Earnings Call Transcript
EQUINIX INC (EQIX)
Earnings Call Transcript - EQIX Q3 2020
Operator, Operator
Good afternoon, and welcome to the Equinix Third Quarter Earnings Conference Call. All lines will be able to listen-only until we open for questions. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd now like to turn the call over to Katrina Rymill, Vice President of Investor Relations and Sustainability. You may begin.
Katrina Rymill, Vice President of Investor Relations and Sustainability
Good afternoon, and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 21, 2020, and 10-Q filed on July 31, 2020. 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 is done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of 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 IR page at www.equinix.com. We have made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We'd also like to remind you that we post important information about Equinix 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 within an hour, we'd like to ask these analysts to limit any follow-on questions to just one. At this time, I'll turn the call over to Charles.
Charles Meyers, CEO and President
Thank you, Katrina. Good afternoon and welcome to our third quarter earnings call. This year has been an exceptionally challenging one, as we all continue to navigate the economic, health, and societal changes happening in our world. Despite these challenges, we find Equinix in a unique position to help our customers adapt, respond, and accelerate digital transformation, a key priority for businesses across every sector and a critical driver for economic recovery. With over 10,000 customers cultivating and curating ecosystems that enable digital business, that remains central to our strategy and has been accelerated by COVID, as businesses shift to operating, selling, and expanding online. As we respond to these shifts, we remain focused on driving disciplined growth, extending our global leadership, and effectively scaling our business. We are augmenting our capabilities and enhancing our service portfolio in targeted ways to expand our addressable market, responding to evolving customer requirements, and ensuring that we remain well-positioned for the future. We continue to complement and extend our global platform, both organically and through acquisitions, enhancing cloud and network density and offering our customers the richest range of options to support their adoption of hybrid and multi-cloud as the architecture of choice. Platform Equinix allows our customers to more effectively distribute infrastructure, putting connectivity, data, security, and applications where they need them and interconnecting them easily to the cloud, delivering the performance required to service increasingly global digital businesses. In October, we closed the acquisition of Bell Canada's data center portfolio, positioning Equinix as a leading national provider in Canada, while giving Canadian customers the global reach they need. We also announced our long-awaited entry into India, one of the world's largest economies and fastest-growing data center markets, and now the 27th country served by Platform Equinix. Once completed, our GPX acquisition will add two highly interconnected data centers in Mumbai and will serve as a critical foundation for Pan-Indian expansion. Our global reach remains as important as ever, combining unparalleled facilities-based coverage with integrated systems, delivery, and care. This competitive differentiation continues to drive our business, with revenues from multi-region customers increasing 1% quarter-over-quarter to 74% and revenues from customers across all three regions remaining at a healthy 62%. The Americas continues to lead in exporting business to our other regions, as network, cloud, financial, and manufacturing customers take advantage of our reach. We continue to deepen our penetration of the Fortune 500 and Global 2000 and the consistent growth of our top accounts demonstrates the depth of our addressable market and the stability of our business despite the pandemic, with over 90% of our top 50 accounts increasing their business with Equinix quarter-over-quarter. As we grow the business, we are also investing in our future, by making Equinix a place that attracts and inspires diverse talent and making sure that our mission reflects our responsibility to leave our world better than we found it. Equinix was recently recognized as one of the top companies for diverse talent and received the 2020 Green Power Partner award from the U.S. EPA, recognizing our contribution to helping advance the development of the nation's green power market. In September, we issued our first green bond offering as a mechanism to further invest in innovative designs and technologies, meaningfully increasing our efficiency and resource consumption to ensure we continue to operate sustainably and advance our commitment to reach 100% clean and renewable energy across our portfolio. Turning to the quarter, in Q3, we continued to adapt our selling engine, tapping into a healthy demand environment to deliver another strong bookings performance. These results were driven by continued strength in channel bookings, solid interconnection growth, and firm pricing. And the quality and quantity of our pipeline look strong as we close out the year. We continue to instrument and automate our business to support high deal volumes closing over 4,400 deals in the quarter across more than 3,100 customers with a significant quantity of these orders serviced through digital interfaces giving our business superior predictability and creating a huge opportunity to drive attach rates for interconnection and other incremental