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spk09: Hello, everyone, and a warm welcome to the 6th year of first quarter 2022 earnings call. My name is Bethany, and I'll be your operator today. There will be an opportunity to ask questions after the speaker's prepared remarks, which you can do so by pressing star 1 on your telephone keypad. I will now hand the floor over to Kwong Edeka, Senior Director of Finance at 2022 Earnings Conference Call.
spk02: On today's call, we will refer to the We're joined here today by Nelson Fonseca, 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 risk factors that could cause actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results.
spk01: Over to Nelson. Thank you, Kwong. Good morning, and thank you, earnings call.
spk03: We're pleased to report another strong quarter of results to kick off 2022, delivering solid growth and continuing our momentum from 2021. Our first quarter performance once again underscores the consistent execution from our team as we continue to leverage the robust customer and partner ecosystem we have built across our global platform. Our team delivered strong core bookings for the quarter, totaling $25.7 million in annualized revenue, with average monthly core churn in the first quarter of 1%, which is flat to the same period of $58.6 million, representing year-over-year growth of 6.2% and 4.5%, respectively. Our team focused on executing on our business
spk01: we made to our customers and shareholders.
spk03: In addition, we continued to prioritize growth opportunities, continued innovation, and strengthening of our capital structure.
spk01: From a growth perspective, we attracted 43 new logos to our platform, demonstrating the strength of our differentiated go-to-market strategy.
spk03: New logo acquisition for the quarter increased 34% on a year-over-year basis, driven by the new logo focus of our channel partner program. The focus on attracting new logos drove an 18% increase in overall channel bookings when compared to the same period the prior year. In addition, we are continuously looking for opportunities to expand our global footprint and deliver innovative solutions to our customers in new markets. To that end, we're excited to expand into India through our strategic partnership with SIFI Technologies. SIFI, which is one of the leading digital ICT solutions providers in India, operates carrier-neutral data centers across various markets in the country. SIFI shares Sextera's focus on delivering leading-edge infrastructure solutions required for enterprises' digital transformation initiatives to drive growth in their businesses. Similar to Sixtera, SIFI delivers their solutions from world-class data centers that feature robust interconnection offerings and rich ecosystems of partners. Sixtera will now be able to provide co-location services to our customers in five additional markets, including Mumbai, in one of the most important and fastest-growing global economies. Additionally, SIFI will resell our future suite of solutions across our footprint in North America, Europe, Asia Pacific, to more than its 10 000 customers we will continue to consider expansion into new markets and evaluate acquisition opportunities our focus will be on the opportunities that are accreted to our plan with a disciplined approach to capital allocation decisions along with looking at potential options to expand our global footprint we continue to drive innovation through our in-house team to ensure our solutions are delivering increasing value to our customers For us, building leading-edge technology solutions that enable customers to leverage digital infrastructure to grow their business, both today and into the future, is one of the key differentiators that sets us apart from our peers. We continue to make progress in this area with the unveiling of Sixtera Labs, a program that offers support and resources to accelerate our customers' innovations to market. The program is designed to support both startups and large enterprises with research and development projects by offering cost-effective consumption-based solutions without compromising performance control or scale we're excited to have launched xterra labs in the first quarter and look forward to supporting a broad range of customers through this initiative as i mentioned last quarter we have 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 sixterra has prioritized esg esg initiatives at the board level and established multiple levels of oversight across the organization we are proud to join the leading hyperscalers and more than 30 co-location data center providers as partners in the infrastructure mason's climate accord The iMasons Climate Accord is a cooperative of over 70 companies to reduce carbon in digital infrastructure materials, products, and power. We're committed to being good stewards of the environment and continuing to support initiatives like the iMasons Climate Accord that seek to bring together industry leaders to drive meaningful, positive guidance for how our sector can effectively reduce carbon while efficiently operating our facilities to provide the services our customers require. Lastly, we continue to make progress on strengthening our balance sheet and optimizing our capital structure during the first quarter. Carlos will provide additional color during his section. In summary, we are pleased to deliver strong financial results for the first quarter, highlighted by continued growth in core revenue and EBITDA. 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, increased profitability, and attractive returns on capital. Now, I'll turn the call over to Carlos to cover the financial results in more detail.
