Equinix Inc

NASDAQ:EQIX

Earnings Call Analysis

Equinix Reports Strong Q3 Growth and Strategic Initiatives for Future Expansion

Equinix enjoyed a remarkable Q3, boasting revenues of $2.201 billion, a 7% increase year-over-year. This growth was propelled by decreased churn and robust demand across all regions, especially in Asia Pacific, which grew 15%. The company has raised its 2023 revenue guidance to imply growth of 7-8% and adjusted EBITDA expectations to approximately 47%. Notably, a $15 billion joint venture focuses on expanding xScale projects, enhancing infrastructure for anticipated AI workloads. With a solid outlook supported by high presales and optimally positioned capacity, Equinix is set for a strong finish in Q4 and beyond.

Strong Q3 Performance and Continued Growth

Equinix reported a remarkable third quarter with revenues of $2.201 billion, reflecting a 7% increase year-over-year, and positioning them at the midpoint of their guidance range. This quarter marks the 87th consecutive quarter of revenue growth for the company. A robust demand for digital infrastructure solutions, particularly in AI workloads, has fueled this growth, leading to 4,100 new deals with over 3,200 customers.

Solid Financial Metrics and Improved Margins

The adjusted EBITDA for the quarter rose 12% year-over-year to $1.048 billion, constituting approximately 48% of the total revenues. The funds from operations (FFO) stood at $866 million, an increase of 12% compared to the prior year, highlighting effective management and operational performance. Looking ahead, Equinix raised its AFFO guidance to reflect a projected 11% to 13% increase for the full year.

Strategic Investments and xScale Initiative

A pivotal aspect of Equinix's strategy is its xScale initiative, which aims to meet the rising demand for hyperscale data centers. The company announced a significant new joint venture valued at over $15 billion with the CPP Investment Board and GIC. This initiative intends to scale infrastructure rapidly, including a recent acquisition of land and capacity in Atlanta. By tripling their investment capital for xScale, Equinix is poised to enhance its operational efficiency and profitability.

Regional Strength and Future Capacity Planning

Regionally, Equinix's performance was particularly strong in the Asia-Pacific (15% growth), followed by the Americas (6% growth) and EMEA (3% growth). The focus on expanding capacity is evident as the company plans to increase cabinet installations significantly, anticipating further demand in critical markets such as Dallas and New York. Additionally, net billable cabinets increased by 3,100 globally, showcasing strong bookings activity and future capacity.

Adjusted Guidance for Revenue and Margins

For the fourth quarter, Equinix has provided guidance indicating a significant increase in nonrecurring revenues, particularly from xScale projects. The anticipated revenue growth rate is estimated between 7% to 8% overall. The company expects to maintain adjusted EBITDA margins around 47%, showcasing its ability to manage operational costs efficiently while scaling its infrastructure.

Interconnection Services Driving Recurring Revenue

Interconnection services have become increasingly vital, contributing 19% of Equinix's recurring revenue, with a year-over-year growth rate of 10%. The average monthly recurring revenue (MRR) per cabinet grew 6% to over $2,300, demonstrating not only strong demand but also the company's capacity to leverage a favorable pricing environment.

Navigating Challenges and Future Outlook

Despite various market challenges, including energy constraints and evolving customer requirements, Equinix remains optimistic about future growth. The company's differentiated approach focuses on integrated solutions and enhanced customer engagement, aiming to retain its competitive edge. As demand continues to outpace supply in key markets, Equinix is well-positioned to capitalize on these favorable conditions.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, and welcome to the Equinix Third Quarter Earnings Conference Call. [Operator Instructions] Also, today's conference is being recorded. If anyone has objections, please disconnect at this time.

I'd 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 as well as those identified in our filings with the SEC, including our most recent Form 10-K filed February 16, 2024, and our most recent 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.

On today's conference call, we will provide non-GAAP measures. 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 Adaire Fox-Martin, Equinix' CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we will be taking questions from sell-side analysts. In the interest of wrapping this call up in 1 hour, we would like to ask these analysts to limit any follow-on questions to one.

At this time, I'll turn the call over to Adaire.

[Adaire Fox-Martin, executive]

Thank you, Chip. Good afternoon, and welcome to our third quarter earnings call. We had an outstanding quarter. We delivered record gross bookings with strong performance across each of our 3 regions. We had solid deal conversion rates and pricing remains robust. Cabinets billing increased meaningfully. All of this translated into our 87th quarter of consecutive revenue growth with attractive AFFO per share profitability, highlighting the scale and differentiation that reinforces our market position. Importantly, given the robust demand for digital infrastructure to enable AI capabilities across industries and regions, our forward-looking pipeline remains strong with healthy presales activity supporting our momentum in Q4 and beyond.

Turning to our strategy. As I discussed last quarter, Equinix has developed a differentiated and successful business over the last 2.5 decades, creating exceptional value for our customers and our shareholders. Our strength is underpinned by our position as the world's leading digital infrastructure company, our truly global footprint and scale, our neutrality and our singular value proposition around interconnection.

However, we recognize that our industry landscape is dynamic and increasingly complex. Customer requirements and data center designs are evolving rapidly. Energy constraints and long-term development cycles pose challenges to our industry's ability to serve customers effectively. Equinix is particularly well positioned to address these challenges as an industry leader to seize the significant opportunities ahead and drive future growth. To this end, we will focus on 3 strategic areas built on the tenets I shared on last quarter's earnings call of clarity, simplicity and focus.

First, we will start outside in with our customers. We will focus on enhancing how we engage with our customers at every milestone in our relationship with them. Our goal is to be the partner of choice for our customers' most critical infrastructure workloads. To achieve this, we intend to evolve our go-to-market engine in a structured and coordinated manner to deliver a frictionless customer experience that is segment appropriate. We have already seen the benefit of solution and segment focus in our record Q3 gross bookings outcome.

