Equinix Inc

NASDAQ:EQIX

Earnings Call Analysis

Company Forecasts 7-9% Revenue Growth for 2024

The company's 2024 outlook includes revenue growth of 7-9%, with adjustments for normalized and constant currency basis putting growth at 7-8%, excluding decreased power cost pass-throughs. They anticipate an adjusted EBITDA margin around 47%, signalling 160 basis point improvement, attributed to operating leverage, cost control efforts, and lower power prices. The MainOne integration is projected to incur $25 million in costs. AFFO is projected to rise 9-12%, with AFFO per share increasing 8-10%, aligning with the upper end of the long-term range.

Impressive Growth and Expansion Plans Amidst Market Constraints

The company demonstrated remarkable growth, with full-year revenues exceeding $8 billion, reflecting 21 consecutive years of quarterly growth and an AFFO per share increase of 11%. Despite facing macroeconomic uncertainties and capacity constraints in some markets, the company has concrete plans for global expansion, including new markets in India, Indonesia, Malaysia, and South Africa, alongside significant capacity additions in high-demand markets such as New York, Paris, and Tokyo. These strategic moves aim to consolidate the company's unmatched global reach and accelerate investment in its xScale portfolio.

Strengthening Technological Leadership and Sustainability Commitment

The company intends to fortify its interconnection leadership with innovations like the Equinix Fabric Cloud Router. As part of its product portfolio, offerings such as Equinix Metal and Network Edge are gaining momentum by drawing in significant enterprise customers like NetApp who seek Bare Metal as-a-service solutions. Furthermore, the company upholds its 'Future First Sustainability strategy', targeting customers' sustainability goals and complex power management needs found in a global landscape. Noteworthy developments include an expanded partnership with NVIDIA to foster private AI capabilities on the Equinix platform, indicative of the company's focus on leveraging AI advancements.

Performance Metrics and Prospects

Fiscal indicators reveal a 15% year-over-year revenue increase (9% excluding power price impact), an 11% rise in adjusted EBITDA, and AFFO surpassing $3 billion for the first time. This successful financial outcome is attributed to strong operating leverage and efficient capital expenditures. The company acknowledges higher churn levels and customer optimizations, prompting vigilant management of market conditions. However, they maintain a positive outlook, expecting MRR churn to average within their targeted 2% to 2.5% range throughout 2024.

Geographical Success and Revenue Streams

Exceptional MRR growth occurred in the EMEA region, with a 27% increase driven by power price hikes, outpacing the growth in the APAC and Americas regions. The Americas, with solid new logo growth and firm pricing, mainly in Chicago, New York, and Washington, D.C., shows a promising increase in cabinets billing. The EMEA growth is led notably by the German business and emerging market metros, reflecting strong regional performance. Revenue from owned assets has now risen to 66%, marking progress in asset ownership and control.

Guidance for 2024: Steady Revenue Growth and EBITDA Margin Expansion

For 2024, the company projects a 7% to 9% revenue growth and a substantial hike in adjusted EBITDA margins to approximately 47%. AFFO growth is forecasted between 9% and 12% compared to the previous year, with AFFO per share expected to increase by 8% to 10%. Capital expenditures are anticipated to be between $2.8 billion and $3 billion. These projections reflect the company's continued efficiency and performance, even as it upholds the quarterly cash dividend at $4.26 per share for 2024, constituting a cash dividend of about $1.6 billion for the full year – a year-over-year rise of 19%.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, and welcome to the Equinix Fourth 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. Sir, 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 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 October 27, 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 Regulation Fair 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 these 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' CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in 1 hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Charles.

[Charles Meyers, executive]

Thank you, Chip. Good afternoon, and welcome to our fourth quarter earnings call. We had a solid close to 2023 as digital transformation and accelerating AI demand drove a record quarter for xScale leasing, robust pricing dynamics and continued momentum across our data center and digital services portfolios. For the full year, we delivered more than $8 billion of revenues, eclipsing 21 years of consecutive quarterly growth, all while driving AFFO per share performance above the top end of our long-term expectations.

As we look ahead, we see our overall relevance to customers continue to rise with our global reach, highly differentiated ecosystems and full-range portfolio of services, positioning us as a key long-term partner to fuel digital transformation and unlock the enormous potential of AI. At the same time, many customers remain cautious in the face of macro uncertainty and are driving optimization across their broader IT infrastructure. Freeing up dollars for AI-related investments while still managing within tighter overall budgets. These dynamics, combined with capacity constraints in certain key markets continue to create cross currents in our business with solid gross demand and strong pricing dynamics being offset by more deliberate buying decisions and slightly higher levels of churn.

Meanwhile, we continue to realize the benefits of efficiency investments over the past few years and are showing strong operating leverage in the business, allowing us to maintain our differentiated return on invested capital, expand margins and deliver outsized performance on AFFO per share, which we continue to see as our lighthouse metric and the bedrock of long-term value creation.

As work to make digital infrastructure more powerful, accessible and sustainable, we are building relationships as trusted advisers to our customers, innovating across our product portfolio, deepening our technology partnerships to solve customer challenges and maintaining our discipline to put the right customers with the right workloads into the right assets.

This approach reinforces the competitive advantages of Platform Equinix as we focus our efforts in 2024 on 4 key areas: First, we plan to continue to expand our unmatched global reach, extending the 76 metros in 35 countries by year-end, including opening new markets in India, Indonesia, Malaysia and South Africa. We also intend to add much needed capacity in high-demand existing markets across all 3 regions, including significant retail phases in New York, Paris and Tokyo and accelerated investment in our xScale portfolio.

Second, we intend to extend our interconnection leadership by combining the scalability and performance of physical interconnection and the agility of Equinix Fabric with a commitment to lead the way in the massive market of multicloud networking with new innovations and products like our recently announced Equinix Fabric Cloud Router.

