Equinix Inc (EQIX) — Q1 2019 Earnings Call Transcript

Thank you, Jennifer. Good afternoon and welcome to today's conference call. Before we get started, I would like to remind everyone that today's remarks 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 identified in today's press release and those in our filings with the SEC, including our most recent Form 10-K, filed on February 22, 2019. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless made through an exclusive public disclosure. We will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We have made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would 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 will be taking questions from sell-side analysts. In the interest of wrapping this call within an hour, we would like to ask these analysts to limit any following questions to just one. At this time, I will turn the call over to Charles.

Thank you, Katrina. Good afternoon and welcome to our first quarter earnings call. We had a great end to the year delivering our best Q1 ever, including the largest revenue step up in our history, and our second best net bookings quarter, reflecting strong customer demand and lower churn. Our bookings span more than 3,000 customers, with cross-border bookings up substantially year-over-year. We processed over 4,000 deals in the quarter, highlighting the diversity and high volume nature of our retail colocation business, and the scale we built across our entire go-to-market and customer support engine. During the quarter we also announced adjustments to our organizational structure to globalize our operating model, scale our business, and execute with increased velocity against the growing opportunity for Equinix as a strategic platform on which customers architect their digital business. We moved three company veterans into new roles, including concentrating all of our customer-facing functions into a single global organization under Karl Strohmeyer, enabling us to provide consistent execution and deliver increased value as a trusted advisor to businesses undergoing digital transformation. As depicted on slide three, revenues for Q1 were $1.36 billion, up 11% year-over-year. Adjusted EBITDA was up 12% year-over-year and AFFO was meaningfully ahead of our expectations. Our market-leading interconnection franchise is performing well, with revenues continuing to outpace colocation, growing 12% year-over-year, as the cloud ecosystem continues to scale. These growth rates are all on a normalized and constant currency basis. Penetration in lighthouse accounts increased to nearly 50% of the Fortune 500 and 35% of the Global 2,000, showcasing the expanding opportunity as we deepen our reach into the enterprise. We are now the market leader in 16 out of the 24 countries in which we operate, and we're expanding our platform with 32 projects announced across 27 markets, with Q1 openings in Frankfurt, Hong Kong, London, Paris, and Shanghai. With regard to our hyperscale initiative, we are now in the final stages of discussions with a short and highly attractive list of potential financing partners. We expect to announce our first JV in EMEA in Q2, with a collection of both stabilized and development assets. We continue to see strong customer demand, and lease-up for our London 10 and Paris 8 assets is tracking ahead of expectations. We remain highly confident that the JV structure will allow us to extend our cloud leadership while mitigating the strain of hyperscale development on our balance sheet. We'll provide additional details when we announce the transaction but fully expect that the JV structure will deliver significant strategic value and solid returns, all with minimal impact on our P&L in 2019. Shifting to interconnection, we now have over 341,000 interconnections and continue to add at a rapid pace. In Q1, we added an incremental 7,400, including 1,900 virtual connections. We added more interconnections year-over-year than the rest of the top 10 competitors combined. For our internet exchange platform, we're seeing strength in the new EMEA and Latin American markets with IX peak traffic up 20% year-over-year. ECX Fabric, our SDN-enabled interconnection service, now has over 1,500 customers and saw strong growth from enterprise additions. In Q1 we completed the full globalization of our ECX fabric, enabling customers for the first time to establish on-demand network connections between the Americas, Europe, and Asia-Pacific. Our vision is to continue to evolve the Equinix platform into a broader platform that interconnects and integrates global businesses at the digital edge. Expanding our capabilities at the edge is critical for our service provider customers looking to fuel the way with digital transformation and for global enterprises striving to keep pace in an increasingly digital world. We are excited about the possibilities of our evolving platform and have developed a roadmap of compelling new services we anticipate rolling out over the next several quarters. Now, let me cover highlights from our verticals. Our network vertical experienced solid bookings led by strength in AP and driven by major telcos, mobile operators, and NSP resale. Expansions this quarter included Hutchison, a leading British mobile network operator, upgrading the infrastructure to support 5G and cloud services, as well as a leading Asian communication provider migrating subsea cable notes and connecting to ECX Fabric for low latency. Our financial services vertical saw near record bookings led by EMEA, with strong growth in insurance and banking. New wins included a Fortune 500 global insurer transforming IT delivery with a cloud-first strategy, a top three auto insurer transforming network topology while securely connecting to multiple clouds, and one of the largest global payment and technology companies optimizing their corporate and commercial networks. The content digital media vertical produced solid bookings led by strong demand in the social media sub-segment as providers continue to strive to improve user experience and expand the scope of their business models. Our gaming and e-commerce sub-segment grew the fastest year-over-year led by customers including Tencent, Neighbour and Roblox. Our cloud and IT vertical also captured strong bookings led by SaaS as the cloud diversifies towards a hybrid multi-cloud architecture. We see a robust pipeline as cloud service providers continue to push to new markets and roll out additional services. Expansions included a leading SaaS provider expanding to support growth in new markets and with the Federal Government as well as an AI-powered commerce platform upgrading to enhance user experience and support a rapidly growing customer base. As digital transformation accelerates, the enterprise vertical continues to be our fastest-growing vertical led by healthcare, legal, and travel sub-segments this quarter. New wins included Air Canada, a top five North American airline deploying a hybrid multi-cloud strategy, Space X deploying infrastructure to interconnect dense networks and partner ecosystems, and one of the big four audit firms re-architecting networks and interconnecting to multi-cloud to improve the user experience for both employees and clients. Channel bookings also saw continued strength, delivering over 20% of bookings and accounting for half of our new logos. We're seeing accelerated success selling with our key cloud and technology alliance partners including Cisco, Google, Microsoft, and Oracle. New channel wins this quarter included a win with Anixter for a leading French transportation and freight logistics company deploying a mobility platform, as well as a win with AT&T for a top-five U.S. Bank accessing our network and cloud provider. Now let me turn the call over to Keith to cover results for the quarter.

