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Good afternoon, and welcome to the Equinix Second Quarter Earnings Conference Call. All lines will be in listen-only until we open for questions. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time.
I would now like to turn the call over to Chip Newcom, Senior Director of Investor Relations. Thank you, sir. You may begin.
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 17, 2023, and 10-Q filed May 5, 2023. 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 regulatory disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure.
In addition, we will 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 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's 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.
Thank you, Chip. Good afternoon, and welcome to our second quarter earnings call. As reflected in our results, Equinix continues to enjoy momentum in our business as digital transformation accelerates the pace of innovation and changes the way business is done. By 2026, IDC is forecasting that 40% of revenue from G2000 companies will come from digital products, services and experiences, a dynamic that is reshaping the basis of competition in nearly every industry and making digital an unprecedented force for economic growth. These secular drivers, combined with an accelerating appetite for companies to rapidly integrate AI into their operations are driving increased demand for data center capacity as a broad range of service providers extend and scale their global infrastructure to support the clear enterprise commitment to hybrid and multicloud as the IT architecture of choice.
Equinix remains exceptionally well positioned to respond to this demand environment, delivering against the need for infrastructure that is more distributed, more cloud connected, more sustainable and more ecosystem-centric than ever before. Against this backdrop, we had a great second quarter with solid gross and net bookings, very strong pricing dynamics, excellent pipeline conversion and healthy new logo growth. We continue to drive disciplined sales execution at scale with more than 4,100 deals in the quarter across more than 3,100 customers, demonstrating the continued strength of our unmatched go-to-market machine and approach.
Turning to our results, as depicted on Slide 3, revenues for Q2 were $2.02 billion, up 14% year-over-year driven by strong recurring revenue growth, power price increases and timing of xScale fees. Adjusted EBITDA was up 7% year-over-year, and AFFO was again better than our expectations due to strong operating performance. These growth rates are all on a normalized and constant currency basis. With customers deployed in all three regions now representing approximately 2/3 of our recurring revenues, we continue to invest behind the scale and reach of our data center services portfolio. We now have 53 major projects underway across 40 metros in 24 countries, including 11 xScale builds that we expect will deliver approximately 90 megawatts of capacity once opened.
This quarter, we added 12 new projects, including new data center builds in Lisbon, Monterrey, Mumbai and our first build in Kuala Lumpur, Malaysia. Over the past several years, we have seen Malaysia emerge as an increasingly important location for digital infrastructure. By expanding Platform Equinix in Johor and Kuala Lumpur, the two most strategic markets in Malaysia, we will enable local and global businesses to leverage our trusted platform to bring together and interconnect the foundational digital infrastructure that will power their success. Additionally, we are delighted with the recently announced results of Singapore's data center call for application, where Equinix was one of a very limited set of participants selected to build incremental data center capacity in the critical Singaporean market.
Equinix is honored to have this opportunity to strengthen Singapore's digital capabilities, delivering sustainable infrastructure that will fuel the economy, cultivate critical ecosystems and aligned to Singapore's green plan. Multi-region customer wins this quarter included Cogent Communications, a U.S. multinational ISP using Equinix's robust ecosystem and interconnection platform to optimize and enhance their global services and Apcela a provider of software-defined cloud-optimized networks for digitally transforming global enterprises as they leverage Equinix Fabric and other digital services for low-latency network and cloud connectivity.
Our global interconnection franchise continues to thrive with over 456,000 total interconnections on our platform. In Q2, interconnection revenue stepped up 11% year-over-year on a normalized and constant currency basis, driven by healthy pricing, increasing traffic levels and strong gross adds. Net interconnection adds remain on the lower side at 4,100 due to continued grooming activity and consolidation into higher bandwidth connections, but the number of unique interconnection relationships across our platform continues to expand with over 110,000 unique pairs, reflecting the exceptional value of our scaled digital ecosystems.
Equinix Fabric had another strong quarter with total virtual connections passing 50,000 for the first time and the addition of new capabilities to support data-intensive workloads like AI and cloud migration. Beginning in the third quarter, Fabric customers will be able to provision virtual connections to cloud providers with bandwidth up to 50 gig per second with Google Cloud as the first cloud partner to support this capability. Internet exchange saw strength in our EMEA and APAC markets with peak traffic up 4% quarter-over-quarter and 25% year-over-year to nearly 32 terabits per second.
Key interconnection customer wins this quarter included a gaming and entertainment company, expanding interconnection across all three regions to optimize the gamer experience and PEER 1 a Brazilian telco leveraging Platform Equinix to establish its digital presence through network hubs, beginning with South America and Miami.
Turning to our xScale portfolio. We continue to see strong overall demand as cloud adoption remains a driving force in digital transformation. In Q2, we leased 10 megawatts of capacity in our Osaka 2 asset with cumulative xScale leasing now over 200 megawatts globally, and we have a strong funnel of additional scale opportunities for the back half of the year. We also won three new native cloud on-ramps this quarter in Bogotá, Madrid and Toronto, further strengthening our cloud ecosystem, which represents nearly 15% of total interconnection on our platform. Key enterprise to cloud ecosystem wins this quarter, including one of the largest auto insurers in the U.S., continuing to expand interconnections on our platform to optimize its networks and multi-cloud connectivity and a leading European automotive company deploying at Equinix to support reliable and scalable connectivity to the cloud worldwide.
