Oct 21, 2009
Executives
Jason Starr - Director, Investor Relations Stephen M. Smith - President and Chief Executive Officer Keith Olsen - President and Chief Executive Officer, Switch and Data Keith D.
Taylor - Chief Financial Officer
Analysts
Jonathan Atkin - RBC Capital Markets Jonathan Schildkraut - Jefferies & Co. Chris Larsen - Piper Jaffray Michael Rollins - Citi Group Ilya Grozovsky - Morgan Joseph Colby Synesael – Kaufman Brothers Frank Louthan - Raymond James Erik Suppiger – Signal Hill Group Gray Powell - Wells Fargo Securities Mark Kelleher - Brigantine Advisors Simon Flannery - Morgan Stanley Chad Bartley - Pacific Crest Securities
Operator
Good afternoon and welcome to the Equinix Q3 2009 earnings results conference call. (Operator Instructions) I’d like to turn the call over to Jason Starr, Senior Director of Investor Relations.
Jason Starr
Good afternoon and welcome to our conference call today. Today we will be discussing the acquisition of Switch and Data by Equinix as well as our third quarter 2009 results.
Before we get started, I would like to remind everyone that some of the statements that we’ll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and maybe affected by the risks we identified in today’s releases and those identified in our filings with the SEC, including our Form 10-K filed on February 26, 2009 and Form 10-Q filed on July 29, 2009.
Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix’s policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.
In addition, we’ll provide non-GAAP measures on today’s conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today’s press release on the Equinix Investor Relations page at www.equinix.com.
Additionally, we have posted two documents on our IR Web site to provide an overview of today's announcement. We would also like to remind you that we post important information about the company on the Investor Relations page of our Web site.
We encourage you to check our Web site regularly for the most current available information. With us today are Steve Smith, Equinix’s Chief Executive Officer and President; Keith Taylor, Equinix’s Chief Financial Officer; and Keith Olsen, Switch and Data's President and CEO.
Following our prepared remarks, we will be taking questions. Based on feedback, we are targeting an hour's length for this call.
In support of that, I would like to ask that follow-on questions be limited to one. A final note for today's call, because Switch and Data has not released their Q3 financial results, we will not be able to answer any questions regarding this topic on today's call.
At this time, I’ll turn the call over to Steve.
Stephen M. Smith
Thank you, everybody, for joining us today. As I imagine you have all seen in today's press release, we have announced the acquisition of Switch and Data, so we have a little more to talk about than just our Q3 results.
This agreement will extend our industry leadership as the number one global data center colocation service provider. Of course, as you also saw today, Equinix delivered another great quarter posting strong results across all key metrics.
Keith Taylor will provide you a detailed look at the quarter in a moment, but let's first talk about this exciting news. Today's announcement represents the execution of an agreement to acquisition Switch and Data for $689.0 million in cash and stock based upon yesterday's closing price.
And as most of you would know, Switch and Data also has $142.5 million of outstanding term debt. Stockholders of Switch and Data will receive a combination of cash and stock, with cash representing 20% of the total consideration, as outlined in our press release today.
We do expect this transaction to close in the first quarter of 2010. We are very excited about this transaction for a number of reasons.
First, we believe this combination is very attractive, with the ability to produce strong, strategic, and financial synergies and will be accretive to our shareholders. Second, we believe that this transaction will enable us to efficiently enter 16 new markets in North America, including key markets such as Atlanta, Denver, Miami, Seattle, and Toronto, all with existing data centers, rich network density, a strong customer base, and established operations teams already in place.
Third, this transaction brings important additional space and revenue capacity in Dallas, New York, and Silicon Valley, where we are experiencing high demand. As a combined company, we will improve operating efficiencies in all the current markets we serve.
Ultimately, this will give us a stronger platform for delivering lower-latency solutions to a larger footprint of North America, which is increasingly important to our customers. Fourth, because we understand Switch and Data's business model and the needs of their customers, we expect a smooth integration.
In getting to know the management team we recognized a common customer-focused culture that we plan to maintain going forward. Our strong balance sheet and commitment to expansion continue to make Equinix the company customers can grow with.
We believe this is important for the customers of both companies, while they also gain the leverage of the combined companies customer focus and operational expertise, now covering a broader set of North American markets and all in the context of a global footprint. And finally for our investors, we will be adding significant revenues and adjusted EBITDA to our run rate.
The combined companies will continue to have a recurring revenue model with a high fixed cost structure. This provides the visibility and ongoing predictability you have become accustomed to.
And with this added scale, we will gain a number of benefits, including lower leverage ratios and greater access to capital, likely at lower costs. Of course, the deal is still subject to Switch and Data's shareholders' approval, regulatory review, and customary closing conditions.
Again, we are targeting closing this transaction in the first quarter of 2010. So let me stop there and turn it over to Keith Olsen at this time to give a quick Switch and Data perspective on this transaction.
Keith Olsen
Good afternoon, ladies and gentlemen. It is my pleasure to join you on the call today to discuss the exciting announcement.
By joining our two great businesses, we combine a shared commitment to excellence in supporting our customers. With this combination, we create synergies in our complementary business models and we leverage our high-quality data centers and their respective capacities and footprints.
A combination of Equinix's global data center footprint and Switch and Data's broad North American footprint provides our customers improved access to the world's population centers and a single partner for their global data center requirements. This combination of assets and employee talent drives tremendous into markets we serve.
This acquisition helps our customers address and respond to two broad market trends. Network-based businesses create value by increasing the number of eyeballs, eardrums, and end points served.
To do this, they need to aggregate and distribute information in close proximity to population centers to reduce latency, optimize their service performance, and provide platforms for their growth. The combination of Switch and Data's North American footprint and Equinix's global reach enable our customers to increase their market reach and enhance their service offerings.
