Good afternoon and welcome to Equinix's Third Quarter Earnings Conference Call. All lines will be able to listen until we open for questions. Also, today's conference is being recorded. If anyone has any objection, please disconnect at this time. I would now like to turn the call over to Chip Newcom, Senior Director of Investor Relations. 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 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 17th, 2023, and 10-Q filed August 4th, 2023. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR 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 one hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'd like to turn the call over to Charles.

Thank you, Chip. Good afternoon and welcome to our third quarter earnings call. Despite an increasingly complex macro environment, we delivered another solid quarter of results and continue to drive strong value creation, raising both our dividend and our AFFO per share outlook for the full year. While we continue to operate in an environment characterized by customer caution, this caution is balanced by a clear commitment to digital transformation and accelerating interest in AI and a growing reliance on Equinix as a critical partner in designing and implementing hybrid, multi-cloud, and data-centric architectures. Customers continue to see digital as a critical priority, and they remain focused on optimizing existing infrastructure spend and capabilities across cloud, network, and other categories. Demand remains strong. New logo growth is accelerating, and we see a highly favorable pricing environment, allowing us to deliver higher MRR per cabinet yields driven by price, power density, and strong interconnection demand. The net result is solid revenue growth, a strong forward pipeline, and continued optimism about our differentiated ability to deliver compelling value to our customers and in turn, to our shareholders. In Q3, our go-to-market engine continued to execute well with more than 4,200 deals in the quarter across more than 3,100 customers, including record new logos from high-value targeted customers. We saw solid performance across all aspects of our platform strategy with data center services, digital services, and our xScale, all coming together to address the evolving demands of our customers and strong cross-regional bookings highlighting the power of our unmatched global reach. On the AI front, we continue to cultivate and win significant opportunities across our existing customer base and with AI-specific prospects. A recent Gartner poll found 55% of organizations are in pilot or production mode with generative AI. We are seeing this manifest in accelerated interest from both enterprise customers and emerging service providers looking to service this demand. We see strong similarities between the evolving AI demand and the multi-tiered architectures that have characterized the cloud build-out for the past eight years. And believe that our broad portfolio of offerings in tandem with our key technology partners will allow us to capture high-value opportunities across the AI value chain along three key vectors. First, in our retail business, we will aggressively pursue magnetic AI service provider deployments to support on-ramps, inference nodes, and smaller scale training needs. We are well-positioned here with nearly 40% market share of the on-ramps to the major cloud service providers, key players in the AI ecosystem. And in Q3, we're proud to have been recognized as a 2023 Google Cloud Customer Awards winner for our work supporting Google AI technology. Key wins in this area for Q3 included Core Wheat, a specialized GPU cloud provider, deploying networking nodes at Equinix leveraging our unique multi-cloud on-ramps and network connectivity across multiple metros. And Lambda, selecting Platform Equinix to offer customers expanded regional connectivity, higher networking performance, security, and scale for an enterprise-grade GPU cloud, dedicated to large language models and generative AI workloads. Second, we intend to meaningfully augment our xScale portfolio, including in North America to pursue strategic large-scale AI training deployments with the top hyperscalers and other key AI ecosystem players, including the potential to serve highly targeted enterprise demand. We expect some builds will be tightly coupled with our retail campuses like our newly announced Silicon Valley 12x asset, while other builds will be larger-scale campuses in locations with access to significant power capacity. And finally, in response to burgeoning enterprise AI demand, we will leverage our unique advantages to position Platform Equinix as the place where private AI happens, allowing customers to place compute resources in proximity to data and seamlessly leverage public cloud capabilities, all while maintaining control of high-value proprietary data. We also anticipate a dramatic acceleration in inference workloads and see Equinix as well-positioned to deliver performance and economic benefits derived from our reach, network density, and cloud adjacency. While still early, we're seeing broad-based demand for private AI from