As businesses increasingly look to consume their digital infrastructure at software speed, we're continuing to enhance our platform strategy and expand our partnerships. In Q2, we announced our expanded partnership with Hewlett Packard Enterprise for pre-provisioned HPE GreenLake for private cloud enterprise and HPE GreenLake for private cloud business addition, both available on demand at select Equinix IBX data centers. These new offerings in 7 metros around the globe will help businesses expand their hybrid multi-cloud strategies, while providing greater agility, control and predictability of workload costs and data. Additional key digital services wins this quarter included Bionexo to Brazil, a health tech company that offers digital solutions for managing health care processes, using fabric and network edge for seamless connections with partners and customers, while reducing complexity and cost. Telna, a global mobile network infrastructure provider using Platform Equinix to facilitate its marketplace for cellular connectivity among its customers. Our Channel program delivered another strong quarter, accounting for 40% of bookings and nearly 60% of new logos.
We continue to see growth from partners like Accenture, Avant, Dell, Cisco and HPE with wins across a wide range of industry verticals and digital use cases. Key wins this quarter included partnering with Kyndryl to support a large American health insurance provider with their network and application modernization efforts, featuring the deployment of cloud adjacent infrastructure and interconnection to the health care ecosystem.
Now let me turn the call over to Keith to cover the results for the quarter.
Thanks, Charles, and good afternoon, everyone. I hope you're all doing well and enjoying the summer months. I must say it was great to be back in New York City spending time with many of you at our June Analyst Day in person. As you might have guessed, we were excited to share with you our views on the expanding market opportunity. Our continued ability to manage through this dynamic and complex global environment, while working to maximize the value of our business. And perhaps, most importantly, share our thoughts on how we believe we can deliver durable shareholder value. Now as you can see from our Q2 earnings report, we again delivered solid results, while addressing many of the complexities affecting our business. We had solid gross and net bookings and positive pricing dynamics reflecting the continued momentum we see in the market. Overall, we continue to focus on driving a higher yield on both our new and existing investments.
On a constant currency basis, including our net positive pricing actions, Global MRR per cabinet was up $39 quarter-over-quarter to $2,156 per cabinet. Now given the tight supply environment across many of our metros and the high utilization levels across our portfolio, we remain very focused on our strategy of putting the right customer with the right application into the right IBX. Also, we're being particularly selective at backfilling space in certain constrained markets, focusing on high price points and increased power densities. As a result, the timing of these deployments may create some fluctuations in our quarterly net cabinet billing metric, an outcome we're actively managing across all three regions. This is positively offset by strong stabilized asset growth, higher MRR per cabinet and better returns on our invested capital.
Turning to some of the macro factors affecting our business. We remain pleased with how the organization has mitigated the impacts of energy price volatility across our business and with our customers. Concessions and distributes remain low and our cash collections are in line with historical trends. As it relates to our foreign operating currencies, we continue to hedge where appropriate to dampen the volatility attributed to the actions of many central banks to adjust interest rates. Also, we made some modest FX to our 2023 outlook, largely attributable to the recent devaluation of the Nigerian naira and the weaker Japanese yen, two of the currencies that we do not hedge.
Now let me cover the highlights from the quarter. Note that all comments in this section are on a normalized and constant currency basis. As depicted on Slide 4, global Q2 revenues were $2.018 billion, up 14% over the same quarter last year due to strong recurring revenues, power price increases and the timing of xScale nonrecurring fees. As we've noted before, nonrecurring revenues, particularly those attributable to our xScale business and certain custom installation works are inherently lumpy. Hence, NRR was down quarter-over-quarter as planned. But given our significant scale pipeline, we expect to see a meaningful step-up in NRR in the second half of the year. Q2 revenues, net of our FX hedges, included a $3 million FX headwind when compared to our prior guidance rates.
Global Q2 adjusted EBITDA was $901 million or 45% of revenues, up 7% over the same quarter last year due to strong operating performance, including an $11 million one-off software expense related to our Americas managed services business and higher variable salaries and benefit costs. Also, Q2 saw certain EMEA energy contracts reset at higher average rates resulting in increased net utility costs as forecasted. Q2 adjusted EBITDA, net of our FX hedges included a $2 million FX headwind when compared to our prior guidance range and $3 million of integration costs.
Global Q2 AFFO was $754 million, above our expectation due to strong business performance and lower net interest expense. Q2 AFFO included a $1 million FX headwind when compared to our prior guidance range. Global Q2 MRR churn was 2.3%. For the full year, we continue to expect MRR churn to average at the lower half of our 2% to 2.5% quarterly guidance range.
Turning to our regional highlights, whose full results are covered on Slides 5 through 7. On a year-over-year normalized and constant currency basis, EMEA and APAC were our fastest-growing regions at 21% and 16%, respectively. Although when excluding the impact of the benefit attributed to the power price increases, EMEA and APAC region growth rates were 8% and 11%, respectively, while the Americas region grew 7% year-over-year. The Americas region had another solid quarter with continued strong pricing trends, solid momentum from our channel and public sector teams and healthy exports across the global platform. We had strong activity in Boston, Chicago and Culpeper metros and the Canadian business.
