Equinix Inc (EQIX) — Q3 2018 Earnings Call Transcript

Thank you. Good afternoon, and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and 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 26, 2018, and 10-Q filed on August 8, 2018. 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 exclusive public disclosure. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We've made available on our IR page of the website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about Equinix on the IR page from time to time and encourage you to check our website regularly for the most current available information. With us today are Charles Meyers, Equinix's CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call within an hour, we'd like to ask these analysts to limit any follow-on questions to just one. At this time, I'll turn the call over to Charles.

Thanks, Katrina. Good afternoon and welcome to our third quarter earnings call. I am privileged to host my first call today as CEO and I feel honored to lead the incredible team of nearly 8,000 dedicated Equinix employees around the globe in service to each other, to our customers, and to our shareholders. I am as excited as ever about the role we play in helping customers drive their digital transformation agenda and about the value creation opportunity this represents for our investors. Having been part of the leadership team at Equinix for the past eight years, I am extremely proud of our track record of success. We have more than quadrupled the size of our business since 2010, have now deployed over $22 billion of capital across the globe to build the world's leading interconnection platform, and we are rapidly emerging as the trusted center of a cloud-first world. As stewards of some of the most important digital infrastructure in the world, our priority is and will remain delivering exceptional, durable, and quantifiable value to our customers. In doing so, we believe we can sustain a demonstrably superior business model, which will in turn deliver outsized returns for our shareholders. I'm fortunate to build further on this strong foundation, and as a global team, we will certainly remain focused on extending our core sources of differentiation: superior global reach, market-leading network and cloud density, the industry's most comprehensive interconnection portfolio, scaled digital ecosystems, and an unwavering commitment to service excellence. But I also recognize that we must continue to adapt and evolve in response to the rapidly changing needs of our market. We will continue to refine our priorities for the business as we shape our operating plan and prepare to update you on our 2019 guidance early next year. However, I want to outline six immediate priorities that are worth noting as central elements of our go-forward agenda. First, we will expand our go-to-market engine, investing behind the significant momentum we have, helping customers implement hybrid and multi-cloud as their architecture of choice. Second, we'll evolve our capabilities and product portfolio to make Equinix a more powerful, easier to use, and more accessible platform to drive digital transformation, delivering new services that will help us sustain and enhance cabinet yields over the coming years. Third, we will look to more deeply engage a shortlist of high-priority partners that we believe can substantially extend our solution and amplify our go-to-market reach. Fourth, we will significantly sharpen our focus on driving increased operating leverage to enable investments in the business, drive long-term margin expansion, and fuel AFFO per share. Fifth, we'll focus on delivering against our HIT strategy, allowing us to advance our global leadership in the cloud ecosystem while reducing strain on our balance sheet. And finally, and most importantly, we will continue to invest in our people and our culture as the primary engine behind our sustained performance. As we execute against these priorities, we will be appropriately sensitive to near-term results, but our focus, as it always has been, will remain firmly on the creation of sustainable long-term value, and as appropriate, we will not shy away from investments in the business when we are confident that those investments will generate an outsized return. With this in mind, I'm excited to share our strong operating results for Q3. We had a great third quarter with revenues and adjusted EBITDA above the top end of our guidance ranges, reflecting the continued execution of our strategy and the growth of our interconnection platform. As depicted on slide 3, revenues were $1.284 billion, up 9% over the same quarter last year. Adjusted EBITDA was 7% above our guidance due to lower integration costs and timing of spend, and AFFO was ahead of our expectations. These growth rates are on a normalized and constant currency basis. Bookings were strong across the regions with a record in APAC and particularly robust growth in the cloud and content verticals. Interconnection revenues continued to outpace colocation, growing at 13% year-over-year. Our metrics across the interconnection counts, billable cabinets, and MRR per Cab were all healthy this quarter and reflect solid execution of our strategy. We also saw substantial progress with our three latest acquisitions, Infomart, Metronode, and