QTS - Earnings call transcript Q2 2020

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Operator

Good morning, and welcome to the QTS Realty Trust Inc Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] and in the interest of time, we do ask you to limit yourself to one question with a single follow-up. Please also note today’s event is being recorded. I would like to turn the conference over to Stephen Douglas, Head of Investor Relations. sir. ahead go Please

Stephen Douglas

by Hello Financial conference welcome Head call. QTS, Jeff here Relations Operator. Chief Chairman quarter Officer; Executive of QTS’s XXXX at and today joined I’m earnings I’m our and Williams, everyone, you, our to and Chief and Berson, second Investor Chad Officer. Thank Stephen Douglas,

also by additional who Q&A. in participate joined members team We’re will of our executive

are posted our Our in Investor financial earnings release of and Relations website. information supplemental section the

and made on slides available with make We easier and provided have our them the webcast our it also to website presentation to follow today.

Before of results include that described some forward-looking vary risks and those related and start, subject effects certain information may are me filings actual that future are call on uncertainties the as based including this we pandemic, remind the ongoing COVID-XX statements assumptions in to let number provided of SEC a you our may and during to materially.

SEC. operating press adjusted press issued revenue, issued them monthly operating adjusted EBITDA, certain ROE as our periodic to ROIC, today unfold. release no measures and update and to Forward-looking yesterday filed of statements remarks also duty Today’s that and we as FFO, FFO, with the in release or NOI, EBITDA. yesterday our including actual with you FFO, refer we We today recurring made we our non-GAAP the that undertake are remarks furnished include along events reports

call use results. Chad. now reconciliation them GAAP of For to of And non-GAAP a and the turn to further these information regarding financial our measures I’ll our over

Chad Williams

second QTS’s to welcome XXXX quarter and Hello earnings Steven. call. Thanks

our leasing performance of outlook to second for year. pleased we’re of including and gives to performance the the X, during that sign financial our increase confidence quarter strongest us Slide deliver another financial one to strong quarters activity Turning

relative strength economic across our and our far and in differentiated created view demonstrates of of The a business diversified our and the reaching while disruptions challenges amidst of performance comes result platform. as further Importantly, COVID-XX world. consistent our disruption value unprecedented COVID-XX has the resiliency

federal while maturity continuing infrastructure, the data verticals opportunities platform. with experience target premium and share been invested in and our adjusted the believe from defined opportunity approach strong and diversified risk return customer and quarter-over-quarter and sources hyperscale each economical quarters, our operational leverage our last advantage, including diversity several leadership three we’re hyperscale federal. platform variety core our or maximizes and sustainability our differentiators to record of on cost industry We in colocation our to enabled performance performance initiatives, effectively while of driven has customer to drive center federal select, our As the quarter-over-quarter growth to verticals; SDP. our market continued capital has through software commitment customers able through acceleration case continued business Across megascale growth the volatility hybrid track fully growth grow provides by enabling reduces strategic for to the and been the of participate This over colocation, business contributions to cycles. opportunity of digitize consistent hybrid generate our a by business QTS’s a

in important our and customers hyperscale enable customers, to appreciation business Moving has QTS during our with success Slide is remains tracking environment. serve on-site IT role manage differentiator and their customers’ remote X, pandemic their unlocking Enterprises enabling IT empower advertise COVID-XX for the to are data and is data physically key that and assets services for which SDP’s we’re significantly remote critical various and the sets This particularly and powerful the able capability their customers management. critical a an for SDP services to to manage driving ability mission data the through increase a in platform to infrastructure limited given interact accelerating ability effectively true to infrastructure. for their

since As we elevated discussed last quarter, customers among the our SDP outbreak. COVID-XX to continued we’ve experience utilization

approximately the the XX increased approximately customers hour. session of roughly continues session more top levels average for remains second minutes the exceed our our unique logins we SDP platform has to average X,XXX XX,XXX across quarter with active across and SDP experienced one platform During doubled to than To-date XX% at plus users. quarter-over-quarter. Base engagement level times SDP pre-COVID-XX. times users are This

for services to with consistent part continue connectivity believe addition, remote activity during by, of ancillary elevated driven in and leasing demand additional the effects our In we hands the by experience including in QX, COVID-XX. we In the first quarter eyes.

QTS quarter bandwidth XX% reoccurring upgrades During and up cross up IP from XX% incremental signed second the year-over-year. revenue connects

In same realized the over a of XX% the number addition, hands in and quarter leveraging our ago. QTS remote increases eyes services customers year

in aggregate the customers high represent to of They data contribution While margin are top opportunity of small center remotely relatively on drive provisioned revenue QTS these with our be additional additional financial our service incremental services a SDP, to enabled estate. customers and business. represent via an incremental real value valuable to profile for and

our year-over-year million Moving to generated a total EBITDA XX.X% million. and X, adjusted approximately and growth of XX% and respectively. the delivered growth $XXX during $XX key of Representing QTS strong financial another metrics. performance quarter with revenue Slide second across consistent QTS

Our our digitization of continued adjusted of during points our EBITDA XXXX reflects our ongoing basis representing quarter efficiencies, while margin scales approximately combined as seeing year-over-year expansion leverage XXX was with the we’re operating business various margin XX.X% initiatives. second from

result strong more in corporate of quarter resulted in results The combination utility approximately to our rates of relative initial expectations. $X rates adjusted travel discuss quarter a additional from second corporate the during EBIT of lower second in and the will related utility reduction pandemic. COVID expenses benefit other net adjusted COVID-XX reduced as EBITDA well our million travel expense of to expense of as Jeff as as detail a benefited results the our addition, In

$X.XX delivered growth of year-over-year share we performance the which per in For X.X% approximately quarter. our represents quarter, the reflecting adjusted EBITDA strong second OFFO

of and leases we’ve represents million. representing $XX above quarter leasing modified $XX on consecutive Next revenue delivered results quarter signed third during QTS X, million incremental the Slide the annualized new which second