Thank you, Charles and once again good afternoon to everyone. As highlighted by Charles, we're delighted with the start of our year delivering great Q1 gross and net bookings alongside our 65th consecutive quarter of revenue growth. With this momentum, we're raising 2019 guidance across the board and are tracking well against the target set at our 2018 Analyst Day. MRR yields remained firm and MRR churn was lower than planned, allowing us to retain more value in the business while still fulfilling a diverse set of new customer demands weighted towards smaller deal sizes. We're continuing to invest in our growth and scale both as it relates to our organic expansion, as well as new product and service initiatives, and at the same time, we've been able to leverage how we spend our SG&A dollars, reflecting our priority to increase the operating leverage in the business and reduce the SG&A line as a percent of revenues. Now I will cover the quarterly highlights. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on slide four, global Q1 revenues were $1.36 billion, up 11% over the same quarter last year and above the top end of our guidance range. Nonrecurring revenues were 6% of total revenues, an 11% increase over the prior quarter, reflecting the inherent lumpiness of this revenue line. We expect nonrecurring revenues to remain elevated in Q2, but given our current visibility to customer activities, we expect to return to more typical levels in the second half of the year, which is reflected in our guidance. Q1 revenues net of our FX hedges included a $3 million positive FX benefit when compared to our prior guidance ranges. Global Q1 adjusted EBITDA was $660 million, up 12% over the same quarter last year, largely due to strong operating performance and lower than planned utilities and repairs and maintenance expense. Our Q1 adjusted EBITDA performance net of FX hedges included a $2 million positive FX benefit when compared to our prior guidance range. Global Q1 AFFO was $488 million, largely due to strong operating profit as well as lower net interest expense due to our cross-currency swap on a portion of our U.S. denominated debt and a lower cost to borrow on floating rate debt due to the credit rating increase. Also in the quarter we had lower seasonal recurring capital expenditures, offset in part by higher cash taxes as expected. Q1 global MRR churn was 2.1%, better than our expectations for the quarter. For 2019, we expect MRR churn to average between 2% and 2.5% per quarter, although at the higher end of our range in Q2 mainly due to timing. Turning to regional highlights, whose full results are covered on slides five through seven. APAC and EMEA were the fastest-growing MRR regions at 17% and 13% respectively on a year-over-year normalized basis, followed by the Americas region at 5%. The Americas region had a strong start to the year with solid net bookings with a higher mix of small deals, and a healthy pricing and pipeline environment. America has had record non-recurring revenues in the quarter, including a meaningful level of exports to the other two regions, as our teams continue to sell globally across our platform. Our EMEA region had a very strong quarter led by the U.K. business with significant additions to our cabinet billings and interconnections. In Q1, we opened meaningful new capacity across our flat markets, with a strong build pipeline continuing over the rest of the year. We also purchased Amsterdam 11, an IBX in close proximity to our existing highly networked campus in South East Amsterdam. This acquired asset will help defer CapEx while creating near-term capacity to fill the growing demand for digital infrastructure connectivity in the Netherlands and then the broader European market. The Asia Pacific region delivered strong bookings led by our Japan and Hong Kong businesses. APAC saw a particular strength in the enterprise, cloud, and content verticals, supported by our channel team. MRR for cabinets remained firm despite absorbing the significant new cabinet installations at the end of last year. And now looking at the capital structure, please refer to slide eight. Our unrestricted cash balance is approximately $1.6 billion, an increase over the prior quarter due to strong operating cash flows and of course, the $1.24 billion follow-on equity raise. But offset in part by our corporate capital expenditures and cash dividend. Our liquidity position remains very strong and our net debt leverage ratio dropped to 3.6 times our Q1 annualized adjusted EBITDA, well within the targeted range of three to four times net leverage. Also, given the strong momentum in our business and our commitment to use both debt and equity to fund our future growth, S&P upgraded all debt and our corporate family rating to investment grade. We believe we're on a solid path to attain a second investment grade rating, which once achieved will allow us to access the IG debt capital markets, thereby lowering our future costs to borrow. So at the end of the day, we have cash, we have liquidity, we're appropriately leveraged, and we have one of the lowest AFFO payout ratios in the industry. This creates immense flexibility as we continue to scale our business and drive to maximize long-term shareholder value. Turning to slide nine for the quarter, capital expenditures were approximately $364 million, including recurring CapEx of $21 million. We opened seven new builds this quarter including three new IBXs in London, Paris, and Shanghai adding 7,500 cabinets. We also purchased our Sao Paulo II facility as well as land for development in Milan and Frankfurt. Revenue from owned assets stepped up to 55%. And our capital investments delivered strong returns as shown on slide 10. Our now 134 stabilized assets grew revenues 3% year-over-year on a constant currency basis, increasing quarter-over-quarter, reflecting a moderation of the prior headwinds experienced. Also consistent with prior years during Q1, we completed the annual refresh of our IBX categorization. Our stabilized asset count increased by a net of four IBXs. These stabilized assets are collectively 85% utilized and now generate a 31% cash-on-cash return on the gross PP&E invested due to the strength of the new assets added to this stabilized portfolio. Finally, please refer to slides 11 through 15 for an updated summary of 2019 guidance and bridges. For the full year 2019, we're raising our revenue guidance by $25 million and adjusted EBITDA guidance by $30 million, primarily due to strong operating performance. This guidance implies a revenue growth rate of 9% year-over-year, and a healthy adjusted EBITDA margin of 47% to 48%. Also, we're reducing our 2019 integration costs assumption to $13 million, a $2 million reduction compared to the prior guidance. Given the operating momentum of the business, we continue to improve our AFFO and AFFO per share core metrics. We're raising our 2019 AFFO by $45 million to grow 13% to 14% compared to the previous year, which includes the net interest benefits attributed to our credit rating upgrade. We're also narrowing our 2019 AFFO per share range to a midpoint of $22.70, excluding integration costs. AFFO per share is expected to grow between 8% and 9%, which includes the dilutive impact from the Q1 equity raise. We've assumed a weighted average of 84.1 million common shares outstanding on a fully diluted basis. We expect our 2019 cash dividends to increase to approximately $820 million, a 13% increase over the prior year or an 8% increase on a per-share basis. So with that, I'm going to stop here and turn the call back to Charles.