Third, we'll continue to prioritize our Future First Sustainability strategy, making Equinix a clear partner of choice to help our customers track and achieve their sustainability goals and manage an increasingly complex global power landscape.

And finally, we intend to unlock the power of platform Equinix embracing key partners and making it easier than ever to combine our value with theirs. So we can solve our customers' problems together. In particular, we'll focus on AI as we join forces with incredible partners such as NVIDIA, to ensure that Platform Equinix is the place where private AI happens.

Turning to our results, as depicted on Slide 3, revenues for the full year were $8.2 billion, up $925 million, a 15% increase year-over-year or a 9% increase, excluding the impact of power price increases. Adjusted EBITDA was $3.7 billion, up 11% year-over-year and AFFO was more than $3 billion for the first time, resulting in AFFO per share growth of 11% year-over-year. These growth rates are all on a normalized and constant currency basis.

On the AI front, we saw strong momentum across the value chain in Q4 as we cultivated key partnerships and won significant opportunities. While still early, gen AI has the capacity to transform every industry and is poised to accelerate rapidly. By 2026, Gartner predicts over 80% of enterprises will have used gen AI APIs and models or deploy Gen AI-enabled applications in production environments, up from just 5% in early 2023.

We're leaning into this opportunity and recently announced our expanded partnership for NVIDIA DGX private cloud at Equinix. This new service provides customers a fast and cost-effective way to adopt advanced AI infrastructure that's operated and managed by experts globally. So enterprises can move quickly, while balancing performance requirements, a need for cloud adjacency and a rapidly increasing desire to maintain control of critical enterprise data. We're seeing strong interest in this service across all 3 regions with early adoption from digital leaders in biopharma, financial services, software, automotive and retail subsegments.

Early wins in this partnership include a Fortune 100 global biopharma company who will create an AI center of excellence to accelerate its research and development process and shorten time to market for new medications.

Our data center services portfolio continues to scale with 9 new data center openings since our last earnings call. Given the strong underlying demand for digital infrastructure and the long duration in delivering new capacity, we continue to invest broadly across our global footprint. We currently have 49 major projects underway in 35 markets across 21 countries including 11 xScale builds representing nearly 20,000 cabinets of retail and more than 50 megawatts of xScale capacity through 2024.

Wins this quarter included a European biotechnology company, exiting their traditional data centers in favor of a global network dense, hybrid and multicloud environment, including liquid cooling requirements and are in holding a Turkish conglomerate, mainly serving as a strong global automotive supply company, expanding with Equinix to support their operations across 15 countries.

Shifting to our xScale initiative, the wave of hyperscale demand to support AI and cloud is translating into robust demand in preleasing activity. Since our last earnings call, we leased 90 megawatts of capacity across 6 assets in EMEA and APAC, including approximately 32 megawatts leased at the start of the year. This brings total xScale leasing to 300 megawatts globally.

Wins this quarter included supporting strategic Gen AI workloads as well as the hyperscalers first-scale liquid cooling deployment at Equinix. Looking ahead, we have a meaningful pipeline of opportunities to drive continued xScale momentum in the quarters to come.

Turning to our industry-leading global interconnection franchise, we now have more than 462,000 total interconnections deployed on our platform. In Q4, interconnection revenues stepped up 8% year-over-year on a normalized and constant currency basis, and we added an incremental 4,300 organic interconnections for the quarter. We, again, had healthy gross adds activity, offset somewhat by continued grooming and consolidations into higher bandwidth connections.

Internet exchange saw peak traffic up 3% quarter-over-quarter and 22% year-over-year, to nearly 36 terabits per second, led by expansion from existing customers. Additionally, during the quarter, we added 4 new native cloud on-ramps in Bogota, Calgary and Zurich. Equinix customers can now enjoy low latency access to multiple native cloud on-ramps in 37 metros, including 8 out of the 10 world's largest metros by GDP. Wins this quarter included a leading European quantum computing company, offering its technology through Equinix Metal and Equinix Fabric, enabling different industries to explore potential use cases in quantum computing.

And on insurance, a South African insurance company expanding in EMEA, leveraging Equinix Fabric and a managed service solution to be ready to begin trading.

In our digital services portfolio, we saw continued momentum as Equinix Metal and Network Edge drove attractive pull-through to Equinix Fabric. In January, we announced the general availability of Equinix Fabric Cloud Router, a new virtual routing service to simplify enterprises complex cloud-to-cloud and hybrid cloud networking challenges by providing an easy-to-configure, enterprise-grade multicloud routing service that can be deployed in under a minute. Customers can deploy Equinix Fabric Cloud Router in all 58 Equinix Fabric-enabled metros globally, with low-latency connectivity to all the major cloud providers as well as hundreds of other service providers.

Key digital wins included NetApp, who expanded their partnership with Equinix to deliver a Bare Metal as-a-service solution, a comprehensive compute, network and storage infrastructure stack with low-latency connections to major public clouds. And a leading semiconductor company, establishing a cloud adjacent storage presence using Equinix Metal and Pure Storage with integration into AWS.

Our channel program delivered another good quarter, accounting for 35% of bookings and over 50% of new logos. We saw continued growth from partners like Avant, HPE, HCL, NVIDIA and WWT, with wins across a wide range of industry verticals and digital-first use cases. Wins this quarter included supporting a consumer health care company's business unit spin-off with Dell, setting up a hybrid IT environment by leveraging colocation and cloud for their SAP environment in London and Singapore.

Now let me turn the call over to Keith to cover the results for the quarter.

[Keith Taylor, executive]

Great. Thanks, Charles, and good afternoon to everyone. As highlighted by Charles, we had a solid end to 2023. The Equinix team continued to execute a pace across all levels of the organization to ensure our strategy as the world's digital infrastructure company continues to separate us from our peers.