Second, we will deliver integrated solutions that make it easier for our customers and partners to deploy and consume solutions at Equinix. Our initial efforts will focus on developing smarter solutions that extend our core colocation and interconnection offerings. This is where we have the right to win and the right to lead. In support of this, we have brought together our data center services team and our digital services team into a single business area led by Jon Lin.

Third, we have been innovating in data center design and our approach to data center construction. We are fortunate to have industry-leading procurement, design and construction teams. We intend to build for the future and accelerate our development of differentiated campuses that support the broad range of our customers' needs. Essentially, this means moving from many smaller bills with phased capacity delivery to fewer larger builds, balancing location with access to power on campuses that can service the full range of our customers' needs from SMEs to hyperscalers.

At the same time, we will remain focused on delivering industry-leading investment returns by continuing to meet the evolving needs of our customers, placing the right application into the right footprint for the best business outcome. Taken together, I believe these strategic moves, which are about doing less so that we can deliver more, will drive significant long-term value for our customers, partners and shareholders.

We continue to invest in the market opportunities we believe lie ahead. Earlier this month, we announced our plans to nearly triple the investment capital of our xScale program with the agreement to form a greater than $15 billion joint venture with the CPP Investment Board and GIC. With the capital raised through this new JV, Equinix expects to build new state-of-the-art xScale facilities on multiple campuses across the U.S., each with the capacity of multiple hundreds of megawatts.

As discussed previously, we've already closed on land and power for a 240-megawatt xScale campus in Atlanta, which we expect to contribute to this new JV. We are currently in active diligence to secure power and land in additional U.S. markets and look forward to providing more details in the coming quarters. Since our last earnings call, in our established JVs, we have leased an incremental 20 megawatts in our [ Sol 2 ] data center. This brings total xScale leasing to 385 megawatts globally with nearly 90% of our operational and under construction capacity leased. We believe Equinix is uniquely positioned to innovate with and for hyperscalers, and we are excited about the opportunities ahead.

Enterprise demand is steadily building for AI-related workloads. We remain the preferred location for server provider on-ramps, supporting the data ingestion and distribution requirements of AI workloads. Equinix customers can enjoy low latency access to native hyperscaler on-ramps in 47 metros across 25 countries. This includes 12 metros with on-ramps to 5 or more providers. This is 6x the coverage of our nearest competitor.

Recent key service provider wins and production use cases include Nebius, a full stack AI infrastructure provider. Their new deployment in Paris will be among the first in Europe to offer NVIDIA H200 Tensor Core GPUs in support of providing essential resources for customer AI journeys. Sakura Internet, a Japanese cloud service provider, is actively involved in the development of large-scale cloud services for generative AI and aims to enhance its GPU-based cloud services to explore new business opportunities in Asia.

For enterprise AI, Equinix is supporting a Fortune 200 shipping and logistics company who deployed at Equinix to unlock predictive capabilities and logistics and build intelligent data-driven supply chains. We are also supporting a leading med tech company who is leveraging AI algorithms to analyze endoscopic images in real time. This will save lives through enhancing diagnostic precision.

Our unique business model enables us to serve the full spectrum of our customers' AI requirements. Our retail footprint is well positioned to serve the inferencing and private AI workloads of enterprises of varying sizes. Our rapidly expanding xScale offering can meet the significant requirements of hyperscalers and service providers. Our ability to satisfy these needs fortifies our resilience in capturing upside and managing potential downside in a highly dynamic and evolving AI landscape.

Turning to our results, as depicted on Slide 3. Q3 revenues were $2.2 billion, up 7% over the same quarter last year, driven by strong recurring revenue growth and xScale fees. Adjusted EBITDA was up 12% year-over-year with solid AFFO per share profitability. Interconnection revenues increased 10% year-over-year with continued strength from Equinix Fabric. These growth rates are all on a normalized and constant currency basis.

Fueling our industry-leading global interconnection franchise, we now have 478,000 total interconnections deployed across our footprint. Gross interconnection additions remain strong and pricing continues to trend favorably. Net interconnection additions improved to 5,700 due to strong increase in hyperscale cross connects and the continued diversification of our ecosystems.

Equinix Fabric saw continued solid growth and is now operating at an annual revenue run rate of greater than USD 250 million with an attach rate of approximately 40% across our global customer base. Our fabric business grew, thanks to 100 gigabit port additions and higher bandwidth virtual connections.

Equinix Internet Exchange saw peak traffic surpass 40 terabits per second for the first time. In August, we opened our first data center in Johannesburg to support the growing digital infrastructure and connectivity needs of enterprises and service providers in the rapidly growing African continent. We also opened the first phases of our New York 3 and Tokyo 15 IBXs this quarter, easing capacity constraints in 2 of our key metros.

Customers taking advantage of our expanding global footprint include PubMatic, a digital advertising firm who expanded their partnership with Equinix to leverage AI-powered predictive analytics for their ad campaigns. SaaS provider, Zoho, chose Equinix so they could better support their customers in complying with European data sovereignty requirements.

Our channel program delivered another solid quarter, contributing approximately 50% of new logos. We continue to see growth from partners like Avant, Dell, Orange Business and WWT, with wins across a wide range of industry segments and use cases, including AI. Q3 wins include a data center modernization project with AT&T. Together, we helped a customer experience technology company blend cloud and private infrastructure resources, enable multi-cloud networking and accelerate AI and automating enhancements for customer interactions. We believe this quarter is a testament to the trust our customers place in us and the value they realize from partnering strategically with us.

With that, I'll turn it over to Keith to cover the quarter's financials.

