Equinix, Inc. (EQIX) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Equinix Conference Call. [Operator Instructions] Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd like to turn the call over to Katrina Rymill, VP of IR. You may begin.

Good afternoon, and welcome to today's conference call. Before we get started, I'd 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 may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 24, 2012, and Form 10-Q filed on July 27, 2012, and Form 8-K filed on September 13, 2012. 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's Equinix's policy not to comment on its financial guidance during the quarter, unless it's done through an exclusive public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provided a reconciliation of those measures to the most directly comparable GAAP measures and the list of reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We would also like to remind you that we posted important information about Equinix on the Investor Relations page of our website. We encourage you to check our website regularly for the most current available information. With us today are Steve Smith, Equinix's CEO and President; Keith Taylor, Chief Financial Officer; and Charles Meyers, President of the Americas. Following our prepared remarks, we will be taking questions from sell-side analysts. In the interest of wrapping this call up in an hour, we'd like to ask these analysts to limit any follow-on questions to just one. At this time, I'll turn the call over to Steve.

Thank you, Katrina. And good afternoon, and welcome to our third quarter earnings call. Before we get into more specifics on the quarter, I would like to give a quick update on our operations after this week's severe weather on the East Coast. First, I'd like to thank our site operations teams for their heroic efforts before, during and after the storm to support our customers. Secondly, as search, rescue and cleanup efforts continue, our thoughts are with the people of New York and New Jersey and other hard-hit areas, many of whom remain without power and may be facing the loss of family, friends, homes and possessions. We are fortunate to report that, as of today, the storm has minimal impact on Equinix in Philadelphia and Washington, D.C. In New York and New Jersey, we are currently running on a mix of utility and generator power. Although some sites experienced water leaks, there was no flooding inside our sites, as we have had -- and we have had access to all locations and still do today. We are monitoring the situation closely and are managing regular fuel deliveries to our generator-run facilities until utility power is restored. Throughout this difficult event, we have also been communicating regularly with our customers, as well as the external market. So now turning to the quarter, I'm pleased to report that Equinix delivered another quarter of solid financial results. As shown on Slide 3, revenues were $488.7 million, up 7% quarter-over-quarter and 20% over the same quarter last year. Revenue was in line with guidance before excluding $8.8 million from the announced sale of 16 IBXs. Adjusted EBITDA was $228.3 million for the quarter, up 5% quarter-over-quarter and up 22% over the same quarter last year and excludes $4.3 million of adjusted EBITDA…

Great. Thanks, Steve. Good afternoon to everyone on the call. So I'm pleased to provide you with additional detail on the third quarter. With the exception of our consolidated financial results, the majority of our other key non-financial metrics exclude the impact of ALOG, ancotel and Asia Tone. Where appropriate, we'll put pro forma key results to reflect the impact of our discontinued operation, thereby allowing you to compare prior results to your prior Q3 guidance. So starting with Slide 5 from our presentation posted today. Mobile [ph] Q2 revenues for continuing operations were $488.7 million, a 7% quarter-over-quarter increase and up 20% over the same quarter last year. Our performance reflects a $1.4 million negative currency headwind when compared to the average rates used in Q2, although a $3.4 million benefit when compared to our FX guidance rates. These results exclude $8.8 million of revenue attributed to the 16 IBX assets held for sale. The result is better reflected as a single line item below our operating results as discontinued operations. On an FX-neutral basis and normalized for our acquisitions and the divestiture, our Q3 revenues increased 4% for the prior quarter and up 19% over the same quarter last year. Pricing per cabinet equivalent remains firm across each of our regions. Global cash gross profit for the quarter was $330.7 million, a 5% increase over the prior quarter and up 23% over the same quarter last year. Cash gross margins were 68%, a 1% decrease over the prior quarter, primarily due to seasonality of utility rates. Global cash SG&A expenses were $102.4 million for the quarter, below our expectations due to slower-than-anticipated hiring and discretionary spend. Next quarter, we expect our cash SG&A expenses to increase, primarily due to higher salaries and benefits and the increase in our…

