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spk06: Good morning and welcome to today's 6 Terra, fourth quarter 2021 earnings call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the call over to Greer Aviv, Senior Vice President of Investor Relations. Greer, please go ahead.
spk01: Thank you, Bailey. Good morning and welcome to our fourth quarter and full year 2021 earnings conference call. On today's call, we will refer to materials available on our investor relations website at ir.sixpera.com. We are joined here today by Nelson Penseca, President and CEO, and Carlos Sagasta, our CFO. After prepared remarks, we'll open up the lines for Q&A. Before we begin, I would like to remind you that today's earnings materials contain forward-looking statements, including statements regarding our future expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on slide two of our presentation, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we used several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. With that, I'll turn the call over to Nelson.
spk02: Thank you, Greer. Good morning, and thank you for joining us for our fourth quarter earnings call. We're pleased to report continued execution of our business plan in the fourth quarter, delivering solid growth and finishing out 2021 as our first year as a publicly traded company. Our full year 2021 performance demonstrates consistent execution with an efficient go-to-market strategy that leverages the robust customer and partner ecosystem we have built across our global platform. Our team drove strong core bookings for the year, totaling $100 million in annualized revenue, a 25% increase over 2020. As you can see on slide six, average monthly core churn improved quarterly throughout the year, ending 2021 at 0.6 percent. This combination of strong bookings and low return resulted in core revenue of $639 million or growth of more than 7 percent year-over-year. Building on this momentum, the midpoint of our 2022 guidance implies year-over-year revenue and transaction-adjusted EBITDA growth of 6 percent and 9 percent, respectively. Throughout 2021, we were focused on executing on the organic growth plan and delivering on commitments we made to our customers, employees, partners, and shareholders. We focused on three key themes, growth, innovation, and strengthening our capital structure. In terms of growth, I outlined the success we achieved in 2021 with core revenue growth of more than 7% and transaction-adjusted EBITDA growth of 4%, while expanding our EBITDA margin 70 basis points year over year. In the fourth quarter, we attracted 40 new logos to our platform, which accounted for more than 25% of bookings in the quarter, demonstrating the strength of our differentiated go-to-market strategy. For the full year, new logo acquisition increased 32%. Additionally, our channel partner program, which is focused on new logo acquisitions, continues to produce results, delivering an increase of more than 40% year over year. Regarding our ecosystem, interconnection revenue saw another year of solid growth at 11% over the prior year, representing approximately 11% of total revenue in 2021. We expect the percent of revenue generated from our high-margin interconnection solutions to increase over time, as we continue to add network partners and service providers to our global ecosystem. As I mentioned on the previous earnings call, innovation is a core part of Sextera's culture, and it's the driving force behind the constant push to deliver increasing value to our customers. The innovative solutions our team develops in-house is one of the key differentiators of our business and something that is difficult for peers to emulate. Throughout 2021, we unveiled leading-edge offerings that make our data centers easier to consume, allow our customers to seamlessly connect to one another, and support our customers' digital transformation initiatives. As digital transformation efforts continue to accelerate and infrastructure agility becomes an essential component of business growth, enterprises are increasingly looking to hybrid solutions to deliver the mix of resources their workloads and applications require. Our customers are seeking both the speed and scale typically associated with the cloud and the security and reliability that comes with dedicated infrastructure. Our digital exchange platform and enterprise bare metal offering address this growing market trend, providing customers the flexibility to adjust their infrastructure as their business requirements evolve, both today and in the future. Building off these earlier innovations, we recently announced our Smart Cabs offering. which leverages the digital exchange platform to provide on-demand co-location cabinets complete with built-in power and an integrated configurable core network fabric. SmartCabs delivers dedicated on-demand IT infrastructure resources to OEMs and technology service providers, significantly reducing deployment