QTS Realty Trust, Inc.
Q4 2017 Earnings Call Transcript

Published: 21 Feb 2018

[Operator:]

Good morning and welcome to the QTS Realty Trust Q4 and Year-End Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Stephen Douglas, Vice President of Investor Relations. Please go ahead.

[Stephen Douglas:]

Thank you, operator. Hello, everyone and welcome to QTS's fourth quarter and year-end 2017 earnings conference call. I'm Stephen Douglas, Head of Investor Relations at QTS and I'm joined here today by Chad Williams, our Chairman and Chief Executive Officer and Jeff Berson our Chief Financial Officer. We are also joined by additional members of our Executive Team who will be able to participate in Q&A. Our earnings release and supplemental financial information are posted in the Investor Relations section of our website at www.qtsdata centers.com under the Investors tab. We also provided slides and made them available with the webcast and on our website, which we hope will make it easier to follow our presentation today. Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially. Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today and we undertake no duty to update them as actual events unfold. Today's remarks also include certain non-GAAP measures, including FFO, operating FFO, adjusted operating FFO, MRR, Return on Invested Capital, EBITDA and adjusted EBITDA. We refer you to our press release that we issued yesterday and our periodic reports furnished or filed with the SEC for further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. These documents are available on the Investor Relations page of our website. And now I will turn the call over to Chad.

[Chad Williams:]

