Equinix Inc

NASDAQ:EQIX

Earnings Call Analysis

Equinix Achieves Record Q1 Performance with Optimism for Future Growth

Equinix started 2024 strong with its highest Q1 bookings on record, achieving $2.1 billion in revenue, up 7% year-over-year. The company saw strong hyperscale demand, especially in EMEA and Asia, leading to robust xScale leasing. Adjusted EBITDA rose 6% to $992 million, and AFFO increased 8% to $843 million. The company anticipates Q2 revenue growth of 2-3% and full-year top-line growth of 7-8%. Equinix continues to focus on sustainability, maintaining over 90% renewable energy coverage for the sixth consecutive year. Merrie Williamson joined as Chief Customer and Revenue Officer to help drive future growth.

Strong Start to 2024

Equinix began 2024 on a high note, setting a record for the highest Q1 bookings in its history. This impressive performance was driven by robust conversion rates, favorable pricing, and lower-than-anticipated churn. As a result, the company achieved its 85th consecutive quarter of top-line revenue growth, a significant milestone unmatched by any other S&P 500 company.

Key Financial Metrics

For the first quarter, Equinix reported revenues of $2.1 billion, a 7% increase over the same period last year. The adjusted EBITDA rose by 6% year-over-year, while AFFO (Adjusted Funds From Operations) per share surpassed expectations, bolstered by strong operational performance. Interconnection revenues also grew by 9% year-over-year .

Hyperscale Demand and Global Expansion

The demand for hyperscale services continued its upward trajectory, contributing to substantial xScale leasing in both EMEA and Asia. Equinix pre-leased an additional 48 megawatts of capacity in Frankfurt, Osaka, and other key markets. This brought the total xScale leasing to nearly 350 megawatts globally, with a strong pipeline poised to drive future growth .

Digital Transformation and AI

The rapid adoption of AI has emerged as a powerful catalyst for Equinix's growth. Customers are committed to their digital transformation initiatives, recognizing the critical role of digital infrastructure in driving long-term revenue growth and operational efficiency. AI and hybrid cloud architectures are increasingly becoming the preferred choice for many customers, positioning Equinix to benefit substantially .

Continued Focus on Sustainability

Equinix has made significant strides in its sustainability efforts, achieving 96% renewable energy coverage across its portfolio. The company is also focused on enhancing energy efficiency, investing $78 million in high-return efficiency projects in 2023. Recent initiatives include the first renewable PPA in Singapore, which will provide 75 megawatts of solar power as part of Singapore's Green Plan 2030 .

Financial Guidance

Equinix has maintained its 2024 revenue growth outlook at 7% to 8%, reflecting continued strong momentum. The company also raised its adjusted EBITDA and AFFO guidance for the year, anticipating a 10% to 13% growth in AFFO due to lower net interest expenses. AFFO per share is expected to grow between 8% and 11%, while CapEx for 2024 is projected to be between $2.8 billion and $3 billion .

Operational Highlights

The first quarter saw a meaningful increase in Global MRR per cabinet, surpassing $2,000 across all regions for the first time. Equinix's xScale business continued to thrive, with a significant pipeline of opportunities for upcoming quarters. Meanwhile, the company maintained a low net leverage ratio of 3.6 times annualized adjusted EBITDA .

Customer and Market Insights

Equinix witnessed strong bookings across various regions, particularly in the Americas, where public sector activity and exports drove performance. EMEA and Asia Pacific also showed robust growth, with markets like Frankfurt, Paris, and Tokyo performing exceptionally well. Notably, the company saw a solid adoption of its digital services products like Equinix Fabric and Network Edge .

Strategic Investments

Equinix is making strategic investments to extend the economic life of key assets. The redevelopment of the DC2 data center, a critical networking hub, will entail an estimated spend of $76 million. This redevelopment is expected to yield significant additional capacity and revenue opportunities, delivering returns well above current stabilized asset yields .

Leadership Transition

As part of a planned leadership transition, Charles Meyers will step down as CEO to become Executive Chairman, with Adaire Fox-Martin taking over as CEO. Adaire brings a wealth of experience and a proven track record of delivering value, positioning Equinix for continued success in its next growth phase .

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, and welcome to the Equinix First Quarter Earnings Conference Call. [Operator Instructions] Also, today's conference is being recorded. [Operator Instructions]I would now like to turn the call over to Chip Newcom, Senior Director of Investor Relations. You may begin.

[Chip Newcom, executive]

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today 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've identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed February 16, 2024, and recently filed Form 10-Q. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix' policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page of our website from time to time and encourage you to check our website regularly for the most current available information. With us today are Charles Meyers, Equinix' CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in 1 hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Charles.

[Charles Meyers, executive]