[Keith Taylor, executive]

Thanks, Adaire, and good afternoon to everyone. Let me start by saying we once again delivered another strong quarter. The business continues to execute against its short-term goals, another step in our journey while setting the stage for the years ahead. We finished the quarter with record gross bookings with each of our regions at or very near their all-time highs. Our net bookings were also very strong with net megawatts sold in our core business up 60% over the previous quarter, a reflection of the growth and density of our bookings activity.

Additionally, we presold a meaningful amount of future capacity, which is neither included in our bookings nor our backlog metrics. We closed more than 4,100 deals with more than 3,200 customers. And our adjusted EBITDA and AFFO were at the high end of our expectations, the result of solid revenue growth and disciplined cost management.

As it relates to our nonfinancial metrics, we saw meaningful improvements across net billable cabinets and interconnections and higher NRR per cabinet. Net billable cabinets stepped up by 3,100 globally, driven by strong bookings and capacity openings in certain key markets. Given our record Q3 gross bookings and our elevated backlog of cabinets sold but not yet installed, we expect our net billable cabinet additions to remain strong through the end of the year. Net interconnection additions had a healthy step-up as our gross interconnection activity remains at its highest level.

Interconnection revenues increased to 19% of recurring revenues. Our MRR per cabinet metric continues to trend favorably, increasing 6% year-over-year on a normalized and constant currency basis to over $2,300 per cabinet, driven by favorable pricing environment and increasing power densities. In the quarter, the average cabinet booked had an average density of 6.2 kilowatts per cabinet, while the density of our churn cabinets was 4 kilowatts per cabinet.

As Adaire highlighted, we're excited about the next phase of our xScale initiative. The announcement of our greater than $15 billion joint venture with CPPIB and GIC is another milestone for Equinix. We continue to believe this off-balance sheet joint venture structure will enable us to serve the significant needs of our largest customers for both traditional cloud and emerging AI workloads while delivering significant value to our investors on a per share basis. Bottom line, given the strength of our balance sheet, including our low debt leverage and strategic and operational liquidity alongside the xScale partnerships, we believe that Equinix represents the best opportunity to create value in the digital infrastructure space.

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 Q3 revenues were $2.201 billion, up 7% over the same quarter last year, at the midpoint of our guidance range due to the deferral of planned xScale fees into 2025. For Q4, our revenue guidance implies a meaningful step-up in nonrecurring revenues related to xScale fit-out activities and other sales activity. Net of our FX hedges, there was a minimal FX impact when compared to our prior guidance rates.

Global Q3 adjusted EBITDA was $1.048 billion or approximately 48% of revenues, up 12% over the same quarter last year, at the top end of our guidance range due to strong operating performance. Q3 adjusted EBITDA net of our FX hedges included a $1 million FX headwind when compared to our prior guidance rates and included $2 million of integration costs.

Global Q3 FFO was $866 million, up 12% over the same quarter last year, better than our expectations due to strong operating performance, favorable net interest expense and the timing of our Singapore land lease payment. Q3 AFFO included a minimal FX impact when compared to our prior guidance rates. Global Q3 MRR churn was lower than planned due to the deferral of forecasted MRR churn from late September into early October. As such, when we average the expected quarterly churn over the second half of the year, we expect MRR churn to be in the middle 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 basis, APAC was our fastest-growing region at 15%, followed by the Americas and EMEA regions growing at 6% and 3%, respectively. Excluding the impact of power price actions, APAC grew 17% and EMEA grew 5%.

The Americas region delivered very strong bookings across many of our Tier 1 metros, including Dallas, New York, Silicon Valley and Washington, D.C. Demand continues to outpace supply in top markets, driving a favorable pricing environment.

Our EMEA business also delivered a great quarter with record gross bookings activity, firm pricing and robust AI deal activity led by our Dubai, Frankfurt, London and Paris metros. We also had healthy activity in our growth in emerging market metros as global scale and reach continue to be a point of differentiation for our business.

And finally, the Asia Pacific region had a great quarter with near record gross bookings and strong in-region activity resulting in quarterly revenues reaching the $500 million milestone for the very first time. We experienced continued momentum in our Hong Kong, Osaka, Singapore and Tokyo markets, including significant AI demand in Japan for service provider, enterprise and government use cases.

And now looking at our capital structure, please refer to Slide 8. Our balance sheet increased to approximately $35.4 billion, including elevated cash and short-term investments of $3.2 billion, ahead of our $1 billion maturing bond payment in November. In the quarter, we issued more than $750 million in senior green bonds across our euro and Swiss franc offerings as we continue to align our financings across our investing markets while supporting our Future First sustainability strategy. To date, Equinix has issued approximately $5.6 billion of green bonds, making our company one of the top 10 largest U.S. investment-grade corporate issuers in the green bond market.

Additionally, we settled both forward and spot ATM activity of approximately $975 million in the quarter. We plan to continue to take a balanced and opportunistic approach to accessing the capital markets as and when market conditions are favorable to fund our future growth, including future capital commitment purchases.

Turning to Slide 9. For the quarter, capital expenditures were $724 million, including recurring CapEx of $69 million, a $24 million increase over the prior quarter as planned. We have 57 major projects underway in 35 markets across 22 countries, including 13 xScale projects. This represents more than 22,000 cabinets of retail and more than 100 megawatts of xScale capacity to be delivered through 2025. We opened 7 major projects in the quarter across 7 metros, including new data centers in Johannesburg, Istanbul, New York and Tokyo. We also purchased land for development in Amsterdam and Bangkok as we continue to expand our footprint across Southeast Asia. More than 85% of our current retail expansion spend is on our own land or own buildings with long-term ground leases.

