Earnings Call Transcript - EQIX Q2 2024

Operator, Operator

Good afternoon, and welcome to the Equinix Second Quarter Earnings Conference Call. I would now like to turn the call over to Chip Newcom, Senior Director of Investor Relations. Thank you. You may begin.

Chip Newcom, Senior Director of Investor Relations

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we've identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed February 16, 2024, and recently filed 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' policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We've made available on the IR page of our Website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page of our Web site from time to time and encourage you to check our Web site regularly for the most current available information. With us today are Adaire Fox-Martin, Equinix' CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in one hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Adaire.

Adaire Fox-Martin, CEO and President

Thank you, Chip. Good afternoon and welcome to our second quarter earnings call. I'm honored to be hosting my first earnings call today as CEO and President of Equinix, and I am immensely proud to lead our dedicated team of more than 13,000 employees around the world. I would like to express my gratitude to Charles and the entire Equinix team for the warm welcome and the facilitation of a smooth transition over the past two months. I look forward to the continued partnership with Charles in his role as Executive Chairman, and I'm excited and optimistic about the road ahead. As a board member for the past four years, I've witnessed many of the unique qualities that have driven Equinix's durable success. Our 25 years of investment has built a business now spanning 264 data centers in 72 metros across six continents. Our focus on customer value and outcomes has created interconnected digital ecosystems unrivaled in our industry. It is a phenomenal foundation to build upon as CEO. As the stewards of some of the most important digital infrastructure in the world, we are exceptionally and uniquely positioned to capitalize on the immense opportunities that lie ahead. Business transformation remains a critical priority for our customers, and the emergence of AI marks a pivotal point for our industry. AI, similar to the growth of cloud technologies a decade ago, will take time to fully develop. In the near term, AI training workloads are driving significant demand, particularly from service providers. Our xScale program continues to be a direct beneficiary of this demand. We intend to build on this momentum, meaningfully augmenting and extending our xScale portfolio, particularly in North America. This will complement our robust portfolio across Europe and Asia Pacific. We are excited to share that we recently closed on land and power for our first multi-hundred megawatt xScale campus in Atlanta. We look forward to announcing details of this project and our next xScale joint venture in the coming months. At the operational end of the AI spectrum, our network nodes and inference workloads, as with cloud, Equinix continues to be the preferred location for network nodes as customers seek the right connectivity solutions for data ingestion and distribution. We also see inference demand beginning to take shape. We believe the implementation and deployment of these workloads will accelerate over the coming years. The neutrality, global reach, and scale of the Equinix platform can deliver the performance, network density, and cloud adjacency which inference workloads require. We are already seeing significant enterprise and service provider interest in our deployment capabilities. In Q2, we partnered with WWT to serve Almavic Technologies, an AI-powered marketing analytics platform for enterprise. Almavic Technologies deployed their AI infrastructure at Equinix to run proprietary inference algorithms on massive datasets for predictable cost, privacy, speed, and secure access to data sources in the cloud. InstaDeep, a leading provider of AI decision-making solutions, deployed an Nvidia AI cluster at our Paris 10 asset to access key ecosystems, optimize their network, and support their growth objectives. Our approach to the market opportunity created by AI is multifaceted, and we believe it will deliver value in the short term and sustainable growth over the medium to long term. Our xScale offering provides the infrastructure and expertise required for massive scalable data center operations for our cloud and large-scale technology customers. For our enterprise and mid-market customers, we offer AI-ready data centers and turnkey solutions, enabling them to scale efficiently and effectively as they introduce AI technologies into their business operations. For those who require high-performance inferencing, our Edge solutions handle the data at the edge where it is generated, ensuring