Thank you, Keith. In closing, we believe that digital transformation will persist as a driving force in the global economy. And we are positioning ourselves to seize that momentum. With our unmatched global reach, the industry's most comprehensive interconnection platform, unparalleled track record of service excellence, and an expanding portfolio of edge services, we remain confident in our ability to deliver superior value for our customers, allowing us to build on and extend our market leadership. We are tracking ahead of our 2019 targets. And we have a clear set of priorities for this year to drive durable and growing AFFO per share for our shareholders. So let me stop here and open it up for questions.

Hi, thank you. Looking at your average revenue per cross connect in Europe, it looks like it was down double digits year-over-year in 1Q 2019. We just want to get a better idea on the market dynamics that are happening there. Is it just the industry's perception that that business is stabilizing and standardizing in Europe, and with your exposure to financial services, do you think that you would see a bit of a mix shift upward? Could you just give us some color on the dynamics in the region?

Yes, I would say, more generically, I think the interconnection business across the globe, including EMEA, continues to be very strong. The demand for interconnection, both across our full interconnected portfolio of services, continues to be solid. As we've mentioned, we are in the process of normalizing our interconnection pricing to Equinix levels across the board. So I'd expect that over time, we're going to continue to see an uplift in terms of our unit performance in that region. So at a macro level, interconnection in Europe continues to be very healthy with strong demand.