Thank you, Chip. Good afternoon and welcome to our Q1 earnings call. We had a great start to 2024 driven by our highest Q1 bookings performance on record, strong conversion rates, completely favorable pricing dynamics, and lower-than-expected churn, all resulting in our 85th key quarter of top-line revenue growth, the longest such streak of any S&P 500 company. We closed more than 3,800 deals across more than 3,100 customers for the quarter demonstrating both the scale and the consistency of our go-to-market machine. And we again saw accelerating hyperscale demand translate into robust xScale leasing in both EMEA and Asia. While we continue to operate in an environment of broader economic uncertainty, and see some level of corresponding customer caution, our forward-looking pipeline is strong, and we remain optimistic about the opportunity ahead. Digital transformation, particularly given the rapid adoption of AI, serves as a powerful catalyst for economic expansion, and our customers remain steadfastly committed to their digital initiatives, recognizing the pivotal role they play in fostering long-term revenue growth and driving operational efficiency. As we continue to make digital infrastructure more powerful, more accessible and more sustainable, we're thrilled that Merrie Williamson has joined our team as chief customer and revenue officer. Merrie is an operational and visionary leader with unique skills and experience to help drive the next chapter of our growth and brings a proven track record of building new routes to market, enhancing the customer experience, and accelerating go-to-market productivity. On the sustainability front, we continue to advance our bold future first agenda, with Gartner estimating that by 2027, 80% of CIOs will have performance metrics tied to the sustainability of their IT organization. It's clear to us that companies are prioritizing sustainability in their digital infrastructure decisions. We recently published our ninth Annual ISR Report and continued our industry leadership with 96% renewable energy coverage across our growing portfolio, marking our sixth consecutive year with over 90% coverage. Equinix PPAs now support more than one gigawatt of new clean energy in high-impact markets, and we continue to seek additional clean energy projects that will support our growth. In late April, we were pleased to announce our first renewable PPA in Singapore, an important part of our plan to continue to grow in this strategically critical market. This project will provide 75 megawatts of solar and is in line with Singapore's Green Plan 2030, which seeks to have all business sectors supported by cleaner energy sources. In parallel, we remain highly focused on improving the energy efficiency of our existing facilities as measured by power usage effectiveness. In 2023, we invested $78 million in high-returning efficiency projects, improving our average annual PP&E by over 8% year over year to 1.42, another lever in continuing to drive performance in our stabilized assets. We also continue to make progress on adjusting the thermostat in our facilities, with more than 50 of our data centers now operationally ready to enable A1A and strong industry support for the implementation of this important new temperature standard. Turning to our results as depicted on Slide 3, revenues for Q1 were $2.1 billion, up 7% over the same quarter last year driven by strong recurring revenues and xScale fees. Adjusted EBITDA was up 6% year-over-year and AFFO per share was meaningfully better than expectations due to strong operating performance. Interconnection revenues stepped up 9% year over year. These growth rates are all on a normalized and constant-currency basis. Our unmatched scale and reach continue to drive performance in our data center services portfolio. Given strong underlying demand for digital infrastructure and the long duration in delivering new capacity, we see a growing scarcity mindset, and therefore we continue to invest broadly across our global footprint. We currently have 50 major projects underway in 34 markets across 21 countries, including 14 xScale builds, representing more than 16,000 cabinets of retail and more than 50 megawatts of xScale capacity through the end of 2024. This quarter we added new projects in Frankfurt, Madrid, Osaka, and Silicon Valley. Key multi-market wins this quarter include ServiceNow, expanding with Equinix in multiple locations globally, powering their continued growth including new GenAI workloads, and Wasabi technologies, a cloud object storage service provider expanding across all three regions to support their continued growth. Our MRR per cabinet continues to rise increasing $119 year over year on a normalized and constant-currency basis to $2,258 driven by continued mark-to-market momentum, solid attach rates for interconnection and digital services, and increasing power densities.With respect to our net cabinets building capacity constraints in certain key markets and the meaningful delta in power density between churned cabs and booked cabs continues to pressure this metric. But gross additions remain strong and our booked kilowatts in the retail business were at near-record levels. Given strong bookings and upcoming capacity additions, we expect billable cabs to increase in the second half and continue to see cabinet growth as part of the long-term growth story for the business. Turning to our industry-leading global interconnection franchise, we now have more than 468,000 total interconnections deployed on our platform. In Q1, interconnection adds picked up to 6,200 supported by healthy gross adds and a moderation of consolidations into higher bandwidth connections, and we continue to see a healthy pricing dynamic with a roughly 16% spread in the quarter between churned interconnects and new additions. Internet exchange saw peak traffic up 5% quarter over quarter and 24% year over year to nearly 38 terabits per second led by the Americas. We remain confident that Equinix's unique and durable advantages will continue to position our platform as the logical point of nexus for buyers and sellers of digital services to come together to fuel digital transformation and unlock the enormous potential of AI. This year, Gartner projects the spending on public cloud services will grow 20% to reach $679 billion as business needs and emerging technologies, including GenAI, drive cloud model innovation. We're seeing this translate into strong demand across multiple vectors with key cloud and IT customers broadly and with the hyperscalers specifically. In the quarter, we added one new native cloud on-ramp in Madrid, bringing us to 220 native cloud on-ramps across our portfolio, spanning 47 metros. This represents a nearly 40% market share of private cloud on-ramps in the markets where we operate.We remain an integral and growing part of hyperscaler architectures, with these customers collectively representing more than $1.3 billion of annualized revenue in Q1 in our retail business alone, with deployments across an average of more than 60 of our data centers around the world. Importantly, we're also seeing strong go-to-market momentum with these market-shaping players as we partner to meet end-customer needs for hybrid cloud and private AI, making the hyperscalers some of our most productive channel partners. In our xScale program, demand remains robust as cloud and AI needs are translating into strong pre-leasing activity. Since our last earnings call, we've pre-leased an incremental 48 megawatts capacity across our Frankfurt 10, Osaka 4, and Osaka 5 assets, including approximately 34 megawatts leased in mid-April. This brings total xScale leasing to nearly 350 megawatts globally with nearly 90% of our operational and underconstruction capacity leased, and a meaningful pipeline of opportunities to drive continued xScale momentum in the quarters to come. Additionally, in mid-April, we announced our first U.S. xScale joint venture with PGIM Real Estate for our SV12x asset. When combined with our existing joint ventures in Europe, Asia Pacific and Latin America, this new JV will bring the expected global xScale portfolio to more than $8 billion in investment across more than 35 facilities and greater than 725 megawatts of power capacity when fully built out. We're also making good progress on additional planned xScale opportunities in the U.S, and we look forward to updating you on those developments in the coming quarters. Shifting to our digital services portfolio, Equinix Fabric and Network Edge continue to overindex relative to the broader business. We see solid interest from customers looking to use the combination of Fabric, Network Edge and Metal for their digital infrastructure requirements. In support of this need, our engineering teams recently completed the integration of Metal and Fabric, significantly improving the VC creation experience for Metal users. Wins across the business included global security leader CrowdStrike, exploring a cloud-adjacent storage solution on platform Equinix in EMEA to leverage proximity to Equinix's rich ecosystem of cloud and storage provider customers. And an online AI and data analytics education company building out AI infrastructure to support learning for global practitioners. Our channel program delivered another solid quarter with channel and partner influence deals accounting for over 30% of gross bookings and over 60% of new logos. We continue to see growth from the hyperscalers and from other key partners like AT&T, Avant, Dell, Kyndryl, and Zenlayer with wins across a wide range of industry segments and a broad mix of Equinix services. As we expand into new markets, our partners are accelerating our efforts to sell the global platform. In Q1, we had a number of wins with Zenlayer in Malaysia, including delivering co-locations and interconnection solutions to a fintech firm, extending its reach into Kuala Lumpur, as well as supporting logistics consulting firm extending into Johor. We also saw a win with Kyndryl who also selected Platform Equinix to service some of its largest customers in Canada, including from the public sector. So, let me turn the call over to Keith and cover the results for the quarter.