digital leaders with specific wins in the transportation, education, public sector, and healthcare verticals, including Harrison.ai, a clinician-led healthcare artificial intelligence company that is dedicated to addressing the inequality and capacity limitations in our healthcare system by developing AI-powered tools in radiology and pathology. An exciting opportunity that not only drives our business but clearly aligns with Equinix values. As AI demand accelerates, we are adapting our product portfolio and our physical platform in response to evolving customer requirements. In terms of data center design, we're using our co-innovation facility in Ashburn to evaluate technologies to support escalating power requirements and have already commercialized our early work in this area with liquid cooling solutions that are supportable in all markets, including support for direct-to-chip liquid cooling in 45 markets across all three regions. We are already supporting significant liquid cooling deployments across our range of deployment sizes and densities, and we look forward to sharing more with you on our progress in this space. Turning to our results, as depicted on Slide 3, revenues for Q3 were $2.06 billion, up 14% year-over-year driven by strong recurring revenue growth and power price increases. Adjusted EBITDA was up 9% year-over-year, and AFFO per share was better than our expectations due to strong operating performance and timing of recurring CapEx spend. Interconnection revenues grew 9% year-over-year with continued strength from Equinix Fabric. These growth rates are all on a normalized and constant currency basis. Our data center services portfolio continues to perform well. Given the strong underlying demand for digital infrastructure and the long duration in delivering new capacity, a factor that continues to drive positive pricing trends, we're investing broadly across our global footprint. We currently have 56 major projects underway in 39 markets across 23 countries, including 14 xScale builds that will deliver more than 100 megawatts of capacity once opened. More than 50% of our expansion capital is supporting capacity in our major metros where we have strong visibility to fill rates. Recurring revenues from customers deployed in more than one region stepped up 1% quarter-over-quarter to 77% as customers continue to move to more distributed architectures. On interconnection, we now have over 460,000 total interconnections with 4,200 net interconnections added in Q3 thanks to healthy gross adds, offset somewhat by continued grooming activity and consolidations into higher bandwidth connections. Equinix Fabric saw continued momentum with record port orders and significant growth in provision bandwidth, up 8% quarter-over-quarter to more than 200 terabits per second. Internet Exchange had another strong quarter in APAC with peak traffic in the region surpassing the Americas for the first time. Globally, peak traffic was up 9% quarter-over-quarter and 27% year-over-year to nearly 35 terabits per second. Recent interconnection and ecosystem wins include Southern Cross, expanding their relationship with Equinix by deploying their SX NEXT subsea cable into our LA4 IBX to boost aggregate capacity on their US to Australia and New Zealand network by 50%. And the Warsaw Stock Exchange migrating their primary matching engine and trading system to Equinix's Warsaw 3 IBX to offer more capabilities and enhanced trading performance. We continue to invest behind our platform strategy with revenue growth from our digital services portfolio significantly over-indexing relative to the broader business, including strong adoption of our Network Edge offering by enterprise customers. We're also seeing momentum in expanding our partnerships with leading technology companies, including the recent announcement of NetApp storage on Equinix Metal, which is an integrated full-stack solution that provides enterprise customers low-latency access to all clouds while keeping control of their data, a critical consideration for AI workloads. Key digital services wins this quarter included McGraw Hill, a leading educational publishing company, deploying virtual hubs using Network Edge across multiple markets to connect to key cloud providers via Equinix Fabric. And a significant win with a global gaming company using Equinix Metal to support a major new product launch. Our channel program delivered another strong quarter, amplifying the reach of our sales team and accounting for over 65% of new logos with wins across a wide range of industry segments focusing on digital transformation initiatives. We continue to see growth from partners like AT&T, Cisco, Dell, and HPE. Key wins included a top five US public school district seeking to modernize aging IT infrastructure while improving systems uptime and enhancing cybersecurity. This win executed with partners, Dell Technology Managed Services, Carasoft, and ImpEx Technologies, will deliver low-latency, multi-cloud connectivity and secure network access to key ecosystem resources while lowering operational expenses. Now, let me turn the call over to Keith and cover the results from the quarter.