schedules and accelerating time to solution. In a recent press release, We called out how companies like Dell Technologies and Packet Fabric gain immediate access to a ready-to-buy audience of enterprises who are looking to purchase technology solutions in an on-demand as a service model. For OEMs and service providers, this capability makes it easier for them to leverage Sixtera's global data center platform as a high-growth sales channel. Our most recent innovation comes in interconnection. an area that's foundational to our customers' ability to architect their hybrid IT environments. Building on the strength of existing capabilities, we're extending the value provided by Sixterra's ecosystem by enabling customers to establish on-demand connections to every major cloud provider directly via our digital exchange. The offering allows our customers to reduce network cost, increase bandwidth throughput, and improve network performance and reliability. While we have long offered reliable low-latency cloud connectivity via partner solutions, we now enable customers to natively connect to cloud providers on demand directly through the customer portal. To close out 2021, we made meaningful progress on strengthening our balance sheet and optimizing our capital structure, which Carlos will discuss in more detail. We are well-positioned to enter our next phase of growth, with greater access to capital and the flexibility to support our strategic growth initiatives. As we look ahead to the remainder of 2022, we will maintain our focus on sustaining our organic growth while building on our differentiation through additional innovation. We will also prioritize our environmental, social, and corporate governance initiatives while evaluating strategic opportunities to expand our global data center platform. At Sixtera, we believe in harnessing our people, our products, and our culture of innovation to leave the world just a little bit better than we found it. To achieve this, we developed a holistic ESG approach that prioritizes the needs of each of our stakeholders, including our customers, employees, shareholders, partners, the environment, and society as a whole. To ensure we continue to make meaningful progress across all areas, Sixtera has prioritized ESG initiatives at the board level and established multiple levels of oversight across the organization. When looking at our responsibilities in ESG and based on the sector in which we operate, mitigating the impact of our operations on the environment is top of mind. To this end, we've established proactive sustainability and efficiency measures that enable us to minimize energy demands without compromising reliability. On slide 10, we list some of the key metrics that are guiding our ESG efforts. Sixtera's share of non-carbon emitting energy is currently at 53%, with the goal of achieving 100% by 2030. In addition, our average PUE of 1.5 is in line with our retail co-location peers. From a social impact perspective, we're focused on maintaining our culture of high-performing teams, by cultivating a diverse and inclusive workforce, investing in our employees to develop our next generation of leaders, and providing opportunities for employees to give back to their communities. Currently, 43% of our company's leaders at the BP level and above represent gender and ethnic diversity. In addition, 60% of the employees participating in our leadership development program also represent gender and ethnic diversity. From a governance perspective, We are focused on maintaining trust with our customers, partners, shareholders, and the overall industry from our board of directors on down. Our board consists of separate CEO and chairman roles. 78% of our directors are independent, and 56% represent gender and ethnic diversity. We are proud of our strong corporate culture and our ESG focus and have the governance structure in place to deliver continued improvement. As we look to further accelerate growth, we will evaluate expansion into new markets and other inorganic initiatives opportunistically. We have implemented an internal process to effectively evaluate the many opportunities that are available to us. We intend to focus our geographic expansion efforts in international markets, which we believe adds to our strategic positioning and provides increasing value to our customers. More importantly, we will focus on those opportunities that are accretive to our organic plan with a disciplined approach to capital allocation decisions. In summary, we are pleased to deliver strong financial results for 2021, highlighted by continued core revenue growth and expanding EBITDA margins. We are excited about the opportunities ahead of us and look to leverage our differentiated global platform, strong ecosystem, and innovative solutions to drive accelerated growth, increase profitability, and attractive returns on capital. Now, I'll turn the call over to Carlos to cover the financial results in more detail.