[Keith Taylor, executive]

Great. Thanks, Charles, and good afternoon to everyone. As highlighted by Charles, we had a strong start to the year, delivering better-than-planned results across each of our core financial metrics. Our net bookings were meaningfully better than expected. We had strong customer momentum, lower-than-expected churn, and continued positive pricing actions, and our forward-looking pipeline remains deep as we look to execute against our plan for the remainder of the year. Global MRR per cabinet, our ARPU metric measured in U.S. dollars, continues to show momentum across all three regions. With each of our regions now eclipsing to $2,000 for the first time despite the weaker foreign currency relative to the U.S. dollar. Also, our xScale business continues to perform very well having leased another five assets year to date with a meaningful pipeline of opportunities for the quarters to come. Now, as many of you know, Equinix's competitive advantage in the marketplace is derived from both our interconnected digital ecosystems and our industry-leading global scale and reach. But also, Equinix's operational reliability and putting the customer at the center of everything we do is a third competitive advantage.As an example, our global ops teams strive to deliver greater than six-ninths of annual availability to our customers, which means being up and running for all, but approximately 30 seconds a year on average. To achieve this outcome, our ops team performed thorough capacity reviews and regularly monitored both our average and peak customer power draw against the shared facility capacity to ensure we can support our commitments to our customers. As demonstrated throughout our greater than 25-year history, we've reliably delivered against these operational commitments, which is why nearly 90% of our new reported bookings activity has historically come from existing customers, and by reliably delivering on our commitments to our customers, our team has also been able to deliver sustained value accretion to you, our shareholders.As an additional update, we're also pleased to share that the audit committee of the company's board of directors conducted and has substantially completed a previously announced independent investigation with the assistance of independent third-party professional advisors. Based on the findings of the independent investigation, the audit committee has concluded that Equinix's financial reporting has been accurate and the application of its accounting practices has resulted in an appropriate representation of its operating performance. The audit committee had full discretion over the scope of the investigation and was not restricted in any way. As part of this assessment, the audit committee did not identify any accounting inconsistencies or errors requiring an adjustment to or restatement of previously issued financial statements or non-GAAP measures.Also, as previously disclosed, shortly after the release of the short seller report, we received a subpoena from the U.S. Attorney's Office from the Northern District of California. Additionally, on April 30th, 2024, we received a subpoena from the Securities and Exchange Commission. We are cooperating fully with both subpoenas and do not expect to comment further on such matters until appropriate to do so.Now, let me cover the highlights from the quarter. Note that all growth rates in this section are on a normalized and constant-currency basis. As depicted on Slide 4, global revenues were $2.127 billion, up 7% over the same quarter last year in the upper half of our guidance range on a constant-currency basis. As expected, non-recurring revenue stepped down sequentially yet still remained elevated as a percentage of revenue due to the level of xScale leasing activity in the quarter.For Q2, given our strong Q1 net bookings activity and increased non-recurring revenues related to our APAC xScale business in April, Q2 revenues are expected to step up 2% to 3% over the prior quarter. Q1 revenues, net of our FX hedges included a $14 million headwinds when compared to our prior FX guidance rates due to the strong U.S. dollar in the quarter. Global Q1 adjusted EBITDA was $992 million or 47% of revenues, up 6% over the same quarter last year and above the top end of our guidance range due to lower utilities expense and timing of spend. Q1 adjusted EBITDA, net of our FX hedges, included $6 million FX headwind when compared to our prior guidance rates and $1 million of integration costs. Global Q1 AFFO was $843 million, up 8% over the same quarter last year and above our expectations due to strong operating performance and lower-than-expected net interest expense. As planned, we had seasonally lower recurring capex spend, consistent with prior years. Q1 AFFO included a $4 million FX headwind when compared to our prior guidance rates. Global Q1 MRR was better than expected at 2.1%. For the full year, we continue to expect MRR churn to average in the 2% to 2.5% quarterly guidance range. Turning to our regional highlights, these full results are covered on Slides 5 through 7. On a year-over-year normalized basis, APAC was our fastest-growing region at 12% followed by the Americas and EMEA regions both growing at 6%.The Americas region had a great quarter with strong bookings performance led by the public sector activity and healthy pickup in exports to the other regions as our team sold across our global platform. We saw particular strength in our Atlanta, Culpeper, and Miami metros, as well as a strong interest in the additional soon-to-be open capacity in the New York Metro. Our EMEA business delivered a strong quarter with robust gross bookings activity including an increased mix of medium and larger footprint deals. In the quarter, we saw booking strength in our Barcelona, Frankfurt and Paris markets.And finally, Asia Pacific region had a great quarter with firm pricing and strength from our digital services products, including increased adoption of inter metro connections on Equinix Fabric as customers continue to focus on their network optimization efforts. In the quarter, we saw Good Inc. recently opened capacity in Malaysia and continued momentum in our largest markets in the region including Hong Kong, Tokyo and Sydney. And now looking at our capital structure, please refer to Slide 8. Our net leverage remained low relative to our peers at 3.6 times our annualized adjusted EBITDA. Our balance sheet decreased approximately $31.9 billion, including unrestricted cash balance of over $1.5 billion. Our cash balance decreased quarter-over-quarter as our strong operating cash flow was more than offset by the growth investments and the quarterly cash dividend. As noted previously, and given our strong balance sheet and liquidity position, we plan to remain opportunistic as it relates to the timing, size and currency of our future capital market activities, including when we plan to refinance the $1 billion of debt maturing later this year.Turning to Slide 9. For the quarter, capital expenditures were $707 million including seasonally lowered recurring capex of $21 million. Since our last earnings call, we opened three retail projects in Mexico City, Mumbai and Paris. We also purchased our Dublin 2, Mumbai 2 and Stockholm 3 assets, as well as land for development in Santiago, Chile. Revenues from owned assets increased at 67% of our recurring revenues, and more than 90% of the current retail expansion investment will be on owned land or owned buildings with long-term ground leases.Now, we're also entering a stage in our asset lifecycle where we're evaluating select opportunities to invest in highly valued IBXs that have been operating for 20 years or longer. Starting this quarter, we added a new category of non-recurring capex spend to our disclosures, referred to as redevelopment capex, to track these investments to enhance the capacity, efficiency and operating standards of facilities in this category, and to attract capital investments that are intended to meaningfully extend the economic life of assets. Our first redevelopment project is DC2, one of our original IBXs that opened in the early 2000s, and home to our networking ecosystem in northern Virginia. Total estimated spend on this DC2 project will approximate $76 million broken into two primary categories of capex investment, redevelopment and recurring. We expect the $56 million redevelopment portion of the investment to yield meaningful additional space and power capacity, and, given the favorable pricing environment and high customer demand for the DC2 asset, we anticipate that this capacity will generate additional revenues and cash flow that should result in an IR well above our current stabilized asset yields. The remaining portion of the investment, which relates to maintaining our existing revenues, such as roof replacement, will be categorized as typical as recurring capex. Now moving to Slide 10. Our capital investments have continued to deliver strong returns. Consistent with prior years in Q1, we completed the annual refresh of our IBX categorization exercise, and our stabilized asset count increased by a net six IBXs. Our now 180-stabilized asset increased recurring revenues by 5% year over year on a constant-currency basis, a quarter-over-quarter step-down as we lap the power price actions in 2023. Stabilized assets were collectively 84% utilized and generated a 26% cash-on-cash return on the gross PP&E invested.And finally, please refer to Slides 11 through 15 for updated summary of 2024 guidance and bridges. Do note all growth rates are on a normalized and constant-currency basis. For the full year 2024, we're maintaining our underlying revenue outlook with expected top-line growth of 7% to 8%, a reflection of our continued strong momentum. We're raising our underlying 2024 adjusted EBITDA guidance by $5 million due to lower integration spend. We're raising our underlying 2024 AFFO guidance by $25 million to now grow between 10% and 13% compared to the previous year due to lower net interest expense. AFFO per share is now expected to grow between 8% and 11%. 2024 capex is expected to range between $2.8 billion and $3 billion including about $220 million of recurring capex spend. So, let me stop here, and I'll turn the call back to Charles.