I am very proud of the business Switch and Data has built over the past ten years. We continue to successfully execute on our strategy.
We started with a handful of employees and one data center ten years ago. Today we employ over 370 associates and operate 34 sites that aggregate and distribute worldwide digital content to many of the biggest network-centric brands.
It is important to remember that success is an ongoing journey. The customers we serve include the leader in their respective industries and we compete for business with numerous data center service providers from global providers to regional players.
By creating a company with more than $1.0 billion in revenue and operations on four continents, we are evolving our business to better serve our customers and compete on this global stage. We are excited about the new opportunities that this deal creates for our employees, customers, and shareholders, and in the coming months, until this deal closes, all of us at Switch and Data will continue to execute our strategy and focus on providing the best possible service and support to our customers.
Thank you again. And I will now turn it back over to you, Steve.
Stephen M. Smith
Thanks for your leadership. And thanks to the whole Switch and Data team for building a great company.
We look forward to working closely with you to create something special that our customers, employees, and shareholders will be proud of. I would like to now turn it over to Keith Taylor to review the highlights of our third quarter results with you.
Keith D. Taylor
I am pleased to provide you with our third quarter results with some additional color on the trends for the fourth quarter. I do want to start with revenues first.
Our Q3 revenues were $227.6 million, a 7% quarter-over-quarter increase, reflecting strong performance in each of our three regions. The U.S.
dollar continued to weaken against all of our operating currencies, resulting in a $1.3 million currency benefit in the quarter, as compared to our Q3 guidance rates. U.S.
revenues increased to $136.3 million, a 5% increase compare to the last quarter, the result of strong bookings throughout the year. European revenues increased to $60.8 million in the quarter, a 10% sequential improvement, partially the result of growth in our power revenues and the strengthening of EU currencies compared to the U.S.
dollar. Asia Pacific revenues increased to $30.4 million in the quarter, a 7% increase over the prior quarter, driven by an increase in our connection revenues and strong operating currencies.
Looking forward, we expect the U.S. dollar-denominated revenues to approximate 60% to 65% of total revenues, while we expect the Euro- and pound-denominated revenues to approximate 15% and 10% of total revenues respectively.
For Q4 we have assumed a $1.48 to the Euro and a $1.63 to the pound for our exchange rates. Looking at churn, for Q3 our global MRR and cabinet churn rate was 2.3% and 2.2% respectively, consistent with the guidance expectations for the quarter.
We anticipate Q4 churn levels to be consistent with Q3 levels, modestly higher than our ongoing targeted level of 2% per quarter. Next, moving on to gross profit and margins.
The company recognized gross profit of $101.6 million for the quarter, for gross margins of about 45%. Our cash gross margins were 64% in the quarter, at the high end of our expectations, despite incurring approximately $5.4 million of expansion costs in the quarter.
In the U.S. our cash gross margins were 68% and reflect continued fiscal discipline related to our discretionary spend, slower than expected hiring, and favorable tax recoveries.
These positive cost trends were offset by increased seasonal utility costs and expansion costs in the quarter, including a $1.9 million charge related to our Chicago-4 lease, which began in July 2009. As a reminder, we exclude the cost of the Chicago-4 lease from our past guidance assumptions while we determined the appropriate account treatment.
We have now determined that the lease will be treated as an operating lease and the lease expense will be reported in our cost of revenues on a go-forward basis. Europe cash gross margins were 54%, a 1% decline in the quarter, the result of higher power revenues.
Asia Pacific cash gross margins improved to 65%, 2% over the prior quarter, the result of fiscal discipline and strong inter-connection revenues. Looking forward, we expect the Q4 cash gross margins to range between 63% and 64%, consistent with the prior quarter, due to continued expansion activities in each of our reasons, while also recognizing the added cost of our new Chicago-4 lease, which is now being reflected in our revised guidance today.
Weighted average price per saleable Cab-E in the U.S. was $1910 versus $1893 the prior quarter, a 1% quarter-over-quarter increase and up 8% year-over-year.
In weighted average price per saleable Cab-E was 1437 compared to 1370 last quarter, a 5% quarter-over-quarter increase, the result of increase inter-connection revenues and stronger operating currencies against the U.S. dollar.
With respect to Europe, our weighted average price per saleable Cab-E increased to $1116, compared to $1009 last quarter. This improvement reflects three key trends.
First, a higher than expected increase in power revenue, two, strong growth on the inter-connection revenue line, and three, a weakening U.S. dollar.
Effectively, our EU customers are now purchasing more services per average saleable cabinet, resulting in strong sequential improvement in the quarter. Now looking at our SG&A, our SG&A expenses for the quarter were $54.6 million.
Cash SG&A expenses for the quarter were $39.6 million, or 17% of revenues, a 1% decrease compared to the last quarter. The company continues to manage its discretionary spend across many of the key corporate lines although we do expect some of the year-to-date SG&A savings to be spent in the fourth quarter.
Moving on to net income and adjusted EBITDA, for the quarter we generated net income of $18.8 million, including the impact of $7.3 million of an income tax provision. Interest expense increased by $6.3 million in the quarter, reflecting the full quarterly impact of our 4.75 convertible financing in June 2009.
Basic and diluted earnings per share were $0.49 and $0.47 respectively. During the quarter, we reassessed the assumptions related to the estimated useful life of our property, plant, and equipment assets.
As a result of this effort, we reduced our Q3 depreciation and amortization expense by $4.8 million. This reduction was offset by increased D&A expense from our IBX expansions in the quarter.
