CyrusOne Inc.
Q1 2017 Earnings Call Transcript

Published: 7 May 2017

[Operator:]

Good day, and welcome to the CyrusOne First Quarter 2017 Earnings Conference Call. All participants will be listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Schafer. Please go ahead.

[Michael Schafer:]

Thank you, Kerry. Good morning, everyone, and welcome to CyrusOne's first quarter 2017 earnings call. Today, I'm joined by Gary Wojtaszek, President and CEO; and Diane Morefield, CFO. Before we begin, I would like to remind you that our first quarter earnings release, along with the first quarter financial tables, are available on the Investor Relations section of our website at cyrusone.com. I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward-looking statements related to CyrusOne and are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC, which you may access on the SEC's website or on cyrusone.com. We undertake no obligation to revise these statements following the date of this conference call except as required by law. In addition, some of the company's remarks this morning contain non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in our earnings release, which is posted on the Investors section of the company's website. I would now like to turn the call over to our President and CEO, Gary Wojtaszek.

[Gary Wojtaszek:]

Thanks, Schafer, and how are you all. Welcome to CyrusOne's First Quarter 2017 Earnings Call. We are off to a great start this year with impressive growth rates across all of our key financial and operating metrics, and our sales funnel remains strong. As a result, we are increasing our guidance for 2017 and believe we are well positioned for strong growth into 2018. Beginning with our first quarter results on Slide 4. Revenue of $149.3 million was up 27% over the first quarter of 2016, and adjusted EBITDA of $80.7 million was up 29%. Normalized FFO of $0.72 per share was up 14%. We had a very strong bookings quarter as we leased nearly 150,000 colocation square feet and 18 megawatts of power, totaling $32 million in annualized GAAP revenue, which is our fourth highest leasing quarter ever. We signed a record 480 leases in the first quarter, 22% higher than our previous record of 392 leases. Our backlog stood at $44 million, representing more than $290 million in total contract value. We also closed the previously announced acquisition of two data centers from Sentinel at the end of February, and the integration is substantially complete. We also closed an $800 million senior notes financing with very attractive pricing, which Diane will comment on later. And in short, it was a really busy quarter and extremely successful one at that. Slide 5 highlights our bookings performance since the beginning of 2015. As I just mentioned, this was the fourth best leasing quarter in the company's history. The $32 million in annualized revenue signed is 7% higher than the prior 8-quarter average and 60% higher than the $20 million that we have consistently stated is a reasonable baseline quarterly leasing assumption. As I mentioned on last quarter's call, we are essentially out of inventory in our strongest markets, including Northern Virginia, San Antonio, Phoenix and Chicago, so the bookings level is particularly noteworthy in that context. The current development pipeline will be delivering the inventory needed for the executed leasing activity and additional supply to meet the demand in our sales funnel. We also wanted to highlight that while larger footprint hyperscale cloud deals have contributed significantly to our leasing results in the past 18 months, what makes our business model so attractive is the mix of larger and smaller footprint deals, mitigating some of the volatility in the bookings. This quarter, approximately 50% of the deals closed were with traditional enterprise retail customers, demonstrating the value of having a broad and flexible product offering and a robust sales force. The 480 leases signed in the quarter shattered our previous record with demand from both cloud and enterprise customers, and the volume was 32% above our prior 8-quarter average. We believe, we are the only publicly-traded data center REIT that truly has a balanced strategy between colocation and large cloud deployments, catering to the broadest spectrum of demand, and are truly differentiating our business model. To that point, Slide 6 shows the strength and diversity of our customer base. We have nearly 1,000 customers, up 75%, over the last four years. This quarter, we also broke another record for the number of Fortune 1000 customers we added. We added nine in the quarter, including five through the Sentinel acquisition, 4 coming from core leasing, bringing our total to 190 as of quarter end. The four that we added through our internal sales teams are well-known companies, and we are excited to add them to the customer base since we expected that each will grow with us over time. This has been our experience where other customers and 85% of our leasing in the first quarter was with existing customers. But we are proud to be able to say that we have nearly a fifth of Fortune 1000 as customers. That just means there are 800 that we still don't have, an addressable market that is considerably larger than where we currently sit. All this means that Tesh and his team have a lot of hunting to do. Nearly two-thirds of our revenue is generated from customers with an investment-grade credit rating, which compares very favorably with the contribution from investment-grade customers across other REIT classes. We have also balanced the portfolio consisting of customers across a range of verticals reflecting the broad appeal of our product offering, and we are not overly dependent on any single vertical. Slide 7 shows the continuation of the favorable leasing trends that significantly enhance the quality and durability of the portfolio over the last few years. The weighted average for leases signed in the first quarter was 8.6 years, in line with the average term for leases signed in each of the last two years, increasing the weighted average meaning lease term for the portfolio to 57 months or nearly 5 years. This is up 23 months from nearly two years from the end of 2015. Customers have become more comfortable with and are in fact, requesting the longer lease terms as they value the stability of longer contracts for deployments of their mission-critical IT gear. Nearly 90% of deals signed in the first quarter included escalators with a weighted average rate of approximately 2%, and 62% of the portfolio now includes escalators. The escalators across the portfolio are generally in the 2% to 3% range and are our source of embedded same-store rent growth to supplement the growth from new leasing. We expect that percentage to continue to increase over time as the vast majority of our bookings include these new rent bumps. I also wanted to provide an update on the power administration fee that we began incorporating into our new metered power leases in late 2015. As a reminder, this fee was implemented to help us recoup some of the costs associated with administering these leases. Just 18 months after beginning to incorporate this fee in our new metered power leases and lease renewals, approximately 10% of portfolio rent includes this charge. In the first quarter, nearly 90% of eligible meter powered leases signed included this fee. As with escalators, we expect that this percentage within the portfolio to increase over time as we incorporate the fee into the vast majority of new metered power deals as metered power - and included our metered power lease renewals. Slide 8 shows the growth trajectory of the business and the capacity for further expansion to capitalize on future growth opportunities. In just the past 15 months, we have expanded our footprint in terms of total colocation square feet by 60%. The pace of growth has accelerated as a function of the broad demand drivers, in particular, growth in data and the continued outsourcing trend among both enterprise and cloud companies, as well as unique capabilities of CyrusOne. Even after our fourth strongest booking quarters ever, we are still tracking a late-stage funnel that is equal in size to our sales funnel from a quarter ago and 67% greater than it was a year ago. It is important to have the capacity to meet this demand, as well as future demand on short notice, given how quickly company’s data center requirements are growing and evolving. With our current development pipeline, we will be well positioned in our key markets, and Diane will provide more specifics in her remarks. We currently have or are constructing powered shell capacity to expand our data center footprint by another 77% at an average fully loaded incremental build cost of less than $5.5 million per megawatt. As our engineering, architectural and construction partners explained at our investor presentation in March, in Hollywood, Florida, we are able to deliver data center capacity at the lowest cost and fastest speed in the market, which enables us to deliver mid-teens development yields on a capital we are deploying. Given our nearly 220-acre land bank, this means we can more than triple the size of our footprint today at an average fully loaded incremental build cost of less than $6.5 million per megawatt. Slide 9 shows our recently completed Sterling III build. This is a 79,000-square-foot, 15-megawatt build that is fully leased. The build was approximately $7 million per megawatt. As a reminder, our build costs are shown on a fully-loaded basis, inclusive of land allocation, capitalized interest and capitalized commissions. We are generating a 17% development yield on this facility, and the development yield for the overall Sterling development, in aggregate, is 16% on an investment of just over $310 million. As a reminder, this was the first campus we've launched in Northern Virginia, and with two years of bringing this initial capacity online, we have sold out four facilities and are in the process of delivering one of the largest data centers in the region later this year. The next slide shows the development yield on our recently completed San Antonio III data center. This was a 24-megawatt facility that is also fully leased and is generating a 15% development yield on a build cost of approximately $7 million per megawatt. The development yield for San Antonio I and II, III campus, in aggregate, is approximately 13% on an investment of approximately $295 million. We expect the build cost for San Antonio IV, which is currently under construction to come in at approximately $6.5 million per megawatt, which we expect will generate a yield of 16% to 17%, similar to the yield of the last phase of Northern Virginia we just completed. Once that property is leased up, we expect the San Antonio campus to generate a blended yield in the 14% to 15% range, similar to the yields we generate across our portfolio. Moving to Slide 11. It's been a little more than a year since we've had our first Investor Day in New York City, and I wanted to reflect for a minute on where we are as a company today. As many of you will recall, we outlined a plan, inclusive of M&A, to grow the business to $1 billion in revenue and more than $550 million in EBITDA by 2020. This implied a compound annual growth rate of about 20%. As the slide shows, not only are we on track to deliver that plan, but in fact, we are tracking ahead of where we projected we would be at this point. Our current guidance midpoints imply full year 2017 revenue of nearly $675 million and an adjusted EBITDA of nearly $370 million. These midpoints are 10% and 12%, respectively, above the full year 2017 planned numbers provided at the event last year. This is the product of the successful execution of our strategy by the team, the broad appeal of our platform, the capabilities of the company and the underlying secular demand drivers that I mentioned earlier that should provide a tailwind for the entire industry for years to come. Lastly, we have announced a couple of weeks ago, Jonathan Schildkraut has joined the company as Chief Strategy Officer, a newly created position. He will be reporting directly to me, and I'm really excited to have him as a member of the team. I have known Jonathan for many years and have been impressed with his deep understanding of the space and the broader digital infrastructure landscape. We are fortunate to have someone of his caliber joining the leadership team, and he will play an integral role in positioning the company for long-term success. In closing, I am pleased with the start to 2017. We exceeded all of our financial objectives for the quarter, we had a very strong leasing quarter and have basically completed the integration of the Sentinel acquisition. We ended the quarter with a backlog that will deliver $44 million of incremental annual revenue. And even with the strong bookings in the quarter, our sales funnel is just as high as it was at the end of last quarter, which is 67% greater than where it was at the end of last year for the same quarter. As a result, we are increasing our revenue and profitability guidance for the year and believe we are set up well for continued growth into 2018. I will now turn the call over to Diane, who will provide more color on our financial performance and cover our updated guidance. Thanks.