Verizon, all of which are tracking well against our expectations. For Metronode, we're building further in Sydney and Melbourne as well as our new Metro in Perth, which has seen increased interest from cloud service providers and multinationals. For Infomart Dallas, we continue to refine our long-term master plan for the Infomart location including our final phase of Dallas 6. And finally, for Verizon, we opened new capacity in five key markets including our marquee asset, the NAP of the Americas in Miami, the government-focused campus of Culpeper as well as new capacity in Denver, Houston, and São Paulo. The strong pipeline for these locations combined with focused churn management gives us confidence that the Verizon assets will return to growth next year. Now, let me make a few comments on our organic development activity. We are actively investing capital with 30 expansion projects underway across 21 of our markets in response to customer demand. In the third quarter, we opened nine builds across Frankfurt, Miami, Rio de Janeiro, and Singapore. Greater than 80% of current expansion project CapEx is allocated to metros, each generating over $100 million in revenues. These markets are well-established campuses that drive predictable fill rates and high levels of interconnection. With respect to our Hyperscale Infrastructure Team or HIT, we're seeing continued momentum and a strong pipeline as we design and build initial capacity, expand our team and work to finalize our financing structures, which have generated tremendous interest, and which we expect to have in place by early next year. In parallel, we're adding capacity in hybrid facilities such as London 9 and 10 to capture early wins and maintain momentum. We will open our first dedicated HIT facility, Paris 8, early next year and have seen strong pre-leasing with key cloud customers. Shifting to interconnection, our global interconnection platform is powering digital transformation for nearly 10,000 customers around the world, and we see continued adoption across our market-leading portfolio. We now have over 294,000 cross-connects with healthy net adds despite some pressure from 100-gig migrations. Virtual connections had strong adds in the quarter that we now have over 13,000 virtual connections on our ECX Fabric, supporting more than 1,300 customers. ECX Fabric functionality supports secure, high-speed connections not only to cloud service providers but between any customer on Platform Equinix, solving for a variety of IT consumption use cases. We will expand the ECX Fabric to include full inter-regional connectivity early next year. Our Internet Exchange platform also saw continued momentum with peak traffic up over 40% year-over-year. This quarter, we launched new internet exchanges in Bogotá and Amsterdam and now operate this service in 34 markets globally. Now, let me cover highlights from our verticals. Our network vertical captured record new logos as regional carriers extend their global reach to support infrastructure at the edge, augmented by solid bookings from wireless operators and cable providers. Expansions included a Global 2000 Chinese telecom operator expanding their footprint in Europe to support hyperscale requirements and a Fortune 500 telecom provider upgrading to 100-gig to better serve enterprise customers. Our financial services vertical saw broad strength led by banking, insurance, and capital markets. New wins included Navy Federal Credit Union moving infrastructure to improve data management and a top 10 global stock exchange deploying with Equinix to securely access our expansive financial ecosystem. In content and digital media, we saw record bookings led by APAC, as digital transformation continues to accelerate. Customer expansions included several high-profile wins, including both Alibaba and Tencent. Our cloud and IT vertical produced strong bookings led by Hyperscaler demand in APAC and a rapid increase in participants on ECX Fabric globally. We continue to enjoy new logo wins in this space as well, including infrastructure providers BuildCloud and TechFlow Services. The enterprise vertical continues to be our fastest growing vertical, recording strong bookings in new logo capture. We're seeing diversified growth across multiple sub-segments led this quarter by manufacturing, healthcare, and travel, demonstrating the relevance and flexibility of interconnection-oriented architectures to any type of firm undertaking digital transformation. New wins included Lenovo transforming network topology and localizing traffic to improve performance, a Fortune 100 airline transforming supply chain management, and a multinational oilfield services company connecting to the cloud via Platform Equinix. Channel sales had another strong quarter, again contributing more than 20% of bookings and over 40% of our new logos, as partners like AT&T, Telstra, Microsoft, and NetApp all mobilized their extensive go-to-market power to help extend our enterprise reach. New channel wins this quarter included a digital wealth management as a service provider that we jointly targeted with Orange Business Services winning the opportunity to provide the platform for their private cloud infrastructure in 12 countries worldwide. Now, let me turn the call over to Keith to cover the results for the quarter.

