Good afternoon, and welcome to the Equinix Second Quarter Earnings Conference Call. All lines will be in listen-only until we open for questions. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I would now like to turn the call over to Chip Newcom, Senior Director of Investor Relations. Thank you, sir. You may begin.

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we've identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed February 17, 2023, and 10-Q filed May 5, 2023. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of regulatory disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page from time to time and encourage you to check our website regularly for the most current available information. With us today are Charles Meyers, Equinix's CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in 1 hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Charles.

Thank you, Chip. Good afternoon, and welcome to our second quarter earnings call. As reflected in our results, Equinix continues to enjoy momentum in our business as digital transformation accelerates the pace of innovation and changes the way business is done. By 2026, IDC is forecasting that 40% of revenue from G2000 companies will come from digital products, services and experiences, a dynamic that is reshaping the basis of competition in nearly every industry and making digital an unprecedented force for economic growth. These secular drivers, combined with an accelerating appetite for companies to rapidly integrate AI into their operations, are driving increased demand for data center capacity as a broad range of service providers extend and scale their global infrastructure to support the clear enterprise commitment to hybrid and multicloud as the IT architecture of choice. Equinix remains exceptionally well positioned to respond to this demand environment, delivering against the need for infrastructure that is more distributed, more cloud connected, more sustainable and more ecosystem-centric than ever before. Against this backdrop, we had a great second quarter with solid gross and net bookings, very strong pricing dynamics, excellent pipeline conversion and healthy new logo growth. We continue to drive disciplined sales execution at scale with more than 4,100 deals in the quarter across more than 3,100 customers, demonstrating the continued strength of our unmatched go-to-market machine and approach. Turning to our results, as depicted on Slide 3, revenues for Q2 were $2.02 billion, up 14% year-over-year driven by strong recurring revenue growth, power price increases and timing of xScale fees. Adjusted EBITDA was up 7% year-over-year, and AFFO was again better than our expectations due to strong operating performance. These growth rates are all on a normalized and constant currency basis. With customers deployed in all three regions now representing approximately two-thirds of our recurring revenues, we continue to invest behind the scale and reach of our data center services portfolio. We now have 53 major projects underway across 40 metros in 24 countries, including 11 xScale builds that we expect will deliver approximately 90 megawatts of capacity once opened. This quarter, we added 12 new projects, including new data center builds in Lisbon, Monterrey, Mumbai and our first build in Kuala Lumpur, Malaysia. Over the past several years, we have seen Malaysia emerge as an increasingly important location for digital infrastructure. By expanding Platform Equinix in Johor and Kuala Lumpur, the two most strategic markets in Malaysia, we will enable local and global businesses to leverage our trusted platform to bring together and interconnect the foundational digital infrastructure that will power their success. Additionally, we are delighted with the recently announced results of Singapore's data center call for application, where Equinix was one of a very limited set of participants selected to build incremental data center capacity in the critical Singaporean market. Equinix is honored to have this opportunity to strengthen Singapore's digital capabilities, delivering sustainable infrastructure that will fuel the economy, cultivate critical ecosystems and align to Singapore's green plan. Multi-region customer wins this quarter included Cogent Communications, a U.S. multinational ISP using Equinix's robust ecosystem and interconnection platform to optimize and enhance their global services, and Apcela, a provider of software-defined cloud-optimized networks for digitally transforming global enterprises as they leverage Equinix Fabric and other digital services for low-latency network and cloud connectivity. Our global interconnection franchise continues to thrive with over 456,000 total interconnections on our platform. In Q2, interconnection revenue stepped up 11% year-over-year on a normalized and constant currency basis, driven by healthy pricing, increasing traffic levels and strong gross adds. Net interconnection adds remain on the lower side at 4,100 due to continued grooming activity and consolidation into higher bandwidth connections, but the number of unique interconnection relationships across our platform continues to expand with over 110,000 unique pairs, reflecting the exceptional value of our scaled digital ecosystems. Equinix Fabric had another strong quarter with total virtual connections passing 50,000 for the first time and the addition of new capabilities to support data-intensive workloads like AI and cloud migration. Beginning in the third quarter, Fabric customers will be able to provision virtual connections to cloud providers with bandwidth up to 50 gig per second, with Google Cloud as the first cloud partner to support this capability. Internet exchange saw strength in our EMEA and APAC markets with peak traffic up 4% quarter-over-quarter and 25% year-over-year to nearly 32 terabits per second. Key interconnection customer wins this quarter included a gaming and entertainment company, expanding interconnection across all three regions to optimize the gamer experience, and PEER 1, a Brazilian telco leveraging Platform Equinix to establish its digital presence through network hubs, beginning with South America and Miami. Turning to our xScale portfolio, we continue to see strong overall demand as cloud adoption remains a driving force in digital transformation. In Q2, we leased 10 megawatts of capacity in our Osaka 2 asset, with cumulative xScale leasing now over 200 megawatts globally, and we have a strong funnel of additional scale opportunities for the back half of the year. We also won three new native cloud on-ramps this quarter in Bogotá, Madrid and Toronto, further strengthening our cloud ecosystem, which represents nearly 15% of total interconnection on our platform. Key enterprise to cloud ecosystem wins this quarter, including one of the largest auto insurers in the U.S., continuing to expand interconnections on our platform to optimize its networks and multi-cloud connectivity, and a leading European automotive company deploying at Equinix to support reliable and scalable connectivity to the cloud worldwide. As businesses increasingly look to consume their digital infrastructure at software speed, we're continuing to enhance our platform strategy and expand our partnerships. In Q2, we announced our expanded partnership with Hewlett Packard Enterprise for pre-provisioned HPE GreenLake for private cloud enterprise and HPE GreenLake for private cloud business addition, both available on demand at select Equinix IBX data centers. These new offerings in seven metros around the globe will help businesses expand their hybrid multi-cloud strategies while providing greater agility, control and predictability of workload costs and data. Additional key digital services wins this quarter included Bionexo to Brazil, a health tech company that offers digital solutions for managing health care processes, using fabric and network edge for seamless connections with partners and customers while reducing complexity and cost, and Telna, a global mobile network infrastructure provider using Platform Equinix to facilitate its marketplace for cellular connectivity among its customers. Our Channel program delivered another strong quarter, accounting for 40% of bookings and nearly 60% of new logos. We continue to see growth from partners like Accenture, Avant, Dell, Cisco and HPE with wins across a wide range of industry verticals and digital use cases. Key wins this quarter included partnering with Kyndryl to support a large American health insurance provider with their network and application modernization efforts, featuring the deployment of cloud-adjacent infrastructure and interconnection to the health care ecosystem. Now let me turn the call over to Keith to cover the results for the quarter.

