Thank you for standing by, and welcome to the NxDc 1H 'eighteen Results Announcement. All participants are in a listen only mode. I would now like to hand the conference over to Mr. Craig Scrogge, CEO. Please go ahead.
Chairman, thank you. Good morning, ladies and gentlemen, and welcome to the NextDCN results presentation for the first half of the 2018 financial year. I'm joined here today by our Chief Financial Officer, Oscar Tomaszewski. Beginning on Slide two, we're very excited to present another set of record results with more than $75,000,000 in revenue and EBITDA of more than 33,000,000 for the six month period ended thirty one December twenty seventeen. Contracted utilization grew strongly on the back of the largest sales half in the company's history to finish December with a total of more than 39 megawatts under contract.
Moreover, we continue to develop further opportunities that have the potential to see the second half sales performance exceed the first. First half twenty eighteen was a record for interconnections, adding more than 1,100 for the period to finish with just under 30,500 in total, representing growth of 36 year on year. Our channel first go to market model continues to evolve. Now with eight seventy five customers and over three eighty partners, including more than 60 connectivity service providers. Our brand continues to be recognized as the benchmark for world class design, efficiency and operations.
With our new Tier four constructed certifications and our gold operational sustainability credentials. It's an incredibly exciting time for the team as we position ourselves to extend our lead in the industry with our Generation two developments. M2 in Brisbane and M2 in Melbourne were opened in the six month period with customers having moved in and generating revenues. At X2 Sydney, our team continues to work hard for our target first quarter FY twenty nineteen opening day. On Slide three, our strong performance in the first half of 'eighteen is highlighted by significant growth in our key operating metrics.
Revenue from continuing operations increased $18,800,000 to 77.5 Contracted utilization increased 9.2 megawatts to 39,200,000.0 while interconnection revenue now represents 6.2% of recurring revenue, up from 5,500,000.0 in the first half of 'seventeen. Our results continue to demonstrate the benefits of the company's inherent operating leverage. EBITDA increased 41% to $33,600,000 Operating cash flow was up 1.4% to $26.8 and we increased profit before tax by 54 percent to $12,300,000 We are well capitalized to support our growth plans. Total liquidity comprising cash and undrawn committed debt facilities stood at $518,200,000 at the December. We've now completed a $300,000,000 syndicated senior secured debt facility that currently stands undrawn.
And our balance sheet position is underpinned by almost $850,000,000 in total assets. Our network continues to expand at a rapid pace. Dollars 98,000,000 was invested in the first half across our new and existing developments. We opened B2 as well as M2 and are progressing well with the F2 development. We also completed the further expansion of S1 with capacity to 16 megawatts and opened the Third Tower Hall of P1 bringing its capacity to 4.1.
In addition to our new facilities, we've also introduced new interconnection connectivity
services for
our customers and partners, seamlessly allowing them to extend the ecosystem benefits across all of our facilities. I'll now hand over to Oscar to go through the financial results.
Thank you, Craig. Let's now turn to Slide six, a summary of our half year profit and loss. The statutory results reflect data center services revenue of $72,900,000 an increase of 30% on first half FY 'seventeen Profit before tax of $12,300,000 an increase of 54% on first half FY 'seventeen. Our non statutory highlights include underlying EBITDA of $33,600,000 an improvement of 41% on first half 'seventeen. Note that this is before taking into account distributions received from IPDC of $1,700,000 Direct costs grew by $4,000,000 to $11,000,000 in line with the take up of contracted customer capacity and higher power costs.
We estimate that the net impact to direct costs resulting from movements in the price of energy after adjusting for increases in total power consumption and power costs passed on to customers was approximately 5% of first half twenty eighteen's total direct costs. Facility costs increased to $14,900,000 from $13,200,000 And corporate overheads have also similarly increased during the half as the national footprint expanded with the opening of B2 and M2. As previously flagged at our FY 'seventeen results, this increase in the company's cost base reflects our investment in the business transformation projects and operational staff in the new facilities. On to Slide seven. During the first half, revenue generated from racks, suites, interconnections and other services accounted for 90% of total data center services revenue consistent with previous periods.