Continued of our At leasing a the pleased strong an And in where across is approximately $XXX but performance strength industries annualized reaching COVID-XX to backlog continues significant provide of of growth. far backlog resulted visibility commenced and XX% end we’re of yet that disruptions million. approximately quarter-over-quarter. not revenue the in our future variety quarter, uncertainty up the environment into creating

our is general consistent healthy. X.X% the the single-digit low-to-mid renewal expectation rates increased which with by remains In increasing quarter percentage addition, customer Same of rates during base our trends embedded within overall space second in range. renewal

lower X.X%. toward trended during In our customer addition, to range. the churn was X.X% quarter churn Churn end year-to-date historical our base year-to-date of within approximately which second has the brings

result customer customer visibility the into and year-to-date for year. a our strong balance retention the As activity of of

from associated federal X% Due leasing the which full was with revising The activity. leasing We’re colocation our year our performance weighted premium our of colocation quarter’s X% hybrid and towards churn X% quarterly signed guidance pricing contributed to typically combines and the to our to verticals X% leases. majority previously. hybrid down to federal

a in the was leases We’re the signed foot pleased the during excess which four of rent the new that as XX% signed capital Strong is quarters activity during $XXX and of average delivered encouraging on an square invested for return average quarter the our of leasing also leases modified we’ve average. quarter Evidence QX represented leasing considering of quarter this pricing XX%. on above the per approximately quarter highest apparent is public the is particularly during aggregate prior one company.

customer sales across Our remains our pipeline verticals three robust. target

we involve approach any federal than sales cases. length discussed the two some high their years which result not or these federal can the in material cycles in and sales we’ve underlying hyperscale in opposed federal business opportunities which processes in to the though, logistical disruption be to environment. has is space resulted specific As is broader of work a velocity attachment Due acceleration to the quarters’ remote the change deals cycle engagements typically strength as the would the average quarters as generally prior more of longer contracts of in continued seen security average modest an expected as contracting the customer to experienced delays this the COVID-XX in typical with data in demand Similarly, multiple seen their center base pandemic. on and associated the sales in related we’ve

quarter. impacted we’ve naturally on in recognized and enterprises new elongated We’ve shorter our creates to much On continued supporting federal colocation disruption enterprise solid visibility second sign see which that future the could performance incremental continued evidenced our leasing by strong from leasing COVID-XX. as to be than That’s less there combination hybrid with sales typically should customer We’ve from engagements the are growth in embedded base. those with be hyperscale the growth in logos from side, for however customers. opportunity

As this base XX% evident sourced leasing second existing our during typically XX% and quarterly customer volume however of our from quarter. is to the

our base leasing. of Our existing XX% in quarterly excess signed of customer represented

combined us deliver enterprise by base one that encouraged our and model of supported contributions still strongest our performances existing to within hyperscale. and leasing growth with our We’re the regardless customer of enabled the federal from incremental in history

Due commence and represents multiple growth personnel for our expansion platform a X the focus in profile megawatt to requirements results federal opportunity we We deployment of of compliant to in investments signed The success positioned talent customer is the entry in QX, for and years of capable profile we barriers processes, typically X, capability core federal QTS to leasing security strategic in to other in and supporting excess necessary an return federal of this an operational this plus for the higher customer from Slide strategic QTS see signing in represents on data QTS another in supporting Turning example highly our mid-XXXX lease federal federal segments. is with well This existing intentionally vertical customer expansion megawatt our business. capital expanding federal government the set plus the including expect site unique five remains the quarter we XXXX. across ago agencies. return deployment and to second include hyperscale government. for center of several lease the

about in the the large of excited results hyperscale to We’re leasing volume drove year-to-date have as and to QX. the our investments these performance remain deployment our benefits believe of see opportunities platform. materialize highlights diversified in move and there. contributed momentum our now leasing forward building federal QX Outside started We meaningfully we the and federal value seeing while

I’ll that, and driving and customer Jeff performance rates and win verticals Financial it activity performance. continued first for in our Chief second turn the our increased leasing hybrid quarters Officer. to these is we’ve business. of colocation growth Jeff? Across business and both continued With during each deliver our Importantly, over target Berson, consistent differentiation positioning

Jeff Berson

Turning to to approximately some QTS’s industry’s model challenging the modest in the concentrated most amount and for we performance extended of X, receiving business oil amidst more record. continues Slide discussed quarter, financial on support directly resilient diversified retail, and COVID-XX from of form payment X% a including request hospitality. transportation, economic environments Last of revenue and base strong terms customer gas and by customers of one representing operating impacted

customers the for development of delays do currently unique assuming in I’m development have we circumstances achievement number pace previously they’ve navigated pleased in and extremely payments. not continue. anticipate a while commitments as track stabilize seen a since teams on resumed asked this delivering the related that our This tremendous second meaningful terms represents Over incoming payment on trends backlog to extended quarter, course requests who additional any XXXX perspective, and has our of of our the we’ve for remain operations current moderated customers as From number a booked-not-billed COVID-XX. to had

our funding to Slide XX. on moving activity Now equity

forward net approximately completed approximately of our net call representing million earnings basis. Subsequent equity program first in As were XX, to on of through issuances. sold of stock Equity offering had quarter on released QX proceeds through access XXXX and we June. earnings ATM QTS proceeds to a forward our April $XXX $XXX forward million overnight

forward QTS earnings for settled shares approximately available million as activity. stock of of proceeds net QTS In This release. issuances the $XXX support our net in second addition a results $XX development to during equity to ongoing through of forward of million proceeds quarter, million yesterday’s approximately approximately

advance. the capital quarter, our prefund four to last current discussed market’s in to or As we’ll to business quarters in look three volatility continue more capital needs given

consistent us pre-funded to to shareholder combined where returns. capital pleased well We’re the our are positions year be a continue deliver position to visibility our into and through middle with needs record in of performance booked-not-billed next a backlog future when funding

Next and sheet review on our Slide XX, I’d like current position. to balance liquidity

quarter, indebtedness with proforma available proceeds. of maturities million and for available available total the end a equity to to $XXX fixed second rate times our of of currently of quarter EBITDA leverage billion. ended approximately liquidity have equity debt including approximately we the and a increase $X.X proforma had until annualized We forward XX% X.X adjusted approximately the swap proceeds no XXXX debt forward of As the significant net of agreements. rate subject is series including We of beyond

forward equity Excluding we maintaining where times. funding. booked-not-billed by which leverage proceeds have derisked end quarters current operated over a the our We the leverage fund times coming our range. in backlog, future leverage We consistent of while [ph] mid-to-high development was the our and historically with level currently profile, quarter X.X our is expect second remain forward at with proceeds plan five at comfortable to our the supported approximately significant to drawdown equity equity

our to expenditure outlook Slide on now capital XX. Turning

expect majority activity development than now Relative backlog. Atlanta XXXX remains concentrated in raised capacity increased amount we’ve facilities. We’ve to in our is our significantly record Worth robust we and momentum feet the The of given Chicago, deliver to the to floor capacity Ashburn, service Our support year. initial more additional sales of Fort at beginning and booked-not-billed XXX,XXX the this square the in expectations incremental of experienced. by of our

in In addition projects active Eemshaven Irving, to and Richmond, Suwanee.

