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Interxion Holding (NYSE:INXN)
Q2 2019 Earnings Call
Aug. 07, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the 2Q 2019 results webcast. [Operator Instructions] During the presentation, we'll have a question-and-answer session. [Operator Instructions] I must advise you that this webcast is being recorded today Wednesday 7th of August, 2019.

And I'd now like to hand the webcast over to your presenter today, Jim Huseby. Please go ahead.

Jim Huseby -- Investor Relations

Thank you Tony. Hello everybody, and welcome to Interxion's second quarter 2019 conference call. I'm joined by David Ruberg, Interxion's Vice Chairman and CEO; John Doherty, Chief Financial Officer and Giuliano Di Vitantonio, Chief Marketing & Strategy Officer. We have a slide deck to accompany our prepared remarks, which is available on the Investor Relations page of our website at investors.interxion.com. Before we get started, a brief reminder regarding IFRS 16 as discussed during last quarter's conference call and the implementation of IFRS 16 on January 1, 2019 had a significant impact on our reported financial statements, please refer to the reconciliation set out in our earnings press release and slide deck for further information on the impact of this accounting change.

I'd also like to remind everyone that some of the statements we'll be making on today's call are forward-looking in nature and involve risks and uncertainties, actual results may vary significantly from those statements and may be affected by the risks, we identified in today's press release and those identified in our filings with the SEC.

We assume no obligation and do not attempt to update or comment on forward-looking statements made on this call. In addition, we will provide non-IFRS measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable IFRS measure in the press release, which is posted on our website at investors.interxion.com.

Also, to remind you we post important information about Interxion on our website and interxion.com and on social media sites such as LinkedIn and Twitter. Following our prepared remarks, we will be taking questions. And now I'm pleased to hand the call over to Interxion CEO David Ruberg. David?

David Ruberg -- Chief Executive Officer

Thank you, Jim, and welcome to our second quarter earnings call. Please turn to slide 4 .Our results for the second quarter, we expect a consistent and solid execution, which has again delivered strong revenue and adjusted EBITDA growth. During the quarter, Interxion continue to experience favorable demand for colocation compassion reflecting the differentiated positioning of our highly connected data center. Cloud and content platform providers continue to be the largest source of this demand driven by the secular trends created centered around the shift toward digital processing services and content delivery of course the consumer and business economies. Digitalization is an unstoppable trend. It is fundamentally changing the way in which we work, live and communicate.

Our industry is benefiting from a generational shift in IT infrastructure. Enterprises are migrating away from highly customized on-premise installations to hybrid multicloud compute deployments with increasing connectivity requirements, the notion of connected compute lies at the heart of many of the major industry trends we are seeing today. The performance expectations of users cloud based applications and content services are growing, all the time. Slow and inconsistent response times and sub-standard quality are unacceptable for real-time applications. Particularly where these are mission-critical or central to the revenue streams or operational performance of the application providers. The sheer pace of change means the technology landscape in the few years may look quite different toward the consensus expense today. What is certain, however is that, we remain in the early phases of this global transformation. Interxion is playing an important role in this evolution. For many years we have been creating connecting community center -- data centers that offer the platform providers, high levels of connectivity and performance together with access to large pools of customers. Ultimately we are enabling access to a substantial portion of total European GDP. This strategy remains more relevant than ever. It represents for us an increasingly entrenched source of competitive differentiation.

As a consequence, we believe that we remain well positioned to deliver sustained growth and attractive returns on invested capital going forward. Briefly highlights for the second quarter include a 14% organic increase year-over-year in both total revenue and recurring revenue. A 26% increase year-over-year and adjusted EBITDA, an increase in equipped space of 6,500 square meters, an increase in revenue generating space of 2,500 square meters, solid bookings and healthy sales pipeline, stable pricing with churn within our historical ranges, the opening of Madrid 3.

In addition today, we announced that we will construct Stockholm 6 and further expand capacity in each of Frankfurt 15 and Marseille 3. We have also acquired the PAR7 land. At the beginning of July, we completed the raise of approximately EUR283 million from an equity issue of 4.6 million shares further strengthening our balance sheet and supporting our continued expansion for future growth. And lastly the equity issue combined with subsequent improvement in our credit quality contributed to a one-notch upgrade by S&P.

Please turn to slide 5. Revenue in Q2 came in at EUR158 million up 14% from Q2 of last year and up 5% sequentially. Recurring revenue of EUR150 million represented 95% of total revenue and was 14% higher than the same period last year. Q2 adjusted EBITDA was EUR80 million representing an adjusted EBITDA margin of 51%.

John will talk in more detail about the financial numbers later in the call. Please turn to slide 6. We added 6500 square meters of equipped space in the second quarter. The year-over-year increase of 16.8% and ended the period with 154,800 square meters. We installed 2500 square meters of revenue generating space led by the Netherlands, Germany, Austria, and Spain. We ended Q2 with 121,600 square meters of total revenue generating space which equates to an overall utilization rate of 79%.

Please turn to slide 7. During the second quarter, we had a new capacity in seven different markets. And construction continues across most of our footprint with an emphasis on larger builds in certain markets in response to the favorable customer demand patterns and orders that we were experiencing. Today, we announced the build of two additional phases at Frankfurt 15 where demand remains particularly strong. This is our 15th [Phonetic] data center in the city where we are well established as a market leader, was very high density of connectivity in our campus.