Our EMEA business delivered a solid quarter with firm pricing, continued lower churn and a healthy step-up in deal volume. Revenue was down slightly due to the timing of large NRR deals between quarters. We had strength come from our Amsterdam, Dublin and Frankfurt metros, while booking a substantial space and power deal in Lagos, Nigeria with a large multinational energy company, highlighting the momentum across our platform, including our MainOne assets. And finally, the Asia Pacific region had a strong quarter with record net bookings and firm deal pricing as well as strong imports to our Mumbai, Osaka and Singapore markets. And as evidenced by the number of new expansions, Chennai, Jakarta, Johor, Kuala Lumpur, customer interest in expanding their footprint into new Asian markets is high, and we're investing behind this demand.
And now looking at our capital structure, please refer to Slide 8. Our balance sheet increased slightly to approximately $31.6 billion, including an unrestricted cash balance of over $2.3 billion. As expected, our cash balance decreased slightly quarter-over-quarter due to our investment in growth CapEx and a quarterly cash dividend, offset by our strong operating cash flows. Our net leverage remains low at 3.6x our annualized adjusted EBITDA. And as mentioned previously, we plan to opportunistically raise additional debt capital and reduce rate environments where we currently operate. This will create both incremental debt capital to fund our growth and placed a natural hedge into these markets.
Additionally, during the quarter, we executed about $200 million of ATM forward sale transactions, which will be settled in early 2024 to help fund our 2024 growth plans alongside our other sources of capital.
Turning to Slide 9. For the quarter, capital expenditures were $638 million, including a recurring CapEx of $40 million. Since our last earnings call, we opened 7 retail projects across both the Americas and EMEA regions and two xScale projects in Frankfurt and Tokyo. Revenue from owned assets increased to 64% of our recurring revenues for the quarter. We expect this trend to continue with over 85% of our expansion CapEx spend on owned or long-term ground lease properties, including 100% of our 16 bills in the Americas.
Our capital investments delivered strong returns as shown on Slide 10. Our now 174 stabilized assets increased revenues by 10% year-over-year on a constant currency basis. Taking out the benefit attributed to the power price increases, stabilized assets increased 7% year-over-year. Our stabilized assets are collectively 85% utilized and generate a 27% cash-on-cash return on the gross PP&E invested.
And finally, please to refer to Slides 11 through 15 for our updated summary of 2023 guidance and bridges. Do not all growth rates are on a normalized and constant currency basis. For the full year 2023, we're maintaining our underlying revenue outlook with expected top line growth of 14% to 15% or 9% to 10%, excluding the impact of power cost pass-through to our customers, a reflection of our continued strong execution. We're raising our underlying 2023 adjusted EBITDA guidance by $20 million, primarily due to favorable operating costs and lower integration spend. And we're raising our underlying AFFO guidance by $28 million to now grow between 11% and 14% compared to the previous year. AFFO per share is now expected to grow between 9% and 11%.
CapEx is expected to range between $2.7 billion and $2.9 billion, including approximately $120 million of on balance sheet xScale spend, which we expect to be reimbursed as we transfer assets into the JV later this year or early next year and about $220 million of recurring CapEx spend.
So let me stop here, and I'll turn the call back to Charles.
Thanks, Keith. In closing, we had a strong first half of the year and continue to see a robust demand environment as key secular drivers positively influence buying behavior even in the face of a challenging macro climate. The relevance of Platform Equinix continues to grow as service providers scale out their global infrastructure in response to growing enterprise demand for hybrid and multi-cloud as the architecture of choice and the associated need for hybrid infrastructure to deliver performance, agility, scalability and sustainability. In this context, we believe Equinix remains uniquely positioned and highly differentiated and will continue to drive disciplined execution of our strategy with a focus on extending our market leadership, driving operating leverage, expanding our platform capabilities to fuel sustained growth and delivering superior returns on capital, all of which we are confident will translate to distinctive and durable value for our customers, and sustained performance for you, our investors, with a keen focus on AFFO per share as our lighthouse metric.
So let me stop there and open it up for questions.
Our first question comes from Ari Klein with BMO Capital Markets.
Maybe on the AI front and as it relates to xScale, there are some exceptionally large leases being done with the vast majority of those in the U.S. where xScale doesn't have a presence. How are you thinking about potentially entering the market capture some of that demand?
Yes. We've talked about this in a few different forms. I do think that our posture has probably evolved a little bit in terms of our thinking around xScale in the Americas broadly and in the U.S. specifically. And I think AI is part of that. And so it's not the only factor, but I do think we had already been thinking about certain markets where we believe that -- what we see, as I said around the world, is that the markets where we have the full portfolio xScale retail digital services at scale, really perform best. I mean you can argue a little bit of whether it's chicken or egg there in terms of what's driving what. But it's -- what we do see is that when we have the full portfolio, we're able to address a broader set of customer demands. And so I think as we looked at that, we do think that there are markets in the U.S. that we would like to have an xScale presence. And so we're -- I think we're looking at how we would do that and potentially through a combination of organic and potentially inorganic pursuits.