Our capital investments delivered strong returns, as shown on Slide 10. Our 180 stabilized assets increased revenues by 4% year-over-year on a constant currency basis, excluding the impact of prior price actions. 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 our updated summary of 2024 guidance and bridges. Do note, all growth rates are on a normalized and constant currency basis. For the full year, we're raising our revenue guidance by $36 million and our adjusted EBITDA guidance by $10 million due to strong bookings performance and favorable FX rates. This guidance implies a top line growth rate of 7% to 8%. Adjusted EBITDA margins are expected to be about 47%, which includes the acceleration of certain costs into Q3 and Q4.

We're also raising our full year AFFO guidance by $18 million and now 11% to 13% increase over the previous year, primarily due to operating performance and favorable net interest expense and does include the acceleration of costs into Q3 and Q4. AFFO per share is expected to now grow between 9% and 10% at the top end of our guidance range. And finally, our full year CapEx is expected to range between $2.8 billion and $3.1 billion, including about $240 million of recurring CapEx spend.

So let me stop here, and I'm going to turn the call back to Adaire.

[Adaire Fox-Martin, executive]

Thank you, Keith. In closing, we had a great third quarter, achieving record gross bookings and delivering robust performance across key financial and nonfinancial metrics. We are more committed than ever to seizing the vast and evolving opportunities in AI. We will nearly triple the investment capital of our xScale program once our latest joint venture is fully realized. But xScale is more than an investment vehicle for Equinix. Our xScale program is a force multiplier. Only Equinix is positioned to offer integrated infrastructure at scale across the spectrum of workload requirements from hyperscalers to enterprises to SMEs. Only Equinix can offer this globally. Only Equinix can provide this in an interconnection-rich architecture.

The combination of these elements marks Equinix as unique amongst our industry peers. The future of Equinix and the digital infrastructure industry is incredibly bright. I firmly believe our relentless customer focus, ability to execute effectively and a highly differentiated market position will continue to drive significant long-term value for our customers, our partners, our employees and our shareholders.

With that, I'll stop here and open it up to questions.

[Operator]

[Operator Instructions] Our first question will come from Aryeh Klein with BMO Capital Markets.

[Aryeh Klein, analyst]

Maybe, Adaire, you talked a little bit about the shifting strategic focus to large campuses. Can you talk a little bit about some of the benefits you would expect from that? And does that change the value proposition of any of your existing markets in any way?

[Adaire Fox-Martin, executive]

Thank you very much for the question. This is a key part of the strategy that we put together with our team recently. We have already got a long pipeline of builds that are committed and construction projects that are underway. As Keith mentioned, 57 major programs under work at this point in time. And of course, as we look through that, we will work through that and look at the opportunity to accelerate some of these builds and some of their phases into an earlier time frame so that we can deliver this capacity to our customers and to the market.

As we look at the intention to build fewer and larger campuses, this is really a multifaceted approach that enables us to look at this through the lens of securing the power that's necessary to execute in these campuses, doing so in the context of a location that is adjacent to the metros that we operate in and allowing us to offer, which I think is unique in the industry, the entire spectrum of our product continuum to customers that range from hyperscalers with their requirements to enterprises with their large footprint requirements all the way through to our retail business and customers who require interconnection-rich capabilities in our environment. So this is, I think, something that will augment our approach to our strategy around design and construction and how we deliver capacity to the market to enable us to continue on our growth trajectory.

[Keith Taylor, executive]

If I may just add one other comment to Adaire's comment. You also have to appreciate that there are certain economies of scale if you sort of talk about Ralph with his global design and construction team, there's just too many small phases that we do along the process. And the stage of where we are in the industry is just is inherently inefficient. And the average size of the deals that we're seeing today are much larger. And so as Adaire says, it just -- it makes sense to aggregate into the major metros in which we focus through the extension of those major metros into other markets as well and do it in scale and size. And so we get an outsized return relative to where we were, and you sort of service the customer with a larger set of capacity available for them.

[Aryeh Klein, analyst]

And then maybe somewhat of a follow-up on the development side. It looks like you're adding a significant number of cabinets, specifically in the D.C. market, including DC 16 Phase 2 and 3 essentially back to back. Is there something specific you're seeing in that market? Does that go to that shift to larger campuses? And just even more broadly in the Americas, you have a large amount of cabinets expected to come online over the next 12 to 18 months. Is that to meet backlog? Are you preempting inference demand in any way? Or is there something else?

[Adaire Fox-Martin, executive]

Well, I think we're in a very fortunate position that market-wise, demand outstrips supply at the moment. And that is particularly true, I think, in the North American theater of operation. So we are looking forward to having the opportunity to release this capacity into the market where we know that we will not only be able to serve the needs of our customers, but also command a price premium in this robust pricing environment for the cabs that we release.

[Operator]

Our next question will come from Simon Flannery with Morgan Stanley.

[Simon Flannery, analyst]

Great. Keith, I wanted to just come back to revenue growth. I think the underlying adjusted for power pass-through growth this year is 7% to 8%. Could we revisit the Investor Day last year? I think you talked about this being something of a transition year, but longer term, you saw 8% to 10% growth. And Adaire was just talking about the strong demand and pricing. So how do we think about that as we head into '25 with the bookings backlog and how that relates to CapEx, especially given some of your new plans on expansion?

[Adaire Fox-Martin, executive]

Thanks for the question, Simon. I might just jump in first and maybe just comment on some of the dynamics that we saw in the market in Q3 and then pass over to Keith to address some of the specificity of the question that you raised there. I think when we look at the first half of this year, we certainly saw some headwinds, even though I believe that our performance was solid during the first half of the year. And it would be fair to say that whilst in Q3 some of these headwinds still persist, we saw incredible improvement in our bookings trajectory. And there are some underpinning reasons why I believe that to be the case.

