Good afternoon, and welcome to the Equinix Second Quarter Earnings Conference Call. Today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd now like to turn the call over to Mr. Chip Newcom, Senior Director of Investor Relations. 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 as well as those identified in our filings with the SEC, including our most recent Form 10-K filed February 12, 2025, and our most recent Form 10-Q. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure. On today's conference call, we will provide non-GAAP measures. 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 Adaire Fox-Martin, Equinix's CEO and President, and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we will be taking questions from sell-side analysts. At this time, I'll turn the call over to Adaire.

Thank you, Chip. Hello, everyone. Good afternoon and a warm welcome to our earnings call for the second quarter of 2025. Our Q2 results demonstrate that our strategy is meeting the opportunity. This is evidenced not only by strong financial metrics, but also by our continued customer momentum and strong delivery in key areas of our business. By way of highlights: First, from a financial perspective, the Equinix team delivered. In Q2, our revenues, adjusted EBITDA, and AFFO were all in line with or better than expectations. This performance was underpinned by strong recurring revenue growth and solid operating flow-through, resulting in adjusted EBITDA margins hitting 50%. Second, our relevance to existing and new customers continues to deepen. In Q2, we closed 4,100 deals across more than 3,300 customers, resulting in $345 million of annualized gross bookings for the quarter, a new metric that we disclosed at Analyst Day. Our teams delivered this performance through strong small- and medium-sized deal activity with a notable uptick in inter and intra-region sales, all while maintaining favorable pricing across deal sizes. Third, our performance translated into solid non-financial results with substantial net interconnection additions, solid cabinets billing led by the Americas, and strong MRR per cabinet yields. Our diverse interconnected ecosystems continue to drive industry-leading returns as seen in the performance of our stabilized asset portfolio. Now before we take a closer look at Q2, I want to focus for a moment on our long-term vision. It was a pleasure to connect with many of you at our Analyst Day last month. At that time, we outlined the opportunities we see in the market across AI, hybrid and multi-cloud, and networking. We presented this strategy we have defined to unlock these opportunities and against which we are already rapidly executing. And we shared important financial guidance for the next 5 years. Since Analyst Day, we have had a fruitful dialogue with many of our shareholders and analysts to listen to your feedback and to answer your questions. With those conversations in mind, I would like to offer some key points of clarity on the Build Bolder component of our strategy, while Keith will provide additional commentary on the long-term financial outlook in his remarks. First, as outlined on Slide 6, our capital expenditure is about capacity expansion with the aim of accelerating revenue. The vast majority of our investments over the next 5 years are expected to be allocated to our future growth. This includes the purchase of land, the construction of new IBX data centers, investment in our xScale joint ventures and developing digital product offerings. As I outlined in my presentation at Analyst Day, we see a significant addressable market opportunity in front of Equinix, and this opportunity is affirmed by the demand signals from our customers. Our customers rely on Equinix for the digital infrastructure necessary to support and scale their AI models. They look to us as they embrace hybrid and multi-cloud strategies for their application architecture. Our customers are the motivation for the expansion and scale of our capital investments. Second, only about 1% of our nonrecurring capital expenditures will be allocated to the redevelopment of select high-value IBX assets. The redevelopment of key ecosystem facilities like Washington, D.C. and Miami will not only extend the economic lives of these assets, but at the conclusion of these projects, we believe we will be able to yield meaningful additional space and power capacity at attractive returns. Third, with regard to returns, we expect to underwrite our investments in assets that will yield approximately 25% at stabilization, in