We note here a very strong performance in project revenues for the first half, which we will come back to later. Our underlying EBITDA performance highlights our increasing operating leverage as demonstrated by the continuing strong earnings growth. Turning now to Slide eight, which sets out our revenue per unit metrics. Those per unit metrics have grown strongly with first half 'eighteen performance benefiting from contracted price escalation, increased connectivity as well as power recharge revenues, which were driven by increased usage and higher power prices. It's worth noting that revenue derived from larger ecosystem enhancing customer deployments tend to increase over time as they mature due to higher usage of contracted power capacity, increased demand for interconnection and the use of ancillary services.
Moving on to Slide nine, which illustrates our operating leverage. The EBITDA margin on the left hand side of the page shows properly agnostic performance and demonstrates strong underlying growth and profitability. The chart on the right hand side shows the trend in corporate costs relative to total data center services revenue showing the benefits of scale. In both cases, the metrics demonstrate the strong inherent operating leverage in the business. Slide 10 summarizes our balance sheet position.
At thirty one December, NEXTDC held property, plant and equipment with a carrying value of $511,500,000 and net assets of 5 and $15,700,000 both up significantly since June 2017. We remain well capitalized to continue our growth trajectory with total liquidity, which comprises cash and undrawn debt facilities of 518,200,000.0 The upsizing of our senior syndicated secured debt facility from $100,000,000 to $300,000,000 demonstrates the strong banking support we have received. This facility currently stands undrawn. I'll now hand you back across to Craig to go through our business performance as well as the outlook for the 2018 financial year. Thanks, Oscar.
For the results highlight that NextDC continues to show great momentum right across the business. Our key non financial metrics set out on Slide 12, total number of customers rose 25% year on year to eight seventy five. And in the same period, total interconnections grew 36% and interconnections per customer grew 9% to 8.5%. Slide 13 provides further insight into the diversity of our business. Customers by industry shows a strong representation from cloud and connectivity with continued solid growth from the enterprise.
The skew towards higher density deployments reflects the growth of hyper converged infrastructure and hybrid clouds. And the revenue by region chart shows strong performance in our expanding markets of Melbourne, Sydney and Brisbane. On Slide 14, at the December 31, 90% of installed capacity was sold and 82% of that capacity sold was billing. The increase in the gap between contracted and billing utilization reflects the impact of F2 deals signed late in the first half as announced to the market on the December 22. Both charts highlight the strong growth experienced by NextDC in recent periods, reflecting high levels of utilization with further operating leverage yet to be realized, particularly once these facilities are added to the mix.
Slide 15 shows our capacity and utilization. We successfully opened B2 and M2 during the first half of twenty eighteen bringing two megawatts of capacity to each market. In Sydney, as announced, we have presold 5.4 megawatts of capacity at F2 and will lead up to our planned opening in the first quarter of twenty nineteen. This has enabled us to commit to an additional four megawatts of capacity by the end of FY 'nineteen in addition to the six megawatts at open. To put that into context, we will have sold and potentially have fitted out the equivalent of the entire size of the S1 Building when it was originally designed.
Also in Sydney, we completed expansion with S1, increasing its total plant capacity by two megawatts to 16. And in Perth, we opened Data Hall 3 and have now committed to fitting out the fourth and final Data Hall. Turning to our upgraded FY 'eighteen outlook on Slide 17. We had an outstanding start to FY 'eighteen, and we are on track to deliver record revenue from continuing operations in the range of 152 to $158,000,000 The increased revenue guidance is underpinned by significant growth in contracted utilization, the recurring nature of our revenue base as well as strong demand for connectivity solutions and record project that is already booked in the first half of 'eighteen. The guidance is tempered by the strong skewing project revenues for the first half.