For the full year, our healthy gross bookings allowed the team to close almost 17,000 deals across more than 5,900 customers. Again highlighting the diversity and strength of our unrivaled go-to-market engine. The net positive pricing activity, both in the quarter and throughout the year, created strong pricing dynamics resulting in normalized and constant currency MRR per cab yield stepping up $38 for the quarter and $127 for the year to $2,227 per cab.

And we had record xScale leasing over the year while generating approximately $49 of nonrecurring xScale fee revenue in the quarter, primarily related to the EMEA region. On the sustainability front, we're pleased to again be listed on CDP's prestigious 2023 Climate Change A List and again, to be recognized in JUST Capital's 2024 rankings as #1 in real estate.

As we look forward into 2024, our customers remain committed to all things digital, and we believe we're the best manifestation of this opportunity as customers digitally transform their environments both in the cloud and through AI. Hence our enthusiasm about our position in the broader market and the opportunities that lay ahead for us.

That said, we remain highly vigilant to the current market conditions and the impact on our customers. As mentioned last quarter, capacity constraints exist across a few of our markets driving continued firm pricing power, albeit with some moderation to short-term growth. But as highlighted, on our expansion tracking slide, we have several new markets and additional capacity coming online later this year, with many other projects currently being contemplated as we look to extend our platform and drive growth.

Also, we're very pleased with the operating leverage the business is delivering, benefiting from prior investments while being highly focused on future spend, resulting in improving adjusted EBITDA margins for the year. Importantly, our forward guide on our core metric being AFFO per share reflects our confidence in the long-term opportunity of our business, a preferential position, I believe, relative to any others in our space given the foundational differences of our platform.

Additionally, our as-reported guidance includes positive FX tailwinds due to the weaker U.S. dollar relative to 2023 rates, and net power price decreases as utility rates moderate across both our regulated and unregulated markets.

Now let me cover the highlights from the quarter. Do note that all comments in this section are on a normalized and constant currency basis. As depicted on Slide 4, global Q4 revenues were $2.11 billion, up 15% over the same quarter last year due to strong recurring revenue growth, power price increases and record xScale nonrecurring fees. As you would expect, we're very pleased with the continued success of our xScale portfolio and the NRR and other fees generated, while also expecting a strong year in 2024.

As noted previously, xScale NRR is inherently lumpy. For Q1, we expect NRR will step down sequentially, yet remain elevated as a percent of revenues due to strong APAC xScale leasing activity in January. Q4 revenues net of our FX hedges includes a $3 million benefit when compared to our prior guidance rates. Global Q4 adjusted EBITDA was $920 million or 44% of revenues, up 12% over the same quarter last year due to strong operating performance, although down quarter-over-quarter due to a $15 million charge related to our planned corporate real estate activities and a higher seasonal increase in repairs and maintenance spend.

Q4 adjusted EBITDA net of our FX hedges had a minimal FX impact when compared to our prior guidance rates and does include $4 million of integration costs. Global Q4 AFFO was $691 million, above our expectations due to strong business performance and favorable interest income, offset in part by higher seasonal recurring CapEx. Q4 AFFO included a $4 million FX headwind when compared to our prior guidance rates. Global Q4 MRR churn stepped up to 2.4% in the higher end of our range due to customer optimizations.

For 2024, we expect MRR churn to stay in the upper side of our churn range in the first half of the year, then moderate down in the second half, and we expect this key metric to average within our targeted 2% to 2.5% per quarter range for the year.

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 was our fastest-growing MRR region at 27% due to power price increases followed by our APAC and Americas regions at 9% and 7% MRR growth, respectively. The Americas region had a solid quarter with strong new logo growth and firm pricing led by our Chicago, New York and Washington, D.C. metros. The Americas saw a good step-up in cabinets billing in the quarter, which now includes the Intel assets in our nonfinancial metrics.

Our EMEA business had a strong quarter led by our German business and our growth in emerging market metros. We also had strong xScale activity across a number of our markets over the year. MainOne, our business in Ghana, Ivory Coast and Nigeria is performing better than our business case on a constant currency basis. Additionally, we signed our first deal in our Johannesburg 1 asset in South Africa, which opens in Q3.

And finally, the Asia-Pacific region saw good performance in both our Japanese markets and in Mumbai. As it relates to our soon-to-be opened new markets in the region, we're actively building a strong pipeline of key ecosystem customers, which we expect to close prior to the IBX openings. Also, we're pleased to have recently announced our first long-term PPA in APAC for 151 megawatts. To date, Equinix has executed 21 PPAs across Australia, France, Iberia, the Nordics and the U.S. which will generate more than 1 gigawatt of clean energy once operational. This will certainly help these markets accelerate their clean energy transition.

And now looking at our capital structure. Please refer to Slide 8. Our net leverage remains low relative to our peers at 3.7x our annualized adjusted EBITDA. Our balance sheet increased approximately [ $32.7 billion ], including an unrestricted cash balance of $2.1 billion. Our cash balance includes the settlement of approximately $433 million of ATM forward equity sales, the timing triggered by the increase in our Q4 quarterly cash dividend. Additionally, during the quarter, we executed an incremental $500 million of ATM forward equity sales, which we expect to settle in late 2024.

As I've noted previously, we expect to remain opportunistic in the timing and currency of our financing strategy, including our plans to refinance the $1 billion of debt maturing this year.

Turning to Slide 9, for the quarter Capital expenditures were $996 million, including recurring CapEx of $105 million. Since our last earnings call, we opened 7 retail projects, including 4 new data centers in Frankfurt, Kuala Lumpur, Seoul and Washington, D.C.

In our xScale program, we opened 7 new projects and are now 87% leased or preleased for all of our operational and announced projects. During the quarter, we also purchased our London 8 IBX assets and land for development in Mexico City. Revenue from owned assets increased to 66% of our recurring revenues, a meaningful step up from last quarter, highlighting the progress we've had around asset ownership and long-term control of our assets.

