Equinix Q1 2021 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
July 28, 2021
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Operator

Good afternoon. Welcome to the Equinix Second Quarter Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Katrina Rymill, Vice President of Investor Relations and Sustainability. You may begin.

Katrina Rymill
Vice President of Investor Relations at Equinix

Good afternoon, and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements we'll 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 identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 19, 2021, and 10-Q filed on April 30, 2021. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix' policy not to comment on its financial guidance during the quarter unless it is 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 Equinix' IR page at www.equinix.com. We have 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'd also like to remind you that we post important information about Equinix in 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. [Operator Instructions]

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

Charles J. Meyers
President and Chief Executive Officer at Equinix

Thanks, Kat. Good afternoon, everybody, and welcome to our second quarter earnings call. As reflected on our results, we are seeing significant momentum in our business as digital transformation outpaces previous expectations. Technology spend is accelerating, and Equinix remains uniquely positioned as traditional technology markets continue to shift to as-a-service consumption models and hybrid multicloud is widely adopted as the architecture of choice. The pandemic has highlighted that digital infrastructure is not just a business enabler, but a primary source of competitive advantage for digital leaders across all industries, and we continue to see a multitude of trends driving infrastructure that is more distributed, more on-demand and more ecosystem connected than ever before, playing to our distinctive strengths.

Our results reflect strong performance across our geographies, tremendous momentum in our market-leading interconnection franchise and deep customer demand across our expanding portfolio of services. Against this robust demand backdrop, we had a great second quarter, delivering record bookings fueled by continued momentum in our Americas business and a strong quarter from Equinix Metal. We processed more than 4,600 deals in the quarter across more than 3,200 customers, demonstrating both the scale and the consistency of our go-to-market machine. We achieved our 74th consecutive quarter of top line growth and are pleased to have been recently been included in the Fortune 500, an exciting milestone made possible by the confidence our customers place in Equinix and by the incredible commitment and passion of our 10,000-plus employees around the world.

And we continue to expand our global platform with 35 projects underway across 25 markets in 19 countries, with Q2 openings in Bordeaux, Helsinki and Silicon Valley. Aligned with our values and our purpose, we're also proud to share further enhancements to our old commitments on sustainability, leaning in across all elements of ESG. In early June, we became the first in the data center industry to commit to being climate neutral by 2030, backed by science-based targets, an aggressive green financing plan and a comprehensive sustainability agenda. Aligned with the current climate agreement, this commitment is a critical step to ensuring Equinix continues to advance investments and innovations to reduce greenhouse gas emissions and greening our customers' digital supply chains.

Additionally, as part of our ongoing focus on diversity, inclusion and belonging and our commitment to well-being, we recently hosted our Second Annual WeConnect event, a 24-hour virtual gathering led by our employee connection networks and our DIB and well-being teams. This event celebrates equality, diversity and connection and offers our employees an opportunity to listen, to learn and to engage in courageous conversations as we build a culture and a community that can have a meaningful, sustainable impact on the future of our world.

Turning to our results, as depicted on Slide three, revenues for Q2 were $1.7 billion, up 8% year-over-year. Adjusted EBITDA was up 7% year-over-year, and AFFO was again meaningfully ahead of our expectations. Interconnection revenues grew 12% year-over-year with solid unit adds and healthy pricing. These growth rates are all on a normalized and constant currency basis. Our global interconnection franchise continues to perform well. We now have over 406,000 total interconnections on our industry-leading platform. In Q2, we added an incremental 7,800 interconnections and now have 15 metros with more than 10,000 total interconnections, a reflection of the scaled digital ecosystems that drive our differentiated value proposition.

Internet exchange saw peak traffic up 4% quarter-over-quarter and 31% year-over-year. And we're seeing IX diversify as large-scale peering expands to a broader base of enterprise customers. Equinix Fabric saw excellent growth across all three regions, driven by healthy unit growth and increasing yields as customers expand usage of higher bandwidth connections to interconnect regional and global footprints.

More than 2,600 customers are now on Fabric, and we continue to see strong attach rates as businesses diversify their end destinations and evolve their connectivity needs in support of highly-distributed infrastructure and the adoption of hybrid multicloud. Turning to digital infrastructure services, customers are responding very positively as we augment our portfolio to enable physical infrastructure delivered at software speed. We had strong bookings with Equinix Metal this quarter, including our largest win to date with our channel partner, Avant, for a blockchain company, building a network of validation nodes across eight markets. Our network edge offering showed meaningful acceleration with average deal size increasing nicely as enterprise customers are deploying a diverse set of virtualized network functions from our marketplace vendors.

Importantly, and as expected, digital infrastructure services are also driving strong cross-selling activity and interconnection pull-through with nearly 1,000 vertical connections already provisioned to support these deployments. Shifting to our xScale initiative. We continue to expand our plans in light of robust market demand and positive customer feedback. Late in the quarter, we announced agreements for additional joint ventures with GIC, Singapore sovereign well fund. When closed and fully built out, the total investment between Equinix and GIC in our xScale data center portfolio, we will be nearly $7 billion across 32 facilities globally, with more than 600 megawatts of power capacity. We currently have seven xScale builds under development across all three regions, and we pre-leased our entire Frankfurt nine asset in Q2, representing 18 megawatts of capacity fully committed in advance of delivery.

With this deal, we have -- now have -- have now leased more than 100 megawatts of xScale capacity and 100% of our open capacity at least. We are actively engaged with partners to develop entry plans and other expansion markets globally, including Australia. Now let me cover highlights from our verticals. Our network vertical delivered strong bookings across all three regions, with particular strength in APAC as traditional carriers continue to invest and specialty telecom firms evolve their portfolios to address demand for cloud, mobile, IP services and over-the-top delivery.