line with our current stabilized portfolio. Our growth investments are intended to skew towards our major markets, where we generate over $100 million in annual revenue. By prioritizing our large markets, we can leverage our diverse and deep customer relationships and our in-place operating capabilities to de-risk our investment plans and drive efficiencies at scale. Finally, with regards to timing of revenue, while it takes approximately 18 to 24 months to build a core shell and first phase of an IBX asset, we are anticipating an accelerated path to stabilization relative to historical trends. Hence, while we guided through 2029, our near- to medium-term investments will support our durable growth beyond 2029. We see a path to drive the business to double-digit revenue growth as our Build Bolder strategy becomes fully operational. Our capital expenditures and data center expansion are grounded in the demand signals we see from our customer base. Organizations are moving beyond the experimentation and pilot phase of AI adoption into the phase of agentic integration and automation. Many of our customers have deployed AI centers of excellence. These teams are working to establish standardized governance policies and total cost of ownership-based management of enterprise AI road maps. These are the necessary prerequisites to enable the scaling of agentic use cases and their integration into core systems, resulting in always-on AI that is compliant to policy. The use cases that we see are far-ranging from those that are grounded in privacy and sovereignty requirements to use cases requiring distributed delivery and secure interconnection to those that have at their core predictable performance, coupled with neutrality and control. Customers' priorities are unique, but Equinix is uniquely positioned to address these priorities. Alembic, Block, Bristol Myers Squibb, Continental, Harrison.ai, and ServiceNow, amongst many others, are working with us to support their AI ambitions and their growth objectives. As I noted at our Analyst Day, we firmly believe that Equinix has been built for this moment. We are investing in our future in service to our customers and in service to the opportunity ahead. Through these efforts, we believe we will continue to deliver attractive revenue growth, expanded margins, and accretive value to our shareholders over the long term. Now I would like to take a closer look at our financial results for the quarter and our customer momentum. As a reminder, the growth rates shared are all on a normalized and constant currency basis. In Q2, we delivered revenues of $2.26 billion, up 5% year-over-year. This was driven by strong recurring revenue growth, up 7% year-over-year, the result of our continued strong bookings performance. As previously stated, our second half outlook implies underlying recurring revenue step-up, a reflection of our strong first half bookings and conversion of backlog. For nonrecurring revenues in Q2, we had lower xScale fees, which was as expected and planned for. Based on our current pipeline for xScale and consistent with our initial full-year guidance, we are anticipating a meaningful step-up in nonrecurring revenue in the second half, more specifically in Q4. Adjusted EBITDA margins increased to 50% of revenues for the first time in our history. AFFO per share increased 8% year-over-year. In both instances, results were above our expectations due to strong operating performance and lower-than-expected SG&A expenses, in part due to the timing of spend. Keith will provide additional insight into these numbers shortly. Turning to our customer momentum. We continue to cultivate and win opportunities across our product set and in service to the enduring demand for AI, hybrid and multi-cloud deployments and networking requirements. Lyceum Technologies, a German GPU as a service provider, recently added a liquid-cooled AI deployment in EMEA to bring automated cloud experiences to their customers. Schneider Electric chose Equinix to lower the overall carbon footprint of their digital infrastructure as they build out a multi-cloud solution leveraging fabric cloud router. Woolworths, the largest retailer of food and everyday essentials in Australia and New Zealand, developed a payments platform called WPay, utilizing HPE GreenLake and Equinix data centers. This end-to-end solution features a robust architecture that not only offers scalability but also enhances cost efficiency for both WPay and its merchant partners. eBay leverages Equinix to ensure low latency