Okay. Thanks, Keith. Now if we turn to Slide 14, I'd like to provide an update on 2012 and initial 2013 guidance. For the full year of 2012, we expect total revenues to range between $1.890 billion and $1.895 billion. This reflects a $36 million decrease in revenues due to the 16 U.S. IBXs held for sale, reported separately as discontinued operations, and includes a $10 million foreign currency benefit when compared to our prior FX guidance rates, but also absorbs $28 million of currency headwinds from our initial 2012 guidance. Our refined 2012 revenue guidance incorporates the impact of a larger-than-expected bookings backlog and the revenue headwinds attributed to our MRR churn. Total year cash gross margins are expected to range between 68% and 69%, which reflects the cost related to the IBX openings in the second half of 2012. Cash SG&A expenses are expected to range between $410 million and $415 million. We are raising our adjusted EBITDA guidance to range between $880 million and $885 million as we continue to manage our discretionary and incremental spending programs. This reflects an $18 million decrease in adjusted EBITDA through the 16 IBXs held for sale and includes a $4.5 million foreign currency benefit, when compared to our prior FX guidance range. We're refining our total CapEx guidance for 2012 to range between $770 million and $790 million, which includes approximately $145 million of ongoing capital expenditures. Shifting to 2013, we want to provide you with a directional view of our financial expectations. This takes into consideration the broader economic environment while using the FX exchange rates provided by Keith. We expect 2013 revenues to be greater than $2.2 billion, an anticipated 16% increase over the midpoint of current year guidance, which effectively gives a revenue floor for 2013 at…

[Operator Instructions] Our first question is from Chris Larsen, Piper Jaffray.

So I guess, first, I'll start with the wobbly news we're having here in the Northeast. Any sense, Keith, that you can give us in terms of early cost -- extra cost we might see going in the fourth quarter from having to run on diesel? Any SOAs that may have been tripped? Any other sort of things that we should think about from that? And are you having difficulties getting any of that diesel in? Because apparently, there's some fuel issues. And then, I guess, the second question I'll just ask you right upfront is, are you getting any sense from other people that, "Hey, wow, we need to hurry up and get into an Equinix data center," because you are performing so well?

Chris, that's a great question. So what I'll do is I'll tag team this one with Charles. And so let me deal with the first question. Clearly, as we -- in this quarter, when you think about the amount of fuel that we're consuming, it's going to be much larger than we originally anticipated from our planning perspective, but that's contemplated within our guidance. Offsetting that, of course, is utility part. We won't be paying for the utility part while we're on generator. So from that perspective, it's probably going to be somewhat awash. Clearly, to the extent that we're running on full generation for a period of time, there are going to be some wearable components that we will have to replace. So we expect that we would have an increase in our R&M this quarter. That's sort of contemplated already in our guidance. So at the highest level, I feel comfortable that the guidance that we have in front of you today, absent something sort of catastrophic, we've fully contemplated the costs associated with any increases due to the storm.

And yes, Chris, I'll pick up on some of the other elements of your question. Relative to the fuel situation, obviously, that's something we're watching very closely. We have been able to access all the facilities and get timely fuel delivery thus far. And we're actively monitoring fuel supply, and we're tracking multiple sources of supplies, including access from outside the metro, if and when needed. So we're on top of that in ensuring that we have ready access to fuel to keep generator running as long as we need to until utility power is restored, which we believe could be several days still. So again, that is a key issue and one we are tracking very closely. Also, I think I want to reassure our customers that we remain on high alert, maintaining increased staffing levels as required to monitor and troubleshoot the facilities until return to a fully normal condition across the footprint. In terms of your last comment, I would say, again, we are watching it closely. And we'll continue to be very diligent until we are fully back to normal. But I think we are very pleased with how our facilities, and more importantly, our people, have performed. And we're going to continue to use this incident as a way to learn and get better. But I will say that we have had some challenges in older multi-tenant facilities in Manhattan, where we do not fully control, manage and maintain the building infrastructure. But in our Equinix campus facilities, where we have our main control and have our own processes for maintenance, et cetera, we have performed very well. And so, I do think it's a testament to the Equinix track record of operational reliability. And we do expect that that will be something attractive for both customers and prospects alike, as we come at the back end of this.

And no triggers on the SLAs, I take it, then.

Yes. We are looking at that. I don't believe that will be anything material. And like I said, both from a cost perspective on the incremental operating costs as well as SLAs, we don't believe there'll be anything outside of the range of what we contemplated.

Terrific. And is it too early to imagine anyone coming in, knocking on your door, looking for a safe place to stay? I'm talking about new customers, sorry, just to be -- yes, new customers coming to you saying, "Hey, why, you did so well. We need to get in here."