So I do think that AI is a part of that, but really only a part. And I think that the continued demand for cloud services and the commitment to cloud adoption, I think, continues at pace with the enterprise, all of that driving really a strong pipeline across the world and it does lead us to believe that thinking about how to solve for xScale in Americas is something that is on our mind.
And then just the Americas and EMEA saw cabinet decline. It sounds like maybe there was some timing and churn potentially there. Can you provide some color on some of the moving pieces? And maybe give us a sense of the size of the backlog?
Sure. Yes. I mean I'd start with the backlog question and tell you that backlog continues to be very healthy. We do see -- as we've said over the years, billable cabs can really be a pretty volatile metric, and it can swing meaningfully both due to timing of installs and therefore, backlog and in particular, churn activity. Undoubtedly, we recognize that billable cab has to grow over time to fuel the business. But we do see short-term fluctuations in that metric as we really optimize the platform. So if you look at it, as you noted, we've always encouraged people to really look at rolling forward quarter averages because of that volatility.
If you look at Americas running about 90%, the rolling four quarter is about 90% of what it's been for the last three years, typically. EMEA is actually -- its rolling fourth quarter average is actually meaningfully ahead of what the three-year average is and APAC is lower with three consecutive quarters of really lower cab adds, but it's a bit of a unique dynamic in APAC related to some of the capacity constraints in Asia particularly Singapore, which is why we are so excited to have been able to announce the allocation of capacity to Equinix in the Singaporean market. So we -- I think that we're comfortable there. There is some churn activity that I think is in the markets and some backlog that I think is going to roll through.
And so I think we'll -- when we look at that on a rolling four-quarter basis, I think we'll see those things normalize a bit. But let me -- and we knew this would be a kind of issue. So I want to maybe give you a little more concrete insight into the billable caps. If you look at it specifically on the churn side, over the past 5 quarters, we've had about 7 deployments of meaningful size churn. And 85% of that total cab volume coming from those churns are what we would consider favorable churn.
Basically, cabs that are in constrained markets where we really welcome the additional capacity and consolidate a very positive mark-to-market. And given the trajectory right now that we're seeing in the market on pricing, on power density, on interconnection, and as we refill those cabs at prevailing prices and power densities, we actually expect uplifts on those three -- about the -- 85% of those cabs in the 50% to 70% MRR uplift range. So that's just a reflection of kind of the kinds of actions that we're taking to optimize the platform that have impacts on billable cabs but really positive impacts and upside in terms of we look at it, and we believe we're going to get millions of dollars of extra MRR by sort of turning those cabinets over or tens of millions on an annual basis with zero CapEx.
And so that's some of the dynamic that you're seeing there, and I think it will move around a bit as we identify that. Now there's not that many of those out there. And so that's -- but that is a dynamic that is -- has impacted the billable cabs a bit over the last couple of quarters.
Our next question comes from Michael Rollins with Citi.
Curious if you can unpack a bit more of the stabilized constant currency growth without the power price increases that I think was set at 7% year-over-year. in the quarter? And as you look at the opportunities that you were just describing in terms of re-leasing opportunities and the current environment, what's your -- is there an updated view of what stabilized organic growth should look like for Equinix over the next few years?
Yes. It's a good question, Mike. I do think that we had guided to a range lower than certainly that 7% that we're seeing, absent the PPIs Obviously, PPIs are having a major impact there and reflected in as reported at 10%, but I think that's not really a valid number because that will bounce around a little bit, and we'll based on what's happening with power pricing. But I do think that 7%, obviously, is a very attractive level. I do think that we're seeing that pricing right now is very firm. We are raising -- we've raised prices on our underlying colo products and on interconnection meaningfully and continue to see strong demand and stable churn. And so I think that's going to be a positive factor.
The other one that I just mentioned in the previous conversation, a little bit about billable cabs is power densities. Power densities are definitely on the rise. And so some of the churn activity that I just talked about there, those 37 deployments were -- many of them are in stabilized assets. And so you're going to see uplift there as you turn some of that over. So long answer or non-answer to your question in terms of what is the right range, obviously, I think we have been talking about 3 to 5, 7 is obviously nicely above that. I would certainly hope that -- I do think the current dynamic of pricing in the market is a major driver. And so we'll just track that and see how we -- but obviously, we love being above that guided top end. And if we feel like that's a sustained trajectory, we'll come back and look at that.
And if I could just follow up with one other. You mentioned the variability of the power side of the equation. And as you're looking at the pricing environment for power specifically, any updates of how power pricing and power revenues and those surcharges might look for 2024?
Yes. I figured that might come up, too, Mike. So the -- what I'd say is that we are -- obviously, we're just a little over halfway through the year. We've been hedging into our positions. And in some markets, hedging in at rates that are below where we had been previously, and in some cases, a bit somewhat materially below that. Obviously, we still have a significant portion of our hedging positions yet to fill. And there's a lot of the year left. And so it's impossible, I think, for us to predict exactly what will happen. So I don't want to be too concrete on this matter. But I would think that there might be some markets if current course continues, where we will hedge into a rate '24 that is below what it was in '23.