First of all, we are, as we know, in a very strong demand environment. But our sales teams executed with precision on our pipeline. And we had phenomenal execution that led to this record gross bookings, which, of course, facilitates the growth in our backlog. And we did that in a way that means that our forward-looking pipeline is also strong. So there were no major pull forwards into our Q3 outcomes as a result of the wonderful execution of the sales team.

We also focused on some sales plays that cornered in particular conversations for us with our customers, enabling us to deliver solutions in very particular context that meet requirements for customers right across the spectrum of the market. And we also adopted an approach where we began to demand shape. So how we could look at capacity that existed in our Tier 2 metros and demand shape the workload in concurrence with the customer so that we were actually utilizing the capacity in these non-Tier 1 metros. And it's interesting to see that the megawatts landing in our non-Tier 1 metros were 80% up Q-on-Q.

So this, coupled with this very strong pipe, and Keith alluded to it in his opening remarks where we have already undertaken some presale activity that I think derisks both Q4 and future quarters enables us to look forward in a positive way. We've delivered in Q3 some critical capacity into the market. Pricing continues to be robust. As you heard, our interconnection adds are strong. Power density is rising. So whilst we've had some puts and takes, for us, Q4 will be about focusing on delivering another great quarter so that we have a strong exit into '25.

[Keith Taylor, executive]

So Simon, maybe just adding on to Adaire's comments, which I think really hit the mark in so many different ways. But as you can appreciate, our business is very geographically dispersed. As Adaire said, there's demand shaping into markets and that effect -- that has some impact on price and price points. That all said, the number of core markets that we are currently constrained in something that has caused us to reflect on how we're going to grow and build the platform. And so hence, why we're going to build bigger in particularly the markets that are the most important ones. And so that is something that I think that you'll continue to hear us talk about.

There's the cross currents that we referred to at the beginning part of the year and still exist today. But we're seeing -- thankfully, we're seeing the gross activity that more than outweighs these cross currents. The cross currents are really about optimization. You've heard us speak about previously, particularly around network companies as they optimize their -- whether it's their cross-connect or other services, whether it's DDN providers and the like that tend to be very cross-connect ends. So those are some of the things I think that are at the forefront of our mind.

That all said, we've set ourselves up for what we believe is going to be a really good Q4. That's going to be a strong indication coming off a record Q3. What does Q4 look like? And then what is the ability of the matrix -- sorry, our xScale 2.0 initiative look like as we look into 2025 as well? So it's the combination of those things, I think, that will allow or give us the confidence that we think we're going to have a very strong exit rate to the business.

And maybe just a last couple of points. One of the things we said in our prepared remarks was interconnection revenues had increased. Not only do we see a nice year-over-year growth rate of 10%, but the average price point is moving up on a per cross-connect basis. And so you're seeing increased density, increased pricing. And the componentry of that relative to the size of our total revenue base has been increasing. And so it's the combination of those matters as well that we think that will influence our growth rate as we look into 2025 and beyond.

[Operator]

Our next question will come from Jonathan Atkin with RBC.

[Jonathan Atkin, analyst]

So I have a balance sheet question. Just with the $2.8 billion in cash, 3.5x net leverage and just given the operating trends that you've talked about, what would you potentially have in -- and how you plan to use some of the cash going forward, whether it might be like land acquisitions or tuck-in or other data center acquisitions? And then I have a follow-up.

[Keith Taylor, executive]

Well, Jon, I mean you know the business really well. So with the short-term investments, which are very -- as you can appreciate, are very liquid, the cash on the balance sheet at September 30 was $3.2 billion cash and short-term investments. We're going to use $1 billion of that to pay down our debt in November. And so on a pro forma basis, clearly, that -- we have a smaller balance than you're probably anticipating. That all said, we -- given the capital plans that we have, the closure of the Philippines acquisition, the dividend, we're probably going to end the year around $1.5 billion of cash. And as you and sort of the other analysts and sort of investors are aware, we have a really meaningful capital appetite looking forward into 2025 but maybe even more so in '26 and '27 as the growth opportunity presents itself.

And then you sort of tie that into also our xScale 2.0 initiative with CPPIB and GIC, we're going to be a 25% partner to a $15 billion-plus venture. And so we're going to have to fund that as well. And we're already seeing the initial sort of cash demands from that initiative, both in what we need to do with the sort of the power generator, the utility provider as well as the long lead items with the partners and the vendors. And it's really around the MEP, all the mechanical and electric and plumbing equipment and the like. And so that's also a big consumer of cash on our balance sheet as we anticipate what will happen in the future, which is a lot of revenue coming from those investments. But again, we have to get ahead of them today. And so we need the cash on the balance sheet to certainly fund that future growth, pay the dividend and continue to scale the business.

[Adaire Fox-Martin, executive]

We're very focused on getting that capital into capacity as quickly as possible, right?

[Keith Taylor, executive]

Yes. And the leverage is -- the net leverage number, Jon, as you know, is 3.5x levered, which is great for the industry. But we do carry a little bit more cash. As you know, we -- but that all said, when you look at it, we still have a tremendous amount of strategic flexibility in our balance sheet. And so we'll continue to -- we're going to go raise more debt cash on parts of the world. We're going to raise the next tranches of debt capital. We've been very efficient with our ATM program. We can put more leverage on the books with a great comfort without putting ourselves in harm's way with any of the rating agencies. And so we have a lot of strategic flexibility there. So I think suffice it to say, we are in a very enviable position vis-a-vis the liquidity and strategic flexibility we have and the partners we're engaging with to continually -- sort of to scale the business in the -- also the xScale franchise.