For more details related to this change in estimate, please refer to our Form 10-Q, which will be filed shortly. Looking at our income taxes, the effective income tax rate for the quarter reduced to 28% from 38.6% last quarter, the result of higher taxable profits in lower taxing jurisdictions and the discrete tax benefit related to the release of our Hong Kong valuation allowance.
As a reminder, although the majority of our tax provision is non-cash, we do anticipate paying some cash taxes in 2009. Our adjusted EBITDA was $106.0 million for the quarter, including an approximate $565,000 benefit from foreign currency fluctuations compared to our guidance rates.
Adjusted EBITDA for the quarter on a constant-currency basis, with the average rates used in Q2, would have been approximately $104.2 million. Turning to our balance sheet and cash flows, at the end of Q3 our unrestricted cash balances totaled $627.4 million.
This reflects the closing of a $26.0 million debt facility in Singapore related to our Singapore-2 asset. Also, we continued to benefit from strong operating performance, excellent customer collections with global DSOs being less than 30 days and lower-than-planned capital expenditures.
Next, moving on to some comments on cash flows. First, our net cash generated from operating activities was $107.5 million for the quarter, a 37% increase over the prior quarter.
On a year-to-date basis we have generated $273.0 million of operating cash flows, a 92% correlation to our adjusted EBITDA. Cash use from investing activities, excluding short- and long-term cash investments, was $114.5 million for the quarter, primarily attributed to our net investment in capital expenditures and the purchase of our Frankfurt-4 asset by the [inaudible] acquisition.
Our capital expenditures continue to trend below our expected levels, although we believe Q4 capex should increase, given the level of construction activity we have across each of our regions. Also, we will see increased construction activity related to our Silicon Valley-5 and our D.C.-6 assets this quarter.
Looking at our capex guidance for Q4 and 2009, we have revised our expansion capex guidance downwards and total capex will range between $390.0 million and $400.0 million. This reflects two key changes.
First, the original expansion capex estimates for both our New York-4 phase three, and our D.C.-6 expansion projects have been reduced by approximately $20.0 million each, the result of lower than expected construction costs plus our ability to modify the initial build-out specifications related to our New York-4 phase 3 build. And two, the anticipated spending in Q4 related to both our D.C.-6 and Silicon Valley-5 has been lowered to approximately $17.0 million and $5.0 million respectively.
Cash generated from financing activities was $28.8 million for the quarter, primarily derived from the net proceeds of our Singapore debt facility and proceeds from our employee equity plans. This was partially offset by payments on our term debt and capital leases.
Finally, with respect to our equity balances outstanding, we have approximately 39.0 million shares of common stock outstanding at the end of Q3. This number excludes the shares related to our convertible debt, a large portion of which we intend to settle with cash, and 3.4 million shares related to employee stock plans and other warrants.
Now, let me turn the call back to Steve.
Stephen M. Smith
So as you can all see, our business fundamentals and momentum in the marketplace remain very, very strong. In preparing for today's call, we reflected a bit on our position at this time last year.
We had an increasing sense of the uncertainty and challenges we were sure to face in 2009. Despite this, we still felt confident in our opportunity over time.
As we have said more than once, we believe the strength of our business, the quality of our customer relationships, and our financial position, would enable us to emerge even stronger as we returned to more stable economic times. With a continued strong pipeline and demand that is still outpacing new supply, our business has been powering through a difficult macro environment.
We believe that the decision to continue to invest in our expansions and future growth was the right one in 2009 and clearly an example of our confidence in our longer-term opportunity. Today's announcement of our agreement to acquire Switch and Data is yet another example of our confidence in our future.
As we emerge from a weak economy in 2009, the combination of these investments are proving to extend our scale and reach to better serve our customers and build upon our market position. So now, before we take questions, I would like to provide you with a quick update on guidance to close out our expected performance for 2009.
We now expect our 2009 revenues to be in the range of $875.0 million to $880.0 million, or over 24% growth at the midpoint. We expect cash gross margins to range between 63% and 64% for the year.
Cash SG&A will approximate $160.0 million for the year. We are raising our adjusted EBITDA expectations to a range of $395.0 million to $400.0 million, with the midpoint up another $12.5 million from our previous expectations.
As Keith explained earlier, we are lowering our expectations for 2009 capex to now be $390.0 million to $400.0 million, including $60.0 million in ongoing capex. As you might expect with today's announcement, the team has been pretty busy in getting this transaction signed.
As the closing of this acquisition progresses and our 2010 operating plan solidifies, we expect to be able to provide you full 2010 guidance on our Q4 earnings call. In the meantime, we wanted to provide you a preliminary view that, based on our pipeline and bookings trends, we would expect our organic revenues to grow in excess of 20% in 2010 while maintaining strong adjusted EBITDA margins.
So in conclusion, as we look forward to next year, we are very excited about our prospects for continued top- and bottom-line growth. Today's transaction, when combined with our global expansion, internal investments and systems, processes and people to operate on a global basis, promises to make 2010 another exciting year for Equinix.
At this time, we would like to open it up for questions.
Operator
(Operator Instructions) Your first question comes from Jonathan Atkin - RBC Capital Markets.
Jonathan Atkin - RBC Capital Markets
With regard to the transaction, I wonder if you can comment, qualitatively, on those areas where you expect either top-line synergies, or perhaps SG&A synergies. And then from the anti-trust standpoint, are there any issues to consider given that both of you are significant players in the carrier neutral space and among the leading providers of cross connect and peering services.
Stephen M. Smith
I'm glad you started out with that question, because Keith and I today, and Keith Olsen, are not going to be able to discuss deal structure, returns, any post-integration strategies, synergies, or employee changes. And as Jason mentioned, anything about Switch and Data's Q3 performance.