And as we said to our customers, and I think as we've communicated to our customers, they really sort of embraced and understood the benefits that our hedging program provides -- and we've told them if that is to -- would occur, we would pass that through to you as well. And so I think how many markets that might occur in, not sure. But as we said when we provided the guide and when we provided at Analyst Day and in other forums, said, look, we're -- this sort of assumes nothing relative to power price increases or decreases, and we'll adjust that accordingly or sort of normalize it out because what's really important from our perspective is the underlying performance of the business. And while we do recognize that power price, for example, has some impact on the optics margin. I think it really isn't an underlying fundamental sort of impact on the business.
And so we'll let you know. A shorter answer would be, I do think that we may see some markets in which we would see a PD or a price decrease next year and others that we would see it flat and perhaps others would see it go up. But still more work to do in terms of hedging into our positions, and we'll keep you updated as we know more.
Our next question comes from Jon Atkin with RBC.
Yes, a couple of questions. I was curious just about decision time frames by customers closing rates, book-to-bill, that sort of thing? And then if you look at stabilized gross margins, it looks like that was down and I forgot if you might have mentioned this earlier, but why the pressure on stabilized gross margins?
Yes. I'll let Keith tackle the second one. I'll give you the first one, I'll give you a little color on the quarter. Really solid quarter from a bookings perspective. And I think we saw even though I think there are some customers who continue to be cautious in the overall environment. What we saw in Q1, as we told you, we saw a little more deal slippage from Q1 into Q2, but we had said that close rates were pretty consistent. In Q2, we saw the same thing that actually very good pipeline conversion, and we saw sales cycles not really extended very much in line with our historical norms. And we saw the push rate from quarter-to-quarter actually come -- bounced back to where it had been previously.
So I would say overall, a very solid quarter. I do think the dynamic that we described previously, which is some customers just being cautious about how much capacity they're buying, obviously, negotiating hard, which is a norm for us those kind of dynamics. And then in some cases, going back and if they have more capacity than they need coming back and having a dialogue with us about whether we want to take some of that back. And as I said, that is a bit of the dynamic coloring some of our -- because we see opportunities but look very favorable for us to do that. We'll take advantage of and that's some of what's impacting the billable cabs numbers.
So overall, though, I would say, I feel good about the quarter from a sales execution standpoint and from an overall customer sentiment standpoint and also feel good about where we are in terms of overall funnel for the second half of the year. So obviously, we have a big hill to climb every quarter in terms of a lot of deals. 4,100 deals in a quarter, you got to do a lot of selling, but our team, I think, had a really strong Q2 and our -- and based on my customer visits and time with the sales teams, I think there's a lot of optimism for the second half of the year.
Jon, relating to the second part of the question, just no surprise. You've seen that you'll see the sort of the margin erosion across a number of the key metrics, whether it's on a total basis, whether it's in Europe or whether it's in the stabilized assets, it's primarily related to the reset of the of the energy contracts. As you look at the first quarter, we had the benefit, if you will, of contracts -- the power contracts where they were. But as they reset, was there was a meaningful step up in the second quarter, and that was felt throughout a number of our core metrics.
And as they look forward, most of that is now going to stabilize, which is the good part. And that was all factored into the pricing sort of structure that we had when we started the year. We anticipated what the price points were going to be on an average basis, and that was the rate at which we pass through to our customers.
And then lastly, I wonder if you're seeing any tailwinds in segments of your cost connect business that you would attribute to AI given that you might expect a little bit of an uptick in connectivity requirements as these training models get spun up. Are you seeing that at all or not?
We've seen specific instances of interconnect to support AI. In fact, we had a pretty significant win this quarter in the AI realm with an AI-as-a-service provider that really put their core network nodes with us to really drive interconnection to the multi-cloud connectivity and really to support the inference and interconnection to the cloud. And so we did see that -- I wouldn't say that's likely shown up. In fact, that hasn't shown up in our results yet because we just booked a deal. But I think that's indicative of some of what's going on there, it's probably a little tough to tell.
Interestingly, on interconnect, Jon, what I would say is that we've seen really strong gross add activity, and it's really in line with our nine quarter averages. And so that's, I think, a really encouraging sign. And in fact, interconnect to cloud at the end is up meaningfully year-over-year. It was moderated a little by the financial ecosystem, which was a little down year-over-year in terms of gross adds, but we're very stable on the Intersect side in terms of gross adds. And so -- and I'm sure that some of that is attributable to AI.
And then -- but then on the churn side, we are seeing a little bit more -- you're also seeing a little more churn activity with cloud as a VM, but more between service provider types, cloud to cloud, cloud to network, et cetera. And so -- and that's, I think, a lot of grooming, a lot of 10 to 100 migration and some M&A activity. So I gave you a little more there than you were looking for on interconnect. But I do think that we're -- you're going to see a lot of data transfer happening. And I think we're just really well positioned on that in terms of our multi-cloud connectivity and the sort of more advanced nature of fabric in terms of being more agile to that demand over time.
So we're excited about that opportunity, and that certainly is coming up a lot out there in the market is as people are talking about it. And really, I think more -- a lot on the service provider side, but also enterprise is really talking about the things they're doing to bring AI into their operations.
And our next question is from Simon Flannery from Morgan Stanley.
You talked about the power density requirements a couple of times. So how are you thinking about that strategically? Are there redesigns or retrofitting you're thinking about doing to your IBXs? And how does that impact the scales that you've built so far and that you might build from here? I know people like Meta have been reconsidering data center design.