services. Turning to our results, as depicted on slide 3, revenues for the third quarter were $1.52 billion, up 9% year-over-year. Adjusted EBITDA was up 11% year-over-year and AFFO was again meaningfully ahead of our expectations. Interconnection revenues grew 15% year-over-year as both unit volume and pricing continued to trend favorably. These growth rates are all on a normalized and constant currency basis. We now have over 386,000 interconnections with 14 of our top metros having ecosystems with over 10,000 interconnections and growing. In Q3, we added an incremental 8,500 interconnections more than the next 15 competitors combined, driven by work from home, video streaming, and enterprise cloud connectivity. Internet exchange saw peak traffic up 43% year-over-year with a 7% quarter-over-quarter step-up albeit returning to a more normal revenue growth rate after the surge of capacity buying in the previous quarter. Equinix Fabric also had a great quarter eclipsing the $100 million in annualized run rate with over 2,300 customers fueled by broad-based adoption across all verticals and geographies. As cloud adoption continues to accelerate, we are also making great progress extending our leadership in the cloud ecosystem, capturing new cloud on-ramps and continuing to expand our xScale business. We're seeing strong demand for our assets in our initial European JV and are on track to close our new JV in Japan with GIC in Q4 adding locations in Osaka and Tokyo. We've already signed our first xScale deal in Japan, securing a key anchor tenant who will take the full Phase one capacity of Tokyo 12. And in Q3, we toppled the final domino to give Equinix direct cloud on-ramps for all five of the top clouds across 11 of the metros most critical for global infrastructure deployments: Silicon Valley, D.C., Chicago, São Paulo, Amsterdam, London, Frankfurt, Hong Kong, Singapore, Sydney, and Tokyo, nine more global markets than any other provider. We continue to adapt Platform Equinix to the evolving needs of our customers. And despite the significant challenges of integrating a new team during COVID, we effectively merged our Packet and Equinix road maps and launched our integrated Equinix Metal offering in four global metros with plans for an additional 10 by early 2021. Equinix Metal is a feature-rich and fully automated bare-metal service giving our customers the option to deploy the physical infrastructure of their choice at software speed across our platform, enabling digital leaders to place infrastructure where they need it when they need it. Equinix Metal is also directly integrated into Equinix Fabric helping enterprises quickly interconnect to thousands of networks, enterprises, and clouds on Platform Equinix, advancing our vision to make Equinix the world's digital infrastructure company. Now, let me cover highlights from our verticals. Our network vertical continues to be a foundation of the platform, achieving its second-best bookings driven by carriers expanding capacity for digital business. New wins with local telcos included Airtech Internet, a Latin American fiber Internet provider deploying a network hub to improve peering and performance; and Mint Telecommunications, a British regional network provider deploying infrastructure for increased performance, security, and scale. Our financial services vertical had a solid quarter led by EMEA and the insurance subsegment. New wins included a Fortune 500 commercial bank simplifying their digital ecosystem, as well as expansion with BidFX, a subsidiary of the Singapore Exchange Group adding new colocations for its FX trading solutions. Our content and digital media vertical saw particular strength in markets catalyzed by the shift to virtual, including video, social media, and gaming. New wins included Rakuten Mobile, selecting Equinix as the foundation to deliver its communication platform to global operators and enterprise customers; as well as an online real estate brokerage, interconnecting to enrich digital experiences for our customers. Our cloud and IT vertical continued to over-index significantly with strength in the Americas and in infrastructure and software sub-segments as the adoption of hybrid cloud continues to accelerate. We remain focused on enhancing our market-leading cloud density adding eight cloud on-ramps this quarter alone, and bringing us to 160 direct cloud on-ramps at Equinix, or 42% market share in our metros. Our enterprise vertical had another great quarter with particular strength in health care and manufacturing. New enterprise wins included health care companies Maxor Pharmacy Services, Sandata Technologies, as well as Guardant Health, a leading precision oncology company. Our channel program continues to deliver great results accounting for over 30% of bookings and generating over 60% of all new logos. We had great wins with reseller and alliance partners including Cisco, Microsoft, Oracle, WWT, and Zenlayer, across a wide range of industry segments. Channel partners are also contributing to the success of our new market expansions; we're excited to expand our relationship with Bell Canada, as a strategic partner working to deliver industry-leading joint offers in Canada and globally. This partnership also allows Equinix to engage with Bell resale partners to build stronger relationships across the Canadian channel ecosystem. Other notable wins this quarter included Alestra in our recently acquired Mexican assets for an upscale retail chain and Capgemini in São Paulo for a Fortune 100 pharma firm, both transitioning from on-premise data centers to hybrid multi-cloud solutions for elasticity and scale. Now, let me turn the call over to Keith to cover the results for the quarter.