Thanks, Charles, and good afternoon, everyone. I hope you're all doing well and enjoying the summer months. I must say it was great to be back in New York City spending time with many of you at our June Analyst Day in person. As you might have guessed, we were excited to share with you our views on the expanding market opportunity. Our continued ability to manage through this dynamic and complex global environment is working to maximize the value of our business. And perhaps, most importantly, share our thoughts on how we believe we can deliver durable shareholder value. Now as you can see from our Q2 earnings report, we again delivered solid results while addressing many of the complexities affecting our business. We had solid gross and net bookings and positive pricing dynamics reflecting the continued momentum we see in the market. Overall, we continue to focus on driving a higher yield on both our new and existing investments. On a constant currency basis, including our net positive pricing actions, Global MRR per cabinet was up $39 quarter-over-quarter to $2,156 per cabinet. Now given the tight supply environment across many of our metros and the high utilization levels across our portfolio, we remain very focused on our strategy of putting the right customer with the right application into the right IBX. Also, we're being particularly selective at backfilling space in certain constrained markets, focusing on high price points and increased power densities. As a result, the timing of these deployments may create some fluctuations in our quarterly net cabinet billing metric, an outcome we're actively managing across all three regions. This is positively offset by strong stabilized asset growth, higher MRR per cabinet and better returns on our invested capital. Turning to some of the macro factors affecting our business, we remain pleased with how the organization has mitigated the impacts of energy price volatility across our business and with our customers. Concessions and disputes remain low, and our cash collections are in line with historical trends. As it relates to our foreign operating currencies, we continue to hedge where appropriate to dampen the volatility attributed to the actions of many central banks to adjust interest rates. Also, we made some modest adjustments to our 2023 outlook, largely attributable to the recent devaluation of the Nigerian naira and the weaker Japanese yen, two of the currencies that we do not hedge. Now let me cover the highlights from the quarter. Note that all comments in this section are on a normalized and constant currency basis. As depicted on Slide 4, global Q2 revenues were $2.018 billion, up 14% over the same quarter last year due to strong recurring revenues, power price increases and the timing of xScale nonrecurring fees. As we've noted before, nonrecurring revenues, particularly those attributable to our xScale business and certain custom installation works, are inherently lumpy. Hence, NRR was down quarter-over-quarter as planned. But given our significant scale pipeline, we expect to see a meaningful step-up in NRR in the second half of the year. Q2 revenues, net of our FX hedges, included a $3 million FX headwind when compared to our prior guidance rates. Global Q2 adjusted EBITDA was $901 million or 45% of revenues, up 7% over the same quarter last year due to strong operating performance, including an $11 million one-off software expense related to our Americas managed services business and higher variable salaries and benefit costs. Also, Q2 saw certain EMEA energy contracts reset at higher average rates resulting in increased net utility costs as forecasted. Q2 adjusted EBITDA, net of our FX hedges included a $2 million FX headwind when compared to our prior guidance range and $3 million of integration costs. Global Q2 AFFO was $754 million, above our expectation due to strong business performance and lower net interest expense. Q2 AFFO included a $1 million FX headwind when compared to our prior guidance range. Global Q2 MRR churn was 2.3%. For the full year, we continue to expect MRR churn to average at the lower half of our 2% to 2.5% quarterly guidance range. Turning to our regional highlights, whose full results are covered on Slides 5 through 7. On a year-over-year normalized and