to capacity of represents megawatts over years. capacity over total aggregate approximately that same we complete course which of XX power the expect Over the gross of the of delivered in amount prior XXXX, we three a

XX% megawatts of than facility signed two and than approximately addition, more currently ago. facility years In backlog leases of totaling our opening is to booked-not-billed our our capacity tied XX in less the sufficiently fully continue. megawatt Ashburn to more We’ve already to year a available potential current trends by leasing continue see this entire assuming XX% the of than the of and capacity path XX facility sold end Ashburn

on As our a a power now market. support site incorporates our Ashburn facility. strong commenced of allowing that momentum to own We new updated expect the of in the we land will CapEx XX in currently extend sellable XXXX new pre-development capacity be plan our result, able in megawatts to excess the us adjacent to existing side Ashburn of

outperformed expectations of sales our of for and activity year-to-date signed the leasing visibility result that As a is half year. a initial this pipeline second

We’re CapEx guidance. raising our

from now expect XXXX For capital million. of cash million the million we to excluding to full M&A year $XXX expenditures XXXX, between $XXX $XXX million $XXX up

of XX% directly Importantly, than more to leases. development capital plan signed tied is our

XX, XXXX year-to-date guidance Slide on financial Next outperformance. to reflect we’re revising our

expenditure result our the Through and initial revenue second capital XXXX. for half our performance expectations in activity updated outperformed leasing of a the Our as of expectations second strong quarter we’ve year-to-date. recurring outlook

year. However, for our and next margin effect reiterating revenue for of lower the items, previously as in materially between lower $XXX these utility expectations lower in Factoring expected particularly than a result million. our two our disclosed of market, rates we’re our power guidance XXXX than revenue of has $XXX million trended largest recovery initial Atlanta the

$XXX We’re million raising of EBITDA from our million million up guidance range adjusted $XXX million to a to $XXX $XXX previously. to

Our EBITDA reflects outlook with in revenue adjusted outperformance year-to-date improved strong activity. leasing recurring primarily associated

in recovery our utility leverage referenced. of reduced just expenses operating net platform I the Continued and

travel additional aggregate capital disruptions levels and million a guidance $X development higher outlook $X reduced updated impacted while QX EBITDA to of also margin corporate COVID-XX. expenses relative guidance updated begins as these travel than expense million benefit our per $X normalized subside. Lower positively and cost share million our Chad by our quarter would during XXXX plan. updated we’ve lower our mentioned, associated in performance increased related to in to incorporated corporate reflect XXXX we XXXX XXXX. COVID-XX adjusted assuming adjusted net We outlook expected initial OFFO COVID-related full utility more We’ve EBITDA to of cost the In return EBITDA and other to our effects our with to year performance of range, second expect expenses adjusted addition expected costs experienced the in these than approximately approximately

updated relative range an at represents $X.XX Our the share range. of to per to midpoint guidance OFFO XXXX $X.XX previous our $X.XX of guidance increase

lower XX% of deliver view the back with that maximizing We the growth return remain as the performance position pipeline, against approximately our whether our Chad. or X% business In robust target our plan to intensity is both supports a I’ll our while of year. we adjusted relative spend healthy combined turn of allocation driving share consistent, to to capital long-term record capital consistent dividend range. given platform prioritize our opportunity the growth the consistent to risk With to in a tied next OFFO approach growth call booked-not-billed equity the position continuing and to funding backdrop. the profile. results We to X% base in in and achieving order annually. a to strong operating believe of customer per and results. capital middle find invest share in Overall, provides with goal our near on to growth liquidity return over growth company evaluate sales capital embedded financial to volatile a trends OFFO achieve of OFFO year now of continue with and right the per pleased for we to term macroeconomic When balance to per continue key any capital our between In higher investors general, range, constantly end This X% directly annually. of of with be our share yield. determinant consistent will towards X% X% our plus this

Chad Williams

Jeff. Thanks

customers of of overview second and Social stakeholders on in an and on the ourselves communities. Environmental Initiatives at we company that unfinished of greater stakeholders hold standards our report predicted ESG and ourselves key ahead our we than key of our about to commitment each accountable Governance update on Report ESG part to provides deliver our Turning our the across to any accelerated which the represents has care position business an as to XX, work recently This opportunity published long-term the in Annual viability the Slide various I to initiatives its America installment something our important we’ve QTS and recognized made believe progress the we serving us. other, highest is corporate believe as within commitment principles.

important and growth clearly culture impact business our our enables a employees each excellence other communities and profitability are While to environment our to and and our equally critical is positively strategy. establishing long-term to that pursue

half the challenging the diversified economic XXXX. operating of very related a of performance our That through to party our for I and our center We as first first financial our many in to safety the like others. service results to way record healthcare the way in I’m resilience our XXXX. that QTS-ers model COVID-XX to up continue shareholders of continuing second and leverage thank for to to half As put secular the proud for maintain our first were we’re have with our third periods the continued continued to confidence strategic as communities, demonstrating QTS-ers most challenges our to and each and strong harm’s on the stepped and Overall, team our by communities. momentum year, our differentiators so the consistency growth to other, of of business and their their during customers each responders trust customers in and of questions. of workers this half ensure capacity. With well forward one execution thank demand I’d of like the and QTS. reflect for culture a their to data that pleased that, resiliency also I’d back Operator? in take our the themselves to testament glad look on commitment that is one in to of the robust determination we’re presented surrounding QTS delivered

Operator

with Goldman Sachs. [Operator Instructions] comes ahead. go question first Brett Please Today’s from Feldman

