Equinix Q2 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
August 7, 2024
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Operator

Good afternoon, and welcome to the Equinix Second Quarter Earnings Conference Call.

All lines will be able to listen-only until we open for questions. Also today's conference is being recorded. If anyone has objections please disconnect at this time.

I would now like to turn the call over to Chip Newcom, Senior Vice -- Senior Director of Investor Relations. Thank you. You may begin.

Chip Newcom
Senior Director of Investor Relations at Equinix

Good afternoon, and welcome to today's conference call.

Before we get started, I would like to remind everyone that some of the statements we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we've identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed February 16th, 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's policy not to comment on its financial guidance during the quarter unless it's done to an explicit public disclosure. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com.

We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR webpage 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's 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 one hour, we'd like to ask these analysts to limit any follow on questions to one.

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

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Thank you, Chip. Good afternoon, and welcome to our second quarter earnings call. I'm honored to be hosting my first earnings call today as CEO and President of Equinix. I'm immensely proud to lead our dedicated team of more than 13,000 employees around the world. I would like to express my gratitude to Charles and the entire Equinix team for the warm welcome and the facilitation of a smooth transition over the past two months. I look forward to the continued partnership with Charles in his role as Executive Chairman, and I'm excited and optimistic about the road ahead.

As a Board member for the past four years, I've witnessed many of the unique qualities that have driven Equinix's durable success. Our 25 years of investment has built a business now spanning 264 data centers in 72 metros across six continents. Our focus on customer value and outcomes has created interconnected digital ecosystems unrivaled in our industry. It is a phenomenal foundation to build upon as CEO. As the stewards of some of the most important digital infrastructure in the world, we are exceptionally and uniquely positioned to capitalize on the immense opportunities that lie ahead.

Business transformation remains a critical priority for our customers and the emergence of AI marks a pivotal point for our industry. AI, similar to the growth of cloud technologies a decade ago will take time to fully develop. In the near term, AI training workloads are driving significant demand, particularly from service providers.

Our xScale program continues to be a direct beneficiary of this demand. We intend to build on this momentum, meaningfully augmenting and extending our xScale portfolio, particularly in North America. This will complement our robust portfolio across Europe and Asia Pacific. We are excited to share that we recently closed on land and power for our first multi-hundred megawatt xScale campus in Atlanta. We look forward to announcing details of this project and our next xScale joint venture in the coming months.

At the operational end of the AI spectrum, our network nodes inference workloads. As with cloud, Equinix continues to be the preferred location for network nodes as customers seek the right connectivity solutions for data ingestion and distribution. We also see inference demand beginning to take shape. We believe the implementation and deployment of these workloads will accelerate over the coming years. The neutrality, global reach and scale of Platform Equinix can deliver the performance, network density and cloud adjacency, which inference workloads will require.

We are already seeing significant enterprise and service provider interest in our deployment capabilities. In Q2, we partnered with WWT to serve Alembic Technologies, an AI-powered marketing analytics platform for enterprise. Alembic Technologies deployed their AI infrastructure at Equinix to run proprietary inference algorithms on massive data sets for predictable cost, privacy, speed, and secure access to data sources in the cloud.

InstaDeep, a leading provider of AI decision-making solutions deployed Nvidia AI cluster at our Paris 10 asset to access key ecosystems, optimize their network and support their growth objectives. Our approach to the market opportunity created by AI is multifaceted and we believe it will deliver value in the short term and sustainable growth over the medium to long term. Our xScale offering provides the infrastructure and expertise required for massive scalable data center operations for our cloud and large-scale technology customers.

For our enterprise and mid-market customers, we offer AI-ready data centers and turnkey solutions, enabling them to scale efficiently and effectively as they introduce AI technologies into their business operations. For those who require high-performance inferencing, our Edge solutions handle the data at the edge where it is generated ensuring optimal performance for the next generation of business applications.

Over the past two months, I have embarked on a listening tour across a number of our locations, meeting with our customers, partners and employees. And whilst it is still early in my tenure, and there is still work that I need to complete, I have noted some areas of opportunity that will underpin our strategy for the company going forward, the opportunity to simplify across numerous aspects of our business. This will allow us to accelerate our pace of execution. The opportunity to drive more focus. Whilst we may do less, the programs of work that we focus on will represent excellence in execution and deliver the highest quality outcomes. The opportunity to amplify our go-to-market efforts to delight our customers and energize our partners.

Equinix has consistently demonstrated discipline and execution. This mantra of discipline allows us to deliver market-leading returns on capital and serves as the underlying fuel for long-term growth in AFFO per share, our core financial metric. Building on this foundation and executing on the opportunities I noted should create a simpler, more focused and ultimately higher valued company.

With all of this in mind, I'll turn to our Q2 performance. Equinix had a great second quarter. We delivered record gross bookings. Our pricing remains strong. We continue to invest broadly across our offerings to further enhance the scale and reach of our industry-leading platform. Our delivery of adjusted EBITDA and AFFO per share continues to run ahead of expectations.