[Diane Morefield:]

Thanks, Gary. Good morning, everyone. As Gary mentioned, we had another really strong quarter of financial and operating performance. As a reminder, the Sentinel acquisition closed on February 28, so we have only one-month of performance from these two data centers in our first quarter numbers. These two centers generated more than $4 million in revenue and approximately $3 million in EBITDA in March. Turning to Slide 13. Revenue and adjusted EBITDA grew 27% and 29%, respectively, driven by continued strong leasing across our markets, the impact of the CME last year and Sentinel acquisition this year and our interconnection products. Organic revenue growth, excluding the impact of those acquisitions, was 19%. Revenue churn for the quarter was 1.4%, significantly below the last three quarters of 2016. As we mentioned on our last quarter call, we anticipate full year 2017 churn to be toward the lower end of our assumed annual range of 6% to 8%. Moving to Slide 14. NOI increased 25%, primarily driven by the 27% increase in revenue, and adjusted EBITDA was up 29%. SG&A in terms of total dollars was higher year-over-year, resulting from investments in talent and critical systems to continue to manage the business for a strong growth. However, despite the increase in SG&A on an absolute basis, as the chart on the bottom of the slide shows, SG&A as a percent of revenue is down 1.7 percentage points year-over-year. This is the result of scaling the business and revenue growth with less marginal additional overhead. Normalized FFO increased 33%, in line with our revenue and EBITDA growth, while normalized FFO per share grew 14%, driven by the impact of additional equity issued to fund our growth and manage our leverage. Slide 15 provides an overview of the portfolio by market. We have a strong presence with data centers situated across the country that align with the higher-demand markets and meet the location-specific requirements of our customers. As you can see, the market mix is well diversified with a balanced revenue contribution across those markets. As Gary mentioned, the portfolio has grown significantly in the past year, driven by the impact of acquisitions, as well as increased capacity from organic development to support the demand we are seeing. As of the end of the first quarter, our portfolio is 88% utilized, down only 1 percentage point compared to a year ago, even with the 54% increase in colocation square feet. Our speed to market has not only enabled us to win new customers, but also bring a large amount of fully previous capacity online in a short period of time, allowing us to maintain this high utilization rate. Our stabilized portfolio is 92% utilized, while our prestabilized data halls in Dallas, Houston and Austin are still on their lease-up phases. Moving to Slide 16. Own data centers constitute the vast majority of our portfolio. The rent and NOI contribution from these facilities is 81% and the percentage of own colocation square feet, inclusive of our development line is 90%. We are tracking a strong sales funnel. So as we lease up those facilities, the rent and NOI contribution from our own data centers should converge with the colocation square feet contribution. We expect the percentage to continue to increase over time as we build more of our own centers. Additionally, we'll be looking to actively staff that when appropriate, and our preference in assessing acquisition opportunities is generally to own the facilities. Slide 17 summarizes our development pipeline as of the end of the first quarter. We currently have development projects in Northern Virginia, Phoenix, Dallas, Chicago, San Antonio and Cincinnati that will deliver more than 600,000 square feet and 94 megawatts of capacity. In many of these markets, we are essentially out of inventory until these centers are put into service. Nearly 30% of the pipeline is preleased. Given our leasing is down to our in-house sales force, we have excellent visibility into our deal pipeline and future demand. So while the level of preleasing at the end of the first quarter is lower than recent quarters, our late-stage sales funnel remains very strong and the current development pipeline is in response to the demand we are seeing across these markets. In Northern Virginia, where we have recently been seeing the most demand, the first quarter, we brought online the fully preleased Sterling III building that Gary talked about, totaling 79,000 square feet and 15 megawatts of capacity. We are developing an additional 27,000 square feet and 9 megawatts at our Sterling IV location. This is all fully preleased, and we expect to deliver it in the second quarter. As we mentioned last quarter, we are also building another shell on the campus and expect to deliver the initial phase totaling 159,000 colocation square feet and 24 megawatts later this quarter. This phase is also almost over 25% preleased. This facility will also have an additional 380,000 square feet of powered shell available for future development in phases as we continue our leasing efforts in this high-demand market. In Phoenix, we are continuing construction on our Chandler IV and V buildings. As a reminder, Chandler IV will deliver 73,000 square feet and 12 megawatts of power and is fully preleased. Chandler V consists of 185,000 square feet of powered shell. In response to the funnel, we are also constructing another shell. The first phase will consist of 74,000 colocation square feet and 12 megawatts of power capacity and is expected to be completed in the third quarter. The building will also include an estimated 96,000 square feet of powered shell available for future development, again, in phases. In Dallas, we are constructing 116,000 colocation square feet and 6 megawatts of power capacity in response to late-stage sales funnel in this market. In Chicago, during the first quarter, we delivered the fully preleased second phase of Aurora I building totaling 25,000 square feet and 6 megawatts of power. We are continuing construction on the Aurora II building, and expect to deliver the initial phase totaling 77,000 square feet and 16 megawatts in the third quarter. The building will also include more than 270,000 square feet of powered shell available for future development. Also, during the first quarter, we delivered the fully preleased San Antonio III building that Gary talked about, totaling 132,000 square feet and 24 megawatts. Since we're out of inventory, we have begun construction on our San Antonio IV building, which will consist of 60,000 square feet and 12 megawatts. Last thing, in Cincinnati, we are constructing 18,000 square feet of raised floor and 3 megawatts of power capacity in our 7th Street asset, and this is preleased to an existing customer expanding in this data