With the addition of Stockholm six and another phase in Marseille three to our expansion schedule, we now expect to open over 20,000 square meters of new equipped space in each of 2019 and 2020.

Looking at a little further we've also announced over 10,000 square meters of equipped space, which is scheduled for completion in 2021.

In aggregate, we have announced the addition of 44,200 square meters of equipped space, scheduled to become available during the second half of this year, through to the end of 2021 and this represents an overall expansion of 28% of our current capacity. We continue to add to land ownership across our markets. In Paris during Q2, we completed the acquisition of the land on which our PAR7 data centers located for EUR19 million. The Paris site is adjacent to additional land of 68,000 square meters, for which we have a purchase option. This property has industrial zoning and 50 megawatts power has been secured. Finally, as many of you may be aware, the Municipal Government of Amsterdam and certain adjacent municipalities recently announced a temporary moratorium on the usance of building permits for new data centers.

This temporary moratorium does not affect any of our data centers currently in operation or any that are under construction as we already have the permits and sufficient power to build out the entire Amsterdam data center of 14,000 square meters.

Please turn slide 8. Reflecting their continued strong growth and capacity expansion, platforms now can account for around 40% [Phonetic] of our monthly recurring revenue. While conductivity and enterprise segments are each at around 30%. Cloud and content platforms again lead the way in terms of recurring revenue growth in Q2. The leading B2B platforms to continue to expand in the big four and are starting to select new locations in tier two markets while the B2C platforms are rapidly spanning across all locations, as they build their infrastructure to get closer and closer to the end users.

High conductivity density is at the heart of our business. And we continue to undertake initiatives to further increase the conductivity presences across our locations. In recent quarters, we've seen orders coming from both local and international conductivity providers and this remained evident in future. These providers are in many cases capturing increase in network traffic in our data centers due to substantial growth in our data and in the data driven by the content and content cloud providers.

The interplay of platforms and connectivity is a perfect example of why focusing on communities of interest of highly connected workloads has been and will continue to be a central focus of our strategy. It is a strong driver for the value creation and stickiness our communities that sustains enhances the value of our data center campuses over time. Our Marseille campus is an excellent example of this, where our initial focus on building the connectivity foundations is significantly expanding the number of network providers serve to attract the cloud and digital platform providers A virtuous cycle was created and then the additional connectivity providers were then drawn to the campus. Today over 150 network service providers are connected to our Marseille campus which is becoming a primary gateway for subsea cables coming into Europe. In the enterprise segment, we are seeing an uptick in new enterprise logos, which is a clear indication that by the enterprise market remains at a relatively early phase in their path of migrating the digital infrastructures with cloud, the value of colocation is becoming evident to them.

They increasingly understand that are highly connected data centers are the ideal venues to establish secure, private connections to all of the leading cloud platforms for a growing range of hybrid multicloud applications. More specifically we are seeing growing demand from enterprises that are either digitally native or digitally mature such as online retailers. They tend to be large and mid-size based in large metropolitan areas, deploying the data-intensive or front-end applications and using one or more clouds. With this profile, a highly connected location is becoming the Natural Choice. While in the past, we would have competed with wholesale providers or telecoms against a narrower set of requirements, primarily focused on cost resiliency or operational excellence.

I would now like to turn the call over to John.

John Doherty -- Chief Financial Officer

Thank you, David. Please turn to slide 10. The second quarter was another period of solid growth across all of our market. We enjoyed a robust first half delivering year-over-year revenue growth of 14% and adjusted EBITDA growth of 13% on a like-for-like basis.

At the same time, we are scaling the business commensurate with our long-term growth profile and investing for the future in disciplined manner, which is resulting in continued attractive returns on invested capital. Like last quarter, I will provide reported results as well as the comparison with IFRS 16 adjusted figures for ease of comparison to prior period. There are reconciliation tables in the press release and in the appendix of the slide deck to show the impact of the accounting change on our reported results.

Total revenue in Q2 was EUR158.5 million up 14% compared to Q3 2018 and up 5% sequentially. IFRS 16 had no meaningful impact on reported revenue. Foreign exchange movements on balance also did not have a significant impact on year-over-year for sequential. However, we cannot rule out continued weakness in the British pound versus the euro in the second half of the year. This currency movements accompanied by the uncertainty intention that a potential no-deal Brexit is creating will together likely moderate our UK revenue growth in the back half of the year. Recurring revenue in the quarter was EUR150 million, also up 14% year-over-year, representing a 3% sequential increase. Recurring revenue was 95% of total revenue, while recurring ARPU increased EUR2 [Phonetic] to EUR416 with the quarter. For the remainder of the year, we expect ARPU to be in the range of EUR414 to EUR417 and will continue to be influenced by the timing of new customer installations.

Cross Connect revenue was 6% of total revenue, and we expect it will remain at this level in the second half of the year. Non recurring revenue of Q2 was EUR8.5 million and represented 5% of total revenue. The increase was due to the completion of large customer installations in Germany, France and Austria. As you have discussed in the past, non recurring revenue can be lumpy, as it is typically customer specific and often dependent on changes that the customers are making to their clients [Phonetic].

We expect non recurring revenue to be around 5% total revenue for the remainder of the year. Cross the sales is EUR54.7 million in Q2, reflecting the treatment of EUR7 million years of operating least expenses as a result of IFRS 16. Gross profit was EUR103.7 million, up 3% from last quarter.