[Charles Meyers, executive]

Thanks, Keith. In closing, we continue to see our customers derive compelling value from platform Equinix, leveraging our superior global reach, our scaled digital ecosystem, our market-leading interconnection platform and our greater-than-25-year track record of delivering on our commitments to fuel their investments in digital transformation. We are delighted to see the continued strength and fundamentals of our business, we remain highly confident in the integrity of our financials and we are as optimistic as ever that we'll continue to be an important partner for digital leaders as they accelerate AI investments and embrace hybrid and multi-cloud as the clear architecture of choice.Before we turn to Q&A, I want to spend a few minutes on my transition. In reflecting on the last six years, it has been both a pleasure and a privilege to be the CEO of Equinix, showing up every day in service to our customers, to our employees, and to our shareholders. As I transition to the role of Executive Chairman later this quarter, I'll continue to take an active part in the business as Adaire Fox-Martin steps into the CEO role. Adaire is an extremely accomplished executive with a proven ability to deliver sustained value to the full range of stakeholders. I'm confident that she brings the experience, the skills, and the passion that we need to inspire our teams and support the evolving needs of our customers, driving growth and unlocking the extraordinary power of Platform Equinix. I look forward to working with Adaire in this next chapter of the Equinix journey. I'd also like to thank Peter Van Camp, a shining example of the magic of Equinix over the last 25 years, and look forward to partnering with him as he moves from our Executive Chairman to Special Advisor to the board. I look forward to further collaboration with both Adaire and the broader leadership team as we continue on our path as the world's digital infrastructure company capturing and creating new opportunities and leveraging our distinctive advantages to ensure digital leaders can harness our trusted platform to create and interconnect the foundational digital infrastructure that enhances our world.So, let me stop there and open it up for questions.

[Operator]

Thank you. [Operator instructions] Our first question will come from Jon Atkin of RBC.

[Jonathan Atkin, analyst]

XScale, just interested in what you're seeing in terms of targeted unlevered returns that you're underwriting. Any difference given the strong demand profile? And then, it looks like you've got $1 billion of senior notes coming due late this year, $1.2 billion due in 2025, and I just wondered what you're thinking in terms of refinancing cost of debt and whether a non-U.S. jurisdiction might provide a cost advantage.

[Charles Meyers, executive]

Yeah, Jon. I'll take the first piece and then Keith can both add to that and then take the second piece on the refinancing. Look, xScale, you're right, continues to perform extremely well. We've seen huge pre-leasing activity over the last several quarters and I think we continue to see a lot of demand out there and a lot of confidence that we'll be able to effectively pre-sell that capacity as well and under returns that I think are in line with -- I mean, I do think we're seeing relatively firm pricing. I also think we're seeing rising costs, and so I think that the combination of those things leaves us with, I think, a level of underwriting that is at or above kind of where we probably were last year and feeling very confident in the range where we are on cash and cash returns overall.

[Keith Taylor, executive]

And Jon, maybe I just want to add on to what Charles said there. I think it's important to appreciate that there's a fee stream that Equinix continues to enjoy on a larger revenue base to compensate for the higher costs that Charles alluded to. So, when I think about our all-in returns, they're really quite attractive as a business, and as we've talked about over the last few years, they're at a point where also that it's not only the recurring and nonrecurring stream that we get, I think there's opportunity over some period of time as our partners think about mentioning monetizing some of their investments to promote fees associated with it.So, overall, again, I think the return profile, as Charles alluded to, is attractive, recognizing it's a higher cost model than it was previously, and you'll see that in our results. As it relates to really the debt that's being refinanced, I'm going to maybe approach it from a different perspective, because when you think about the cost, I really want to talk about the spread. Partially, the spread is really about what do we think we can borrow over whatever the base rate is. And as I made reference to it -- and I'm going to pause here for a second, Jon. Can you hear me?