It is not only not too early, it has already begun to occur. So absolutely not. And like I said, I do think that I'm sure my operational teams would mock me knocking on wood as I speak, but we continue to perform very well. Very pleased with the level of resiliency and the people and the processes operating the facilities. And people are -- I think, for example, the Secaucus facility continues to be a great option for people that is a fully maintained Equinix facility that, again, delivers superior results. So yes, it's definitely not too early. And my phone is ready to ring for anybody else who would like to come in.

Our next question comes from Jonathan Schildkraut.

Steve, I was wondering if you could offer some perspective, or maybe Charles as well, in terms of the difference in performance between yourselves, the interconnection-focused business and maybe some of the other businesses we see, whether it's large footprint retail or the wholesale names out there. You probably have a little bit more of a perspective, given that you do operate the DC 10 facility. In that regard, maybe you could also give us an update on how that facility is doing and if there are any plans to maybe take that to other markets. And then separately for Keith, I'm just wondering if there's a different way to think about D&A going forward, given that you've captured back a whole bunch of D&A, and you've extended the useful lives of your assets.

Yes. I'll start, Jonathan. This is Stephen. And we'll walk around that one. Because I think those are all good questions. But I guess the highest level, the way we think about it from a supply demand standpoint is that we operate on a different supply curve than the wholesale providers do. And so, if you -- let's just take our market as Charles has talked about, the Secaucus, the New York metro market, for example. So in our New York core asset, we're 90% plus built in that asset, which obviously triggered our decision for, just in time, New York 5 facility to come onboard. So the pipeline in New York 5, the fill rates are very strong, as you heard us voiced over in the script. So that's the market where you're probably hearing from the wholesale players that there's saturation in that market from a wholesale standpoint, not affecting us in terms of the ecosystem interconnected, electronic trading focus that we have in that market. So 2 different supply curves when you think about a market. And that obviously helps us, where we're focused on our type of customer deployment. I don't know if you would add there, Charles.

Well, yes, I mean, fundamentally, it is a very, very different business model. Very highly differentiated in terms of value we offer to customers for certain elements of their application architecture. And so, again, we target business where network density, application performance, global reach, mission-critical reliability are all critical factors in the decision-making for a customer. And interestingly, purchase decision for our customers is often a revenue-facing decision. And so, as a result, I think we've been able to sustain favorable pricing in the market that remains firm. I think our fill rates remain strong. We do see a movement towards these multi-tiered architectures where people are tiering their architectures to take full value -- advantage of the full value of Platform Equinix in terms of these -- some of these performance-sensitive applications, but then looking to incorporate larger footprint to handle perhaps less performance-sensitive or less latency-sensitive applications. In many cases, our customers would prefer to do business with us across that range, which is one of the reasons why we opened the DC 10 asset. That has performed very well for us thus far. We see a very strong pipeline there. And we are actively evaluating the extension of that product to other markets, so that we can meet at least selectively for strategic customers a more robust multi-tiered architecture requirement. In some cases, they need to go to even larger facilities. They do so in a very aggressive wholesale market today in terms of price competition out there for that. And they can often get great values for those larger footprint deals. But we tend to operate at the lower end in a very differentiated set of their applications.

If I can just ask a follow-up question to that, you guys are also a purchaser of wholesale space. And as you start to walk down the path to REIT conversion, your ability to secure your assets over long periods of time, obviously, it would be pretty compelling to the investor base. Are you trying to take advantage of the current marketplace? And is there any update on your ability or your recent kind of renewals of some of the wholesale space that you occupy?

Well, I mean, I think there's a couple of things. Obviously, in every deal that we look at in terms of extending our footprint, we're going to look at the opportunities in front of us. And we've signaled before on calls and said explicitly that ownership of assets is something we're interested in, where that makes sense. And so we will look at that. And if opportunity presents itself for us to get a good deal on an asset, we certainly will do that. And if we need to lease space under very stable, very long-term favorable conditions, we certainly will do that as well. And there are deals out there for us to extend our footprint to meet fill rates or meet demand. And we'll look at that as we always do. But perhaps Keith can comment a little bit more on the ownership situation as well.