Brett Feldman

how a colocation opportunity caused look major distinct vertical sort really like the You and long federal talked could for is else it’s itself company seeing standing about the of has but much capital then the I hoping that like then, Thank certain now making? of more presentation hyperscale out as maybe more a emerge, can I factored this look as opportunity traction ones. lastly recent the It you’ve a is does look time you at seems deployment? this hyperscale? you that benefits like this other tell it that to And What really it behavior into give customer to what about seeing you. it been what segment hybrid us extent a context. government of little and is with it alongside to you’re or was and within maybe investments us the And your hybrid does category, so colocations, couple you’re federal accelerated

Chad Williams

so right to people our are it’s facilities intentionally But -- future the from by innovation, like commitment still management going longer that we going to Brett, there’s want We’ve both the put that type to to come think is Chad. ourselves continue position the thank just talent And to for eight-ish that. oversight harvest and so always do and locations. the tremendous facilities do a that It’s and and place of ago. a started slower I in right to board think appreciate to across very see taken cycle and because work in a really we’ve operational to years people technology, you. you’re we’re I direction remind so organization about. a at starting complex people, by just the commitment I put and large some be moving federal the notice lumpy, it’s and success. government because but sales talked that, success team investing in I starting in no is the a partly This

a deals, to to opportunities strong look like be with megawatts. also X about colocation hyperscale we it smaller your I it connectivity. But what will point hybrid call could X are lot think

there’s I that the focus think continued is to position, it that’s put we some that accelerate it see be lumpy. us for strong to a really to the up, see. where the a opportunities pop what you’re But ourselves some But trend will in and good vertical going continue capital to see come. it will down years over how we we’ll out we plays opportunities But feel road. about

Brett Feldman

you. Thank

Operator

today And with our next Capital comes Jordan KeyBanc from Sadler question Markets. Please go ahead.

Q –Jordan Sadler

I’d for sales that see talked maybe to pipeline, start Ashburn corresponds not you and megawatts Chicago, but Fort that you specifically increased CapEx that X the spend in on only also leasing you additional there to else Worth about the by visibility Is point pointed would you Atlanta? to end. and that the of anything Ashburn specific year

Chad Williams

federal, like just you’re seeing balance. good spread or some just Chad. is deals consistency pretty year out just no the as quarter’s the we’re the We’ve this business, balance to targets the right meet We the leasing seeing good see and just facilities [ph] some opportunities for potentially. more call. this It’s said that in we continued of do we We see hybrid a last But the Jordan, the been I didn’t we think return around opportunities. disciplined and feel to diversification of CapEx activity just good that hyperscale locational year said us. this the

Q –Jordan Sadler

curious. guys or of functioning leasing X a pointed a just couple the terms just But I that’s specifically have quarter. that Ashburn. or deals maybe assume in in had the the to overall you recently bogey that this of more million But $XX megawatts pipeline. you hyperscale I’m

this last from quarters. the three is metric higher? quarter per to deal still $XX mark trend one plus per we year the in expect now hyperscale You’re And million the Should relevant? three or to

Jeff Berson

a the seen we’re a seeing more Chicago larger where a now course Atlanta, is facilities, the of facilities CapEx portfolio over of our with To and point, Atlanta booked-not-billed in trending CapEx across in of little side Chicago. in Chad’s on with the the last the of one backlog a the Ashburn is right X you been in months on bit lot But see backlog Where lot lot the in is and the Ashburn really you’ve you’re also that’s of you’ve growth megawatts seeing we’re seeing What it heavy in so seen CapEx business. growing leasing side. activity our of from hybrid and XX deals. some smaller that hyperscale others. where in the some is Piscataway and fastest booked-not-billed then actually Just

there. trending what that’s So

On ago. quarterly leasing the $XX talked to with average two of model leasing bogey, about $XX a million million years we

and that Our target the was increased the last we and growth to $XX drive that need of really million our year the and model revenue $XX that’s year and million the guidance expectations this to business.

leasing with three one to to $XX the year. strong and us of and of that’s part our So But the quarterly great. importantly, million It enabled the is is increase model the been the deals. what the true hyperscale a to obviously hasn’t target. start year what also changed with true fact this to It’s half us guidance for of first off the helps be that we’ve well above XX year for in

Our model, continue. our can year. target at growth We’ll work expect, level Obviously sequentially we’d grow as like we base rate expect bigger, that to and leasing gets that each we the those levels. to leasing our hyperscale

and still $XX be we’re as our top year three next probably deals about of and one bigger, and gets one plus as point hyperscale to grow target three million increase our if good it. feel But some at this we’ll $XX line continue at million this deals We’ll year. So double-digit to base hyperscale still well. we we to year want those need to is

Q –Jordan Sadler

the the sales could year. this you other talked words [indiscernible] So XX pipeline about be in because visibility. still improved In

a in per second the see XX to year, de-sell the done reasonable could that You’ve leasing in volume, half. we it’s assume

Jeff Berson

deceleration a on wouldn’t to in is each get Jordan, I business. don’t the The to terms want that to leasing. the away quarter raising We the down the confidence weeks point a basis. going of walk decelerate. thinking guidance from We But want But don’t I same and is down quarter. business. mean if people we’re is call people we pinned at have of talking time, the so leasing not specific number a in XX we be quarter-to-quarter this call tell that still targeting in think expected to leasing we

coming into We’re the start first strong just the obviously and the we given good. very the half had in maintaining year year feel expectations we of the

Jordan Sadler

Thank you.

Operator

Long at next today Barclays. go Tim Our comes question from Please ahead.