Thanks, Stephen. Hello and welcome to QTS's fourth quarter and year-end 2017 earnings call. Before I discuss the restructuring plan that we announced in conjunction with our earnings release yesterday, I would like to reflect on what QTS's team has achieved during the past year. Turning to Slide 3, for the full-year 2017, we continued to deliver healthy year-over-year growth across key financial metrics. We achieved record revenue of $447 million, up 11% over 2016, 2017 NOI of $281 million was up 9% year-over-year, adjusted EBITDA was $208 million grew 13% year-over-year, and operating FFO per diluted share of $2.76 grew 6%. Over the course of the year, we had numerous key investments in the business to position QTS for long-term growth. We deepened our presence in existing markets like Atlanta, Dallas, and Chicago where we continue to see strong growth opportunity. We also expanded our footprint through land acquisitions in key Hyperscale markets like Phoenix, Hillsboro Oregon and we commenced development on our newest mega-data center in Ashburn Virginia, which we are excited about opening in mid-2018. We also made numerous enhancements to our platform that we believe accelerate our solution capability and differentiation in the market and position QTS as a leader and innovator in the sector. During the second quarter of 2017, we announced availability of Hyperscale-ready, on-demand HyperBlocks. Each QTS HyperBlocks represents approximately a 2 megawatt deployment, engineered specifically to meet Hyperscale requirements which QTS can deliver in less than 120 days in all of our mega-data center locations. Since launching the HyperBlock product, we have seen consistent demand across our Hyperscale customer base. Also during the second quarter of 2017, we announced the official launch of our software-defined data center platform or SDP, the industry's first fully integrated service delivery and orchestration platform. SDP represents a QTS big data approach to data center infrastructure solutions, enabling customers to access and interact with information related to their specific environment by aggregating metrics and data from multiple sources and a single operational view. This provides customers the ability to remote, view, manage, and optimize resources in real time in a cloud like experience, which is what customers increasingly expect from their service providers. In fact, during the fourth quarter, QTS a software-defined platform served as a key decision factor in multiple new logo signings. Moving to connectivity. We took deliberate steps in 2017 as part of a multiphase approach to expand our carrier neutral cloud service provider ecosystem. During the year, we announced partnerships across our mega-data center footprint with two of the leading cloud-based network exchange providers; PacketFabric and Megaport. Through these networking platforms, we are able to offer customers direct connectivity to the world's largest Hyperscale cloud providers with real time visibility and control of network infrastructure, seamlessly integrating using the QTS SDP application interface. Our ability to deliver infrastructure solutions seamlessly integrated through our technology, like SDP and the next-gen connectivity is a primary reason why AWS, the largest public cloud provider in the world chose QTS as its go-to-market colocation partner to solve for integrated Hybrid requirements. During the fourth quarter, we were pleased to officially launch our CloudRamp partnership with Amazon. QTS's CloudRamp is an industries first turnkey, colocation solutions for AWS customers. This solution is pre-built, pre-configured and integrated with AWS cloud services. It features flexible terms, automated onboarding, and is available for purchase online on AWS marketplace. QTS is the only colocation provider featured on AWS marketplace. And over time, we expect to expand our CloudRamp platform to incorporate additional cloud service providers. We believe this strategic collaboration represents strong validation that our technology enabled solutions are truly differentiated in the market and we are excited by the momentum we are seeing from this future growth opportunity. In many ways, 2017 was a transformational year for QTS as we positioned our business to deliver differentiated solutions for the two strongest segments of demand in the market, Hyperscale and Hybrid Colocation. Next on to our operating performance on Slide 4, for the fourth quarter, we signed new and modified leases totaling approximately $8.7 million of net incremental annualized rent. Reported net lease and results do not include an approximate $5 million non-recurring charge from a strategic Hyperscale customer in exchange for options, a facility portability. This payment was incorporated into our 2017 revenue outlook, our Q4 leasing performance included 49 new logos and up 60% year-over-year. Leasing volume in the quarter was largely driven by the strength of our C2 colocation business with our C1-Wholesale volume lagging the prior two quarters due to a several large deal slipping into 2018. The largest C1 deal was signed in the quarter was a two megawatt HyperBlock expansion of an existing Hyperscale customer in our Irving Texas mega-data center. Subsequent to the end of the fourth quarter, QTS signed a new tenant in one of our lease facilities in Northern Virginia. This data center had previously been vacated by a government contractor in early 2017 and as we communicated to the market, we were only going to retain this capacity if we are able to find a unique opportunity for a high quality revenue replacement. We are pleased that our federal sales team stepped up and found a value enhancing solution for this space. At this deal closed during the fourth quarter as previously expected, our Q4 net leasing performance would have exceeded $14 million. We experienced particular strength and demand in the quarter in Atlanta, Chicago and Piscataway with the number of new logos in each market. We ended the fourth quarter with a backlog of signed but not yet commenced annualized revenue of approximately $47 million. Lastly, pricing during the quarter continue to reflect rational competitive dynamics across to our footprint and QTS with strong differentiation. With 1.2% positive renewal spreads and 8% increase in average pricing on new and modified leases side. Turning next the Slide 5, although we're pleased with the momentum we are seeing in our opportunity pipeline. Our leasing performance during the fourth quarter and full-year 2017 came in below initial expectations. This performance was partially driven by delays in multiple wholesale lease signings, which remain in our pipeline. It also reflects continued volatility within our C3 Cloud and Managed Services business, which experienced the 5% sequential decline in revenue in the fourth quarter. We reported MRR churn of 2.8% in Q4, which includes a 1.2% churn event related to a C3 customers liquidation, which was not anticipated. While our C3 business offers the opportunity to generate a higher return on capital, the tradeoff for us has been increasing unpredictability, pressure on overall growth and lower margin profile, which is impacted our performance. Since QTS was founded in 2005, the foundation of our strategy has been the combination of providing a technology enabled platform delivered across mega-data center infrastructure. As it is typical with smaller entrepreneurial companies, we are focused quite simply on saying yes, to the variety of customers IP infrastructure challenges. This led us to formulate our 3C integrated technology services platform that enabled the QTS to provide the product flexibility and service required by our customer shifting IT roadmaps. The subsequent growth in cloud technology combined with rising concern around how to manage cyber security vulnerabilities accelerated this transformation and has led to increasing enterprise outsourcing trends within our sector. However, this transformation has added significant complexity as customers require customized deployments to meet their shifting Hybrid IT requirements. Through our Megascale infrastructure, we have been able to consistently demonstrate significant operating leverage within our C1-Wholesale and C2 Colocation products. However, due to rising complex being continued changes in technology, it has been challenged to scale our C3 Cloud and Managed Services business profitability. So as a result, turning to Slide 7, as you may have seen in our announcement yesterday, we have implemented a restructuring plan that is specifically directed at focusing our business on the areas where we're seeing strong momentum and deemphasizing those businesses that are either not contributing at the same level or we deem not strategic to the long-term success of QTS. This process started at Investor Day in November and we are now expanding that initiative. As the executive management team and as a significant shareholder in the Company, we believe QTS can reach new levels of growth and performance. We have initiated this restructuring plan to accelerate our growth reduce our complex ability in the business and ultimately drive better profitabilities and returns to shareholders. And we expect to accomplish this with a relatively modest impact to our near-term bottom line financial results. There are three main elements of our restructuring plan. First, we're realigning our organization including our sales force around the two primary drivers of demand in our business. Hyperscale and Hybrid enabled Colocation. We're seeing significant traction in momentum in each of these verticals and this realignment allows QTS to commit 100% of our internal resources towards maximizing that opportunity. Next, we're further narrowing the scope of C3 Cloud and Managed Service business to focus exclusively on products and technology that serve as a direct complements to our Colocation business in an effort to remove complexity enhance predictability in the business and improve our overall margin profile. Lastly, as part of the realignment we will be in implementing a broader cost reduction initiative that will more closely align our cost structure with the narrowed products and more simplified business model. We expect these deliberate steps will ultimately position QTS to maximize our growth opportunities and enhance our long-term shareholder value creation. On Slide 8, as we've discussed previously. We see that you primary drivers of demand in our business today has Hyperscale and Hybrid enabled Colocation. And it is these two opportunities to which we are more closely aligning our business. Starting with Hyperscale demand, in this vertical has largely driven by the 30 largest technology Cloud and Social Media companies in the world. Whose businesses are growing and transforming in ways that are increasing their overall IT and data center demand at an unprecedented pace. Given the relative size of their technology platform and pace of their growth in their underlying businesses, Hyperscale customers are looking for data center solutions in strategic locations that provide not just massive scale, but also speed to deliver and that provide operating in build cost advantages. The Hyperscale vertical has and will continue to be a natural customer segment for QTS given our focus, since our inception on developing mega scale data center infrastructure. QTS operate some of the largest data centers in the world and with that scale come significant operating in build cost leverage. In addition the recent steps we've taken to broaden our footprint through land acquisitions and key Hyperscale markets like Ashburn, Phoenix and Hillsboro expand our opportunity. We view the Hyperscale vertical as an increasingly critical to the data center ecosystem and based on our ongoing conversations see increased opportunities to partner with these customers. Moving to Hybrid Colocation. Enterprise outsourcing continues to support the demand in this vertical. Enterprise customers increasingly are looking for Hybrid solutions that allow them to take advantage of the attractive economics from cloud providers combined with dedicated colocation infrastructure and connectivity seamlessly integrated together. QTS focus on enabling infrastructure solutions through our technology approach provides customers the flexibility they require during a time when technology continues to transform IT requirements. We believe the enhancements we've made to our platform through our C3 business ranging from our service delivery platform, CloudRamp, security and compliance, and premium customer service. At position QTS as a lead innovator in colocation and will remain a key source of differentiation that will continue to leverage within our core Colocation business. Now moving on to Slide 9, let's take a closer look at the specific momentum we are seeing in each of these customer segments. QTS took deliberate steps in 2017 to deepen our foothold in the Hyperscale market and we've now established ourselves as a preferred partner to the Hyperscale customers. Since refocusing our efforts on Hyperscale in mid-2017 we are building momentum and have signed in excess of 7 megawatts of capacity with Hyperscale customers. In addition during the quarter first quarter of 2018 we extended a key anchor tenant Hyperscale customer in the Atlanta metro data center. Since