Yes. Yes. And we certainly are actively thinking about what our -- the evolution of our design and ensuring that it's evolving and keeping pace with the market. In our retail space, we do have the -- what's really nice about the retail business is when you serve a very broad range of customers with differing density requirements, you're able to sort of dense up and extract more from the system over time. And we've really, I think, benefited from that. When you in more of the hyperscale or xScale type arena it's a little more challenging. I think you have to just be -- because you allocate all that power out typically to a single customer or maybe two in a facility, and it's a little bit different.
And so I do think average density -- design densities are going to need to be going up. I think that also to your ability to cooling is often the constraint. And I think there are -- we are actively looking at, in fact, in our innovation center in D.C., we're actively looking at and testing liquid cooling as a way to get more out of our current designs as well as implement as a more standard feature in our go-forward designs. And so I do think we're going to -- you're going to be seeing design densities going up and you're also going to be seeing us use technologies to augment existing facilities to get more out of them.
Our next call is Eric Luebchow with Wells Fargo.
One for Keith. I think you mentioned the nonrecurring side of the business would see a material step-up in the back half. And so maybe you could provide us a little more color on that. Is that more custom install work, xScale fees, maybe just the right run rate to think about for NRR as we look out the remainder of the year?
Yes. As you can tell from the guidance we delivered and we've said -- Charles has mentioned a few times, the recurring aspect of our business is performing exceedingly well. The nonrecurring, a lot of what you experienced, particularly with the step-ups and the step downs it relates to the xScale fees. As you're wholly aware, there's two nonrecurring xScale fees and there are two recurring xScalev fees. As it relates to the nonrecurring, it's really the sales and marketing fee that has the biggest impact to our business.
So as we said, the pipeline is very deep. There's a lot of opportunity that's right in front of us. And so we anticipate that there will be a very large set of fees that get earned over the second half of the year. Right now, we're targeting that to be in the fourth quarter. I guess there's always a scenario where it could be the third quarter, but it's really -- it's a second half anticipated close. And so with that, that's what we've got in the guidance.
And then on top of that, of course, the recurring part of our business is still -- you're seeing a nice meaningful step-up on that and you just have to go to the midpoint of the guidance over the rest of the year. And you can see that, that one of those quarters is going to be one of the largest step-up you've ever seen in our history. But part of that, of course, is driven from the nonrecurring fees.
Great. And just one follow-up. If I look at churn, it ticked up a little bit to 2.3%. Just wanted to confirm, is that related to some of the volatility you're seeing with cabinet build metrics you mentioned earlier in the call, some of the network grooming on cross-connects? Any way to think about how we should think about churn going forward, still in the lower end of the 2% range? Or will it be a little more variable based on what you said earlier?
Yes. And that's so much related to the interconnection because that does -- on a net basis, probably not having -- not a huge driver on the churn metric. But it is related in part to those deployments that I talked about when I was giving color on the billable cabs that related to churns that we view as favorable. Again, those 37 deployments, the 85% of those cabs are going to have mark-to-market that are in the 50% to 70% positive range. And so that's -- we're take those when we can get them. And so -- and several of those in Singapore. And so we will -- even with our additional allocation, that's out there in the future. in terms of build. And so it's a precious resource to have capacity in the Singaporean market, particularly capacity that has the kind of characteristics that we do in terms of cloud proximity and sort of network density and ability to drive the performance, et cetera.
And so we'll take that capacity. And those are some of the things that led to us seeing a little bit of an uptick there. But as we said in the prepared remarks, we're comfortable that we, on average, for the year, will end in sort of the lower part of our guided range. And you may see a little spikes in there like we did a little bit higher this quarter, but that generally is probably more attributable to favorable type turn activity.
And Eric just maybe just add 1 other thing. As we look forward, and Charles alluded to earlier on, as we think about some of the negotiations we have to get back capacity in some highly constrained assets and markets, part of that is Singapore. And so we are working on 1 thing that clearly we'll identify it if we come to an appropriate negotiated outcome. But suffice to say, those are the examples of things that cause those small blips, but we're going to -- we'll sort of call it out for you.
Our next caller is David Barden with Bank of America.
I guess Charles, when you look at the kind of the global landscape and you start extrapolating the dynamic that we've started to see in places like Northern Virginia, or Toronto, Mexico City, Southern Valley, how should we, as investors, think about the P versus V equation as power availability kind of constrict V and how do you think about your ability to ramp the P on the price to kind of monetize that scarcity element of the business that you're in?
Yes, there's a lot in that question. On the -- on peak times V or Q or whichever you prefer, it's -- I think we're definitely seeing a firm pricing environment. And I think that's true of the data capacity industry at large. But I think that we see -- we obviously operate in the retail side of the business at a very different price point than the prevailing broader industry, which I think is -- centers more around a wholesale or hyperscale type price point. But both are on the rise, and I think that's going to continue to be the case for a bit of time here. I think in terms of volumes, I think volumes are also going to grow.
The question of whether or not power availability would constrain supply is an interesting question. I think that it could in market by market, but I think that -- on our side, we feel very comfortable that our relationships and our visibility to power allocations are going to allow us to continue to execute on the build plan that we have in place.