New wins and expansions this quarter, including McKay Brothers, a local telecom service provider, leveraging interconnection to better serve low latency financial customers. Crosslake Fibre, a leading provider of network services deploying in our London four and Paris seven IBXs to support the first new subsea cable laid across the U.S. channel in nearly 20 years and a global telecommunications provider expanding their presence to new locations, including Milan and Bordeaux. Our cloud and IT vertical saw continued momentum over indexing Europe as organizations accelerate hybrid multicloud adoption.

Expansions this quarter included Zoom, a leading video communications platform, expanding coverage and scale to support market demand and a cloud-delivered enterprise network security provider deploying infrastructure to support offerings in new locations. Our enterprise vertical achieved record bookings, with broad global strength punctuated by an exceptionally strong quarter in the Americas across several subsegments, including health care, consumer services, business and professional services and retail. New wins and expansions included Red Bull, a major sports energy drink manufacturer, deploying infrastructure across all three regions to take advantage of Equinix' cloud ecosystem; a leading global cosmetics retailer deploying digital infrastructure to optimize their network, move out of legacy data centers and locate private infrastructure adjacent to their cloud providers; and a Fortune 500 global insurance provider optimizing their infrastructure to support multicloud. Content and digital media also achieved solid bookings led by growth in CDM, publishing and digital media and gaming, as digital transformation continues to shape this vertical.

Expansions included StackPath, a leading edge computing and services provider, deploying infrastructure across multiple edge locations; Earnest Research, a leading data analytics company, transforming network topology and interconnecting to multiple cloud across Platform Equinix; and i3D.net, a leading provider of application hosting and infrastructure services, deploying on Platform Equinix to enable a consistent high-performance gaming experience globally. And our channel program continues to outperform, delivering a record quarter and accounting for over 35% of bookings.

Wins were across a wide range of industry verticals and use cases including multiple Equinix Metal and edge deals as the channel embraces our digital infrastructure services. We saw continued strength from alliance partners like AWS, Cisco, Dell, Google, IBM and Microsoft. And we also had success with key resellers around the world, including a win with HPE for Woolworths Group, a leading Australian retailer, to modernize and scale their payments platform, which processes over 30 million transactions per day.

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

Keith D. Taylor
Chief Financial Officer at Equinix

Thanks, Charles, and good afternoon to everyone. I hope you and your families are well and enjoying the summer months. So let me start by saying it was great to spend time with many of you, albeit virtually at our June Analyst Day. No surprise, we were eager to share our plans on how we intend to scale, extend and innovate the business over the coming years to drive long-term shareholder value, meaning more revenues, higher margins and more cash flows. With respect to the quarter, the business continues to perform exceedingly well, as the macro environment for digital infrastructure continues to drive favorable demand.

In fact, we exceeded our expectations. There are many highlights to share with you through the quarter. To start, we had record bookings activity at both the company and the Americas regional level. We enjoyed robust channel activity and lower-than-planned churn. Interconnection additions were solid, both physically and virtually, and our digital infrastructure service lines, which include edge and metal, are gaining momentum. Simply put, we're continuing to execute against the goals highlighted at the Analyst Day. And given our performance, we're raising our guidance across each of revenues, adjusted EBITDA, AFFO and AFFO per share for the year.

Now let me cover the results for the quarter. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on Slide four, global Q2 revenues were $1.658 billion, up 8% over the same quarter last year due to strong business performance across our platform, led by the Americas region. And as expected, nonrecurring revenues increased quarter-over-quarter to 7% of revenues due to a meaningful step-up in xScale joint venture fees in APAC and EMEA and custom installation work across all three regions. As you can appreciate, nonrecurring revenues are inherently lumpy and therefore, as a result, we expect our Q3 nonrecurring revenues to decrease by $8 million compared to Q2. Our backlog of "booked but yet to be built" cabinets has increased slightly, despite the 4,200 increase in billing cabinets in the quarter.

Q2 revenues, net of our FX hedges, included an $11 million benefit when compared to our prior guidance rates. Global Q2 adjusted EBITDA was $797 million or 48% of revenues, up 7% over the same quarter last year, meaningfully outperforming our expectations due to strong operating performance and the timing of spend. Q2 included a planned rebound in repairs and maintenance spending and higher utility costs relative to Q1. Q2 adjusted EBITDA, net of our FX hedges, includes a $6 million FX benefit when compared to our prior guidance rates and $4 million of integration costs. Total Q2 AFFO was $632 million, including a $25 million recurring capex increase compared to the prior quarter, above our expectations due to strong operating performance and lower integration costs.

Turning to our regional highlights, whose full results are covered on Slides five through seven. APAC had the highest year-over-year revenue growth of 11%, owned by the Americas and EMEA regions, both at 8%. The EMEA revenue growth rate reflects the lapping of the significant interconnection price increases and other one-off positive adjustments from last year. We expect the EMEA growth rate to return to normalized levels in Q4. The Americas region saw continued strength with our second consecutive quarter of record bookings, as six of our seven largest markets improved over the prior year.

Also, we're enjoying healthy booking activity across our smaller markets, too, including Atlanta, Boston, Denver and Seattle. Deals were focused on retail interconnected deployments with healthy pricing. And the Americas region also benefited from strong imports from the other two regions, a reflection of our continued focus on platform selling. Our EMEA region had a strong quarter led by Dublin and Stockholm and our newly-opened Bordeaux market as well as high exports to the other two regions. Enterprise has contributed approximately 1/3 of the region's bookings, up significantly over the prior year. We're also seeing good momentum across our flat markets. And the EMEA region benefited from nonrecurring revenues related to xScale fees earned from the pre-lease of our entire Frankfurt nine and London 11 buildings, 37 megawatts of demand.