constant currency basis, EMEA and APAC were our fastest-growing regions at 21% and 16%, respectively. Although when excluding the impact of the benefit attributed to the power price increases, EMEA and APAC region growth rates were 8% and 11%, respectively, while the Americas region grew 7% year-over-year. The Americas region had another solid quarter with continued strong pricing trends, solid momentum from our channel and public sector teams, and healthy exports across the global platform. We had strong activity in Boston, Chicago, and Culpeper metros and the Canadian business. Our EMEA business delivered a solid quarter with firm pricing, continued lower churn and a healthy step-up in deal volume. Revenue was down slightly due to the timing of large NRR deals between quarters. We had strength come from our Amsterdam, Dublin, and Frankfurt metros, while booking a substantial space and power deal in Lagos, Nigeria with a large multinational energy company, highlighting the momentum across our platform, including our MainOne assets. And finally, the Asia Pacific region had a strong quarter with record net bookings and firm deal pricing as well as strong imports to our Mumbai, Osaka, and Singapore markets. And as evidenced by the number of new expansions, Chennai, Jakarta, Johor, Kuala Lumpur, customer interest in expanding their footprint into new Asian markets is high, and we're investing behind this demand. And now looking at our capital structure, please refer to Slide 8. Our balance sheet increased slightly to approximately $31.6 billion, including an unrestricted cash balance of over $2.3 billion. As expected, our cash balance decreased slightly quarter-over-quarter due to our investment in growth CapEx and a quarterly cash dividend, offset by our strong operating cash flows. Our net leverage remains low at 3.6x our annualized adjusted EBITDA. And as mentioned previously, we plan to opportunistically raise additional debt capital in the current rate environments where we operate. This will create both incremental debt capital to fund our growth and place a natural hedge into these markets. Additionally, during the quarter, we executed about $200 million of ATM forward sale transactions, which will be settled in early 2024 to help fund our 2024 growth plans alongside our other sources of capital. Turning to Slide 9. For the quarter, capital expenditures were $638 million, including a recurring CapEx of $40 million. Since our last earnings call, we opened seven retail projects across both the Americas and EMEA regions and two xScale projects in Frankfurt and Tokyo. Revenue from owned assets increased to 64% of our recurring revenues for the quarter. We expect this trend to continue, with over 85% of our expansion CapEx spend on owned or long-term ground lease properties, including 100% of our 16 builds in the Americas. Our capital investments delivered strong returns, as shown on Slide 10. Our now 174 stabilized assets increased revenues by 10% year-over-year on a constant currency basis. Taking out the benefit attributed to the power price increases, stabilized assets increased 7% year-over-year. Our stabilized assets are collectively 85% utilized and generate a 27% cash-on-cash return on the gross PP&E invested. And finally, please refer to Slides 11 through 15 for our updated summary of 2023 guidance and bridges. All growth rates are on a normalized and constant currency basis. For the full year 2023, we're maintaining our underlying revenue outlook with expected top line growth of 14% to 15% or 9% to 10%, excluding the impact of power cost pass-through to our customers, a reflection of our continued strong execution. We're raising our underlying 2023 adjusted EBITDA guidance by $20 million, primarily due to favorable operating costs and lower integration spend. And we're raising our underlying AFFO guidance by $28 million to now grow between 11% and 14% compared to the previous year. AFFO per share is now expected to grow between 9% and 11%. CapEx is expected to range between $2.7 billion and $2.9 billion, including approximately $120 million of on-balance sheet xScale spend, which we expect to be reimbursed as we transfer assets into the JV later this year or early next year. So let me stop here, and I'll turn the call back to Charles.