On the xScale side, I think it's a little more challenging, but we are actively working with the folks to make sure the identity that. And we're also actively looking at alternatives. And for example, things like on-site power generation, I think, are probably more of a reality in some of those -- in that market over time. So done that in certain markets. In fact, our recent Dublin facility has on-site power generation with fuel cells, natural gas-based fuel cells as a primary source of power. We actually use Bloom Energy fuel cells in Silicon Valley, not as a primary source but as a -- but I think that's -- I think we're going to continue to see trends in that area.
So I don't -- and I also think that you're going to see that if necessary, the positioning of certain forms of data center capacity, particularly in the hyperscale area and some of AI training may adapt to simply go where the power is. And so I think that you may see some of that movement as well. So I don't think quantity is going to be material constrained -- materially constrained in our retail business by power availability, but it is something that I think we, as an industry, need to continue to grapple with.
And as a follow-up to that, specifically to that point about going to where the power is, do you see a shift in your CapEx allocation into kind of, let's just call it, more novel land bank development opportunities? Obviously, we've seen reports that Meta, for instance, is looking to do a gigawatt in Wisconsin or other places like this that would not tend to be in the traditional geography of data centers?
Yes. Short answer is not yet. And in fact, obviously, the vast majority of our demand and our revenue and our profitability is sourced from sort of our large campus environments around the world, and that's where bulk of our land has been. You're seeing the rise in our sort of owned asset revenue because we're continuing to build now on owned land and owned facilities around the world. And so the bulk of our land bank is really still going towards that. That doesn't mean we'd necessarily be opposed to that. I think that would more likely be xScale type thing, which would probably run through the -- but I do think those are the kinds of things that we have to be thinking about.
I do think in terms of more -- some of our xScale though, I think, is going to be more approximate to our campus locations in those areas where we think we can support that. But I don't think it's out of the question we do that. But right now, the shorter answer to the question is no, that's not really yet part of our equation.
David, I just probably note just on the number of projects that we have underway across 40 markets today. Again, we're in we're actually spreading our capital far and wide to capture the opportunity in most of the sort of the major centers around the globe. And as a result, that's going to be, I think, more of the emphasis going forward, smaller byte sizes that make sense, and particularly those ones that are adjacent or contiguous with their existing facilities. And that's just what you're seeing. And then you heard us talk a little bit about, at least in the prepared remarks, the new markets that we're sort of entering into.
And so we'll continue to push our advantages in our -- in the markets that we have today, but also go to markets where others are less likely to go and we get to enjoy the sort of the experiences of the retail business versus just focusing on hyperscale.
Our next caller is Brett Feldman with Goldman Sachs.
Keith, I want to come back to some of the comments you made in your prepared remarks about dealing with some stresses in the supply chain. Obviously, you've been grappling with that to some degree for a number of years now. I'm just curious how broad-based is it? Is it concentrated in the market? Is it around certain elements that go into development? And then just to clarify, is that distinct to the quite literal physical supply chain? Or were you embedding within that challenges associated with power procurement improvement?
Yes, Brett, just generally speaking, given the demand for data centers and all things surrounded, to that industry. The supply chains continue to be constricted. And I think even at the Analyst Day, Charles made a reference to the fact that generator 3-megawatt generated today has roughly 120-week time line. So it gives you a sense of how far out you have to start thinking and planning. And so one of the things that we tried to emphasize at the Analyst Day was we look at look at all our markets, all of the projects and determine exactly what we need where and then we have a very sophisticated procurement team that focuses on making sure we work with the larger providers and get availability either to production capacity or a slot in the production line or available capacity from the inventories. .
And I just think that's something that we prudently do. We manage ourselves, and it's something that's going to be very important on a look-forward basis as well. And you have to tie that back into the comments Charles made about power. Demand, you have to have the available power, you have the available cooling and making sure that you have the appropriate kit to roll out the data centers in a fair way that you can deliver the capacity to the need. And again, a lot of work is done on that.
The team -- the construction -- the design, construction, procurement sourcing teams are all working together in tandem, and we look out 5 years. And in some cases, as I said, we'll go out as far as 10 or 15 years like the London market where we see a broad future opportunity as well.
Yes. Brett, I'd add that I do think that one thing I did mention previously I'll put in there now is that I think one of the really critical factors in ensuring availability for what is inevitably going to be a somewhat constrained resource on power in places around the world is to bring forward really thoughtful approach to sustainability. So -- and that was one of the driving forces, I believe, in terms of our successfully getting an allocation in Singapore. And so similarly, I think our ability to work closely with -- and I've been on the phone with utility CEOs in the recent past talking about these topics in terms of how to put our heads together and try to for some of these things and sustainability has to be, I think, part of that picture.
And so I do think that that's something we're going to bring to the table. We're going to lean in and really continue our market-leading emphasis on sustainability, not only for our customers but in tandem with our partners on the utility side as well. And so I think those are other factors that I think come into play when we really think about the power issue.
Our next caller is Matt Niknam with Deutsche Bank.
Just a couple of like housekeeping ones for me. First, if you can comment on what drove the slight increase? I think it was about $10 million increase of recurring CapEx. And then also, I noticed DSO stepped up somewhat modestly. I think accounts receivable is about a headwind of $100 million in the quarter. Just wondering if there's anything that you'd call out beyond typical 2Q seasonality?