Tim Long

Just SDP maybe one the front. on

doing out and a good in of on kind presentation. maybe little any think SDP about about pricing quantify with lot win helping had that SDP better? a pricing? what talk on that and maybe you Could of to the way bit stats the you that happening there portfolio I you you rates follow-up If a put there’s and You enhancements is see talk can then any

Chad Williams

some talk little have. about I’ll roadmap. good. Jon see we a that then we and bit conversation squarely about every I’ll opportunities Sounds SDP talk differentiating, have for It’s

you opportunity serving is a and their see squarely with eight adoption, center your rate have six of Giving open six data roadmap you’re every it – and to the about is to way that bit the the out about as increase think customers in a IT. that We to every data Jon, center weeks. SDP? differentiator roadmap to working hybrid It’s some I every just if a and want weeks. his So we a with on data the digitization digitization, us. little seeing rolls compelling and upgraded updates talk for win SDP everybody teams a cloud transparent of on aspect eight getting and Jon

Jon Greaves

our a see one is is is directly prospects actually majority coming of Tim customers things that from really each really great our really, I’d generating we’re kind and so and roadmap now which highlight -- of absolutely been probably that’s good. the Yes, of items to internally,

even personnel We’re essential through use optimize, throughout of quarters, and the kind going their customers general, data ways been interest very our data seeing internally I of what’s we of with helping can really heavily into next SDP CV-XX the for we’re looking lot centers and in our further a at own inside have platform. real-time of data ways that we us in kind been integrate of kind [ph] managing if portfolio kind movement it’s data also to some from to the managing on just of on with center. using look the center platform our In of couple look they if further plans own

in the we’ve and which the So the couple using and that into fully the like tools last of QTS their been kind own couple ServiceNow lot we’ve of Salesforce of has uptick customers API platform seen in of build years. key integrations also a integrating

Tim Long

It Thanks. great. it’s maybe on sounds Okay, then strong. a follow-up pricing. like just pretty And the been

is, just that how do industry think help think you much little through, out of us? strength parse you So is for how you much bit dynamics think is you the mix us just Maybe the Thank a how maybe out parse you. portfolio? much and can and of kind

Chad Williams

been too leading our conversation. our And it provider. Well for delivered But NPS you of leading by in position be put it’s to never low-cost always business a candidate innovate scores conversation you in and I a how deliver premium selling how about cost the is, has provider. represented it’s has it service of engagement mean prices of world ourselves or be benefits a to service. customer never our in our having be is pricing. whether a your whether Pricing It’s low been objective dynamic. technology. of competitive. around to if not by The class as always to much invest We just one But the competitive as far

So feel about service good It’s locations. increases. about single-digit to renewal low-to-mid we and continue It’s the class delivering world rate innovation. It’s type about to of consistent. feel we right about continue

consistency in it’s just good So business. our been

Tim Long

Okay, thank you.

Operator

And Colby our next from question ahead. today comes Cowen. Please with Synesael go

Colby Synesael

I’m the enterprise the from will half the expectations in if of you thing. for of and was would us I wondering second can in that down checks enterprise end wondering your you’re Also, a just seeing if quarter the leasing year, slow that suggest the specifically quarter. dollar comment quarter, slow same second hybrid give the back you wondering amount can if further towards came or in on demand our the third

thoughts million talk in new on customers looking And the and US $X Denver into particular, having demand potentially the they’re you are to target curious conversations typically to your then bogey. million $X think and in based what you’re with you. question, I on the second particularly go Thank just my where expanding about markets market.

Chad Williams

those focused Colby. that sales their different to elongated mentioned things. cycles consistency that path of digitization of industries continuing going have airlines is to that. of aspects and accelerate going on certainly to certainly Chad. to hotel see the get there think some gas type This good Jeff and and and But are and Thanks to areas are that businesses every Enterprise a one demand the half we’re ahead second you’re and pretty on Obviously, cloud. are year, of people There see elongation. those, in for I oil and

for the think the half year. of will be demand I So the consistent enterprise second

a since biggest team. of federal probably think year. colo to lot have or together right the the to of ability – hyperscale second put deals consistent going We our us feel I for it’s or differentiator we our for got a whether half is like hybrid the diversification we’re

only feel to going think the we helps and we consistent it’s start fast the that. So be year to

thoughtful We nice, New example. marketwise. some Ashburn standout markets a US. that a Hillsboro Manassas portfolio to on. step brought are we a grow good always few be customer an ago is helped Chicago the But coming is online. be engagement rich the map always in have we One strong in to right at took an big thing here really where opportunity. US is and moved us looking We and look continue and at into that about years we’re and that’s infrastructure transitioned now really need we example. feel and the really in the really it roadmap or we say, is a is

Jeff Berson

the Hi leasing split. Colby on and

eight that We within quarter. been it’s the were we’ve six in the hybrid end, not You’re higher towards that. to than higher is the of where typically on side, right sort range and even actually

the the hope earlier. some number. strength existing tougher making our hybrid base top those based numbers. guidance we’ve I in strong. That’s with So it our on higher to grow. still confidence But past But very with model is that coming we’re and of seeing still that’s diversification federal of hyperscale. have of the with continuing get point, got, you obviously customer to lot mentioned are that we’ve A as diversification The still To a hybrid support seen we logos from business, visibility to as business Chad’s to in we some the well. the new enterprise predict. on

Colby Synesael

Thank you.

Operator

And ahead. our Please comes go today question Wells next from Luebchow Fargo. with Eric

Eric Luebchow

you So the talked wondering incumbency. of side, guys hyperscale kind value on about of the have

think of or you much as your you customers How pounds How and existing win customers do overtime? of to grow vertical tracked look I kind hyperscale [ph] logos pipeline? in So are within about those currently many from so. XX opportunities expansion at you kind that those baseline versus see that of new

Chad Williams

new would incumbents tracking growth. some kind to good to in it good I But much continue those say has seen to seeing top Chad. we’re ability of this contractually good and about news both. is opportunities for locations of online to The is are new the a expansion talk also coming balance capabilities these with existing a mind the team of hyperscale customers. balance just and and half the Eric, XX easier is,

feel and three’s can So on one we the be that good consistency with especially its that reliable. continue of consistent both and our very to on forecast balance target to and

Eric Luebchow

one and Thanks Jeff for quickly. Great.

about elevated is you would appear even it beyond to of year. $XXX this million equity, of Given have remain kind almost that CapEx going fairly your undrawn so

you kind capital see XXXX? Thanks. how think should any we can provide pipeline, of about intensity and So just beyond given are what you there even in the broad post guide

Jeff Berson

Eric. Sure,

you accelerated So aggregate aspects. building meet the than has bringing really of part There’s think that’s saw power as we’ve in between XXXX is the the that this year. plan business. two Hillsboro prior got our capital should and online additional the three mentioned customers and across in as meeting One Chad out and our to just the their just this about in capital. in facilities our just a of we’re capital leasing in more year business. putting we’re in of that capital On online XXXX, of portfolio both bringing that new earlier, building strong in drives why so that Atlanta years elevated you couple new our top so needs they’re so success-based

we rest in out based building As capital we’re of be new the to you think about on the that to be you’ll that. for putting we is Ashburn, XXXX, so heavier have the capital But momentum for us and continue building and in business. numbers The some to the visibility there. growth early to going start going the acceleration have got that on leasing. in It’s confidence

Eric Luebchow

you. Thank

Operator

from Our next with Berenberg. ahead. question Crossett comes Nate today Please go

Nate Crossett

XXXX sounded federal, to margin for some those kind just It and EBITDA where COVID be post to of have And like go effect I was pull then continue of any saves election the if sales margin, cost trend guide On permanent. on after one won’t to will cycles. up. just the have wondering the what wondering leverage you the

Chad Williams

Nate, this is Chad.