As you can see on Slide 3, Q2 revenues were $2.2 billion, up 8% over the same quarter last year. This represents our 86th consecutive quarter of top line growth. Adjusted EBITDA was up 17% year-over-year, with strong AFFO per share flow through. Interconnection revenue stepped up to 9% year-over-year. These growth rates are all on a normalized and constant currency basis.

In May, we announced the opening of our first data center in Johor with strong interest from customers across our new Malaysian footprint. In July, we announced our expansion into the Philippines through the planned acquisition of three data centers in Manila from Total Information Management. This transaction valued at approximately $180 million is expected to close in the fourth quarter of 2024, adding more than 1,000 cabinets of capacity in addition to land for future development.

The combination of our strong leadership position in our Singapore hub and our entries into Malaysia, Indonesia and the Philippines, strategically position Equinix to help our customers capitalize on the expanding digital opportunity in the fast-growing Southeast Asia region. Customers taking advantage of our expanding global footprint include FirstDigital, an Internet and telecommunications provider. FirstDigital is significantly lowering total cost of ownership by building a multi-cloud network with Equinix Fabric Cloud Router to connect to Cisco WebEx and AWS across all three regions.

Our global interconnection franchise continues to perform with over 472,000 total interconnections now deployed. Gross interconnection additions were at the highest level in two years and pricing continues to trend favorably. However, net interconnection adds were 3,900 due to grooming activity, primarily in our content and networking verticals. We do expect this grooming to lessen over time. Equinix Fabric growth was underpinned by 100 gigabit port additions and strong pull-through from other digital services products.

Network Edge experienced continued rapid growth with an expansion activity from existing customers. Key recent interconnection and ecosystem wins, include Nuam Exchange. This is a new company formed after the integration of the Santiago Lima and Colombia Stock Exchanges. Capital market participants can now benefit from Nuam's extended reach, low latency and secure connectivity supported by Equinix in key markets like New York and Sao Paulo.

Our channel program delivered another solid quarter, accounting for over 30% of new bookings and 55% of company new logos. We continue to see growth from partners like AT&T, Avant, Dell, HPE and Orange Business, with wins across a wide range of industry segments and use cases. Notable wins included an AI-as-a-Service solution via our distribution partner, Tech Data and MSP partner Asia Pac. Leveraging a combination of co-location and Equinix Fabric, our partners are delivering an LLM for a high-level learning institution based in Malaysia.

Now before I turn the call over to Keith, I wanted to recognize that we believe we are in a position of strength financially from both a balance sheet and from an access to capital perspective. Our investment strategy delivers a strong return on invested capital, all of which gives us the flexibility to execute our go-forward strategy.

With that, I'll turn it over to Keith to cover the results from the quarter.

Keith D. Taylor
Chief Financial Officer at Equinix

Great. Thanks, Adaire. Now let me first say, I look forward to the next phase of the Equinix journey alongside you and I know it's going to be a very exciting time for all of us at Equinix. And also good afternoon to all those that are on the call today or who might be listening later.

So to start, we had a great second quarter as the team continued to execute against our plans. We had record gross bookings, closing more than 4,000 deals with more than 3,000 customers. We continued our trend of net positive pricing actions and we ended the quarter with solid net bookings. Our forward-looking pipeline remains deep, which we expect will drive momentum in the second half of the year and we're delivering profitability ahead of our expectations.

As a result, we're again raising our full-year adjusted EBITDA and AFFO guidance and therefore AFFO per share too, our lighthouse metric. Also, as Adaire highlighted, I'm excited about the next phase of our xScale initiative. We plan to lean into this program as we've seen strong demand from this offering -- for this offering as evidenced by both our cloud and AI bookings momentum. We continue to believe this off-balance sheet JV structure with our equity partners is the right model to pursue this significant opportunity, which also drives durable value on a per share basis.

To date, through the xScale JVs, we've invested about $4.7 billion in the program. Since our last earnings call, we leased an incremental 17 megawatts of capacity in our Silicon Valley 12 and Paris 13 assets. This brings our total global xScale leasing to 365 megawatts, representing nearly $6 billion of total contract value and more than $700 million of annualized revenue once these assets are fully ramped. Looking forward, we have a strong funnel of additional xScale opportunities and we look forward to updating you on our future JV partnerships in the near term.

For our non-financial metrics, MR per cabinet is rising, increasing 7% year-over-year on a normalized and constant-currency basis to $2,287 per cabinet, driven by favorable pricing environments, solid interconnection attach rates, and increasing power densities. As discussed on our last earnings call, as expected, we saw continued pressure on our unadjusted net cabinet spending metric due to capacity constraints in certain key markets, increasing power density, and timing of churn.

StackPath unexpectedly announced their immediate liquidation in June, resulting in 300 cabinets churning at quarter-end as an example. Related to cabinet density, the Q2 cabinets churn were at an average density of 4 kilowatts per cabinet, while the new cabinets booked were an average density of 5.9 kilowatts per cabinet.

In Q2, non-xScale net megawatts sold increased meaningfully compared to the prior six quarters. As we look forward, given our strong gross bookings and as a result, the rising backlog of cabinets sold, but not yet installed, we expect billable cabinets to improve in the second half of the year. On the sustainability front, we continue to advance our bold Future First agenda, implementing innovative ways to integrate into the communities in which we operate. This includes new Heat Export programs across Europe and the Americas, including our new Paris 10 IBX, which helps heat a portion of the aquatic center at the Paris Olympics. This is one example of a sustainability initiative that we believe will become commonplace in the markets we serve in the future.