And Jonathan, what I would say is, generally speaking, when we think about leasing facilities, part of it is based on, as Charles said, where we want to extend our footprints. We're really sort of still a little down. It really is just another form of financing to us. So we have to look at sort of the implied cost of borrowing under a leasing scenario versus basically a do-it-yourself scenario. And we just take that into consideration. And as you know, our ability to borrow debt today, if we so choose, is at a relatively low rate, and certainly if the tax effect is even more. And so from that perspective, we take that into consideration. But it's exactly what Charles said, to the extent that we have the opportunity to own some of our assets, we'll -- and then makes sense for us, we'll certainly do that. To the extent that it's generally a multi-tenanted facility, that's not something, of course, that we're going to own. It's going to be owned typically by real estate concern [ph].

Yes. I was thinking more along the lines of, you're already in an asset. The opportunity came up to maybe renew or extend the term at a favorable rate. But I absolutely understand what you're saying. In terms of the D&A, Keith, is there any way to think about this differently, given the extension of useful lives?

Yes. There's really not because -- the challenge that we have here, Jonathan, is when we talk about recapture -- what we're really talking about is tax recapture, which is very different than book. And so the recapture is effectively recapturing -- if you will, the IRS recapturing basically the depreciation that we took as a C-Corp and there -- and we re-characterize it as basically real estate -- that was real estate oriented, it could be amortized for tax purposes up to 40 years. And so effectively, that recapture through 2011, any adjustment to our taxable income for 2012, is really all about tax. It has nothing really to do with book. So -- but as a general comment, when we think about the economic life of our assets, I still maintain it's roughly 20 years or greater. And we've always had somewhere between 20 and 30 years as the economic life of many of our assets. And as long as we have strong maintenance or preventive and predictive maintenance programs, which we do, we should enjoy the full economic life of that asset. And so I think we're -- I think what we're going to get then is a little bit of a mix match between what the tax authorities look at versus what the U.S. GAAP sort of reporting is for our depreciation. And I think that was the -- that's the issue here.

Our next question comes from Mike McCormack, Nomura Securities.

Just a quick one, Keith. You mentioned that there's some increased cabinet churn at the end of the quarter. Can you just sort of walk through -- and maybe Charles can help on this as well -- just walk through the process of optimization, sort of how far along we are, whether that was the cause of late-quarter churn on the U.S. cabinets? And then secondly, on EMEA, obviously, very strong interconnect from ancotel. Is there a read-through from that, which you can then sort of process that interconnect revenue and dive more penetration into that market as well?

Yes, let me -- Mike, let me tackle the first one in terms of the Americas cabinets and the activity there and how it interfaces with our -- the churn issue. So again, I think that the churn is really -- it's really primarily an artifact of us continuing to execute on our strategy in a very disciplined fashion. We talked over the last several quarters about this IBX optimization program. And we essentially -- where we -- we're looking at each location, identifying business that either is low priced, low power density, low interconnection, some combination of those things, and very explicitly evaluate if, when and how we would intend to replace that business with deals of higher commercial quality. And as we signaled, those efforts are driving the higher churn levels. But it's critical to note that virtually none of that churn is associated with the loss of what we consider targeted business to our competitors. So undoubtedly, it does recreate some revenue headwinds. And you see that in the net cabs billing number. That's exacerbated a bit by the timing of our bookings in the quarter, which tend to be a bit back-end loaded. And again, obviously, there's revenue headwinds because the churn -- the revenue disappears immediately and then takes a bit of time to backfill. But we see -- already see the program continuing to have significant positive impacts on our business. As I mentioned in our last call, some of the specific churn actions we've already taken will drive millions of dollars in incremental EBITDA with 0 capital investments. Our site margins are going up. MRR per cab is going up. The power utilization is going up. Cross-connect density is going up. And those are all metrics that are highly correlated with long-term operating margin in the customer retention. So I'm confident that our actions are not only expanding operating margins but reducing the overall capital intensity of business; increasing our cash flow performance, which is becoming evident; and really -- and materially improving our ROIC over time. So that is the dynamic that you see there in that metric. But the continuation of that program is fully contemplated in the 2013 guidance we provided. And we think that, over time, that offers upside as we fully align our businesses' mix with that strategy.