Backing out the accounting change, gross profit would have been EUR96.7 million, a 14% increase year-over-year. The reported gross profit margin for the quarter was 65.5%. While the comparative gross margin excluding the impact of IFRS 16 was 61%.

A 30 basis point decrease year-over-year to a higher proportion of energy revenue as a percentage of total revenues, as well as higher levels of non recurring setup fees in Q2 compared to the same period last year. Sales and marketing costs were EUR9.4 million in the quarter, down 3% [Phonetic] year-over-year, but up 3% sequentially, and represented 5.9% of total quarterly revenue just below the low end of our typical range. We expect sales and marketing costs to remain between 5% and 6% of revenue to the balance of the year.

Excluding depreciation general and administrative expenses were EUR14.2 million euros in the quarter of 17% year-over-year and down 4% sequentially. The year-over-year increased primarily reflects ongoing investment and operational enhancements to support our customers. While the sequential decline is due to one time items that were incurred during the first quarter and not repeated in Q2 total G&A expense was 9% of revenue this quarter within our typical range of 8% to 9% of revenue and we expect it to remain within this range for the remainder of the year. Adjusted EBITDA was EUR80.2 million 50.6% margin, excluding the EUR8.6 million impact of IFRS 16 adjusted EBITDA grew 13% year-over-year and 2% sequentially. The adjusted EBITDA margin, excluding the IFRS 16 impact was 45.1%, a year-over-year decrease of 60 basis points. Depreciation and amortization expense was EUR44.3 million in the quarter, including EUR7.3 million due to the impact of IFRS 16. Excluding the impact of IFRS 16, depreciation and amortization increased by 15% year-over-year.

Net finance expense in the quarter was EUR17.1 million including EUR3.1 million from the impact of IFRS 16. Sequentially the finance expense increased 3% due to a drawdown under our revolving credit facility in the quarter, which was repaid post the end of the quarter. On a like-for-like basis, excluding the impact of IFRS 16 and one-off cost relating to our 2018 refinancing, the finance expense was 20% higher year-over-year due to the higher average level of borrowing in Q2.

Income tax expense in the quarter was EUR3.6 million, 30% increase year-over-year and a 24% decrease from the first quarter. The effective tax rate in Q2 was 30% compared with 36% in Q1. The sequential reduction due to a one-off deferred tax adjustment in connection with the acquisition of the PAR7 land, which has no cash impact, on cash taxes. Our LTM cash tax rate was 34% in Q2, down from 37% in the prior quarter.

Net income was EUR8.6 million in Q2 up 3% sequentially. Diluted earnings per share for EUR0.12 on a diluted share count of 72.5 million shares. As a reminder, the equity issue did not close until July 1st. So there is no impact in the offering on our second quarter results.

Please turn to slide 11. Overall demand in Europe remained strong with activity focused around some of the large markets, Frankfurt and Amsterdam in particular. Customer demand was less evenly distributed in Q2 than in previous quarters, as the platforms are prioritizing securing [Indecipherable] capacity in the primary markets while they are rolling out deployments in Tier 2 cities gradually. Interxion's big four markets continued to see strong growth with second quarter revenue of EUR105.6 million, up 15% year-over-year and up 4% sequentially. Adjusted EBITDA in the big four was EUR62.9 million, representing a 59.6% margin, and up 3% sequentially. Excluding the impact of IFRS 16 big Four adjusted EBITDA was up 12% year-over-year. The comparative adjusted EBITDA margin this quarter with 54.3% representing a year-on-year decrease from 56.2% due to the higher level of non-recurring revenue noted earlier.

Germany and France led the way in the big four segment. Our Rest of Europe segment delivered second quarter revenue of EUR52.8 million with recurring revenue up 11% year-over-year, led by Austria, Denmark, Sweden and Spain, and up 5% sequentially. Adjusted EBITDA for the rest of Europe segment came in at EUR32.6 million equating [Phonetic] for the adjusted EBITDA margin of 61.7%. Excluding the impact of IFRS 16 adjusted EBITDA was up 10% year-over-year and up 1% sequentially, while the comparable adjusted EBITDA margin declined by 60 basis points of 56.8%.

Please now turn to slide 12. Capital expenditures, including intangibles totaled EUR123.5 million in the quarter. Of this, some [Phonetic] EUR117.3 million or 95% of the total was deployed on expansion and upgrade projects while EUR2.6 million or 2% of the total was spent on maintenance and other and EUR3.5 million on intangibles. 63% of Q2 Capital expenditure was spent in the big four this quarter compared with 69% last quarter.

Please turn to slide 13. During the final week of the second quarter, interaction raised EUR283 million in net proceeds from the issuance of 4.6 million shares. The success of the equity issue reflects the positive investor response to our strong track record and the healthy momentum we have across our business. Our commitment using both debt and equity to fund the growth of our business is in line with our objective to have an optimal capital structure over the longer term. We expect to continue investing on the basis of our proven and disciplined approach to acquiring the necessary assets including land, power capacity and data center infrastructure in order to continue to scale our underlying asset portfolio in an appropriate return focused manner.