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 Q2 revenues were $2.159 billion, up 8% over the same quarter last year and in the upper half of our guidance range on a constant currency basis, including the impact of a one-off charge against recurring revenues. As expected, non-recurring revenue stepped up sequentially due to strong xScale leasing activity in the quarter. Q2 revenues, net of our FX hedges included a $6 million headwind when compared to our prior guidance rates due to the weaker Brazilian real and the Japanese yen in the quarter.

Global Q2 adjusted EBITDA was $1.036 billion or 48% of revenues, up 17% over the same quarter last year and above the $1 billion quarterly threshold for the very first time. Relative to our expectations, adjusted EBITDA was at the top end of our guidance range due to strong operating profits and timing of spend. Q2 adjusted EBITDA, net of our FX hedges included a $3 million FX headwind when compared to our prior guidance rates and $4 million of integration cost.

Global Q2 AFFO was $877 million, up 17% over the same quarter last year, better than our expectations due to strong operating performance and the timing of the land lease payment related to our upcoming Singapore 6 build. Q2 AFFO included a $3 million FX headwinds when compared to our prior guidance rates. Global Q2 MR churn was 2.3%. For the balance of the year, we expect MR churn to remain in the 2% to 2.5% quarterly guidance range.

Turning to our regional highlights, the results, which are covered on slides 5 through 7. On a year-over-year normalized basis, APAC was our fastest-growing region at 11%, followed by the Americas and EMEA regions growing at 9% and 5%, respectively. The Americas region had a great quarter with record gross bookings led by strong financial services activity, firm pricing, and a higher mix of medium and large footprint deals. We saw particular strength in our Tier 1 markets, including Dallas, New York, Washington DC.

Our EMEA business delivered a solid quarter with healthy bookings activity and strong pricing. The team did an excellent job selling our global platform with record exports and strong intra-region activity, including intra growth in emerging markets such as Abu Dhabi, Istanbul, and Warsaw. And finally, the Asia-Pacific region had a strong quarter with momentum in our largest markets in the region, including Hong Kong, Singapore, and Tokyo, as well as strong customer interest in our new ASEAN metros. Encouragingly, we saw strong intra-region activity driven by customers deploying AI workloads in both Japan and Malaysia.

And now looking at our capital structure, please refer to Slide 8. Our balance sheet increased to approximately $33 billion, including an unrestricted cash balance of $2 billion. Our cash balance increased quarter-over-quarter due to strong operating cash flow and the debt raised in the quarter, offset by our growth investments and the cash dividend. In May, we raised $750 million of senior U.S. dollar notes due in 2034 and we immediately swapped these notes into euros at an effective interest rate of 3.9%.

Our net leverage remains low relative to our peers at 3.5 times our annualized adjusted EBITDA. Our blended debt borrowing rate is now 2.4%, the lowest in our industry. As noted previously, given the global nature of our business, we plan to opportunistically raise additional debt capital in low-rate markets where we intend to expand, creating both incremental debt capital to fund our growth, but also placing a natural hedge into these markets.

Turning to Slide 9 for the quarter. Capital expenditures were $648 million, including recurring capex of $45 million. We continue to invest across our platform with 54 major projects currently underway in 36 markets and 24 countries, including 15 xScale projects. Since our last earnings call, we opened 10 projects across eight metros, including new data centers in Johor, Osaka, Silicon Valley, and Warsaw. We also purchased our Helsinki 5 and Madrid 2 assets and land for development in Atlanta, Dallas, and Milan. Revenues from owned assets increased to 69% of our recurring revenues and more than 80% of our current retail expansion will be on our own land or own buildings with long-term ground leases.

Our capital investments deliver strong returns as shown on Slide 10. Our 180 stabilized assets increased recurring revenues by 4% year-over-year on a constant currency basis. Stabilized assets were collectively 83% utilized and generated a 26% cash-on-cash return on the gross PPE 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 2024, we're maintaining our underlying revenue outlook with expected top-line growth of 7% to 8%. This reflects our solid execution in the first half of the year and a strong pipeline to drive momentum in the second half of the year. We're raising our underlying 2024 adjusted EBITDA guidance by another $15 million due to strong operating performance and lower integration costs. We're raising our underlying 2024 AFFO guidance by $15 million, an 11% to 13% increase over the previous year. AFFO per share is expected to grow between 9% and 11% at or above the top end of our long-term plan as we continue to compound value for our shareholders. And finally, 2024 capex is expected to range between $2.8 billion and $3.1 billion, including about $240 million of recurring capex.

So let me stop here. I will turn the call back to Adaire.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Thank you, Keith.

In closing, we had a strong first half of 2024. We stand apart from our competitors by seamlessly integrating a global footprint with cutting-edge infrastructure. This allows us to effectively address the wide range of opportunities in the era of AI from the training needs of the service providers to the business needs of our enterprise customers. It also positions us to continue to effectively address the broader set of demands of our customer base.