connectivity and high performance for its global marketplace with distributed network hubs. This infrastructure enables eBay to deliver a seamless user experience, reducing delays and optimizing interactions for buyers and sellers worldwide. Finally, EssilorLuxottica, a global leader in advanced vision care products, eyewear, and medtech solutions, chose Equinix to enhance operational efficiency and support seamless global expansion with high performance connectivity. This breadth of customer use cases across geography, segment, industry, and product set underscores the distinct value of Equinix and the diversity of the opportunity ahead. We intend to build on this momentum through the remaining quarters of '25 and beyond. We continue to execute against our 3 strategic moves in pursuit of our long-term accretive growth ambitions. Our Serve Better strategic move is focused on our customers who are at the heart of everything we do. The differentiating force behind serving better is our customer and revenue organization. I would like to take a moment to welcome Shane Paladin as our new Chief Customer and Revenue Officer and a member of our executive team. Shane brings with him over 2 decades of global expertise in go-to-market strategies, close collaboration with product organizations, and the delivery of transformative results. I'm also pleased to share that we are already off to a strong start in Q3. Through presales from prior quarters and continued momentum from our sales team, as of yesterday, we have closed more than 40% of our bookings planned for Q3. We have a strong pipeline to support our remaining bookings ambitions for the quarter. Looking forward to Q4, our pipeline is the most robust we have seen and speaks to the demand in the market for the products and services offered by Equinix. As we work to solve smarter, we are focused on simplifying the consumption of our digital infrastructure and interconnection solutions for our customers. Our industry-leading interconnection franchise continues to perform well. Interconnection revenues grew a healthy 8% year-over-year on a normalized and constant currency basis, crossing $400 million of quarterly revenues for the first time. We added a net 6,200 total interconnections in the quarter, driven by cloud and AI expansion activities. We now have more than 492,000 total interconnections deployed. Our ability to connect businesses with one another and across their value chain, including through our market-leading share of native cloud on-ramps, continues to be an attractive differentiator for our customers. This is why Equinix has become the home to ecosystems across network, cloud, financial services, and content and digital media providers. Equinix Fabric continues to over-index with provision capacity now over 100 terabits. In the quarter, we surpassed 4,000 customers using Equinix Fabric, and we saw a continued diversification of use cases with solid pull-through from our fabric cloud router and network edge products. As I said before, AI inference use cases are growing. We believe our leading market share of cloud on-ramps, when combined with fabric, will be vital to address the increased bandwidth and multi-cloud connectivity these workloads will require. As we Build Bolder to meet growing demand from our customers, we now have 59 major projects underway globally, including 12 xScale projects. Since our last earnings call, we added 9 new retail projects in key markets such as Chicago, Dallas, London, and Silicon Valley and have commenced our first build in Bangkok, Thailand. In early June, we finalized our acquisition of 3 data centers in the Philippines to enter the Manila Metro as we broaden our footprint in Southeast Asia. Our xScale focus continues to expand. Our pipeline of potential North American campuses is growing, and we are in late-stage negotiations for additional locations, which we look forward to disclosing in the near future. We are making excellent progress on our Atlanta campus as we prepare the land for the construction process. Across our open and announced projects, our xScale assets are more than 85% leased or pre-leased, and as noted earlier, we have a strong pipeline of opportunities primed for execution in the second half of the year. Serve Better, Solve Smarter, and Build Bolder are the right strategic moves for our customers and for our business, and our continued execution gains them is paying off. Now I'm going to turn it over to Keith to share more on the quarter's financials and our outlook for the balance of the year.