[Jonathan Atkin, analyst]

Absolutely, yes.

[Keith Taylor, executive]

OK. Thank you. We had a funny -- something going on with our conference line here. So, I think about it more spread, and again, I made the reference in the prepared remarks that we're going to look at the timing and the currency in which we borrow money. Suffice it to say between how we raise our capital and where we need it to refinance the existing debt, we're really looking at different markets. And so, the spread, I think, you should expect, based on where we were, I think somewhere between 105 and 115 basis points over base, whatever that is. Now, we might do it in euro, we might do it in dollar, and we could swap it depending on where the cash flows are needed, but suffice it to say, I think we're in a really good spot to enjoy a spread relative to others that is very competitive. The last comment I would just say is, look, the markets are very volatile right now, but for obvious reasons, you see that. And that's why I think it's important to talk about the spread. Suffice it to say, I think we will have ample access to capital. It just depends on the timing of when we execute against that transaction. So, whether it's this year or it's next year refinancing, I think we're in a really good spot. And then I think as everybody is also aware, we have effectively an unused line of credit of $4 billion. So, if the markets aren't there for whatever reason, we can always draw on that and then refinance at a later date, but I don't foresee that as being an issue for us.

[Charles Meyers, executive]

Jon, I would back up a little bit to the xScale and just say in addition to the underwriting continuing to be strong, pre-leasing activity strong, I think we're seeing exactly it play out very much as we expected in terms of how the whole thing fits together from a platform strategy standpoint. So very pleased with the xScale business and very pleased with how it fits in overall in terms of driving the broader value of the platform to our customers.

[Jonathan Atkin, analyst]

Just given the demand profile and the pricing dynamic that we've heard elsewhere, would low teens be an unreasonable kind of assumption to think about for unlevered return development yields or not?

[Keith Taylor, executive]

I think it's reasonable. Of course, certain markets have different price points as you can appreciate. But one of the things I think, at a broad range, I think low teens is very, very appropriate on an unlevered basis. And I don't think we can -- you can't lose sight, generally speaking, of the supply and sort of the demand sort of dynamics here, that supply is going to continue to be -- it's going to be difficult to deliver into the marketplace, and so, when you look at the demand profile, I think pricing will continue to remain very, very firm. So, on an unlevered basis, we can get a really nice return and you add on the fee structure that we can enjoy as a business. And we recently announced the Silicon Valley 12 transaction. Again, we're very pleased with the overall structure and type of deal we're doing there, and we're working really hard to bring that to a fully stabilized position and you know what, the returns that you're considering.

[Charles Meyers, executive]

Thanks, Jon.

[Operator]

The next question comes from Nick Del Deo of MoffettNathanson.

[Nicholas Del Deo, analyst]

Charles, best of luck in the new role. I appreciate all the time you spent with us on these calls and other forums over the years.First, can you share any details regarding the mechanics of the internal review, like who is engaged to perform the work or the aspects of the accounting that was reviewed and how far back they went? Any suggestions for go-forward changes? Then anything along those lines would be super helpful.

[Charles Meyers, executive]

Sure. I'll give you a bit of that, and Keith can certainly add to it. The mechanics that we did, the audit committee obviously was the one conducting that, and we have a very experienced audit committee acting independently. And then they retained independent advisors in WilmerHale, the law firm that led the investigation, as well as AlixPartners, the forensic accountants, independent forensic accountants that led that. And they looked at, particularly surrounding, obviously, the accounting-related matters that were sort of referenced in the allegations in the short report. And as a public company, as frustrating as it might be, that's our obligation to undertake an investigation to look into those. And so, we tried to keep people focused on the business, while that investigation took place and we tried to focus on serving our customers while the audit committee led that investigation alongside the advisors. They collected the right information that they deemed as appropriate to validate and understand the concerns that were there and making a judgment and an assessment about the accuracy of our financial reporting, both on a GAAP basis and the non-GAAP measures that were involved here. And again, as we said in the press release and in the prepared remarks here, they came back with a level of confidence in those results and in the accuracy of those results. And so, while the investigation remains open, in large part, because we have to sort of navigate the subpoenas with the SEC and the DOJ, we feel great about the outcome. I feel like it really speaks to the integrity of our team, which, as I said, I have great confidence in and in the integrity of our financials. So, I'll leave it there, and if there's anything you want to add there Keith?

[Keith Taylor, executive]

No, I think, well said, Charles. Thanks.

[Nicholas Del Deo, analyst]

OK. Again, great to hear. Thanks for sharing those details. I guess one other topic, Keith, you noted that DC2 is going through a redevelopment, obviously, a crown jewel facility for you guys. I guess you noted the attractive IRRs associated with the investments. I guess can you expand a little bit on the work that you're doing to that data center and what you think those capex dollars might unlock from a revenue perspective?

[Keith Taylor, executive]

Yeah, sure. It's one of those ones -- we've been working on this initiative for roughly a year, because it is a new category of expansion capex. And certainly, what you're trying to do is do two things. One, we want to extend effectively the life of the asset further than people would typically anticipate. We're really going in and doing is really a heart transplant in a live environment. It's one of our highest-performing assets in the portfolio. And so, to give you a perspective, it's substantial because we refer to the $76 million, so you get a sense it's not something that's small. It's going to do two things. It's going to extend the life. It's going to create more revenue opportunities. And think of the range of 15% to 20% of an augmentation to an already high revenue environment. So that's the kind of value you can extract from it. The $20 million, the recurring capex component, will be doing roof replacement and some other things, and so that will go through the recurring line. But it's the $56 million -- in the prepared remarks, we really talked about the fact that this is going to get a yield, a return for us on an IRR basis better than stabilized assets. So, it gives you a sense it's in the 30s. If you decide to put sort of the end-of-life stuff that was recurring into the mix, you're still in the 20s. So, it gives you a sense of the investment decision that we're making is very, very substantial in a very critical asset. The last thing I also want to leave you with, when we make this type of decision, part of the reason we were really calling it a redevelopment is this isn't like getting something done over a quarter. Again, high-density live environment is going to take two to three years to get this done. So, it gives you a sense of the level of investment. It's not like replacing a motor. We're basically taking out the guts of the entire IBX and replacing it with basic new and updated equipment. So, overall, I'd just say it's one of those things. There's not a huge portfolio, but I think over the next three to five years or something like that, you should expect something like six to eight assets could fall into that mix. Again, it has to be older than 20 years, and we have to invest more than $20 million for it to be considered a redevelopment capex item.