spk04: Thank you, Nelson. Good morning, everyone, and thank you for joining us for our fourth quarter earnings call. As you heard from Nelson, we executed well in 2021 and continue to see good returns on our organic investments. 2021 was a pivotal year for Sigsterra as a public company, We now have the access to new capital sources to fuel continued growth, accelerate product and technology innovation, and enhance our ability to quickly meet customer needs and support further strategic go-to-market efforts. The purposeful steps we have taken to strengthen our balance sheet and reduce financial leverage enables us to continue to fund growth and support a strong outlook for 2022, which I will discuss in more detail in a few minutes. Turning to slide 12, total revenue for the quarter increased by $5.7 million, or 3.3 year-over-year, to $178.4 million, while recurring revenue increased by $6.4 million, or 3.9% year-over-year, to $170.3 million. The strong revenue performance can be attributed to continued momentum in Netbooking's performance during the fourth quarter. Our innovative products and services, such as bare metal and smart cabinets, which we recently launched, are expected to attract new customers, enhances the robust ecosystem we have built across the 6DR platform. With that in mind, Q4 interconnection revenue represented 11% of total revenue for the quarter and grew 5% year-over-year. For the full year, interconnection revenue grew 11%. Core revenue, as shown on slide 14, which includes lumen revenue, increased by 11.6 million, or 7.7 year-over-year, to 162.5 million. Gross margin was 42.3% year-over-year increase of 200 basis points, primarily attributable to increased revenue and approximately $2 million in lower installation costs due to ongoing efficiency initiatives, which was offset by higher utility costs in the fourth quarter. As we discussed last quarter, we have the contractual flexibility to pass through increases in power costs, which covers more than 85% of our contracts. While higher energy costs are an issue impacting the broader data center industry, we have factored this into our outlook for 2022 and continue to expect this to have a small impact on our results. However, we consider power pass productivity very carefully because we understand that this is a real impact to our customers. Finally, there's a timing impact between the cost change and our ability to pass it on. I'm sure energy costs will remain a key topic of discussion throughout the course of 2022. Moving on to transaction-adjusted EBITDA, it increased by 0.8 million or 1.7% year-over-year to 48.0 million, primarily due to higher revenue. Transaction-adjusted EBITDA margin of 26.9% declined by approximately 40 basis points year-over-year. Transaction-adjusted EBITDA decreased by 1.6 million or 2.6% year-over-year to 63.7 million, which equates to a margin of 35.7%. As a reminder, we view transaction-adjusted EBITDA as the best metric for comparing our performance to our peers because it adjusts for our asset ownership structure. I also want to remind everybody that our transaction-adjusted EBITDA and EBITDA have been able to absorb significant public company costs that were above and beyond our original expectations and skew year-over-year comparisons. Average monthly core churn of 0.6% for the fourth quarter improved 60 basis points year-over-year and represents the lowest quarterly level in more than eight quarters. For the full year, average monthly core churn of 0.8% improved 20 basis points from the 2020 level. The healthy booking strength coupled with improved churn rates has resulted in a strong increase in occupancy. We ended Q4 with occupancy of 71.4%, primarily driven by increases across our stabilized markets. This represents an increase of 430 basis points over our 2020 exit rate and a 240 basis point increase from the third quarter level. The strong sequential increase in utilization was led by our international markets, with Frankfurt experiencing double-digit occupancy growth. Within North America, occupancy gains in New Jersey and Seattle were directly related to expansion of existing customers, while Toronto and Denver also benefit from customer deployments in Q4. As detailed on slide 17, core MRR, including FX, increased to $48.7 million, primarily due to $1.2 million of net installations. Our fourth quarter MRR per cabinet decreased 4%, primarily due to a contractual revenue ramp with a specific customer in the New Jersey market. On slide 20, we have provided a breakdown of our capital investments. between the major buckets of expansion, maintenance, and corporate. Q4 CAPEX was approximately $25 million above the year-ago level, though below our previous guidance due to the timing of certain projects. A reminder, we currently have ongoing expansion projects in London, Silicon Valley, and Chicago. And maintenance CAPEX was done modestly year-over-year, also due to the timing of projects. If we now turn to slide 21 for an update on our balance sheet and capital markets activity. As I mentioned earlier, we have been able to significantly reduce leverage