And finally, the Asia Pacific region had a solid quarter, led by Singapore and Japan with strong regional bookings. Pricing for small- and medium-sized deals remain strong, and we're seeing good traction with Equinix Metal. The APAC region's quarterly MRR growth was partially constrained due to COVID-related capacity delays in Singapore and political uncertainty in our Hong Kong market.

And now looking at the capital structure, please refer to Slides eight and nine. We ended the quarter with cash of about $1.8 billion, and our net debt leverage ratio is 3.8 times our Q2 annualized adjusted EBITDA, highlighting the financial flexibility and strategic advantage we have relative to anyone else in our space. In May, we raised $2.6 billion, including an incremental $1 billion in green notes. Since Equinix' inaugural investment-grade issuance in late 2019, we've reduced our annualized interest expense by approximately $196 million, offset in part by the incremental debt capital raised. Our blended cost to borrow is now the lowest in the industry at approximately 1.7% and our weighted average maturity is nearly 10 years. We also raised $100 million of ATM equity in the quarter.

We continue to expect to use both debt and equity to fund our future business needs with an increase leading towards debt capital. Turning to Slide 10 for the quarter, capital expenditures were approximately $692 million, including recurring capex of $45 million. We opened three new retail projects this quarter, including new IBXs in Bordeaux and Silicon Valley. We also purchased lab for development in Frankfurt and Helsinki. Revenues from owned assets now represents 58% of our total revenues due to the acquisition of our Singapore three IBXs. On the xScale side of the business, after quarter end, we contributed our Dublin five asset to the EMEA joint venture in return for net proceeds after our 20% equity contribution of $49 million.

Our capital investments delivered strong returns as shown on Slide 11. Our 153 stabilized assets increased recurring revenues by 3% year-over-year on a constant currency basis. These stabilized assets are collectively 86% utilized and generated a 27% cash-on-cash return on the gross PP&E invested. Looking forward, we expect to exit the year closer to the top end of our stabilized asset growth rate, in part due to strong Americas revenue growth.

Please refer to Slides 12 through 16 for our updated summary of 2021 guidance and bridges. Do note, our 2021 guidance does not include any financial results related to the pending GPX India acquisition, which is expected to close in Q3. For the full year 2021, we're raising our revenue guidance by $50 million and adjusted EBITDA guidance by $27 million, primarily due to strong operating performance and favorable FX rates, although slightly offset due to the timing of spend as we proactively pulled forward expenditures to mitigate supply chain risks. This guidance implies a normalized and constant currency revenue growth rate of approximately 8% in midpoint compared to the prior year and an adjusted EBITDA margin of greater than 47%.

And given the operating momentum of the business, we're raising our 2021 AFFO guidance by $15 million, growing 10% to 12% on a normalizing constant currency basis compared to the previous year, while also increasing our AFFO per share range. 2021 capex is now expected to range between $2.7 billion and $3 billion, including an approximate $450 million of on-balance sheet xScale capex, a significant portion, which is expected to be reimbursed by either the current or future JVs and $193 million of recurring capex spend, a slight increase over the prior quarter due to timing of spend as we mitigate supply chain risks.

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

Charles J. Meyers
President and Chief Executive Officer at Equinix

Thanks, Keith. The momentum behind digital transformation is as robust as ever and shows no signs of letting up. As a world digital infrastructure company, Equinix plays a unique role in this evolving story and is positioned to be both a catalyst and a key beneficiary as we partner with customers to unlock the enormous promise of digital, both economically and socially. As we discussed at our recent Analyst Day, we are focused on three strategic levers as we execute on this transformational opportunity.

First, we will continue to scale, doubling down on the strength of our core business, investing to further scale our go-to-market machine to win new customers, putting our capital to work to add capacity in existing markets and executing on targeted operational improvements to standardize, simplify and automate, driving expanded operating margins and providing a better experience for customers and partners. Second, we will extend the reach of our platform and accelerate our aspirations in xScale. By the end of this year, we'll be in 66 markets around the world and see continued opportunities for expansion in growth across both retail and xScale.

And third, we will continue to innovate across our portfolio supporting scalability, self-service and energy efficiency across our colo estate, delivering advanced features to sustain momentum in our market-leading interconnection franchise and driving adoption of our digital infrastructure services to deepen our relevance to customers. Our ability to scale, extend and innovate starts with our people and with our commitment to building a diverse and inclusive workplace for every person every day can confidently say, "I'm safe, I belong and I matter." We show up every day with an in-service-to mindset, starting by being in service to each other, which enables us in turn to be in service to our customers, to our communities and to you, our shareholders. Purpose creates passion, and we are inspired by ours to be the platform where the world comes together, serving as an enabling force for our customers and unlocking their incredible potential to deliver the innovations that enrich our work, our life and our planet.

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

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Operator

[Operator Instructions] Our first question comes from Jordan Sadler with KeyBanc Capital Markets. Sir your line is open.

Jordan Sadler
Analyst at KeyBanc Capital Markets

Thank you, good afternoon. So during the Investor Day last month, you guys outlined the 7% to 10% annual AFFO per share growth through 2025, but you also suggested that next year could come in, in the lower half of the range, I think, as efficiency initiatives took some time to ramp and you didn't have as much benefit from refinancing opportunities that have taken place. Given the acceleration you're still seeing in this quarter and the bump you've seen here, can you speak to what the trajectory looks like heading into next year? And then separately as a follow-up, I'm just curious about the ATM in the quarter. I think, Keith, you talked about significant incremental debt capacity, given sort of the leeway offered by the agencies and a little surprise to see the equity raise in the quarter. Thanks.