[Charles Meyers, executive]

Yeah, I'll just add a little more color, Nick, in that. So, I think that the type of capex investment, as you said, is in the base infrastructure required to operate the data center, power, cooling, etc. But the big difference here is that -- and we're seeing this dynamic play out because of the sort of rising density needs across the business, where we are, at times, needing to derate space and actually have space come off of the sort of -- go on to what we refer to as engineering hold. And in situations where you can unlock additional usable power, either through power efficiency projects or this kind of redevelopment investment, where you're putting entirely new equipment in, if you can unlock that power and match it to the space that is unused or on hold, you get meaningful, incremental capacity. And that's really the big difference here, is you're getting incremental capacity that starts to feel like another phase of a project. And so, in this case, DC2 is coming out of the stabilized assets, which, by the way, hurts stabilized asset pool, goes back into expansion. And the reason is because it's a really meaningful uptick in the overall capacity available from that facility. And that's really the litmus test that we use to say, OK, is it appropriate to qualify as a redevelopment project? And in this case, very, very much so given the customer demand for that asset.

[Operator]

The next question comes from Aryeh Klein of BMO Capital Markets. Your line is open.

[Aryeh Klein, analyst]

Congrats, Charles, on the transition. I guess going back to xScale, I think about 40% of all the leasing done by xScale since launch has been since the beginning of the fourth quarter. How does the pipeline look relative to the amount of leasing that's been done recently?And then when fully built out, you noted having about 725 megawatts of capacity. So, you're essentially almost halfway there with what's leased. Are you looking to add more to that? Are you rethinking just how big the platform can be and the investments you want to make in it?

[Charles Meyers, executive]

The short answer is absolutely. We're going to continue to grow the overall platform on the xScale side and retail side, but I think clearly there is a ton of demand out there, and we think we have a very, very credible story. And I think, as you said, the leasing momentum that we have generated over the last several quarters is quite indicative of that. And so, yeah, what we have left, we feel confident we're going to be able to lease effectively and as I said in the script, we're also excited to give you updates on what we have talked about pretty openly, and we've announced the SV12x asset, the first xScale in the Americas, but we also are deeply engaged in a set of conversations around how we're going to expand our xScale platform in the U.S. and the Americas more broadly. And so, we don't have anything specific to share with you, but we will in the not-too-distant future, and we look forward to that conversation. In terms of -- now we're not yet prepared to sort of size that precisely, but I will say that when you look back at what we said when we first talked about xScale at the Analyst Day, I don't know when that was, '18 or something, and what we said was what we thought it was going to be. It's certainly proven to be a lot more than that. And I think it continues to be a super exciting opportunity. Very proud of the team that continues to run that business for us, and they're doing great things and we're excited about the value that deliver for our customers.

[Aryeh Klein, analyst]

OK, thanks. And then just separately, you noted some of the reasons that cabinet adds were soft in the quarter, and you talked about seeing better growth in the second half of the year. Can you just talk about what underpins that? And is that coming from backlog? Or is there an assumption in there around some of the longer sales cycle times moderating?

[Charles Meyers, executive]

Yeah. I mean, the billable cabs, it comes from a few different things. You're right. We've always talked about the volatility in billable cabs based partially on timing of installs. It's not so much a longer sales cycle. Sometimes, it is a bit of a longer install cycle, and so, depending on the timing of installs and in fact the timing of churn, you can see volatility in any quarter. That's why we've always sort of told people over the years to look at a rolling four-quarter metric, but even that has really been under pressure, and has been under pressure primarily because of power density, and I think that kind of makes sense to people, but we're realizing, I think, that we really need to give people a bit more to hang their hat on relative to that particular metric. So, let me give you some of the math, I think, that will help people understand the billable cabs metric and how it plays here and what's causing the bit of pressure on that. We guide the 2% to 2.5% churn rate on our recurring revenue each quarter. So, we're running today at an MRR run rate of about $667 million. So, if you take 2% of that figure, at the low end of the range, so you're at $13 million to $14 million in MRR churn in any given quarter. As we said, our MRR per cab is averaging right now at 2,258. So, if you take that and divide those two together, you'd be churning roundabout 6,000 cabs in any given quarter. And more than that, if we're churning cabs that are at a lower-than-average MRR per cab, which candidly we would hope to be doing, if you're going to churn some cabs, it should be ones that are below the average, right? And so, in Q1, we were churning cabs that were at an average of 4.4 kilowatts. We were adding back cabs at an average of 5.8 kilowatts. And so, when you do that math, all in, in terms of that relatively large gap in density, you're looking at about a 1,500-cab hole that you've got to fill. So actually, staying flat on cabs is really a pretty significant win. The density increase that's causing that sort of hole in the bucket on cab count though is a really important factor in driving the MRR per cab. So, if you go and if you look at our year-over-year growth on billable cabs, Q1 to Q1, last year to this year, it's softer for sure. It's only up about 1%. But over that same time frame, our MRR per cab is up 6% across the estate, and so, you add those two together and the composite gives you that 7% growth. So, long way of saying that, in other words that stable to slightly growing cab count is certainly a different dynamic than what we have seen. But the growth is coming. It's just coming in a slightly different shape. And so, we're still driving the growth in the business and getting the economic returns that we were anticipating. So, I think that, for us, rather than looking for a new indicator, I think, what we're going to look to do is moderate expectations on the cab growth and say, look, we're having to cover that whole quarter-over-quarter from a density standpoint, but it's really driving the MRR per cab, and it's the composite of those two things that really give you the solid growth model going forward.

[Operator]

The next question comes from David Barden of Bank of America.

[David Barden, analyst]

So, Keith, just the first question would be, based on what Charles was just saying and the explanations that he's been having to make about this interpretation of MRR per cabinet and power density and cabinet numbers, where are we on the creation of these new metrics that I think we've been talking about for six months? And the second question, if I could, would be, it's great that the audit committee hired these independent advisors and it exonerated itself and the company and all the words that were used. But how much daylight is there between what you looked at and what the SEC and the DOJ are looking at and your comfort factor that we've buttoned this thing up, and in what time frame can we expect a resolution to that?