optimal performance for the next generation of business applications. Over the past two months, I have embarked on a listening tour across several of our locations, meeting with our customers, partners, and employees, and while it is still early in my tenure and there is still work that I need to complete, I have noted some areas of opportunity that will underpin our strategy for the company going forward. The opportunity to simplify across numerous aspects of our business. This will allow us to accelerate our pace of execution. The opportunity to drive more focus while we may do less. The programs of work that we focus on will represent excellence in execution and deliver the highest quality outcomes. The opportunity to amplify our go-to-market efforts to delight our customers and energize our partners. Equinix has consistently demonstrated discipline and execution. This mantra of discipline allows us to deliver market-leading returns on capital and serves as the underlying fuel for long-term growth in AFFO per share, our core financial metric. Building on this foundation and executing on the opportunities I noted should create a simpler, more focused, and ultimately higher-valued company. With all of this in mind, I'll turn to our Q2 performance. Equinix had a great second quarter. We delivered record growth bookings. Our pricing remains strong. We continue to invest broadly across our offerings to further enhance the scale and reach of our industry-leading platform. Our delivery of Adjusted EBITDA and AFFO per share continues to run ahead of expectations. As you can see on Slide three, Q2 revenues were $2.2 billion, up 8% over the same quarter last year. This represents our 86th consecutive quarter of top-line growth. Adjusted EBITDA was up 17% year-over-year with strong AFFO per share flow-through. Interconnection revenue stepped up to 9% year-over-year. These growth rates are all on a normalized and constant currency basis. In May, we announced the opening of our first data center in Johor with strong interest from customers across our new Malaysian footprint. In July, we announced our expansion into the Philippines through the planned acquisition of three data centers in Manila from Total Information Management. This transaction, valued at approximately $180 million, is expected to close in the fourth quarter of 2024, adding more than 1,000 cabinets of capacity, in addition to land for future development. The combination of our strong leadership position in our Singapore hub and our entries into Malaysia, Indonesia, and the Philippines strategically position Equinix to help our customers capitalize on the expanding digital opportunity in the fast-growing Southeast Asia region. Customers taking advantage of our expanding global footprint include FirstDigital, an Internet and telecommunications provider. FirstDigital is significantly lowering total cost of ownership by building a multi-cloud network with Equinix Fabric Cloud Router to connect to Cisco WebEx and AWS across all three regions. Our global interconnection franchise continues to perform with over 472,000 total interconnections now deployed. Gross interconnection additions were at the highest level in two years and pricing continues to trend favorably. However, net interconnection adds were 3,900 due to grooming activity, primarily in our content and networking verticals. We do expect this grooming to lessen over time. Equinix Fabric growth was underpinned by 100 gigabit port additions and strong pull-through from other digital services products. Network Edge experienced continued rapid growth with expansion activity from existing customers. The recent interconnection and ecosystem wins include Nuam Exchange. This is a new company formed after the integration of the Santiago Lima and Colombia Stock Exchanges. Capital market participants can now benefit from Nuam's extended reach, low latency, and secure connectivity supported by Equinix in key markets like New York and Sao Paulo. Our channel program delivered another solid quarter, accounting for over 30% of new bookings and 55% of company new logos. We continue to see growth from partners like AT&T, Avant, Dell, HPE, and Orange Business, with wins across a wide range of industry segments and use cases. Notable wins included an AI as a service solution via our distribution partner, Tech Data, and MSP partner AsiaPac. Leveraging a combination of co-location and Equinix Fabric, our partners are delivering an LLM for a high-level learning institution based in Malaysia. Now before I turn the call over to Keith, I wanted to recognize that we believe we are in a position of strength financially from both a balance sheet and access to capital perspective. Our investment strategy delivers a strong return on invested capital, all of which gives us the flexibility to execute our go-forward strategy. With that, I'll turn it over to Keith to cover the results from the quarter.