Great. Thanks, Charles, and good afternoon to everyone. Let me start by saying I hope you and your families are doing well. Now, notwithstanding these complex and difficult times, we continue to remain bullish about our business and the opportunities ahead as we work hard to expand our strategic and preferential position in the marketplace. As you all know, one of the core tenets of our strategy revolves around long-term shareholder value creation. With that in mind, we continue to build capacity in markets that will enhance our platform positioning and differentiate our offerings into the future. Also, we continue to work diligently to maintain rigor with our pricing strategies while closely overseeing our spending decisions. As it relates to our capital structure, we've been able to maintain a highly advantaged balance sheet with ample liquidity and lower leverage. This gives us the flexibility to opportunistically access the capital markets under terms and conditions that are beneficial to us. In addition, we're actively working to support other strategic operating goals, including how and where we source our supply chain, including energy costs, while increasing our investments in and around our future-first sustainability initiatives, both highly important matters for our customers. Lastly, we remain pleased with our efforts to manage our derivative risks, including our exposure to foreign currencies and interest rates. Moving on to the business, we continue to perform well. In Q3, we had solid gross and net bookings with strong customer demand. Our pricing dynamics are very positive. MRR churn is well within our targeted range. Also, given the tight supply environment across many of our metros, we and our customers continue to look for ways to optimize deployment, including increasing the power density of the cabinets sold. This drives improved bottom line profitability and higher return on invested capital. Global MRR per cabinet was up $57 quarter-over-quarter to $2,214 per cabinet, a 12% increase on our yield year-on-year on a constant currency basis. With respect to our net cabinets billing metric, it remains flat compared to Q2, largely due to the meaningful increase in density of cabinet and the timing of bookings and churn at the end of the quarter. We have a solid backlog of booked but not yet installed cabinets and the depth of our pipeline and the related coverage ratios support an expected strong bookings performance to close out our year. Now, let me cover the highlights from the quarter. Know that all comments in this section are on a normalized and constant currency basis. As depicted on Slide 4, global Q3 revenues were $2.061 billion, up 14% over the same quarter last year due to strong recurring revenue growth and power price increases. Non-recurring revenues remained flat compared to the prior quarter. Although it was not before non-recurring revenues, particularly those attributable to our xScale business are inherently lumpy, for Q4, our guide implies a meaningful step-up on non-recurring revenues attributed to a number of deals expected to close across different markets this quarter. Q3 revenues net of our FX hedges included a $1 million headwind when compared to our prior guidance rates. Global Q3 adjusted EBITDA was $936 million or 45% of revenues, up 9% over the same quarter last year due to strong operating performance. Looking forward, our Q4 adjusted EBITDA is expected to remain roughly flat due to the timing of our spend and specific one-time costs attributed to corporate real estate activities. Q3 adjusted EBITDA, net of our FX hedges, includes a $1 million FX headwind when compared to our prior guidance rates and $2 million of integration costs. Global Q3 AFFO was $772 million, above our expectations due to strong business performance and timing of recurring CapEx spend. Q3 AFFO included minimal FX impact when compared to our prior guidance rates. Global Q3 MRR churn stepped down to 2.2%, and we expect Q4 MRR churn to remain consistent with our Q3 levels in 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 26% and 10%, respectively, followed by our Americas region at 7% year-over-year growth. The Americas region had a solid quarter across many of our key metros, and we experienced strong public sector activity. As it relates to AI, sales activity discussed in Charles' remarks, the vast majority of the demand is destined for the Americas footprint. And as highlighted by Charles, this quarter, we won a mix of AI training, inference, and networking deployments with the pipeline of anticipated deals to follow. Our EMEA business had a strong quarter led by our UK and Dutch markets and record digital services bookings. In EMEA, as highlighted previously, we continue to lean into our future-first sustainability strategy, including implementing heat export initiatives into Frankfurt, Helsinki, and Paris communities while supporting other innovative environmental initiatives to support many other communities and where we operate. And finally, the Asia-Pacific region saw a solid performance led by our Hong Kong, India, and Singapore markets. Capacity constraints exist across a number of our markets, particularly Singapore. These supply constraints will help drive strong deal discipline and pricing power in these markets. During 2024, we'll be opening new markets in India, Indonesia, and Malaysia, expanding our APAC platform and ecosystems in pursuit of larger opportunities given the demand for digital infrastructure. And now looking at our capital structure. Please refer to Slide 8. Our net leverage remains low relative to our peers at 3.5 times our annualized adjusted EBITDA. Our balance sheet increased slightly to approximately $31.7 billion including an unrestricted cash balance of over $2.3 billion. Our cash balance remained flat quarter-over-quarter as our strong operating cash flow and financing activity was offset by our investment in growth CapEx and the quarterly cash dividend. As I've previously noted, we've been opportunistically looking to raise additional debt capital in reduced rate environments. To that end, in September, we raised $337 million of Swiss Franc denominated five-year paper at an attractive 2.875% rate. Additionally, during the quarter, we executed an incremental $230 million of ATM forward equity sales, which we expect to settle alongside our Q2 ATM forward contract in late 2023. These financing transactions will help fund our 2024 growth initiatives, alongside other sources of capital while allowing us to maintain our strategic flexibility. Also in September, we published our 2023 green bond allocation report. As highlighted in the report, we have now fully allocated the net proceeds from our green bonds aligning our financing efforts with our commitment to create a more environmentally friendly data center footprint. Turning to Slide 9, for the quarter, capital expenditures were $618 million, including recurring CapEx of $52 million. Since our last earnings call, we opened six new retail projects, including two new data centers in Dubai and Montreal. We also purchased our Dublin 1 and Montreal 1 IBX assets and land for development in Manchester in Washington, D.C. Revenue from owned assets were 64% of recurring revenues for the quarter. Our capital investments delivered strong returns as shown on Slide 10. Our 174 stabilized assets increased revenues by 9% year-over-year on a constant currency basis. Our stabilized assets are collectively 85% utilized and generated 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. Do note, 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 approximately 9% growth, excluding the impact of power costs passed through to our customers, a reflection of our continued strong execution. We are raising our underlying 2023 adjusted EBITDA guidance by $17 million due to favorable operating costs and lower integration spend, and we're raising our underlying AFFO guidance by $27 million to now grow between 12% and 14% compared to the previous year. AFFO per share is now expected to grow between 10% and 11%. CapEx is expected to remain in the $2.7 billion to $2.9 billion range, including approximately $215 million of on-balance sheet xScale spend, which we expect to be reimbursed for when these assets are transferred to JVs early next year and about $225 million of recurring CapEx spend, an increase over the prior quarter as we accelerate costs into Q4. Lastly, given our strong operating performance and our historically low AFFO payout ratio, we've accelerated the timing of our cash dividend increase into Q4 of this year from Q1 of next year. As a result, the quarterly cash dividend will increase by 25% to $4.26 per share this quarter. Looking forward, we expect our annual cash dividend growth rate will track at or above our AFFO per share growth rate for a number of years.