Sami, the other thing I would just add is that we adjusted some of the cross-connect counts in the last quarter as we reconciled some of the Telecity install base. So the revenue was still there, but the count was adjusted upwards to reflect the number of units. You're seeing a little bit of a reduction because of that, but there was nothing fundamentally that has changed within our pricing model. In fact, as Charles said, we're normalizing our pricing structure as we roll that out through Europe in 2019.

Yeah, that's right, Keith. So that's maybe a bit of an optical thing. Whenever we do an acquisition, we take a fairly conservative view because often times the installed base, when you go in and do the audit, ends up differently. In this case, we had essentially a reserve set out there on a unit basis, but the revenue was there and then we bought it in, showing a bit of a sort of optical disconnect.

Got it, thank you. On that chart on the Q4 earnings deck, Sami. Got it, thank you. Yes, I saw the changes in Q4 specifically. The other question I had was on ECX and maybe we can just get a better idea on the percentage of your customers that are using the ECX fabric to connect to multiple regions. Just as we get an idea on how many clients or customers are leaning on this as the key differentiator versus just deploying in their more traditional sense. We just want to get - could you give us any kind of percentages or a quantified idea? That would be great.

We do have 1,500 customers so you get a sense for just how many of our customers are actually implemented on it, and you also get a sense for how much upside remains for us there. I think, in terms of the total percentage of those customers that have not yet availed themselves of the multi-regional connectivity aspect of ECX Fabric, that's still relatively small but with a lot of upside opportunity there. It is actually well ahead of what our plan was, and so we're seeing uptake on that faster than we expected. But it's still a relatively small percentage, I would think; of the total number of customers that are using the cross-regional, but they are seeing it as a key differentiator. The ability for them to house infrastructure in proximity to the multi-cloud generates the performance and cost benefits that are part of being on the Equinix platform and then have the confidence that they can interconnect to the rest of their own private infrastructure or to cloud endpoints that aren't in their chosen location is a compelling value proposition for them. As I'm out with our sales teams, they continue to see ECX Fabric as the primary hook for conversations with customers these days, and so we're very pleased with how that's playing out in the market.

Great, thank you. And then my last question has to do with your JVs that were announced. You've laser-focused on Europe and based on what you laid out in your 2018 Analysts Day and some of the return profiles in the JV structured agreements. Are we looking at similar return profiles in these future JVs that are coming? Should we expect it to look a little bit different given just some time as digestion and partnerships are starting to form?

Again, there's no - we haven't announced any - you are talking specifically about the hyperscale JV. Yes, no announcements there yet. As we said in the script, we expect that will be announced, and we are focused on EMEA as the first JV opportunity, tracking very well there. We feel very good about the financing partners we're talking to as well as the customer uptake. What we showed at Analysts Day continues to be consistent with our expectations, and I think we're going to see really good solid headline returns on those projects. Our pipeline reflects and is supporting that notion right now. Due to the fee structure and flow fees for us as management fees, and some of the other fees that flow to us, we'll see some upside returns from that. We feel good about the structure overall, tracking well, and I don't think that the structure would look meaningfully different over time. Keith, unless you had a different view on that.

Thank you.

We'll update you in Q2. Again, we're excited to announce the final formation of the JV and the JV partner, and we'll discuss that in the Q2 timeframe.

Thank you, good afternoon. I had a follow-up on the JV. I don't want to jump the gun relative to your planned announcement, but you made the comment of no impact, I think to the P&L in 2019 relative to guidance. I just wanted to clarify what's specifically you're referencing if it was guidance or the actual P&L? And then because I would think, as you just mentioned, Charles, there could potentially be enough an uplift to you guys as a result of a fee stream, especially if there's some stabilized assets being stuck into the JV. Then I have a follow-up.

Yes, so Jordan, let me just touch base. On the last earnings call, what we did do is we gave you an update of basically the net burn we're investing in the hyperscale initiative team right now called our 'hit team.' So there's a lot of cost going through the P&L today, and that is embedded in the guidance. What you have not seen is, what we said was on a go-forward basis, the AFFO impact because we're in the development phase, and we'll be putting some stabilized assets into the JV, taking some cash out and investing in new developments. There will be no meaningful impact to AFFO per share when we make that announcement, but that doesn't say there is an anticipation of a meaningful amount of cash, as Charles alluded to, coming back into the business. That's going to fund future developments. There's a lot to talk about with respect to the JV, but we don't want anybody to assume any incremental AFFO per share in fiscal year 2019 related to this.