We believe our unwavering commitment to discipline, simplicity and focus combined with our amplified go-to-market efforts will continue to drive growth and deliver higher value for our employees, customers, partners, and shareholders.

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

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Operator

Thank you. [Operator Instructions] Our first question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Simon Flannery
Analyst at Morgan Stanley

Great. Thank you. Good evening. Adaire, congratulations on the new position and thank you for the comments on your listening tour and where you see the opportunities. I'd love to get your high-level perspective on what led you to take the role at Equinix? Obviously, you've known them from the Board, but you came from Google, you'd worked at SAP before that. So you've got a great perspective on the cloud needs of the hyperscalers, the AI opportunities. So it'd be great if you could just put all of that into context on where you see Equinix being positioned for the training, but particularly for the inference wave of AI? Thank you.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Thanks very much for the question, Simon, and thank you for the kind words. And it's certainly being a whirlwind of 10 weeks, you know, since I formally took the position and a lot that I've heard and understood during the listening and learning sessions. I have to say, I remain exceptionally positive about the opportunity ahead. One of the reasons or one of the main reasons or one of the many reasons actually why I took the role with Equinix is obviously understanding the strategy of the company and its unique position in the ecosystem.

I believe that Equinix is uniquely positioned to offer a range of enabling services for our customers so that they can actually capitalize on the opportunities presented by various different technology platforms. And when I think about our demands and the customer needs, it is actually much broader than the AI portfolio. And many of our customers have made a very significant commitment to hybrid and to multi-cloud. And as customers become more at ease with cloud as a technology paradigm, we can see many more workload-based decisions beginning to occur. So decisions about where particular workloads are best suited. And as I look at this in the context of AI and the AI demand, that initial short-term demand is coming indeed from the service providers. And this is reflected in our xScale business and in the bookings performance that we've seen in the xScale business. And as you heard in our remarks, this is something that we're looking to expand globally.

But many CIOs like during the early days of cloud are looking to ensure that they have an AI strategy. And we are beginning to see the beginnings of enterprise training and enterprise funnel as we look at customers looking to evolve their strategy into proof-of-concepts and beyond that into working production systems. As I said, I think retail will have a much broader demand and a more meaningful long-term upside from AI as these use cases move from -- from proof-of-concepts into production. And there is, of course, a lot that Equinix is offering to our customers here, both in our retail business and of course, on the xScale side of the house. And I think this unique balanced approach to the opportunity represented in the broader demand context, but also in the era of Cloud is something that's extremely exciting and I'm looking forward to leading the company through this journey.

Simon Flannery
Analyst at Morgan Stanley

Great. Thanks for your thoughts.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Thank you, Simon.

Operator

Next, we'll go to the line of Nick Del Deo from MoffettNathanson. Please go ahead.

Nick Del Deo
Analyst at MoffettNathanson

Hey, afternoon. Again, congratulations Adaire on taking the helm. Adaire, you had mentioned simplification, focus, and amplifying go-to-market as some of the areas that seemed interesting to you initially. I guess, can you expand a little bit on what you saw and things we might see on that front in the coming years?

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

For sure. Thank you very much again for and congrats, Nick, I appreciate that. And first of all, when I look at the overall approach that I will take, it is about creating value and it will always have a customer lens, an outside in perspective, ensuring that customer success translates and is equal to Equinix success in many regards. When I look at this, this means looking at how we continue to evolve the product portfolio, how we continue to drive critical partnerships so that we're at the center of the digital ecosystem and how we continue to enhance and evolve our go-to-market engine.

Let me specifically pick up on the notion of simplification. When one simplifies, you bring core processes back to their very core. This enables you to be agile in your response and helps you to accelerate the underpinning pace of the business. And whilst this list is not exhaustive, there are definitely a few areas that I see we have some opportunity to continue to involve and simplify. Things like our quote to cash process and elements like our customer lifecycle and ways that we can systematize and process the customers journey with us and throughout their lifecycle. And these type of enterprise-grade processes will help us remove friction within the system and help deliver that pace, agility, and simplicity.

When I look at it from a focus point-of-view, it is about understanding not just the footprint that's in our core, but how we continue to grow and evolve our core business to meet the needs of our customers. And this is both in our xScale business, but also on retail, where we look at how our global footprint enables customers to operate and transact in environments where they may not need to invest in the physical infrastructure themselves to do that. I also think that focus is an important point when we consider our digital services portfolio and look at this through the lens of where we have adjacency and augmenting some of that core functionality that we have that exists in the core footprint of the Equinix data center world. This is points where we have the right to win where customers would expect us to lead. And so for instance, I look at the underpinning growth in our fabric business, how important that can be as we look to continue to evolve our virtual interconnections portfolio. And this enables us to focus in perhaps on certain aspects of our product portfolio in order to ensure that we're investing where we can have the highest-level of returns.

On our go-to-market side, we have new leadership in our go-to-market team. And I think it's a very important aspect of our business to underpin our go-to-market processes with a very clear segmentation strategy that allows us to identify those customers that have the highest revenue perspective for us and to manage those customers in a high-touch environment, but likewise to enable us to extend our reach through channels and distribution effectively to customers who are you in an SME, more general business type space. So I hope that's given you a little bit of amplification on simplicity, focus, and the actual augmentation of our go-to-market. Thank you for the question, Nick.