Our capital expenditures delivered strong returns as shown on Slide 10. Our 174 stabilized assets increased revenues by 9% year-over-year on a constant currency basis or 5% excluding the benefit attributed to our power price increases. Our stabilized assets are collectively 85% utilized and generate a 27% cash-on-cash return on the gross PP&E invested. As a reminder, unlike prior years, we plan to update our stabilized asset summary on the Q1 earnings call.

And finally, please refer to Slides 11 through 15 for an updated summary of 2024 guidance and bridges. Starting with revenues, for the full year 2024, we expect top line growth of 7% to 9% on an as-reported basis or 7% to 8% on a normalized and constant currency basis, excluding the impact of lower power cost pass-through to our customers. We expect 2024 adjusted EBITDA margin to be approximately 47% or 160 basis point improvement over last year due to strong operating leverage, targeted expense management initiative and power price decreases. We expect to incur $25 million of integration costs, primarily related to the MainOne business, projects which we expect to complete by end of year.

AFFO is expected to grow between 9% and 12% compared to previous year. AFFO per share is expected to grow between 8% and 10% at the top end of our longer-term targeted range on both an as-reported and normalized and constant currency basis. 2024 CapEx is expected to range between $2.8 billion and $3 billion, including about $220 million of recurring CapEx.

And finally, after moving forward with the 25% increase in our per share cash dividend last quarter, we're holding our quarterly cash dividend constant at $4.26 per share for 2024. For the full year, the cash dividend will approximate $1.6 billion, a year-over-year increase of 19%, 100% of which is expected to be sourced from ordinary income given our expected strong operating performance.

So let me stop here and turn the call back to Charles.

[Charles Meyers, executive]

Thanks, Keith. In closing, 2023 was a year of significant progress and focused execution against our ambitious agenda. While macro uncertainties persist, we anticipate continued economic recovery as we move through 2024 and believe this will continue to embolden customers to accelerate their digital transformation agendas with a keen focus on capturing business value through the extraordinary power of AI.

Against this backdrop, demand for hybrid digital infrastructure should continue to grow, and we're confident that the character of this demand will increasingly align with the distinctive advantages of Equinix, offering customer flexibility to deploy architectures that are more distributed, more cloud connected, more on-demand and more ecosystem rich than ever before. Features that have positioned Equinix once again as a leader in IDC MarketScape's worldwide assessment of data center services.

Digital transformation is reshaping the fabric of our world, unlocking extraordinary possibilities and changing the basis for competition in almost every industry. Thanks to our distinct and durable advantages, Equinix is well positioned to capture these opportunities. Through the combined balance sheet by the power of Equinix and our JV partners, we'll continue to invest in supporting the vigorous demand for large-scale cloud and AI infrastructure around the world. Simultaneously, we will leverage the reach and connectivity of the world's leading retail platform to ensure that Equinix remains the best manifestation of the digital edge and a critical point of nexus for modern cloud-centric architectures. Reaffirming our purpose to be the platform where the world comes together, enabling the innovations that enrich our work, our life and our planet.

So let me stop there and open it up for questions.

[Operator]

[Operator Instructions]. Our first caller is Simon Flannery with Morgan Stanley.

[Simon Flannery, analyst]

Great. Two, if I could. The first one on the revenue guidance. I think at the Analyst Day, you talked about 8% to 10% revenue guidance. Is that -- is it the macro conditions causing the lower end to be at that 7% this year? And you've talked in the past, Charles, about strong opportunities in the U.S. xScale, hyperscale market. Any update on your thoughts there?

[Charles Meyers, executive]

Sure. Thanks for the question, Simon. Yes. Look, I would say overall demand signal, I think, remains strong. But as I referenced in the script, we continue to see what we're characterizing as these cross currents in the business. And we've seen those great varying levels of revenue headwind over the past few quarters, really from 3 sources, I'd say. The first 2 really related to macro, as you mentioned, and the last one, a bit more Equinix specific. First, I think a bit of extension in the sales cycle. In Q4, a bit similar to what we saw in Q1 of '23 we saw more deal slippage, which we really had not seen in Q2 and Q3. And so we thought that we were served in a better spot. But not a lot of lost deals, but a number of deals that got pushed one or more quarters and that affected the quarter and the exit rate.

Second, we saw churn as slightly elevated. And I think more towards the high end of our range, which really reflects the continuation of the optimization activity that we -- and candidly, others across the infrastructure space have been highlighting throughout 2023.

And then the last one I'd say is really more -- a little more specific to us. I think we continue to grapple with capacity constraints in some of our key markets. And that hits us on the gross bookings since we really can't accommodate larger footprint requirements in those markets, and it hits us on the churn side in some cases, as we work to try to free up capacity through some -- inducing some churn and so we've seen that certainly in markets like Singapore, so.

All those factors combined to give us a little lighter Q4, and therefore, a little bit lower exit run rate. And as you know, in a 95% recurring revenue business that kind of puts you behind the power curve. So our full revenue guide come in a little bit below our Analyst Day range. But again, as you saw a lot of things, I think, to be -- to feel good about, given the xScale strength, I think we saw strong bookings performance in our retail sweet spot. A very healthy pipeline and starting to see signs of emergence of an even bigger AI-related pipeline. So we continue to be upbeat about the long-term opportunity.

And importantly, I think despite the lower revenue guide, I think we're continuing to see robust pricing, really driving some operating leverage in the business when that continues to really translate to those attractive returns on capital, growing dividend and AFFO per share performance that really is at the top end of our long-term guidance range. So I think that's the overall thing. And again, I think really, we'd love to be in that range, believe me. And it's disappointing that we're not. But I think we're giving you a realistic view of what we think the current market conditions will support, and we're going to go like hell to try to beat that. So that's that.