Thank you, Charles, and good afternoon to everyone. As highlighted by Charles, we had a solid third quarter with revenues, adjusted EBITDA, AFFO, and AFFO per share ahead of expectations and guidance. We had strong gross bookings in the quarter, our top three results for us, and we delivered our highest ever quarter-over-quarter organic step up in recurring revenues. The sales pipeline remains at an all-time high with a significant number of multi-market, multi-region opportunities. Across each of our regions, MRR per cabinet yields remained firm with spot pricing improving in the Americas for small to medium-sized deals. Also, we had net positive pricing actions in the quarter, a reflection of our value-based decisioning versus simply growing for growth's sake. Cross-connect additions, both physical and virtual, were strong, and interconnection revenues continued to grow faster than the overall business. Our hyperscale activity across all deployment sizes is healthy, and we're making great progress with our HIT financing initiatives. Turning to acquisitions, we've made substantial headway with our M&A integration efforts. We're raising our annualized revenue run rate for both Infomart and Metronode to $37 million and $70 million respectively. With respect to Metronode's increased performance, we have significantly reduced the adjusted EBITDA multiple used to acquire these assets. Effectively, this acquisition is now accretive much sooner than planned. Looking forward to 2019, we plan to open new capacity across Metronode's assets and leverage the value of our multi-city footprint in Australia. We continue to feel very good about the progress we've made with the Verizon asset purchase. While the quarterly revenues will essentially remain flat through the end of the year, largely due to the previously discussed MRR churn, we feel highly confident that the incremental capacity brought online and the strong current booking activity will return the Verizon assets to growth in 2019. Finally, as it relates to our 2018 integration costs, we're lowering the estimated cost to integrate our acquisitions to $40 million. Now, turning to the third quarter, as depicted on slide 4, global Q3 revenues were $1.284 billion, up 9% over the same quarter last year, above the top end of our guidance range. Note, all our growth rates in this section are normalized and on a constant currency basis. EMEA and APAC were the fastest growing regions at 14% and 13% respectively on a year-over-year basis, followed by the Americas region at 5%. Absent the Verizon churn, the Americas business would have grown at greater than 6%, better than the broader market growth rates, reflecting the continued momentum of our substantial Americas business. While foreign currencies continue to put pressure on our operating results, our FX hedges are working effectively to mitigate the volatility of the U.S. dollar. Simply put, the hedged FX rates are currently higher than their current spot rates. Q3 revenues net of our FX hedges included a $14 million negative currency impact when compared to the Q2 average FX rates and a $1 million negative currency impact when compared to our FX guidance rates. Global Q3 adjusted EBITDA was $613 million, up 7% over the same quarter last year and better than our expectation due to revenue flow-through, timing of our operating spend, and lower integration costs. Our adjusted EBITDA margin was 48%. Our Q3 adjusted EBITDA performance net of our FX hedges had a $7 million negative impact when compared to the Q2 average FX rates and a negligible negative impact when compared to our FX guidance rates. Global Q3 AFFO was $402 million, or AFFO per share of $5.01, higher than expected. This reflects the third straight quarter we've eclipsed the $5 per share threshold in a quarter. Exclusive of integration costs, AFFO per share would have been $5.12. Our AFFO absorbed higher income tax expense in the quarter and increasing recurring capital expenditures. Looking forward, we expect the level of third quarter taxes to be more reflective of our normal tax burden, as the tax expense over the first two quarters benefited from deductions related to acquisitions and refinancings. Q3 global MRR churn was 2.4%. For the year, we continue to expect 2018 MRR quarterly churn to average between 2% and 2.5%. Turning to the regional highlights, whose full results are covered on slides 5 through 7, the Americas region had another solid bookings quarter, both within the region and exported to the other two regions. The Americas team delivered solid revenue and adjusted EBITDA results with record high levels of small and mid-sized deals. MRR yield per cabinet remained firm due to healthy deal mix and strong interconnection performance while absorbing the expected Verizon churn. Cabinet billings were lighter than the prior quarter due to the timing of customer