Keith D. Taylor
Chief Financial Officer at Equinix

Okay. Great. Thank you for the questions. Let me take the first one and then we'll -- let me take the first question. First and foremost, when we came up the Analyst Day, one of the questions we spend a lot of energy talking about was the AFFO per share growth rate in the first -- sorry, in 2022 relative to the broader guide. The reason I said it was going to be in the bottom half of the range instead of the top half of the range was, one, it was a reflection of all the investments we're making across our portfolio this year, not only as it relates to xScale but also our digital infrastructure services and all the efficiency initiatives. And so we were absorbing the full annualized impact of those costs in 2022. As a result, it tends to cause us to be a little bit more dilutive on the per share metric relative to the broader guide.

In addition, of course, you're -- you've got a very strong guide for this year as well. And so we've had the benefit of refinancing out of the majority of our high-yield debt and so you've got a little bit of wind at your back and you won't have that wind at your back next year. So that's the primary reason. Relative to the comments we made about this year and raising our guide, probably not a big surprise to many of you as we saw a lot of this coming and it's reflected in our long-term model. That all said, we saw the ability to move our numbers up. But it's a five-year plan, as you can appreciate.

And so I wouldn't say that we're changing the trajectory on the guide for Analyst Day, just because we had one good quarter that doesn't feel like the right thing to do. Secondly, as it relates to the ATM, like anything, we are going to use a little bit of debt and equity. This was really commensurate with our commitment to our rating agencies to tap periodically, the ATM facility, but we've dramatically reduced what we anticipate that we would otherwise use. And as a result, you saw $100 million. But the message that I had in the prepared remarks was really the leanest towards debt capital on a go-forward basis for obvious reasons, when the cost of that debt capital and even over the last few weeks has continued to trend downwards.

And so that will be a lean on a go-forward basis. So there is always going to be a little bit of a blend. But again, I want to make sure that everybody fully appreciates we want to use the debt capacity that we have on our balance sheet to its fullest advantage, while still at the same time, maintaining very positive relationship with our rating agencies.

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. I might augment just, Jordan, in terms of just saying, I think in the environment as attractive as we -- as I believe we're operating in now in terms of seeing so much growth opportunity for the business. I think the ability to continue to ensure that we have the ability to respond to that and the balance sheet to do so. It's just something is top of mind for us, as Keith said, and the lean is definitely towards debt for the obvious reasons. But I think it probably makes sense for us to, I think, have some level of ATM just to continue to have optionality in the business.

Operator

Our next question is from David Guarino with Green Street. Your line is open Sir.

David Anthony Guarino
Analyst at Green Street Advisors

I wanted to ask you regarding the 3% stabilized revenue growth in the quarter and your comment on the acceleration of that through the rest of the year. Was that just due to the timing of when the Americas bookings hit during the quarter? I feel it would be a little bit higher than that. Could you just remind us of the top end of your stabilized growth rate?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Sure, David. Yes, we've typically guided 3% to 5%. So we're kind of at the bottom -- lower end of that range this quarter. I think there's a -- there are some timing effects in there. There's also some onetime items, I think, that are flowing through. But as we really unpack that and looked at what we expected towards the back half of the year, I think we feel good about us sort of moving more towards the top end. And I think that's partially due to just really obviously, really strong continued momentum in the Americas business and out of the full portfolio of assets there. So an 8% quarter there, obviously, some strong NRR in there. But even on the MRR side, 6% growth, really strong quarter. And so yes, I think towards the back half of the year, we're feeling really good about the trajectory there on the stabilized asset same-store number.

David Anthony Guarino
Analyst at Green Street Advisors

Okay. And then maybe switching gears, you noted strong bookings in the Atlanta market. Could you comment on which data centers in that market saw the strong demand? And specifically, I guess, could you comment at your 180 Peach Tree data center is gaining any traction versus other properties in that market?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. I mean that's where our focus is. I believe that's AT1 and putting the energy in there and continuing to build that ecosystem, which we believe has the critical mass of interconnection and ecosystem depth that is really necessary to scale market effectively. So yes, we're seeing good success there in that. And again, the emphasis is on that Peach Tree location on AT1.

Operator

Our next question is from Sami Badri with Credit Suisse. Your line is open.

Ahmed Sami Badri
Analyst at Credit Suisse Group

Hi, thank you for the question. Charles, I have a question for you, and this is kind of going back a couple of quarters. I believe in the back half of 2020, you discussed that there was going to be an enterprise acceleration. And I know the dynamics now are actually picking up across the majority of the tech sector, and we've seen some large cap tech results that have reflected this including your results. But how would you describe your expectations in the back half of 2020 to what you're seeing right now? Is this coming in line? Or is this coming ahead of what you were expecting in the back half of 2020?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. As you indicated, Sami, we were pretty optimistic and bullish about the momentum we were seeing with the enterprise customer, even during the more peak levels of the pandemic, etc. And so we're seeing people, despite that saying, "Hey, we've got to be investing in digital." And so we're showing up in terms of our pipeline build and our bookings. And so -- and just qualitatively in the conversations we were having with customers and so that's why we were kind of signaling that optimism. I think that has definitely translated how we expected it. And I think I would say that this quarter was even stronger than I think we would have thought it was going to be, and that's as reflected in our results and therefore, in the adaptation of our guide. And so I think the business is just a really strong quarter from an enterprise perspective. As I said in the sort of script, we -- across all three regions, across a variety of sectors, enterprise bookings were very strong. [Indecipherable] channel is a big part of that, working not only in terms of pursuing hybrid cloud opportunities with our key alliance partners and the cloud players, but also with our reseller sort of portfolio of partners. And so yes, I think we're seeing it in line or better than we had thought. And I think we expect to continue to see sustained output and growth from the enterprise segment. And probably over-indexing again, Cloud and IT and enterprise have been over-indexing for a very long time now. And enterprise just seems to be just a tear in terms of its growth right now.