Turning now to the balance sheet, interaction ended the second quarter with EUR55.6 million in cash and cash equivalents, down from EUR186.1 million at the end of 2018. At June the 30th Interxion has drawn EUR40 million on the revolving credit facility. Pro forma for the equity raising and subsequent RCF repayment, the cash balance at quarter end would have been EUR298.8 million. LQA net leverage including IFRS 16 related lease liabilities was 5.2 times, while gross leverage on the same basis was 5.4 times. Excluding the impact of IFRS 16, LQA net leverage including the lease liabilities was 4.3 times. LQA gross leverage was 5.3 times, the LTM net leverage ratio was 4.6 times and pro forma for the offering the LTM net leverage ratio, excluding the impact of IFRS 16 was 3.7 times. Cash [Indecipherable] measure of return on gross invested capital was 11% for the last 12 months.

Taking into account the funds raised in the equity offering, combined with the existing cash on the balance sheet and undrawn EUR300 million RCF at present and the growing cash generation of our data center assets, we have significant available liquidity. S&P recognized our improved credit profile and recently upgraded our rating to BB.

Please turn to slide 14. At the end of Q2, 2019 our fully built out data center at 89,100 square meters of equipped space and were 79% utilized. They generated EUR408 million in revenue over the last 12 months. After deducting the direct costs and maintenance capex, we are roughly EUR259 million on a cumulative investment of EUR1.17 billion. This equates to an attractive cash return of 22% over the last 12 months. To summarize the European colocation market remains healthy driven by secular trends in favor of digital adoption by consumers and enterprises alike.

We continue to be well positioned against our competitors in the carrier and cloud neutral colocation market and continue to focus on acquiring the land required to expand our footprint as required by customer demand. We expect solid growth across 2019 as we invest in and scale the business. When thinking about the profile of our growth in the second half, it is worth bearing in mind the various moving parts. Platform deals are invariably lumpy and they impact the timing of revenue utilization, particularly in the Tier 2 markets where larger deals can create step changes in utilization.

As noted earlier, we are also monitoring macroeconomic developments from the twist in terms of the Brexit process, as well as trade tensions between the US and China. We do expect some potential impact from currency in the second half is due to sterling weakness and the uncertainty of which appears to be having an impact on enterprise's decision-making in the London market.

Lastly, we remain disciplined in the execution of our capital investment program and we are resolutely focused on maintaining the attractive profile of our returns on invested capital. And with that, I would now like to turn the call back over to David.

David Ruberg -- Chief Executive Officer

Thank you, John. Please turn to slide 16. The patterns of demand for data center colocation are continuing to evolve and in line with our expectations. At the present time, the main demand driver is the migration of applications from legacy data centers to the public cloud. Consequently, the architecture and infrastructure requirements of the cloud platforms continue to shape our industry, both in terms of direct demand [Indecipherable] compute deployments, and through the creation of connected communities in our data centers. The leading public cloud providers are fueling the growth of the industry through aggressive initiatives to migrate enterprises to the public cloud. They are in an arms race to capture market share, promoting a public cloud first approach, then starting to lead to the gradual movement of existing enterprise applications out of on premise and outsource data centers.

The largest end market to the cloud providers is large enterprises, which are being drawn into the public cloud by a migration incentives. The migration of existing applications is becoming an important trend in Europe, whether through the adoption of container technologies, or through replatforming of existing applications.

Against this backdrop of favorable secular trends, a key element of demand uncertainty facing our industry is the degree to which platforms will build their own data centers, rather than relying on third party data center providers. The nature of the projects that we are involved with, the platforms are providing clues on how to build versus [Phonetic] by strategies of the market leaders will play out. Two significant observations by the following. First, time to market remains a primary driver for cloud providers when choosing third party data centers, which is likely to be relevant in fewer locations over the coming years.

Second, but for the new generation applications, where performance and workload placement play a more critical role, proximity to interconnection points is becoming a key selection criteria. This demand is starting to represent a distinct category with an overall cloud and content platform demand.

While platforms continue to drive growth in Europe, direct demand for colocation from enterprises is picking up as they seek to transform their IT architectures. That high cost of maintaining legacy data centers. The residual applications that have not moved to the public cloud is a primary reason for considering colocation. This type of demand, which has been growing in recent quarters, is rather different to the classic IT outsourcing in the past.

Today, the vast majority of new colocation opportunities include secure access to the cloud is a key requirement. And in many cases also require proximity to end users well. Given these additional requirements, our carrier and cloud neutral data centers have a differentiated and superior value proposition versus many of our competitors.

At the same time, some customers are simply looking for a place where they can access one or more clouds, or transfer data course to public clouds, highly connected care, and cloud neutral data centers such as ours, are the ideal location for migration, and transfer data and workloads between cloud platforms. As a quiet consequence, we're seeing growing interest in these types of deployments. These deals are typically smaller in size, but served to substantially strengthen the depth and value of our connected communities, and we believe will lead to larger deployments over time.

Please turn to slide 17. Looking beyond existing demand times, we are witnessing the emergence of new cloud native applications, which are focused on real time data analytics, artificial intelligence, and the internet of things. Each next generation applications are data intensive, and often distributed across multiple locations, where workload placement is critical. As performance becomes a more central thing in IT infrastructure design, enterprises are starting to devise optimal workflow placement strategies, especially for customer facing applications.