Thanks, Adaire, and good afternoon to everyone. We had another excellent quarter, and we're very optimistic about the future for Equinix. Our annualized gross bookings reached a new metric of $345 million in the second quarter. These bookings are essential for the anticipated recurring revenue growth over the next two quarters as we prepare for 2026. We also achieved significant operating leverage, with adjusted EBITDA margins reaching 50% for the first time ever. Our non-financial metrics continue to improve. This progress, along with stronger non-U.S. dollar operating currencies, has allowed us to raise our guidance across all key metrics while maintaining the ability to invest in the second half of the year to support our strategic initiatives. Before diving into the quarter’s details, I want to clarify our long-term financial outlook shared during the June Analyst Day. First, our Build Bolder investment strategy focuses on investing in future growth by expanding our data center development. This strategy aligns with our effort to match the right customer with the right application in the right asset, ultimately creating the capacity needed for future digital infrastructure demands. Second, the Analyst Day's 5-year plan assumed specific funding sources for our growth. We've successfully accessed various foreign debt markets in recent years, where interest rates are lower and we can manage potential foreign exchange risks effectively. We plan to continue accessing these markets while avoiding undue foreign exchange risks on our balance sheet. In the short term, we will keep leveraging lower capital cost markets in Canada and raising more debt capital in Europe by 2026. When interest rates and spreads improve in the U.S., we'll strategically access this market while considering the appropriate terms for capital raises. Regarding interest expense forecasts, we anticipate capitalizing some of our interest expense, which will depend on the cost of the funds raised, the value of assets under development, and the timeline to operationalize these assets. As we proceed through our annual planning cycle later this year, we intend to refine our estimates for net interest expense after interest capitalization and will update you on this in early 2026. Lastly, our long-term target remains to achieve $50 or more of AFFO per share by 2029, indicating a 7% compound annual growth rate from 2025 to 2029. We expect 2026 to be at the lower end of our guidance range, leading to higher growth rates thereafter, with 2029 projected at the top of the range. Now, let’s highlight the quarter's performance. Global revenues for Q2 were approximately $2.26 billion, a 5% increase from last year, slightly above the midpoint of our guidance range. Our strong booking momentum resulted in a 7% growth in recurring revenue, offset by a decrease in nonrecurring revenues primarily due to lower xScale fit-out revenues and expected fees. Adjusted EBITDA for Q2 was around $1.13 billion, or 50% of revenues, exceeding our guidance because of solid operating performance and lower-than-expected SG&A expenses attributed to timing. The adjusted EBITDA for Q2, accounting for hedges, encountered a $2 million FX headwind. Global Q2 AFFO stood at $972 million, an 11% increase compared to last year and significantly above our quarterly expectations due to strong operations and lower income tax expenses. The Q2 AFFO faced a $3 million FX headwind when compared to our previous guidance. Monthly recurring revenue churn for Q2 was 2.6%, slightly above the high end of our range mainly due to a bankruptcy, but without this specific case, it would have been at 2.4%. For the year, we expect monthly recurring revenue churn to remain within our 2% to 2.5% guidance range. Our non-financial metrics are also improving, with global monthly recurring revenue per cabinet increasing by $33 quarter-over-quarter on a constant currency basis, driven by favorable pricing and rising power densities. Cabinet billing saw growth led by the Americas region, and we added 6,200 net interconnections this quarter. Now, regarding our capital structure, our balance sheet grew to about $39 billion, including approximately $4.5 billion in cash and short-term investments, which is higher than usual due to $1.2 billion in upcoming senior note repayments. During the quarter, we issued $1.7 billion in euro-denominated senior green notes at an average rate of 3.625%. Cumulatively, we have issued $9 billion in green bonds, making us one of the top five U.S. issuers in the investment-grade green bond market. Our net leverage stands at 3.5 times our annualized adjusted EBITDA, and as noted on our Analyst Day, we expect our net leverage to rise over the coming years as we fund growth through both generated cash and additional debt. We are comfortable raising our debt levels to 4.5 times in support of our growth and strategic initiatives while keeping our investment-grade rating intact. For this quarter, capital expenditures were about $990 million, including recurring CapEx of $55 million. We opened five major projects since our last earnings call, expanding retail capacity in Chicago, Dallas, Toronto, Washington D.C., and Salalah, Oman. Over 70% of our announced retail expansion projects are focused on our largest markets where we benefit from strong ecosystems and economies of scale. Our capital investments have generated strong returns, with our 189 stabilized assets yielding a 3% year-over-year increase in recurring revenues, achieving 82% utilization with a 26% cash-on-cash return on gross PP&E on a constant currency basis. Lastly, we are raising our revenue guidance for 2025 by $58 million, maintaining a 7% to 8% growth rate. Our outlook suggests a robust increase in underlying recurring revenues in Q3 and Q4 and strong nonrecurring revenue activity in the fourth quarter due to our xScale pipeline. We are also raising our 2025 adjusted EBITDA guidance by $46 million, expecting margins close to 49% with strong performance in the second half. Funds from operations are set to grow by 10% to 12%, with per-share growth projected between 7% and 10% compared to last year. Finally, 2025 capital expenditures are expected between $3.8 billion and $4.3 billion, which includes about $450 million of on-balance sheet xScale expenditures, funds we anticipate reimbursing later this year as we integrate these assets into our U.S. joint venture. The increase in nonrecurring capital expenditures is mainly due to significant investment in long-lead equipment and the timing of contributing xScale investments. Recurring capital expenditure spending is estimated at around $280 million. I will now turn the call back to Adaire.