officially launching our HyperBlock Solution comprised of scalable 2 megawatt blocks of rapidly available capacity. We've signed a total of 4 HyperBlock leases. As at the end of fourth quarter 2017 our Hyperscale opportunity pipeline is 4x what it was only a year-ago. In part driven by the opportunity to participate in an expanded number of potential opportunities following the announcement of additional land acquisitions in key Hyperscale markets in the third and fourth quarters of 2017. We remain in active discussions with multiple Hyperscale customers with individual needs ranging from 4 to 40 megawatts and look forward to updating the market on the success in the future quarters. Turning to Slide 10, we continue to hear from customers that our technology-enabled compliance solutions are leading the data center industry. Through our software-defined data center platform, we can enable customers diverse IT infrastructure requirements with seamless connectivity to the largest public cloud platforms in the world. There are multiple recent customer win examples for SDP set us apart from our peers including a large university hospital and a global financial services firm both in our Piscataway facility and local transportation and Logistics Company in our Chicago site. It is this technology layer sitting on top of our infrastructure that provides QTS the opportunity to announce the strategic collaboration with AWS during the fourth quarter. AWS chose QTS is a strategic go-to-market partner due to the ability to integrate our two platforms together in a comprehensive Hybrid enabled Colocation solution. Subsequent to the end of the fourth quarter, we signed multiple customers on to the QTS CloudRamp platform and through this collaboration now have customers directly integrated with AWS' platform in each of the four markets where we have CloudRamp initially deployed. This includes two of our strategic channel partners; GDT and Aligned Communications, who are packaging our CloudRamp solution and reselling it to their customers. GDT is a IT solutions provider using QTS's CloudRamp as a tool to enable them to more effectively assist their clients and move workloads to AWS, and in particular, conduct a proof of concept projects. Aligned based in New York is a global provider of technology infrastructure solutions including data center migration services. Align is using CloudRamp as part of their migration services for clients utilizing AWS. Our pipeline continues to build and as expected this comprised mostly of one or two cabinet size deals, but we also have a handful of potential larger opportunities as well. We remain encouraged by the enthusiasm both within QTS and at AWS regarding this solution and look forward to providing an update on our progress with this collaboration in the coming quarters. Seamless connectivity also remains a critical component to delivering Hybrid enabled Colocation solutions. I spoke earlier about the announcement we made during 2017 of the new partnership with leading SDN partners, Megaport and PacketFabric. SDN is transforming QTS's connectivity story and it had a tangible positive impact on our financial results. Following the introduction of these virtual exchanges onto the QTS platform, our connectivity revenue in the fourth quarter 2017 was up 15% year-over-year. Lastly, as I mentioned previously, we are pleased to sign an agreement in January to refill the space vacated in one of our lease facilities in Northern Virginia that we have discussed on previous calls. This agreement validate our focus on the opportunity with the federal vertical and serves as a potential accelerant to the business going forward. Let's now turn to Slide 11 to provide an example of how our focus on providing technology solution on top of just space and power has driven our success in Piscataway. When we acquired the side in mid-2016, we were convinced a significant opportunity existed to drive higher revenue returns and efficiency through execution across our higher touch integrated and Hybrid enabled infrastructure model. And recall that Piscataway is one of our four initial sites where we've deployed pre-built CloudRamp solutions in collaboration with AWS. In each quarter since acquiring the Piscataway site, we've either expanded existing customers within the facility or bought in new customers including seven new colocation logos in the fourth quarter. In total, since the acquisition, we have increased the total number of customers from 19 to 34, including signed leases in our backlog. We have more than doubled our annualized MRR from approximately $7.5 million to $15.4 million currently an increased return on invested capital from approximately 6% at acquisition to now 12%. And this does not include the additional 87,000 square feet of incremental raised floor capacity that we can develop at a cost of well below market, including 10,000 square feet of which we already have under construction. The success we've experienced in Piscataway represents a prime example of the power of the QTS premium service and Hybrid enabled Colocation model. One of our customer wins in Piscataway getaway this quarter was a new logo, the same university hospital that I referenced earlier. This customer had - gone a broad RFP process involving multiple Colocation providers and required a future path to AWS. Once we showed this customer, the dynamic access and controlled enabled by our software defined platform combined with our ability to provide them a seamless connection to AWS through our pre-built cloud RAM solution, the conversation quickly shifted from just talking about space empower. Our pipeline of deals in Piscataway continues to build and we look forward to the opportunity to continue to drive incremental value in our New Jersey footprint. I'd now like to review our restructuring plan in more detail beginning on Slide 12. As I've just discussed, we're experiencing tangible momentum in both Hyperscale and Hybrid enabled Colocation. As a result, we are realigning our organization to take full advantage of these opportunities with the definitive purpose of accelerating our leasing volume and revenue growth. Starting with our sales force, we have restructured our sales teams to more directly target our key customer verticals. We have narrowed the scope of the former C1-Wholesale sales team to now focus exclusively on the top 30 strategic Hyperscale accounts. These customers are large diverse organizations of require a dedicated level of focus and attention well suited for our Hyperscale sales team. In addition, these customers are looking for strategic partners with top level executive sponsorship. As a result, as part of the Hyperscale acceleration team, which was formed late last year, I have personally taken on much more significant role in the Hyperscale sales process. Regarding our former C2 commercial sales team, we have removed the artificial 500kW cap that previously was placed on the opportunities and brought in their addressable market opportunity to include all non-Hyperscale enterprises. As the enterprise customers increasingly are solving for Hybrid solutions, we believe our Colocation sales team, which represents the bulk of our internal sales resources as well suited to take on this expanded opportunity. We are already seeing success from this group with multiple deals signed and in the pipeline in the 500kW to 2 megawatt range. In addition, Dan Bennewitz, our COO of Sales and Marketing, planned to retire this year. Dan will remain in his position to ensure a seamless transition as we execute a search for a Chief Revenue Officer to succeed him. Tag Greason, our EVP of Sales will continue to lead our Hyperscale sales effort. Dave Robey, who currently leads Property Development, Hyperscale Sales Engineering and Property Engineering will be taking on a leadership of the facilities organization and will assume the role of the Chief Operating Officer. David joined QTS in 2010 as part of the acquisition of QTS' mega-data center site in Richmond and has nearly 25 years a mission critical operations and technology management experience. David has been a critical member of the QTS Operations and Property Development Organization and a leading voice in our deliberate steps in the Hyperscale, and I look forward to his continued leadership in an expanded role. David Robey will succeed Jim Reinhart, who will be transitioning out of the organization. I'd like to thank Jim for his many years of service in QTS and his dedication to our people. Jim joined QTS prior to our IPO and has had a variety of leadership roles within the organization and I wish him well and the next stage of his career. Lastly, Jon Greaves, our Chief Technology Officer, who currently leads all IT-related groups within QTS, will take an additional operational responsibility of the Hybrid Colocation business. Many of you have spoken with Jon in the past and know that he leads our QTS strategic technology vision. We believe the ability to enable Hybrid solutions through a technology platform is a key differentiator for QTS, which makes Jon, the natural choice to lead our Hybrid Colocation business. I'm excited to offer several of our leaders, the opportunity to step into a more advanced role and look forward to seeing their positive impact on the organization. It is our expectation this realignment will enable a streamlined to go-to-market strategy and drive enhanced leasing momentum and growth. Moving to Slide 13, in the next element of our restructuring phase we are further narrowing the scope of products within our C3 Cloud and Managed Services business. To focus exclusively on product to serve as a direct complement to colocation. We started this conversation at Investor Day in November by committing to exit a shared cloud product. Yesterday we announced we are expanding this initiative in an effort to significantly reduce complexity in our business increased profitability and predictability. As part of this initiative we plan to reduce the total number of products within our C3 business from more than 100 to approximately 15. Our C3 business as historically served as a strong source of differentiation for QTS. It is also adding complexity to our business and volatility as evidenced by the churn in the fourth quarter. Over the course of our strategic review of the C3 during the past several months we have become more focused on the disproportionate amount of resources that the business consumes and the impact of those costs particularly at the relative scale. While we are narrowing the scope of products we are more closely aligning our business to support Hybrid enabled Colocation solutions. Products and technology that are strategic and critical to maintaining this capability include our software defined data center platform, high-end security and compliance capabilities, our CloudRamp platform, and full-time customer support and managed services. In fact, it was these specific capabilities that put QTS in a position to sign on as AWS as Hybrid Colocation partner. The run rate revenue impact associated with what we're referring to at the non-core C3 products that we are exiting represent approximately 65 million to 75 million. This includes a portion of colocation revenue attached to certain cloud customer agreements that we would not expect to retain. We are currently expect to complete the exit from the non-core C3 products and services by the end of 2018 and will seek to transition the affected customer contract to a strategic partner to maintain consistent customer support. By narrowing our C3 products that we anticipate our business will benefit from less complexity and greater predictability. While continuing to support a differentiated colocation product. In addition, we expect the investments we have made in our software defined data center platform to yield continued improvement in our overall operating efficiency. Turning to Slide 14, the third and final step of our restructuring plan involves a broader expense reduction initiative to right size our cost structure to a more simplified business model and ultimately enable enhanced OFFO per share growth in performance. We have initiated a process to reduce costs within the business across multiple areas with the majority of those cost tied either directly or indirectly to the narrowed scope of products within our Cloud and Managed Service businesses that I've discussed previously. Cost savings are expected to come from multiple areas including software license, communication expense, rent expense associated with certain data centers that we lease hardware depreciation and personnel related expenses. We expect to meaningfully reduce the run rate operating costs which we expect will enable QTS go forward core business to achieve an adjusted EBITDA margin of approximately 53% in 2018. And based on the scale of our data center platform we anticipate demonstrating additional operating leverage over time. A more efficient cost structure enabled QTS to execute on its restructuring plan with only modest impact in near-term bottom line financial results and support future growth that achieve OFFO per share in excess of our previous model over the next several years. With that, I'll now turn it over to Jeff Berson, our Chief Financial Officer to discuss the financial details of our restructuring plan and outlook in more detail. Jeff?