during 2021. We ended Q4 with financial net leverage declining to 3.8 times from 5.6 times in Q4 2020, an improvement of 180 basis points. We're making great progress on our goal to lower net financial leverage closer to our long-term target and are confident that we can continue to deliver as EBITDA grows. And debt levels remain constant. We view this metric as the best way to measure the liquidity of this business, and we can better control the different variables. You can also see on the slide that least adjusted leverage in Q4 was 6.4 times, an improvement of 100 basis points year over year. As it relates to our capital structure and future refinancing opportunities, we believe we have ample runway ahead of us, with our term loan maturing in 2024. We continue to evaluate all possible avenues that make the most sense to support our business and growth plans in the future. While we are not under any pressure to address any financing needs in the near term, it has always been our philosophy to get ahead of these items in a thoughtful and timely manner. As you likely saw from our recent press releases, in December, we announced the redemption of the 20.2 million outstanding public and private warrants, which was completed in January. More than 92% of the warrants were exercised on a cashless basis in exchange for approximately 5 million shares of common stock. As of January 25th, we had 171 million shares of common stock outstanding. We believe this goes a long way to add clarity to our capital structure. In addition, we announced that the forward purchases and SIS holdings elected to purchase 7.5 million shares of common stock at a price of $10 per share, pursuant to the optional share purchase agreement entering in September of 2020. In the first quarter of 2022, we received gross proceeds of $75 million related to this transaction. Finally, turning to our outlook for the year on slide 22, we're pleased to introduce 2022 guidance ranges, which implies strong revenue and transaction-adjusted EBITDA growth. We expect total revenue in the range of $730 to $760 million, a year-over-year increase of $41 million at the midpoint, or 6%. We expect transaction-adjusted EBITDA of $235 to $253 million, a year-over-year increase of $20 million at the midpoint, Looking ahead to our 2022 outlook for capital expenditures, we expect maintenance capital expenditures to be approximately 3.6 to 3.7 percent of revenue, primarily due to timing of projects I previously noted. As it relates to expansion capital, we anticipate expanding between $102 to $127 million on a year-over-year increase of $47 million at the midpoint. We expect this increased level of expansion capex primarily to build our capacity for specific customer deployments, signing 2021, and to support other ongoing development projects discussed previously. In the context of future growth and expansion, supply chain challenges have been widely discussed across many industries, including the data center industry, resulting at times in delays or inflationary pressure. While we are not immune to these challenges, we are somewhat more insulated due to the nature of our development pipeline, and we're able to successfully navigate these issues to the end of 2021. That said, as we enter 2022, we have seen the manufacturing cycle lengthen for a myriad of reasons, including shortages of raw materials and imbalance of supply and demand across all markets. We have seen only a modest increase in prices as we work closely with our suppliers and partners to ensure we optimize the way we purchase, such as reducing our supply pool, buying over longer time horizons, or higher volume where necessary. All of these factors have been contemplated in our 2022 outlook, and we are confident that we can continue to successfully engage with our partners to lessen the impact of challenges should they intensify. Before concluding, I would be remiss not to thank our Sixtera teammates across the world for their dedication and commitment to achieve the many successes of 2021. With that, thank you all for your continued support and for joining us today to discuss our fourth quarter four-year results. Let me turn it over to the operator to open the line for questions.
spk06: Thank you. Operator? Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove that question for any reason, please press star followed by 2. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove your question for any reason, please press star followed by 2. Please remember, if you are using a speakerphone, please remember to pick up your handset before asking your question. The first question today comes from Frank Lothan from Raymond James. Frank, please go ahead. Your line is now open.
spk08: Hey, guys, this is Rob one for Frank. So how much would you say that your margins are impacted by inflationary items this year? And then can you highlight the largest impacts of inflation on your business so far?
spk04: Hey, Frank, sorry, your line had a horrible crack behind it. And there was things that we lost the first part of the question. Can you try asking it again, please?