Nick Del Deo
Analyst at MoffettNathanson

Yeah, that was terrific detail. Thank you. Can I follow up with one on interconnection adds? Obviously, they dropped quite a bit sequentially. I think you called out optimization in grooming and content and networking as drivers of that, but also noted strong adds. So maybe can you just expand a little bit on those puts and takes and how we should think about the path to getting interconnection adds back to a healthier and more sustainable level?

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Yeah. Yeah, I'm happy to comment on that and I can ask any of my colleagues here to add if there's anything that they would need to add to the -- to my commentary. And so first of all, as we noted, we had 3,900 net-adds. We had, as Keith mentioned in his comments, the StackPath liquidation, which impacted us negatively 400. And so without that, we would have had 4,300 adds. Now let me just unpack some of the trends for you, Nick, to build on your question.

First on the positive side. When I look at the gross adds, it's the highest level in two years. And year-to-date, this interconnection demand is actually back to peak pandemic levels. In absolute numbers, our A to Z connections continue to increase and we've seen this quarter-over-quarter. And this is obviously the way that we define unique relationships between companies in a metro. And I think this really truly speaks to the value of Equinix. So those things coupled together, the gross adds, the absolute number of A to Z continuing to increase. The fact that we're out of peak pandemic levels, I think they're very good indicators of future momentum. Pricing is also trending very favorably. We have 11% spread between churned and new additions. And you see revenue up to 9% year-on-year on a normalized and constant currency basis. So a number of positives as we look at the interconnection lens.

On the churn side, we saw the churn elevated in '23 and continued to worsen in early '24, and this was up especially in the EMEA theater of operation. I think networks have had the most toughest operating environment and we're continuing to see pressure in that segment of our industry customers. I would also say that M&A affects this, where we have paid cross-connects, but unpaid intercompany cross-connects and often replacing those in an M&A trajectory and this takes some time for us to work through. But specifically, as it relates to EMEA, we can see that the data indicating some decelerating churn rate from the top 10 who have been churning in the past. So that again gives me the confidence to say that I can believe we'll move forward on a positive trajectory here and this is an area of focus for me as we move forward over the course of this quarter.

Nick Del Deo
Analyst at MoffettNathanson

That's great. Thank you so much.

Operator

Next, we'll go to the line of David Barden from Bank of America. Please go ahead.

David Barden
Analyst at Bank of America

Hey, guys. Thank you so much for taking the questions, and Adaire welcome. I guess I have to be the one to ask. So obviously, the DOJ, SEC subpoenas continue to kind of be subject of conversation around the company. So I guess if you could kind of give us an update on where we are and what will take to put that to bed would be great?

Also, a follow-up on that is in the aftermath of the conclusion of the independent review conducted by the Board, were there any changes that you guys have made in this past quarter with respect to any kind of internal or external reporting? And then the last one, if I could, Keith, you referenced the unadjusted cabinets. I think this is the third quarter or fourth quarter in a row we've had to talk about why cabinets aren't in volume terms living up to expectations and it's because of the densities and better revenue per cabinet. Where are we on kind of coming up with some language that represents the adjustment that you think investors need to see when they read the release the first time we are out? Thanks.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Okay. David, thank you very much for the words of welcome. And maybe we'll start with the muted -- the cabinet growth scenario. I'll throw that to Keith and then he can perhaps comment on the investigation status.

Keith D. Taylor
Chief Financial Officer at Equinix

Yeah, David. So yeah, first and foremost, look, we continue to see the net cabinet billings is an area of high focus. As I said sort of in the prepared remarks, roughly 300 of those cabinets related to stack -- to StackPath that announced their liquidation at the end of the quarter. Put that aside, there's a number of things that are impacting and one of them -- one of them I'll refer to on why we say unadjusted, but capacity constraints, of course, has continued to have an impact on basically the net cabinet billing and then the timing of churn, which is an obvious statement. The increasing density continues to be a factor. And as we said, there's two -- there's two things I wanted to pull out for you.

And I said in the prepared remarks, but I wanted to make sure that it's understood and it's full of this context. First and foremost, we had record gross bookings. So it gives you a sense that the volume in the businesses is there. And so that gives me great confidence and we had record gross bookings in the Americas Theater more specifically. You add to that, that we had the best net megawatts -- net megawatts billing in the retail space. I'm not talking about xScale in retail and that tells us in the last -- in the last seven quarters. So this is six quarters prior, we had -- we've done meaningfully better than we had done before. So it tells you about the health of the underlying business and really ties into what Adaire was talking about on the sort of gross interconnects.

So there's the volume there. But there's this element of the business both on how it's -- how things are timing out. We knew -- as you knew, we're sort of forecasting Q2 would be probably a negative quarter again. There's the timing of the churn. But when I talk about the unadjusted is -- we do that -- we can do that math for you, which basically says, well, when you churn out a certain number of cabinets at that level of density and you apply different factors to them with a higher-level of density, you're basically dealing with a whole of roughly 2,000 just because of density. And so that's why we say the unadjusted. I think the most important thing is that, look, we've given you a good sense of -- there's great momentum in the business. We're seeing great gross values. Yes, there is an element of churn that's coming through the business.