Ahmed Sami Badri
Analyst at Credit Suisse Group

One quick follow-up, and I want to ask you this because this is a question a lot about investors actually ask me. And where do you think enterprises are in their kind of IT modernization cycle? Are enterprises 20% there 40% there or 60%? Where would you put them as far as a cycle in terms of where they are in their upgrades and modernization efforts?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. I mean it's obviously really hard to pinpoint that with any precision. But what I would say is I do think that it's still relatively early, right, in terms of people, whether they want to use a baseball analogy or whatever, I think it's early innings, right? We haven't passed the midpoint here. And so I think there's a long way to go in terms of people who still have a lot of legacy IT architecture that they're looking to adapt to that sort of hybrid multi-cloud world. And then the other comment I would make is that the pace of change itself is just continuing to accelerate. And so I think that the technology life cycles and refresh cycles are shortening.

I think people are thinking differently about how that -- as I said in my comments, a number of very large technology markets are dislocating as they shift to as a service and as we talked about at Analyst Day, that provides an upside opportunity for us to get a bit more wallet share as those things are delivered as a service, with Equinix as a point of nexus for consuming those services because we're getting both the underlying service prides themselves locating infrastructure at Equinix, and then we're often able to deliver those services on the platform aligned with things like Fabric and Metal and other things that are allowing us more wallet share. And so I think we're -- it's still early days. I think there is a long period of IT architecture and digital transformation investment in front of us for the foreseeable future.

Ahmed Sami Badri
Analyst at Credit Suisse Group

Got it. Thank you.

Operator

Our next question is from Simon Flannery with Morgan Stanley. Your line is open.

Simon William Flannery
Analyst at Morgan Stanley

Great. Just on the normalization point again, can you just talk about the supply chain side of things? And are there any challenges that you see both in terms of availability, particularly as you get into more of the infrastructure businesses and then just inflation, which some of the others in the food chain have been talking about with freight costs, etc. And you mentioned some of the challenges with COVID in some of the Asian markets, like Singapore, I think we've also heard more stories about limitations on power and water, and some municipalities kind of looking at data centers in a slightly different lens. You obviously highlighted your ESG initiatives. But any color around how you see that evolving? And how that -- Equinix is positioned for that would be great.

Keith D. Taylor
Chief Financial Officer at Equinix

Yes. Thanks for the question, Simon. I'll take the one around supply chain. Suffice it to say, we've been investing quite heavily as you've heard us speak about in our procurement and strategic sourcing initiatives under a very strong leadership. And as a result, we are getting ahead of some of the perceived constraints in the marketplace. And we're not -- so it's not only managing our access into the production cycles for this year, but it's also contemplating our consumption needs for next year. That marries up nicely with also the inflationary exposure that one might otherwise have. By entering into broader commitments, you can mitigate some of that inflationary pressure as well. Now that all said, I think we're making some great -- we're having great successes in working with our partners, our vendors and our suppliers.

And then I would also go on to say that inherent in our contracts is a lot of inflationary protection. So there's the aspect of supply and demand, and then there's the aspect of pricing. And again, we're very confident that our contracts more appropriately contemplate the exposure, to the extent that you've got a higher inflationary environment over the coming years. And so from both perspectives, we want to see that and then both to make sure that we protect our interest and revenue, but we also have access to deliver demand and support the cost model. And I think we're doing a good job of that as a company. You, Charles, do you want to talk about the Singapore?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Sure. Yes. I mean they're a little bit there in terms of -- I think the question of -- are -- specifically as it relates to Singapore, I think there is -- there was a COVID-related delay in terms of the timing of that facility that created a little bit of a revenue headwind relative to the timing, because demand for that is so strong for us that we had planned on that coming online a little bit earlier, and so we're seeing a little bit less, despite that, delivered a really strong quarter. And I do think there is a broader phenomenon, as you described, in terms of markets, thinking about how they're going to allocate capacity and deal with the demand for data centers and the environmental impact. What I would say is that that's exactly why we are making the level of commitment into ESG and in particularly, the environmental side that we are.

I think we're really positioned to tell a story there as is now the leader going out and saying, we're going to be climate neutral by 2030. I think we're going to be in a position to really partner with municipalities to say, "Hey, look, there's a ton of economic and social benefit being driven by digital." I talked about that at the Analyst Day to the tune of $100 trillion and people want to tap into that, but they want to do so responsibly. And I think our ability to make the investments in ESG is going to continue to be something that really differentiates us. And that's not true only in Asia by any means, there's a number of markets around the world facing those same things.

And honestly, I think that's going to be a thing, one of the areas where we continue to separate ourselves from the pack. On the added piece of color on the prior question, too, on the supply chain sort of constraints and issues now. As I've talked to some people about it, there's really kind of three areas in our business where you think about it. You have the data center build side of things. There because of our size, our market leadership, etc, I think we feel like we're in a very good position to gain access to the equipment we need to continue to hit our delivery dates. And so feeling in a good position there, but obviously continuing to monitor trends. Then you have the networking side of our business where maybe we're a little less positioned.

But what we've done is really said, okay, we're going to go ahead and make investments to mitigate risk there. And in fact, that's an area where we have real success. And again, that showed up a bit in the quarter and in our guide as we think about pulling some costs in. And then the third level of it is really at the digital infrastructure services line with things like Metal and that's an area where it's a smaller business for us. And so it will be less impactful, but we are looking there about how we can partner with a number of folks to mitigate supply chain impact there, especially since we had just came off a very strong bookings quarter for Metal, and so we want to be -- make sure that we continue to sustain that momentum.

Simon William Flannery
Analyst at Morgan Stanley

Good color. Thank you.

Operator

Our next question is from Brendan Lynch with Barclays. Your line is open.

Brendan James Lynch
Analyst at Barclays

Great, thank you for taking my question. You recently put out a press release related to the channel, and it was clearly another strong quarter for the channel in 2Q. Maybe you could talk a little bit about your changing approach there and what type of investment you might need to make to bringing the new structure to fruition.