Keith Taylor, Chief Financial Officer
Thanks Charles, and good afternoon to everyone. I hope you and your families are doing well during these unique times. As Charles noted, despite the challenges in 2020, our team continues to deliver. Equinix's leadership is so very grateful and thankful for the almost 10,000 employees that come to work every day to make Equinix a success. We have a fabulous team and culture. This makes a huge difference. As it relates to the quarterly financials, we delivered another strong quarter with revenues, adjusted EBITDA, AFFO, and AFFO per share ahead of our expectations. We had significant growth in PAG bookings and once again benefited from net positive pricing actions. Performance against virtually every key operating metric was positive. Interconnection activity remained healthy with net adds towards the higher end of our targeted range resulting in strong MRR per cabinet step-ups in each of our three regions. In September, we entered into our third debt financing initiative in less than a year, raising another $1.85 billion. We used the proceeds of this debt raise to refinance a portion of our existing debt on a net present value positive basis. Effectively, the interest savings more than offset the redemption premiums and unamortized debt issuance costs creating a financially attractive outcome for the company. As part of this capital raise, we issued our inaugural green bonds demonstrating Equinix's continued long-term commitment to green our data center footprint and deliver wide-reaching environmental benefits not only for ourselves and our communities but also for our customers. And we established a green finance framework that raises the bar for sustainability in the data center industry. This new framework targets elite, gold, or better on new construction an objective to design average annual power usage effectiveness or PUE to 1.45 or better which also exceeds industry benchmarks. To-date, our refinancing activities have resulted in annualized interest savings of approximately $125 million. We have another $1.8 billion of debt to refinance which at current rates could result in another almost $50 million of annualized interest savings. Now, let me cover the quarterly highlights. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on slide four, global Q3 revenues were $1.52 billion, up 9% over the same quarter last year, our 71st consecutive quarter of revenue growth. Q3 revenues net of our FX hedges included a $13 million benefit when compared to our prior guidance rates largely due to a stronger euro and British pound. Global Q3 adjusted EBITDA was $737 million or 49% of revenues, up 2% compared to the prior quarter and 11% over the same quarter last year, meaningfully better than expected due to strong operating performance, favorable one-time benefits including a reduction in COVID-related bad debt reserves given strong customer collection activities, and timing of repairs and maintenance and other spend shifting between our Q3 and our Q4 quarters. Adjusting for the shift in EBITDA between quarters and after normalizing for FX and the Bell Canada asset acquisition, adjusted EBITDA was consistent with our expectations and we expect Q1 2021 adjusted EBITDA margins to return to traditional seasonal levels. Our Q3 adjusted EBITDA performance net of our FX hedges included a $6 million net FX benefit when compared to our prior guidance rates. Global Q3 AFFO was $580 million above our expectations on a constant currency basis, largely due to strong operating performance and lower income tax expense, but offset in part by higher seasonal recurring CapEx spend. As a reminder, our Q4 quarter typically includes higher recurring CapEx spend compared to any of our other prior quarters. Turning to our regional highlights whose full results are covered on slides five through seven. EMEA and APAC were our fastest-growing regions by revenues on a year-over-year normalized basis at 16% and 11% respectively, followed by the Americas region which stepped up to 5%. The Americas region saw its second consecutive quarter of record gross bookings with healthy pricing, favorable deal mix, and record exports to the other two regions. Americas net cross-connect adds were the highest we've seen in several years while we experienced negative billing cabinet additions in the quarter largely due to timing of churn. Also in the quarter, we experienced the churn of some lower power density footprints in some of our acquired assets. This occurred a quarter earlier than expected. Americas' billing cabinet additions should return to traditional levels next quarter, and we expect a larger step-up in the first half of 2021. After quarter end, we completed our acquisition of 12 Bell Canada data centers and expect to close the remaining asset allocated to this transaction in November, positioning Equinix as a leading digital infrastructure provider in Canada, adding seven new metros and 500 net new customers to sell to across the platform. Our EMEA region saw strong bookings in the quarter with a healthy mix of small deals and new logo adds led by our London and Amsterdam markets. Interconnection was substantially up on a year-over-year basis increasing to 12% of the region's recurring revenues due to both strong volume performance and favorable pricing initiatives. IBX asset utilization remains high, and more than half of our major expansion projects are being constructed in the EMEA region, including four hyperscale projects related to our EMEA One JV with GIC. And finally, the Asia-Pacific region saw another strong quarter of bookings led by the Singapore and Japan markets. We're seeing early traction with our pending acquisition of GPX India with interest across all of our customer verticals for the Mumbai market. We expect to close the GPX acquisition in Q1 2021. And now looking at our capital structure. Please refer to slide 8. Our balance sheet remains foundational to our future success. We ended the quarter with $2.7 billion of unrestricted cash on the balance sheet. Our total liquidity included our unused revolving line of credit of $4.6 billion. Our net debt leverage ratio remains at 3.3 times our Q3 annualized adjusted EBITDA. During the quarter, we