We've been talking about that for many quarters now, the economic climate in which we operate. But overall, with the depth -- the depth of the pipeline and the momentum we see in our business, that's what gives us confidence that you're going to see that abate. And then the last part I would just say is the backlog has been as high as we've seen in a very long period of time and is substantial. Not a surprise largely because we did more medium to size -- to larger size deals in the quarter. And when you do that, you have some level of extension in the book-to-bill interval and therefore, the backlog does creep up as we work to configure those deployments and get them into implementation.

So hopefully, that answers that question. And let me then just go to the DOJ, which I think Adaire was going to pass to me anyway. No surprise to you, we're continuing to work with the SEC and the DOJ. It's a process where we're working through that process. We continue to feel very confident in that process and how we're responding to it. I would like you to draw a great comfort from the fact that not only did we file our 10-Q last quarter, but today we filed our 10-Q again today. And so when you think about the reinforcement we got from the Audit committee's investigation of our financials, you should draw great comfort from it. But like anything, with the short seller report as it comes out and the following subpoenas that came from the SEC and DOJ, we have to respond to it and therefore, it is a process.

In your question to -- was there anything that came out of what we want to do differently? I think it was very important. When you look at what we announced in May, we were clear that not only did we not have any restatements, but we didn't have any adjustments. Restatements is a fact about materiality. Adjustment is an adjustment. And so the system is working as it should, which is great. We have the controls, the team does the work. And overall, we feel very confident about it. But like anything, you always are going to step back and reflect or there are other things that we could do that are different. And so that's what the teams are looking at all the things that we do and saying, do we do different type of disclosures.

You saw us recently talk about the redevelopment of our cap -- redevelopment capex, which we thought, one was a very important disclosure. We had already been planning for it in advance of the short seller report. But those are the kind of things that we just -- we make sure that there's appropriate augmentation of policy and disclosure. And I think it puts us in a much better position. But relating to it, is there any adjustments? The answer is no, but we always think that there's things we can do better. And I'm drawing from a line of one of my core CFO friends, he always says better, better, never done. So because we're always looking to do better, every single quarter and we're never going to be done. So we'll take -- we'll take the advice and guidance from both the counsel and whether anything comes back from DOJ and SEC and we'll -- and we'll get better. But overall, I feel very comfortable in our financial disclosures.

David Barden
Analyst at Bank of America

All right, guys. Thank you so much. Thank you both.

Operator

Next, we'll go to the line of Jim Schneider from Goldman Sachs. Please go ahead.

Jim Schneider
Analyst at The Goldman Sachs Group

Good afternoon. Thanks for taking my questions and welcome Adaire. I was wondering if you can maybe expand on your comments earlier about AI workloads moving from service providers to enterprise? Adaire from your vantage point, how long do you believe it will be before that AI demand becomes more directly material on the enterprise side to Equinix on the sort of conventional retail side?

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Yeah. Thanks very much, Jim, and thanks for your question and your words of welcome. So I think in the short-term, the demand that we're seeing is primarily for training based workloads. And this is primarily driven in the short term by cloud and the various different technology partners that we have. And this, as I've mentioned, is how our near-term pipeline is being represented and the beneficiary of this in many instances is our xScale business. In the enterprise, mid-market retail business, we absolutely have AI-ready data centers ready to take customer workloads. We have already closed a number of transactions where we are running smaller AI-based workload scenarios in the training world for enterprise-based customers.

We are working with many of our CIOs in to support their AI strategy as they look to integrate AI into their business and manage their cost, whilst they're doing so. And of course, some of our -- and some of our ecosystem partners have -- have created almost a magnetism around Equinix as it relates to AI. Companies like CoreWeave and Lambda that we announced last year in '23, who have capabilities available today in Equinix data centers and of course, the NVIDIA DGX private cloud offering that we also announced late in '23. All of these have very active work and pipelines, some of them have active users who are making use of this system now. So I'd say that we're seeing early -- early traction in the enterprise-level inferencing type workloads beginning to occur in our data center environment, but that is something that we'll see extrapolate and grow over the medium to longer term.

Jim Schneider
Analyst at The Goldman Sachs Group

Thanks. And then as a follow-up, last quarter, you outlined your plan for your DC1 data center, it's both modernize and expand capacity. As you look across your portfolio, do you foresee the opportunity to do this more broadly across more facilities?

Keith D. Taylor
Chief Financial Officer at Equinix

Yeah. I think, Jim, you're referring to our DC2 redevelopment, if I'm not mistaken...

Jim Schneider
Analyst at The Goldman Sachs Group

Sorry, DC2, excuse me.

Keith D. Taylor
Chief Financial Officer at Equinix

I just want to make sure. We think the universe of -- the universe of what we call redevelopment projects like that is 5 to 7-ish. They're strategic, they're of scale, they're of size and of great importance. And hence that we're -- we're doing those type of redevelopments because of the value that we get to create, introduce more capacity into that highly connected data center and get a good return, not only a good return on both the element of it, which is redevelopment, but also the enhancement aspect of it. And so overall, the universe isn't -- isn't massive. We have 264 data centers as Adaire alluded to. We think is five to seven strategic assets strewn throughout the world that we'll do that too.