And Mike, this is Steve. On the interconnection question in Europe, one of the primary factors on the acquisition of ancotel was that that asset sat in one of the busiest nodes in Frankfurt and actually has the DE-CIX, which is probably the busiest DE-CIX node in Europe. But as we've mentioned several times, we picked up a couple of hundred new networks worldwide from about 63 or 64 countries, many of them to Eastern and Central European network players, over 6,000 physical cross-connects, as well as a -- basically a virtual Meet Me Room product that we're still understanding how we're going to leverage possibly elsewhere in the world but works very effectively in that part of the world. So that has definitely helped the interconnection focus in Europe and that was a prime driver for that acquisition. As I mentioned today, it took us from 4% of revenue to 7% of revenue for interconnection. That team had very healthy quarter on cross-connects with over 1,000. So we're -- yes, we are very focused on making that more interconnection dense in Europe. Eric is driving that business. Eric Schwartz is focused on doing that. So that -- and half of ancotel's business comes from cross-connects. Half the revenue is associated with cross-connect. So it's a very cross-connect dense product -- company. And it's now tethered into the Frankfurt campus. So we'll leverage in that as we grow the business.

Our next question is from Michael Rollins of Citi.

I was wondering if you could talk a little bit more on the sales side broadly, what's happening with the growth of the sales force, the productivity of the sales force and where you're seeing the pipeline and backlog. You made a couple of comments about some increases in backlog, I think. But I wasn't sure if that was coming into the third quarter or exiting the third quarter. And so if you can give us a little bit more color on those factors, that would be fantastic.

Sure, Mike, this is Steve. I'll start and I think Charles probably has some insight in Americas that might be helpful here. So big picture around the world, we are approaching as we come to the year end, call it a couple of hundred quota-bearing reps around Equinix in the 3 regions. As we have taken on these new headcount over the past 14, 16 months, we've obviously started to manage our underperformers. And we're getting them all aligned to our industry verticals. Heavy, heavy focus on networks, financial and cloud providers. All of them are selling Platform Equinix. So we are incenting the entire sales force to sell all -- now we've exited, 69. I think it's roughly 92, 93 IBXs around the world. So they're all incented to sell the entire platform. From a new rep productivity standpoint, it's still a very positive story. And internally here, we kind of talked about -- we're very optimistic about their sophomore year as they enter into their second-year of performance here. But the performance does vary from vertical to vertical. And we're probably strongest in the 3 I just mentioned: network, financial and cloud. That varies a little bit by region. But generally speaking, our value proposition is very strong in those 3. It's a little tougher to open an enterprise customer, whether it's a manufacturer or a retailer or an energy and oil and gas company. But generally speaking, new reps are really starting to continue to go up into the right from a performance standpoint. Overall, pipeline is good. Our coverage ratios are in line with our plan. And price realization, as you mentioned -- as we mentioned in the script today, our MRR per cabinet, particularly on new deal pricing, still remains firm. So generally speaking, we are very happy with the growth of the sales productivity. But I want to be clear that sales productivity just doesn't go away at any one time here. This is a top priority for this company. It will continue be a top priority. We'll continue to bring more heads down. We'll continue to get more productive. We're going to continue to get deeper in our verticals and talk about selling solutions to our customers. We're providing the collaboration tools so they can speak like one Equinix. And we're quite, frankly, bringing a lot of thought leadership to these industry vertical conversations as we get deeper into these relationships. So I like where we stand today in terms of total productivity of our sales engine. Charles, would you add anything?

Yes. And I think you hit most of the key points there. Just from a -- specifically, from the Americas perspective, again, we had our second largest regional bookings quarter ever in Q3, continuing to deliver strong exports in terms of global needs, platform booking needs that go out into the other regions. Records, actually, from a bookings perspective in both financial services and network. As Steve indicated, we're a little less mature in our value prop in some verticals and -- but productivity levels continue to be up and to the right. I talked a lot about this cohort analysis we do. And I did indicate there should be continued upside left for us in terms of bookings growth. So with regard to the backlog question, it's interesting because what's happening, we are seeing record levels of backlog. Although our book-to-bill interval continues to be generally across most of our implementation is very strong, we're seeing some extension of it because, particularly in our business suite offerings, it's simply a larger -- tends to be a larger footprint-type implementation, which takes a bit longer to ramp into. And then secondly, we've modified our approach to selling power. And that's really materially improved our power utilization. But it requires us to make a -- just offer ramp [ph] to customers because the take-or-pay nature of the pricing. And so those things have added a bit to the revenue backlog, which, again, provides a little bit of tailwind in the face of the revenue headwind that we talked about on the churn side. So a little bit of a countervailing force there. But again, overall, I think productivity continues to trend in the right direction. As Steve said, we are very focused on it, continuing to work on it every day, improving the quality of our value propositions in the other verticals. And it feels -- like I said, I feel good about what's Steve referenced there that are sophomore-year performance for the new reps.