spk01: Thank you, Nelson. Good morning, everyone, and thank you for joining us for our first quarter 2022 earnings call.
spk04: We're pleased to report today a strong start to 2020 utility that we have seen during the quarter as a result of geopolitical and macro pressures.
spk01: The business continues to grow and are supportive of our connection-rich, differentiated offer.
spk04: As we will discuss later, energy continues to be the most salient example of this volatility alongside supply chain issues. I will speak to energy later, but in regards to supply chain, we continue to see pressure, mostly in lead time. Our abundant available capacity acts as a good mitigator to this risk, alongside great planning and dynamic execution from our engineering and data center operation teams.
spk01: With our war on redemption complete and the exercise of the forward purchase into our balance sheet, as we stated,
spk04: transactions provide clarity and strength to a capital structure now let's go a little bit deeper into the financials now turning to slide 9 total revenue for the quarter or 5.5 percent year-over-year to 182.4 million while recurring revenue increased by 9 million here to $173.7 million on the back of great customer engagement and strong overall demand.
spk01: Our scale, highly connected environment, ease of consumption, and innovative products continue to attract new customers. With that in mind, Q1.
spk04: On interconnection, revenue represented 11% of our total revenue for the quarter and grew 1% of revenue, as shown on slide 10, which excludes lumen revenue, or 6.2% year-over-year, to $165.9 million. 6.3%, a year-over-year basis points, primarily attributed
spk01: to increase revenue, more efficient installation costs, some lower expense related to time and differences, and less red expense, all of which was offset by higher utility costs.
spk04: Energy costs continue to be a key focus for Sixtera, the same way we're hearing from other players in the industry. As we discussed last quarter, we have the contractual flexibility to pass through increases in power costs, but we consider power pass-throughs activity very carefully because we understand that this is a real impact to our customers. So far, this process has been broadly constructed and will remain composed in revenue recognition. Transaction-adjusted EBITDA increased by 2.5% over the year to 58.6 million. principally due to higher revenue and in spite of higher public company costs and enhanced go-to-market efforts.
spk01: Transaction adjusted EBITDA declined by approximately 31 basis points year over year. Transaction adjusted EBITDA
spk04: EBITDA increased by 3.3 million, or 4.6% year-over-year, to 74.3 million, which equates to a margin of 40.7%. 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. Average monthly core churn of 1% for the first quarter was decreased from Q4. We're within our expected range. Although net bookings were healthy in Q1, we did see a decrease in occupancy of 90 basis points. This decrease is broadly attributable to incremental capacity becoming available, roughly 60 basis points. and a late quarter chain event, which we expect to replace in short order. Despite the sequential drop, occupancy has expanded by 320 basis points year-over-year across our stabilized markets. As detailed on slide 13, core MRR, including FX, increased by 1.1 million to 49.8 million, driven by net installations. Our MRR per cabinet increased 2.4% as contracted ramps started to flow through the calculation. On slide 16, we have provided a breakdown of our capital investments. Overall capex is up on the back of our higher expansion activity around key markets and a more normalized maintenance capex levels versus Q1 in 2021. Now turning to slide 17 for an update on the balance sheet and capital markets activity. We continue to make good progress on the deleveraging journey. Thank you for 2021. At 6.1 times, it's 1.5 times lower than the same quarter last structure and future refinancing opportunities.
spk01: We believe we have ample runway ahead of us with our term loan maturing in 2024. We continue to evaluate all financing alternatives to support our business model and growth plans in the future.
spk04: 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 this in a thoughtful and timely manner. And with that, thank you all for your continued support and for joining us today to discuss our first quarter results. Operator, please open the line for questions.
spk09: Thank you. If you would like to ask a question, please press star one on your telephone keypad now. Our first question comes from Jonathan Atkin at RBC Capital. Jonathan, please go ahead.
