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QTS Realty Trust, Inc. (QTS)

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QTS Realty Trust, Inc. (QTS)

Q1 2019 Earnings Conference Call

May 01, 2019, 08:30 ET

Company Participants

Stephen Douglas - VP, Finance & IR

Chad Williams - Chairman, President & CEO

Jeffrey Berson - CFO

Clint Heiden - Chief Revenue Officer

Conference Call Participants

Bora Lee - RBC Capital Markets

Jordan Sadler - KeyBanc Capital Markets

Aryeh Klein - BMO Capital Markets

Brett Feldman - Goldman Sachs Group

Michael Funk - Bank of America Merrill Lynch

Simon Flannery - Morgan Stanley

Robert Gutman - Guggenheim Securities

Eric Luebchow - Wells Fargo Securities

Nathan Crossett - Berenberg

Frank Louthan - Raymond James & Associates

Matthew Niknam - Deutsche Bank

Nicholas Del Deo - MoffettNathanson

Presentation

Operator

Good morning and welcome to the QTS First Quarter 2019 Earnings Conference Call. [Operator Instructions]. Please note today's event is being recorded.

I would now like to turn the conference over to Stephen Douglas, Head of Investor Relations. Please go ahead, sir.

Stephen Douglas

Thank you, Operator. Hello everyone and welcome to QTS' first quarter 2019 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're also joined by additional members of our executive team who will participate in Q&A.

Our earnings release and supplemental financial information are posted in the Investor Relations section of our website. We've also provided slides and made them available with the webcast on our website to make it easier to follow our presentation today. Before we start, let me remind you that some of 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 uncertainty as described in our SEC filings and the 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 NOI, FFO, operating FFO, adjusted operating FFO, monthly recurring revenue, ROIC, EBITDAre and adjusted EBITDA. We refer you to our press release that we issued yesterday and our periodic reports furnished and 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.

And now I'll turn the call over to Chad.

Chad Williams

Thanks, Stephen, and hello and welcome to QTS' First Quarter 2019 Earnings Call. QTS delivered another strong performance during the first quarter to kick off what we expect will be another year of consistent, robust growth in 2019. QTS' growth plan relies on our healthy balance between the consistent performance within our higher-return, diversified, enterprise vertical combined with select, strategic growth acceleration opportunities with large hyperscale technology companies. We believe this strategy maximizes our risk-adjusted value-creation opportunity for both near and long-term shareholders while capitalizing on the 2 strongest drivers of demand in our industry.

Continued strength in the overall industry demand combined with our fully financed 2019 business plan and strong leasing momentum positions QTS well to continue to deliver industry-leading financial and operating results.

Turning on to Slide 3. Building on the strong performance that we generated in 2018 QTS' business results in the first quarter of 2019 demonstrate continued successful execution on our strategic growth plan. For the quarter we achieved reported revenue and adjusted EBITDA of approximately $113 million and $59 million up 12% and 17% respectively over our core results for first quarter of 2018. This level of organic growth is near industry-leading and continues to support our longer term financial and strategic objectives.

Our first quarter results reflected an adjusted EBITDA margin of approximately 52.2%, which is up more than 200 basis points over our previous year core results. Reflecting effective cost controlled and continued operating leverage as we grow our business in addition to the impact of the unconsolidated joint venture we announced last quarter. Underpinning strong financial results our leasing performance during the first quarter continued to reflect a healthy balance across our platform. For the quarter QTS signed leases representing $11.3 million of incremental annualized revenue, which is consistent with our leasing performance during the fourth quarter.

We ended the quarter with a backlog of signed but not yet commenced annualized revenue of approximately $55 million including QTS's pro rata share of the annualized revenue within the unconsolidated JV, which continues to derisk our performance in 2019.

Moving to Slide 4. Consistent with our leasing performance during the fourth quarter our hybrid colocation vertical accounted for the majority of our leasing volume in Q1. Over the past year we've experienced an acceleration in our hybrid colocation vertical, which has been driven by a number of factors. First, the backdrop for enterprise demand is robust. The strengthening economy has unlocked the level of enterprise spending, which has in turn resulted in new and expanding data center requirements. We experienced this throughout 2018 and that momentum has carried over into 2019. During the first quarter we signed 47 new logos spread fairly evenly across our footprint, which represent a 15% growth year-over-year. More than 50% of our growth typically comes from our embedded customer base continuing to expand on a reoccurring basis. So bringing new customers onto our platform remains a key initiative for our sales team.

Second, as a result of our increased partnership with our strategic channel relationships we've experienced a significant step up in the contribution from our channel to our overall deal flow. During the first quarter nearly 50% of our hybrid colocation leasing was sourced through a channel partner, which compares to approximately 15% just three years ago. Over time, we would expect the contribution from our channels to continue to grow as we focus on maximizing lead generation from our top sales leaders. And finally, our acceleration in hybrid colocation performance is also being driven by continued differentiation from our software-defined data center platform or SDP.

Read the rest of this transcript on seekingalpha.com