installations. We expect this metric to rebound in Q4. EMEA had another strong quarter, led by our Dutch and German businesses. We continue to significantly expand across the region with 19 builds currently underway, largely driven by cloud and enterprise opportunities. From a cost perspective, I do want to note that we're seeing higher utility prices across the EMEA markets. This cost increase is being partially offset by our utility hedges, which will roll off over the coming quarters. Our new utility hedge positions will track consistent with market movements and these increased costs are reflected in our updated guidance. Asia-Pacific delivered record bookings with particular strength in Singapore with key wins from the content, cloud, and enterprise verticals. Cross-connect counts had a strong quarter-over-quarter step up and MRR per cabinet remained firm in this region. Turning to our interconnection activity, we added over 6,000 cross-connects net in the quarter, which was above forecast, and again, significant incremental port capacity. The Americas and Asia-Pacific interconnection revenues stepped up to 23% and 14% respectively while EMEA was 9% of our recurring revenues. From a total company perspective, interconnection revenues were 17% of total recurring revenues. Now, looking at our capital structure, please refer to slide 8. With respect to our balance sheet, it continues to scale and remains greater than $20 billion. Our unrestricted cash balance is approximately $900 million, a decrease over the prior quarter due to capital expenditures and our quarterly cash dividend, offset in part by our operating cash flow. Net debt leverage ratio remains at 4.3 times our Q3 annualized adjusted EBITDA. We also accessed our ATM Program over the quarter, raising $266 million, or roughly 612,000 shares at an average price of $434 per share to fund our future investment needs. To date, under an ATM Program, we've issued just under 1.4 million shares at an average price of approximately $450 per share. We continue to be highly supportive of this type of program as it allows us to access the market on a timely basis, recognizing our strong desire to fund the business with a balance between debt and equity while working to maximize our shareholders' value. Turning to slide 9 for the quarter, capital expenditures were $546 million, including a recurring CapEx of $55 million. We opened nine expansions this quarter, adding over 8,000 cabinets, and currently have 30 construction projects underway. Also, we purchased our Bogotá facility as well as our Frankfurt land parcel for future campus expansion. The company has now land bank capacity across 25 markets, an almost $450 million investment to date. Also, we now own 80 of our 200 IBXs, and revenues from owned assets stepped up to 48%. We continue to expect revenues from owned assets to increase as two-thirds of our development activities will be on owned properties. Our capital expenditures are delivering healthy growth and strong returns, as shown on the slide 10. Our 128 stabilized asset revenues grew 2% year-over-year on a constant currency basis, largely driven by increasing colocation and interconnection revenues. Excluding the slightly increased Americas churn this quarter and the high non-recurring revenue in Q3 of 2017, our stabilized assets would have grown at approximately 4%, similar to last quarter. These stabilized assets are collectively 84% utilized and generate a 30% cash-on-cash return on the gross PP&E invested. Finally, please refer to slides 11 through 16 for our updated 2018 guidance and bridges. For the full-year 2018, we're increasing our revenue guidance by $15 million, largely due to favorability from our recent acquisitions, offset in part by a $7 million negative currency impact. Also, we're raising our adjusted EBITDA guidance by $9 million, primarily due to lower integration costs, offset in part by a $3 million negative FX impact. This guidance does imply a 9% year-over-year revenue growth rate and a healthy adjusted EBITDA margin of 48%. The momentum of the business is continuing to drive both AFFO and AFFO per share growth. We're raising our 2018 as reported AFFO per share guidance approximately $20.32 per share at the midpoint of guidance, or $20.82 per share excluding integration costs. We assume a weighted average shares outstanding of 80.2 million on a fully diluted basis. AFFO is expected to grow 13% year-over-year on an as-reported basis. We continue to expect our 2018 non-recurring capital expenditures to range between $1.8 billion and $1.9 billion. Finally, with respect to our cash dividends for the fourth quarter, the dividend will be $2.28 per share. For 2018, we now expect the total cash dividend payout to be about $727 million or an AFFO payout ratio of approximately 45%. So with that, let me stop here and I'll turn it back to Charles.