Relative to U.S. xScale, yes, we are absolutely working on how we're going to continue to be more aggressive in this market. We think there is opportunity. As you know, our tune and my tune specifically has changed a bit on that over the last couple of years. In think we -- and I think we're positioned to really continue to get some significant, both economic and strategic benefits by advancing our investment in that. And so we're hard at work on that. Nothing specific to report here, but I think you'll hear from us in the near future on that.

[Operator]

Our next caller is Aryeh Klein with BMO Capital Markets.

[Aryeh Klein, analyst]

Maybe just on the AI front. Clearly, the momentum is accelerating. Curious how you think about the TAM there, particularly relative to the $21 billion outlined at the Analyst Day. And then maybe just on the NVIDIA DGX offering, how meaningful can that become? And is that something you can ultimately offer anywhere and beyond the 12 or so markets initially targeted?

[Charles Meyers, executive]

Yes. I mean, AI is a really interesting one. I think there is a massive opportunity. I think similar to what other people are seeing, we see it as hugely promising and moving very quickly, but still pretty darn early in the overall cycle. So it's -- it clearly was a major factor in our xScale leasing. Obviously, record bookings there, and I expect we're going to continue to see a lot of strength, and that's informing a bit of that desire to lean in on that investment. I wouldn't say it's yet proving to inflect our retail bookings. As I just said, we've kind of -- we were a little shorter than we wanted to be there. But again, we're seeing the green shoots there, we saw some great early wins on the retail side, both last quarter in terms of these network nodes to support large-scale training requirements with some of the service providers, we talked about those. And then some really good enterprise wins as they're looking at really enterprise-level training as well as inference, and how to really unlock the full power of the AI ecosystem.

And so -- and we think the NVIDIA DGX private cloud managed service is a really distinctive offering. And we're seeing big pipeline build there with NVIDIA on that front. And -- so I do think we have a very broad range of where I think we can offer that around the world and we'll continue to expand that over time. But again, I think it's a hugely exciting opportunity.

In terms of -- you asked about the TAM, I mean as I said at the Analyst Day, I think the TAM is huge. And so I think it's probably bigger than what we've set out there. I think when you look at the possible impacts and kind of what we're seeing in terms of the early returns on AI, I think you're going to continue to see a lot of investment flow to that. And so I think the TAM is probably bigger than what we outlined. I think the key for us is really where can we be distinctively differentiated in that. Yes, I think, we're going to get a [ piece fit ] on the xScale side. But I think the more differentiated position for us over the long term is unlocking the power of the AI ecosystem through this sort of cloud adjacent set of offerings.

And on the Digital Services side, our cloud adjacent storage and Fabric Cloud Router all sort of hitting in that sweet spot of what we think customers are really looking for control over their enterprise data, the ability to access AI tools from the hyperscalers who are innovating rapidly in that area and stitch all together and make it work in a way that makes sense for them. And so Fabric Cloud Router, Fabric, cloud-adjacent storage, all things that really play into that. So we continue to be very optimistic about that. But I would say tempering expectations, I think, it's going to take a little time for that to really fully realize itself in terms of the bookings flow.

[Operator]

Our next caller is Jon Atkin with RBC.

[Jonathan Atkin, analyst]

On the churn commentary, is there anything to call out in terms of regions where you saw it or which products, was it mainly cabinets or cross connects or other?

[Charles Meyers, executive]

Yes. I would say more on cabinets and power. The cross-connect churn is looking a lot like it has for the last several quarters, Jon. Growth activity continues to be strong. I think we're seeing some grooming, particularly in the network service provider segment as their businesses are a bit more challenged, and I think they're really focused on cost reduction. We are seeing some consolidation into higher speeds. So that's a bit of a headwind.

But I think a bit more -- the elevation was a bit more on the cabinets and -- power and cabinets side. But it really is related primarily, I think, to people resizing footprints in a way that is -- aligns to what their more immediate need is because I think that it's -- we have -- I think there was a time there when people were saying, "Hey, I have more than I need, but I'm just going to hang on to it." And I think we -- that was the case in '22. But in '23, we've seen people a lot more pressured by budget.

Part of that, we think, is actually related to -- you, guys, asked us a lot of questions when we did the PPI around, would that create elasticity. And we haven't seen what I would consider traditional elasticity of demand, but what we have sort of heard coming from our sales teams is a pressure that it says, "Hey, I ate up all my budget with the PPI. And so I can't grow as I expected. And so if I want to do some of the things, I'm looking to do on the AI front, I got to find room." And so they've been more typically contracting footprints. And so that's really the dynamic we're seeing.

Let me give you a little more color on a couple of areas. One, only a single-digit percentage of our churn is full customer churn. So almost all -- the rest of it is all people moving around resizing footprints, that kind of activity. And quite encouragingly, I said, well, let's look at those customers and those that are churning and tell me what their other -- what their activity level is across the rest of the platform. And quite encouragingly for the most part, you're finding those customers are buying elsewhere in tandem with the optimization work that they're doing. And -- so I think that's really the dynamic there.

In terms of, I would say we've seen a little more of that in Europe, Jon. And that's probably because we were -- we had a little large footprint population there. So I think we're seeing it a little heavier there. But again, our guide says -- sort of assumes that we're going to continue to see some of this through the first half of this year with attenuation of that in the back half of '24.

[Jonathan Atkin, analyst]

Got it. And then secondly, I was curious about the xScale initiative and growth path in the Americas and kind of the puts and takes of pursuing that organically versus inorganically?

[Charles Meyers, executive]

Yes. I mean I think we're very focused right now on organic. We would certainly not be -- we wouldn't necessarily not be open to inorganic. I just think it's a tougher thing in terms of identifying those assets. I think the multiples at which those things are trading are pretty heady, to say the least, and plenty of competition for those assets. And so I think we're primarily focused on organic. And -- but again, if circumstances and conditions change, one, our balance sheet is always ready. And I think we'd be open to that. But I think our focus is probably more so on the organic side.