[Jeffrey Berson:]

Thanks Chad and good morning. Starting with our 2018 guidance on Slide 16, over the course of 2018 we plan to focus our guidance and disclosure of key performance metrics around our core business unit to isolate trends in the go forward business. And we'll separate out non-core business financial as part of our announced restructuring plan. As Chad mentioned we expect to fully exit non-core products and services by the end of 2018 so go forward beyond 2018 should be based exclusively on the core business. During 2018 you will see non-core revenue and expense, which will decline over the course of the year and the time will subject to change based on the pace of our restructuring and discussions with potential outside cloud partners. We plan to remain fully transparent on the performance of our core and non-core businesses, the process around the restructuring, and the impact on financial results. For 2018, we expect core revenue between $408 million and $422 million. As a reminder, this excludes non-core revenue which has been stripped out as part of our restructuring plan. Non-core revenue includes certain C3 cloud and managed service products as well as a portion of estimated colocation revenue loss attached to the C3 deals. As you think about the shape of our growth throughout the year, I would remind you that in Q4, as Chad discussed, we have recognized a $5 million one-time payment from a strategic Hyperscale customer in exchange for the option of facility portability which will impact sequential core growth from Q4 to Q1. For 2018, core adjusted EBITDA were guided to a range of $218 million to $228 million. At the midpoint, this range reflects an adjusted EBITDA margin in excess of 53%. Our guidance range assumes annual rental churn for the core business of between 3% to 6%, which is the lower historical target range on our consolidated business of between 5% to 8%. Finally, we expect core 2018 operating FFO per diluted share of between $2.55 and $2.65. Our operating FFO and operating FFO per diluted share guidance does not include any assumption of non-cash tax benefit for the core business in 2018. Over the past two years, we've recognized the non-cash tax benefit in our operating FFO and operating FFO per share metrics which was generated primarily by the C3 business which sits in our taxable REIT subsidiary. As part of our announced restructuring plan, we do not expect to realize a significant non-cash tax benefit in our core business going forward. To support our future growth, we expect to spend between $425 million and $475 million in cash capital expenditures in 2018 to deliver new capacity in Dallas, Atlanta, Chicago, and Piscataway as well as opening our newest mega-data center in Ashburn, Virginia. Our capital plan is front-end loaded in 2018 due in part to the ongoing development of our new facility in Ashburn, which is expected to open in mid-2018. In order to fund our capital plan, QTS expects to maintain leverage in the mid-5 times range over the course of the year and will evaluate a range of financing options including our ATM program, structured financing, JV partnerships, and potential asset divestitures. Turning to Slide 17, I would like to provide some additional details on our guidance ranges for 2018 in light of our announced restructuring plan. At our Investor Day back in November, we discussed an initial expectation of 12% revenue growth year-over-year which implied approximately $500 million of revenue in 2018. Revenue associated with non-core cloud and managed services amounts to $65 million to $75 million comprised of approximately $45 million to $50 million directly related to C3 products that we are exiting, and $20 million to $25 million of potential colocation revenue at risk that is attached to non-core products. In addition, as Chad discussed earlier, in late Q4, we experienced an additional churn event related to customer liquidation amounted to approximately $7 million impact in 2018. Lastly, lower than average leased in Q4 partially driven by delays in several significant wholesale deal finance and C3 related downgrade activity has approximately $5 million to $10 million incremental impact in 2018. The net of these adjustments results in our core revenue guidance of approximately $408 million to $422 million. Now moving to Slide 18, I will review how these factors drive our adjusted EBITDA guidance in 2018. Again, at our Investor Day, we discussed 50 basis points of adjusted EBITDA margin expansion year-over-year in 2018. This implied approximately $235 million of adjusted EBITDA in 2018. The net result of exiting the non-core business, which has a fully loaded margin of less than 10% is that our adjusted EBITDA guidance for 2018 is down only 5% relative to our Investor Day target, but still demonstrating growth year-over-year, and our projected margin is more than 600 basis points higher, meaning that more of the future growth will fall the bottom line. This $12 million reduction in adjusted EBITDA at a midpoint results in our $2.55 to $2.65 of FFO per diluted share guidance versus approximately $2.82 implied in the 2018 OFFO diluted share guidance at our Investor Day. Finally, on Slide 19, I'd like to discuss at the expected performance of our core business compared with 2020 growth plan that we laid out at our Investor Day for a consolidated business. Starting with revenue, the 2020 growth plan from our Investor Day, assume 12% growth year-over-year in 2018, ramping over time to mid-teens growth by 2020. By removing non-core products from our go forward business model, we expect revenue growth to ramp more quickly to the mid-teens range through 2020 versus our prior model. From an adjusted EBITDA margin perspective, we guided to approximately 50 basis points of annual margin expansion at our Investor Day. This implies an adjusted EBITDA margin of approximately 48% in 2020. We now expect to achieve an adjusted EBITDA margin in excess of 53% in 2018 and anticipate 50 basis points of incremental annual margin expansion through 2020 as a result of the cost saving initiatives that we've implemented and continued operating leverage in the business. Relative to our prior 2020 plan, we anticipate an accelerated ramp to mid-teens growth and higher margin and profitability, which drives low double-digits OFFO per share growth through 2020. By the end of 2020, we expect to achieve run rate OFFO per share of approximately $3.50, which is in line with what was implied by a prior 2020 plan. Said another way, we expect to achieve or exceed our prior OFFO per diluted share result by 2020, but with an improved growth profile supported by our core business with higher profitability and less volatility. I'll now turn the call back over to Chad.

[Chad Williams:]

Thanks, Jeff. Turning to Slide 20, we are encouraged by the momentum we are seeing in our core Hyperscale and Hybrid Colocation businesses. The restructuring plan that we have laid out includes decisive steps that we are taking to further accelerate that momentum and ultimately enhance value creation for shareholders. By refocusing a 100% of the Company's resources around Hyperscale and Hybrid Colocation, removing complexity in the business related to our C3 Cloud products and aligning our cost structure to be a more efficient business model. We expect to achieve improved leasing performance and revenue growth with higher profitability and less volatility that can ultimately deliver enhanced long-term OFFO per share growth and performance. I know we ran a little longer than usual this morning, but we thought it was important to discuss in detail some of the details behind our strategic initiatives in 2018. I'd like to thank everyone for joining us on the call this morning and now I'd like to open up the call to questions. Operator?