spk08: Yes, thanks for taking the question. Just wondered if you can give us an update on regional trends and um maybe trends by by vertical or by product maybe just give us a little bit more sense of commercial momentum um so it's whether it's particular um metros products you know any particular sweet spots you're seeing in terms of your offer whether it's bare metal or particular types of color offerings um
spk03: and and uh or or kind of end user verticals where these cases are seeing particular um momentum thanks all right thank you jonathan so look our solution is really not vertically focused so we have a capability our bare metal our global platform is really horizontal in nature we can support and we do support customers from across every vertical I think one of the two verticals that are being very important for us as we continue to grow our bare-metal offering in digital exchange is artificial intelligence, machine learning, a number of customers that are coming to us because of the ease to use our data center and our infrastructure. So that's an area that's been important. Very good for us. I mentioned our six-tier labs and some of the startups that are really looking for raw infrastructure as they launch. And so those are two areas that we've seen some nice new logo wins and some additional momentum. But truthfully, you know, the demand is strong across all the verticals and, frankly, across all the regions as well. So we're not seeing any sort of overperformance in any one vertical or any one region across the footprint.
spk08: And then CIFI does a lot of network services. They even kind of flex up into HOSIM and are kind of a systems integration type work as well as offering PureColo. So I'm just interested in was it more their national footprints that attracted them as a partner, but maybe talk to us a little bit about what led to that partnership and then the types of criteria that you might use to similar partnerships elsewhere?
spk03: Well, I think India is a market that we've always been interested in. It's a market where we get a lot of inquiries from our customers. You know, we have 2,300 customers. They're all growing, and we want to be able to support their growth needs. So this was a region that we felt we needed the solution. We know the folks at SIFI. We think they do a great job. Yes, they do some additional things in India, besides COLO, but their data centers are really carrier neutral from that perspective. It's got a great footprint with those five locations within the country. So I think it's the first step of, you know, a broader relationship and broader activity for us in India. And as far as, you know, what kind of model we'll use as we look to expand in other regions, We're always going to look at the best model for any given market, right? I think one of the benefits of our global platform and our approach is there's different ways for us to expand into new markets. This was, we thought, the best path with a great partner in India. But as we look at other markets and other regions, we may decide to do a different approach. We could buy-build. We could do a number of different things. But for India, we thought this was the right approach at the right time. We can meet some of the demand that we have from our customers, and then we can take a a long-term view of the partnership.
spk08: And then lastly, I wondered if you can just give us an update on where you stand now and if there's any types of goals you have with respect to asset ownership. I think one thing that makes your company a little bit different is that you – and how would you kind of characterize that mix now, leased versus owned, and then any –
spk01: changing that or any desire to? Yeah, look, we always start with everything we do here at Sixterra is from the customer lens, from the customer perspective, our view, and I think our strong bookings insurance performance reflects that, is that our customer's
spk03: are not worried about the ownership or lack of ownership of a data center. They want to make sure we have control of ingress and egress and networking and security, and we have that at our data center. So from a customer perspective, it really doesn't matter. It doesn't slow us down. Our asset light model is a little bit different than some of the others in the industry. It does give us some flexibility in terms of how we expand, but we're not opposed to owning data centers either, right? And so as we think about, we haven't set a goal, a target to say we need to be at X ownership percentage by a certain date. Again, we're very customer focused, but as we find opportunities in an opportunistic fashion to increase ownership, Whether that's through acquisition, you know, we will look at that, Jonathan. But we don't have a set target in terms of increasing ownership as a percentage of all our facilities. Thanks very much. Thank you.
spk09: The next question comes from Sami Badri at Credit Suisse. Sami, please go ahead.
spk07: Hi, thank you. I only have one question and then one follow-up. Could you characterize the pricing environment for the market right now for your open space? Are you seeing an opportunity to see better pricing on a per-cabinet basis than you saw about three months ago? Could you just characterize what you guys plan on seeing or what you're mobilizing for from a pricing perspective?
spk03: Thanks, Sammy. Look, pricing for us has been stable to up, and it remains that way. And I think we've been pretty clear that we price at the market level, right, across all of the number of markets that we are across the globe. So to the extent that we see opportunities to increase price, we're taking advantage of those opportunities. But, again, we're always going to peg our pricing to the market, and right now we see it as stable, and we do see it up in certain markets, and we'll continue to monitor that trend. And, obviously, if there's a way for us to increase prices, we're going to definitely take advantage of that opportunity. But stable to up is the way I would describe it in summary.