Thanks, Keith. In closing, we delivered a great third quarter with strong flow through into adjusted EBITDA and AFFO and healthy metrics across the board. Today, we're the clear data center market leader and our growth, scale, and innovative product portfolio puts us in a great position to build on a business model that is truly and substantially differentiated from our peers. As we set our sights on 2019, we will focus on the six priorities outlined in my opening remarks, building upon our unparalleled global reach, interconnection and ecosystems, sharpening our focus on driving operating leverage, extending our balance sheet through HIT, and enhancing our financial model with accelerated logo capture and new service innovation. These efforts all center on delivering long-term value creation and putting Platform Equinix in the pole position to power digital transformation across the globe. So, let me stop here and open it up for questions.

Hi. Thank you. My question is mainly on HIT. It has been a couple of quarters and we've only seen about one dedicated hyperscale development project announced in your expansions, which is Paris 1. I guess, my main question is when HIT was first announced, some investors thought there'd be several announced maybe per quarter or per year going forward. Could you give us more color on the degree of selectivity around these deals or why there have not been more announced yet because it's been a couple of quarters?

Sure. Yeah, I mean there's a number of projects. I kind of think about HIT as a three-legged stool; there is demand, supply, and finance. The demand side is very strong, with a solid pipeline of deals. What you're speaking to is really its supply side. Paris 8 actually is our first HIT facility. I was actually out there last week, walked through the facility, it's in great shape and on track to open, I think, in the next few months. So that's tracking well. And there are a number of other projects; we just have not announced them. We have a strong land bank and a number of projects underway in terms of our approvals. They just have not made their way through. To some degree, we're not waiting on those necessarily to have the joint venture fully underway. So, there are projects underway, we're in the planning phases, but we just have not announced those yet.

Got it. Thank you for the color on them. My next question has to do with interconnection. Your EMEA MRR for cross-connect is about one-third the level of the Americas, and your APAC level is about double. Longer-term, should we be assuming this MRR rate in EMEA increases as enterprises deploy hybrid clouds through the region? And could we just get a sense of whether pricing will ever go up over the next two years just so we can start adjusting or projecting accordingly?

Yeah. Fair question and one I asked our EMEA team in our operating review. We absolutely ought to expect that. So, when we did the Telecity acquisition, we talked about the fact that there was a delta there and that we believe that the unique value our cross-connects provide to our customers justifies that value. There’s always a little more complexity than one would hope as you do those integrations and try to get that put together and there's obviously some friction in the system in terms of those increases rolling through. The short answer to your question is, yes, I think we should continue to see that rise as we deliver that value to our customers.

Great, thank you. Two questions if I may. First of all, Charles, thank you for giving us the overview, your areas of focus to start off the call. I'm just curious though does that change any of the guidance that you guys provided at your Analyst Day earlier this year? Is all that still intact even with the new areas of focus under your leadership? And then secondly, one of the things that stuck out was the stabilized growth of 2%. I know you mentioned Americas churn being part of the impact, and the other one being the tough comps. Is the Americas churn just what's going on in Verizon, or is there something else there? To that point, the U.S. or Americas business just grew 5% on a year-over-year basis. And that's somewhat similar to what your typical stabilized growth is; one would assume that's actually growing faster. Can you just talk about what your expectations are for growth rates in the Americas on a go-forward basis? Thank you.

Sure. Lots in there, Colby. As to the priorities and whether what we talked about at our Analyst Day still holds, the answer to that is yes. We still feel good about those ranges. Then as to what it means for 2019, we're going to come back in February and give you a sense of that. Right now, we still feel good about the ranges that we provided at Analyst Day. As to stabilized asset growth, as we dug into it, there are a number of drivers; we don't believe that the result reflects any erosion of the business fundamentals. One, as we said, one tough comp due to elevated NRR in Q3 last year, the churn although it was in line with our expectations was a little concentrated in our stabilized assets. This impacted, but nothing unusual in my mind. Separating it out, it was in line for what we expected. The Verizon business did have a drag, and we're focused on that for stabilization. Overall, I expect the Americas business to perform well, especially as we reduce churn from Verizon.