[Operator:]

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

[Robert Gutman:]

Thanks for taking the question. On the new model being Hyperscale and Hybrid. Hyperscale is still tends to be lumpy. So what would you consider sort of the normalized growth rate per just the Hybrid business? And then Hyperscale on top of that and blended, and how do returns look going forward compared to historically?

[Chad Williams:]

Hey, Rob. This is Chad. Thanks. Yes, from the Hyperscale business, it will continue to be a lumpy business and we will see more of that as we go forward. It's one of the reasons why from the Hybrid Colocation model. We still love the consistency of our mid-teens growth profile for the Hyperscale Colo business. And we think the complement of that is the diversity of revenue, the option to focus on the enterprise customer base with a broad set of integrated services that appeal to them and at the same time compete much more actively in the Hyperscale growth profile of the business that we really resented on at the end of last year. So we see continue pipeline expansion in the Hyperscale business, but we will continue to see that business are going to come and go. Although the activity across our portfolio is dramatically different since our announcement with strategic new locations across the country that are giving us access to cheaper power and bigger deployments of Hyperscale opportunities. We're just in much different conversations today than we were a year-ago. But we think the complement of the consistency around the Hyperscale - the Hybrid Colo business with the opportunity in Hyperscale attractive for us to continue the growth profile. Returns on it Hyperscale returns are going to consistently be in that 9% to 11% return area that's a pretty well-disciplined returns profile for that business. Although more competition could put pressure on those returns over time as any real estate business matures and more capital comes in. You could see a tightening on that, but we're seeing a very well behaved group in the Hyperscale market and some of it is just the share volume and limited space and power opportunity in key markets where power cost is effective. The Hybrid Colocation business we continue to see mid-teens returns on that. And that's why we want to continue to foster the ability for our business and Colo to continue to be a robust part of our offering. We just think the great complement to drive returns profile to combine those together. And the poster trial for that is our Suwanee location, our QTS Metro Atlanta locations sites that we have a lot of time to mature that Colocation business drives some of the highest returns in our portfolio and we love that combination.

[Jeffrey Berson:]

And Rob, this is Jeff. Just to stress one aspect around exactly what Chad has talked about the reason for this restructuring and refocusing the business is to accelerate growth. When you saw in the business over 2017 is plus or minus 11% growth rate that was largely driven on the Hybrid Colo business. There when the whole lot of C3 contribution in fact that we pull down the growth rate and there was a lot of big Hyperscale deal that you know during the year. The enhance of what we're going through now is that when we talk to an Investor Day about accelerating growth to mid-teens over the next three years and purpose of what we're doing here is to accelerate that ramping growth to get to that mid-teens growth rate more quickly to get there in 2018, 2019 and beyond. And the reason we are going to be doing that is because we'll continue to focus on that 10% plus growth rate from that core Hybrid Colo business and that Hyperscale layering on top of that to really accelerate that growth profile.

[Chad Williams:]

One other thing Rob, that I'll mention is part of the complexity and simplification of the business which runs through the strategy that work implementing. As you have to keep in mind that for that C3 business to really have opportunity to grow it does take a tremendous amount of resources whether it's sales people are sales engineers and I think from Dan and I position on the realignment the sales organization freeing up resources to focus more clearly and more decisively and more intention on where we're seeing tremendous momentum in growth and Hyperscale and Hybrid Colo is going to be another benefit that the refocus of the organization and the unleashing of the current sales force the focus on will give us more resources pointed at the things that are dropping our business.

[Robert Gutman:]

Got it. Thank you very much.

[Operator:]

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

[Jonathan Atkin:]

Thanks. Did you wanted to know a little bit about the timing through the year as you exit the non-core businesses. And then can you clarify what it is anything in terms of actual asset sales related to C3 that that you would be to that state? Thanks.

[Chad Williams:]

Thanks Jon. This is Chad. I'll take the first part, on timing we're looking for the right partner one that can have a seamless handoff of the services that we're providing to very important customer today at the very important to us that we concentrate on a smooth handoff to customers because they are buying multiple services in some regards in this business. So we want to make sure that as we exit the non-core business that we have a great handoff. Another opportunity for us is to pick a partner much like with the public cloud partnership with AWS we want to pick partners that our current customers value and have options. So as we enable our customers to do business with those we want to make sure that our partnerships are also complementing back to the core business around Hyperscale and Hybrid Colocation. So look for us to prioritize the customer experience and handoff and to be smooth and transition that over the next number of months we've committed to be done with that by the end of 2018 and have tremendous confidence that we can do that. But also look for partnership that's going to grow the core business from QTS. So more cloud on ramp type partnerships that will complement future growth. That's going to be the two focuses of exiting that business. As far as asset divestitures, like everybody's portfolio, we have some assets that are more mature, more stabilized, and maybe subscale, so looking at opportunities to harvest some of that and redeploy that capital in more core strategic focus is something that we're going to look at.

[Jonathan Atkin:]

And then finally is there going to be, I guess, I was wondering on that last question, is there going to be like a goodwill write-off from Carpathia. And then just relating to C1, I noticed that your largest customer saw step down in rents, it doesn't appear the lease was standard, so wondered what was going on there? Thanks.

[Jeffrey Berson:]

Yes. Hi, Jon. We're not expecting a write-off of goodwill related to Carpathia. We will see - you will see some one-time costs associated with the restructuring which we talked a little bit about in the release in the 8-K and that involves the exit from both headcount as well as software licenses, communications licenses, recent rent expenses et cetera. As it relates to the question on the movement from the $5 million one-time benefit in Q4, that was driven by a core customer that is looking and looking at QTS for optionality on some of their infrastructure to be able to have portability, move that from one location to another, and in those situations where we had the opportunity to really face an existing facilities where we know there is demand, put customers into new facilities where we've got that capacity and get incremental upside and benefit we are taking, so that was the basis of that.

[Jonathan Atkin:]

Thank you.

[Operator:]

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

[Richard Choe:]

Hi. Just wanted to get a sense of the margin improvement, how much of it is coming from mix shift versus cost cutting? And then in terms of the Hyperscale backlog, should we be expecting to see deals closed in the first half or is it going to take longer and more deals closing in the second half given that's the backlog from forex in 2017. Just kind of getting a sense knowing that's lumpy, but trying to get a sense of when we should expect those deals to close?