spk08: Yeah, hey, no worries. And this is Rob one for Frank. So so how much are your margins impacted by inflationary items this year? And can you highlight the largest impacts of inflation more generally on your business? Thank you.
spk04: So, I think in general, we believe that inflation is going to have a relatively small impact on margins. I think there's a few basis points of pressure that we're seeing. I would say, you know, when you look at our cost structure, our cost structure fundamentally is rent expense, energy, and human resources. Human resources, we're seeing some inflation pressures, but nothing major. It's really all about energy. And so on an absolute basis, we believe we have great capabilities to pass on that cost. So although on an absolute dollar basis, we don't see pressure, obviously we're going to see some dilution from a margin perspective. I think energy remains the single source of focus of inflationary pressure for us in 2022.
spk08: Great. Thanks, guys.
spk06: Thank you. The next question today comes from Jonathan Atkin from RBC Capital Markets. Jonathan, please go ahead. Your line is now open.
spk03: Hi. Good morning. This is on behalf of John Atkin. We have a few questions, if you could take them. First, on data center occupancy, what is the FY 2022 occupancy target for the company? Secondly, related to the interconnection segment, could you comment on the volume of CrossConnect additions in the quarter? And then lastly, on the digital exchange business, what is the correct annual revenue run rate of that business segment? And what was the attach rate of those services for the new bookings? Thank you.
spk02: So from an occupancy perspective, I don't think we've given a metric for what 2022 occupancy will be. I think we've given longer-term guidance on what we expect occupants to be over a five-year period, and so that's what we're focused on. From an interconnection perspective and digital exchange, frankly, for us, They're one and the same with interconnection, including both our physical cross-connects and our digital exchange ports. We also haven't broken out yet uh what the amount of digital exchange uh connections reports uh we've been selling what i will tell you and i've said this publicly multiple times is that it is a core part of our go-to-market strategy and so the customers we mentioned the the new logo performance that we had uh in the fourth quarter and that we've been seeing we attribute that to the selling of our entire value proposition which is our global data center platform the strong ecosystem and the digital exchange environmental platform so That's how our sales team goes to market, and that's what's really driving our accelerated bookings and lowering of churn. But we haven't broken out those statistics yet at this point. Carlos, I don't know if there's anything that you want to add there.
spk04: No. I think the only thing I would say is that we're satisfied with our interconnect growth in 2021.
spk02: Yeah, we had strong interconnection growth, yes.
spk04: Yes.
spk06: Thank you. Thank you. The next question today comes from Michael Rollins from Citi. Michael, please go ahead. Your line is now open.
spk05: Thanks, and good morning. I had three questions, if I could, please. The first one is just looking at the supplemental schedule. Can you just walk through kind of the flows of the quarter where it looks like the exit MRR was flat, the core was slightly up, but the MRR per cabinet was down. And just kind of curious, like, what was driving those items and, you know, where the backlog is sitting, kind of exiting 21. And then the second question is just on there's an increase in the option to extend capital leases, and just curious what drove that in the quarter. And then finally, just taking a step back on – opportunities for demand and utilization broadly? What are the opportunities to fill a number of the other markets that maybe weren't as robust in the fourth quarter where you had a few markets that were that seemed to kind of pick up in utilization? But what are the opportunities to kind of spread that demand out into many more of your markets over the next 12 months? Thanks.
spk02: Thanks, Mike. So let's address all three. I'll take the last one first. Look, we're very excited about the bookings performance. Bookings, by definition, is always a little bit variable and a little bit choppy. But when you take a look at kind of the occupancy growth that we've had over the year, we're very pleased with it. Carlos mentioned in his remarks some of those key markets where we saw increases in Q4. When you think about Frankfurt, You think about Denver. You think about some of these markets that maybe in previous quarters we would have said, hey, how do we plan on driving occupancy up in those markets? The reality is, as I mentioned in the previous answer, the way we go to market is selling the full value proposition of our global platform. And so, yes, we are focused on driving occupancy up in every market. But, you know, that's going to fluctuate a little bit from a quarter-to-quarter perspective, but not something that we're concerned about. Carlos, I don't know if you want to address the other thing.