So any deal specific that's not contained in the press release, we're just not in a position today to give you any more color. In terms of the regulatory position, rest assured that we have looked very hard at this.
We do not believe that the transaction presents any competitive concerns. We are taking the position that the North America data center market is a big market, as you guys know, pretty highly fragmented.
And if you include all the hosting players in that space you know it's in excess of 17 and 17.5 billion. So there are in excess of 350 to 360 companies that are in this space.
So our position is that we will let the regulatory case play itself out.
Jonathan Atkin - RBC Capital Markets
Moving away from the income statement, if you can comment on with respect to acquired assets, what types of investments do you typically make [inaudible] and are there any non-core data assets that would be candidates for divestiture?
Stephen M. Smith
I think we caught most of that. You broke up a little bit.
But on the back-end of your question, we are still in the analysis phase of how we will combine the other data centers. And it will probably give us an opportunity to tier our services in the future.
We've been looking at that. I think we've signaled that to you guys before.
So now that we are going to have a combination of 79 data centers in 34 markets globally, it sure provides us with the ability to service multiple requirement from multiple types of customers and possibly look at doing that. But any further color past that, we're just not in a position today to address that.
Operator
Your next question comes from Jonathan Schildkraut - Jefferies & Co.
Jonathan Schildkraut - Jefferies & Co.
If you could give us just a little bit of the genesis of how this transaction came about that would be helpful. And then Steve, more specifically in terms of certain trends that you might have seen in the market, generally, during the course of the quarter, kind of bring us up to speed.
You know, overall demand trends by market and then maybe a little bit about financial services and your global footprint. In the past you have kind of given us some of these global logos and how the footprint has helped you win some of those deals.
Stephen M. Smith
I would tell you at the top of the agenda was the fact that this was going to efficiently put us into 16 new markets in North America, five of which were of particular interest to us based on customer survey and just pipeline and demand that's coming at us. Atlanta, Denver, Miami, Seattle, and Toronto are all of high interest to us.
The combination will also bring more capacity in critical markets where we overlap, particularly in Dallas, New York, and Silicon Valley. We like the core focus on the network density, so Keith and I referred to in our remarks about low-latency solutions.
I think we're getting more and more customer demands to be able to service low-latency requirements. So the net out for us is we think it's a very good cultural fit.
The business models are common, the customers, we have a lot of commonality. There is a great operational track record between the two organizations and therefore we think it's going to be a pretty smooth integration.
Keith, do you want to add anything there?
Keith Olsen
I think that covers it, Steve. Good.
Jonathan Schildkraut - Jefferies & Co.
Steve, I was actually hoping that maybe you could tell us a little bit about how you guys entered kind of a conversation and how the deal kind of came together as opposed to some of the strategic reasons.
Stephen M. Smith
I think these reasons, that we are driven by our customer demand, is what opened the opportunity for us to have these conversations. We have known Keith and his leadership team for quite some time and there has been a good relationship there.
But at one point we made a phone call and had a conversation with them.
Jonathan Schildkraut - Jefferies & Co.
Some of the financial services trends and the global logos.
Stephen M. Smith
This might help some other people that have questions, too. Let me spend maybe less than a minute just skipping you through some of the high trends across the regions, in terms of the quarter performance.
In the U.S. market, actually at a gross level we matched last quarter's bookings, so a very, very good performance again in the U.S., and there was particular focus on the couple of verticals you mentioned, so we are continuing to see good upside across the verticals, financial services in particular.
We had a very unique win with Wells Fargo and Barclays Capital in the U.S. The revenue mix, in general, is pretty constant quarter-over-quarter.
I would say one new thing in the U.S. we are seeing is that the government opportunities, as these stimulus funds work their way into the private sector, we are starting to see those show up on our front door.
So really good quarter in the U.S. In Asia, I would call it an outstanding result, where across the board, revenue, EBITDAs, bookings all outperformed our expectations.
The demand trends are picking up in Asia, particularly in network and the financial segments, and we are very focused on those two verticals, as you guys know. You can see on the capacity stuff we posted, we are having very good in Asia Pacific across almost the markets.
Particularly on the bookings front in Asia this quarter. I think we had our best ever quarter in the Tokyo market and in the Sydney market, from a booking standpoint.
So we are seeing great strength across the board in that region. And the way I would color Europe, I would tell you that good growth in our financial performance.
We are tracking ahead of plan for the year. And the bookings growth really came from installation of good first half bookings and an increase in power usage, actually.
The eco system focus that our team is doing over there is doing very well, particularly in London with the electronic trading venues. We are seeing some U.S.
networks starting to deploy with us in Europe. The inter-connection business is still high on the agenda for us.
The relationships with the membership-owned Internet exchanges is going very well. We are doing well in the Swiss and French markets where we deployed our own capabilities.
So I would tell you across the board, it was a very, very good quarter.
Operator
Your next question comes from Chris Larsen - Piper Jaffray.
Chris Larsen - Piper Jaffray
On Europe, Keith, can you talk a little bit about some of the constraints in getting space and power in Europe and how you have done there? I know you have announced a couple of new facilities, but how do you feel the constraints and power, for your building of new facilities.
And secondly, you told us that the revenue for Cab-E was up 5%. Can you give us in constant dollars.
And you said something about power and I wasn't sure if the power was the whole driver or if there was a lot more of inter-connect and other services in there. And then lastly, on the guidance, what was the currency rate that you were implying when you gave the guidance.
Keith D. Taylor
I just want to make sure, when you came on the call you were breaking up a bit. I want to make sure I am responding to your first question, which was EU, how do we accommodate space and power for our construction activities?
Chris Larsen - Piper Jaffray
Yes, how is the environment in finding space and power for your construction and how do you feel about that.