center. Once all of these developments are completed, our portfolio, including the data centers acquired from Sentinel, will be nearly twice the size it was at the end of 2015. We feel this is truly impressive but also very measured growth in less than 21 months. In March, we executed a purchase and sale agreement on 65 acres of land in Allen, Texas, which is northeast of our Carrollton data center location, with an option to purchase an additional 24 acres. We expect to close on the land in the next few months, subject to the completion of due diligence. This will allow us to expand in the Dallas market once we fully lease up the Carrollton facility. Also, subsequent to quarter end, we exercised an option to acquire 48 acres of land in Quincy, Washington. This purchase positions us to launch a cloud supercenter site and offer what we believe will be the lowest-cost data center product in the country. We are currently in discussions with cloud companies that are looking for capacity in this location. The powered shell and land we have available for future development, will allow us to more than triple the size of our footprint to nearly 8 million colocation square feet across the portfolio, and add nearly 800 megawatts in a time period that meets the continuing demand that Gary has been discussing with the investment community for the last few years. As we often highlight, we believe that our business model, which is directly tied to the growth of data and demand for data center space, is arguably only in the second or third inning. Therefore, this capacity for future development positions us well to continue to execute our business strategy successfully well into the future. Now moving to Slide 18. In March, we closed an offering of $800 million of senior unsecured notes. The offering consists of two tranches, including $500 million of 5% senior notes, due March 2024 and $300 million of 5.375% senior notes, due March 2027. The proceeds were used to fully repurchase and redeem the 6.375% senior unsecured notes that were originally due November 2022 and pay down borrowings outstanding under the revolving credit facility. We are extremely pleased with this notes offering execution. Since the following week, a larger data center REIT, with a higher credit rating, priced at the same coupon on their 10-year offering. In addition to freeing up capacity under the revolver to continue to fund our growth and maintain adequate liquidity, this transaction also extended and smoothed out our debt maturity schedule. Our weighted average remaining debt term is now over six years, and we have no debt maturities until 2021. We are continuously evaluating opportunities to further optimize our capital structure, taking into account our growth objectives for the business, capital market conditions and our goal to achieve investment-grade status within a reasonable time period. We continually communicate with the rating agencies to educate them on our business model and discuss why we feel that we are better positioned to be investment grade. We are managing our leverage and capital structure to help fully achieve this goal. This would further reduce our cost to capital. Slide 19 further highlights our conservative balance sheet management, indicating that the capital structure consists of more than 70% equity on a total enterprise value basis. As I mentioned on our last call, we are generally comfortable with the fixed versus floating interest rate mix in the 50-50 range. And as of the end of the first quarter, 46% of our debt was fixed and 54% floating, generally in line with our targeted range. The gross book value of our assets is more than $4 billion, and we are 100% unsecured borrower. As I mentioned at the beginning of my prepared remarks, we closed the Sentinel Data Center acquisition at the end of February. Assuming a full quarter EBITDA contribution from those assets based on a March run-rate, as of the end of Q1, the ratio of net debt to last quarter annualized adjusted EBITDA was 5x, and our available liquidity at quarter end was more than $600 million. Turning to Slide 20. Our revenue backlog as of the end of the quarter was $44 million, representing more than $290 million of contract value. As shown in the bottom chart, we expect nearly $18 million of the backlog to commence by the end of the second quarter and the remainder to commence in the following two quarters. This gives us very good visibility into growth for this year and continuing into 2018 from these executed leases. Lastly, Slide 21 shows our original and revised guidance for 2017. As you can see, we are increasing our ranges for revenue, adjusted EBITDA and normalized FFO per share. We've raised the midpoint of our revenue guidance range by $3 million to reflect an acceleration of the timing of bookings relative to our original expectations. We've increased the midpoint of adjusted EBITDA guidance range by $5 million, reflecting the flow-through from the increase in the revenue midpoint, as well as expense control. We've increased the midpoint of the normalized FFO per share guidance range by $0.10, driven by the adjusted EBITDA increase, as well as capital-structure related savings, notably tighter pricing on the notes offering compared to our original expectations. We've also slightly increased our CapEx guidance to reflect the strong demand environment. As I mentioned on our last call, we're managing our balance sheet leverage in the 4x to 5x range, and are comfortable going over 5x from time to time, with plans to bring leverage back in line with 5x during the right windows. We continue to evaluate alternate sources of capital recycling that could help fund our ongoing development pipeline. There's some smaller noncore assets we are evaluating for dispositions. More importantly, we are in conversations with institutional quality JV partners to potentially develop a strategic joint venture relationship as a meaningful source of capital. It is too premature to predict the size or success of this type of execution, but we remain very focused on exploring this avenue. In closing, we are continuing to execute our well-outlined strategy, which has produced very strong operational and financial results, as proven by our first quarter actual results and increased 2017 guidance. We are excited about the prospects for growth over the coming years, given the underlying secular demand trends, and the value proposition that we offer equally to both enterprise customers and cloud companies. We feel well positioned to capitalize on these broad opportunities, and will manage the business and our capital structure prudently to maximize returns for our shareholders. Thank you for listening to our prepared remarks. We are now happy to take your questions. Operator, please open the lines.