Our next question comes from Frank Louthan, Raymond James. Frank G. Louthan - Raymond James & Associates, Inc., Research Division: Just given some of the dislocation in the business recently, can you give us an update on what your current customer concentration is, large customers, the percentage of revenue and what sort of the larger -- your largest vertical? And what sort of utilization trends are you seeing across your different segments? Where would you expect your -- the overall utilization of your data centers to be 12 months from now?

A couple of questions there, Frank. Let me start off and maybe Keith and Charles can chime in here. Let me give you a color in the quarter where the bookings fell. And I'll just give you a worldwide numbers just to give you context. Our largest vertical in the quarter, as I mentioned in my script, 25% of our bookings were in network and 25% of our bookings fell into the financial services. So we had very, very strong growth in those 2 verticals. That was followed by -- 22% of our bookings fell into the cloud and IT, which is the third one that's really been high growth for us. 18% was in the content digital media companies and then 9% were in our enterprise, which is pretty consistent with where our revenue -- our monthly recurring revenue is by vertical. Pretty consistent in the network. We were up a little bit in the financial. Enterprise is 9% of revenue, and it was 9% of bookings this quarter. Content digital media pretty flat, cloud pretty flat. So we tend to fall into those 5 industry verticals in that form, pretty much every quarter. So I guess the takeaway there is network, financial and cloud continue to drive our bookings and obviously, feed our monthly recurring revenue numbers. Second part of your question, I don't... Frank G. Louthan - Raymond James & Associates, Inc., Research Division: Utilization trends.

And utilization -- in terms of vertical, Frank, is that where you're coming -- were you coming from utilization of our assets? Frank G. Louthan - Raymond James & Associates, Inc., Research Division: Utilization of the assets, just kind of -- in each one of the 3 areas.

Yes. Utilization has shifted a little bit this quarter, obviously, as you heard Keith talked about the amount of capacity that we've brought on this quarter. But utilization now is roughly 80% in the Americas. And it dropped down to 68% in Europe because of all the capacity we brought on in Paris and Frankfurt and London and Amsterdam. And we're around 71% in Asia. But worldwide, we're about 74% utilized. That's the current figures on build capacity. Frank G. Louthan - Raymond James & Associates, Inc., Research Division: As you expected to be 12 months from now.

Well, it will obviously go up. You can see our CapEx guidance is down, and we've got capacity in critical markets and goals to increase bookings every -- year-on-year. So our expectation that we'll continue to raise the utilization levels to historical levels.

Yes. The only thing I would add, Frank, is if you think that -- we track utilization, both space and power utilization, at a very granular level. So you see the sort of big background number, which is heavily influenced by the addition of capacity into the system. But we track it at a much more granular level. And our optimization program are looking not only at cabinet utilization but at power utilization and our ability to continue to monetize power and drive higher levels of cabinet utilization through various techniques. And our optimization program is really a lever for us on margin expansion. So I expect not only are we going to just simply grow into the capacity that we put out there, but we're going to continue to drive very -- higher and higher levels of utilization on our existing assets. So I don't know the exact number that will trend to in the Americas over the next 12 months, but we're going to add some more capacity coming up here. But at a granular level, we are very focused on continuing to drive utilization, given the impact it has on ROIC.

Our next question is from David Barden, Bank of America.

If I could just -- Keith, just following up a little bit on the guidance, trying to do the math, subtracting the first 3 quarters of the adjusted EBITDA for the switching data reductions from the midpoint of the guidance. It seems to give us a number of around $2 million to $6 million, which is actually down sequentially. And then if I take that and multiply it by 4, then I look at your guidance and then see growth that's actually going to be closer to $10 million or $11 million sequentially, quarter-over-quarter. So if you could flip back for us, kind of help us understand the -- what's moving those numbers, would be great. And then, if I could, just a second question. Obviously, coming into this quarter, we heard a lot of noise about the challenges that Digital Realty and DuPont Fabros are having in the wholesale side of the market. And obviously, we're seeing that those 2 things -- those 2 businesses of yours, I know those are not really linked in terms of performance. But does their challenges in terms of supply versus demand present an opportunity for you guys to have lower cost inputs to your facilities next year?