[Operator]

And our next call is Michael Rollins with Citi.

[Michael Rollins, analyst]

Just first following up on the point that you're making about customer optimization. I think in the past, you've used the analogy of managing the retail data centers is like a Tetris sport of fitting different pieces and deployments together. As there's some optimization, can you share your opportunity to resell any space or power capacity that you get back and how that plays into the dynamic for 2024?

And then just secondly, just curious if you could unpack the constant currency organic growth range ex power of 7% to 8% in terms of what stabilized growth to be? And then within stabilized, how to think about the price ARPU component relative to the volume component?

[Charles Meyers, executive]

Okay. Maybe Keith talk about, but I'll jump in here on the second part of that, too, and we'll tag team it a bit. But let me catch your first one first. Yes, you're absolutely right. We long -- for many years talked about our -- of our business as a bit of a Tetris game in terms of figuring out how to get optimal returns from our capacity.

And I would tell you I think that given the increasing price environment, given the tendency for our churn to be a bit biased towards the large footprint side of things, we generally see churn as value accretive over time. That doesn't mean we want it all. It's -- but it's -- sometimes, we need it, and we actually may sort of work to get it to happen. And that's, as I said, that happens sometimes in Singapore in the markets like that. But there is inherently a trade-off between growth rates and return on invested capital. And what we're seeing is that even in high-demand markets, there is a vacancy drag. What I mean by that is the time frame that it takes to really fully replace churn with new revenue and that's particularly true when you're replacing a single large foot implementation with a large number of smaller deals, we're seeing probably a little longer vacancy drag than what we maybe would have thought.

And so while I think that the -- that kind of positive mark-to-market opportunity exists and improving our business mix has always been central to our ability to deliver increasing MRR per cab and return on investment sort of stabilized asset performance and importantly, AFFO per share, it is sometimes a revenue headwind for us. So we do see that on the churn, but I think there are positive aspects to it as well.

As to the 7% to 8%, look -- if you look at stabilized assets, absent the PPI, they're in that 5% range. And so -- but that includes selling interconnection into them. It's probably not a ton of additional volume growth. They're operating at reasonably high levels of utilization. So I do think you're going to see some positive price on mark-to-market. And I think you're going to see continued interconnection sort of probably more, in our more traditional range. And then the rest of that, that growth is going to have come from the broader footprint, including our nonstabilized assets, which are probably growing at a slightly higher rate. Keith, anything to add further on that?

[Keith Taylor, executive]

Yes , Mike, let me just add maybe just a few other quick points. We've always said that we think stabilized assets can grow 3% to 5% on a sort of constant currency and normalized basis. And this quarter, we're at that range 9% with the power price increases.

What are you going to feel -- what you're seeing this year being 2024, there's a couple of things. So we've neutralized currency, we've neutralized for all intents and purposes, the power price decreases. Again, that's going to have a roughly 30 basis point impact. I mean the power price, it will impact sort of the growth rate a little bit there. And so where we're really focusing is really the timing, right, to somebody else -- so what we're really focusing on is the timing.

And so as Charles alluded to, had a little bit higher churn as we entered the -- exited the year. We have a little bit more higher churn at the front end of the year. And so when you look to the back end of the year, you actually get a much more attractive growth rate than what you start the year at. And so what it blends itself out, basically, you've got a 7% to 8% growth rate.

But overall, when you sort of look at the business in and of itself, extremely strong pipeline. We're taking into consideration what we think is the timing delays. And although a reasonable book-to-bill interval, we still think that just how -- the speed at which things are converting from the pipeline into a billable event that's just taking longer. And then the other thing, I would just say is nonrecurring revenues for all intents and purposes, it's going to be roughly flat year-over-year. It's going to move around quarter-to-quarter, as we've talked about.

Q4 was very rich, Q1 is still pretty darn good because we closed 2 large assets in the xScale space in January. And so we will get those -- some fees for that. But I think what's most important is understanding that the richness of the pipeline, the timing of the year and what we envision that we'll exit 2024 with, is what gives us the confidence that we can continue to drive the value into AFFO per share number and give you the growth.

[Charles Meyers, executive]

Like I'd said -- the short story on it is that 7% to 8%, I think, is 3% to 5% is the way to think about the stabilized assets. And the balance of that is going to really need to come from the broader portfolio, which is probably going to have less mark-to-market juice. I think the 3% to 5% has to come in part from some juice in the mark-to-market opportunity that we have in the stabilized assets. Because those are the ones we are going to be rolling through. You probably have a little less than that in the non-stabilized portfolio because they are newer -- in newer contracts with probably less of a gap there. And then we're just going to have to continue to drive the volume on the gross bookings side.

[Operator]

Our next caller is David Barden with Bank of America.

[David Barden, analyst]

Two, if I could, just real quick. Charles, we've been talking about the hybrid private public cloud infrastructure for the longest time. You brought up a new term that I hadn't heard before, the private AI. And I wondered if you could maybe elaborate a little bit on how that compares, contrasts or doesn't to our understanding of hybrid private-public cloud. What is that, the private AI architecture look like as far as Equinix is concerned?

And then second, Keith. Last quarter, we talked a lot about cabinets, [indiscernible] per cab consumption and how that was evolving and the potential to bring a new number to the forefront, which would be something like a cabinet's equivalent billing number. Could you kind of elaborate a little bit on how that looked like in the fourth quarter and where we are in evolving that disclosure.

[Charles Meyers, executive]

Thanks, David. So on private AI, I do think there's strong similarities and some differences between what we think about private cloud or hybrid cloud. But I think the dynamic is quite similar. And in fact, I was looking at an industry survey that was recently given to me that showed that based on their discussion with respondents that we're implementing gen AI that about 32% of those respondents were doing that in public cloud exclusively. About 32% we're doing it in private cloud exclusively. And about -- and the balance 36% were doing it in a hybrid between some private cloud, some public cloud. And the folks who were doing it in public, many of them were doing it in more than 1 public cloud.