Okay. It sounds like there could be a flows issue, as you'll have cash flow coming in, and over time that initial drag is managed and will be redeployed from, if I'm not putting words in your mouth.

It goes back to really what Charles said. If you look at the assets at the project level, very good returns for both ourselves and what we believe to be our financing partner. We are happy with the project returns. In addition, Equinix will receive a certain amount of fee income associated with it. When you look at this as the return on our equity, it's a very attractive investment decision for us. It's a good project return for our partners. There's always the potential for the upside at some point in the future, depending on how we liquidate the asset.

And then lastly, could you speak to the growth in physical versus virtual cross connects? I appreciate the disclosure you guys have been providing there. I'm just curious; the virtual cross-connect volume clearly is growing at a faster rate if it makes sense. Just maybe talk to what your expectations would be there one versus the other. If you could elaborate on pricing?

Sure. Yes, we see continued health across the intersection portfolio. One of the key differences is that we bring a rich set of interconnection options to our customers to solve a varied set of use cases for them. Depending on what they want to accomplish, their confidence in traffic flows, the timing and duration of their needs, they might choose different alternatives. Right now, we are seeing tremendous uptake on ECX Fabric, particularly from enterprise connectivity to the cloud. That should be no surprise. We expect that to continue to be a very strong element of our business going forward. But typically, there's a maturation and staging where people initially sort of begin to test moving workloads into the cloud. They may do that over the fabric, buying a port and then provision capacity to a cloud while they see how that works. Over time, it's often more cost-effective and performs better for them to move to physical connectivity in an actual cross connect at a future stage of their cloud strategy's maturation. So, that's why we've said that we don't really consider them as substitutes but rather complementary, which is why both continue to grow well. In terms of pricing, the individual unit cost for a virtual connect is lower, but you have to recognize that you do have to pay the upfront port cost to enable those virtual connects. Depending on how many virtual connects you might provision over a single port, it can vary meaningfully. But, in terms of yield to us right now, we're not seeing a dramatic difference. I think as virtual cross-connect volumes scale, you will see a slightly lower average price point on virtual than physical. However, the economics of both and return on capital for both products are exceptionally good for Equinix.

Thank you.

Hey guys, thanks. Two if I can, one for Charles, for the JV I think it's going to be different sales processes for different customers going forward between the legacy Equinix and the JV facilities, or do you anticipate those being a single sales process? I am just trying to think about how you plan to protect the high price and differentiated legacy business from being used to subsidize the new business? And then, for Keith, can you dig in a little more into the SG&A scaling? How should we think about this long-term trend versus revenue and what's being done to control costs? Thanks.

Yes, let me take the JV first. One of the key things for us is that we wanted to be able to deliver a more comprehensive portfolio of offers to our hyperscale partners. As you recall, what I presented at the Analysts Day, we were at a $0.5 billion a year business with the top 12 hyperscalers, and that was growing across the portfolio from smaller, highly interconnected footprints up to larger, more wholesale type, hyperscale footprints for different needs. The bottom line is that we want to use our single unified relationship with that customer, our understanding of their needs and the trust relationship we have, as well as the integration between our platforms to continue to service their needs. But there's - we see the opportunity as quite distinct; typically, they would be using Equinix facilities more for networking nodes and private interconnection nodes, and looking more for availability zones and large server farm type footprints in more the hyperscale arena. We think there's a clean line there for us to manage. Plenty of opportunity for both the JV, Equinix, and our partner to do well with those large footprints; as well as for us to continue to grow the targeted more interconnected footprints.

Okay.

And Philip, on the second question, as it relates to SG&A scaling, I think this is a journey as you can appreciate. First and foremost, when you look at where we started our SG&A, we were at between 22% and 23% SG&A as a percent of revenue, and today we're closer to the 18% to 19%, with the ability to potentially scale that down further. But how we're doing it is across and I think it's important to understand. First and foremost, it really is about our team and figuring out how to align them most efficiently. It's also about our systems and processes, and the recognition that we're through many of the integrations that we've had as a company as we've integrated different businesses and acquisitions into the parent company. Coupling that with our investments in 2018 and certainly into 2019 in the procurement and strategic purchasing team inside the organization is certainly going to pay dividends as we continue to work to drive down our average cost across many different functions. Lastly, we want to take the savings and dedicate them to the right areas. We will put it back into business to fund customer-facing initiatives, new product initiatives, go-to-market strategies, and alike. So, there should be a continued positive trend regarding SG&A as a percent of revenue.