Jim Schneider
Analyst at The Goldman Sachs Group

Thank you.

Operator

Next, we'll go to the line of Michael Elias from TD Cowen. Please go ahead.

Michael Elias
Analyst at TD Cowen

Great. Thanks for taking the questions. And Adaire, congratulations on taking the helm. Maybe to kick things off, one of the things that we've noticed is the differential in densities between what's being churned and what's coming in. As I think through kind of the evolution at the chip level, it seems like there -- there is an acceleration in power consumption there. Do you view this as a structural trend, i.e., we could be talking about four, five quarters from now, you taking in cabinets at 7 KW per cab and churning at 4, thus this represents us increasing headwind to that -- to that cabinet number? I guess that's my first question. Just trying to get a sense around, is this going to become a greater and greater headwind?

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Yeah. I'm 10 weeks in, so this is certainly one of the areas you know that I've done a little bit of a double-click on here. And I can certainly see that there are absolutely some shifting dynamics in the business. And Keith highlighted this increasing power density in the cabs that are churning in versus, as you pointed those that are churning out. And for us, perhaps this is something where we would look to see the billable cabs as a measure, maybe not being as tightly tied to revenue growth as we've seen it in the past. And that's something that I think we're reflecting on.

If I think about our xScale business, kilowatts probably is a cleaner metric. But when I think about it from retail, our MRR per cab and our billable cabs, you know, that perhaps is the right P times Q math that we have now. Even though growth is probably more weighted towards the cabinet yield versus the cabinet count at this point. And I think that we can continue to supplement that with quarterly insights into how we're seeing the density -- the density evolve as our business evolves and as the capabilities within our data centers continue to evolve. So certainly something and that's a toll process for us here. And I think as as Keith mentioned, just to reiterate, I think those very strong gross bookings plus the leading indicator of cabinets sold not yet installed are indicators that we will improve on this number in the second half.

Keith D. Taylor
Chief Financial Officer at Equinix

And maybe, Michael, if I can just add on to what Adaire said. I think it's important, as Adaire said, look, we got to keep on looking at it. David asked the question earlier on, we want to be able to respond to it in a way that absolutely makes sense and give you all the statistics at least so you can have the same sort of view that we have. Clearly, the shifting dynamics is more density. So that's a positive. But I think what's really the crux of what is going to come here, if you have more density, your price per unit is going up and you're seeing that in the ARPU or the MR per cabinet. But we're also when we -- when we look to monetize the capital that we invest in the business, no surprise to you, we're looking at a return on that investment, those targeted IRRs are 20% to 30% pre-leverage.

And so you're seeing the cash-on-cash yield still deliver, but that one core metric really feels like it's -- again something that I think makes sense to keep on tracking, but we're really going to have to give you other components so that you get the full value of what's going on in the business. But the underlying bias is more density. And that's how we're retail -- where retail data -- multi-tenant data center player and you need to deal with the changing shifts in customer expectations. And that -- when you go into one of our data centers, you get a real good feel for that the true difference between somebody maybe in one aisle versus somebody in a different aisle. And that tells you like there are shifting dynamics taking place in a really live environment and it is an ecosystem that thrives with a -- with a propensity to increase density.

Michael Elias
Analyst at TD Cowen

Great. Thanks for the color there. And if I could just squeeze one more in. I believe the expectation at the beginning of the year was for churn to step-down in the back half. Is that still your expectation? And maybe as part of that, could you give us a sense for the churn that you're seeing among medium and small-sized deployments? Thanks.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Yeah, I'll comment on this and then perhaps Keith, feel free to add. And I mean, certainly, we're seeing that. You know our churn in the range of 2% to 2.5%, which is the range that we guided to, is something that we can continue to manage too. And I think that if we normalized for StackPath in this quarter, we would have been slightly better than our expectations in terms of where we landed. And we also have a supply-and-demand situation in the market, which has a very positive trajectory on pricing. So maybe this gives us the opportunity to be thoughtful about managing our overall churn dynamic, so that we could selectively use proactive churn to help us and drive and improve some yields here. And I see that some of the challenges that we had in the first half will still exist at the macro-level.

There's certainly this need for customers across all industry segments to do more with less. And optimization is still something that customers are looking to do because it does give them that outcome on the more with less tangent. And we definitely have a number of our customers who are in a tougher environment in terms of the industry that they're operating in and the dynamics of that industry. That being said, we see that we will be managing within our full year as per the guide to the ranges that we set. And then I guess just from a thought process, you know, incoming to this, in the world of cloud, this is quite a usual process. I think that there is an opportunity for us to look at some of our -- to some enhancements in terms of management and proactive management early on of our customer engagement with us and you know as it relates to their used profile and intention to churn. And so I think there is a potential for us to lean in and support our customers as they optimize and to engage in churn-type discussions much earlier in the process than we've been doing thus far.