Keith D. Taylor
Okay, and Steve will jump in appropriately where he sees fit here, but from an EU perspective, and with any construction project, no matter what market we go to, we look at the available space and power in the market. We don't typically sign up to a physical commitment without recognizing that there is sufficient power to drive the business model.
So I think they do go hand-in-hand. Suffice it to say when you think about the builds that we have underway today, we are building in London, Paris, Amsterdam, we have acquired an asset in Frankfurt, we are in Zurich and Geneva, and I'm sure I'm something there.
In all cases, we have made sure that we have appropriate capacity and one to grow the business model and meet the target objectives that we have, probably more importantly that we can drive with the right amount of power infrastructure. So I think that's something that's commonplace whether you're talking about Europe or you are talking about other markets.
But from our perspective we feel that we have more than enough capacity in the European market to continue to drive that business plan. When you look at the price points, I don't have the specifics to break down on a price point from an EU perspective, but let me give you some color because I think it would be appropriate.
What I was saying in my comments was that there is more power revenue that was driven out of the European model than we planned, originally. As a result, we're getting more average consumption per average unit of measure, or cabinet.
What we call saleable Cab-E. But even more relevant, and Steve alluded to, was the inter-connection revenue grew more than 30% quarter-over-quarter.
So basically the eco system and the development that we have in inter-connection market is certainly driving forward. And so from that perspective, those two are independent of a physical cabinet and as a result it drives your average unit up.
And then when you just look at currency, recognizing that sort of in the quarter, when we look at the average rates, and I think this is what will capture your FX question, when you look at the exchange rates, they're up anywhere from 6% to 8%, whether you looked at the Euro or the sterling on an average basis in the quarter. So that was the benefit.
So when you translate that into a dollar term for average Cab-E, you are talking about $60 to $80 on a $1000 cabinet, coming off Q2.
Stephen M. Smith
The only thing I would add, from a pricing standpoint in Europe, I would say it continues to be firm. We saw renewals generally done at market rates, new contracts at higher prices.
And we are seeing more services driven into existing cabinets.
Chris Larsen - Piper Jaffray
And currency FX for the rest of your guidance.
Keith D. Taylor
On a Euro basis we are looking at roughly a $1.48 and on a sterling basis a $1.63. And we recognize today, relative to spot, those are slightly lower than spot, but we are confident in at least using that for our guidance for Q4 and our initial guidance for 2010 on our revenue basis.
Operator
Your next question comes from Michael Rollins - Citi Group.
Michael Rollins - Citi Group
Just to head back on the FX, can you give us the constant currency revenue for Q3 2009, in total for the company, or what the total FX impact was. I think you gave the incremental relative to your expectations.
The second thing, I was wondering if you could talk a little bit more about the pricing trends, specifically in the U.S. I think over the last couple of quarters you mentioned that there were a couple of skirmishes in a couple of markets, and I'm wondering what you're seeing out there in your key markets in the U.S.
And then on the domestic portfolio, can you talk a little about some of the expansions you have done recently? Are there any metrics you could share with us in terms of reserve rates or booking rates in some of those new facilities?
Keith D. Taylor
When we look at Q2 rates and apply them to Q3, basically our revenues would have come in at $223.4 million. So roughly 5% up quarter-over-quarter.
Stephen M. Smith
From a pricing trend in the U.S., I would tell you that we are past the first half of the year where we're relying on any significant amount of ramping or free months. There's still a little bit of that going on but it's definitely telling off in terms of the sales force needing to use any tools to get customers in the door.
So I would tell you that we're holding very firm on pricing, very happy internally with where we're landing on pricing, in terms of the internal targets we've set. My metric—I've mentioned to you guys before—is very few deals get escalated up to Keith and I for approval to go below the floor that we set with the sales force.
So we are very happy with where we are. In terms of expansions, across the U.S.
market, one you guys have been kind of tracking that we had a big pick up in Chicago-3 this quarter. I think we are going to continue to see that as we go into Q4 and beyond.
So we have kind of cracked the nut in CHI-3. A lot of demand in D.C.
and New York and Silicon Valley, driven by the announcements we've made. And so another perspective I would tell you, in the Silicon Valley we basically had booked half of the cabinets that we talked about the churns that came at us over the last couple of quarters, so those two very large churns that Keith talked about, we are booking at a much higher price and booking them very, very quickly.
So putting pressure on the capacity in the Valley. In Asia, in Singapore, too, which is going very well, driven by the multi-national traffic.
We are over 20% now book of the capacity that we've opened up there. So doing very, very well in that market.
Hong Kong we had done a small expansion phase and we've actually found another space in that building to bring on another set of cabinets that will open up mid- to third quarter of 2010. Tokyo we're doing okay.
Sydney is doing very well. Sydney, again, is a very local market, as you guys know, but I—Jason, I don't know if you remember the percentage in Sydney bookings.
Jason Starr
No. Actually, they had their best bookings quarter ever and we are looking the potential for additional expansion opportunities there at that site.
So there is still capacity in Sydney but that is something that we're looking at.
Stephen M. Smith
I think the only other one that you probably have interest is, as you know, in Paris, we have been anxious to get the remainder of that space open. We are fully booked in the first suite and we're well on our way in the second suite that we're bringing on board in that market.
So I think we're very happy here with the pace of the flow rates.
Michael Rollins - Citi Group
And just to follow-up, if you look at what you've seen in terms of booking activity in the churn, do you foresee an improvement in incremental billing rates? So if bookings have gotten better and the churn, once you get out of the fourth quarter, goes down, does that mean 2010 is sort of a better billing environment that you're going to be in?
Our does it end up being similar to what you are seeing on a constant currency basis in 2009?