Yes. On the first one, just recurring CapEx is when you look at it year-over-year, Q2 tends to be -- Q1 is our lowest spend on a seasonal basis, Q2 we're sort of right on line with where we thought would be 2% and that was consistent with last year. And then you see over the next two quarters, we step it up even further. So part of it is just timing and making sure we do the work that we need to, based on the needs inside the different buildings. And as a result, it'll move around by quarter, but we can sort of massage at times into different quarters. But I would just say nothing meaningfully has caused that. It was an $18 million step up quarter-over-quarter just to be exact about it.
As it relates to DSOs, as I said in the prepared remarks, our DSOs, our recovery has gone up a little bit. But what I would tell you is some of the things that we've been working on with our customers, as you can appreciate, I said there's not -- there's certainly some discussion around the power price increases. And although we're ahead of what we anticipated, there's still some negotiations. And as a result, our DSOs had moved up a bit. Customers weren't -- some of the customers weren't paying their entire bill instead of just disputing what the power price increase was, the whole bill was being held back. And some of those have since been made in the July time frame. And so DSO, I think you're going to see that step back down to a more traditional level.
But overall, I'd just say you've got liquidity in the business, the cash we're generating and the collections you'll get some seasonality. We're running ahead of what we anticipated we'd be for the third quarter already. And as I said, I think DSO is an average days delinquent will go down.
Keith, just to clarify, it was more on the guide for recurring CapEx. I think that stepped up $10 million relative to the prior guide for the year. So I was just wondering if there's anything notable to be aware of there?
I'm sorry, I misunderstood your question then. As it relates No, there's a little bit more recurring CapEx when we have capacity and we look across the portfolio and think what can we do based on the capacities we have. And so sometimes when we work with Rob Abdel's organization said, we have capacity to put a little bit more recurring CapEx into the year. And so what you could do is pull it forward from one year and put it into the year prior. And so that's what you've just seen. We have -- we felt we had a little bit more capacity to invest in some recurring CapEx this year. That really takes away that obligation for next year.
Our last question comes from Nick Del Deo with Moffat Nathanson.
Charles, on the interconnection front, are you still expecting an improvement in adds as we move through the year like you communicated previously? Or do you think these headwinds are a bit softer than expected?
Yes. Great question, Nick. I'd tell you, in all honesty, I had expected we would have seen a bit of a moderation back up towards prior levels. now. But there's a lot of factors in play there. I think that the short answer is I do believe we're going to see that because when I look at it, the gross adds continue to be really strong. So overall demand for interconnection persistent. And as I said, even growing with cloud as the end.
And so I think that, that is the most encouraging to me. When we really unpack what is suppressed the net adds, it's clearly on the churn side. And so we've unpacked that in great depth, as you might imagine. And it really is almost all from the service provider side in terms of where we're seeing the elevated churn over normal levels. And as we unpack it further, you see there is definitely 10 to 100 migration. And I think that has accelerated a bit more than we expected just because -- and maybe we should have anticipated this, but as the cost of electronics goes down, it is more broadly available to people who have a sufficient number of interconnects to really justify that.
And so we did see continued uptick. And so it seems almost like what you're seeing is 10 to 100 migration was led by the most sophisticated customers with the most at stake -- and then you see another blip as sort of the broader population begins to sort of integrate that. But again, it's not going to be relevant for everybody. You have to have some level of concentration to routes to really make it an economically viable proposition. So you're seeing 10 to 100 partially impacted there. Then you saw -- you see some M&A activity. And that's true in the CDN space and in the network space. Those are finite things. They work their way through, and then you go back to some sort of a normal.
And then I would say the third area is just a more aggressive inventory management, particularly from the network space, where as you -- many of you know better than we do, there's some real overall business challenges where people are looking to aggressively tighten their belt in any way they can. And so I think those dynamics -- several of those dynamics are finite in nature, and which is why I kind of fully had expected that we would return. And I don't know whether we get all the way back to our previously guided range, but I think we'll see -- potentially see some lift back there. Independent of all that, even at our current level of ads, we're seeing -- one, we're seeing very strong pricing and that is driving -- and we're seeing a migration towards higher port speeds on offerings that are priced by speed. And so that mix is helping.
And as a result, I think you're going to continue to see very healthy revenue growth. So we'll track that. It's certainly my hope that we will see some elevation through the back half of the year, but we'll just have to see how that plays out.
Okay. Okay. Great. And then in Singapore, obviously, great to see the 20-megawatt allocation you got. How long before you can actually bring that online? And then about how long will 20 megawatts last you?
Well, we can't speak to the actual size of the allocation. So I don't doubt there is information out there, but I can't confirm or deny anything relative to the size of the allegation. I would simply say that -- we're very excited about what we got. We're very excited about the opportunity to build incremental capacity in that market. And we believe it will give us some really solid runway in an incredibly important market. In the meantime, we're continuing to sort of very opportunistically harvest capacity to continue to meet the demands of our customers and to drive very superior returns in that market.
Thank you, everyone. This concludes our Q2 earnings call.
And this concludes today's conference. Thank you for participating. You may disconnect at this time, and have a great rest of your day.