raised a net $197 million of equity completing our 2018 ATM program at an average price of $777 per share. As we complete this year and head into 2021 and beyond, we intend to enter into a new $1.5 billion ATM equity program, which runs through Q4 of 2023 under which Equinix may offer and sell from time to time our common stock for working capital and general corporate purposes. As we've stated before, an ATM program is an efficient capital-raising tool that we've used to fund our various business initiatives. And we continue to expect to use a balance of debt and equity to fund our future business needs, and we'll continually seek to maximize the long-term value attributed to our shareholders. Turning to slide 9. For the quarter capital expenditures were approximately $565 million, including recurring CapEx of $38 million. We opened three new projects in the quarter, including our entry into Muscat, Oman creating a second neutral hub along with Dubai for the region's networks and subsea cable traffic. Additionally, we added 50 new projects to our expansion tracking sheet, including our first expansion in Mexico following the Axtel acquisition in Q1, bringing our total significant builds to 41 projects across 25 markets and 18 countries, the result of a very strong customer pipeline. Approximately 75% of our major project spend is going to metros generating over $100 million in annual revenues, where we leverage the established ecosystem density and our installed customer base. And we continue to expand the ownership of land for development, including acquiring land in Bogotá, Frankfurt, and Paris. Revenues from owned assets were 56%, and we continue to expect this number to improve in the near term. Our capital investments delivered strong returns as shown on slide 10. Our 148 stabilized assets increased recurring revenues by 5% year-over-year on a constant currency basis. These stabilized assets are collectively 85% utilized and generate a 28% cash-on-cash return on the gross PP&E invested. And please refer to slides 11 through 15 for our summary of 2020 guidance and bridges. Do note our guidance includes the anticipated financial results from the Bell Canada acquisition, excluding the Ottawa one facility, which we expect to close in Q4. Starting with revenues, for the full year, we expect revenues to grow 8% on a normalized and constant currency basis, which includes an incremental $39 million compared to the prior guidance through the acquisition of the Bell Canada assets and an expected foreign currency benefit offset in part by Packet revenues being slightly below our prior range and the deferred timing of Equinix custom order work, which we anticipate will move to early next year. MRR churn is expected to be within our targeted range of 2% to 2.5% for Q4. We expect 2020 adjusted EBITDA margins to be approximately 48%, excluding integration costs an incremental $21 million compared to prior guidance due to the acquisition of the Bell Canada assets and an expected foreign currency benefit. Also, we expect to incur $20 million of integration costs in 2020. We're raising our 2020 AFFO, which is now expected to grow between 16% and 17% compared to the previous year through the acquisition of the Bell Canada assets and expected FX benefit and lower interest expense. For 2020, we expect AFFO per share to now grow between 10% and 11%. So, with that, let me stop here, and I'll turn the call back to Charles.
Charles Meyers, CEO and President
Thanks, Keith. We're very pleased with our results this quarter. And as Keith noted, we're immensely grateful to our teams around the world who continue to keep the customer at the center of everything we do and are delivering sustained performance in the business. Even in these uncertain times, companies in every sector are embracing digital transformation as a critical business priority, and we are uniquely positioned to help our customers scale with agility and create digital advantage. Our consistently strong bookings and healthy interconnection growth give us confidence in the strength of our digital ecosystems and the depth of the addressable market created by broad-scale digital transformation. We continue to invest in our strategy, evolving our platform in response to evolving customer needs, expanding our global reach to accelerate digital delivery, committing to a more sustainable future, and ensuring that our culture is widely recognized as a place that attracts, embraces, inspires, and develops exceptional and diverse talent. So let me stop there, and open it up for questions.
Operator, Operator
Thank you. Our first question is from Jordan Sadler with KeyBanc Capital Markets. You may go ahead.
Jordan Sadler, Analyst
Thank you and good afternoon. So first I just wanted to touch on what you're seeing in the business and whether or not you're seeing any evidence of the enterprise positioning ahead of 2021 for a possible acceleration vis-à-vis sort of the digital transformation you referenced in your release and your remarks.
Charles Meyers, CEO and President
Sure. I definitely believe that we're seeing enterprise as a very strong vertical for us, along with cloud. Both cloud and enterprise represent the two sides of adopting hybrid and multi-cloud as the preferred architecture. We're seeing this reflected on the supplier side with robust cloud performance, and on the demand side from enterprises. I am particularly pleased with our ability to consistently generate new logos and enterprise bookings despite COVID. We've adapted well in our selling and marketing strategies, particularly given the shift to a largely virtual selling cycle. Enterprise adoption of cloud continues to increase, and I believe we are well-positioned to keep investing in this area. We will closely monitor the productivity of our sales teams and consider expanding where it makes sense. There's a lot of potential ahead of us in the enterprise sector. Additionally, as we evolve the platform by incorporating features like Network Edge, and with the ongoing success of Equinix Fabric, which has reached a $100 million run rate, along with Packet now available in four markets with ten more to come, we see numerous opportunities to enhance our offerings for enterprises.