Thanks, Keith. In closing, we continue to see strong demand as customers embrace AI and advance their digital transformation agendas with infrastructure that is more distributed, more cloud connected, and more ecosystem enabled than ever before. Despite a variety of cross currents in the business, we are translating healthy bookings growth, a favorable pricing environment, and increasing power densities into strong increases in cabinet yield. These dynamics, combined with the continued focus on driving operating leverage and expense discipline through the business, are allowing us to deliver compelling value on a per share basis. As we close out 2023 and look towards 2024, our forward-looking strategy and vision for our platform will enable us to amplify our unique strengths, leveraging them to expand our market opportunity and drive sustainable growth in a rapidly evolving landscape. We remain optimistic about the road ahead and steadfast in our commitment to show up every day in service too, starting with the resolve to align, inspire, and empower our teams around our strategy and our mission, enabling them to deliver durable value and meaningful impact to our customers, our shareholders, and the communities in which we operate. So, let me stop there and open it up for questions.

Thank you. Our first question comes from Matt Niknam with Deutsche Bank. You may go ahead.

Hey guys. Thank you for taking the questions. Just two, if I could. First, on the cabs billing metric. I appreciate you, Charles, given some of that color around the increased power density. I'm just wondering if there's any additional color you can share with some of the softness in the cabs billing adds, some of the actions you may be taking to release some of that available capacity at higher mark-to-market rates and any sort of color you can share in terms of expectations for 4Q. And then second question, again, we appreciate all the color on AI. Just wondering if you can give us any more color on the conversations you're having with customers on their AI strategy, what role Equinix can play in helping them meet their goals, and any sort of timing in terms of when this can become a little bit more material? Thanks.