[Operator:]

[Operator Instructions] The first question comes from Robert Gutman of Guggenheim Securities. Please go ahead.

[Robert Gutman:]

Hi, thanks for taking the questions. Congratulations on the excellent hire. I was wondering…

[Gary Wojtaszek:]

[Indiscernible] was a research early improved now.

[Robert Gutman:]

Thanks, thanks. Great, great, great job, guys. So, I would like to know, regarding Quincy, can you provide some more color on the timing of construction? It sounds like you're already starting to market the build. And how do you see the development there rolling out compared to when you entered the Northern Virginia market?

[Gary Wojtaszek:]

Yes. Yes, thanks for the question. So we've been talking about that Quincy for just about a year now, and we optioned that property last year. So the underlying thesis for what we're planning on doing there is, we believe that a market exists for the lowest-cost data center solution in the country, and that market is going to be in Quincy. And that's driven by the lower power costs that are available there versus everywhere else in the country, as well as really attractive environmental conditions, which are high desert areas, which are going to be really kind of conducive to putting in very efficient systems. So what we are planning on building there is really large-scale facilities to attack a portion of the market that is not as latency-focused, which we believe more and more customers are going to demand as more and more of their applications require massive amounts of storage, and they don't need to get access to that data as quickly as they do for some of the other applications. That said, we have been actively talking to a number of different customers, and this is predominantly large web scale type companies that we've been talking to. And they are interested in moving forward with us there. It's going to take us a while to develop that facility. We don't think that we're going to have that property develop until sometime later in 2018. But we expect that once we crack ground on that, we're going to have a customer in Intel.

[Robert Gutman:]

Great. Thank you. I was also wondering if I can squeeze in one more. It seems like a third of leasing came from smaller deployments under 500 KW in the quarter. Seems like there's some increasing activity there, can you tell me a little bit about that?

[Gary Wojtaszek:]

Yes. Actually, that's true, under 500 KW. The other way to look at it is, half of the leasing in the quarter was done in traditional kind of retail enterprise type customers. The other half were cloud customers. In some of my commentary, I talked about also a record number of Fortune 1000 logos we closed this quarter, which was nine. Four of which were done through normal kind of sales efforts on our part, and five were through the acquisition of Sentinel. Those are really well-known, really large brand names in the industry, and that was across the board, with probably more of those landing in Dallas than in the other markets. But your traditional kind of brick-and-mortar type enterprise companies. Like, I think that is - there's this misnomer, I think, in the market, part of it driven by the success that we've had overall last year with cloud companies. So, we had a tremendous record of leasing last year, predominantly driven by the success that we've had and the inroads that we've made in penetrating the cloud market. But our bread and butter has been, historically, the traditional Fortune 1000 companies, and we have not done any business with cloud companies. This is just kind of reinforcing our strong commitment to that market and the success we have. What makes our business model really attractive is we are equally adept and willing to handle a customer that comes to us with 20-megawatt, 30-megawatt deal as well as a customer that's taking a 500 KW need with us as well. We're indifferent to handling any of those customers, and we make really nice returns on selling to both of those customers.

[Robert Gutman:]

Alright, great. Thank you.

[Operator:]

The next question comes from Frank Louthan of Raymond James. Please go ahead.

[Frank Louthan:]

So back on to the Quincy. Given sort of the discussions that you're having, what percentage do you think this facility will be preleased? Are you expecting this to be a single or multi-tenant facility? And maybe the idea of having megawatts you think you might be able to provision there.

[Gary Wojtaszek:]

Yes. We're talking to really big deals with customers there. These will probably going to be single-tenant facilities, minimum size of around 36 megawatts. If we can get a couple of customers to go into it, we would consider that. But these are really large deals that we're looking at deploying there. And so the piece of land that we acquired there is right next door to another really large cloud company that's done a lot of development work over there.

[Frank Louthan:]

So would this all be all-organic opportunities or any inorganic opportunities in Quincy that you might be able to take over?

[Gary Wojtaszek:]

No, it's going to be organic. I mean, there's one or two things we've looked at in the past, but we can never make the math work for us.

[Frank Louthan:]

Got it. And then on the power fees, sort of about 88% you're signing on, what's sort of the pushback from the others? Or is there something different with those types of customers and the types of contracts? Are you seeing a significant pushback in passing this along?

[Gary Wojtaszek:]

Yes, absolutely. There's always pushback. Customers just don't like paying for stuff, right? So we had the same pushback when we started deploying the lease escalators in it. And they didn't want to pay the 2% to 3% lease escalators, and we started pushing that 4, 5 years ago when we were converting to a real estate trust. And over a 5 years' time, 60% of our portfolio has that. This is the same conversations that's - it's basically saying, look, we've got to do this guys. We were incurring historically a lot of time and effort in bringing damage associated with being able to deploy systems and competencies to be able to handle meter power. No one in the industry, I believe, does not suffer like huge challenges in their business model, and so we spent a lot of time working through that. And now we're recognizing that, look, customers are going to have to pay for that. If they want to get the product delivered in that fashion, there's a fee to be incurred to help us defray our costs. And you see 10% of the portfolio has it now. We expect that'll continue to increase over time.