Jordan Sadler, Analyst
And then just a one point of clarity on the guidance, you touched on a couple of things, but I just want to make sure I'm capturing all of it. The for the fourth quarter the implied AFFO guidance sort of suggests at the midpoint at least about a 15% decline from what you produced in 3Q. And I know there were a bunch of puts and takes. And I think the magnitude is smaller at the adjusted EBITDA line in terms of the decline. But maybe you could just walk us through Keith what's sort of driving that?
Keith Taylor, Chief Financial Officer
Sure. In Q3, we had an excellent quarter, and while things usually balance out, we had more positives than negatives this time, resulting in our strong performance against guidance. Looking at the entire year, our margins are where we want them to be, especially with the acquisition of Bell Canada and currency fluctuations. Specific to operating costs, there are three main factors to consider between Q3 and Q4. In Q3, we experienced approximately $15 million to $20 million in favorable outcomes. This came from three areas: first, repairs and maintenance were lighter than planned, resulting in an $11 million positive shift to Q4; second, utility costs, which are often variable, contributed another $5 million in favorability due to one-off rebates; and lastly, we had a benefit of around $6 million to $7 million from releasing reserves, as customer collections have been strong, after initially taking a conservative stance on the impact of COVID-19. However, moving forward, as we address the return to office and one-time employee payments, we expect a negative impact of about 4%. This shifts the net result from a positive of $15 million to $20 million in Q3 to a negative of the same amount in Q4. Therefore, I want to emphasize that by Q1, we should return to our normal seasonal EBITDA margins. There are many moving pieces, and we have a conservative guide for our Q4 numbers, but if everything aligns as expected, we will meet our annual goals, along with the positive effects from currency and the acquisition of Bell Canada. I apologize for the lengthy response.
Jordan Sadler, Analyst
Okay, thank you for all the color. Appreciate it.
Operator, Operator
Thank you. The next question is from Sami Badri with Crédit Suisse. You may go ahead.
Sami Badri, Analyst
Hi. Thank you very much for the question. I just wanted to touch on first the channel strategy. And you've obviously been doing a lot of trailblazing and creating new connections and new partners and formulating a much more robust sales motion than I think many of us really kind of thought about a couple of years ago. So, I was hoping you could give us a little bit of an update, not necessarily on the percentage of revenue flowing in from channel partners, but more specifically has this channel strategy now formulated to where you guys want it to be? Or is there still essentially a lot more to go with more channel partners to come and to complement your business, complement how you sell through or if you guys are going to continue selling with the channel? Just so we can understand how this could potentially evolve over the next coming years.
Charles Meyers, CEO and President
Yes. Great question, Sami. To put it simply, there is still a long way to go. We have many opportunities ahead of us. As you've mentioned, 30% of our bookings come from the channel, mainly on a collaborative basis. We have achieved significant success working alongside our cloud and technology partners, who sometimes may cooperate reluctantly but are generally aligned in favor of hybrid and multicloud as the preferred architecture. We've gone through a typical cycle where we added many partners but realized that only a small number were really enhancing productivity. We’ve refined our focus to those partners who make a substantial impact on our bookings now. There is still potential to identify partners with more advanced selling capabilities who can independently drive sales and create effective sales strategies. Additionally, partners offering complementary solutions are important to deliver a more comprehensive offering to our customers. We are seeing positive outcomes, exemplified by our partnership with VMware, where companies have heavily invested in VMware tools for their potential infrastructure. We are also integrating this with the value that Equinix offers, including our traditional colocation services and new offerings like Equinix Metal, which resulted from our acquisition of Packet. There is considerable opportunity for growth in the channel as we look to elevate it further.
Sami Badri, Analyst
Thank you for the follow-up regarding the xScale joint venture and initiatives. There have been new announcements in various regions, including GPX in India. Is there a potential to expand the xScale joint venture's sales opportunities into regions like India and possibly Latin America, where there is significant growth and large opportunities for both hyperscale and major deals?
Charles Meyers, CEO and President
Yes, I believe we have become confident in our ability to handle the complexities involved in these situations. As you may remember, it took us some time to fully navigate the intricacies of the xScale joint ventures. However, I see opportunities for us to expand this approach, either by establishing new joint ventures, which we have previously mentioned and are actively discussing in other markets where we believe the joint venture model can be effective. This includes some of the regions you referred to. Additionally, I think there are alternative strategies for leveraging external financing through financial partners interested in the returns we can provide. This would allow us to preserve our resources and focus on high-return investments that align with our core strengths. I am optimistic about the potential in this area. In the short term, our focus will be on exploring additional joint ventures in various markets, and you can expect to hear more from us on this in the coming quarters.
Sami Badri, Analyst
Got it. Thank you.