[Jonathan Atkin, analyst]

My follow-up just relates to digital. And I might have missed -- you talked about attach rates. I think that might have been for fabric. But can you just update us on metal and network edge and what the plans are going forward, how you see those businesses progressing or not?

[Adaire Fox-Martin, executive]

Sure. Thank you for the question. I mean I think from an overall digital services portfolio, Equinix has certainly demonstrated some success and some very strong success in the products that are natively digitally enabled such as fabric and such as network edge. Fabric achieved a greater than 250 million annual revenue run rate with a 40% attach. This 40% attach number is a focus point for us moving forward into Q4 and next year. We think there's the opportunity to increase that attach rate. The growth in fabric was underpinned by solid 1 gigabyte port additions. And we continue to see the potential in fabric almost diversifying as an exchange where we have almost 4,000 customers who are connecting to 1,300 cloud and network destinations.

Underpinning fabric is obviously Fabric Cloud Router, which is available in 61 of our metros. And of course, all of the key cloud providers are part of this fabric infrastructure. Network Edge, 450-plus customers at the moment using this service. It is yet not a meaningful revenue contributor for us at this time, but we do believe that it drives ecosystem magnetism for us and is an evolving part of our business and one that we are focusing on under our digital services portfolio.

Overall, for us, as it relates to the products in this portfolio, we're really looking to ensure that we enhance the customer experience that we deliver improved digital interactions for our customers. That includes the portal capabilities through which the customers connect with us. That includes the API footprint that partners can use to deploy their solutions into our environment, and that will include capabilities like absorbability, providing that view to -- our get started position though, our first focus for our digital services portfolio will be around our interconnection product portfolio and continuing to evolve and grow that great franchise.

[Jonathan Atkin, analyst]

Anything on metal then to kind of round out the discussion?

[Keith Taylor, executive]

Not at this point. Let me just give you a general -- maybe another general comment, Jon, that when we look at digital services, they represent just under 8% of our revenues. Metal in and of itself represents 1.25% of our revenues and has been relatively flat quarter-over-quarter. .

[Operator]

Next, we will hear from Jim Schneider with Goldman Sachs.

[James Schneider, analyst]

It was encouraging to see your new xScale joint venture with CPP and GIC. Can you maybe talk about the pace of new capacity additions you expect from that joint venture? Could we see anything by the first half of 2027? Or is that too early? And how should we expect sort of the ratability of that capacity to come on through the 2029 time frame?

[Adaire Fox-Martin, executive]

Yes, we're very excited as well about the opportunity that this represents for us and really does allow us to serve the needs of our customers right across the spectrum that we engage. So we agree with you in terms of the enthusiasm here. And this is a transaction that will close shortly. And as soon as that transaction closes, given that we have already closed Atlanta and that we will move the Atlanta campus into the JV, this is where we will begin our work using the model that we have redefined in our design process for our data centers. So in terms of time frame, it's hard to give you the specificity of that right now. I believe that we are probably looking at a 12- to 18-month cycle to introduce this capacity into our footprint. But we are working to ensure that we can bring capacity on as quickly as possible, and that's part of the process that will kick in following the formal close of this transaction.

[Keith Taylor, executive]

And Jim, I'll just elaborate a little bit further. We've already placed a number of orders for the long lead items as it relates to the Atlanta and the next campus. So 2 campuses out. We're currently negotiating with the local power provider in Atlanta. There's multiple other sites in the U.S. that we're working alongside different power producers to enter into an agreement. And so the combination of all those would probably allow you to make the assumption that the delivery of value will start much sooner than 2029. But still a little bit premature to give you exact dates. But suffice it to say, we're going to -- we're getting ready to start preparing the land in Atlanta, and that will put us in a pretty good position to deliver something much sooner than the 2029 time frame.

[James Schneider, analyst]

Great. And then maybe as a follow-up, it was encouraging to see the resumption in growth in your new cabinet additions in this quarter. Maybe -- I would love to get a sense of your confidence that the momentum either the growth rate or the number of cabinets can continue to accelerate from here. And maybe talk about some of the underlying drivers of that.

[Adaire Fox-Martin, executive]

Yes, we were also very happy about how this measure shows up in Q3. The volume that came through for us was quite impressive. And I think despite the continuation of the power density gap that we've been highlighting over previous quarters, underpinning the net billable cabinets, we saw strong bookings. We had lower churn, and we had capacity opening up in some of our key metros, which all contributed to that 3,100 number. As we look forward, we think based on the backlog of what's been sold but not been installed that this will remain solid into Q4 and into early '25. And so yes, we're very happy with, as I said, how this showed up, even given the increasing power density, which allowed us to have a churn or 4-kilowatt cab but to sell it at 6.2.

[Operator]

Our next question will come from David Barden with Bank of America.

[David Barden, analyst]

So I just want to follow up on Jim's question. So Keith, no good deed goes unpunished. So Slide 22 footnote 2, you highlight that you've made some adjustments to the cabinet disclosure by making a cabinet equivalent. And we talked about this, I think, for several quarters. Could you elaborate a little bit on what is the adjustment? How does this affect -- is it equal adjustments in each region? You didn't make the adjustment in Asia. Does it affect the MRR per cabinet closures? I mean it would be helpful to have this conversation, I think. And then if I could -- I'll just let you go, and then I have a question for Adaire.

[Keith Taylor, executive]

Yes. No, it's a fair question. So this -- again, for those that aren't -- maybe haven't looked at the notes similar to how David has looked at them, this really is more about available cabinet capacity given the demand profile and the density of certain -- density of certain deployments relative to where the power exists today. And so we take -- and this is something from the beginning of time as we continue to -- again, for those that have walked through a data center, you walk through a data center, and you'll see that the site has a very dense cage. There could be idle capacity, at least from an infrastructure perspective. And largely that's because a prior customer has taken the infrastructure that would support that environment. And so we adjust the net cabinets.