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. Yes, really incredibly strong performance from the channel and spend that way for every quarter for as far back as I can remember, we've just been really delivering well in that arena. I would say that there's a few things. One, our -- the relationship that we have with what we refer to as our alliance partner group, we mentioned several of them in the script, again, the usual suspects, AWS, Microsoft, Oracle, etc., those are posts that we are partnering with as enterprises think through their demand for hybrid infrastructure, we -- they are aligned to advance sales cycles for their public cloud services. And in order to do so, they have to have a comprehensive answer for the customer in terms of the hybrid infrastructure story. And so together, that's a very much a one-and-one-equals-three kind of story, and we can bring that to a customer and have really been effective in winning business together. And so we're seeing real strength there.

On the reseller side, people that are combining value in certain ways with Equinix value to solve customer problems, we're seeing a nice uptick there. And what I would say is we're seeing more concentration in terms of a smaller number of our really well, highly-capable resellers, delivering more of the revenue. And I think that's a good general dynamic for us. And in terms of the investments we're making, the big area there is really to continue to upgrade our processes and systems, which to be very honest, were not designed channel-ready from the beginning and continue to adapt those to be more channel-friendly. So the quoting, ordering, customer support can all be done in ways that support a customer of a customer or a customer by a channel partner in this case. And so the adaptation of our systems is a -- that's a multiyear sort of trajectory. But that's really the area -- some of the key areas that we're making investments to really better serve channel partners.

Brendan James Lynch
Analyst at Barclays

Great. Just one follow-up on that. I believe you have a goal of getting to about 50% from channel sales. What is the time frame for that? And also, what effect on margins will the increased channel sales have?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. People are asking that question, and I've answered that. So I think you're probably referring to statements I've made in the past have that I see no reason why we couldn't be 50%. I don't know exactly when that will occur. I think that -- I do think that success with our -- as we're seeing channels channel partners embrace some of our newer services like Metal and Network Edge, Network Edge is almost inherently sort of a channel service because we're partnering both with people that are providing their virtualized network functions and then with providers who are bringing that to market in tandem with other value. I think we're seeing a bias towards continued strength in the channel, but we also have a continued great success with our direct selling team. And so both are growing nicely.

So I don't know, channel has been over-indexing a bit. And so I think we will trend towards higher numbers. But it's hard to predict, I think, exactly where we're in. I think if the newer services really accelerate, I think that could bring us to higher channel percentages faster. And in terms of impact on margins, we -- they're really not particularly meaningful in terms of -- our current model is slightly higher cost in that we often are double comping on commissions when we have our direct team partnering with channels. But when you look at the customer lifetime value of these contracts, the implication of that to margins is actually quite small. And given the very attractive profile in terms of return on capital and margin of some of these newer services, I don't feel like that's going to be a significant drag on margins. And in fact, I think our other areas of margin expansion are going to overpower those.

Brendan James Lynch
Analyst at Barclays

Great, thanks for the color.

Operator

Our next question is from Aryeh Klein with BMO Capital Markets. Your line is open.

Aryeh Klein
Analyst at BMO Capital Markets

And just maybe in the Americas, the cabinet additions have picked up, which I think you've been alluding to over the last couple of quarters, given the backlog. And now you mentioned that at least overall cabinet backlog exceeded on that build backlog. So how should we think about utilization rates, I guess, moving forward? It's around 73% now, a little bit lower than it's been historically, what kind of rate would you like to get to?

Keith D. Taylor
Chief Financial Officer at Equinix

Sorry, I'll take that one. Clearly, you're right. The -- we had a really good quarter, something that we foreshadowed for the last two quarters, particularly around the West Coast of the U.S., and so great success, in particular with the cable landing station. That all said, we've introduced some new capacity in the Silicon Valley 11 asset, has come online. And so when you look at the overall utilization rate, it's still in the mid- to low-70s. That said, we're going to continue to have success in the Americas. Charles alluded to and I've mentioned it. And so I would assume that, that utilization level is going to continue to move up as we consume the inventory of the assets we've built. I'd also add just on that basis. And I made it -- maybe commented in my prepared remarks, the amount of booked-but-yet-to-be-billed inventory is up slightly, despite all of the inventory that we've -- all of the inventory that moves into the building queues.

And so that's a real positive. So it gives you a sense that there has been substantial bookings already that will consume that inventory. The other thing I think is really worthy of note this quarter and that matter through the rest of the year, we anticipate that we'll continue to be selling into what was historically known as Verizon assets. We've seen a real nice move up in, as we said, six of the seven markets plus some of the smaller markets in the U.S. and that includes much of the capacity related to the formally known as Verizon assets. So we're excited about the momentum. I think you're going to see the Americas region continue to perform well as we said last quarter and we were telling you this quarter through the rest of the year, and we'll update you on '22 when we get there. But overall, we're just delighted by the success we've seen on the heels of all this opportunity.

Aryeh Klein
Analyst at BMO Capital Markets

Got it. And then maybe just a follow-up on the Americas. MRR per cabinet came down slightly in the quarter. Was that just timing, given the cabinet additions?

Keith D. Taylor
Chief Financial Officer at Equinix

It is timing. Again, it goes back to that. It was a large -- and as I referred to, a large cable landing station deployment that came at a different price point. And so you've got the timing impact that as well as is a very large deployment on the West Coast. But overall, from a pricing perspective, we're just seeing great success. Charles alluded to it in his prepared remarks, just a number of deals that we're doing across a number of customers. The volume of activity in medium -- sort of small- to medium-sized dealers with high focus on pricing, on the pricing environment, is playing out perfectly for this -- for the company. And as a result, there's -- despite timing, there's really nothing that is abnormal as it relates to our pricing environment.