[Chad Williams:]

Richard, this is Chad. I'll take the Hyperscale, that team reports to me directly now. We are seeing tremendous pipeline expansion partly just because we're in conversations that previously we weren't. I mean obviously, we've been in C1 for a long time, but traditionally that enterprise customer in C1 for us has been a two to four megawatt customer. We like that. We're going to continue to unleash that, in fact day and sales organization who used to be kind of artificially kept in the commercial business at 500KW is now unleashed to go chase all of that enterprise business in the 500KW to megawatt type expansion. We love that because the pricing dynamics and returns for that business are just a higher level that compliment, but you should expect to see Hyperscale momentum this year. We really transition that team last year towards the end of the year and reorganize that and dedicated what used to be the C1 team to be focused exclusively on Hyperscale customers, which we really consider to be kind of the top 30 CSP providers in the world. And so as we bought more focus at C1 team that deal momentum continues to be active partly because of the expansion of footprints where we have cheap power and we have a tremendous opportunity for growth in scale, whether that's in Richmond, whether that's in Atlanta, whether that is in Irving, whether that's in new locations in Hillsboro, Phoenix, Ashburn. We just have a lot more docs that we can talk about in a very strong way with Hyperscalers and a very strong value prop for them. As far as the margin cost improvements, Jeff do you want to talk about that.

[Jeffrey Berson:]

Sure. Richard, as we talked about and walking through in the bridge, while revenue was down by $85 million from the guidance we've provided at Investor Day. It's important and we're very focused on the fact that EBITDA going down by $12 million and we don't like EBITDA being down in any way, but what's implied by that is $73 million of cost takeout from the business. And that cost takeout is very specific identified incorporate cost takeout around saving from - rental expense saving from software and licenses, savings from communications and savings from headcount. To your point in terms of the business mix, I would say that cost specific takeout is enabled based on the different business mix going forward. Because we're not going to be having the same focus on the people and complex intensity around the C3 business, it enables us to along with that revenue drop, pull significant cost out of the business to maintain that high level of margin to grow that margin by over 600 basis points on a pro forma basis in our core business. And the last thing we talked a little bit earlier about the higher growth and then the higher margin on top of that which means over the course of the next couple years, you're going to see more of that growth drop to the bottom line. And the other thing that we're very focused on related to that is that in the long-term or in the 2020 model that we provided in Investor Day versus a model that we're looking at now from a 2020 basis. We still expect to get by the end of 2020 through an OFFO per share a number of $3.50, which is on top of where we were in Investor Day. But in the rate - in the terms that we're getting there, we feel like we're getting there with better predictability and visibility, higher growth rates between there - here and there, and higher probability and margin.

[Jeffrey Berson:]

Hey, Rich, the one thing I might add to it. People might say well what happened from Investor Day in November? Well, really the margin improvement opportunity. Once we announced that we were going to start to use our public cloud partners to accelerate our public cloud type customers into public cloud, it started a series of conversations with customers that dramatically gave us inside into the ability to kind of shift from instead of having to provide the in-services like public cloud or shared cloud or enterprise cloud products that we had. That had driven really the integrated services story around QTS for a long time. We're thinking about it as the opportunity for the service delivery platform to enable those services. So think about it as digitizing and automating using the work that we've done over the last couple years that really was more visibly to the public with the announcement of being in digitized with on ramp with AWS. But using that automation digitization and I say all that to say that what's change is were accelerating into the growth profile that we were - that we set out for in November, and we are talking about that and what's really the bottom line, most tangible way that you can see why we're celebrating that is the improvement in margin in efficiency that we can get to quicker. So I think a lot of people thought about our margin expanded we talked about at 50 basis point, but now we can talk about it in a much more celebrated way because we're getting the customer feedback and through that in enablement of the services of versus having to deliver the services, we think that this combination of margin improvement and acceleration of focusing on the things that are driving our business is a unique opportunity and it's why we come back and we're talking about it in a very decisive way.

[Richard Choe:]

Great, thank you.

[Operator:]

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

[Eric Luebchow:]

Hi, thanks for taking the question. Given your enhanced focus now on Hyperscale that you said as more or like 9% to 11% return. As your general outlook for 15% stabilized returns changed at all and then curious on these larger Hyperscale deals particularly the really large ones you mentioned up to 40 megawatts? Do you have any ability to be more efficient with your build costs or your speed to market to help enhance your returns?

[Chad Williams:]

Absolutely. Eric, this is Chad. We are taking cost out with supply chain and management of that construction every day. I can't tell you how many times that I get to sit with Mr. Dave Robey and that team that deliver and Hyperscale and here about the innovation. What's great is we've got the Hyperscale customers at the table now talking about what they need. So instead of trying to fit them in our box, we're going and making the box that they need and it is enhancing the ability for them to participate in how do we take cost out and still drive a product that works for QTS and the customer. So we continue to take cost out of that, and the speed continues to execute. I think the shining example of that is our new builds in Joshua is 35% more efficient on time than the last time that we took on a build of that size. We continue to focus on speed and cost at two key drivers, right. Location speed and economics are what's driving the Hyperscale decisions and we will continue to kind of focus and make very direct input on that opportunity to drive that in a positive direction. The other part of the question on the outlook for returns, we do see the Hyperscale business as a 9% to 11% return business. It's one of the reasons why the reason we're still comfortable with double-digit returns, mid-teens type of returns on a fully stabilized basis is the power of the Hybrid Colocation model. So as long as we can continue to attract the 500kW one megawatt type customers that QTS has been known for. It is the strength of diversification of customers and the focus on the enterprise customers. Probably the best example of that is our federal group continues to build momentum. So this quarter we got to talk about having the patience to wait and find the right customer replacement and we talked about that in the call that if we can find the right customer to replace a cure event that happened early last year we could drive returns and profile in the Hybrid Colocation business that customer took two megawatts and doing about $6 million of revenue. So when you can combine the unique strategic fit of our Hybrid Colocation business this example being in the federal business where we use our security and compliance in our overlay and experience that largely came from our corporate via team. We can drive value and that's why we still feel like a mid-teens double-digit fully stabilized example still very achievable in this platform with the combination. We will have to watch the balance of the Hyperscale business and the Hybrid Colo business. But if you use Suwanee and Metro and some of our other more mature sites as examples. We feel like we have a very definite roadmaps that show us how we get there.

[Eric Luebchow:]

Thanks. And then maybe just one quick one. Could you talk a little bit about development timing for Phoenix and Hillsboro and what you see in the pre-leasing environment there when we when we should expect you to actually commence construction?

[Chad Williams:]

Yes, we took down the land in Phoenix and Hillsboro one of the things that was kind of fun is in Phoenix we went through a pretty quick process and reconverting that land to data center and title. I'm happy to say that Mr. Dave Robey in that team took a 9-month process post-acquisition and turned it into a 3-month pre-positioning. So that land is now fully entitled and has all power water and access and we're doing all the pre-designed work to sit and talk to Hyperscale is about 9-month to 12-month deliveries in Phoenix. Now uniquely about Phoenix, as Phoenix is pretty constrained on power in the southern submarkets and water. And we are in the center of Phoenix on 85 acres with water, power and fiber and so from that standpoint we feel like pre-positioning Phoenix and Hillsboro as examples that we're doing all the predevelopment work to have 9-month to 12-month deliveries and our information and channel check says that if we can deliver within 9 months to 12 months on a 40 megawatt deal that's in a sweet spot for Hyperscalers. And so that's kind of the focus we will look for success based starting in Phoenix and Hillsboro and some of our new sites, but we feel the pipeline is active. Phoenix has been a very active market does not have a lot of available capacity today and we think those dynamics play well for pre-leasing in that market and in Hillsboro.