Keith D. Taylor
I think that's an excellent question. I think there are a couple of things.
Obviously we are experiencing a little bit more churn than our average 2% we have historically seen, in our Q3 and Q4 numbers. We think that we are getting through a lot of the churn.
We are probably going to look at roughly 2% churn per quarter next year. That's what we will call the budget off of.
When I look at a constant currency basis we are seeing more momentum, as Steve said and I referred to. If you look at Europe specifically, they are buying more power and cross-connects for average unit of measure, so our price point should go up.
If you look at the spot rates in each of our metros, one of the things that's very interesting to us is there continues to be an undersupply in many of the markets that we serve. And the fact that we're needing to bring on incremental capacity that Steve's referred to.
Of course, we're very much watching the construction projects that we have underway today. And all of that we need because we think that the momentum and the strength of our pipeline will cause us to continue to have that pressure on our inventory systems.
All that said, we are confident in continuing to see strong bookings for the rest of this year and 2010. And we are also confident that we think that a lot of the churn, the more substantial churn, is getting behind us.
Operator
Your next question comes from Ilya Grozovsky - Morgan Joseph.
Ilya Grozovsky - Morgan Joseph
With the acquisition of Switch and Data, will any of your internal domestic expansion plans get shelved or anything like that? Or does everything continue as planned?
Stephen M. Smith
I think the way we would think about that right now is that they are going to give us, as I mentioned, more capacity in markets—particularly three key markets, Dallas, New York, and Silicon Valley—where, as Keith just said, we have very high fill rates and we will be managing that capacity. This is going to help us to be able to bring on new capacity in those markets that could alleviate some of that capacity.
We have announcements, as you know, in all of those markets, but the timing of that, we have tried to build so it's just in time, but with the fill rates accelerating the back half of the year, that's going to put some pressure and so that is going to bring some added good capacity in those three markets.
Keith D. Taylor
And I would also add, so we are going to hopefully take advantage of some that capacity. But equally important, when you look at our other—our downtown builds in Chicago, or downtown build in L.A., and of course, D.C.—all of our markets, we're needing capacity.
We think that there is sufficient demand not only in the marketplace today but residing in our pipeline, that it is going to cause us to fill up our capacity quicker than we anticipated. And so any incremental capacity that we have, particularly when you think about our New York-4 phase three that's going to come on line next year, we're concerned that that isn't sufficient capacity to meet the demands of the marketplace.
Stephen M. Smith
So the specific answer to your question is currently we have no plans to stop any of the announcements that we've made.
Operator
Your next question comes from Colby Synesael – Kaufman Brothers.
Colby Synesael – Kaufman Brothers
I know you just gave very generic color commentary for guidance for 2010. I think you said greater than 20%.
Obviously to what just 20% if you get deceleration from what you're doing in 2009. Curious if there is any reason why you would expect growth to decelerate in 2010.
And then my next question has to do with the financial vertical. New York Stock Exchange, for example, is building a facility in New Jersey and I think they're building one in London.
What's the concern that as exchanges and such start to build their own facilities that they may no longer see someone like an Equinix as much of a valuable partner. And the other part to that is I think the New York Stock Exchange is going to open up their facilities to other exchanges to be housed in there as well.
What is the concern that that could actually start to gain steam and take customers away from you guys?
Keith D. Taylor
I will answer your first question and then Steve will take the second one. On the growth rate, one of the things that we wanted to—again, it's very early in the process and as Steve said, we've been working very hard—to put in place the transaction we announced today.
So recognize that we haven't done a budgeting exercise with great formality thus far. What we wanted to is basically put a floor in place, recognizing that we said it's 20% or greater.
So that at least gives you a perspective of the opportunity. When you also couple that with the fact that the law of bigger numbers and then you think about how the comments both Steve and I have made about markets that we think are filling up faster than we had anticipated, there is going to be some inventory constraints in some of the markets that we're operating in in 2010 and so that's something that we are going to pay very close attention to as we move forward.
But all we are trying to do is give you a floor. We're not giving you an estimated ceiling at this point.
And until we get a little bit more wind at our back, we want to make sure that we manage our guidance with the respect to you guys to make sure at least you know what the floor is and then you can figure out what you think the ceiling's going to be.
Stephen M. Smith
And I would tell you on the financial vertical, we are watching all those activities pretty closely and quite frankly, I have seen no impact to the business to date. I couldn't—you would have to ask NYSE how they're doing on their builds and here.
But we are accumulating at a pretty rapid pace some very key trading venues, matching ends and execution venues, that are going to be attracting lots of members coming in. So the network neutrality, the network density that we have is a whole different proposition than what NYSE can offer to their end clients.
And so I would tell you in the grand scheme of things, there is going to be room for the NASDAQs and the NYSEs and the Equinixes and the other players in this field, because there is a lot of activity here. We have a very small percentage of this market.
There are thousands of these companies looking for places to deploy this gear. And so we just don't see any impact on that, specifically on the New York Stock Exchange.
Colby Synesael – Kaufman Brothers
Have you quantified, at this point, how much of your revenue is coming from dark pools, or from flash trades at this point?
Stephen M. Smith
No, we don't really cut it that way. We track the electronic trading stuff inside the financial services vertical and just to give you a flavor of the bookings this quarter, roughly 32% of the bookings came out of the financial services segment versus 41% in the enterprise and the resellers, and about 27% in the network.
Excuse me—on a worldwide basis, let me give you some different numbers. 21% in financial services, 38% in enterprise, and 18% network, and about 23% in the digital media.
So it's a pretty good spread. But we're still seeing the highest growth in the financial services vertical, because we're focused on it.