We're also on track to deliver EBITDA of 58 to $62,000,000 representing growth of 18% to 27% on 2017. Our expected strong revenue performance drives this positive outlook on EBITDA. And it also takes into account higher OpEx in the second half driven by the timing of new IT investments and our S2 land rent as well as full run rate B2 and M2 facility costs. Higher energy prices will be absorbed during the second half. And the company has also taken the strategic decision given our very strong performance to bring forward and invest in a number of new growth projects that will add to our operating costs in the second half of twenty eighteen.
Finally, the total CapEx on existing facilities and new data center developments is expected to be between $220,000,000 and $240,000,000 which is unchanged from our previous guidance. FY 'eighteen is the biggest year in our history so far. We are preparing ourselves to take advantage of the unprecedented shift to the cloud and cement NextDC's position today as the leading data center as a service provider in the region. NextDC is where the cloud lives. Cameron, would you please open the line?
Thank you. Your first question comes from Tim Plum from UBS Investment Bank. Congratulations
on a good result. Just a couple of questions from me. Craig, can you maybe talk a little bit about the operating environment at the moment? My industry sources are basically saying conditions have never looked stronger. Can you give us a sense for kind of the annualized pipeline of revenue that's out there, please?
Thanks, Tim. I've just come back obviously from a month in The U. S. We've had a number of conferences and trade shows, spending time in Seattle and San Francisco with all of our major customers. I have never in my life seen anything like what we are experiencing right now.
The opportunities right from the hyperconverged infrastructure, the growth in density, what we're seeing in both public and private cloud computing, the next wave of as a service providers coming and those deployments really pushing into Australia certainly at a level that we have never seen before. While still that is fantastic, we continue to be very, very disciplined in terms of the type and style of customer and business that we want to focus on. We are not a wholesale exclusive provider and we're also not exclusively enterprise. We chose the hybrid go to market strategy deliberately to get the best of both worlds and build an unparalleled ecosystem in the region. And that's certainly being reflected in the results that we have presented today and we continue to focus on being the leader and press our advantage with that strategy.
So from an opportunity standpoint, whilst international is extremely strong, we're very, very pleased with the growth in the domestic market. And the biggest opportunity still for the company in the future is going to come from the enterprise. 20% of organizations have moved from their in house building to a third party colocation data center. And that part of the opportunity is incredibly exciting in the next five to ten years.
Great. And my second question is actually on that ecosystem that you guys have built. I mean cross connects continue to work their way up in terms of penetration. How do you guys think about the longer term opportunity given the ecosystem that you've created?
Ultimately, today with more than three eighty partners and 60 connectivity providers, the ecosystem is very, very unique. But the job is not done. Our goal ultimately is to create the most valuable ecosystem for clients so that they can access publicprivate cloud, they can manage their own infrastructure and move seamlessly from one piece of infrastructure as a service to another and manage their data lakes so that they can share their information across multiple systems. That is a complex problem today and something that we feel very passionately about in terms of making the customer experience seamless. So Tim, we continue to be very focused on the technology leadership, particularly on the network and enterprise side.
It gives us material competitive advantage. And we've also seen that from the early customer installs that have gone into the second generation facilities and our data center interconnectivity services in each major city have had a very, very strong start and that's reflected in our numbers also.
Great. And just lastly, sorry, I might have missed it. I haven't had a chance to get through the result in a lot
of detail yet, but can
you just give us a sense in terms of how much costs associated with M2B2F2 were actually incurred in the
first half of 'eighteen, please?
I'll let Greg get through those numbers with you, Tim, because it's all in the pack. He's in there? Okay. Sorry about it then, guys. Thanks.
No worries at all.
Thank you. Your next question comes from Ross Darrow of Citigroup. Please go ahead.
Great. Thanks. Good morning. Just in terms of pricing, it looks like pricing grew around 8%. I was trying to reconcile, which is a great outcome.
But just trying to understand, I guess, the pricing traction that you've had given you have had, I'm assuming, some strong wins with larger clients as well. Just some color on that, please.