This trend will accelerate adoption carrier neutral colocation as the key requirements for access to multiple clouds as well as proximity to the end users into edge nodes. In many ways, we're currently seeing with B2C platforms provides an early indication of how our broader range of native cloud applications will evolve. These content providers represent a growing and substantial segment of the market, as more and more applications target consumers through data intensive applications.

This type of demand is perfectly suited to carrier and cloud neutral colocation, and we are capturing a large market share, which is also strengthening the value of our interconnection hubs. As enterprises optimize the application design, we expect a growing realization on their part that a public cloud only architecture is likely to meet all of their costs and performance objectives, and therefore will decide to leverage colocation for portion of compute requirements. In Europe, Interxion is well positioned to capture a very significant portion of this demand, as we offer some of the most highly connected cloud hubs in the vast majority of our locations. The foundation of sustained demand from platforms and emerging demand from enterprise provide [Indecipherable] with ample opportunities for us to maintain attractive growth rates in 2020 and beyond.

Please turn to slide 18. Today, we are reaffirming our previously announced full year financial guidance for revenue, adjusted EBITDA, and capital expenditures. To be specific, for the full year 2019 we're expecting revenue to be in the range of EUR632 million to EUR647 million. We expect adjusted EBITDA to be in the range of EUR324 million [Phonetic] to EUR334 million and we expect to invest between EUR570,000 million and EUR600,000 million in capital expenditures this year.

And before we open the call up to Q&A. I would again like to express my thanks to all of our employees for their unrelenting commitment to quality and customer focus. The ongoing success of this company is the product of their hard work and dedication.

And I would also like to thank our shareholders, and bondholders for the continued support for Interxion. And with that, now let me call -- hand to call back to the operator to begin the question and answer segment.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Erik Rasmussen from Stifel. Please ask your question.

Erik Rasmussen -- Stifel -- Analyst

Yes, thanks. And nice, I appreciate the commentary on business dynamics there, especially around your communities of interest. But can you just comment on the competitive landscape? This seems to be more of a focus on Europe, what are your thoughts on the number of new entrants coming into the region? How much of a competitive threat do you think they pose? And then maybe, just the follow on to that, what are you hearing from your customers as it relates to, some of the strengths that you talked about with highly connected sites, maybe versus those that are not just trying to understand that the demand profile. Thanks.

David Ruberg -- Chief Executive Officer

Okay. How about I handle the first half of that question, and Giuliano will handle the second. Okay? So I think we said many times before, the European market is approaching the same size from a technology standpoint as the American -- Americas, we have far fewer competitors here in Europe than we do in the United States. The market here is more fragmented than it is in the United States. And we have been doing this for a long time. So I think what you're seeing happen is those that by the way, there are not that many new entrance. And those that are coming in, I think, are beginning to realize that there are substantial barriers here that they do not experience in the United States.

So overall, I think there's a market opportunity -- a growing market opportunity for all of us. And I believe that we're really well positioned from the historical perspective, from an orientation perspective, our communities of interest concept puts us in a really good position to get more than our fair share of a growing market.

Erik Rasmussen -- Stifel -- Analyst

[Indecipherable] customers.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Yeah, I will add a few few comments on what we hear from customers. At the end of the day, they look at requirements from customers, they put in three broad categories. The first one is the table stake is operational excellence, they really want to make sure that the data centers deliver the quality of service, they expect. And we have a very strong record with all of our customers from that. So they keep coming back to us with the certainty that we're going to deliver what we promised we deliver.

The second one is very specific to Europe, [Indecipherable] know-how of the local market. They understand that Europe is different from the US, they understand that, especially in the smaller countries, that needs to be some local knowledge on how to deal with the local bureaucracy, the local circumstances. And our European footprint enables them to get that with a reading depth knowledge of the countries where we operate.

And then of course, there's the differentiate [Phonetic] that we make the difference, especially with the new type of workloads that are more data intensive, which is connectivity. And this is something we've been building for almost 20 years now. This is not something that can be recreated overnight. This is something that has enabled us to be leaders in connectivity first, and then also really get a very significant portion of all the cloud on ramps that have been deployed in Europe over the last three or four years. So when you put all of these things together, the operational excellence, the know-how of the European market, and the connectivity and cloud access that we provide, that creates in very high barriers to entry that to all of the competitors that you mentioned, and customers acknowledge that all the time.

Erik Rasmussen -- Stifel -- Analyst

Great. Maybe just a follow up. It seems like there's a lot of activity picking up around Paris and Give it [Phonetic] some land and some adjacent land there, how do you see this market. And maybe just a sustainability. Thank you.

David Ruberg -- Chief Executive Officer

Okay. It's not just Paris. It's actually France with all, if you look at the connectivity came from the United States into Europe in general, a lot of it used to go through Ireland or the UK and with Brexit what's happening is, people are looking at, it's coming from the United States, particularly OTTs are coming directly to the continent and bypassing the UK. If you look at the emerging markets in both the East Coast and the West Coast of Africa and the traffic patterns coming from Asia, again trying to establish commercial relationships with continent of Europe, the logical places to come into France with submarine cables, i.e., Marseille.

So we -- I think we are really well positioned with where we are in Paris and in Marseille as the evolving traffic patterns are beginning to emerge and people are looking at West Coast, South Coast, France is a way of probably the most convenient way from North America and for the East to get into Continental Europe, anything you want to add to that.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Just one additional comment. We've talked about this a few times. It is a natural evolution or natural pattern, deployment of technology, rollout of technology in Europe just passing the UK, then hits Northern Europe and then the next stop is France and now we are really reaching that tipping point of France where the market is mature enough for the platform and the enterprises to start [Indecipherable] the technology. So that's why we're seeing this uptick in comparison.