You also asked a more generic piece about the go-to-market. I would offer that, Mike Campbell, our Chief Sales Officer and Karl in his new role are working closely together to drive efficiency and effectiveness in the go-to-market engine overall. That includes continued investment in the channel and proper resources on the ground to do that. All regions are tracking well in the embrace of the channel, which drives our positive results. There's immense opportunity in our existing portfolio for growth.

Thank you. And you mentioned channel. Any kind of quantification? I think you talked about successive quarters of 20% contributions or more. But how does that sort of break out by region? And then, my last question just on Asia Pac: China, I saw the Shanghai 6400 cabinets and wondering kind of the expected ramp there. In the past, I think you talked about maybe entering new metros in China, or is the focus for the time being likely to be just on that one metro?

Yes, on channel we are seeing - we had probably led in the Americas just a more mature channel market. We've invested our initial resources there and I think that's going to see - improve with Karl taking a consolidated global roll. All regions are tracking well in terms of embracing the channel. The 20 plus percent number is overall but all three regions are embracing the channel. As for China, again, I think we're seeing good response to the Shanghai capacity that just came online. We're going to monitor the situation in China carefully relative to how much additional capital we would think about putting to work in that market. We do have the JV relationship now that gives us confidence in how we approached the market. We'll see how the capacity uptake and customer uptake occurs and revisit that as we go.

Hey, thanks for taking my questions. You noted the cross-border bookings were up substantially this quarter. Can you give some added detail on that front, like what's your deal response to that category? If we were to think about bookings by the region where they were sourced rather than where the revenue was generated, how would your business be split between the three regions?

Yes, it's a great question, Nick. We do look at it that way and we have as you might expect, given the typical maturation cycles of technology and how they flow across the globe. We do have a significant portion of bookings that are exports from the Americas based sales force to the rest of the world. However, continued efforts for the rest of the selling teams across the world to really embrace selling the global platform serve as a driving force to move to a more globalized go-to-market model under Karl's leadership. We look at all our deals in terms of where they are sourced and the asset, if it's a cross-border flow, we consider that a cross-border or global export booking.

Great, thanks. Two quick ones. I think, first of all, what's driving the higher MRR churn that you guys talked about for the second quarter? I don't know if it's the Verizon churn you referenced in a previous question. Are we sure that's just a temporary move and not going to continue? And then anything you could tell us about conversations with the other two rating agencies, and potentially any timing on moves on their part? Thanks.

Yes, I'll let Keith take the second one. The first, we reported at the very low end of our 2% to 2.5% range with 2.1% this quarter. I think really the way to think about it is we worked hard to defer churn. We saw some deferrals that we probably would have expected to come into this quarter. We'll always take that but I do think it represents a bit of an uptick in the following quarter. Nothing structural there, but some of that is definitely from the Verizon assets. We feel comfortable with our 2% to 2.5% range, and our objective would be to continue to drive discipline in deal selection to lower that range over time when appropriate.

As it relates to the second question and working with the other rating agencies, no surprise after working with S&P for the upgrade. We're working with the other two rating agencies. Our strong strategic performance, leverage going down, and our commitment to using both debt and equity to fund the business going forward remains key. I remain optimistic that we will get that second investment grade rating over the not-too-distant future. But again, it's not our choice but rather how we put ourselves in good stead.

Great, thank you very much. A quick question about the JV; just how important is it to have multiple partners? Are you seeking multiple partners for the JV? And how important is the JV structure to helping the balance sheet?

Frank, I'll let - we can tag team this; one I'm glad to see your dog's excitement about our results. But I think that right now we're really focused on getting this initial transaction done. We have talked about the fact that we could have multiple partners over time. We would be happy to embrace more comprehensive global partners where we can. There's some efficiency and effectiveness in doing that. It will depend on where we land on this one; we'll evaluate each market distinctly.

As for the second question, it's important to understand that part of the reason we wanted to push it off balance sheet and have a more minority interest was to avoid consolidation. The rating agencies will look through into the JV structure and allocate on a pro-rata basis the amount of leverage that sits in the JV to the parent company. We care about our balance sheet and metrics but having the JV in this partnership arrangement allows us to get capital back in, we get to recycle that capital, put it back into the business as appropriate, and the fee stream associated with it creates an opportunity to focus our cash and energy on the retail business while increasing strategic value by having it off balance sheet with our partners.

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