Yes. Look, there's no one particular simple driver of the annualized revenue per unit metrics, whether it's megawatt or per square meter. It's a combination of contracted process collection and our existing contracted book interconnection growth, power is obviously power prices have gone up. So there's an element of power filtering through pass through. So it's really it's a combination of various different factors.
But obviously, we're very pleased with the results.
And we expect that trend to continue. In the market context, Ross, just in terms of what we're seeing in pricing and competitiveness, largely and we, as you know, look at The U. S. Pricing trends as well, we continue to see a lot of discipline discipline in the industry. There's not a lot of CapEx being invested ahead of large scale customer orders.
That tends to ensure that pricing continues to be rational in the industry. And frankly, price is not what we've been focused on. We've been focused on extending our advantage and really pressing that advantage in the market today by selling Tier four certified facilities, the first in Asia, the first globally for our design and certification. And that competitive advantage certainly gives us the ability to be able to maintain and hold reasonable pricing in the industry. Sure, there are plenty of cheap average data centers out there that are not only old but reaching end of life.
They don't have the density required, the floor heights, the ceiling loadings, all of those factors play into a client's obviously longer term investment decision relative to data center. So very pleased with pricing trends and extremely pleased with what we've continued to deliver in terms of pricing growth and improvement in yield.
Just a couple of quick ones. In terms of I'm just trying to reconcile the guidance regarding CapEx and your comment of accelerating new project investments in the second half of FY 'eighteen. So CapEx guidance unchanged. So just suggesting that incremental spend that you're kind of here or highlighting there is kind of captured within that existing range?
Ross, the CapEx forecast ultimately, which is we spent $98,000,000 in the first half. We believe that we'll spend $220,000,000 to $240,000,000 is focused on the developments currently. Many of the new projects that we're working on will give us, again, a number. If you think about what we were able to achieve with Tier four with the development of our interconnectivity services, one of the hardest secrets to keep was the fact that we knew we were going to bring a Tier four data center certified and lead the industry. And we had to keep that secret internally for almost two years before we came out and ripped the face off the industry with something that hadn't been done before.
And that's going to continue. So a number of the investments that we're making in this half as a result of our accelerated performance are going to be focused around new technologies. But the beginning of those investments won't be capitalized, they'll be operating expenses. So we will see some costs added to corporate in the second half because we are going to invest and we're going to press our advantage right now.
And just the last one. I just wanted to clarify a comment you made at the start where you said strong first half sales, but you are hoping or there's the potential, I think you said, that new sales in the second half could be larger than first. What metric was that you're referring to? Was that contracted utilization? Just some clarity around that, if you can.
So obviously, a record first half in sales. The opportunities that we are currently negotiating across a number of clients in multiple locations gives me a very high level of confidence that assuming we win out more than fair share that we could potentially have as good or even larger second half and that would be another record. So pipeline opportunity, both in enterprise and obviously the continued growth in public and private cloud have never made us feel more confident about what we potentially will be able to sign in the second half. And clearly, as we sign those, they'll flow through to revenue in future years 'nineteen and 'twenty.
And so that could be the contracted utilization metric you're referring to?
Yes, that's correct.
Yes, essentially, yes. Okay, great. Thank you, gentlemen.
Thank you. Your next question comes from Mitch Sonigan from Macquarie Group. Please go ahead. Okay.
Thanks, Cameron. Ladies and gentlemen, consider this. The data center industry is experiencing unprecedented acceleration to support the extraordinary shift to cloud, clean and end of things, AI and other exponential technologies. Our industry will more than double in the next five years, and we're incredibly well positioned to take advantage of that growth as we more than double the size of the company. When it comes to assessing new investments and deciding how, when and where we will grow, we continue to take a disciplined approach to capital management and meet our return on capital goals.
We continue to focus on technology leadership, operational excellence, technology automation, all with the goal to further extend our operating leverage. We thank all of our investors for their continued support. And finally, I must thank all of our amazing staff for their extraordinary efforts that have reflected in our results today. Cameron, thank you very much. Ladies and gentlemen, bye for now.