[Frank Louthan:]

Got it. Okay, thank you very much.

[Gary Wojtaszek:]

Sure. Thanks.

[Operator:]

The next question comes from Colby Synesael of Cowen. Please go ahead.

[Colby Synesael:]

Great, thank you. So you mentioned on the call, I think, several times that late-stage funnel. And I'm getting the impression that there's potentially some big deals that will likely come through this year. I'm wondering, can you give us some color on leasing quarter-to-date, and if you've actually already signed any of those? And then in addition, does your guidance that you just updated specifically just reflect the upside from the first quarter? Or is there some assumptions already baked into guidance for deals that you may have signed or anticipate signing, but wasn't in the first quarter, and that includes CapEx? And then I have one more follow-up after that.

[Gary Wojtaszek:]

Sure, sure. So everyone should assume $20 million in quarterly bookings. That is a run-rate that we feel comfortable with. So, we were fortunately above that amount this quarter, but I think everyone should assume that in their modeling go forward. We think that's a realistic number that we should be able to achieve. And look, I mean, we have success this quarter, but you can see in our backlog, the waterfall chart, that when that stuff is going to roll through. We only took up the revenue guidance by a couple of million bucks. So it wasn't that material. In terms of a change this year, we don't think that there's going to be any material changes this year in terms of what we're going to be able to do revenue-wise, just given how much of the capacity that we're building will be delivered in the second half of the year. That said, we continue to see a lot of strong demand from customers across the board. In my commentary, I talked about our funnel being basically flat to where it was last quarter in spite of like a really nice bookings quarter and up 67% versus last year. And - but that said, I wanted just to reiterate again, everyone should just assume $20 million of bookings per quarter. If we do better than that, that would be just goodness to the upside, but no one should model anything above the $20 million.

[Colby Synesael:]

And then just my follow-up question, how many megawatts are associated with the Chandler V facility that you're currently building?

[Gary Wojtaszek:]

There's 22 megawatts as what the building is master planned for. I don't recall what we have in the funnel in terms of what we're - yes, we just have the shell coming up.

[Colby Synesael:]

Then why - maybe just I don't understand. Why is that being reflected as just a shell?

[Gary Wojtaszek:]

Because if you think about what we're trying to do, Colby, is we're always trying to make sure that we have capacity available, shelled capacity, which is relatively inexpensive for us. So if you look at the capital that we deploy with the dirt and the shell, it's only about 15% of the total capital investment for that facility. By having that shell up, that then gives us the ability to deliver the fit-outs in there within 10, 12 weeks. So it positions us really well. Right now, we're tracking a lot of demand in Phoenix. Ironically, a lot of it coming out of California because it's so capacity-constrained in California, that we're seeing a lot of overflow demand coming out of that market to Phoenix. So it positions us really well, so it's kind of, you're optioning that 15% of your capital to be able to stand up a fitted-out facility relatively quick.

[Colby Synesael:]

Great. Thank you.

[Gary Wojtaszek:]

Thanks.

[Operator:]

The next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

[Simon Flannery:]

You talked about some of the escalators and so forth. Maybe you could talk, Gary, a little bit about interconnect, what's the latest on that? And then, Diane, perhaps you can just expand a little bit more on the strategic joint venture. Would that be sort of at the consolidated level? Or would that be to develop certain properties? I want, kind of, a separate basis.

[Gary Wojtaszek:]

Sure. Yes, yes, so on the interconnect Simon, it's a little less than 6% of our revenue, and we've been tracking around that mark for a while. The problem is it's been growing nicely, but our - some of these bigger deals that we're - we've been having with some of these cloud customers has not pulled a commensurately increased amount of interconnections. So while we would have expected like a year-and-a-half ago that the proportion of our revenue associated with interconnection to be above 6%. The fact is it's been growing really quickly but not nearly as fast relative to the space and power component. That said, on an absolute basis, the interconnection business, I think, it grew just a little less than 15% for this quarter. But if you looked at the bookings that we had this quarter, it was equivalent to about 25% of the revenue that we had this quarter as well. So we've got that momentum there, but it's being kind of overwhelmed by the success that we're having in the other parts of the real estate business.

[Simon Flannery:]

So on an organic basis, it's doing very well?

[Gary Wojtaszek:]

Yes.

[Diane Morefield:]

Yes, Simon, on the strategic joint venture, and again, we highlighted it last quarter, and it's in the conversation stage at this point, there's a lot of institutional capital that would love to get into data center space, that can't do it directly. They would have to invest through a platform or through specific assets. So, I mean, the general framework that we're thinking through is that we would sell roughly a 50% interest in a couple of stabilized assets, and also the JV partner would have the ability to maybe invest in one or two of our developments alongside with us, and that's the pre-leased ones, the ones where they would take leasing risks along with us, it could be some meaningful capital dollars. And given our pipeline, we think it's prudent to effectively recycle some capital through selling partial interest in stabilized assets and, again, laying off maybe part of the risk on leased developments. We are moving forward to try and figure that out. Again, we think it's just an effective way to recycle capital and we redeploy that capital into our growth.

[Simon Flannery:]

And this will be with multiple capital providers? Or you're thinking of one or two?

[Diane Morefield:]

I think our preference would really be to develop a very strong relationship with one JV partner that has significant capital to grow alongside us. It would just be, I think, less complicated. And as you know, in other REITs, they have done this. Some do it with multiples. Some really just develop relationship with one strong partner. So out of the box, I think we'd be focused on really one major strategic JV partner.

[Simon Flannery:]

Okay. And I know it's early on Quincy, but is it fair to think even on a deal of 36 megawatts that you can still sustain mid-teens returns?

[Gary Wojtaszek:]

Oh, yes, yes. I mean, that's what we're doing in, like, what we just showed, like, in the third quarter in Virginia, on a 22-megawatt deal, we delivered 16.3% yield on that. And that was two-thirds of the size that we're talking about in Quincy. So we feel very comfortable about that.

[Simon Flannery:]

And do you see that some of these companies are really deciding they just don't want to be in that data center construction, maybe reduce their CapEx dollars and outsource it to the specialists?