Operator, Operator
Thank you. The next question is from Ari Klein with BMO Capital Markets. You may go ahead.
Ari Klein, Analyst
Thank you. Can you unpack the performance in the Americas a little bit? Churn was higher in the quarter. Maybe just address that whether or not that's something that could continue. And then you noted the expectation for improvement in the Americas, but how are you viewing the organic growth profile there? And what will specifically drive improvement from here?
Charles Meyers, CEO and President
Sure, I'll start and then you can add anything you want. We feel very positive about the Americas business. Over our recent calls, we've mentioned our expectation to return to about a 5% growth rate in the Americas in the latter half of this year, and we are starting to see that now. As you pointed out, churn was a bit higher, which was related to two larger deployments. One came in a quarter earlier than anticipated, while the other arrived as expected in terms of churn. However, these were deals that would not have met our commercial criteria since we focus on ecosystem-centric interconnection-oriented opportunities. Although we saw a negative movement in billable cabs due to this churn, I believe that as we replace those with the right kind of business, we will improve the yields in the affected facilities. The market is definitely more mature, and we are working hard to gain traction in the enterprise sector, where we're seeing good success. I see organic growth opportunity, especially in the enterprise market, and we’re also leveraging that sales force to expand our business into other regions, which is very important. Overall, that's the quick overview of the Americas. It has matured and returned to growth. I think some of the churn we experienced will eventually come from deals that we wouldn't have targeted before, and as we stabilize, we should see ongoing improvements in yield.
Keith Taylor, Chief Financial Officer
I would like to add a couple of comments to what Charles mentioned. Firstly, when Charles referred to these deals, which we might not have pursued ourselves, we've actually seen an increase in our MRR per cabinet after addressing those deals, contributing to the overall growth. Secondly, it's important to note that we are operating in a mature market. However, the Americas had one of its best quarters ever, which is a positive sign. Additionally, interconnection activity remains very strong on a net basis, indicating a healthy ecosystem being established. We are also investing in our new products and services, which I believe will lead to accelerated opportunities and a higher attach rate over time. Despite some challenges, there are significant positives ahead. Lastly, I mentioned in my prepared remarks that the Americas market has experienced fluctuations over the past few years, but we expect to see a return to a more normal billing cycle next quarter and anticipate a more substantial improvement in the first half of next year.
Ari Klein, Analyst
Thanks. And then just if I can briefly on the Packet acquisition. Can you just talk about what the customer response has been to Metal? And then I think if you noted in the guidance that the growth has been a little bit lower than you expected maybe address that too.
Charles Meyers, CEO and President
Sure. I'll connect those points. We had previously anticipated revenue between $32 million and $40 million, but it looks like we'll come in slightly below that range. This adjustment stems from our decision during the acquisition—initially, we thought we would allow the existing Packet offering to operate for a while before launching a fully integrated Equinix Metal service in early 2021. However, customer feedback was overwhelmingly positive regarding our plans for Metal, encouraging us to combine the features we envisioned in our original product strategy with the Packet acquisition. We merged the teams but delayed our sales efforts to ensure we had a solid product ready for the market. This has led to us being slightly behind our desired bookings and revenue targets. Nevertheless, when we look at our expected performance in Q4 and what that suggests for our annualized run rate, around $30 million, it aligns closely with our expectations. The customer interest in what Equinix Metal can achieve as we enter new markets in the first half of 2021 is quite promising. We are optimistic about this opportunity. We acquired this business mainly for its technology and team, which we believed would enhance our value proposition. So far, it has lived up to our hopes on all fronts. The team is excellent, with minimal turnover, and they've integrated well with our engineering team to create an Equinix Metal offering that we believe will perform strongly in the market. We feel very positive about the future.
Ari Klein, Analyst
Appreciate the color. Thanks.
Charles Meyers, CEO and President
You bet.
Operator, Operator
Thank you. The next question is from Michael Rollins with Citi. You may go ahead.
Michael Rollins, Analyst
I was just curious as you're getting into the 2021 budgeting process if you could give us a preview on how you're thinking about balancing top line growth with the company's long-term margin goals to get above 50%. And then just secondly, in the quarter, I was curious if you can unpack some of the strengths in nonrecurring revenue sequentially and year-over-year and how to think about that level going forward?
Charles Meyers, CEO and President
Sure. I'll take the first question, and you can comment on the second one if you'd like. You can also add anything regarding the budget. We're making good progress on that. We believe, as we've mentioned before, that our focus should be on long-term value creation and maximizing market opportunities by leveraging our unique advantages. This will require us to continuously adapt our service offerings and platform to meet customer demands, which will necessitate investment. However, we are also committed to driving operating leverage in our business to translate that into margin expansion. We still believe that achieving a long-term target of 50% is possible, and we aim to increase margins where we can. Looking at the operational performance and EBITDA levels in our mature markets, we think this is attainable. We are focused on investing in automation to enhance operating efficiency. We’ll evaluate the trade-offs between enhancing margins and investing in new services or further automation. We will provide more clarity on this alignment in the future, but this is our approach, and I believe there’s a substantial opportunity to invest in the business. Not pursuing this would, in my view, be a mistake, but we also need to maintain our focus on operating leverage.