spk07: But maybe to be a little bit more specific, just so we can understand magnitudes here, Would you say that because of supply chain dynamics and just currently what's going on, that you can take price a lot more in this specific environment versus just, say, three months ago when things didn't seem as tight?
spk03: Well, I do think there's pricing opportunities, Sammy. I do want to kind of mention we are, from a retail perspective, we have customers that are in multiple markets that grow with us across the globe. So we are seeing the ability to price a little bit higher. We're being cognizant and thoughtful about that as these are the same customers that are growing with us into new markets increasingly. hopefully like India. And so we want to take a long-term customer relationship approach to how we push pricing. But yes, the dynamics are favorable for pricing. And keep in mind that we've had available capacity. It's one of the differences in our platform. And so we've been able to take advantage of really driving bookings with the available capacity that we have across the footprint. And so So, again, stay able to up, and we'll take advantage of the opportunities that we have in any given negotiation. Got it.
spk07: Thank you. The follow-up question that I wanted to come in with was, how do you balance your margin targets relative to not passing on too much power costs to your customers? Now, how would you describe the strategy of the company in this specific situation as it's to kind of take more market share and watch how much you pass over to your customers? Or is it you're trying to pass on as much as you possibly can in a very efficient and considerable way just to maintain operations and ongoing activity with the customers?
spk03: Sammy, I think those are kind of the two ends of the spectrum. But what I would say is, one, we have the ability to pass through power costs, and we are passing through power costs. And so margin is very important to us. The dynamics in the market are real. And so as our costs increase, we will be passing those costs on to the customer. That being said, we want to be thoughtful about how we do that, the timing of that. And so if there's lags in us passing those costs on, you know, in some cases that's a lag or a timing issue is an acceptable factor in certain cases. But margin is important, and we will be passing on the costs that are elevated or that we're incurring as a business. Carlos, I don't know if there's anything that you want to add there.
spk04: Yeah, I think Nelson said it, but I will just reiterate it, is put ourselves in the shoes of the customer, right? So, you know, because for us, it might be a cost recovery exercise, but for the customer, it's real cost increase, and we don't want to generate a situation where the customer rethinks their strategy with us because of that, right? So we're trying to hit a balance in which we will get back to where we need to be over a period of time that will be digestible for the customer, but eventually... The question is not how much, because we're past it all, is over what period of time. Correct. Got it. Thank you.
spk09: Next question comes from Frank Larson at Raymond James. Frank, please go ahead.
spk08: Great. Thank you. Walk us through the potential opportunity here with the SIFI deal, any sort of revenue potential there, and is there any Are there any CapEx commitments or anything like that on your end? And then maybe give us an update on what the status is with business in Singapore, that that market's opened up a little bit. How should we think about that opportunity going forward?
spk03: So let's, Frank, address SIFI first. Right now, very modest CapEx as we deploy some of our capabilities in country, but I think it's the first step of many. Again, we feel like there's significant demand. for India in and within our customer base, and this is the first step for us to capture and capitalize on that demand before we make, you know, potentially a bigger investment in the area. So I would consider it a first step of a more strategic vision for the region, but very limited capex at this point. Carlos, I don't know if there's anything that you want to add there. No, at this point it's super light. Yeah. From a Singapore perspective, great market. This is obviously one of the markets, back to some of the pricing questions that are out there, that we've been able to take advantage of strong pricing dynamics in Singapore. But, again, great demand and great pipeline for that market. We'd love to get additional capacity in that market. We're looking at different markets. options for us in region, but demand is very strong there from our customer base and good pricing dynamics as well.
spk08: All right, great. Thank you.
spk09: Another reminder to press star 1 to ask a question. The next question comes from Michael Rollins of Citi. Michael, please go ahead.