Thanks, Keith. In closing, we had a strong first half of the year and continue to see a robust demand environment as key secular drivers positively influence buying behavior even in the face of a challenging macro climate. The relevance of Platform Equinix continues to grow as service providers scale out their global infrastructure in response to growing enterprise demand for hybrid and multi-cloud as the architecture of choice and the associated need for hybrid infrastructure to deliver performance, agility, scalability, and sustainability. In this context, we believe Equinix remains uniquely positioned and highly differentiated and will continue to drive disciplined execution of our strategy with a focus on extending our market leadership, driving operating leverage, expanding our platform capabilities to fuel sustained growth, and delivering superior returns on capital, all of which we are confident will translate to distinctive and durable value for our customers and sustained performance for you, our investors, with a keen focus on AFFO per share as our lighthouse metric. So let me stop there and open it up for questions.

Our first question comes from Ari Klein with BMO Capital Markets.

Maybe on the AI front and as it relates to xScale, there are some exceptionally large leases being done with the vast majority of those in the U.S. where xScale doesn't have a presence. How are you thinking about potentially entering the market to capture some of that demand?

We've discussed this in various ways, and I believe our approach to xScale in the Americas, particularly the U.S., has evolved. AI plays a role in this change, though it's not the only factor. We have been considering specific markets where we think the full portfolio of xScale retail digital services will perform best. It's a bit of a chicken or egg situation regarding what drives demand, but we see that having the complete portfolio allows us to meet a wider range of customer needs. Therefore, we are exploring markets in the U.S. for establishing an xScale presence, potentially through both organic growth and acquisitions. While AI is a factor, it’s just one aspect. The ongoing demand for cloud services and the commitment to cloud adoption among enterprises are contributing to a robust global pipeline, which reinforces our focus on developing xScale in the Americas.

And then just the Americas and EMEA saw cabinet decline. It sounds like maybe there was some timing and churn potentially there. Can you provide some color on some of the moving pieces? And maybe give us a sense of the size of the backlog?

Sure. I’ll start with the backlog question and mention that our backlog remains very healthy. As we've mentioned over the years, billable cabinets can be a volatile metric, influenced significantly by the timing of installs and churn activity. We understand that billable cabinets need to grow over time to support the business, but we do experience short-term fluctuations as we optimize the platform. It's important to focus on rolling quarterly averages due to this volatility. In the Americas, we see about 90%, and this rolling four-quarter average has been consistent with the last three years. EMEA’s rolling average is actually well ahead of its three-year average, while APAC has seen three straight quarters of reduced cabinet additions. This is partly due to unique capacity constraints in Asia, particularly in Singapore, which is why we are pleased to announce our capacity allocation to Equinix in the Singapore market. We feel comfortable with this situation, although there is some churn in the markets, and we expect that backlog to stabilize. Looking at the last five quarters, there have been approximately seven significant churn deployments, with 85% of the total cabinet volume from these being what we consider favorable churn—cabinets in constrained markets where we welcome the extra capacity and see a positive mark-to-market adjustment. Given current market conditions on pricing, power density, and interconnection, we anticipate significant uplifts for about 85% of those cabinets, with monthly recurring revenue increases between 50% and 70%. This reflects our efforts to optimize the platform, and we expect to generate millions in additional monthly recurring revenue as we transition those cabinets, translating to tens of millions on an annual basis without any capital expenditure. This dynamic has affected billable cabinets in recent quarters, though such opportunities are limited.

Our next question comes from Michael Rollins with Citi.

Can you elaborate on the stabilized constant currency growth without factoring in the power price increases that were around 7% year-over-year for the quarter? Additionally, considering the re-leasing opportunities and the current market conditions, what is your updated perspective on what stabilized organic growth might look like for Equinix in the upcoming years?