Erik Rasmussen -- Stifel -- Analyst

Thank you.

Operator

And your next question comes from the line of Michael Rollins from Citi. Please ask your question.

Michael Rollins -- Citi -- Analyst

Hi, good morning. During your prepared comments you touched on the demand that you're seeing for platforms and I was curious given some of the lumpiness and scale bookings in the US, if you could just further unpack what you're seeing in terms of the flow of demand in bookings from cloud platforms in Europe, relative to the US experience and do you still see the prospect for revenue growth to improve over the course of '19 and into 2020 for the overall portfolio. And then just secondly if I could follow up with another question, just as you increase the development pipeline again this quarter, can you provide some context for how the level of pre-leasing or reservations is influencing the growth opportunity for interaction for the coming one to two years.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Okay, Mike, I'll start, this is Giuliano. I'll start with the demand, then I'll hand it over to John and David. We hinted this in the prepared remarks, the platform, you really need to distinguish between the cloud platform and the content platform.

The content platform really deployed -- by now they're deploying in all of our locations, that they are very granular in their reach to the end users. So we see demand across all of our locations from the content platform. When it comes to the cloud platform, similar thing applies to the network node of the cloud platform, they have now reached most of our locations. When it comes to the larger deployments, which are compute nodes, they tend to at this point, what we have seen, they're really focusing on making sure that they have line of sight to future capacity deployment in the main cities, the big four, and [Indecipherable] specifically very strong in Frankfurt and Amsterdam, and now starting in Paris.

So they're really focusing on making sure that they have that capacity secure several quarters out, which is also behind some of the announcement we made today in terms of a future expansion. So you're seeing this, you will track with the B2B platform, focusing primarily on the -- on the large cities, and starting more gradually to move into the smaller cities, while the B2C platform have a much more homogeneous deployment across the entire footprint.

John Doherty -- Chief Financial Officer

Mike, I take the second piece of that, and you mentioned, just to reiterate on the question, the growth 2019 into 2020, and the answer for that is absolutely. We still, as you mentioned, as part of the prepared remarks, expect very solid growth throughout the next, what would be, six quarters. We remain highly confident in business of Giuliano and David talked about demand and as a result, we also -- reaffirmed our guidance. However, as we mentioned, we are seeing some headwinds from what's happening, particularly in the London market, there's uncertainty. In terms of the Enterprise Community, it's also particularly manifested across financial services, that as well as some of the FX movement that we're seeing. And if you looked at the back end of the quarter, from high to low pound euro was about 7% differential. I'm not saying it's going to stay there. But that does have some impact on the second half of our growth rate. That said we still expected to have a very solid second half of the year.

David Ruberg -- Chief Executive Officer

And Mike to the last part of your question. Short answer is, we are getting pre bookings. And we decided a year ago, we're not going to release the amount. The fact to the matter is as Giuliano said some of these guys really need to [Indecipherable] the business that give to us is really sticking. So they want to see a path of growth opportunity. And in some cases we have to fight with them not to take a pre-booking because we want to develop the community ventures, the way we want to. So in a number of the bills that we have announced, we do have pre-booking levels and commits and again it's all part of our very disciplined approach to how we deploy capital. Okay?

Michael Rollins -- Citi -- Analyst

Thank you.

Operator

Sorry, did you want to take your next question?

David Ruberg -- Chief Executive Officer

Yes, please.

Operator

Thank you. Your next question comes from the line of Colby Synesael from Cowen & Company. Please ask your question.

Colby Synesael -- Cowen & Company -- Analyst

Great. You've talked about this a little bit already, but when you disclose your revenue breakdown, you talk about it in terms of verticals, the cloud, enterprise connectivity. I was wondering if you could talk about in terms of size of deployment. So I historically thought of an interconnect oriented deployment is being called sub 250-kW and more, the larger hyperscale or cloud and connectivity deal has been called North [Phonetic] of 1 megawatt, what are you seeing this in terms of deal size. And if you can, can you give us some color in terms of what that make up in terms of revenue, it looks like broken out by some type of deal size breakdown. And then secondly, as it relates to churn for many quarters as far back as I can remember. You've talked about churn being in line with your normal rate or number, what is that churn number and what are some of the reasons that customers are typically leaving your facilities. Thank you.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Colby, this is Giuliano. I'll take the first part of your question. So you're right. Historically, there was a clear demarcation in terms of the size of deals between small in the connected deployments and larger compute nodes, that's now evolving. It's been evolving more along the lines of the type of application. There are some applications that are larger in size in terms of compute footprint that require a high degree of connectivity. And actually this is going to increase with incredible things with artificial intelligence, where you will really need proximity either to the end user or proximity to the cloud platform, even for deployment that's in excess of a megawatt. So the tradition of the demarcation that you're referring to is evolving toward something that is much more around the type of workloads, the type of applications that are suited to a highly interconnected environment. So we don't really track too much in terms of the size of the deployment. That's why we track by segment and you've seen the current revenue split on slide 8. platforms 30, 34. They are two segments. When it comes to the demand, we touched on this in the past quarters and we have still stable around that. Two-thirds of the demand is coming from the platforms at the moment.