[Eric Luebchow:]

Okay. Thank you.

[Operator:]

The next question is from Michael Funk of Bank of America Merrill Lynch. Please go ahead.

[Michael Funk:]

Hey, good morning, guys. Thanks for taking the questions. First, what get square on the 2018 guidance, but your original guidance back in November for 12% growth I'll that implied cautious expectations for C3 and if I growth up your current guidance by the lesson impact for 4Q. It implies you know similar 12% growth, but more of the underlying core business expectations are slightly lower also than they were back in November?

[Jeffrey Berson:]

Yes, Mike. This is Jeff. So again, as we're looking at 2018 part of what you're seeing and that is that as we think about this restructuring in the plus or minus 45 million of C3 impact that's going to be non-core. We are also building into our numbers the expectation that you're going to be losing some colocation for customers that are tied to it with an integrated solution. And so even with that expectation as you look at the bridge for 20 million plus of card C2 or Colocation revenue that could be - some of these integrated solutions then loss. We are still put it up by the core growth numbers and do reflect that underlying benefit of business that a mid-teens level.

[Michael Funk:]

Okay. And then the - on the cost of the deal slipping or even last deals, the $5 million to $10 million from leasing impact in 4Q, implies a relatively large deal that was lost in the quarter? Can you comment more on that?

[Chad Williams:]

Yes, Michael. This Chad. What's good news is that what the slippage was more slippage, everything that remained in our pipeline at the end of the year remains in today. Probably one of the best examples is the announcement around the federal replacement that deal really was set to close by the end of the year. As we talked about in the script that deal would have landed it would have been $14 million plus of net incremental leasing for the quarter. It signed in mid-January. When we look at the time you aligned, yes, but with the federal government involved that doesn't always work on timing and we're glad to have had that closed. So Hyperscale pipeline on the couple of the deals that slipped, we're still active on those, and so it's more a story about timing versus stuff last out of the pipeline.

[Michael Funk:]

Great. One more if I could on the timing of the funding options, Jeff, what are your thoughts there?

[Jeffrey Berson:]

Sure. So from the CapEx guidance that we've provided, a good portion of that is actually going into the Ashburn facility. It is front-end loaded because that Ashburn facility is going to be up and ready for reaching and available by the middle of 2018. So you're going to the see front-end loaded CapEx, which is why we did comment that we are looking at multiple options in terms of financing that CapEx, which in addition to the traditional equity in ATM include some structured products, potential for asset monetization, JV, infrastructure investments and others.

[Michael Funk:]

Great. Thank you, guys.

[Jeffrey Berson:]

Thank you.

[Operator:]

The next question is from Jon Petersen of Jefferies. Please go ahead.

[Jonathan Petersen:]

Great. Thanks. I guess kind of follow-up, when you are talking about the development, you guys delayed some of the capital investments, some of the development in the fourth quarter, delayed deliveries. I guess kind of talk bigger picture given where your stock price is opening this morning in different ways that you guys are going to have to fund the business that might not be able to include equity and how you're thinking about the development pipeline and timing of when you deliver stuff and how you deploy capital? Maybe just a little more conversation on how you guys are going to be conservative from that perspective?

[Chad Williams:]

Thanks Jon. This is Chad. Sometimes when you open a day, it's not where you are end the day, so we hope that people will take a deep breath and look about what we're doing in the business. As far as capital timing, capital timing is always a focus on conserving capital and being a good steward of capital. So if we get data back which is all real time type of data from our sales force that where they need space and where they don't need space and what the timing maybe. We're constantly adjusting that and we don't necessarily think it's a bad thing if we can pull back capital in different areas because capital saved is capital earned. So we're constantly doing that. I wouldn't read too much into that as far as that. And as far as the capital markets go, Jeff do you want to talk a little bit about the capital markets.

[Jeffrey Berson:]

Sure. Jon, so again one of the things that you heard from us in Q3 as well as in Q4 is we do have the flexibility and we are looking at every dollar that get spent with the mindset that we don't love the cost of capital today from traditional method. And we will continue to put dollars down in capital that are driving near-term revenue opportunities and we have told our development team that we still have to have space available, so that the sales team can deliver, but any dollars that's going to be spend that was proposed to be spent that's not going to result in near-term revenue, it getting pushed back, and we're discontinuing to drive that discipline. That still because there is still real growth in the business as we've been talking about in the real pipeline. It still requires capital coming into the business over the course of the year. And as I've mentioned before, we are looking at and considering various different ways to fund that business beyond just traditional equity.

[Jonathan Petersen:]

Okay. And then with the C3 businesses, I mean clearly given the downside of the 2018 number, it's clearly a profitable business that you guys are exiting, maybe not as profitable as what you're keeping, but there's some value there. So can you give us some parameters on the amount of capital you'll be able to raise? Obviously, I know you won't be too specific that you're out there kind of marketing that, but just kind of how we should be thinking about modeling, what the potential capital you could raise by selling these businesses?

[Chad Williams:]

Jonathan, I think we talked about the margin profile in that business is kind of 10% or less, so there's not a lot of profit drop in the bottom line, but to your point, there is a customer portfolio that is good customers and a good group. And we're going to look to monetize the value for us going forward. So I would focus less on the value that comes immediately versus what's right for the customers, how do we get a smooth and seamless transition for the customers because guess what we want to retain their Hybrid Colo business as much as we can across the portfolio. We want to continue to mine opportunities and grow from this current portfolio of customers, and think that our service delivery platform that's deployed that can enable that will enable that to continue. And then the third thing is the partner needs to be - some way it is a great fit for QTS going forward, so one of the things that we haven't talked about is in some cases, our C3 Cloud business overlap. In fact some people said back when we announced AWS as, how did you do AWS if you're providing cloud? Well, they saw the vision of where we were going to enable services, not have to necessarily provide them. So I would look for the biggest value driver of this business in this transition to be what's right for our customers and what's right for long-term growth and profitability that fits QTS' sweet spot, and we certainly know with Hyperscale and Hybrid Colocation what that looks like and you will look for us to execute that to be the primary drivers of what we're focused on.

[Jonathan Petersen:]

Okay, and then finally how long do you think it will take for QTS to kind of convince us that this was the right move. And so I guess over - will it take a quarter or two and we're going to start seeing increasing leasing volumes and profitability or will it take multiple quarters for you guys to settle into this new strategy?