Yes, we expected a question about the cabinets since it's a key topic of discussion. I want to emphasize that the slow growth in cabinets is not due to a lack of demand. We had a strong quarter for bookings, with overall deal counts consistent with previous trends. So, it's not a demand issue. As I mentioned last quarter, we know that adding billing cabinets needs to be part of our growth strategy over time. However, the pressure on that metric is related to positive trends in the business. Let me explain this further. We realized that we may not have fully recognized the extent of the changes in power density in recent quarters. We examined this closely and found a widening gap between the power density of our churned cabinets and that of newly sold cabinets. Over the first three quarters of 2023, we've had a flatter growth profile regarding our billing cabinets, with churned cabinets averaging 4 kilowatts per cabinet, while new billable cabinets averaged 5.7 kilowatts. This difference significantly impacts our cabinet equivalent metric, which is not adjusted for density. We are working hard to keep up with the increase in density affecting cabinet growth. Also, we have some capacity constraints in certain markets, which lead to proactive churn on our part, but customer churn remains low. Our churn management is staying well within our guided range. As I mentioned last quarter, we've had 37 deployments with positive marks on pricing and power density. In Q3, we observed a 60% to 70% uplift in our average churned versus new cabinets, which is an attractive dynamic that explains our robust revenue growth despite limited cabinet growth. We maintain that we are not chasing volume as a business goal, which often undermines discipline. We're focused on long-term strategies. While cabinet growth is necessary over time, the current dynamics enable us to achieve strong monthly recurring revenue per cabinet, solid asset growth, and favorable returns on capital. This translates into strong results in terms of AFFO per share and dividend growth. Now regarding AI, we are definitely seeing its impact. We highlighted several deals won this quarter. AI and machine learning are not new to us, as we've engaged with digital leaders on AI opportunities for years. There is ongoing activity across the platform. For example, we announced our NVIDIA Launchpad offering over two years ago, which has given us a unique chance to engage with customers initiating AI projects and monitor AI demand in the market. We closed several deals with service providers this quarter, particularly in retail focused on networking and inference nodes. We’ve been addressing three critical questions customers have about AI: where to store their data, how to integrate other data sources with their own, and how to deliver AI-generated business insights efficiently. We are actively supporting our customers in these areas, contributing to a strong forward-looking pipeline of opportunities. Overall, AI is a positive force for the business.

Our next question comes from Frank Louthan with Raymond James. You may go ahead.

Thank you. I have a quick question about the channel. You mentioned that 65% of new logos are coming from the channel. What percentage of overall sales does that represent? Also, how do the logos from the channel perform in the long term compared to those generated by the existing sales force? Do they produce the same amount of repeat business?

I think our bookings percentage from our channel is probably in the 40% range. It's important to note that our channel doesn't primarily function as a sell-through channel; instead, we focus on collaborating to meet market needs. We leverage the extensive relationships our channel partners have, particularly in the broad enterprise sector, to identify opportunities and present our unique value. This often leads to a joint selling approach between us and our partners. Over time, we should aim to transition towards a sell-through model for greater economic leverage. However, we see our channel wins as comparable in quality to our direct sales, and in some cases, we can capture additional wallet share more easily due to the strong relationships our partners have within those accounts. This has been a very positive aspect for us. As we deepen our relationships with key technology partners, such as the offerings we have with NetApp and Pure, these are significant as customers consider where to place their data and which storage providers they prefer, especially as they look to Equinix for proximity to the cloud. These are great examples of the successful deals we're closing through the channel, which continues to be a vital part of our business.

Our next question comes from Jon Atkin with RBC Capital Markets. You may go ahead.

Thanks. So, I was interested in if there's anything notable to call out that drove the growth in EMEA where things seem to have accelerated a bit versus APAC, which saw a slightly slower growth. And then on pricing, which I think you mentioned in the earlier part of your prepared remarks, where do you see the main levers? Would it be renewal spreads on cabinets or harmonizing cross connects or anything to kind of call out around pricing to think about in 2024? Thanks.