I On don’t one, any big forecast the change. federal

they’re are so across start consistent But think I they movers. administration moving, what that. kind matter happens fairly think once no the federal of with entities I slow the

So I big like going feel any thing. that’s not be to

bit COVID impact has had navigate that able work. and timing an their of been But that, I a of and some on that. their we’ve through even little work think type of efficiency to

want take the to So lumpy. kind I be think it be it’s in consistent will do you just Jeff, continue to to still of and margin? ahead going quarters

Jeff Berson

guidance. of standpoint our Sure. midpoint From a revised margin it’s a

just of We’re below looking XX%. margins EBITDA at

power a and savings One year is, if been those You’re bit. to normalized brings $X million down of savings back exactly the a of or and expenses so should margin little those right. $X related COVID There that of out impacts of year out couple cost you on next the low have reverse of that. coming your expenses million that

The with We is other lower to about aspect low probably recoveries. $X.X of have revenue power. the million from cost power

effective your also that impacts impact at $X.X margins. all. of that EBITDA But that’s so zero the revenue Now million doesn’t margin

So $X.X revenue add from adjust and power. you of you million when of a sort normalized

You expenses. add about X.X of

getting just in XXXX normalized You’re XX%. margin over

year business XX%. the over in and so points basis see We about in improvement going enable to leverage operating will into we a our grow that margin to the do margins. normalized continue expect that growth We us XXXX expect targeted margin XX you’ll

Operator

ahead. And Simon from our question go next today Stanley. Flannery Please with Morgan comes

Simon Flannery

I if the that’s wonder to environment see you signed. ROIC on the to competitive you could nice leases the talk

said there issues the Has the getting equity Ashburn. COVID been any want flesh follow-up? holding in to continuing coming more. either back the are lot change It supply some of on some just demand to areas could little you’re a doesn’t it’s there? what you maybe months the that there some did out maybe I Thanks. logistical due a bit into your and like given that pulled You delays doing particular in modest was back But few just focused CapEx. or seem private You’re last balance

Chad Williams

example. you you we if depends that be know by full of really Ashburn concern location for Thanks on end the of of competitive ago, a Simon. height competitive it it which opened Chad. this having It’s probably year. Ashburn to the years The our facility approaching area. environment at and was But and couple When take facility

in innovation, competitive the going One of environments XXXX. deliver facility the shows in that new reasons Ashburn even have the products, when we’re the record. just right track know right to right in you you It

the and achieve your invested capital goals. You ahead on can return work accomplish

so. of timelines some equity that’s an don’t We dynamics elongation last does or logistical with on delays. So had entry consistent. year over haven’t even in and location. any them stable seen the we’re being that most and on which interest fairly The see change to in the into that expect in big or the behavior private depend really change the But we’ve space competitive of

to if question we of that through about what is The objectives and that’s everybody continue. team’s we delays. the has and fabulous customers about goals and our leadership the been We’ve of job make had to top a expect. development. to a that expect each accomplishing But the We’ve modest sure the priority job targets. Mr. on sites. Robey just a have healthy the that, deliver and meet procedures seen the team, testament logistical But able changes really Our to working construction. we’ve like done process our people and keeping QTS

Simon Flannery

is And supply chain okay? the

Chad Williams

seen tale. of been resilient ahead got of and But chain just to quite good even gear cautionary at been chain Yes the the out right we has able we’ve supply the kick they into to back has and consistency change. that at pandemic. what need time a bit deliver don��t that beginning to Most I would say the so and the supply across the of supply expect chain was that

Simon Flannery

thanks. right, All

Operator

today from next comes our ahead. question Ari Klein Capital. go And Please BMO with

Ari Klein

adding move parts You mentioned in hybrid the quarter? QX customers this and some improvement as new of the this through early into you challenges you any in of environment. Have seen

Chad Williams

hybrid? I I’m The sorry, if I’m right. difficulty in the question heard sure not

Ari Klein

hybrid the seen of moving you customers. quarter? second early the new to the In third and any parts adding quarters Have improvements through

Chad Williams

in as did we conversation, helps, helps the XX% help, come over class get more that that expect the as of execution existing of normal. service business see back world clients. that right and business moderate rest from think this differentiation customer locations people I will of year SDP I helps. to

[indiscernible] to that, also So need expect continue it’s we I grow but customers just to part that mean of us. with

of a to we’ve environment more and in So that back probably I would expect moderating shift XX-XX that historically. seen type

Ari Klein

driving there less partly longer start What’s these you Thanks do pandemic? the term of than a just and It’s think a expected coming the and of is year. or to function that are on then churn. sustainable

Chad Williams

think combination. it’s we a Ari,

being don’t center a really a churn. that more they’re often, we out be larger to love to just tends unless from forced customers strategy with factor. data typically by has It’s Our company they’re really and most acquired pull see the gets customer not that a QTS that common when different

think year manageable the churn to will that we’re low this the in we of with remain down the happy year. very for the rest bringing half so for full the year, of [indiscernible] guidance And our first and continue churn

to last few I level the X% continue think targeting going been that the forward for our expectation in we’ll we’ve probably X% years.

shifts. any not We’re seeing major

Ari Klein

Thanks.