spk06: Thanks, and good morning. A couple questions, if I could. You know, the first, I think you mentioned earlier in the prepared comments that interconnection growth was 1% during the quarter. Can you unpack, you know, what you're seeing on the interconnection side, how the network densities are trending in your portfolio, and how that interconnection should grow over the longer term? And then just secondly, as you think about advancing your business plan and the opportunities in front of you, how are you thinking about the merits of being a public company in that context versus other options that you might be considering structurally for the company? Thank you.
spk03: Hey, Mike, so first let's tackle the interconnection. Interconnection revenue is growing. Our customers are using more cross-connects and our digital exchange adoption. is increasing nicely. We have more customers on the digital exchange, and they're continuing to get more and more services from us. We did see, although an increase, a smaller increase year over year from an interconnect revenue perspective. But, look, cross-connects and ports are a little bit about timing as well. We've had some great bookings and some good customer wins as they deploy and those customers ramp. I think some of that interconnection will catch up, but I think we're seeing great strength in our interconnection portfolio, and I really don't see that. slowing down. And so I think we're still on track for some of the remarks we made in the past about where our interconnection as a percentage of revenue should be going forward. From a financing perspective, we're happy to be a public company. We're performing well. And from a financing perspective, I think Carlos addressed that in his prepared remarks. Carlos, I don't know if there's anything that you want to add in terms of financing and what we're looking to do here in short order.
spk04: No, but I think going to Michael's question, we're happy to be a public company. We think being a public company opens for us a wider pool of potential capital sources, and so we think we are where we need to be.
spk06: Thank you.
spk09: The next question comes from Michael Elias at Cowen. Michael, please go ahead.
spk05: Great. Thanks for taking the question. I have a question and then one follow-up. So it seems like the enterprise demand environment has accelerated pretty meaningfully over the last six months. Just curious, coming off this leasing quarter, how would you describe the go-forward leasing pipeline and how that compares to what you were seeing this time last year?
spk03: Look, Michael, I think for us, we take a snapshot of the pipeline at the beginning of every quarter. We obviously had a strong bookings quarter in the first quarter. We see the pipeline again as similar to pricing, is stable to up, right? The pipeline is growing both from existing customers and also new logos, which we do focus a lot on new logos. We know we deliver good service and customers get value out of our offerings. So we know as we bring new customers into the fold, they're going to grow with us within a data center and throughout the platform. So demand is strong and our pipeline reflects that.
spk05: Great. And I guess for my follow-up question, you know, you talked earlier about pricing and how it's able to up. But as I think of it, you know, input costs are up, labor costs are up, power costs are up. You know, what I'm trying to understand here is your peers have talked about increasing pricing materially for their new list prices. And some of them are taking the opportunity to drive higher yields. And I guess my question for you is, How do you think about the opportunity to push pricing here higher? And if you don't do that, what does that essentially imply for the margin picture? Thanks.
spk03: Two things, and Carlos, feel free to chime in. I think, one, as I mentioned, we price at the market level, so as the market pricing goes up, our pricing is going to increase with that, and we do see pricing going up. We're thoughtful about raising prices because we take a long-term view of the business, but we will not be selling at any sort of discount to the market. That's never been our approach, and we always price higher. you know, right at that market level, so that will continue. I'll mention again, because we have available capacity across the footprint, that input cost in terms of construction maybe affects us a little bit different than our peers that are building more capacity, obviously, as we continue to drive up utilization. that will affect us in similar ways. So those are the two views. But we will continue to price at the market. We are seeing market pricing go up, and we're going to adjust accordingly. But we're going to be thoughtful about it. Carlos, anything that you want to add there?
spk04: No, I would just reiterate what you just said, which is we price at the market, and as the market goes up, We'll go up with it, right? I think, you know, Singapore and the increasing capacity that we're seeing there is a great example in which, you know, capacity is at a premium, market is going up, we'll follow the market, and we've seen it.
spk06: Thanks for the call. Thank you, Michael.
spk09: We have no further questions, so I'll hand back to Nelson, Carlos, and Kwong for any closing remarks.
spk03: All right. Well, thank you, everyone, for spending some time with us this morning. We appreciate all the questions and the dialogue and look forward to updating you all next quarter. Thank you.
spk09: This concludes the 6.0 FAFSA 2022 earnings call. Thank you for joining us. You may now disconnect your lines.
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