Sure. I believe that when you adjust for the PPI, the EMEA numbers are significantly influenced by it and are reported accordingly. We are experiencing strong performance across our regions, although APAC has been facing more constraints over the past few quarters, particularly in Singapore. In EMEA, we should continue to focus on our internal features, even though the available data isn't as detailed. The deal mix in EMEA remains very favorable, and our team has effectively shifted away from relying heavily on large footprint business to adapt post-xScale. This shift also reduces our dependency on large footprint demand in the enterprise, which tends to have a higher churn probability over time. The evolution of the deal mix in EMEA over the last couple of years has been impressive, thanks to the dedicated team on the ground. Regarding pricing, it is generally favorable, partly due to customers understanding that increases in underlying costs are contributing to a rising price environment. More importantly, we are able to deliver compelling value and effectively communicate that to our customers. There's ongoing pricing activity across our portfolio, including interconnection, space and power, and our digital services. This includes increases in list pricing and renewals. The dynamic of churning cabinets at a lower rate while selling new ones at a significantly higher rate demonstrates a strong valuation. Although pricing plays a role, power density is also an important factor, and new cabinets gain even more value from increased interconnection over time. These dynamics may be complex to grasp fully, but they are reflected in the MRR per cabinet as well as overall revenue growth rates, particularly in our AFFO per share results. You always get full value for your questions, Jon. Regarding new logos, we're observing a diverse range across verticals without significant concentration. Industries that are data-centric or data-intensive are focusing on digital transformation and AI. We've discussed some of these sectors, including transportation and healthcare, where we've seen a few successes. Interestingly, manufacturing has performed exceptionally well for us, as has retail. The financial services sector is very strong, with a proactive approach to AI and cloud, although this is tempered by compliance, security, and distributed infrastructure requirements. They remain an ideal customer for us, utilizing a wide array of infrastructure options while wanting to keep their data and certain private infrastructures nearby. We've experienced robust performance across verticals regarding new logos, with each earnings report showcasing different highlights. On churn, we've provided key insights. We are well within our expected range, managing a slight churn through proactive measures and responding to customers aiming to optimize their footprints, recognizing meaningful upsides there. In this environment, we see some level of optimization from customers who may have over-purchased in 2021 and 2022 but are now adjusting to ensure they acquire only what they need while accommodating hybrid and multi-cloud architectures. Churn remains an area of focus for us, and currently, it is performing as we anticipated in terms of our churn as a percentage of monthly revenue.

Thank you. Our next caller is David Barden with Bank of America. You may go ahead.

Thank you very much. I have two questions. Keith, I want to clarify my understanding of the outlook for 2024. You've had a better-than-expected performance up to the third quarter, and although you're predicting a softer start in the fourth quarter heading into 2024, you also mention strong bookings. Should we perhaps focus more on the performance in the second half of the year as a starting point for the first half of 2024 instead of specifically the fourth quarter? My second question is for Charles. You mentioned that your churn is 4,000 and that new clients numbered 547. How does that break down? Is it something like 1 in 10 for every three new clients, or does it indicate that the new clients are significantly more powerful? Thank you.

David, I'll address the first question and then hand it over to Charles. Thank you for your questions. It's crucial to emphasize how the business is performing. As Charles mentioned, the company is doing well. Despite comments about the billing cabinets, our revenue growth of over $40 million quarter-over-quarter indicates that we are creating value through price and volume. As we look ahead to the fourth quarter, we anticipate a significant increase in both recurring and non-recurring revenue. At the midpoint of our guidance, we expect to be up $73 million from the previous quarter on a currency-neutral basis, which is quite impressive. Regarding the non-recurring revenue, it has remained relatively flat quarter-over-quarter, reflecting the usual fluctuations with large deals in the xScale business, which we estimate to have an uplift of about $30 million. This leaves considerable room for recurring revenue increases, again reflecting that $73 million midpoint. On the costs side, there are seasonal factors as always. However, as we mentioned in our prepared remarks, there are two main points to focus on. First, the company is being diligent with our spending, particularly in corporate real estate, which has led us to include a significant charge this quarter, estimated to be in the range of $20 million to $30 million. Second, as you know, we've had a solid year and are preparing for 2024. Our strong bookings in the third quarter position us well for the fourth quarter, which sets a solid foundation for next year. We made the decision to accelerate some costs into this year, both in operational expenses and recurring capital expenditures, to ensure we meet and exceed market expectations while making necessary investments to focus on priorities for 2024. This combination has positively impacted our flow-throughs, and entering the new year, we have established a strong foundation for a good start in 2024. If we meet our booking expectations, it will pave the way for a successful beginning to the year. I hope that answers your question.

No. Thanks, Keith.

I'll address the second part, David. It’s quite straightforward. The 4 to 5.7 figure represents a macro average, reflecting the total performance over the first three quarters. We looked at the number of cabinets that were churned out during that time and the total contracted power associated with them, and when you divide those, you arrive at four. Then, we considered the new cabinets booked throughout the year along with their contracted power, leading us to 5.7. It’s crucial to describe this as an average because if all we were dealing with were precisely 4-kilowatt cabinets being churned and exactly 5.7-kilowatt cabinets being added, it would complicate matters. In reality, the workloads vary significantly. We continue to observe substantial demand well below 5.7, which is evident since it's an average, but there are also cases that exceed this figure, with some deals potentially reaching 10, 15, 20 kilowatts or more per cabinet. We might even consider liquid cooling to accommodate those high-density demands. This presents an opportunity, especially as we free up space that can be matched with power and appropriately cooled, whether through liquid cooling or traditional air cooling. This is a key focus for us, and the 4 to 5.7 range I provided is truly an overall average.