Operator

Jonathan RBC at next ahead. Markets. today our comes from And Please Capital question Atkin go

Jonathan Atkin

kind engagement The much customers are the think last that when your you tours of meetings, any call? with seeing you site it me question or more about earnings earlier person whether of made same in as terms had in pretty was person is in

Chad Williams

Jonathan, and that’s to phenomenal the and teams’ job that Jon a digitize been experience. of the hybrid the has digitization completely and pretty with consistent. team I efforts the say done course hyperscale would Brent

accelerating stopping in see we there. the have that see SDP and don’t we I that I with and that So and advantages the outlook have trend fact,

concept that the in and going can but think take will and It’s as never way to that. continue just it we opportunities interesting the an touch We’re is you have the future digitization that on you center. mind foot cycle additional to lead data I to the full through

Jonathan Atkin

on And COVID the expenses.

there what’s You COVID? ongoing talked to pay of terms has throughout in about expense related been some of trend savings and the tailed hazard that or labor has off, the

Chad Williams

have Early pandemic. pay on we in a going help the excess forward. on has off make transition that we normalization Most of to did that that families height come a and see difficult some and some accelerations of very

Jonathan Atkin

type existing existing own recycling with whether partner partners on divestitures, or your – asset And it’s even interested perhaps I your assets, in M&A on in just sheet then it’s or footprint? additional finally thoughts growth in some less of operations or whether additional your of or financing organic markets your active other balance resources was JV

Chad Williams

market the do some of growth best the of around organic M&A. rich have powered really just a platform. that’s best question, million this in powers shell bank of that to because land to feet and discipline infrastructure M&A and continue having it’s anything we Great square not and the

assets So course thoughtful always one or of that. about we we’re not stay opportunities outlooking do to really [ph] off

is a fours it’s just we assets ago best phenomenal the bought Piscataway underutilized that think of example I in done when an probably few and years Piscataway.

JV stuff but optimize opportunities in take recycling nothing driven whether So the portfolio. and put it’s about Jeff will anything a and be to or having capital to that’s continues look we’ll always will do new thoughtful. think by within the to

thoughtful invested and optimize We our capital. recycle to how continue return about capital on to be

be to continuing are things those look focused we continue to at. So that points

Jonathan Atkin

Thank much. you very

Operator

Our next question Funk ahead. America. of comes go Please from Michael Bank with

Michael Funk

to you’re thinking sustainability capacity about comment of the the How I wanted you growth applications, term? some needs crossConnect of drivers, seeing. maybe and you’re the that longer on

Chad Williams

want you to Jon, that? take

Jon Greaves

absolutely, couple on mix. that, results very Yes things seeing And we of pleased you’re crossConnect the the on Michael feel with Chad. that growth. really Obviously,

to in You’re seeing of increased services that entire usage customers still and to other of kind offerings. collect having platform SaaS

our We’re cross virtual of of also has with really platform that that. connect like but and taking connects well the which that with customers partners we’ve inside within its been to tremendously other services at pool a from technology growing we’re lot other benefit our made enhancements platform cross platform to not allowed – due so could reach did pleased only also very and and are that Switchboard

Michael Funk

the physical you’re that seeing? in connect mix the versus what’s growth And virtual cross

Jon Greaves

Virtual in bucket virtualized the state. growth again faster We as cross growing growth. overall the haven’t is continued Michael. [indiscernible] this time we’re around connects seeing within than of next physical that But

Michael Funk

you Thank much. Great. very

Operator

today James. Our from next comes question Raymond ahead. Louthan with Frank go Please

Frank Louthan

for years. talking better? of a question follow-up the few end cost quantify get through Just midpoint kind And if the guidance. getting question in to the to about a of what FFO any? Can savings you first rate you you of might then guide. would have XXX% renewable or kind gets you’re to that, the to The the on in low in half happen quick What get the run

Chad Williams

Yes, towards is sort lower I that see high a often is frankly continue up reason. because happen things for mean Frank it need has we bigger range to is obviously we in terms in within immediate impact lag end help to to a end extent with the the we churn But churn of from the and range. where that here. we as the we relates customers there accelerate to business. us the we’re levels to continuing of keep see downgrade to comfortable and that The

continuing to just it’s execute drive business. the Beyond and that,

Jeff Berson

wouldn’t I renewable platform the we’ve ESG it’s on can to that a of and that on the power. sustainable XXX% XXXX. a save part core and sustainability money. our commitment bunch you by have and made of necessarily be powered by go renewable categorize Yes Initiatives that do think I

customers basis early able in making really of you a powered to very buy and that at is been we really good basis the transactions. you maintaining cut to some think same to the but cost in should few lower sustainable being what power on previously hold be are also the competitive thinking by pricing seeing consistent we the is that the economies that be hold of of number a and able to years But already still about what that’s so that I of and doing is been indications power the be it We’ve least platform that sites renewable the it’s hard pricing what and we’ve renewable should we’re maintain accomplish that’s working expect able to a to is we’re theme the kind going seeing slightly and take objective. renewably which cost or goal. at time with have

Frank Louthan

great. you. Okay, Thank

Operator

Morgan. at ahead. from go And question Richard Choe JP our Please comes next today

Richard Choe

Just changed have change $XX in you’ve it clarify, three Has being then weeks seems past or in doing little are just kind and of that the might a been follow-up? the leasing anything things to past I you conservative one like quarters. million few of

Chad Williams

level is moving through want to able it the world know pandemic we consistency conservatism. that. be a consistent that’s of with worldwide and a is deliver you and Well to be just and There

platform. best one what But which to makes a works I know always and in that’s model per million deliver type consistent is we’ll and be continue within disciplined is think the be analyses. is we these disciplined that level return the and for we probably there’s that targets. our invested reliable the based caution point acceleration do you Anything work and quarter $XX is our excess going capital taken, hybrid model that of of on or Jeff’s deals hyperscale of and to the think be to plus work So earlier to in on on the our

Richard Choe

that Churn’s to that do it you a that. next the than issue and have lower And into is kind at six the visibility months? follow-up of or over rate, running biggest as you very been about normal what low churn worry call my

Chad Williams

it’s in year don’t I it. felt anything lower enough looking a and No, anything long half think dramatically the to for and different we’re consistent for platform be comfortable been of time second we to the

Richard Choe

you. Okay, great. Thank

Operator

Please from comes Badri ahead. today with question go Sami Credit next Your Suisse.