Very much appreciated. Thank you.

You bet.

Thanks. One for Keith, one for Charles. On HIT, do you expect to have – you talked about the financing in place in early 2019. Is that a comprehensive arrangement that would cover multiple markets or regions, or would it be more like an initial arrangement to fund a discrete project or two? And then for Charles, I wanted to drill down a little bit on the topic of parasitic tethering. In other words, when other companies pay to be within your ecosystem and then connect, they essentially leverage your ecosystem as part of their value proposition. I wonder if you intend for Equinix to be a neutral platform fully open to all partners no matter how they leverage your ecosystem, or are the competitive dynamics such that you would be more selective about your partnering relationships with resellers, carriers, and so forth? Thanks.

Yeah. So, let me take the first one, Jonathan. As it relates to HIT, we have the demand, we have the potential financing partners and the opportunity to finance. What we want to ensure is that we develop the supply on an appropriate basis. The supply is going to come in multiple markets. Jim Smith and his leadership team are working hard to continue to develop assets that can be discretely placed off balance sheet versus on balance sheet. As you're aware, we do some of our work already on balance sheet. We referred to London 9 and 10 as an example. We want to line up our financing partners with the same type of ideology that we have on how to fund the business. That might mean that we have discrete partners in different markets of the world and, in some cases, we might have a regional partner, a JV partner.

And Jonathan, I think to the end of your question, yes, we believe that continuing to be a neutral party and an aggregator of traffic continues to be the sort of value-creating strategy for the business. Having said that, it’s also fair for us to get a return on our investment – our substantial investment that we've made to build the ecosystems at scale inside of our facilities. So, call it a tax, call it a toll after our infrastructure; but as appropriate, when people are tethering in to gain access to that value, we’ll price our services to get a return on the investment that we and our shareholders have made. We will ensure that people can access infrastructure across – from their facilities into ours when that's appropriate, but we also believe that we should be fairly rewarded for the investment and the value we've put into that ecosystem.

Thanks very much.

Great. Thank you very much. Charles, just on the six priorities, coming back to something that was talked about earlier, some of them like expanding go-to-market evolving product; it sounds like it’s one of these invest-to-grow opportunities. Can you just scale it? Are we talking about something material here, or is this going to be fairly much within the run rate? And then, Keith, can you just go into the leverage on the ATM? Are you trying to get down to the four times leverage in the kind of 12 months to 18 months, or are you comfortable, for now, in the low fours? Thanks.

Yeah. Thanks, Simon. So hitting the first one, there are definitely some priorities where we use words like expand and invest. It takes dollars to do those things. What we're going through now is saying, okay, what are our priorities, what resources are available to us, how do we stack rank those. To the extent we can self-fund those investment priorities, we will seek to do that. At the same time, if we believe there are areas where we need to make investments, we will look at doing that. Sometimes those might be OpEx dollars and sometimes those might be CapEx dollars. We're really sorting through all of that, and I believe we won't have the details on that until February when we solidify our 2019 plan.

As it relates to the ATM and our leverage posture, we still have a very balanced view on making sure that we raise both debt and equity as appropriate. We generate a lot of cash flow as reflected in our AFFO metric. As we grow, we're going to de-lever. I think – when we talked at the Analyst Day, we said a few things. Revenue was going to grow 8% to 10%. FFO was going to grow 8% to 12% within those ranges over the period through 2022. That was reflective of an environment where at times it might be at the lower end of the range. Our view is that we’re going to grow revenue, we're going to grow our EBITDA margin, and we're going to fund roughly $10 billion of capital as well as a growing cash dividend. That will require us to raise some additional capital. We will always have a balanced view on raising that capital with a posture of wanting to get to investment grade. My belief is that getting to investment grade can happen on a reasonable timeline, whether you think 12 to 24 months is reasonable, I think it's reasonable.

Okay. Thank you.

Thank you, and good afternoon. I think last quarter on this call, you talked about an MRR step-up in the second half of 2018 that was expected to materialize, and I'm curious if that's going to step up to a greater degree in the fourth quarter or was there a mitigating factor in the third quarter that you would point to?