Keith D. Taylor
Chief Financial Officer at Equinix

Michael, maybe just -- I'll just add-on one thing -- one additional thing given Adaire's comment. Through the second half of the year, the pipeline is deep. We are -- the underlying expectation really is to see, obviously, our gross booking activity continuing to go up. We expect churn is going to be consistent with how we previously guided, which is important. And then in the fourth quarter, we've already sort of telegraphed, we're working with one customer in Singapore that is coming in size that we're asking -- we're asking -- we're working with them to vacate the premises. We will update you on that by the time we get to the back end of the third quarter, so in the -- on the October call. But that's the one area that is a planful churn. It was built into our guide. And as I said, it should happen by the end of the year and that gives us back some very valuable capacity in Singapore that we would like to have to put to our use. And our Singapore 6 asset isn't going to be available till probably sometime in late '26, I would think, by the time it's up and running.

Michael Elias
Analyst at TD Cowen

Great. Thanks for the color.

Operator

Next, we'll go to the line of Michael Rollins from Citi. Please go ahead.

Michael Rollins
Analyst at Smith Barney Citigroup

Thanks and good afternoon. And Adaire congratulations on the new role. I'd like to get your thoughts on the addressable market for your retail data center services maybe in a slightly different way. So this deck -- the presentation deck cites that you have about 2,000 networks, over 4,800 enterprises, and I think about 3,000 cloud and IT service providers. And when you look at the opportunity for future revenue growth, curious how much more room do you have to grow the customers in each of these verticals relative to the opportunity to increase the spend from the customers that you have?

And then just a follow-up, if I could as well. Keith, following on some of your comments about second half influences, when we take a look at the constant currency normalized ex-PPI revenue growth for the last two quarters. It seems like the first half average was roughly 8%, which is at the high end of the 7% to 8% target for the year. And then you made comments, I think a few times now on the gross bookings environment, the pipeline. So can you share a bit more of what's happening in the back half of the year that's leaving the annual range at that 7% to 8%? Thanks.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

Keith, do you want to take first one?

Keith D. Taylor
Chief Financial Officer at Equinix

Yeah, sure. I'll do the first one.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

And yeah, I take first or you go first?

Keith D. Taylor
Chief Financial Officer at Equinix

Why don't I take it? Let me take the second half of the year first, Michael, if I may. Look, the -- it's not lost on you and I'm sure all the other listeners that the business is performing well. The one thing that has been persistent is the -- although we're comfortable with the range of churn, our ability to guide it has been persistently high and we had a tough fourth quarter in 2023 and that translates into momentum into 2024. That all said, when you look at this particular quarter, $2,159 million, there is an element of quarter-over-quarter currency movement. We've given you all those numbers, I won't repeat them. We're also felt the drag related to energy. As you know, we have -- we're going through power price decreases.

Then we had -- we had this one-off -- one-off large charge to our recurring revenues that we booked in the quarter, that to size it for you is roughly $7 million. And so there's a number of things that sort of have affected the sequential movement quarter-over-quarter and that's on the recurring side of it. There's great variability on the non-recurring. We're all -- we'll do our best to guide you each quarter on what's going on, suffice it to say, the success in the xScale business has created some volatility with non-recurring and we'll reconcile that and normalize it out for next year as well, just so you can truly get the sense of how the underlying business is performing.

So all that said, we said that churn would slow down in the second half of the year and our bookings would accelerate. The pipeline is at the highest level we have ever seen in our business. So that's good. Churn, we have, I think good visibility too. And as a result, that's the momentum you're seeing that you should see in the business. And so we continue to remain confident. And as Adaire said, no, despite the macroeconomic conditions, we know they're tough out there. Companies like StackPath, when they hit the wall basically at full speed and just liquidate, it gives you a sense that some companies aren't doing well out there. But you've got an evolving economic environment.

We know our relevance. We know the digital environment is very friendly to Equinix and we know the supply environment is going to continue -- continue to get more constrained. So the combination of all of that continues to give us the optimism that we have not only in how we exit the year, but also how we position ourselves for 2025. And again, you know what our lighthouse metric is driving value on a per share basis. That is our whole intention, but we believe we can do that with both good fiscal management and top-line growth. So hopefully, that gives you -- gives you the answer that you're looking for.

Adaire Fox-Martin
Chief Executive Officer and President at Equinix

And perhaps just building on that and to address the first part of the question around the opportunity in our installed base and new market opportunities. This is something that I feel very, very positive about, not only have we undertaken and already commenced a very deep refresh of our segmentation of our customer base, but in the context of that, we have looked at each of those -- those elements and how we can create sales play scenarios that allow us to have almost like a rinse and repeat model from a selling perspective into a cohort of customers. So very excited about the upsell opportunity as a result of some of those programs in our install base, but also about the outcomes of the segmentation exercise and the way that we will define our coverage model to enable us to reach further to prospects and bring them into the Equinix family as customers. And so a piece of work that's underway and I'm very confident about the prognosis and outcome of that work.

Chip Newcom
Senior Director of Investor Relations at Equinix

Thank you, everyone, for joining our call today. This concludes our Q2 call.

Operator

[Operator Closing Remarks]

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