Thanks very much, Keith. In closing, we delivered a strong first half of 2025, achieving robust bookings and financial outcomes. We remain excited and optimistic about the future of Equinix and our differentiated and durable market position. We were built for this moment. No other player in the digital infrastructure landscape possesses the unique combination of strengths that are an inherent part of Equinix. Our diverse and neutral interconnected ecosystems, our extensive global footprint across key metros, our more than 10,000 enterprise customers across geographies, industries, and segments, our track record of reliability and service excellence. As the world's digital infrastructure company, we are shortening the path to bandwidth connectivity to enable the innovations that enrich our work, life, and planet. I'll stop here and open it up to questions.

Our first caller is Nick Del Deo with MoffettNathanson LLC.

It was great to see the interconnection increases return this quarter, but they have shown some fluctuations over the past couple of years. I would like to know more about what contributed to this quarter's performance and what we might expect for that metric in the upcoming quarters.

Yes. Thanks for the question, Nick. I'm very happy to take that. As you mentioned, a very strong position for interconnection this quarter with revenues up 8% year-on-year and of course, contributing overall to the revenue of Equinix 6,200 additions, mostly focused around cloud and AI expansion opportunities with our customers. So largely looking at how the ecosystem of cloud and AI opportunities in our customer base look to secure their network presence in order to support the kind of workloads that they are hoping will be part of their landscape going forward. So this was, I think, a very strong quarter for us for interconnection. We saw use cases around our data center interconnect, around our Fabric Cloud Router and on Network Edge being pulled through as well. And we look forward to continuing to work in order to ensure that we continue to grow and evolve the value of this part of the Equinix franchise.

John Atkin with RBC Capital Markets.

I was interested in the comment on the strong bookings momentum to start the third quarter. Is this seasonality? Is it sales incentives? Is it product appeal to certain customer bases or segments or maybe drill down a little bit as to what's driving that and what that might portend for even the rest of the year?

Yes. Happy to do that. Thanks very much. Maybe I can just perhaps characterize this a little with what we saw in the demand profile for the quarter just closed in Q2. We certainly saw a very broad-based set of activities across regions, customers, and segments. We experienced very strong pricing in the second quarter. And we saw some great opportunity amongst retail, small and medium-sized transactions in the quarter. And interestingly enough, inter and intra-regional pickup. So again, supporting customers as they navigate from one region to another. So when we look forward into our bookings landscape for Q3 and the fact that we are at 40% as of yesterday of our bookings quota concluded, I think this speaks to a couple of things. First of all, to the momentum that we saw in the close of Q2 and how that carried forward into our Q3 bookings framework. Secondly, that we are very, very focused on growth. This is a very powerful aspect of our strategy, and of course, is an important aspect of driving ultimately AFFO per share. So as we look at this bookings momentum, you can see that we are giving you this view of inside our business so that you can see how that line is actually evolving. For us, Q3 will be less about impacting in a huge way recurring revenue in Q4. It's more about setting us up for the exit out of 2025 and into recurring revenue momentum of 2026. So a combination of focus, execution, continued momentum. And obviously, some presales from previous quarters coming into action at the start of the quarter but also just endless execution against what is a very strong pipeline in Q3. And also, as I mentioned in my remarks in our Q4 period. Very strong conversion rates that we saw in Q2 also coming through in the early days of Q3.

And Jon, I want to add that we opened up five assets, three of which are critical markets for us. This allows us to leverage the momentum as we see markets like Dallas and Chicago coming online. There's a lot of opportunity there. Additionally, as Adaire mentioned, we've observed that our backlog decreased quarter-over-quarter, which positions us well for the next two quarters of the year.

I just wonder if there's anything also to call out on direct sales contributions versus indirect and partner channels. Any kind of update since Analyst Day on that mix?

Not particularly. I'd say that based on Q2 and '24, we saw a very steady resale motion in our channel business. Although in Q2 referrals were slightly lower. But we can still continue to execute very closely with our channel partners and still continue to evolve how we execute parts of our business relevant to our ecosystem. For example, in Indonesia, we've just launched a new partner program to allow us to sell in that way.

Our next caller is Eric Luebchow with Wells Fargo.

Adaire, you touched on this in your prepared remarks, I believe you said that you expect to accelerate the timing to stabilization in your Build Bolder plan versus what you've done historically. And I think historically, it would take about 2 to 4 or 5 years, if I recall. So maybe you could give us an update on your thoughts on how quickly you can stabilize some of the properties that you're planning to develop over the next 4-plus years? And is the plan to potentially presell or pre-lease larger portions going forward to perhaps de-risk some of the future capital spend?

Thank you for the question. So we mentioned that the typical build profile for us is an 18- to 24-month period. The time that we need to build the core and the shell and prepare that asset to its Ready For Service status. Behind the opportunity to accelerate the path to stabilization relative to our historical trends are a couple of things. First of all, building in fewer or even singular phases as far as possible. That is part of our Build Bolder approach, looking to reduce or bring the phases down to a single phase of build and typically considering how we define stabilization that will, by itself, naturally move a stabilization process forward. Secondly, I think that we are seeing from our enterprise customers a larger footprint requirement as they look to embrace the opportunities for their businesses afforded by AI and its capabilities. And so that also will, I think, progress the rate at which capacity is consumed in our assets. And then thirdly, the opportunity to look at presales activity in advance of Ready For Service dates when those dates become known and clear, enabling us to de-risk the process and investment process towards these assets that we are building at the minute.