And we're pushing on it and we've got people deployed around the world that are connected, some people that are going after and targeting the vertical.
Colby Synesael – Kaufman Brothers
And you said the first set of numbers were the U.S. and the second set were worldwide.
Stephen M. Smith
Ignore the first set. The quarterly bookings on a worldwide basis were 23% for digital media, 38% for enterprise and resellers, 21% for financial services, and 18% for network.
And it changes quarter-on-quarter but generally that's kind of how our bookings fell out by vertical.
Operator
Your next question comes from Frank Louthan - Raymond James.
Frank Louthan - Raymond James
Can you give us an idea what some of the key hurdles are going to be for the integration? And I can appreciate your comments on the synergies, can you give us some idea of do you expect synergies, is it more of a top-line or more of a cost synergy that you're targeting and more of where that might come from?
Stephen M. Smith
I think as I mentioned earlier, I think all you guys know that there's a common business model between these two companies and there is obviously going to be overhead functions, I don't care which one you want to pick, that we're going to study together and look at where we can achieve the synergies. But again, as I mentioned earlier, we're just not in a position today to share beyond the expected synergies we built into the model we're going to go execute on, Keith and I and the two teams, we'll go do that together, and we will hit them during the first year.
Frank Louthan - Raymond James
So what are the key things that you are looking at for integration? What are the first couple of things that you are tackling and what are going to be your biggest challenges?
Stephen M. Smith
Quite frankly, we're not viewing anything to be a big challenge right now, so we've mapped out people, process. We've looked at all the functions.
Keith and I and our teams have spent quite a bit of time together. So we have a pretty good plan of looking at all the functions, from IT to sales to marketing.
We have laid it out together. So again, we will give you more color on that as we proceed through the coming months.
Operator
Your next question comes from Erik Suppiger – Signal Hill Group.
Erik Suppiger – Signal Hill Group
Question for Keith. Keith, what portion of your customer base do you share with Equinix?
Keith Olsen
When you look at the information that we've both provided publicly and on our Web sites, you look at many of the large network services and online content companies, we share quite a number of those customers as mutual customers.
Erik Suppiger – Signal Hill Group
I'm wondering, how much of them would be looking to find a second source, as you combine with Equinix? Would that be a concern?
Keith Olsen
When you think about the way people have deployed inside of Switch and Data's data centers, they utilize our footprint for reach and the inter-connections that they support are their revenue streams, so we see that as an expansion opportunity.
Erik Suppiger – Signal Hill Group
So they may not be looking for a second source in those particular regions, is that the way we should think about it?
Keith Olsen
I was commenting on the customers that we see that continue to expand with Switch and Data and the value proposition on how we position it.
Stephen M. Smith
I would tell you on top of that—undoubtedly there is going to be some procurement policies in some of these guys where they are going to want dual suppliers, but our intelligence to date suggests that this is just not a material issue for us and that we are going to stay deployed in both sets of centers in these markets. We've done a lot of work in that area as we've look at this thing.
Erik Suppiger – Signal Hill Group
And Steve, what kind of market share do you have in the neutral colocation market? Do you have any sense for that?
Stephen M. Smith
All the way up, if you look at the broader data center market, as I described it earlier, it's low single digit. If you include all the hosters and the 350+ companies that we talked about.
So it's a low- to medium-, probably, single digit. I don’t have that number in front of me right now, but it's not a big number.
Erik Suppiger – Signal Hill Group
But you wouldn't have a sense for what—a lot of that is carrier-centric. You don't have a sense for what the neutral—what your market share in neutral colocation would be, do you?
Stephen M. Smith
It really doesn't get cut that way. The industry analysts cut it several different ways and the way we kind of pay attention to it is just all the Internet-related data center service providers around the markets and that's kind of how we look at it.
Operator
Your next question comes from Gray Powell - Wells Fargo Securities.
Gray Powell - Wells Fargo Securities
At your analyst day back in May you said that 2009 guidance implied about a 17% reduction in net bookings from 2008. Now that we are closer to the end of the year I was wondering if you could give us an updated number for 2009.
And then looking forward, do you have a sense of what net bookings for the next 12 months will look like, relative to 2008?
Keith D. Taylor
I would tell you that basically the bookings expectation is relatively on target. We probably book a little bit more on a gross basis but that was offset by higher-than-expected churn.
And so when I looked at the total year, we are roughly in the same zip code as we originally anticipated. So down about 17% 2009 over 2008.
All that said, we also recognize that there were some delayed billing. As you know, the book to bill interval that we talked about, that increased, so that impacted the revenue somewhat.
As we look to 2010, without giving you specific numbers, it's fair to say, and Steve alluded to this, our future bookings number in the U.S. was a record for us.
Q3 was as good as Q2. We continue to believe that we have a strong pipeline.
So from our perspective, we are going to take our capacity and fill it up as quickly as we have. That's our perspective.
But to see how that sort of transpires into a quarter-over-quarter or a year-over-year basis, we haven't actually modeled that out because we're going to look at the inventory that's available on what new assets come on line and when and how that impacts us. So gain, hopefully that gives you a sense of what's transpired over 2009 and first thought at 2010.
Gray Powell - Wells Fargo Securities
That makes a lot of sense. Just as a follow-up, you are accelerating your expansion, so would it be possible just to tell us the percentage of new sales or incremental revenue that is generated in a facility that was opened within the last 12 months?
Keith D. Taylor
We don't do that anymore, primarily because we've been filling them up so darn fast and when you look at that relative to the overall base, it became an irrelevant number to use. What we try and do is tell you from day one, when we open up a data center, what is the capacity and then what percentage of that capacity has booked or reserved.