Our next question comes from Michael Rollins with Citi. You may go ahead.

Thanks. Good afternoon. First, curious if you could discuss the factors that led to the decision to adjust capital allocation and boost the dividend per share in this fourth quarter and then just kind of the go-forward metric of how to think about dividend growth? And then I have a follow-up, if that's okay.

Yes, Michael. Broadly speaking, we believe that our strong cash position and liquidity on our balance sheet, along with our debt structure in low rate environments, will continue to benefit us as we move into 2024 and 2025. While it wasn't the focus of your question, I will address the dividend shortly. The cost of debt is increasing, so we are being careful about how we raise capital to maintain balance. We have outlined our five-year business plan and understand the incremental capital we need. We are executing strategically when opportunities arise, which is why you saw the Swiss franc rates added to our balance sheet immediately, providing us with beneficial liquid capital. As we consider how to return some of our cash flow to investors, we have committed to distributing 100% of our taxable income within the qualified structure through dividends, which helps limit taxable income and avoid excise taxes. As I've mentioned over the past few quarters, our operational performance is the primary driver of our dividend. Our strong operational performance has been accelerating, and we are at a point where we can no longer hold back momentum. This allows our tax teams to manage provisions and positions without worrying about the upcoming filing for 2023. We made this decision in the fourth quarter to reflect our growth and create capacity not just for this quarter but for 2024 as well. We have strong visibility on our taxable income outlook and aimed to address any under-distributed issues for 2024 with this decision.

Thanks. And then just on one other thing that you mentioned earlier. You mentioned the opportunity to try to improve the power density in the existing footprint. And just curious if you could share with us how the power utilization of your portfolio compares to the cabinet utilization of your portfolio? And the opportunity based on access to the utility load and thinking about the cost, like how much further can you take the power in the existing portfolio? Thanks.

Yes, that's a great question, Mike. Unfortunately, it's not a simple matter. However, I will answer your question. Our power utilization is significantly lower than our cabinet utilization. This indicates an opportunity for us, as we can match space and power while ensuring proper cooling to unlock additional productive capacity from our platform. It's not straightforward, as the power draw can vary greatly from facility to facility, and our ability to increase available power depends on the utility's capacity as well as our own capability in terms of power distribution equipment. I believe there is an opportunity here that works to our advantage regarding the overall dynamics of the business. Nonetheless, we must continuously ensure we deliver superior reliability to our customers, understand their requirements, provide adequate cooling, and ensure the reliability and resiliency they need while managing all these factors simultaneously. I believe you're correctly identifying an opportunity that suggests if we are churning out cabinets at a lower rate, selling them at a higher rate, and freeing up space or cabinet capacity, we can consider how to augment power over time to create value. I think the answer is yes, and we will work diligently to determine the best approach.

Mike, I would like to add one more point to what Charles mentioned. A key goal from Ralph's organization is to enhance efficiency in the IBXs. We are continuously exploring ways to improve efficiency and generate the incremental capacity that Charles referred to. We are also examining new design and construction methods to operate these facilities more effectively, which helps reduce our PUE, benefiting our customers. In some instances, we are contractually obliged to meet specific PUE targets with our clients. This focus on efficiency not only enhances our business but also creates capacity that we aim to resell. These investments, particularly in older data centers, can leverage new technologies or components of our MCE. By investing wisely, we can free up stranded capacity or energy, which is advantageous for our business and for our customers.

Yes. And one last comment I'd make, Mike, is that I do think this highlights what a very different business we have. Because when you're talking about a very large number of customers in a facility, that's extremely different. So, we wouldn't have that same view relative to an xScale facility, for example, right? I mean that you design it as a certain power capacity, you sell that to a customer, sometimes an entire building to a customer at that and sort of that is what it is. One or two customers sort of it doesn't matter. But when you're talking about very large numbers of customers with very widely ranging power requirements, it represents both a challenge and an opportunity and one that I think, over time, we've developed a set of processes and capabilities to manage quite effectively.