Yes, that's a good question, Mike. I believe we initially guided to a range lower than the 7% we're seeing now, without considering the impact of power price increases. Those increases are significant and contribute to the reported 10%, but I don't think that's a reliable figure since it may fluctuate with power pricing. However, the 7% growth is certainly appealing. Currently, pricing is very firm; we have raised prices on our core colocation and interconnection services significantly while continuing to experience strong demand and stable churn. This is likely to be a positive factor. Additionally, power densities are increasing, and some of the churn activity mentioned earlier includes deployments in stabilized assets, which should show improvement. To summarize, while we've discussed a growth expectation of 3% to 5%, the current situation of 7% is above that. I anticipate that the pricing dynamics in the market will be a major factor moving forward. We'll monitor this and, if it appears to be a sustained trend, we will revisit our outlook.

And if I could just follow up with one other. You mentioned the variability of the power side of the equation. And as you're looking at the pricing environment for power specifically, any updates of how power pricing and power revenues and those surcharges might look for 2024?

Yes, I anticipated that question, Mike. What I can say is that we are just past the halfway point of the year. We've been hedging into our positions, and in some markets, we've been able to hedge at rates that are lower than we had previously, and in some cases, significantly lower. We still have a substantial amount of our hedging positions to fill, and there’s a lot of time left in the year. Therefore, it's difficult for us to make precise predictions. I don’t want to be too definitive on this issue. However, I think there may be markets, if trends continue, where we will hedge for 2024 at rates lower than those in 2023. We have communicated to our customers that they understand the benefits our hedging program provides. If this does happen, we would pass those benefits on to them. How many markets this might affect is uncertain. As we mentioned during our guidance and at Analyst Day, we do not assume anything regarding power price increases or decreases, and we will adjust according to what happens because the underlying performance of the business is what truly matters to us. While we acknowledge that power prices can influence margins, they do not fundamentally affect our business. In short, I believe we may observe price decreases in some markets next year, while others may remain flat or even increase. We still have more work to do regarding hedging, and we will keep you informed as more information becomes available.

Our next question comes from Jon Atkin with RBC.

Yes, a couple of questions. I was curious just about decision time frames, customer closing rates, book-to-bill, that sort of thing? And then if you look at stabilized gross margins, it looks like that was down, and I forgot if you mentioned this earlier, but why the pressure on stabilized gross margins?

Yes. I'll let Keith address the second question. Regarding the first question, I want to provide some insights on the quarter. It was a strong quarter in terms of bookings. Even though some customers remain cautious in the overall environment, we noticed a bit of deal slippage from Q1 to Q2, but the close rates were fairly consistent. In Q2, we experienced good pipeline conversion and saw that sales cycles stayed in line with our historical norms. The push rate from quarter to quarter improved, returning to previous levels. Overall, it was a solid quarter. However, we are seeing some customers being careful about how much capacity they are purchasing and negotiating tough, which is typical for us. In some cases, customers are reassessing their capacity and discussing with us the possibility of scaling back. This dynamic is influencing some of our numbers, but we see opportunities that we can capitalize on. While this affects the billable cabs figures, I still feel positive about our sales execution and customer sentiment this quarter. Additionally, I’m optimistic about our sales funnel for the second half of the year. We have a significant amount of deals to tackle, with 4,100 in a quarter, which requires extensive selling, but our team performed strongly in Q2. From my interactions with customers and sales teams, there is a lot of optimism heading into the second half of the year.

Jon, regarding the second part of the question, there's no surprise here. You have likely noticed margin erosion across several key metrics, whether on a total basis, in Europe, or among stabilized assets, mainly due to the reset of energy contracts. In the first quarter, we benefited from the existing power contracts. However, as they reset, we experienced a significant increase in the second quarter, which impacted many of our core metrics. Looking ahead, most of this is expected to stabilize, which is encouraging. This was all incorporated into the pricing structure we established at the beginning of the year. We anticipated the average price points, and that's what we passed on to our customers.

And then lastly, I wonder if you're seeing any tailwinds in segments of your cost connect business that you would attribute to AI given that you might expect a little bit of an uptick in connectivity requirements as these training models get spun up. Are you seeing that at all or not?