[Charles Meyers, executive]

Yeah, I'm trying to decide which order to take them in. We feel like we've got the metrics that we need and I think there's a lot of complexity to introducing new metrics to the -- and so I think that the MRR per cab, even though it's probably going to have a slightly different growth profile than it has, combined with the MRR per cab are really the billable cab count and the MRR per cab. And the product of those two is really the metric that we continue to come back to. And so, I think that rather than introduce a new metric, we're going to really stick to those two and try to give you better visibility to what you should expect along the product of those two, which it really drives the growth.As it relates to the investigation, I would say that I think we can't comment in detail on the specifics of the DOJ and the SEC subpoenas, but I would say that the investigation work conducted by the audit committee and by the independent advisors who I just talked about over the several weeks seems like an eternity, but it's been the last several weeks and a lot of amazing work done really represents, I think, the foundation of what we believe is needed to address the matters in the DOJ and SEC subpoenas. And it's not unusual for I think, the sort of discussions with those parties, DOJ and SEC to lag and take a bit longer. But I feel like we've got our arms around that solidly, and we'll provide an update on that in whatever time frame that requires. Unfortunately, I think that's very hard for us to provide any specificity around.Keith, do you want to add that?

[Keith Taylor, executive]

Just add one, as Charles said, and I think it's important to understand that the level of work that was done since March 20th, so five, six weeks of work, was also included what was anticipated to be needed by the DOJ and the SEC. So, a tremendous amount of work has been done, and it's surrounded by what I would call the matters that relate to accounting irregularities. And I would expect, and I know this to be true, that they're already in dialogue with the parties. They're appropriately within dialogue with the parties. And again, this is going to be done independently as you would expect. Of course, they're going to draw on the resources of the company where needed to answer to questions and queries. So, I just think it takes a little bit of time, but getting to where we are that we filed the 10-Q yesterday should give you tremendous comfort on where we concluded. And, again, there is no adjustments, no findings. And so, as a result, I feel really good about where we are. And as Charles has said in his remarks, that related to both GAAP and non-GAAP, and I think that was really important. So, again, it will take probably a little bit of time, but overall, again, I feel very comfortable that by the filing of our 10-Q, it's a pretty good strong indication of where we are in the journey.

[Charles Meyers, executive]

Yeah, I think the shorter answer to your question probably would have been not a lot of light between those I think, and I think we feel confident that we're going to be able to navigate those. Again, how timely I'm not sure, because I think those are probably not things that are frequently rapid, just due to the parties you're dealing with. We'll navigate them on as rapid a time frame as we can, or the audit committee and the independent investigators will, and then we'll report that back to you as we know more.

[Operator]

The next question comes from Michael Rollins of Citi.

[Michael Rollins, analyst]

Charles, I want to wish you the best on the transition as well. Wanted to ask a question about some of the comments from earlier. You commented that 1Q was better, I think, on the net bookings, your budget and you had lower churn, and you maintained the outlook for constant-currency revenue growth ex PPI of 7% to 8%. And so, I'm curious, has your view evolved on how you expect the second half in terms of organic year-over-year growth to ramp relative to the first half of the year? And are there other considerations that kept the organic constant-currency revenue guidance unchanged? And then I'll have a second one if I could as well.

[Charles Meyers, executive]

Sure. Yeah. Thanks for the well wishes, Mike, and thanks for the questions. I would say that the second half guide or the second half, I think, outlook for us doesn't look dramatically different. I think we had said that we're clearly looking at some acceleration in the back half of the year from a bookings perspective. And again, we feel good about the pipeline. We had a strong Q1, and so we probably had a slightly better Q1, and that gives us a little running start at that back half of the year. But I also think we are seeing -- although we saw lower churn than we had forecasted or expected in the prior guide, I do think we are continuing to see some level of churn in the system that I think we have to continue to navigate. And so, I think there -- not any big changes in the outlook and that's why again, you saw us maintain that outlook overall.

[Keith Taylor, executive]

And Mike, maybe just adding on to that, when you get to the second half of the year, you recognize that that, certainly it matters to the year, but it's not as important because it really matters to the year following. So, that's one of the things that you have to look at. We had a pretty good idea of what we think we could do for the first half of the year, and as Charles just mentioned, we're ahead of where we were. But offsetting some of that, of course, is some other things that have gone on inside the business, an example of metered power. And so, you're absorbing the fact that power costs have been down relative to where we were. We actually had a power price decrease, as you're aware, from the fourth quarter earnings call. And because of that, you're diluting a little bit of the growth. So, it's a combination of power being a little bit lower and sort of diluting it. In the second half of the year, we still anticipate to deliver against the expectations. But I would maybe characterize this as maybe a parting remark that when we look at risks and opportunities, the opportunities both in the revenue line and the cost line are much greater than those in the risk line. And so, where we are today, I just think that we're taking a posture that is appropriate given where we are at this time of year and just all the noise that's in the system.

[Charles Meyers, executive]

Yeah. And I mean, Mike, we've used this term on the last few calls as sort of crosscurrents, right, which is a sort of strange combination of a lot of interest in demand around digital transformation broadly speaking, around AI, in particular. I think we're still seeing that. I think we're seeing great interest in AI and in hybrid AI, private AI, sort of mixed with public cloud as a sort of preferred architecture for a lot of the AI workloads that we're looking at. I think we're seeing a lot of customers looking at where they want to place their data. And I think they are increasingly reaching the conclusion that sort of proximate to the cloud is the right answer, and I think we're really well-positioned to benefit from that, and we're seeing some demand there. We're seeing a nice pipeline on the managed DGX opportunity that we have out in the market with NVIDIA. And yet at the same time, we are also seeing, as I characterized in the script, some level of customer caution, some level of tightening and desire for optimization in a still somewhat uncertain macro environment. And so, I think it's all those things together that led us to say, hey, this guide is a good one. We feel like we've got opportunity to outperform against it, particularly, on the FFO line, but that's kind of where we landed and sort of overall balance for the guide.