Our next caller is Eric Luebchow with Wells Fargo. You may go ahead.

Appreciate it. Thanks for the question. So, maybe you could touch a little bit, Charles, on the kind of the enterprise sales in the quarter in the pipeline? I know with rates moving higher recently and some concerns around potential recession in the US. Are you seeing any of them pulling back on IT spend to being more cautious in their outlook as they look kind of at their IT stack and hybrid cloud migration and any signs that they're kind of optimizing costs that are evident in any of your churn numbers?

Yes, that's a great question, Eric. As mentioned earlier, the environment is characterized by customer caution. I believe that's accurate. I've been actively engaging with our teams in data centers, sales offices, and with customers and partners. There is a sentiment among customers that they recognize the need to invest in digital transformation and AI, although many are still in the early stages of these efforts. However, they're also dealing with constraints due to the challenging macroeconomic environment affecting their budgets. Customers are often reallocating funds to support their digital transformation initiatives and are focused on getting more value out of their IT spending overall. We're seeing a lot of discussions about cloud spending, with customers looking to understand the right mix of cloud services and reconsidering their approach to certain workloads, including the potential need for cloud-native solutions. There's a strong effort among customers to optimize their digital infrastructure, which positions us as a valuable resource for them. Networking is another critical area; customers are responding positively to offerings like Network Edge, especially in the context of WAN re-architecture, as they aim to reduce costs while enhancing performance. While there's some caution in the market, many are seeking to invest in digital solutions and are contemplating the right long-term architecture that balances hybrid, multi-cloud, and data-centric approaches. This creates an opportunity for us to be a trusted partner in their journey.

Great. Thanks. And just one quick follow-up. I was curious on the xScale kind of update, a development in Silicon Valley saw. So you made it clear that your desire to expand more into the United States. Maybe as you look at the set of opportunities in the US, is development the best option you see today to attack that opportunity? Or is M&A another lever that you continue to evaluate in the US for xScale?

Yes, that's a great question. I don't think we would be against that. If we identify assets available under reasonable terms from an M&A perspective, it's likely that we would pursue that through a joint venture vehicle. However, our immediate focus is on development, and we'll keep you informed on both areas as appropriate.

And our last question comes from Nick Del Deo with MoffettNathanson. You may go ahead.

Thank you for including me. I would like to follow up on the xScale question in the US. What do you see as the differences in AI training that encourage you to support those deployments through xScale in the US, especially considering that you previously identified the cloud opportunity as too competitive to pursue?

I believe there are a few important points to consider. First, when we initially made our assessment and shared it with the market, the supply-demand dynamics for xScale in the US were not very favorable. However, that situation is changing. The landscape for supply and demand in the US is influenced by traditional demand as well as the growing need for hyperscale solutions, particularly for AI training. This shift alters the supply-demand equation and creates a more attractive market for us. Additionally, we recognize the importance of maintaining strong relationships with key players in the digital ecosystem, especially the major hyperscalers. We are dedicated to being a reliable partner to meet their capacity needs, not just on a retail basis but also as one of several providers in the xScale sector. Lastly, it's crucial to emphasize that maintaining our scale and relevance in the supply chain is vital. We believe we are well-positioned in this aspect, thanks to the outstanding work of our procurement and supply chain teams. Their effectiveness can be attributed to our solid balance sheet and the considerable scale of our operations. Therefore, xScale serves as a means for us to sustain our position in the industry. I believe there are a couple of important points to consider. Initially, at the time we made our assessment and communicated it to the market, the supply-demand dynamics and return profile of xScale in the US were not particularly favorable. However, I see that situation evolving. The supply and demand landscape in the US is changing, driven by both traditional demand for AZs and a significant increase in demand for training. This shift enhances the supply-demand profile, making the market more appealing for sales. Furthermore, I think we now have a deeper appreciation for the necessity of fostering strong relationships with key players in the digital ecosystem, particularly the hyperscalers. We are committed to being a partner in addressing their capacity needs, not just on a retail level but as one of several providers in the xScale space. Lastly, I believe it's crucial to maintain our scale and relevance within the supply chain, where we are well-positioned. Our procurement and supply chain teams are excelling, and their effectiveness is partly due to our solid balance sheet and the scale of our operations. Therefore, xScale serves as a means for us to uphold our competitive standing.

This concludes our Q3 conference call. Thank you for joining us.

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