Sami Badri

questions. couple A

and First the why one [ph] market you’ve deploying or those that to multi-site is, Are and data you’re points had locations two key for or Are and just partially starting aligned? is in IT multiple a federal those bandwidth hybrid US wins trends crossConnect time to start quarter. signings that low into going colocation the your at in, see increase? traction customers

Chad Williams

some in had multi-site about but It’s first and customers multiple it’s in deployments wouldn’t I multiple But the on sites. think would say later. have usually the have say then take majority deployments that to we one I of customers. deployment to that always appealing customers

direct to correlation is think don’t I So any there that.

and generation through I move of to what and defined worked to crossConnect the we Switchboard’s us. think kind of continues the crossConnect business next software Brent our have and next think Jon the the is crossConnect just way the fortunately team generation leading of for

to some that partner is we drive future in the and going of on enough be of just and industry our is of deployments some think crossConnects happy what we’re and to we’re to cloud through with generation this SDP which virtualized connect continue think large the we the the continue have carrier. that. have megadata really connect with we As theme generation optimization the connect is think to if to in to cloud we’re to and around We the to fortunate future future, first to the leaders the next of centers use cloud

Sami Badri

turned entire Got XXXX leasing European it. the should XQ. on or bit. I over region just us activity XQ give these what in of then expectation through start things maybe is guys XQ, Could have stabilize in idea how potentially and to the But a and Europe that. Thank not shift the was an to you XQ, for for XQ? quarter you to really want lighter believe Europe. considered industry a it XQ that or going you in and is for little

Chad Williams

and have largely customers would Yes open is remarkably XX in we we’re of to the have Netherlands that growth and facility get really facility in continues to say that I remind later megawatts about and steady done well, in that out those excited colocation year. one facility really colocation is this hyperscale retained a has Groningen its which

you to going continue point your to of with we saw and are just to half Europe, in and excited some game in our good there we’re in XXXX in that Eemshaven. pretty be the So uptick that in facility feel second good about QX market there opportunities be to

year we’ll more get year as end we’re the online to the that to XX the before of clarity Eemshaven. kind in excited close megawatts have unfolds come So of on very but that will

Operator

And next go Please ahead. Stifel. Rasmussen Erik from comes question with our today

Erik Rasmussen

federal to business. Back the

potentially of or is X could you’re to nice there types see deals just opportunities you also what see the deals to you to larger just a of sort excess of to mentioned But that signing I coming in federal more understand that had volume types meant, starting I those guys? announcement. of size does You it starting megawatt we materialize. want that of think so lease

Chad Williams

Erik, this is Chad.

just think X is pretty it’s few I think a those do kind a megawatts we’re as seeing be I megawatts see as progress. might X consistent the probably material more opportunities. in the I of quarters of think block just might that and to we interest federal opportunity more

Erik Rasmussen

on that any you facility. then you’re on an available? Richmond to of give to more follow-up momentum Can just update with sort have better you would given lead my Okay seeing that then leasing maybe capacity us just regards fundamentals

Chad Williams

virtually some space in we’re of Richmond. Yes, space hybrid The out success in the there online team was midst of bringing their there. with

to and our cables continue before cables Richmond to breaking a out the the think quarter’s the hyperscale going We heavily to of that in location in expect we right in Richmond most to hybrid’s Richmond announcement the online invest very space I talk that and Again continue around the in more the neighbors differentiated about subsea kind bring some in our opportunity connectivity Richmond are end the recent with the subsea and of year. facility world. latency to the will some to teams strengthen hyperscale in There help of give inventory. only ahead the conversation have which

time feel to that and and a So the in But the take both the us scale Richmond. continue over have continue for it’s or we about quarters very to asset some makes we few optimize the of and going long-term opportunity Richmond. that hyperscale monetize few to runway opportunity years hybrid next to excited in can

Operator

our Bank. And comes today go next Niknam from Matt ahead. Please question with Deutsche

Matt Niknam

factoring Just we maybe about one a from on lower at some this and items or that think point things XX churn. just then as does like Thanks. tailwinds annually on mentioned? look you is basis margins. some upside talked I’m the about still apply wondering there I in of that basis, more the improvement just go historically, quarter mean for progress that SDP, room forward more I

Jeff Berson

leverage mean basis the the basis we operating demonstrate on Sure, the a points continues that to we’re think business. normalized I seeing in Matt. XX

you of in periods basis some we’re have per see a if were you’re and that you drove coming could bit where that specific there of some where XXXX it’s some lower, margin like got is higher You like periods increase in little XX but the benefits. things off internally. targeting improvement where year than period that those XXXX could what a of is But general, point obviously

Operator

question Del final Please today’s with ahead. comes go Deo And MoffettNathanson. Nick from

Nick Del Deo

interested focusing the are in past on, you enterprise deploy, anything other product or increase quarters? interest over the noteworthy of customers they’re are for Have since highlighted like in the the any in and open pandemic changes observed SDP types that for You’ve couple attributes architecture, what hit. asking

Chad Williams

increased continues to that new a in software Yes, about I the defined if of bandwidth data It’s that the value forward. certainly center that a there’s been theme are that for delivery can now see work and just XX% that common access a powerful ever unprecedented and a you year-over-year is to transparency I are customers that service data talk center eyes about piece platform XX%. to deliver a time upgrades and remote time tell and hands Nick. think industry just story Remote the think with going and about real-time, engaging. year-over-year

Nick Del Deo

for maybe officially Okay. you give the us it, quick don’t Jeff. the in bit revenue sense It one And line straight a that you looks but quarter. in quite to guide a can one like likely how quarters. I know coming jumped evolve

some Given that contracts up? of the churning be you’ll larger

Jeff Berson

Sure.

levels and increase you these continue see of hyperscale see hyperscale over The be longer and with it to that a if deals escalators you’re potentially extent time periods both larger you’ll and bit. to think in I more so, federal with federal. modeling more at tend and more

too. see customers At moderates coming you’ll we that. these You the with assuming continue with that be more straight should and as to deliver that same accelerate line on time

Nick Del Deo

Thank Okay, you both. right. all

Operator

the to like Chad session. concludes gentlemen, I Williams over question-and-answer this And ladies and conference remarks. turn the back any to final would for

Chad Williams

everyone to business everybody and empower make that in I reality days you. Thank others. talk ahead the and quarter. service to Well want to and thank today. to to for our we’ll health our and next safety you our QTS-ers continue Wish thank want I joining

Operator

presentation. And thank you sir. for today’s we Today’s you and conference has now all concluded thank attending

have You now wonderful lines may your a disconnect day. and

Qts Realty Trust (QTS) 28 Jul 202020 Q2 Earnings call transcript