Our next caller is Aryeh Klein with BMO Capital Markets.

Maybe on the CapEx guidance, was it increased a decent bit here. Curious if you could maybe accelerate some of the investments that you're looking at to get capacity delivered more quickly. Do you have flexibility to do that? Is that something you can consider?

Right, look, it's probably not to surprise you. Some of the things that impact the ability to deliver is things out of our control, supply chain and access to energy. All that said, we're doing our level best where possible to accelerate, which makes absolute sense. And then we're planning appropriately as we look forward. One of the references we made to a substantial increase in our CapEx was the amount of pre-buys that we're making inside the system so that we can deliver the capacity as quickly as possible. But I would just tell you, overall, Raouf and his team are wholly focused on delivering against what we refer to as the ready-for-service dates. And to the extent that we can accelerate it, we will to the extent that we can collapse phases into one another we will, as we referred to at the Analyst Day.

Yes. The focus on Ready For Service delivery is something that is part of the regular cadence of our business now. We hope with the same accuracy that we're forecasting some of the differential aspects of our business. So there's a lot of attention on all of the levers that we have available to us to accelerate the investment into capacity.

Our next caller is Michael Elias with TD Cowen.

I have two questions. First, regarding the prebuying of equipment, I assume this includes items like backup diesel generators. I believe that warehousing this equipment could help smooth the capital expenditure curve and potentially drive better growth in AFFO next year. I just want to confirm if I am on the right track with this thought. The second question pertains to the demand signals you've mentioned from customers. Could you provide more details about those signals to give us more confidence in the Build Bolder initiative?

Maybe I'll take the second part of the question first, and then Keith, if you wanted to address the first part. So let's speak a little bit to customer demand signals. I think there are some trends that we're seeing right across the infrastructure landscape, trends towards distributed workloads, trends towards clan activity and the importance of that. We're absolutely seeing density increase in the footprint within our data centers. And we're seeing deployment sizes trend up in the enterprise and retail space. And Build Bolder is really our response to those deployment sizes trending up because whilst most of these aspects play to our advantage to distributed workloads, the requirement for cloud connectivity and the ability to afford and offer denser workloads within our environment. And the deployment of size is trending up is in capture by our Build Bolder strategy building to the scale that our customers now require and need. Specifically to some of the demand signals that we are seeing from our customer, I think they form around a number of use cases, especially as it relates not just to the broad-based digital transformation demand, which, of course, is still very real for us. But as it relates to the demand for AI and AI-orientated workloads, those use cases focus around a number of topics. Around the concept of data privacy and sovereignty and that is a very important topic, broadly, globally, but more specifically, I think, in EMEA than in other regions. Around the need for and the support to distribute AI so that the interconnect edge of Equinix becomes the connector between the cloud and the far edge for these workloads. Secure interconnection so that enterprise systems can connect to cloud, models, partners, service providers and do so securely. And the opportunity for neutrality and flexibility. So customers are recognizing that having freedom of choice is an important aspect of a value proposition as they navigate through the deployment of these different workloads. So these are some of the use cases that we're seeing in terms of conversations with our customers around the demand profile that we're addressing with them in a very collaborative and supportive manner. Keith?

Yes, Michael, regarding your first question about pre-buy. It's true that looking at things in isolation might suggest that accelerating activities into one year wouldn't affect the next. However, considering the scale and size of our investments over the five-year period mentioned on Analyst Day, there will always be fluctuations. Therefore, it wouldn't be accurate to claim that it would lead to any significant change in our AFFO. What’s crucial, as you know, is for us to focus on driving meaningful growth in our AFFO through strong performance. As Adaire mentioned, momentum in revenue is essential, as increased revenue leads to better cash flow and profit. Additionally, we talked about the debt we raised; our goal is to find the most efficient ways to raise debt since it's a major part of our business moving forward. We aim to access lower-cost capital markets and seek opportunities for raising capital in Europe. We're also examining intercapitalization closely and looking to optimize the yield on the cash on our balance sheet to manage our future net interest expense effectively. Ultimately, the most significant impact will come from our operating performance. We will be careful in managing our existing funds and how we raise future capital, with the aim of maximizing AFFO per share. Any unusual timing events will be communicated, but overall, this marginal change is not substantial enough to indicate a meaningful shift.