David Ruberg -- Chief Executive Officer

And, Colby, I will take the churn one. We have mentioned this before. Basically, on a monthly measure, it's 0.5% to 0.7%. As I mentioned on the call, we were 0.5% for this quarter on average, and as you know this is that we run is a very sticky business, particularly in our connected data centers and the overall profile of how our business comes into our data centers and the reason why they would ultimately leave is really tends to be around companies that would have a bankruptcy/restructuring or some form of M&A where there is some underlying business combination and companies are looking for integration opportunities. That's pretty much the three main drivers of what we would say .

Colby Synesael -- Cowen & Company -- Analyst

Great, thank you.

David Ruberg -- Chief Executive Officer

Tony. Next question please.

Operator

And your next question comes from the line of Jonathan Atkin from RBC Capital Markets. Please ask your question.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Thanks. Maybe quickly as a follow on, ask it a different way. But as you have these newer data center expansion announcements across the various markets, are you expecting a similar customer density size of deployment, interconnect intensity as you have seen in your business to date. And then, maybe turning on to some of the comments that David made in the script around enterprise logos, I'm just interested if that's coming in from channel contributions increasingly or more kind of the same mix of direct versus indirect, as you've seen to date as you brought in new logos and then Giuliano you mentioned AI and that was in the video announcement I guess back in July, and they're deploying across 11 of your data centers, and is that type of thing, that kind of sets the stage for future growth or is that already having kind of noticeable impacts on demand. Thanks.

David Ruberg -- Chief Executive Officer

Jonathan in terms of the mix and the data centers for the next year or two, we expect them to be comparable to what we're seeing now and as far as [Indecipherable]

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Yes. So Jonathan, I will take the other two questions. Let me start with video. That was a very important announcement for us because it's really an example of the type of the community that we want to do in the future. We really want to add this -- this highly connected deployment in our data centers and of course we look [Indecipherable] and we have a -- we have good business with them, but we're also starting to see the effect of that announcement in terms of interest from other customers who want to be associated or in proximity to NVIDIA. So it is absolutely spot on, that's exactly the types of things that we would develop and moving forward. It's very, very early days. I would emphasize, it's enterprises early days, it is truly early days, but it's one of the example of why the strength of the community would continue to pan out over future years and then continue to position us very well in this industry. In terms of enterprise, again we touched on this in quite detail, some detail in the prepared remarks, that the current demand is coming primarily from the migration of existing application, which is primarily -- that primarily moving into the public cloud, but those deployments -- those deployments that don't go into the cloud, now they're really looking for things like access to the cloud, secure access to the cloud, because you can access the cloud over a public internet. And if you want secure access to the cloud, you need to do to a private connection, they are looking for a proximity to the end users.

So the new way of colocation requirement is really, really suited to our value proposition. And it would be even more so for the future wave of applications like the one we just discussed with NVIDIA where the workflow placement, this is another another term that comes up a lot in our conversations with enterprise, the workflow placement is the key driver for them to be really optimized where they're going, are they going to be [Indecipherable] infrastructure and where they're going to deploy different, different workflows. So that's what we're starting to see in terms of enterprise. So it's something that you've been relatively decent couple of quarters to take, but it is really picking up.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Yeah. So, is the channel or systems integrators or other partners have a hat on that or is it just the enterprises, given how they are architecting themselves and using your platform. It's more happening organically rather than any sort of channel strategy that you're pursuing.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Sorry I forgot that part of your question, apologies for that. Yes, we are seeing a combination, some direct, but also through different types of channels, the IT service providers is one example, but also increasing with the telco, the carriers, because of course they are divesting their own data centers and they still have a very, very intimate relationship with the enterprise customers, especially helping them design the networks and design the infrastructure. So we have seen more and more of the carriers being willing to partner with us to position [Indecipherable] carrier-neutral data centers as part of their offices [Phonetic] to the enterprise. So it's a combination of direct and indirect and the carrier is a new component of the indirect that would I speaking up.

David Ruberg -- Chief Executive Officer

Jonathan, this company has always been focused on collaborative and one of the things that we're trying to develop is these channels. But if you listen to what Giuliano said and we refer to, some of these players are behind the times in terms of understanding what the future looks like. So not only do we have to execute end users about the value of colocation and what role it plays, we spend a substantial amount of time working with some of these other elements of the systems that we deal with trying to get them to understand what role they play.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

And then I would make one final comment for us that the direct component is important because it gives us direct exposure to the end customers, which again has seen this educational activity that David was referring to. It's important for us to [Indecipherable] CIOs [Phonetic] how that migration, how that digital journey is evolving because it's positioned us better understand the overall requirement across the entire value chain.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Thank you very much.

David Ruberg -- Chief Executive Officer

Next question please. Tony.

Operator

And your next question comes from the line of Robert Gutman from Guggenheim Securities, please ask your question.

Robert Gutman -- Guggenheim Securities -- Analyst

Hi, thanks for taking the questions. So you sound incrementally positive relative to your prior core comments on the pace of enterprise, activity across Europe. And is that specifically tied to what you just said about the telco carriers as incrementally contributing or there are other factors across Europe that caused some difference. And secondly, I was wondering if you could answer how constrained or available are power land in the other big four markets in the context of the Amsterdam moratorium.