This is really about us creating that visibility to you, knowing that as density goes up, absent the augmentation of power in certain markets, that we will take some of the inventory out. And of course, it adjusts the net utilization. But of course, because you increase density, you're increasing your price points and the volume of revenue going through that cabinet. And again, as I've said publicly in many venues, we price to yield. So we price on a kilowatt basis. And so where they use 1 cabinet or 1,000 cabinets, depending on how much infrastructure you use, that's the revenue that we would earn from the business.

So again, there's nothing meaningful here other than to say that given the density factor of some of the deals that we're doing and some of the AI workloads that we're winning, it's adjusting basically the available physical cabinet of capacity that's available. And that offsets some of the builds that we basically brought to market this past quarter. So let me stop there, David, and see if I answered your question or whether there's anything else you'd like us to touch on there.

[David Barden, analyst]

So I just want to clarify, so to the comments that Adaire has made about 4 [indiscernible] as traditional and kind of 6.2 is incremental. Is -- are each of these new cabinets being considered a 1.5 cabinet?

[Keith Taylor, executive]

Well, it depends on the configuration and what the specifications were for the data center. Again, we measure this down to the asset level, as you would appreciate. And Ralph and his team do a great job of allocating the available energy across the floor plate depending on the consumption parameters of the customer. And so all that to say is some -- I suppose a network data center like Silicon Valley 1 or DC 2, the kilowatt per cabinet is much lower than it is in some of the newer builds. And so that's just us modifying it. But it's really more about what is that new deployment.

But let me give an example. If a customer took a cabinet that was now consuming 20 kilowatts per cabinet, obviously, that has a much more material impact on cabinets we take out of available capacity versus something if that was in a network data center versus a cloud data center. So those are the things that we think about, but it's really about optimization of the asset. Ralph and his team manage it specifically. We also put things on hold in anticipation of introducing -- as you know, we do additional power blocks. We are building more phases. There's a lot of things that go into this. And so if there's something that happened in a given environment, that just might be temporary because we bring things in and out of availability depending on where we are with our power utilization statistics.

[David Barden, analyst]

And then -- and so just my final question on that. I'm sorry to kind of -- thank you, Keith, for sharing all the insights. But -- so if I'm going to do an MRR per cabinet then, is the denominator the cabinet? Or is it the cabinet equivalent, which would be a larger denominator, and so what I'm looking at is more of a normalized MRR cabinet as opposed to a vested MR cabinet?

[Keith Taylor, executive]

Yes. We've always measured things out of what we call a cab basis, a cabinet equivalent because you might have a scenario where you sell a cage but you have fewer cabinets. There are a lot of other infrastructure that's gone into the cage. So we always measure on a cab basis.

[David Barden, analyst]

Okay. Good. And then, if I could, I apologize. So maybe it's just me, but it was interesting to read through the prepared remarks and listen to the prepared remarks because we talked maybe 50% of the time about the xScale program and all the investments and the balance sheet management, and it's 1% of revenue. Is this an effort to change the narrative about Equinix being a part of this kind of AI training? Because I feel like the old regime works really hard to convince people that this was not where Equinix was. Then it was all about inference was almost the future, but we're talking a lot about it, and I'm not sure why.

[Adaire Fox-Martin, executive]

Okay. That's a great question. Thank you for the opportunity to answer it for you. As we've navigated our ex-scale journey, I think as we've gained momentum, it has become clear to us that xScale is an opportunity to be a multiplier for our core retail colocation business. And let me explain why I say that and how I mean that. First of all, I see it very much as a business where we have a huge opportunity to maintain our already high degree of relevance in the supply chain for construction and design. And as Keith has already alluded to, we manage a whole series of very strategic suppliers to enable us to build as quickly as possible and deliver revenue as quickly as possible for all of our new builds. Having our xScale has a benefit in ensuring that as we're building at this kind of scale and this kind of size, supply chain position and stature remains for Equinix where it is now, which is in the top quadrant.

The second element around the narrative around xScale is that we have recognized that with the xScale footprint, we have a complete product set that addresses the evolving needs of our customers. So I feel that our process and our approach is very balanced orientated and very about scale being an and to our existing business instead of an or. First off, with hyperscalers, we are able, obviously, to capture the training workloads and the large data store requirements of the hyperscaler community. xScale gives us the facility and the ability to do that. For service providers, it also gives us the opportunity perhaps to unlock some large footprint. We've seen large footprint demand even for our enterprise customers increased over the course of the last period of time. And this enables us to be able to provide that capability to enterprises who are looking to perhaps do private AI with Equinix, who are looking to operate with Equinix at scale across a number of geographic locations.

We gave some examples of customers that are enterprise-based and who are using Equinix capabilities in order to underpin their AI strategies. So I really believe that this full and rich product continuum from hyperscalers, serving enterprises and our retail-rich colocation facility is actually the winning strategy because the landscape continues to evolve, and we now have an opportunity to be able to respond to how that landscape evolves over time. So please see this as an and, not an or. We want to very clearly articulate that for us, this is about being balanced in our approach to the opportunity and that whilst training workloads have dominated the total kilowatts leased at this particular point -- moment in time, we see significant opportunity as customers move through the stages of AI adoption at a much more accelerated pace than they move through the stages of cloud adoption.

And we are actually talking to our customers not just about AI projects but about AI-enabled strategies. And when you speak about AI-enabled strategies, there's a thoughtful process that one needs to consider around how you integrate in a hybrid and multi-cloud architecture, where you store your data, et cetera, et cetera, et cetera. So please, for us, this is very much clearly an and motion. And as we've understood more about our momentum and the opportunity in xScale, we see that it allows us to provide a full and rich product continuum, serving customers across the spectrum.