Our next call is Frank Louthan with Raymond James.

Great. On the capitalization of interest, can you walk us through why you weren't doing that before? And then how much of an impact could that bring going forward?

We weren't capitalizing interest in the past, but there are several factors to consider now as we look ahead. First, we currently have a historically low cost of capital. Second, our investment levels are set to increase significantly in the future compared to today. Additionally, we need to assess how much land we have on our books and the duration over which we are capitalizing interest for land that is in development and will eventually be built on. These are some of the factors we are considering. Compared to others, we may have a lower capitalization rate since we have fewer assets under development. Looking forward, we are thoroughly evaluating where we should capitalize interest and any other business expenses. While we weren't capitalizing interest before, we expect it will become a more substantial aspect moving forward, mainly because we will be carrying more debt, which is also becoming more expensive, and the timeline for construction is extended due to supply chain challenges and other factors.

Is there a range of impact you think that could have to the results? Or is it too early to tell?

It's too early to determine the specifics because first, we need to understand the amount we plan to raise and the timing, as well as what is on the balance sheet, which is crucial. We aim to reduce the gross cost of our debt. We will continue borrowing in markets where rates are lower than in the United States, which will positively impact the long-term guidance rate I provided during Analyst Day. Additionally, we will examine our capitalization. If we have more assets on our balance sheet, we will capitalize more interest as expected and appropriate. Lastly, we will invest our funds wisely to ensure we achieve a good return on the income waiting to be utilized on the balance sheet. These three factors essentially constitute the net interest expense that we report quarterly. Overall, we are diligently focusing on these areas, alongside other initiatives to strengthen our business.

Michael Rollins with Citi, you may go ahead.

Just a couple of follow-ups. So first, I'm curious on the MRR churn. What are the opportunities to improve MRR churn over time? And has there been some developments on the analytics that you've been involving within the company that helped bring some new insights there? And then secondly, just curious for an update on your outlook for xScale leasing in the back half of the year and going into '26. And maybe give us a sense of how much inventory within that context is available to sell and deliver?

I'll address the churn question first. In the third quarter, we experienced a 2.6% churn rate, which exceeded our expected range, primarily due to the bankruptcy we mentioned in the previous call. Without this factor, we would have been within our target range of 2% to 2.5%. Looking at the second half of the year, the data we have indicates that we will return to that range. There are various factors involved in our churn definition and management. Notably, churn does not necessarily mean a customer is leaving Equinix. In fact, less than 10% of our churn results in an actual termination of the relationship. Our data shows that some customers return to the same metro and product within a year, and many of those who churn continue to grow their revenue with us annually. In some cases, over half of these customers achieve growth rates exceeding 10%. Effectively managing churn is crucial to our capital expenditure and growth strategies. For instance, in the second quarter, we generated $345 million in annualized gross bookings, which means we need adequate capacity to fulfill those bookings. Expanding our capacity will relieve pressure and drive growth, helping us achieve stability on the lower end of our churn range, which is an objective we are committed to. This will also significantly boost our revenues. We have made substantial progress in understanding this area of our business, recognizing that there are times when we need to proactively address salvageable churn, often extending beyond a single financial year due to various customer considerations regarding infrastructure upgrades in our colocation facilities. I believe we are now in a strong position, equipped with the data and analytics to tackle this issue from a holistic and long-term perspective. Ultimately, increasing our capacity will be key to serving all customers who wish to participate in the Equinix narrative. Now, regarding xScale, I want to emphasize our impressive track record. As noted, 85% of our xScale facilities are either leased, under development, or already pre-leased. Our xScale pipeline indicates a growth in nonrecurring revenue for the second half of the year, and while our pipeline is back-end loaded, we anticipated this from the beginning. We are confident in our team's execution capabilities, understanding that this will significantly influence both performance and margin contributions. Many customer discussions are focused on capacity needed in late 2026 and beyond. I’ll have Keith share more specific numbers shortly. It's important to note that xScale transactions can be irregular and depend heavily on Ready For Service delivery dates. As Keith previously highlighted, we strive to keep our delivery dates on schedule. We've taken steps to pre-purchase critical components in our supply chain to mitigate risks, though some factors remain outside our control. Nonetheless, xScale is a vital part of our product continuum, bridging wholesale and large footprint solutions while accommodating the increasing demand in both hyperscaler and retail capacities in an AI-driven environment. Lastly, I want to emphasize that we are actively engaging at the executive level with our hyperscaler partners to address their evolving market needs. Keith, feel free to add any insights regarding the upcoming capacity elements.