[Michael Rollins, analyst]

And just the second thing I want to hit was what you were just touching on, some of the use case examples for AI. So, you gave some examples of how customers can use the Equinix platform. Can you just share in terms of -- whether it was relative to the number of deals that you did in the quarter or relative to the pipeline, what you're kind of seeing in terms of that interest or the realization of that interest so far? And are there any other additional learnings on the AI front that the market should be mindful of for Equinix?

[Charles Meyers, executive]

Yeah. I would still characterize it as quite early days because I do think there is a ton of interest in AI, but I think that the actual execution of implementing infrastructure, driving workloads, etc. is I think still relatively early in the cycle. Now, I do think there is a lot of attention on really large-scale training workloads, and I do think we're seeing some of the demand in our xScale business being driven by demand from hyperscalers, which again are the largest customers of our xScale offering. And so, I think that is probably ahead of the game, but I think what we're now seeing is a really rich pipeline of enterprise training opportunities, as well as inference opportunities where inference is more distributed. And we've been saying this all along, I think that's where the unique different creation of Equinix is likely to be because of our highly distributed footprint, and because I think we bring that blend of capabilities to the table not only xScale. And we did see an uptick, I will say this quarter, in larger footprint opportunities, and I think some of that is really associated with AI-related workloads, both service provider and enterprise. And so, we're seeing a little bit of a different mix. I think still relatively early, but I think a lot of room for optimism in the AI opportunity overall for us.

[Operator]

The last question comes from Simon Flannery of Morgan Stanley.

[Simon Flannery, analyst]

Charles, best of luck with everything. I wanted to come back to the cabinets if I could. I think you mentioned, Charles, at one point that you are limited for capacity constraints in certain key markets. If we look at the overall utilization, we're seeing 78%, 79%, and that's down year-over-year. You've added a lot of capacity over the last few quarters here. So, just help us unpack that a little bit because it looks like, at least, on an aggregate level, where are the pressure points here and what's the opportunity to relieve those.

[Charles Meyers, executive]

Yeah, great question. I mean, I think there's a few markets around the world that we have recently added capacity or it is around the corner. A great example would be the New York Metro where we are already pre-selling capacity in that, but don't yet have as much available to actually bill into as we would like. And so, I think that's a classic area of constraint. We've also seen, of course, Singapore is a more, I think, more protracted area of constraint in the business. And it's one of the reasons why we talked about our sustainability efforts there, which were quite central in our ability to gain incremental capacity to sort of awards, if you will, from the Singaporean government. And so, I think that one's going to be a little bit of a longer slog for us. And I think, unfortunately, it means that we're going to have to continue to be opportunistic about churn and trying to rerate that and use that to continue to serve the capacity that is most critical there. But those are a couple of key examples. What might be some of the other ones, Keith, you already had some constraints there?

[Keith Taylor, executive]

Yeah. Overall, I mean, if you look at some of the Canadian markets, it's not so much a constraint of generation, it's a constraint of distribution, and so Northern Virginia is an example of that, some of the Canadian markets, the Irish market, the Dublin market is another place. And so overall, it's sort of trying to optimize the environment as Charles alluded to, Singapore being that perfect example of deciding how you want to rerate the space and being very disciplined about what we sell, notwithstanding just a general thought about introducing a lot of new capacity into new markets, second tier, third tier markets for us. And they take longer to ramp, while at the same time, you have these major metros around the world where we're in dire need of incremental capacity. And so, that's what we're investing in. And so, it's really trying to optimize as best as we can across the portfolio, recognizing each market has a little bit of uniqueness to it. And so, working alongside what are we churning, where are we churning, and what does the inventory hold or engineering hold on some of the capacity as we augment with efficiency initiatives and the like, it's a combination of all these things that are factoring into our decision. And it goes back to the sort of the net cabinet billing discussion. When you look at the -- when you step back and say, well, that's part of what's causing that utilization level to be where it is, but you really have to step back and understand what is the revenue drivers of the business. You saw in our second quarter guide, we have a meaningful step up in revenues. A good roughly 65% to 70% of that is coming from MRR. And so, you know that we've got more revenue coming into the next quarter. We've got some MRR activity through xScale, but there's momentum in the business, and it doesn't necessarily appear the way that some of us would expect historically because it's not necessarily going to a lot of new incremental cabinets. There's more volume attached to the cabinets that we have. And so, it's a combination of those two things that I think are causing us to, I guess, be a little bit more cautious in what we talked about on a net billing cabinet basis, but we know that the revenue is there to support our growth.

[Simon Flannery, analyst]

So, we shouldn't be thinking of utilization getting back to the low to mid-80s, be more in this sort of 79, 80 level?

[Keith Taylor, executive]

Charles alluded in his prepared remarks, we see the cabinet building number is going to increase and as a result, utilization will certainly continue to increase. I just don't know if it will happen at the rate that we would expect given all the other things that are going on in the business. And the caution that Charles alluded to, we are being cautious in our guide. We left the revenue guide constant, absent currency. We have momentum. We did better than we anticipated in the first quarter. Obviously, we made a reference to the fact the pipeline is exceedingly deep. That's a positive. But we're just not at a point to say, well, what does that mean from a billing cabinet basis? Are we going to alter basically the trajectory of our revenues based on what we've already guided? And there's just a number of factors that we're considering. But overall, I'd just say there's strong momentum in the business. I think utilization will go up. I think net cabinet spilling will go up. I think based on the power utilization that we're selling, it will cause the density of cabinets to -- or a power sold per cabinet to continue to be elevated. And for all those reasons, that's why we have, I would think, momentum on the revenue line. But we're not yet prepared to change the trajectory of the revenue guide at this point.

[Charles Meyers, executive]

But I do think that -- I mean, look, the stabilized assets are 84% utilized overall. I think we've got room in the class that just went in for additional utilization. And so, I think that we absolutely are going to continue to see improving utilization, but we are continuing to add capacity for sure just given the level of demand that's out there. So, I think it'll just depend on how that ebbs and flows into the utilization number.

[Chip Newcom, executive]

This concludes our Q1 earnings call. Thank you for joining us.

[Operator]

Goodbye. Again, that does conclude today's conference, you may disconnect at this time. Thank you and have a good day.