[Gary Wojtaszek:]

That's right. Look, I mean, in the past, I think the industry has grown up being overflow capacity. And the primary folks in that space, who have the scale, the big web scale type companies, were doing it on their own. And when they kind of had a mismatch in terms of their forecast and their ability to deliver that capacity, they outsourced to a colocation provider. What we're showing all these companies now is there's no need for them to stay in that business any longer. We could deliver that capacity at a price point that is super attractive, well below what they could do on their own and at a speed and time-to-market that is also incredibly efficient.

[Simon Flannery:]

Thank you.

[Gary Wojtaszek:]

And just to come back, Simon, on your point about the capital partners, there was a deal announced earlier, either earlier this week or towards the end of last week, and it was a health care REIT that was acquired by someone else. And I think it's a really good proof point to kind of look at where this industry is going to head over time, not only where the final cap rate for that deal shook out, but they were talking about somewhere in the 5% cap rate range. I'm pointing that out because data centers, I believe, are going to track similar trends to the way the health care REITs have evolved over the last decade. When health care companies first came out, they were a new asset class on the real estate community. People were unsure how to value them, look at them. And what you've seen over time is just tremendous success in that asset class. And so now you have a company here trading at a 5% cap rate. And I think data centers are going to also evolve and stabilize. And I think the same types of savvy investors are going to see the inherent growth profile associated with data centers and allocate more of their capital into the space. So we're just seeing it now in terms of the tips of the iceberg here in terms of Diane's commentary. There's lots of big pension funds that are looking to allocate a portion of their capital, which was traditionally going the basic food groups within real estate group asset classes and being allocated a little bit at inception to data centers. And I think that's just the beginning of a trend that's going along for a while.

[Simon Flannery:]

Thanks a lot.

[Gary Wojtaszek:]

Thank you.

[Operator:]

The next question comes from Vincent Chao of Deutsche Bank. Please go ahead.

[Vincent Chao:]

Hi good afternoon everybody. Just wanted to touch base on the bookings demand. I know you guys are able to sort of flex between small and larger-scale deals. Just curious, though, what the conversations are like with the hyperscale guys that were so active last year and maybe exclude the conversations on Quincy, specifically, but just more of the existing pipeline, and curious if there's any way for you guys to track the power utilization of those hyperscale guys within your own facilities. Are they close to fully utilized at this point?

[Gary Wojtaszek:]

Yes. Yes - no. So the demand is - so in their funnel, we don't have anything in for Quincy at all in terms of when I talk about the funnel. I mean, just typically, when I talk about funnel on a call, it's the late-stage funnel. So if we just have preliminary conversations with customers, they've come in, like, in Stage 1 or Stage 2. I never talk about that. My commentary on funnel is always in our late-stage 3 and 4 type conversations. So Quincy is not in there. But that said, the funnel relative to last year at this point is 67% larger, so we're looking at a number of really, really large deals across the industry and across geographies. It's obviously heavily weighted towards big cloud companies, but as you saw this quarter, we knocked down the highest number of Fortune 1000 non-cloud companies we've ever had as well.

[Vincent Chao:]

Yes. And I guess, is there a way for you guys to gauge the power utilization of those larger hyperscale cloud, really, big cloud guys in your portfolio?

[Gary Wojtaszek:]

Yes. Yes, yes. You'll see, like, so some of them ramp in, and they move in really quickly because a lot of it is depending on the contracts that they have on the back end in terms of who their ultimate customer is and the way they work their arrangements out with their customers as they're migrating off of their old platforms to the cloud companies. Some of the guys are moving really, really quickly, and other guys are going slower. But like the best sense for that, like, if you look at our numbers from an external perspective, is if you look at our growth in the tenant reimbursements and metered power side, like, that growth in there is purely related to the growth in increase of power demand, which is predominantly associated with those big cloud companies that we sold over the last five quarters.

[Vincent Chao:]

Got it. Okay. Just maybe switching topics here. If I look do the backwards math on the commencements that you have on leases that you signed in the first quarter that also commenced in the first quarter and then add that to last quarter's - first quarter expected commencements, it's something like $54 million. And I was just curious if you could comment on how much of that $54 million is currently in a ramp-up or free ramp period versus paying cash rent and how quickly you think that $54 million might convert to cash paying.

[Diane Morefield:]

Yes, I don't think we have the exact number on that. If you want to follow up with Michael, because obviously, we have some ramps going on, hence, reflected in the straight line rent in the AFFO number. But I don't know the exact number. There is also some timing difference on - when we estimate when backlog's coming in to various quarters, there was some slippage from what we said backlog was at the end of the year, that would come in first quarter's a little bit of that slipped into the second quarter.

[Gary Wojtaszek:]

What I can tell you, though, Vin, is this was our biggest commencements ever. We had about 260,000 square feet get put in service. That was the biggest quarter we've ever done before, we've ever done historically. So it was a big quarter in terms of bringing capacity online for us. So you'll see that. Typically, there's going to be that lag for that six-month period, where the customers will start getting the accounting revenue before the cash revenue follows. So that'll come through. The point on that, though, and this is one of the things that it's worthwhile to point out is - and this is a big difference probably between the public and the private markets, which a lot of - definitely, the public guys don't really give a lot of value towards. But in all the deals that you're doing with customers, you pay full freight for all of the backlog revenue. So if you think about that for a perspective, right, if a guy has $10 million, $20 million of EBITDA in backlog, he expects to get paid 100% of that, and that's clearly nothing that's generating revenue in the period. And so from a public investors or public analyst investment, I don't think they give us much value to what's in the backlog. And from a private person's perspective, they expect full value for that. So there's a clear disconnect between how the private markets are valuing things versus the public markets because, essentially, you know that 100% of that backlog is going to come through in revenue and cash. So that's probably one of the biggest disconnects we see between the guys trying to sell us businesses. So Josh and Todd fully expected to get paid for what they sold that hasn't been billing, which, by the way, has also been going well for us, too. That transaction's gone really well. We're basically fully integrated, and the funnel that we're tracking there is pretty strong.

[Vincent Chao:]

Okay. Thanks guys.

[Operator:]

The next question comes from Jonathan Atkin of RBC Capital. Please go ahead.

[Jonathan Atkin:]

Thanks. So a couple of questions. One is with regard to the leasing during the quarter, I wondered if you can give us a sense geographically as to where that was indexed. You indicated some Fortune logos in Dallas. But interested in whether some of - just by volume of transactions - not volume of transactions, but volume of revenues, whether...