And so that dynamic, I think, is actually going to take shape even maybe faster than it did in sort of how we saw cloud large play out over the last several years. And I think the end state is going to be that 36% is going to be a much bigger number. In other words, a much larger number of people are going to be doing -- sort of prosecuting their AI agenda through both public and private infrastructure.

But I would say when we talk about where private AI happens, a lot of it is really focused on where people want to place their data. And this desire to -- and it is sometimes about the proprietary nature of that data and controlling it, et cetera, and it sometimes about the cost of moving data in and out of public clouds and other factors, including performance.

And so private AI, what we're seeing is people saying, look, I want to maintain my control over my enterprise data. And I want to place it somewhere that is cloud adjacent because the hyperscalers are innovating at such a rapid rate that I want to use their models, their tools, their -- and then you have this broader ecosystem outside of just the hyperscalers that is also evolving that people want to connect to.

And so cloud adjacent storage, Equinix Fabric and Fabric Cloud Router are incredible tools, and then you mix that with the colo opportunity that they might need to place GPU infrastructure and that kind of thing, and that's really what we see as the essence of the private AI opportunity. And so -- and it does, I think, seem to be taking shape in a way that's really positive for us. And then go ahead on the second piece on the -- I know that we had that question before, David, we figured that one might be coming.

[Keith Taylor, executive]

Yes, David. So as it relates to some new metrics, we're continuing to review the data sets. The team, we're not clear that exactly what needs to be presented that we can comfortably put out to the market on a consistent basis. But one of the things we're thinking about, just to give you a sense, we're not ready for prime time yet, is looking at density that's over a threshold and the extent that there's a certain amount of density over some required threshold, we modify the cabinets. Again, as you all know, we report on a cabinet equivalent basis. So that's what we're thinking about because we think the cabinet is probably the best representation for you to get a sense of how we're utilizing the asset.

That all said, we still -- I think we have to continue to be quite transparent about the overall density of the cabinets sold so that you can see sort of a trend line. We spent some energy thinking about power. Power just doesn't feel like the right metric to be sharing given the nature of our business model relative to others. Again, as you know, we're a retail player and it just -- it's just a different type of metric, and we're not sure that, that is a valuable metric.

So looking forward, we're going to continue to work it, and we'll absolutely be sort of ready to go, I think, sometime in the first half of this year with either adjusted metrics or a different view on how we're going to represent our fill rates.

[Operator]

Our next question is from Michael Elias with TD Cowen.

[Michael Elias, analyst]

Two, if I may. One of the questions we get from investors is whether GPU-based compute is disintermediating CPU-based compute. And if so, how the legacy data centers designed at lower cabinet densities will able to handle that. Are you seeing customers swapping CPUs for GPUs for their existing data center deployments. If so, how do you mitigate essentially against the obsolescence risk in existing facilities? That's the first question.

And then the second question is along a similar vein for AI inference. The thought is that the model [ we need is ] proximate to the data, which candidly lives within your facilities. Although I think there's also a question of whether that's CPU-based or GPU-based. As you look to capture demand for inference, how is the standard data center design for you, guys, evolving from both a power density perspective and a cooling architecture standpoint? Any color there would be helpful.

[Charles Meyers, executive]

There's lots there. All things -- thanks for the question, Michael. All things that are obviously top of discussion around Equinix in various places. I do think that -- look, GPUs are sort of something that is much more special-purpose dedicated compute that is -- that goes beyond the traditional CPU realm. I mean, I think is a very, very clear trend. That said, I don't think that it's a world where all things -- compute and all things, AI are necessarily done by GPUs. And I think that there is going to be a range of players that I think continue to evolve on the compute side of things to provide chips that meet various sets -- various purposes in the AI realm.

And so in terms of the -- and I don't -- we aren't seeing is this massive shift out or -- from CPU to GPU. What we're typically seeing is people adopting GPUs in parallel. And I think that even some things that are currently GPU-centric, we think over time, may actually be well served by either current or future generations of CPU. And so we're not seeing that as a big obsolescence trend.

And that relates a little bit to the second part of your question, and I think both on inference and training because I would say that the evolution of the data center design needs to respond to both of those things. I would say the more acute near-term evolution is on the training side. Because it's substantially more power dense and does require, I think, different thinking around that power density and the cooling to support it. And so I think the much higher average density design that we would probably put forward in a xScale build-out would be that more acute representation of the near-term change.

On the inference side, and I think broadly on the retail side, we are seeing densities -- power densities rise but at a much slower rate. And I think that our ability to implement liquid cooling as long as we have access to a chilled water loop, our ability to get liquid cooling into the facility to support high-density implementations is quite high. And in fact, we announced that we can do that in a large number of markets around the world.

So, I think, we're in a good position. I don't think we face a situation where we're going to have meaningful obsolescence even of our significantly more dated assets. And so -- especially as we can implement liquid cooling inside of those facilities. And so -- but I think we're -- those are things we continue to track, and I do think they're going to have to be very top of mind for us. And probably the overall pace of change in our design is going to increase in this next decade than it was in the one prior for sure.

[Operator]

Our next caller is Matt Niknam with Deutsche Bank.

[Matthew Niknam, analyst]

I will keep it brief, it's 2 follow-ups. Number one, what guides your expectation for churn to, I guess, improve slightly in the second half? Is there anything you have -- you're seeing in terms of visibility or anything guiding that expectation for improvement?

And then secondly, in terms of just macro, you talked about some, I guess, deal slippage and dynamics that resemble maybe 1Q of '23 that you saw in 4Q. Just any updates in terms of -- we're now, I guess, halfway into 1Q. Have those deals closed? Are they still out there? Just any color, I guess, from what you've seen in the first 6 weeks of this year.