Great questions, Dave, and I think we'll probably tag team this a little bit. But let me start just with -- let me start with 2012, sort of our -- where we're going to guide for the rest of the year and how that translates into the 2013. But I also sort of have to take you back to sort of 2011, just so you can get a sense of how we performed and how we're applying that offering guidance here. Though at the highest level, and as you're aware last year, when we came out with our guidance roughly at this time, we were -- we guided to -- that we do roughly 1.87 from a revenue perspective. If you actually take -- if you pro forma everything, and there's a couple numbers that I think you have, but I just want to make sure that we knock this one down, that if you actually pro forma that -- your loss in asset of $36 million in revenue, between Asia Tone and ancotel, you're going to have roughly $34 million of revenue pickup this year. And if you look at the FX impact, from when we originally offered guidance to where we are today, there's a $28 million headwind. On an adjusted basis, you get to roughly a 19 23 number. Now the guidance that we offered at midpoint is 18 93. Again, that reflects the Apple transaction and the like. So said differently, when you think about where we offered guidance last year versus where we'll all be coming in, we had a lot of confidence that it was going to be a greater than and no different as I look into next year, being 2013, we're offering you a floor of $2.2 billion. And so unless you…

And relative to the second question, in terms of -- I think your question is primarily oriented around -- given competitive intensity in the wholesales, does that gives us an opportunity to reduce our sort of factored cost -- unit cost going in. Again, I think we look at every deal. We have a very competent and very focused corporate real estate team that looks at -- as we give them our roadmap, if you will, of where and how we want to expand our platform, we go out and look at what is available to us and whether that is in the form of existing facilities that we would lease or other options. I think we evaluate those on a yield-by-yield basis and continue to get the best possible deals we can get. And so if that -- if that allows us an opportunity to reduce those costs, we will certainly capture it. And -- but I think your initial observation is spot on, which is these are very different businesses. And I think people are beginning to realize that.

Our final question comes from Simon Flannery of Morgan Stanley.

I wonder if we could talk about 2013 CapEx for a minute. I think, if I got it right, there's $150 million announced CapEx, that -- which works at to a buffer of almost $300 million. It doesn't look like you announced any new projects in the last quarter or so. And you did talk about having plenty of capacity there. So how should we think about that $300 million? Is there -- are we going to get more clarity on that in the next sort of 3 to 6 months? Or is that really something you'll sort of take a look at early next year and see how demand is developing?

Great question, Simon. I think first and foremost, you're absolutely right when you think about amount of capacity that were brought on in Q3. And we'll bring on some more capacity in Q4. And we'll continue to manage that inventory, as we said, on a just-in-time basis. And we've got -- as Charles said, we have a very good focus today on -- and managing not only the physical space but also the infrastructure throughout the portfolio. That all said, as you're aware, there's some markets that, for all intents and purposes, were sold out [ph] when we haven't announced anything. An example of that could be like at Toronto; we're eager to get into the Toronto market. You know that we're eager to get into other markets that we've talked about around the globe. And then there's other assets at or near capacity where we're already starting to think about the next expansion phase or the next build. And so -- but with all of that, I think, as we go through each quarter, we'll give you clarity on how we're go to spend the money. But I don't think it's going to be a surprise to you that there's going to be markets that we really haven't announced any sizable bill as of late. And because of that, we're going to have to come back and put more capacity into the ground. And again, we're going to manage it very, very tightly and focus on a just-in-time basis and make sure we can phase or stretch out our capital as far as we can to hit as many markets as we can. As you know, today we're in 30 markets post the announcement today. And so we got to make sure that we have sufficient cap to meet all the needs. But I feel very comfortable. We've got a very disciplined process that not only identify the next opportunity but also manage the filling of that opportunity.

Was that fairly linear through the year? You obviously had a big back-end loading this year.

It's very episodic as you know. It tends not to be linear. You can see it in the lumpiness of our CapEx this year. And I'll tell you, going forward into 2013, I would expect it to be somewhat lumpy again, and it will just depend on the timing of when we turn up some of these construction projects and then how we settle the obligation to our contractors. Because our -- the CapEx numbers we delivered to you guys is really a cash number, right? We're taking into consideration the movement of funds to our contractors. But my sense is it will not be a linear chart next year.

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

That does conclude today's conference. Thank you for participating. You may disconnect your lines at this time.