[Gary Wojtaszek:]

Yes, it wasn't too much volume. It was more in terms of the number of Fortune 1000 logos that I was talking about, nothing down. So like the big - if you look at it from a volume perspective, the majority of the deals that we did in the quarter went to Phoenix, about 50%, then followed by Dallas. Cincinnati, we also had a strong quarter actually with a cloud company in Cincinnati as well. And then after that, it was across another half a dozen or so markets.

[Jonathan Atkin:]

So did Aurora 2 see preleasing?

[Diane Morefield:]

Chicago was - there was some leasing there. We really didn't have inventory. We were just finishing out a very small section left in Aurora 1, and Aurora 2 was under construction.

[Michael Schafer:]

There was a little bit of preleasing that went on in Aurora 2.

[Diane Morefield:]

Yes.

[Jonathan Atkin:]

Okay. So there was some. Okay. And then I'm interested in Sentinel. I noticed the occupancy at Somerset was lower, Raleigh-Durham was higher. And I think during the press when you announced the deal you talked about annualized revenues, the $50 million, but it looks like the number now is something like $41 million or $42 million. So, if you could elaborate a bit on that.

[Michael Schafer:]

Nearly $50 million in revenue, and that's what we're tracking to out of the gate.

[Diane Morefield:]

Yes.

[Michael Schafer:]

If you look at annualized rent, that's just on a cash basis. So there's other items in there that will get you to that $50 million.

[Gary Wojtaszek:]

Yes, actually, we're tracking to slightly better than the underwriting that we did for that deal.

[Jonathan Atkin:]

Okay. And then finally just any kind of an update on how you view international opportunities?

[Gary Wojtaszek:]

Yes. Look, I mean, we have been clear for a while. We believe this industry is global in nature, that if you do not have a global platform, you are subscale and will be subsumed by someone who does. So we're definitely eager about expanding the footprint. We've been spending a lot of time in Western Europe, and I expect to be there hopefully by next year this time.

[Jonathan Atkin:]

Thank you very much.

[Gary Wojtaszek:]

Thanks Jonathan.

[Operator:]

The next question comes from Eric Luebchow of Wells Fargo. Please go ahead.

[Eric Luebchow:]

Hi thanks for taking the question. Most of mine have been answered, but you talked a little bit on the last call about how you're building up your sales force, given the growth in the company. Can you give us an update on where you're at in that process and where you hope to be by the end of the year?

[Gary Wojtaszek:]

Yes. I think we hired five additional sales people or six. We hired some sales engineers, some quota-carrying sales folks in the southeast, in the West Coast, Jersey. So we're looking at hiring another four or five additional sales folks. And that group will be up about 20% versus where we were at the end of 2016.

[Eric Luebchow:]

Great. And then on the SG&A line, you had some good leveraging in the quarter. So, if we think about your margin expansion for the year, obviously, it implies significant growth. So is that coming more from your traditional operating expenses or additional SG&A levering?

[Gary Wojtaszek:]

Yes. We expect we'll get a little bit of operating expense efficiency in that over time as we scale out these larger facilities. You get nice efficiencies on the operating expense for the facilities. And then from the G&A line, we'll definitely get that. You saw that this quarter. We're up almost 200 bps from a percentage basis just through scale, while in absolute measures, we were going to probably continue to increase dollar-wise on that point.

[Eric Luebchow:]

Okay, great. Thanks.

[Operator:]

The next question comes from Richard Choe of JPMorgan. Please go ahead.

[Richard Choe:]

Great, thank you. I guess, given that you're supply-constrained, you're inventory-constrained in your kind of best markets, and a lot of the development, most of the development square foot is not coming to the third quarter, does that impact your ability to - for bookings and signings and that's why we should kind of expect that $20 million number? Or do you have credibility with your clients is that you could kind of continue to sign, and they'll know you'll be there kind of beyond the third quarter level? And then I have a quick follow-up.

[Gary Wojtaszek:]

It is an absolute challenge to sell something that you don't have to a customer. And yet, our sales guys continue to amaze me, and they're constantly selling through that. And it's - they relieved that concerned. And our construction team just kind of constantly delivers day in and day out. And we can point to example after example after example, where we never miss a customer deadline. And those help us allay customers' concerns. Because if you think about it from the customers' perspective, that person makes a decision to go with you when you don't have product available is taking a really big leap of faith in you. And that's a scary proposition to be in. And most people don't want to do that. And that's why to Colby's point earlier, we try to have shell capacity available so we can bring on a data center capacity very quickly. So it's definitely a challenge for us. We continue to believe that, that $20 million a quarter is a really good run-rate for us that we should be able to maintain. If we go through a couple of quarters of this, and we're punching well above that, we feel comfortable that the velocity has increased. We'll signal to everyone, let everyone know. But I think that's a pretty credible number that everyone should stick with.

[Richard Choe:]

And I guess in one of the tables, the lease expirations for 2027 and after jump from 7 to 30, can you give us any idea on what's going on there? Is there a bunch of customers extending leases? Or what's going on?

[Gary Wojtaszek:]

Yes, we're just - I mean, like, the bookings this quarter were 8.5 years or so. So it's just the average duration of our portfolio has increased dramatically. I mean, we're more than double than where we were at the beginning of the IPO. And so this is just - I mean, there's - we always think about these things over a really longer-term perspective. So whether you look at our ability to kick out our lease durations from around 24, 25 months at the time of the IPO to almost 60 months now or you look at the lease escalators that we had, which was about 5% of our portfolio prior to the IPO, 60% now, to the fact that we had no power administration fee inserted in the contracts 15 months ago that we have 10% now. Those are all decisions that we take with a long-term view as what do we need to do in terms of driving our business for the long term? And the results are pretty cool. When you look back five years later and you've got 60% of your portfolio has it or 10% of your portfolio with new product that you didn't have 15 months ago, those are just the results of just kind of focus. We expect all of those things to continue to penetrate a bigger percentage of our portfolio.

[Diane Morefield:]

And the cloud company leases or large deployments are typically now all 10 years term.

[Richard Choe:]

Great, thank you.

[Operator:]

The next question comes from Andrew DeGasperi of Macquarie. Please go ahead.

[Andrew DeGasperi:]

Thanks. Just two quick questions. First, on the colocation, utilization dipped slightly in Cincinnati, I was just curious what that was about. I know it's a very small number. And then secondly, maybe could you comment on the investment-grade path? Can you still get there while maintaining your leverage around 5x? Thanks.