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Okay. So overall, I think the timing is starting to be right for enterprises, they are really starting to migrate to the cloud in Europe -- that migration is growing. And so that's the fundamental trend behind a lot of the things that we are seeing both the demand that we're getting from the platform to serve that demand, but also the demand we are starting to see from enterprises that complement their cloud strategy with a presence in the colocation environment.

So it's just the -- the market is starting to grow in Europe, is starting to mature and we are seeing, we are starting to see the inflection point that we've been referring to for quite some time in terms of adoption of cloud, that's the underlying trend that is happening at the moment.

David Ruberg -- Chief Executive Officer

In terms of the other part of your question, I know that everybody is focusing on what happened in Amsterdam in the surrounding municipalities. That's just one something that's extremely visible and relatively abrupt, but when you look at what's behind. There are economic, political and environmental issues that have prompted them to do this, but other countries have been in some respects way ahead of them in terms of establishing what their priorities are in these areas and we have been dealing with these for a long time. I think that's one of the issues when you come to the United -- come to the United States here and look out and you see land and you see power lines, you think, aha, [Indecipherable] rich. It doesn't work that way. So this has been going on in particularly in France and in Germany and Austria, and by the way, it's not just power and land consumption that you are going to focus eventually on how efficient you are in terms of water utilization, in terms of what you use the adiabatic water cooling and I can tell you we are extremely well positioned for that. So this is not something that's unique here. It's just something that's become highly visible and that was motivated by one politician, but at the end of the day, they recognize the value of what it is that we bring to the community. They wouldn't have this growth [Phonetic] problem in Amsterdam if the connectivity which we support and other support wasn't here.

People would be coming from UK as a result Brexit to here if they didn't have really good communications. So it's something thus become highly visible and which has been going on for a long time. Okay?

Robert Gutman -- Guggenheim Securities -- Analyst

Yeah. Thank you.

David Ruberg -- Chief Executive Officer

I think we have time for one more question please .

Operator

And your next question comes from the line of Sami Badri from Credit Suisse. Please ask your question.

Sami Badri -- Credit Suisse -- Analyst

Thank you very much for fitting me in. My question has to do with the platform ramp that you're seeing as a percentage of your revenue mix. So this quarter we saw about 40% of your customers make up all coming from platform now maybe just we can get a better idea on the expectation going out a couple of quarters even a year, should we expect this 40% percent to inch up even higher. Given that platforms have a higher deployment velocity than typical enterprise and then maybe if you could just think about the cyclicality here, are we expected to see this go from 40% to 50% before it retracts or any kind of real color on how you really see the network being built out with platforms and enterprises complementing that capacity as they also build out their plan .

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Okay. The first part of the question is easy to answer because we had a 40% today. But I already mentioned that two-thirds of our bookings are coming from the platform, so you can figure out that we continue to see for the coming quarters and increase in the proportion that comes from the -- proportion of revenue that comes from the platform. Now the second part of the question is more difficult to answer because at least I don't have a crystal ball, David or Johny if they do, but how long will this trend continue before we see more of a, of [Indecipherable] back to a point of equilibrium between different segments. We expect that at least for a couple, two or three years. That would be -- the majority of the demand will come from the platform, but then at some point that migration to the cloud will become -- start to mature and you will see the demand from enterprises pickup. So again, we don't have a specific date in mind. But certainly, two or three years out, we will start to see a rebalancing of that of the booking and then subsequently of the revenue as well.

David Ruberg -- Chief Executive Officer

Keep in mind that we're talking about multiple types of platforms both digital media and cloud and even within them. There are sub-segments of whether it's a connectivity or computer, heavy compute. So there's a whole variety of these things that basically make up, what we're looking for and as far as the transformation is concerned, we do have an internal [indecipherable] and you just said it, it's approximately two or three years out before we believe that the enterprises, what we consider the colocation hybrid portion of it will begin to make a substantial impact on our bookings, but keeping in mind that even though we're taking more and more of the cloud, the platform business, we believe is strategically important to stay relevant and probably more important given the pricing that we're getting contributes to substantially attractively to the returns.

So we're not taking bad business. It's good business when we get the enterprises, it will be better business, better returns. All right?

Sami Badri -- Credit Suisse -- Analyst

Great. Perfect. And then I just have one clarification for question was asked earlier, have you given idea or a percentage mix that is coming from the channel in terms of new bookings. Have you guys given out anything or could you characterize any kind of percentage mix regarding channels [Speech Overlap] direct.

David Ruberg -- Chief Executive Officer

It's very low.

Sami Badri -- Credit Suisse -- Analyst

Very low. Got it. Thank you.

Jim Huseby -- Investor Relations

That concludes our conference call for today. Thank you for joining us. We look forward to seeing many of you out on the road and speaking with you soon. And we'll have our next earnings call in early November. Thank you very much. You may now disconnect.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Jim Huseby -- Investor Relations

David Ruberg -- Chief Executive Officer

John Doherty -- Chief Financial Officer

Erik Rasmussen -- Stifel -- Analyst

Giuliano Di Vitantonio -- Chief Marketing & Strategy Officer

Michael Rollins -- Citi -- Analyst

Colby Synesael -- Cowen & Company -- Analyst

Jonathan Atkin -- RBC Capital Markets -- Analyst

Robert Gutman -- Guggenheim Securities -- Analyst

Sami Badri -- Credit Suisse -- Analyst

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