Keith Taylor, Chief Financial Officer
Michael, regarding your second question, this quarter approximately 5.8% of our revenues were from nonrecurring sources. This represents a notable increase compared to both the previous year and the prior quarter. However, we fell slightly short of our expectations, anticipating an additional $4 million to $5 million in revenue this quarter. That being said, I mentioned earlier that some deferred custom work will likely push into the early part of next year. It seems reasonable to expect nonrecurring revenues to be somewhere between 5.5% and 6%. We will provide a more detailed update when we release the full annual guidance in February. This estimate aligns with our overall nonrecurring revenue performance, which has averaged 5.8% for the year and quarter. There has not been a significant change from where we stood year-to-date last year, with approximately $245 million last year compared to about $242 million to $243 million this year. Therefore, I am comfortable maintaining the 5.5% to 6% range and we will update it accordingly.
Michael Rollins, Analyst
And Keith, to better understand the business activity related to those dollars, can you explain what's occurring? Is this indicative of some customers who are unable to reach your facilities and therefore require your Smart Hands or installation services more than before? Or is this related to the usual installations and what you're handling? I am just interested in understanding more about what this entails.
Keith Taylor, Chief Financial Officer
Yes, certainly. There are several factors at play in that area. First and foremost, we recognize deferred installation revenue with every sale we make. Additionally, for every dollar of monthly recurring revenue we book, there’s a corresponding dollar of net recurring revenue, which we defer over the contract's duration. At times, we also deal with goods for resale and undertake custom work. For example, larger hyperscalers or significant customers often require build-out of their environments, and we perform a considerable amount of that work, particularly for hyperscalers. As a result, it can be somewhat variable. This includes custom cabling and installation work for the customer. They set up their servers or equipment in their racks after we complete the necessary preparation. This is a strong business line for us, with margins typically ranging from 25% to 30%, reflected in the nonrecurring revenue category.
Michael Rollins, Analyst
Thanks.
Operator, Operator
Thank you. The next question is from Colby Synesael with Cowen. You may go ahead.
Colby Synesael, Analyst
Great. Just a few numbers-oriented questions. First off just to make the point. So we should be adding if I'm correct $15 million to $20 million back to our first quarter 2021 EBITDA when we're modeling before taking in the other considerations like seasonality. Is that correct?
Keith Taylor, Chief Financial Officer
There are certainly seasonal factors to consider, Colby. As you know, we have the FICA reset in the first quarter and our annual sales conference. If we set those aside, we're looking at traditional seasonal margins that have ranged from 46% to about 48% over the last few years. To be clear, without any investments we might make, based on Charles' comments, you're looking at an impact of $15 million to $20 million that would affect the fourth quarter numbers.
Colby Synesael, Analyst
Great. We then incorporate it into the first quarter number.
Keith Taylor, Chief Financial Officer
Yes.
Colby Synesael, Analyst
Okay. And then secondly, you guys gave guidance back in 2018 at your Analyst Day of 8% to 10% revenue and 8% to 12% AFFO per share. And you gave that guidance for each year through 2022. You normally have an Analyst Day every two years. It would have been in June of this year, but you didn't. Is that guidance that you gave back in 2018 in terms of how to think of the business still valid? And then if I could just sneak one extra question in there, you gave guidance earlier this year for $0 to $50 million impact from COVID-19. Curious where are we in terms of the actual impact year-to-date and what the thinking is for the fourth quarter? Thank you.
Keith Taylor, Chief Financial Officer
Charles, do you want me to take those? Or...
Charles Meyers, CEO and President
Yes, there are a few points to discuss. Please feel free to start wherever you'd like, and I will add my thoughts.
Keith Taylor, Chief Financial Officer
First and foremost, Colby, regarding the Analyst Day guidance, the 8% to 10% growth figure we set in June 2018 has been exceeded, especially in terms of AFFO per share. We have effectively adjusted for currency fluctuations and acquisitions. We are now in our third year and are performing better than we initially projected. While it’s perhaps too soon to provide concrete guidance for the next five years, I am generally optimistic about the ranges we provided at that time. A lot has evolved since then, and we will update you on our progress, including the acquisitions we’ve pursued and our overall business activity. I am confident that we can meet our profitability targets on a per-share basis to ensure shareholders understand the value we have created. I apologize…
Colby Synesael, Analyst
COVID-19 impact guide?