We have observed specific cases of interconnection supporting AI. Notably, we achieved a significant win this quarter with an AI-as-a-service provider that integrated their core network nodes with us to enhance multi-cloud connectivity and support cloud inference. While this won't immediately reflect in our results since we just finalized the deal, it highlights what's happening in the market. On interconnect, we've experienced strong gross additions, aligning well with our nine-quarter averages, which is quite encouraging. Interconnection to cloud has meaningfully increased year-over-year, slightly tempered by a downturn in the financial ecosystem's gross additions. However, we remain stable on the interconnect side regarding gross additions, and some of this growth is likely linked to AI. On the churn front, we are noticing an uptick in churn activity related to cloud services as virtual machines, particularly among various service provider types transitioning from cloud to cloud or from cloud to network. This reflects a lot of restructuring, including significant migrations and some mergers and acquisitions. I've provided more detail than you may have expected about interconnect, but I believe we will witness substantial data transfer as we are well positioned to meet the growing demand for multi-cloud connectivity. The advanced nature of our fabric makes us agile in responding to this need over time. We are excited about the opportunity, which is increasingly being discussed in the market, particularly by service providers and enterprises exploring ways to integrate AI into their operations.

And our next question is from Simon Flannery from Morgan Stanley.

You talked about the power density requirements a couple of times. So how are you thinking about that strategically? Are there redesigns or retrofitting you're thinking about doing to your IBXs? And how does that impact the scales that you've built so far and that you might build from here? I know people like Meta have been reconsidering data center design.

Yes, we are actively considering how our design is evolving to keep pace with the market. In our retail space, serving a broad range of customers with varying density requirements allows us to increase efficiency over time, and we've seen benefits from that. However, in hyperscale environments, it becomes a bit more challenging because power is typically allocated to one or two customers per facility, which creates different dynamics. I believe that average design densities will need to increase, and cooling capabilities often pose a constraint. We are currently exploring and testing liquid cooling at our innovation center in D.C. to enhance our existing designs and incorporate it as a standard feature in future designs. Therefore, you can expect to see increased design densities and advancements in technology to maximize the potential of our current facilities.

Our next call is Eric Luebchow with Wells Fargo.

One for Keith. I think you mentioned the nonrecurring side of the business would see a material step-up in the back half. And so maybe you could provide us a little more color on that. Is that more custom install work, xScale fees, maybe just the right run rate to think about for NRR as we look out the remainder of the year?

Yes. As we've indicated in our guidance, the recurring part of our business is performing extremely well. The fluctuations you've noticed, particularly the increases and decreases, are primarily associated with the xScale fees. There are two nonrecurring xScale fees and two recurring ones. Among the nonrecurring fees, the sales and marketing fee significantly influences our business. Our pipeline is robust, with numerous opportunities ahead of us, and we expect a substantial amount of fees to be earned in the second half of the year, especially targeting the fourth quarter. While there is a possibility for some earnings in the third quarter, we are primarily aiming for a second half close. Additionally, the recurring segment of our business is expected to show a significant increase, and if you look at the midpoint of our guidance for the rest of the year, you will observe that one of the quarters will reflect one of the largest increases we've experienced in our history, partly driven by the nonrecurring fees.

Great. And just one follow-up. If I look at churn, it ticked up a little bit to 2.3%. Just wanted to confirm, is that related to some of the volatility you're seeing with cabinet build metrics you mentioned earlier in the call, some of the network grooming on cross-connects? Any way to think about how we should think about churn going forward, still in the lower end of the 2% range? Or will it be a little more variable based on what you said earlier?

Yes, that's closely tied to the interconnection aspect. On a net basis, it likely isn't a significant driver for the churn metric. However, it partially relates to the deployments I mentioned regarding the billable cabinets that we view as favorable for churn. Of those 37 deployments, 85% are expected to have mark-to-market results in the 50% to 70% positive range, and we are leveraging those opportunities when possible, with several located in Singapore. Even with our additional allocation planned for the future, having capacity in the Singapore market is crucial, particularly given its features such as cloud proximity, network density, and performance capabilities. We are capitalizing on that capacity, which contributed to a slight increase in our metrics. However, as stated in our prepared remarks, we expect to finish the year around the lower part of our guided range. While there may be minor spikes, like the slight increase we saw this quarter, this is mainly due to favorable churn activity.

Just to add one other thing. As we look forward, and Charles mentioned earlier, we are considering some negotiations to regain capacity in certain constrained assets and markets, including Singapore. We are working on aspects that we will identify if we reach a suitable negotiated outcome. These are examples of factors that cause minor fluctuations, but we will make sure to clarify them for you.

Our next caller is David Barden with Bank of America.

I guess Charles, when you look at the kind of the global landscape and you start extrapolating the dynamic that we've started to see in places like Northern Virginia, or Toronto, Mexico City, Southern Valley, how should we, as investors, think about the P versus V equation as power availability kind of constrict V and how do you think about your ability to ramp the P on the price to kind of monetize that scarcity element of the business that you're in?