[Charles Meyers, executive]

Yes. Let me take the second one first, Matt. We have -- some of that business has closed, some of that closed very quickly immediately after the quarter, and that's just sort of a natural turn of events. Some of it is in our commit for Q1 and some of it has rolled into Q2 or quarters forward from that. So very little lost. We did -- we have lost some of that, but very little of it. And so really primarily push forward.

Again, as I said, Q4 did unfortunately look a little more like Q1. We would have [ referred it ] to look a lot more like Q2 and Q3. But that is the dynamic. And I think that we're -- it's hard to fully predict. But again our customers -- the sentiment we hear from customers is one, yes, we have tighter budgets. Yes, we're continuing to optimize. But boy, we sure are committed to what we're doing on the digital side of things. And yes, we want to talk to you about what we're doing in AI. And yes, we want to figure out where to place our data. But I think those things take a little time to translate into firm bookings trajectory.

And then as to why we feel a comfort level around mitigation of churn? One, we do have good visibility to our pipeline. In fact, our large deal churn, we've gotten very good forecasting. We saw a little bit more midsized churn in Q4, which contributed some to the elevation. And so I think we have to keep our eye very closely on that. And I don't have a ton more to offer you on that particular view. But I think that -- we do think that it is realistic for us based on what we're hearing in terms of appetite from customers that we would see some abatement in churn in the second half.

I'll add one more comment. It used to be, I would say, '21 and most of '22, I think there was a scarcity mindset relative to data center capacity. '23 really changed pretty meaningfully. The macro conditions changed. This sort of desire to tighten budgets, the desire to kind of offset the impact of PPI. I think all did play into what we were hearing was this very different appetite and a higher degree of optimization.

I would say, I think we're seeing the front end, though, of some of our customers who have at least talked to us about turning back some capacity, sort of come back and say, yes, don't put that back on the market yet because we're not sure we want to give up capacity in this market. And so that's the first time, I think, in a while that we've heard that kind of mindset. It's typically from larger service providers. But I think we're going to probably see -- we're starting to see the front end of that.

And so again, if macro does what we think it will do, which we would probably see some improving interest rates over the course of the year, I think we would see a generally improved macro environment, and I think that's sort of informing our guidance.

[Operator]

Our next caller is Richard Choe with JPMorgan.

[Richard Choe, analyst]

I wanted to follow up on the competitive environment. Are you seeing deals go to competitors or in markets where you're tight? Are they just being pushed out?

[Charles Meyers, executive]

Yes. I mean, we certainly see some. It's not like we don't see any competitive loss. But our -- and I would say it's more typically on some of the larger footprint stuff. I think there are certain use cases that we're just -- so competitively distinguished that we have less -- that there's -- it's less likely that we'll see those. It's oftentimes more a timing issue.

I do think that where we're tight, customers sometimes have to find another way, right? And so we hate that, but it happens. But I wouldn't say overall, Rich, that there's a meaningful change in the overall competitive environment that we're operating in. As I said, you've always heard me say this, there's certainly -- certain markets where we have solid people with a solid value proposition that I think can compete effectively in certain markets. And I do think we're starting to see also just people thinking about how they want to allocate their workloads. And so the overall share of wallet continues to be more of the question in terms of how people are thinking about their spend going forward.

[Richard Choe, analyst]

And then in terms of pricing actions for the year, what's kind of implied in guidance? And should we expect that there are some price increases for interconnection this year?

[Charles Meyers, executive]

Yes. I mean, I think overall, we're seeing a really robust pricing environment, right? And so -- and probably many of the -- we put forward through a number of price increases. I do think we're evaluating a price increase on interconnection in the U.S. market. And I think -- but overall, I think that's certainly one contributing factor to our ability to continue to drive growth in the business. And I think that firm pricing is also what's really, I think, informing the really critical overall message here, which is a degree of confidence and a really attractive guide on the improving profitability of our business and the AFFO per share guidance, which is, in fact, at the -- sort of more towards the top end of our Analyst Day guide. And so -- and again, as we've said, that's really our lighthouse metric. We think it's the bedrock of value creation when you combine that with our dividend yield and overall creates a really attractive story.

[Operator]

And our next caller is Frank Louthan with Raymond James.

[Frank Louthan, analyst]

Great. And just maybe to follow up on that, Charles. With some of this optimization with customers, any thought about customers possibly looking for some products you have such as cross connect or others trying to find that from others [ are also less ] as they're trying to optimize their budgets? Is there any concern there?

[Charles Meyers, executive]

Yes, Frank, we don't see that as typical. It's -- there -- in a lot of markets, I think, that our position is so -- it's not that we're the only game in town. And so yes, there is some substitution in cases, but it really is more us seeing that people saying, hey, things that they weren't using, things that they can consolidate on the higher-speed circuits, those kind of things are really the broader dynamics. Also, I would tell you that I think we're seeing that the positivity or the positive benefits of being able to have the full range of services available for our customers is really there.

And so they may say, "Hey, your -- we think your metal offering really meets our immediate need here. It's our agile, it's more flexible. We may eventually move that into colocation over time" or sometimes the opposite. And -- so I think that the momentum, both in the data center services and, I think, increasingly on the Digital Services side, even though -- I think, we've got a lot of work to do, continue to evolve our go-to-market motion and our underlying cash systems and processes, et cetera to really support the slightly different business that an as-a-service model provides in digital services, but I think we'll continue to make good progress there. And I think our full portfolio of offerings is resonating well with the customer.

[Chip Newcom, executive]

This concludes our fourth quarter earnings call. Thank you for joining us today.

[Operator]

Goodbye. And this concludes today's conference. Thank you for participating. You may disconnect at this time, and have a great rest of your day.