reserve reversal in Q1 and that impact is as well as you look Q2 back to Q1.

Chris Larsen

Great and thank you very much.

Keith Taylor

Great. Thanks.

Margie Backaus

Thanks Chris.

Operator

Thank you and our last question for today’s conference comes from Sri Anantha, sir your line is open.

Srinivas Anantha

Yeah, thank you and good afternoon. Couple of questions. Steve, I know you talked about pretty strong demand you haven’t seen any led up in bookings or anything. Given the overall micro concerns could you just talk about what is driving the demand if you just company just outsourcing the data center state by just taking that existing IT infrastructure in housing just moving it to you. And also, what is the driving the demand from your existing customer base, I know, you talked about incremental bookings about 70% coming from income existing base. The second one is you also talked about raising prices could you just provide a percentage what exactly was that? And if you look this report the increase associated with power what was the raise in price. And also if you could talk about the utilization of powerful cabinet during the past two years how much has that increased and to what extent are you guys able to pass on that incremental cost. And the last one I know on the capital intensity and I know you guys raise CapEx again in response to incremental demand I think which is pretty good, but just being advocate like if some of the date center that you guys constructed like four years ago, five years ago, do you have reasons for you guys to go back in those data center given the higher power needs or is that reason that you might have to shutdown those data centers? Thanks.

Stephen Smith

Well those are bunch of good questions Sri. Let me just tackle couple here, maybe Keith can chime in, on the demand side the drivers really haven’t changed they range from the broadband growth to the video to the power and cooling going demand, a CapEx constraint with CIO offices on sub pushing into total this model. So I think the demand drivers, internet growth, server growth, storage rate growth all the stuff you think about that we put together in the datacenters there is just no led up in any those circle everything is up into rights. So we feel pretty confident that everything we’re seeing across market given us a lot of demand, given us the support to do the supply decision we’re making. In terms or raising prices, I think we did signal that on the power front with the pressure is on there, we have in select market from US raise less prices. In a couple of one area particular on circuits and so, we also have some new customers installation, and so, we’ve made a decision there, but we’re spending quite a bit of time looking at the power situations for the weekend. We can act accordingly with our customers and as I said we will do that on a case-by-case basis.

Keith Taylor

Power. So power clearly a Sri as you know we are not building our data centers to 4kb, or greater than what the second phase of New York portion the 5kw per cabinite. So clearly the demand, the average demand per cabinet today is going up quite sizably. We don’t track its specifically, although we do have some averages, it is clear to us that basically that demand is going up those dramatically and hence we are building that capacity. What also is important to note that is just when we think about our historical assets and the amount power we put into those assets it was a roughly a 2.2 kw cabinet. And as you might recall we went from physical cabinet to scalable cabinet and the primary reason for that was customers were preparing more power on average per cabinet today then they were historically.

Having said that though, when I look at our older data centers we cant go back and retrofit. And so its important to know that secondly our older data centers are the one that are more network sense, they can ask what they are on stratifying with customer base. Clearly from our perspective we want to take the higher power using customers and putting them into our new centers and keep the more network dense customers for the older site. Those older sites are most profitable IBX from our prospective I wouldn’t expect that you use too see any write-off of that anytime soon.

Margie Backaus

Yeah just added that something really important Keith just said is, I think versus some other centers that are out there that are non ethnic centers, our legacy center that Keith said have become very strategic to our network customers, what’s important about that is those are DC power using customer. You cant do augment to DC power and we have done some, we’ve done some significant augmentation with DC power across our base in the US. So that is something we are able to take advantage of. So as network and our content customers who are doing impairing acquisition in those legacy price continue to grow in those legacy side, equipments generally that’s in there is not changing and so, these are generally lower power customers and they have to be in that building for very strategic reason. So I think we’re – Equinix is in short contrast to other people who have older assets that don’t have that strategic nature to those, that’s a little bit older and that’s really important.

Keith Taylor

I am not sure to answer of your specific question on this price increase, but a penny order banc for the 15% on the select.

Srinivas Anantha

Got it. One quick clarification on this power utilization, what I am trying to arrive is lets say, if I am a customer within your data center like two years ago, if I was utilizing lets say, 40% of the power that was available per cabinet, what I am I using today is that, that 40% increase was 60% or that 40% increase to 50% per hedge across your footprint?

Stephen Smith

It’s certainly clear to say that customers are using more power today then they were historically, but it’s not a number that we disclosed.

Srinivas Anantha

Great, thanks a lot guys and best wishes and good luck Margie, it’s been a pleasure to work with you too.

Margie Backaus

Thanks very much Reid.

Stephen Smith

Thanks Reid.

Keith Taylor

Thank Reid.

Stephen Smith

Thanks everybody else for joining the conference call today, this concludes the call and we will talk soon. Thank you.

Operator

Thank you for attendant and participating in today’s conference, this has concluded you may disconnect at this time and have a nice evening.

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