Yes, there's a lot to unpack in that question. During peak times, whether you refer to it as V or Q, we are definitely noticing a strong pricing environment, which is consistent across the data capacity industry. However, on our retail side, we operate at a different price point compared to the broader industry, which tends to focus on wholesale or hyperscale pricing. Nevertheless, both areas are experiencing price increases, and I anticipate this trend will continue for a while. Regarding volumes, I believe they will also increase. The concern about power availability potentially limiting supply is notable; it could vary from market to market. However, we are confident in our relationships and visibility regarding power allocations, which will help us maintain our build plans. The xScale segment presents more challenges, but we are actively collaborating with partners to address these issues and considering alternatives like on-site power generation. For instance, our recent facility in Dublin has on-site power generation using natural gas-based fuel cells. In Silicon Valley, we utilize Bloom Energy fuel cells, although not as the main source of power. We expect to continue seeing trends in that direction. I also believe there may be shifts in the placement of certain data center capacities, especially in hyperscale and AI training sectors, adapting to the availability of power. Thus, I do not foresee significant constraints on the quantity in our retail business due to power availability, but it is an ongoing challenge for the entire industry.

And as a follow-up to that, specifically to that point about going to where the power is, do you see a shift in your CapEx allocation into kind of, let's just call it, more novel land bank development opportunities? Obviously, we've seen reports that Meta, for instance, is looking to do a gigawatt in Wisconsin or other places like this that would not tend to be in the traditional geography of data centers?

No, not yet. Most of our demand, revenue, and profitability come from our large campus environments worldwide, which is where most of our land is located. We're seeing an increase in revenue from our owned assets because we are currently developing on owned land and facilities globally. The majority of our land bank continues to be used for that purpose. While we are not opposed to exploring other opportunities, they would likely fall under xScale initiatives. I believe these would ideally be near our existing campus locations where we can support them. However, at this time, the answer to your question is that this is not currently part of our strategy.

David, I just probably note just on the number of projects that we have underway across 40 markets today. Again, we're in we're actually spreading our capital far and wide to capture the opportunity in most of the sort of the major centers around the globe. And as a result, that's going to be, I think, more of the emphasis going forward, smaller byte sizes that make sense, and particularly those ones that are adjacent or contiguous with their existing facilities. And that's just what you're seeing. And then you heard us talk a little bit about, at least in the prepared remarks, the new markets that we're sort of entering into. And so we'll continue to push our advantages in the markets that we have today, but also go to markets where others are less likely to go and we get to enjoy the experiences of the retail business versus just focusing on hyperscale.

Our next caller is Brett Feldman with Goldman Sachs.

Keith, I want to come back to some of the comments you made in your prepared remarks about dealing with some stresses in the supply chain. Obviously, you've been grappling with that to some degree for a number of years now. I'm just curious how broad-based is it? Is it concentrated in the market? Is it around certain elements that go into development? And then just to clarify, is that distinct to the quite literal physical supply chain? Or were you embedding within that challenges associated with power procurement improvement?

Yes, Brett. Just generally speaking, given the demand for data centers and all things surrounded to that industry. The supply chains continue to be constricted. And I think even at the Analyst Day, Charles made a reference to the fact that generator 3-megawatt generated today has roughly a 120-week timeline. So it gives you a sense of how far out you have to start thinking and planning. And so one of the things that we tried to emphasize at the Analyst Day was we look at all our markets, all of the projects and determine exactly what we need where, and then we have a very sophisticated procurement team that focuses on making sure we work with the larger providers and get availability either to production capacity or a slot in the production line or available capacity from the inventories. I just think that's something that we prudently do. We manage ourselves, and it's something that's going to be very important on a look-forward basis as well. And you have to tie that back into the comments Charles made about power. Demand, you have to have the available power; you have the available cooling and making sure that you have the appropriate kit to roll out the data centers in a fair way that you can deliver the capacity to the need. And again, a lot of work is done on that. The construction design, procurement sourcing teams are all working together in tandem, and we look out 5 years. And in some cases, as I said, we'll go out as far as 10 or 15 years like the London market where we see a broad future opportunity as well.