[Gary Wojtaszek:]

What was your first question?

[Andrew DeGasperi:]

We saw utilization, I think, on one of your slides, it dipped slightly as a percent in Cincinnati. I was just curious to know if there was something there or just noise.

[Gary Wojtaszek:]

Yes, I'm not really sure. We'll get back to you.

[Diane Morefield:]

That's where we said we're building out a deployment of another 3 megawatts for an existing customer. So actually, that data center is doing very well.

[Gary Wojtaszek:]

Yes.

[Diane Morefield:]

On investment-grade, we meet with the rating agencies regularly, either in person or via conference calls, every time we announce whether it's a financing or an acquisition and after each quarterly earnings. We benchmarked and provided them these benchmarks and data, where, compared to other REITs, we would be investment-grade today based on even the 5x leverage. Many investment-grade REITs are definitely north of 5x. And given now our longer-term nature of our leases and over 65% of our portfolio is investment-grade tenants. So I just think it's still an education process for the rating agencies to really understand the data center model since it's still relatively new type of REIT. But we just keep communicating with them. Again, we would argue that we are already at an investment-grade level. And the fact that we priced our bonds the same rate as another data center REIT that is at a higher investment - I'm sorry, higher overall rating, I think the market views us as higher than where S&P and Moody's have us. So, we actually feel we're on a path to get it. It's a slow process, which is frustrating for us. But we certainly think we can get it at some point within the next year or two hopefully.

[Andrew DeGasperi:]

Understood. Thank you.

[Operator:]

The next question comes from Amir Rozwadowski of Barclays. Please go ahead.

[Matt Bienkowski:]

Hi. This is Matt on for Amir. I was just wondering if you could just talk and provide a little more color around the pre-leasing trends, specifically, what was driving the lower percentage this quarter relative to the more recent quarters.

[Gary Wojtaszek:]

Yes, just bringing on capacity, right? I mean, as I mentioned in my, one of the earlier points, we bought on 260,000 square feet of space, which was the highest we've ever done. So, you just look at what we were able to bring on in the quarter and then drop the pre-leasing amount pretty considerably because of that.

[Matt Bienkowski:]

Thanks and I just had a quick follow-up. Of the new leases signed this quarter, $7.5 million of annualized GAAP revenue was commenced during the quarter, which is a noticeable increase from the past two quarters. Can you just walk us through the dynamics here, and whether you expect this trend to persist going forward?

[Michael Schafer:]

I mean, $7.5 million, I don't know how much it was up relative to what we saw in prior quarters, but I mean, it's not a huge number, and I would expect that, on a relative basis, to be roughly in line going forward with what you saw in the quarter. It just varies. If we signed a bunch of leases at the beginning of the quarter, then you would likely see that number impact...

[Diane Morefield:]

By the end of the quarter. And we did have - we had rollover from leases that were very close to getting signed at the end of last year, and they didn't sign until early in the quarter. So that was priced on what took -- what did commence in the first quarter.

[Matt Bienkowski:]

Thank you for the incremental color.

[Gary Wojtaszek:]

Sure.

[Operator:]

The next question comes from John Hodulik of UBS. Please go ahead.

[John Hodulik:]

Just a quick question about the new development in Allen. We've read some local news reports that you guys may be pursuing approvals for some fairly large complex there. So just anything on the sort of potential size and timing of a new facility there. And are there any specific customers that are asking you to build for more space in that market? Or are you just responding to sort of capacity constraints you're seeing in Carrollton? Thanks.

[Gary Wojtaszek:]

Yes, yes. So the Allen facility, so, that was a piece that came out, actually, it wasn't something that we published. It was - came out in the press that we acquired some acreage in Allen, 50 or 60 acres, and we're going to expand on that to basically 90 acres there. So Allen is just northeast of where we're currently located in the DFW Metroplex. We're doing that because we only have about a little over 100,000 square feet of space left in our Carrollton facility. And so we needed another facility to expand on. So we took that down. And once we sell out our Carrollton facility, we'll start construction on that new property in Allen, although we're still going through diligence on that site.

[John Hodulik:]

Any comments on potential size or how much capacity you could be bringing on in that new site?

[Gary Wojtaszek:]

Yes, so - I mean, that site is 90 acres. That's almost triple our existing footprint. We're looking at building really large facilities on these campuses. So our general kind of go-to, our modus operandi now is basically large-scale campuses, where we can bring massive amounts of our capacity on site, where we can get really attractive economics associated with scale of the capital and operating efficiencies.

[John Hodulik:]

Okay. Thanks.

[Gary Wojtaszek:]

Thanks.

[Operator:]

The next question comes from Jordan Sadler of KeyBanc Capital. Please go ahead.

[Katie Morgan:]

Hi, this is Katie Morgan on for Jordan. And I just had a quick follow-up about, if you can provide some additional color on how much hyperscale leasing you did in the first quarter? Thank you.

[Gary Wojtaszek:]

Sure. Yes, so about half of our leasing this quarter was with cloud company.

[Katie Morgan:]

Okay. Thank you and one more question. Are the rents and returns still holding up at the 15% level as your portfolio shifts towards the greater proportion of hyperscale?

[Gary Wojtaszek:]

Absolutely. So, I just talked about, in my prepared remarks and there's slides in the earnings presentation that talk about 15%, 16% yields, those are for cloud customers. We're able to achieve that because we are able to deliver capacity at a really low cost per megawatt, as we explained in the investor presentation that we had in Hollywood, Florida, where we shared the insights in terms of how we're able to achieve that through really efficient designs and supply chain efficiency. That enables us to deliver a low cost per megawatt, which enables us then to generate a really high yield on our assets.

[Katie Morgan:]

Great, thank you so much.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to Gary Wojtaszek for any closing remarks.

[Gary Wojtaszek:]

Great. Thank you. Thank you, everyone. We really appreciate you spending time with us this morning. We had a really strong quarter, but I think the broader thing that you saw this quarter more than anything is that every one of our competitors put up fantastic results for the quarter. I think that's, really, a really strong indication of the underlying secular trends that everyone in this space is enjoying. And we expect that, that's going to continue to propel us and the rest of our competitors for the next several years. So thanks a lot, and we look forward to talking to you again next quarter. Thank you. Bye.

[Diane Morefield:]

Bye-bye.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day