Keith Taylor, Chief Financial Officer
Yes. COVID. Regarding COVID, you're correct. We established a broad range initially and targeted around the midpoint. We're beginning to address the challenges related to the Packet acquisition in the context of COVID, which has slightly delayed our progress. Our primary concerns were about the potential business closures, missed payments, and additional costs. In the first quarter, we reported $14 million in costs on the EBITDA line, and we reclaimed $6 million of that by the third quarter while anticipating another $4 million in new costs for the fourth quarter. So, the net effect on EBITDA is around $10 million to $15 million, which I'm quite satisfied with. As for revenue, it’s difficult to quantify, but I estimate the impact of COVID to be between $20 million and $30 million. This estimate reflects our success in securing bookings, but there have been some losses due to companies going out of business and the concessions we've made. Additionally, timing issues in Q2 were a factor, as customers faced challenges with site access and deployments. Our internal estimates and reports to the Board suggest the revenue impact aligns with the $20 million to $30 million range. Overall, we’re pleased with our performance compared to the initial predictions made when we started locking things down in Q1. We've exceeded our original guidance significantly, thanks to the company operating efficiently and our customers generally meeting their payment obligations, aside from a few necessary concessions.
Charles Meyers, CEO and President
Let me provide some additional insights. To clarify, the Q4 decline noted in our guidance is largely due to the significant overperformance in EBITDA during Q3, which has been carried forward. If you adjust for the fluctuations between the quarters, you would notice a much steadier progression, and we anticipate this to continue into Q1 with a margin profile that aligns more closely with our usual expectations. Regarding our multiyear guidance, we plan to provide that in our upcoming Analyst Day this year, where we can elaborate further. We believe our addressable market opportunity is expanding, and we intend to keep investing in that. Additionally, Keith has covered the impact of COVID. We've seen various hard costs associated with it, and while there are challenges, we've also experienced some positive changes. We've made significant investments to ensure the well-being of our employees, particularly in enhancing their work-from-home experience. While it's challenging to fully quantify all the revenue impacts, I must say we're extremely pleased with our team's performance despite the pandemic.
Colby Synesael, Analyst
Thank you.
Operator, Operator
Thank you. The next question is from David Guarino with Green Street. You may go ahead.
David Guarino, Analyst
Hi guys. Thanks for taking my questions. I actually got two legislative-focused questions for you. The first one, with Prop 15 on the California ballot in November, could you help give us an idea of what the increase in Equinix's property tax bill would be, if that measure were to pass? And then the second one, in New Jersey, I'm just curious have you started having any conversations with some of your financial tenants, as a result of the proposed financial transaction tax there? And if you could just remind us what percentage of your cash gross profit comes from New Jersey that would be great also. Thanks.
Charles Meyers, CEO and President
Sure, let me address the second question first and provide some context. Keith can elaborate on Prop 15 and the potential impacts of the situation in New Jersey. We are actively engaged with our financial trading clients and have a robust global ecosystem, with New Jersey being a significant player. These companies have been structured in collaboration with Equinix to ensure high resilience, allowing them to relocate their trading platforms as necessary. Historically, this has been done in response to disasters, and some of our clients might view the New Jersey tax as a disaster prompting a response. We are here to support them in maintaining their business operations effectively. While there may be potential impacts, I believe the movement will primarily be within the ecosystem, facilitating a re-stabilization of trading volume across different venues. Personally, I feel that rational perspectives will prevail, and we will recognize that the situation may not yield the desired results. We are closely aligned with our trading clients and are taking a coordinated approach to ensure everyone is thinking clearly about this issue.
Keith Taylor, Chief Financial Officer
Thank you, Charles. Regarding legislative matters, particularly around tax, as we know, Equinix is a REIT, a U.S. REIT, and because of this, regardless of the outcomes, we are not likely to pay much in corporate income tax. I don’t anticipate meaningful changes in that regard. However, Charles has effectively highlighted our stance on the New Jersey financial transaction tax and its potential implications. As for Prop 15 in California, we have approximately 11 triple-net leases to consider. We own some of our properties, and if Prop 15 proceeds, we estimate the impact will be relatively small, likely in the range of $5 million to $10 million. That is our current estimate. We are closely monitoring this situation and will keep track of developments over the coming quarters, providing updates to investors in future earnings calls.
David Guarino, Analyst
Great. That's helpful. Thank you very much.
Operator, Operator
Thank you. And that was our last question. Speakers, I will turn it back to you, for closing remarks.
Katrina Rymill, Vice President of Investor Relations and Sustainability
Thank you for everyone joining the Q3 call. That concludes the call.
Operator, Operator
Thank you for participating in today's conference. All participants may disconnect, at this time.