[Keith Taylor, executive]

Maybe speaking just a little bit financially on what it means because it's not lost to me the comment that you made about it being small relative to the size of the business. One of the things we historically said and goes back to 2018, that xScale would be 1% to 2% of revenues and 3% to 5% accretive to our AFFO. As Adaire said, we're going to triple the size of that now. And the fact of the matter is the value accretion from xScale today is probably greater than it was previously, particularly given the new price points, the yields one can derive from that type of investment.

So the -- what you're going to see over time is, I think, a larger contributor to the cash flow in the business, not only directly but indirectly through the joint venture structure as well. And we're just at the front edge of it today. We get a fee stream, the nonrecurring fee stream. You've seen us -- we talk about that periodically. But that's not what's going to drive the consistent and recurring value for our franchise. It's the recurring fees and the performance of the JV and our ownership of that JV or JVs that will make a difference to the cash flow and the AFFO that you'll enjoy on a per share basis.

And maybe the last comment is, look, on the last earnings call, we talked about the business that we've already sold into xScale 1.0 is on a run rate basis, when installed is $700 million of revenue. It's a substantial adder to growth and it's $6 billion plus of contract value. Now magnify that and think about what are the -- what is the value that accretes to the businesses as Adaire highlighted.

And maybe one last comment, which is something that we'll absolutely be thinking about, it's not lost to me that xScale, whether it's venture 1, venture 2 or whichever venture it may be, can be a provider of future inventory to the core business, which is the most important part of what we do as an organization. And so using other -- other people's capital, including part of ours, to grow our portfolio is really valuable. And so we see xScale as a really important additive. As Adaire said, it's an and, not an or. This is -- we're going to augment value substantially by the investment decisions we're making and the realization of how important it is to our future.

[Operator]

Our last question will come from Timothy Horan with Oppenheimer.

[Timothy Horan, analyst]

Keith, just a clarification on that point. Your longer-term guide for the xScale of 1% to 2%, 3% to 5% for AFFO, where are we in that process now or in those numbers now?

[Keith Taylor, executive]

Well, the revenue is very -- as you know, Tim, and you see it in our disclosures, on a recurring revenue basis, it's very small because we've sold the -- if you will, the space and that's being deployed. I think we're at 385 megawatts.

[Adaire Fox-Martin, executive]

385.

[Keith Taylor, executive]

So that's going to get deployed at a very, very low recurring, a lot of nonrecurring. So that's one. And then when you think about the cost model, all the work that we're doing and the debt that we've consumed and how that appears in the venture, it's not delivering a lot of incremental FFO -- sorry, AFFO yet. We get the AFFO from the nonrecurring fees and some of the fit-out costs.

So it's still on the comp, which is something that I hope pleases everybody. We see the opportunity in front of us. And when this gets to a run rate of $700 million plus or wherever we end up with the 2.0 version, it's going to be a much more meaningful line than I think that you -- than you would appreciate. And just recognizing today, you're not feeling the value yet from it just -- you get the cash flow from the fee stream the nonrecurring fee stream, but that the real value will come in the recurring fee stream and the performance of the joint ventures.

[Timothy Horan, analyst]

Sure. And does that start to hit like mid next year, do you think? Or when does that really start to hit?

[Keith Taylor, executive]

Yes, we're realizing a little bit of it, but certainly, you're going to see -- you're going to start to see it accelerate through '25 into '26.

[Timothy Horan, analyst]

Great. Can you talk about the progression of pricing? Has it gotten better every single quarter as supply has started to kind of dry up? And related to this, how much of future capacity have you presold -- capacity under development have been presold?

[Adaire Fox-Martin, executive]

Okay. Certainly, in terms of what we're seeing from a pricing perspective, the pricing remains robust right across all of the operation. But particularly in the Americas market where we are, as I said earlier, not just demand shaping towards our Tier 1 metros but our non-Tier 1 metros who have capacity available, also demand shaping and landing megawatts into those environments at premium rate prices. So we continue to see robust pricing. We continue to see the opportunity, particularly in high demand environment and capacity-constrained environments to support a churn that is positive to us where we are able to take workloads that are no longer required in that environment and replace them with much higher-value workloads utilizing the same space and the same power. The -- sorry, the second part of the question, could you just remind me?

[Keith Taylor, executive]

Was just on the volume of prebooking 2 assets that have not yet -- right?

[Adaire Fox-Martin, executive]

Yes.

[Keith Taylor, executive]

So let me take the second part of the question, Tim. We don't -- we're not ready to give you that number. But suffice it to say, we've got 57 projects currently underway across many markets in many countries. That all said, part of the reason you're hearing us talk about it today, and we haven't talked a lot about it previously, is unless something was available for sale within 6 months, the team was not allowed to book it. Today, given the environment that we all live in and the supply and demand -- or sort of the supply constraints, we're now, if you will, preselling into future development sites that are certainly under construction today.

And then on the joint venture basis, those will be things that will be built out tomorrow. And we're not talking about that. We're just talking about things that are -- assets that are under construction today we're preselling. And to give you an order of magnitude, just in order of magnitude, think of it as roughly 20% of the growth activity in the core business. That's what tells you that -- so what I mean that when you think about it, if we did X on core, think about another 20% to 25% you could add to that or business that we're not yet recording as a booking.

[Adaire Fox-Martin, executive]

Right. That's in our retail business. And of course, in our xScale business, we've pre-leased at 92%.

[Keith Taylor, executive]

Thank you for joining our Q3 conference call. This concludes the call today.

[Operator]

That concludes today's conference. Thank you again for your participation. You may disconnect at this time.