spk04: Yeah. So on your first question, Mike, on the MRR per cabinet versus the exit MRR bridge, obviously, you know, when we look at that MRR bridge on page 17, we feel that, you know, exit MRR for the core business is actually doing very, very well. It's part of the reason why that growth of around 7% to 8% feel strong for us. I think what you see on the MRR per cabinet is a temporary reduction because the way we report that metric, once a customer signs a contract, we assume all those cabinets in the denominator. But the revenue for that ramp is still not showing in the numerator, and so you're seeing a temporary decrease in the metrics simply because you have a time lag between the cabinets coming into the calculation, so to speak, and the revenue coming into the calculation. So that's something that should work itself out between Q1 and Q2 of 2022. And then on the options to extend is we added a new lease for a new facility that we got from the developer in the fourth quarter. And as you know, as part of our methodology up until now, we tend to capitalize all the options, and that's where you see the increase.
spk05: And so is that facility new development, or is that lease related to – something existing or expansion of an existing facility?
spk04: It was a new facility that we added in one of our markets, but it's part of keeping our occupancy with enough response time to make sure that we can continue to capture customer growth.
spk05: Thanks for answering all my questions this morning.
spk06: Thanks, Michael. Thank you. The next question today comes from Michael Elias from Cowan. Michael, please go ahead. Your line is now open.
spk07: Hey, thank you for taking my question. This is Joseph from Michael. I just want to touch on guidance really quickly. First, is there anything for upcoming loom insurance included in your guidance ranges? And two, I just noticed that the revenue in particular and adjusted EBITDA as well have a little bit wider ranges than normal. Is there any reason behind that? If you just touch on that really quickly, it would be much appreciated. Thank you.
spk04: Sure. So on Lumen, if you go back to our Analyst Day presentation from May of last year, I think we already projected there and gave a sense of how we assume revenue was going to be impacted by the Lumen contract, as you know. In May of this year, we're having the first step down in that contract, which is the 24-month step down. What we have projected is very much in line with what we disclosed back in May of last year. So there should be little to no surprises there.
spk02: And it's taken into account in the guidance.
spk04: Yes. And then from a ranger's perspective, I think, yes, it's a little bit wider, in part because last year we came out at such a late date, so to speak, that a good chunk of the year we already had great visibility. And so we went with a maybe tighter guidance range. This year, because of the many things that are making the market volatile, we decided to take a little bit of a broader range. We like to under-promise and over-deliver, and so we felt it was a good cautionary step to take in 2022. Okay.
spk07: Thank you. Thank you.
spk06: As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from James Breen from William Blair. James, please go ahead. Your line is now open.
spk09: Thanks for taking the question. Just on the occupancy rates, can you talk about, you know, given the assets you have, where you see that sort of moving to as you get to a more stable environment? You know, is that low 80s, high 80s, low 90s, based on the assets that you have today. And then just from a leverage perspective, just general thoughts around where you think, obviously it's coming down year over year, where you think you'd get to before it sort of finds out. Thanks.
spk02: Yeah, so on the occupancy, I think we've been consistent in our comments about driving occupancy up to 80%. by 2026 in that range. That means that at that point we want to have additional inventory in that market. We do treat a couple of markets a little bit differently, but that doesn't stop us from being able to drive occupancy a little bit further in those data centers. But that's what we've said publicly, and kind of our goal over the next few years is to drive it to that 80% to 85%. Carlos, I don't know if you want to address this.
spk04: Yeah, and on the leverage side, James, we've always said that our long-term leverage target on a financial basis was around three times. And so I would say as we approach that three times, I would expect that to be flattening out.
spk09: Great, thanks.
spk06: Thank you. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. There are no additional questions waiting at the time, so that concludes today's 6 Terra fourth quarter 2021 earnings call. Thank you all for your participation. You may now disconnect your lines.
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