And then as we move through time, and we typically over the next two to three quarters, will let you know how we are doing relative to that fill rate. Clearly, if we are introducing new expansions to a market tells you that we are doing extremely well.
And I think if you look at the beginning of 2009 and you look at where we are, we are investing in, I think, 16 of our 18 markets. Either announcements or builds.
So it gives you a sense that we are filling up all of our capacity at a very fair clip.
Operator
Your next question comes from Mark Kelleher - Brigantine Advisors.
Mark Kelleher - Brigantine Advisors
I was just curious, when you broke out the segment revenue, you didn't mention the government. You said that there is some strength coming there and you were looking for some good things there, but I didn't see it in the bucket, so I was wondering if you could kind of square that up and maybe give us some insight into what the government is doing these days.
Stephen M. Smith
Sure. We have historically bucketed our customer revenue into four verticals, digital media/content, enterprise, and then some of the big resellers in the second bucket.
Third one being financial services, and then the electronic trading as a subsegment inside of that. And then fourth, network.
And so historically we have parked the government-type business in the enterprise vertical. And we weren't as targeted.
You know, with our D.C. campus, I think you know we are in that market and it's a very active market, but typically the other three—financial, network, and digital media—has kept our pipeline very full there.
We are now being invited into opportunities that are very network-centric. There are a couple of large procurements that we're partnered up with so SIs.
And they look very attractive. And I think it's just on the back of what's going on, which we're all reading the same newspaper.
So we're benefitting from that. We haven't really targeted it but we are going to get a little more focused.
We did an assessment here over the last quarter about the opportunity there and we have educated ourselves that there is an opportunity to get a little more focused in that vertical.
Mark Kelleher - Brigantine Advisors
Could you break out what percent of the enterprise is the government?
Stephen M. Smith
No, we don't really do that. I can tell you that it's less than 50 but than 20 clients that are in that vertical today.
So we have accumulated over time. Now, that's just U.S.
federal government. If I go around the world and look in Europe and Asia, we're obviously picking up local government business every quarter.
But no, we haven't really carved it out as a percentage.
Operator
Your next question comes from Simon Flannery - Morgan Stanley.
Simon Flannery - Morgan Stanley
We can come back to the gross bookings, I think you said Q3 in the U.S. was equal to Q2, which itself was a record.
Can you talk more about to what extent it's coming from new customers versus existing customers starting to spend again? And what is you general take on the macro environment and the confidence level at the CIO or IT manger level?
Are you seeing more people saying we've got to take that 30% or 40% out of our IT budget and this is the time we want to move to the colocation type model? Any major changes in behavior there?
Stephen M. Smith
Good question. I would tell you in the U.S.
market we are pretty flat quarter-on-quarter. New logos, we're in the 50 to 60 range.
Simon Flannery - Morgan Stanley
Percent? Or numbers?
Stephen M. Smith
Number of new logos. And that has been fairly steady.
It's gone up quite a bit this past quarter in Europe, so we picked up a significant more new logos in Europe. And then I will tell you, it's pretty steady in Asia quarter-on-quarter.
So the trends are picking up. There's no question that we're—less stuff is being delayed, less stuff is getting run upstairs to CEOs and CFOs for decisions and I think that the historical decision cycle is starting to get back to normal.
So all in all, Keith and I are pretty darn happy with the pace of bookings at a gross level, and as Keith described, we've got a little bit more churn. Very manageable.
So all the way down at the net level.
Simon Flannery - Morgan Stanley
But is that mostly companies going out of business or going to another facility? What is the driver of that?
Keith D. Taylor
The majority of the churn actually comes from basically consolidations on customers that we consolidate through an acquisition or insourcing or financial distress. We typically don't lose customers from a shareship perspective.
So that's the real positive. And I think when Steve refers to the number of new logos, one, we saw an increase this quarter over last quarter, which is a real positive, but you also have to recognize that 80%+ this quarter of our bookings came from the install base.
And when you reach a higher occupancy on our data centers, we tend to sell more to the install base than you do to the new logos, because you have the capacity. And so that has transpired and as I said, more logos this quarter than last quarter.
Operator
Your final question comes from Chad Bartley - Pacific Crest Securities.
Chad Bartley - Pacific Crest Securities
A question as it relates to the Switch and Data acquisition. I realize you don't want to talk too much.
But as you look at some of the metrics, there is a pretty big difference in the two companies' utilization rates and their MRR per customer. Can you talk about why there is such a gap there?
And is that an opportunity to help drive revenue growth, revenue synergy?
Stephen M. Smith
I would tell you, I think, last quarter I think Keith and his team were in the low 60s in utilization. We've been in the low 80s.
I think the combined efforts between our two sales organizations and the demands we've talked about today, I think both Keith's team and our team feel like we're going to be able to accelerate the utilization of these facilities, particularly in these key markets that I mentioned—in Dallas, New York, and Silicon Valley. So we feel pretty good about the opportunity to leverage the sales momentum we have here with the capacity that Keith's team will bring to the combination.
Keith D. Taylor
The other thing, and I would say also when you look at the two relative businesses, you have to recognize we have a lot of large footprint and when you compare our inventory relative to the inventory of Switch and Data's you've got to appreciate that there are some very sizeable deals in our portfolio. So when you look at the average unit of volume per customer, we have been and we're able to sell of size, whereas the Switch and Data team, as you can recognize, they've got a large build today in New York and an expansion that's taking place in New York and some other meaningful locations, but not of the size of 300,000 and 400,000 square feet when you can sell a relatively large footprint.
So when you look at all the averages I think that's part of the reason why you would see a delta on the average revenue per customer.
Jason Starr
This concludes our conference call today. Thank you very much for joining us.
Operator
This concludes today’s conference call.