Yeah. Jordan, first and foremost, when you look at the MRR step-up, again we had the highest incremental organic step-up this quarter in Q3. As I look forward to the guidance for Q4, we're using a range of roughly $10 million on a revenue basis. If you look at the midpoint, considering the midpoint or even taking it up to the higher end of the range, you'll see that there is another meaningful step-up in recurring revenue. We're guiding that Q4 non-recurring revenue will be at or below Q3 non-recurring revenue.

And was that specifically regarding the Americas? I know you mentioned cab billings there seemed to be a little bit of a timing issue there, with a rebound to come?

Certainly, the Americas had great success and will continue to grow; but you've also got 13% and 14% organic growth in the other two regions on a normalized constant currency basis, so a lot of that growth comes from outside the U.S. now.

Okay. Thank you.

Hey, guys. Two for Keith. Keith, can you expand and quantify the impact of the utility hedges? How has the green power initiative impacted this, and what should we expect for 2019? Then, also, as you think about HIT fundraising, are there structures that you ruled out at this point or is everything still on the table? Thanks.

As it relates to utility hedges, no surprise, there's regulated and unregulated markets. In the unregulated market, we put hedges in place and are always looking at buying forward in anticipation of our future consumption. The order of magnitude is roughly $10 million a year for our green initiative. That’s an investment we’re making to become carbon neutral. As for HIT fundraising, all structures are still on the table. We're working with different partners. It might look more like a JV structure than anything else, but it depends on the level of supply that we create over what period of time.

Thank you.

Thank you. EMEA has been a strong market for you, and you have a lot of additional capacity planned there. Can you describe your visibility into demand for those additions? Also, Charles, earlier in your six priorities, you talked a little bit about adding new services. Can you provide a bit more color on what those might be?

Sure. Starting with EMEA, we have strong pipeline visibility that has improved over the last couple of years. That’s central to our capacity projects and investments. EMEA has a bit of a different mix with a slightly higher large footprint mix, but overall, it's performing very well. Regarding new services, things like ECX Fabric will continue to add inter-regional connectivity, which is seeing good growth, and we plan to enhance services around network function virtualization and making the platform more accessible and easier to use for our customers.

Thanks for taking the questions. First, circling back on the HIT initiative, can you give us a little bit more depth on the level of activity you're seeing and how that compares to your prior expectations? Any sort of metrics to help us better understand that opportunity?

Sure. We have more demand in the pipeline than we would want to satisfy. We want to participate in large footprint hyperscaler demand as we believe it's accretive to our premium retail strategy. We'll be selective there. Right now, there’s more demand than we probably have the ability to accommodate, but will prioritize projects based on needs and what fits for us.

Okay. Thanks. As my follow-up, regarding Verizon, what are your growth expectations for next year? Have you seen any significant improvements that might have altered your thoughts on that business?

We said you should expect the Verizon assets to grow at or above our stabilized asset growth. We want to manage our inventory positively and push customers to highest-priority applications. We are seeing stabilization; Verizon revenue increased this quarter from last quarter. We’re investing throughout their portfolio and integrating the assets to our standards.

Thanks. First, on the development side, it looks like the amount of development in the Americas as well as Asia has fallen off significantly. Is that just a temporary slow of what's been announced, and how should we think about development growth in these regions over the next couple of years? Also, are you seeing a shift in where the pipeline is coming from with respect to enterprise versus cloud versus networks?

I think we tend to find that things come in waves. We’re seeing meaningful investments throughout the regions, although the growth is more substantial in EMEA and APAC. In terms of the pipeline, we continue to see strong performance across our verticals, and our pipeline is historically strong. The enterprise pipeline is over-indexing and we’re seeing strong demand across networks and enterprise.

Thanks.

Great. Thanks. Can you give us a sense on how Metronode and Infomart are progressing? Any color on the upside to guidance driven by those deals?

We're delighted with the performance of both Infomart and Metronode. We're seeing a step up in revenue guidance due to the strong performance of these assets. The integration efforts are ahead of schedule, and we're excited about their contributions to our overall growth and operational performance.

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