I believe that one of the most important aspects of ensuring power availability in areas that will face resource constraints is to adopt thoughtful approaches to sustainability. This was a key factor in our successful allocation in Singapore. Additionally, I've been in discussions with utility CEOs about collaborating on these issues, and sustainability must be an integral part of that conversation. We intend to take a proactive approach, continuing our market-leading focus on sustainability for our customers and in partnership with utilities. These considerations will play a significant role as we address the power challenges ahead.

Our next caller is Matt Niknam with Deutsche Bank.

Just a couple of housekeeping ones for me. First, if you can comment on what drove the slight increase? I think it was about a $10 million increase of recurring CapEx. And then also, I noticed DSO stepped up somewhat modestly. I think accounts receivable is about a headwind of $100 million in the quarter. Just wondering if there's anything that you'd call out beyond typical 2Q seasonality?

Yes. Regarding recurring CapEx, when you compare year-over-year, Q2 is typically aligned with our expectations, showing a 2% increase that aligns with last year. In the next two quarters, we plan to increase spending further. This is largely a matter of timing, as we focus on meeting the needs in our various buildings. Thus, CapEx can vary by quarter, but this is manageable. To be precise, there was an $18 million increase quarter-over-quarter. As for DSOs, our recovery has increased slightly, primarily due to ongoing discussions with customers about rising power prices. While we are ahead of our projections, negotiations are still ongoing, causing some customers to withhold payment on their entire bills instead of disputing specific charges. However, some of these payments were received in July. I believe DSOs will decrease to more typical levels, and overall, the business maintains liquidity and generates cash. We're performing better than anticipated for the third quarter, and I expect average days delinquent to decline.

Keith, just to clarify, it was more on the guide for recurring CapEx. I think that stepped up $10 million relative to the prior guide for the year. So I was just wondering if there's anything notable to be aware of there?

I'm sorry, I misunderstood your question then. As it relates No, there's a little bit more recurring CapEx when we have capacity and we look across the portfolio and think what can we do based on the capacities we have. And so sometimes when we work with Rob Abdel's organization, we have capacity to put a little bit more recurring CapEx into the year. And so what you could do is pull it forward from one year and put it into the year prior. And so that's what you've just seen. We felt we had a little bit more capacity to invest in some recurring CapEx this year. That really takes away that obligation for next year.

Our last question comes from Nick Del Deo with Moffat Nathanson.

Charles, on the interconnection front, are you still expecting an improvement in adds as we move through the year like you communicated previously? Or do you think these headwinds are a bit softer than expected?

Yes, great question, Nick. To be honest, I expected we would see some moderation back towards previous levels by now. However, there are many factors influencing this. In short, I believe we will see that improvement because the gross additions remain very strong, indicating continued demand for interconnection, particularly with cloud growth. This is the most encouraging sign for me. When we analyze what's holding back net additions, it is mainly due to increased churn, primarily from the service provider side. We've looked into this thoroughly, and it seems that the majority of elevated churn is linked to the transition from 10 to 100 migrations, which has accelerated more than we anticipated. As electronics become less expensive, more people can justify the investment when they have enough interconnects. The initial shift was led by the most advanced customers, and now it's beginning to spread to a broader audience, though it won't apply to everyone due to the need for route concentration to make it economically viable. This 10 to 100 migration is part of what is impacting us. We've also noticed some M&A activity in the CDN and network sectors, which is temporary and will eventually return to normal. Additionally, we see a more aggressive approach to inventory management in the network space, as many businesses are facing challenges and are looking to cut costs wherever possible. Many of these dynamics are finite, which is why I expected a return to previous levels. While I’m unsure if we’ll reach our previous forecasts, I do think there is potential for an upward lift. Regardless, even at our current level of additions, we are experiencing strong pricing, which is contributing to revenue growth, especially as we see a shift toward higher port speeds in our offerings. As such, I anticipate continued healthy revenue growth. I hope to see some improvement in the latter half of the year, but we will have to wait and see how it unfolds.

Okay. Great. And then in Singapore, obviously, great to see the 20-megawatt allocation you got. How long before you can actually bring that online? And then about how long will 20 megawatts last you?

Well, we can't speak to the actual size of the allocation. So I don't doubt there is information out there, but I can't confirm or deny anything relative to the size of the allegation. I would simply say that we're very excited about what we got. We're very excited about the opportunity to build incremental capacity in that market. And we believe it will give us some really solid runway in an incredibly important market. In the meantime, we're continuing to sort of very opportunistically harvest capacity to continue to meet the demands of our customers and to drive very superior returns in that market.

Thank you, everyone. This concludes our Q2 earnings call.

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