Yes, Michael, I would like to make a few more points. First, as Adaire mentioned and as shown in the slide from our earnings presentation, we've released 416 of the 480 megawatts of capacity that is either delivered or under construction. We expect, particularly considering the demand environment over the long term, to secure additional capacity opportunities that have not yet been delivered or constructed. That's an important note. Secondly, I want to highlight the recurring revenue model. The guidance for Q3 compared to Q2 shows a significant increase in currency as expected, but more importantly, there is a substantial rise in recurring revenue. In fact, recurring revenue accounts for over 100% of the non-FX guidance increase at the midpoint, indicating that nonrecurring revenues are declining quarter-over-quarter, although we anticipate a rebound in Q4. This is crucial to understand. Lastly, in Q2, nonrecurring revenue made up about 5% of our total revenues. In Q3, it will be approximately 4.5%, and in Q4, around 6%. This illustrates the volatility we experience, as Adaire pointed out, which will persist for some time. However, the key takeaway is that the recurring revenue model is gaining momentum, making it attractive and providing us with a pathway into 2026, which is vital for our projections moving forward.

Our next caller is Michael Funk with Bank of America.

Thank you again for the additional detail on the development spending breakdown. Very helpful. But partly different question for you, Keith. So thinking about the stabilized colocation portfolio growth of 2%. In my mind, given the strong re-leasing spreads across the industry, churn projected to come down, occupancy ticking up and then escalators baked in, I would think that number should be significantly higher. So if not, can you explain why? And then I guess if I'm right, what takes us to a meaningfully higher number for the portfolio growth?

Yes, Mike, I want to share a few insights, and please feel free to ask further questions if I miss anything. Adaire and I will address this inquiry together. First, it's important to recognize that we hold the highest-returning assets in our portfolio, and you can see that reflected in our pricing. A 3% stabilized asset increase from quarter to quarter and year to year really influences our business's performance. Our strong monthly recurring revenue is driven by pricing and density, which is what I meant by the $33 increase in monthly recurring revenue per cabinet. The year-over-year stabilization is significant, especially considering our starting point. Additionally, keep in mind that we have some development assets, like when we moved DC2 from stabilized assets back into expansion during its development phase. It is one of our best-performing assets globally, and shifting it out of the stabilized pool impacts how we measure our results and cash-on-cash yield. Overall, I believe the industry is currently in a strong position because we are in an undersupplied market with solid demand. Coupled with our unique business model and the extensive platform that connects our assets across the portfolio, while we heavily invest in growth, I am optimistic about our future. However, many assets in the stabilized group are in emerging markets, which present a more competitive landscape. I am very confident about our direction moving forward, focusing more on the future than the past due to our appealing pricing model. Our goal is to fill the major metropolitan areas first and then address the non-Tier 1 markets afterward.

One more, if I could, for Adaire. Adaire, you mentioned you brought on Shane. So great to hear Shane joining the company. Are there specific areas you can improve on meaningfully with the customer experience, customer care?

Thanks for the question. I'm delighted that he has joined us, not least of which because I no longer have to do 2 jobs. Look, I think that we've set a very clear set of priorities around the customer journey and all the different milestones of engagement on that journey. And so that work has already commenced and Shane has incredible execution capabilities to enable us to continue to progress that work. We had some very strong Net Promoter Score feedback from our customers, the highest that we've seen. We've swapped to a twice a year review of customer feedback, and so we had a very strong Net Promoter Score. Just supported by a whole series of anecdotal pieces of evidence from our cab around the kind of support that Equinix offers not just as customers are implementing but also post-implementation. So we will really be looking for Shane to continue to navigate those milestones and customer journey to look at certain aspects of our business around the customer success portfolio around the project management once a customer is implemented and other data points that we think will overall improve the customer experience.

Thank you for joining our conference call today. Have a good afternoon, everyone.

Thank you. This concludes today's conference call. You may go ahead and disconnect.