[Chad Williams:]

I hope the sooner, right. We feel that what we're doing, which we started this conversation in Investor Day and only got more confirmation as we met with our customers, talk with our customers and talked about how this would work with the complexity in our margin profile improving. We think you're going to see results over 2018. We think you'll see him in the next couple quarters. We think we're taking complexity and simplifying the business, which takes risk out of the business. It gets us back more to our traditional foundation of our real estate services enhancement. Everything we want to do, wants to add value to our fundamental core assets or real estate assets and that's what our service delivery platform is enabling us to do and we're getting more and more confident about that ability that we can get a transition. We can make it quicker than we initially thought, we can accelerate into the areas of growth and I think you'll see that play out over 2018 both in a Hyperscale success, but also in our Hybrid Colocation business continuing to lead the way. I think Piscataway was the greatest example, right or a really good example. I mean here is an asset that's world-class built, no one question the quality of that asset. We buy it at a terrific basis and we've turned around and using our Hybrid Colocation attraction because everyone knows that Hyperscalers don't necessarily go and buy 20 megawatts in New Jersey and pay the highest power cost in the country. But what we do know is the largest - one of the largest Tier 1 markets for financial services and insurance and those type of functions and they are buying 500kW to a megawatt type deployment and caging capital. So we think that opportunity with our Hybrid Colo business is continuing to reaffirm the direction that we're going and you're going to see continued success play out on that in 2018. And obviously it's not lost on us. This company has got to perform and we have not done a good enough job in 2017, doing that and you have my commitment that this company is focused on the things that will drive the success of this business and we are confident about that.

[Operator:]

The next question is form Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

[Jordan Sadler:]

Thank you. Good morning. So just to come back to the strategic refocusing here, it seems to me that the elf in the room here was that your conviction around the C3 business previously was very high as a differentiator of QTS and of this business and you allocated and employed capital accordingly including the acquisition of Carpathia? And so you're focused in this direction and now you're shifting out seemingly opportunistically, but I guess what I'm wondering is how did C3 go from the special sauce and the return enhancing opportunity of QTS and differentiator to no longer being necessary and how we supposed to have conviction that the direction you're headed in today is the right direction?

[Chad Williams:]

Jordan thanks. This is Chad. Well, ultimately you'll see it by the performance of Company puts up in future quarters. I think fairly said the performance of this Company will be what vindicates and aligns the vision of this Company and I think that unquestioned to be the number one focus from our investors in an analyst in that community and it's upon us to execute on it. One of the things that I think is lost a little bit in translation is C3 is not going away from the aspect that it's changing. C3 was about an integrated services story, which gave customers and opportunity to have integrated services and a broad set of services availability by having your space in power in QTS data centers that is alive and well. The shipped and I said earlier and I want to highlight this because if there's one thing people take away from this call I'd love for him to be locked into this. Instead of the transition with our service delivery platform saying that we are in enabling C3 services to be abundant for our customers. So Jon could speak about this and I'll give him a second to speak about it here in a minute. But instead of the ability for us that have to provide the services whether it's enterprise cloud or storage type deployments. I think about C3 now as with our service delivery platform in enabling those services. So the digitization, the automation, the work that we did which oh, by the way came from Carpathia talent, which is something that people probably will not focus on now but I see it and feel it across to our business is enabling us to continue to have a very differentiated product across our portfolio and Jon spoke about that at Investor Day in a number of different ways. And so I think from our standpoint C3 is a life, C3 is different because it will enable the ability to provide services from partners versus QTS having to be at the end of it providing not only the integration, but also the delivery of the service. Jon, do you want to speak about some of the delivery services?

[Jon Greaves:]

Absolutely. Thanks Chad. And Jordan just the kind of following on from Chad point. We're actually been using the service delivery platform now for a lot of really interesting things. So I'll give you a couple of real examples with the AWS CloudRamp now and end to end transaction takes less than three minutes from the time a customer clicks on. I want the service to that service being unable enabled and active. So it's again a pretty big change from the norm in terms of the way people do making see in those platforms. And as Chad mentioned again through the automation across the platform including into our connectivity stack C3 really touches all aspects of our business now. We can turn on partners to deliver services in real time and those partners now can take on delivery of compute services, network service in our platform.

[Jordan Sadler:]

That's helpful. The other question I have for you, does pertain to the reaction in the market today. But also the fact that you come into the quarter with leverage around your targets and a big capital plan. To sort of employ the strategy which you were previously set out on but it's still capital intensive and you still seemingly need to raise the capital? What is the appetite for leverage Jeff verses - in the short-term versus where you are today and what is the your willingness to sell equity below NAV.

[Jeffrey Berson:]

Sure Jordan. So a part of the benefit around the way we're structuring it business going forward as we do you think it improves our credit profile. We are winding up working with customers during have a longer-term contract, better visibility, better predictability that being said we still intend to maintain leverage in those mid-five turns. The other that we think will help and support of the leverage level is the backlog - book-to-build backlog we just feel incredibly large and we think comes in for 70 additions of deals that were looking at right now we think of growth.

[Jordan Sadler:]

Okay. Thank you.

[Operator:]

[Operator Instructions] The next question is from Vincent Chao of Deutsche Bank. Please go ahead.

[Vincent Chao:]

Hey, good morning, guys. Just on the restructuring we talked about that a lot and appreciate the kind of color around what this business will look like after it's all said and done but. Can you quantify what the costs are going to be to execute on this restructuring I don't number here in that number?

[Jeffrey Berson:]

Sure, Vin. So from a charge related to headcount and some of the movements in terms of the people savings you're going to see it charge that will be spread over the course of the year during this restructuring of $8 million to $10 million. There will be incremental one time cost on how to that as we exist some these facilities, some software license et cetera, that number of could be in or around of $20 million to $30 million, but again it's going to very based on the partner disruptive partner in the timing of that.

[Operator:]

The next question is from Sami Badri of Credit Suisse. Please go ahead.

[Sami Badri:]

Thank you for taking my question. Regarding the churn guidance 2018 of the Core business 3% to 6% and given the visibility usually have to provide guided, which markets and facilities for this churn expected to occurring?

[Jeffrey Berson:]

Yes, hey, Sami. The reality is we think that 3% to 6% where we're making a pretty strong statement that again a simplification of the business getting out of some of the C3 contracts gives us a churn profile that is very low. If you think about the C3 or the non-core business that we're existing, that business represented less than 15% of our revenue over the last year and over 40% of our churn in downgrade. So that part of what we have the confident that's the core Hybrid Colo and Hyperscale business has such a - much lower churn profile, in terms of where that churn is going to occur. We don't have the specific customer target. We don't think there's any individual customers that are at risk. So we think you just see that sort of regular way business across the profile - portfolio.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Chad Williams for closing remarks.

[Chad Williams:]

Well, we thank you for your time and sorry for going a little long today. But it's important for us to get out and talk about our restructuring. Ultimately, we have tremendous confidence and we hope to earn your confidence and trust. We appreciate the time and energy and I want to thank all the QTS' that make it possible for us to be successful in this market. So thank you and we look forward to talking to you in the quarters to come.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.