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. I think that's just been an area where the healthy pricing and the business mix that is being reflected in the -- across the board, is just continues to be really strong. And we're hitting that sweet spot in the market, pricing is firm and then interconnection activity is high. And all that comes together into a really an awesome story relative to yields. And so it's been years now, because people are always saying, "Oh, can the Americas get better?" And years ago, I was always like, "Well, Jesus, it's pretty darn good," and yet it continues to rise. So it's been a -- it's really been a good story.

Aryeh Klein
Analyst at BMO Capital Markets

Great, thanks for the color.

Operator

Our next question is from Michael Rollins with Citi. Your line is open.

Michael Ian Rollins
Analyst at Smith Barney Citigroup

Thanks and good afternoon. Just a couple of follow-ups. So First, there was a mention that the cabinet backlog increased in the quarter. And I was curious if that's relative to the 11,000 that was disclosed at the Analyst Meeting in June? and how that might compare to historical levels of backlog? And then secondly, the gross new global customers added in the quarter increased to 270. And curious if you could unpack how the increase in this metric could influence your future results and where this increase may be coming from?

Keith D. Taylor
Chief Financial Officer at Equinix

If I can take the backlog question, then I'll take that.

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes.

Keith D. Taylor
Chief Financial Officer at Equinix

So on the backlog, Michael, yes, we did disclose 1,000. Over the last three quarters, you would have seen an increase to this level. So I'll refer to this as an elevated level of backlog. And so it did increase slightly over the prior quarter. And as a result, again, it's a reflection of the momentum in the business, also to some degree, the tightening of our booking activity very, very strong in June. And because of the strong June, of course, that goes into book-but-yet-to-be-billed. But overall, it's a momentum that we're seeing not only in the activity -- of the booking activity what it means for the backlog, but even more importantly, the depth and scale of our pipeline as we look forward. And that's really about revenue on the come. In all three cases, it's been up into the right movement.

Charles J. Meyers
President and Chief Executive Officer at Equinix

On the new customers, I'd say we continue to feel really good about our new logo capture capabilities, both direct and via channel. And interestingly, via channel isn't necessarily showing up in customer count because oftentimes, those are -- the customer of record is the channel partner. And so it's actually -- there's even more strength than sort of appear on the face of the results overall. But -- and in terms of where they're coming from, I think we're having pretty uniform success geographically. So there's no one region that is significantly outpacing the others. Obviously, a really strong quarter for the Americas, and that selling team, I think, has been doing an exceptional job, but we're also seeing good new logo capture across the other regions as well. And in terms of how it translates into the business, you do see that new logos over-index on a growth rate perspective from vis-a-vis existing customers. And so I think they have the opportunity to -- if we can continue to do that, that's really why when we talk about this three-legged strategy, right, of scale, extend, innovate.

Scale is, hey, the customers are buying. And so let's continue to get new customers and add capacity in existing markets to serve them. Then extending in terms of new geographies to increase wallet share and then the innovation side, which is really bringing in new services and the ability to capture more wallet over time in terms of the service types. And so I think it gives us really, a multidimensional growth opportunity that's really showing up. So new customers definitely -- I mean, look, we still get the bulk of our bookings from existing customers. And that's sort of always good news in that our customers are expanding. There's less friction than that, there's lower cost to acquire, customer lifetime values continue to go up. But new customers are definitely lifeblood for the business as well. And so we're having focus there and real success there, but it's fairly uniform across geos and across our product set.

Michael Ian Rollins
Analyst at Smith Barney Citigroup

Thanks.

Operator

Thank you for your question. Our next question is from Colby Synesael with Cowen. Your line is open.

Colby Alexander Synesael
Analyst at Cowen

Great. Two modeling questions, if I may. One, in the AFFO calculation, there was an adjustment for impairment charges of $33.6 million. I'm just curious what that is. And then secondly, you've done just over, I think, 48% margin in the first half. You're guiding to just over 47% for the year. So obviously, an implied downtick in the back half. Where are we most likely going to see that? Is that COGS? Or is it sales and marketing? Or is it G&A?

Keith D. Taylor
Chief Financial Officer at Equinix

So let me just take the impairment charge first, then between Charles and I, will respond to the other one. There were some favorable tax adjustments associated with the closing of some matters in the quarter. And as a result, because to the tax line, you have to keep pure, and you'll see that there's basically a substantial decrease in tax. It was primarily in relation to a transaction we did in Australia vis-a-vis Metronode, where we're identifying by the other party. And as a result, you've got the benefit on the tax line and you impaired your assets on the other line. And so net-net, it has no meaningful impact on the P&L, but it gets disclosed separately and it's grossed up. And so how it sort of shows itself independent in the other income and expense line. So that's what happened there. But again, as it relates to AFFO, there is no meaningful move, because it was embedded in the other lines. Then as it relates to the margin question, yes, we've done very well in the first two quarters of the year. As we continue to say, we want to guide you to what we think will happen for the year.

No surprise. And although for the year, we're seeing greater than 47%, we are making a relatively meaningful investment. Q2, we added, net roughly 250 heads to the organization. Q3 and Q4, we're going to add another 700 to 800 heads to the organization. As a result, you're absorbing the human capital that we need to invest in our growth. And so that's one aspect of it. Two, you've got the seasonal impact of utilities in the Americas that's coming through. And then three, because in Q1, Q2, we've had the benefit of a number of nonrecurring revenue items that don't carry a lot of costs with them, so the JV fees when we sell an asset, and we've got a sales fee or we get development fee, as you know, and as you can see in our results, it comes through on the revenue line, but there's very old a drag to the bottom line.

And so it's going to be inherently lumpy and we just don't see a lot of that through the second half of the year. If anything, as I mentioned, nonrecurring revenue will be down in Q3 over Q2. But then it's going to flat line in Q4, and there will be another one-off fee that likely gets recorded in the fourth quarter. But bottom line, that's [Indecipherable].

Colby Alexander Synesael
Analyst at Cowen

But even with that fee that you just mentioned, you think that NRR is flat in 4Q versus the 3Q number?

Keith D. Taylor
Chief Financial Officer at Equinix

Yes, it is. That's correct.

Colby Alexander Synesael
Analyst at Cowen

Okay, thank you.

Operator

Thank you for your question. Our next question is from Tim Horan with Oppenheimer. Your line is open.

Timothy Kelly Horan
Analyst at Oppenheimer

We've seen some pretty transformational outsourcing by the carriers, the hyperscalers. Do you guys think they will be an important partner there? And will that just also attract, you think, your new enterprise customers to your locations?

Charles J. Meyers
President and Chief Executive Officer at Equinix

If I understand that you're asking if the carriers themselves will be attractive partners for us to attract enterprise customers?

Timothy Kelly Horan
Analyst at Oppenheimer

Well, AT&T is outsourcing their core network to Azure, and we've seen DISH announce something with AWS. Do you think -- will you be an important part of that outsourcing, helping the hypescalers and AT&T and other carriers are looking to do the same thing globally?

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes. I think so. I think that we have -- definitely have an opportunity there. I think that overall supply chain is definitely showing sort of signs of reshaping a bit. But as you know, carriers are a really important set of partners for us as it is. In fact, it's our enterprise success is actually more than what is reflected in some of our results that we report to you in this earnings deck, for example, because some of the revenues on the enterprise -- on the network side are really carriers selling to enterprise.

And I think when you have this dynamic of carriers working with other providers that are really taking a different and more nontraditional approach to building their infrastructure and DISH is a great example there, I think we have absolutely have an opportunity to continue to play and our points of interconnection and really act as key points of nexus in some of these architectures that I think are going to be important pieces of the puzzle. So yes, absolutely. In fact, our business development team is really quite active in really thinking through edge opportunities and some of these more emerging infrastructure areas with people making new significant investments unlike what you're seeing from DISH.

Timothy Kelly Horan
Analyst at Oppenheimer

And just a follow-up to that, do you think qualitatively the hyperscalers are more likely to outsource infrastructure? Or are they insourcing more? Where do you think the trend is setting there?

Charles J. Meyers
President and Chief Executive Officer at Equinix

We do see some -- a greater level of appetite from some of the hyperscalers to sell provision. But I think that the demand is just so robust that there's going to continue to be a huge amount of that, that is going to need to come from third parties. And so -- and as we've already said, our xScale aspirations aren't to sort of go sort of capture share in huge buckets. It is really to grow that business with -- by targeting attractive and strategically important locations and deployments that we think play to the overall benefit of Equinix and deliver outstanding returns to our -- to the JV and to our JV partner. And so I think we're really executing very well on that strategy. So I think there's plenty of opportunity out there, but there is some -- I think some of the hyperscalers are seeing a desire to self-provision in certain markets.

Timothy Kelly Horan
Analyst at Oppenheimer

Thank you.

Operator

Thank you for your question. Our last question will come from Jon Atkin with RBC. Your line is open.

Jonathan Atkin
Analyst at RBC

Thank you very much. So a question on hyperscale, Slide 20, xScale. It looks like you did 37 megawatts of leasing. You've got 140 megawatts of capacity. And if I'm interpreting the lower right numbers correctly, 31 megawatts available to sell. So I guess my question is, what's the type of range that we should expect annually, quarterly in terms of that leasing number? And at what rate does that 140 grow over kind of on a quarterly run rate?

Keith D. Taylor
Chief Financial Officer at Equinix

Yes, so. Yes, Jon, obviously, one of the comments we made was we have seen a lot of success and Charles maybe comment [Indecipherable] built has now sold out. And so we're going to continue to ramp up dramatically. One of the things that is critically important in the xScale initiative is forward plan. And quite openly, we've had more momentum in the business than we originally anticipated. So the teams are working severe to procure secure future inventory. And it's probably a little bit early to tell you exactly how that will present itself, but suffice it to say, we'll continue to provide a really detailed summary of of all the different builds that are going on across the three regions of the world.

And again, we anticipate that xScale will be in all three regions of the world now. And as we said, with the GIC initiative, seven -- roughly $7 billion of capital over 32 buildings and 600 megawatts. That is through a time period in 2025 -- will take us to 2025 and beyond. But that doesn't take into consideration some of the other initiatives that we're working on, including another joint venture with a different party. And so as we continue to progress, we'll just update you and the rest of the community. But we are seeing great success. If I can summarize some of that, virtually everything that we have built, and we're continuing to procure and secure more land and capacity to build out for the future.

Charles J. Meyers
President and Chief Executive Officer at Equinix

Yes, it's not -- it's certainly not precise. I realize, but I can -- I can tell you that the next 140 will come a lot faster than the first 140. And -- because we're definitely accelerating, putting capital to work and seeing good success.

Jonathan Atkin
Analyst at RBC

Great. And then lastly, the balance sheet is showing $227 million in assets held for sale. Can you remind us what is it you're selling?

Keith D. Taylor
Chief Financial Officer at Equinix

Those assets typically, so Dublin was the first example of that. Our Dublin five passing moved to the joint venture on July 7. And so that's an asset that is available for sale. We have some other assets where, again, we're investing the capital on our balance sheet and then we're going to transition or contribute it to the joint ventures and move and thereby, get a recovery of those investments in that of our equity our ownership. So those are just the assets that are sort of queuing up to be delivered to the joint ventures.

Jonathan Atkin
Analyst at RBC

Thank you.

Katrina Rymill
Vice President of Investor Relations at Equinix

Great. That concludes our Q2 call. Thank you for joining us.

Operator

[Operator Closing Remarks]

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