Keith Taylor, Chief Financial Officer

Great. Thanks, Adaire. Now let me first say, I look forward to the next phase of the Equinix journey alongside you, and I know it's going to be a very exciting time for all of us at Equinix. And also good afternoon to all of those that are on the call today or who might be listening later. So to start, we had a great second quarter as the team continued to execute against our plans. We had record gross bookings, closing more than 4,000 deals with more than 3,000 customers. We continued our trend of net positive pricing actions, and we ended the quarter with solid net bookings. Our forward-looking pipeline remains deep, which we expect will drive momentum in the second half of the year, and we're delivering profitability ahead of our expectations. As a result, we're again raising our full-year adjusted EBITDA and AFFO guidance, and therefore, AFFO per share too, our lighthouse metric. Also, as Adaire highlighted, I'm excited about the next phase of our xScale initiatives. We plan to lean into this program as we've seen strong demand for this offering, as evidenced by both our cloud and AI bookings momentum. We continue to believe this off-balance sheet JV structure with our equity partners is the right model to pursue this significant opportunity, which also drives durable value on a per-share basis. To date, through the xScale JVs, we've invested about $4.7 billion in the program. Since our last earnings call, we leased an incremental 17 megawatts of capacity in our Silicon Valley 12 and Paris 13 assets. This brings our total global xScale leasing to 365 megawatts, representing nearly $6 billion of total contract value and more than $700 million of annualized revenue once these assets are fully ramped. Looking forward, we have a strong funnel of additional xScale opportunities and we look forward to updating you on our future JV partnerships in the near term. For non-financial metrics, MR per cabinet is rising, increasing 7% year-over-year on a normalized and constant currency basis to $2,287 per cabinet, driven by a favorable pricing environment, solid interconnection attach rates, and increasing prior densities. As discussed on our last earnings call, as expected, we saw continued pressure on our unadjusted net cabinets billing metric due to capacity constraints in certain key markets, increasing power density and timing of churn. StackPath unexpectedly announced their immediate liquidation in June, resulting in 300 cabinets churning at quarter end as an example. Related to cabinet density, the Q2 cabinet churn were on an average density of 4 kilowatts per cabinet while the new cabinets booked were at an average density of 5.9 kilowatts per cabinet. In Q2, non-xScale net megawatts sold increased meaningfully compared to the prior six quarters. As we look forward, given our strong gross bookings and as a result, the rising backlog of cabinets sold but not yet installed, we expect billable cabinets to improve in the second half of the year. On the sustainability front, we're continuing to advance our bold Future First agenda, implementing innovative ways to integrate into the communities in which we operate. This includes new heat export programs across Europe and the Americas, including our new Paris 10 IBX, which helps heat a portion of the aquatic center at the Paris Olympics. This is one example of a sustainability initiative that we believe will become commonplace in the markets we serve in the future. Now let me cover the highlights from the quarter. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on Slide 4, Global Q2 revenues were $2.59 billion, up 8% over the same quarter last year and in the upper half of our guidance range on a constant currency basis, including the impact of a one-off charge against recurring revenues. As expected, non-recurring revenue stepped up sequentially due to strong xScale leasing activity in the quarter. Q2 revenues, net of our FX hedges, included a $6 million headwind when compared to our prior guidance rates due to the weaker Brazilian real and the Japanese yen in the quarter. Global Q2 adjusted EBITDA was $1.036 billion, or 48% of revenues, up 17% over the same quarter last year and above the $1 billion quarterly threshold for the very first time. Relative to our expectations, adjusted EBITDA was at the top end of our guidance range due to strong operating profits and timing of spend. Q2 adjusted EBITDA, net of our FX hedges, included a $3 million FX headwind when compared to our prior guidance rates and $4 million of integration costs. Global Q2 AFFO was $877 million, up 17% over the same quarter last year, better than our expectations due to strong operating performance and the timing of the land lease payment related to our upcoming Singapore 6 build. Q2 AFFO included a $3 million FX headwind when compared to our prior guidance rates. Global Q2 MRR churn was 2.3%. For the balance of the year, we expect MRR churn to remain in the 2% to 2.5% quarterly guidance range. Turning to our regional highlights, the results, which are covered on Slides 5 through 7. On a year-over-year normalized basis, APAC was our fastest-growing region at 11%, followed by the Americas and EMEA regions growing at 9% and 5%, respectively. The Americas region had a great quarter with record gross bookings led by strong financial services activity, firm pricing, and a higher mix of medium and large footprint deals. We saw particular strength in our Tier 1 markets, including Dallas, New York, and Washington, D.C. Our EMEA business delivered a solid quarter with healthy bookings activity and strong pricing. The team did an excellent job selling our global platform with record exports and strong intra-region activity, including growth in emerging markets such as Abu Dhabi, Istanbul, and Warsaw. And finally, the Asia Pacific region had a strong quarter with momentum in our largest markets in the region, including Hong Kong, Singapore, and Tokyo, as well as strong customer interest in our new Asian metros. Encouragingly, we saw strong intra-region activity driven by customers deploying AI workloads in both Japan and Malaysia. And now looking at our capital structure, please refer to Slide 8. Our balance sheet increased to approximately $33 billion, including an unrestricted cash balance of $2 billion. Our cash balance increased quarter-over-quarter due to strong operating cash flow and the debt raised in the quarter, offset by our growth investments and the cash dividend. In May, we raised $750 million of senior U.S. dollar notes due in 2034, and we immediately swapped these notes into euros at an effective interest rate of 3.9%. Our net leverage remains low relative to our peers at 3.5x our annualized adjusted EBITDA. Our blended debt borrowing rate is now 2.4%, the lowest in our industry. As noted previously, given the global nature of our business, we plan to opportunistically raise additional debt capital in low-rate markets where we intend to expand, creating both incremental debt capital to fund our growth but also placing a natural hedge into these markets. Turning to Slide 9 for the quarter. Capital expenditures were $648 million, including recurring CapEx of $45 million. We continue to invest across our platform with 54 major projects currently underway in 36 markets in 24 countries, including 15 xScale projects. Since our last earnings call, we opened 10 projects across 8 metros, including new data centers in Johor, Osaka, Silicon Valley, and Warsaw. We also purchased our Helsinki 5 and Madrid 2 assets and land for development in Atlanta, Dallas, and Milan. Revenues from owned assets increased to 69% of our recurring revenues, and more than 80% of our current retail expansion will be on our own land or own buildings with long-term ground leases. Our capital investments delivered strong returns as shown on Slide 10. 180 stabilized assets increased recurring revenues by 4% year-over-year on a constant currency basis. Stabilized assets were collectively 83% utilized and generated a 26% cash-on-cash return on the gross PP invested. And finally, please refer to Slides 11 through 15 for an updated summary of 2024 guidance and bridges. Do note all growth rates are on a normalized and constant currency basis. For the full year 2024, we're maintaining our underlying revenue outlook with expected top-line growth of 7% to 8%. This reflects our solid execution in the first half of the year and a strong pipeline to drive momentum in the second half of the year. We're raising our underlying 2024 adjusted EBITDA guidance by another $15 million due to strong operating performance and lower integration costs. We're raising our underlying 2024 AFFO guidance by $15 million, an 11% to 13% increase over the previous year. AFFO per share is expected to grow between 9% and 11% at or above the top end of our long-term plan as we continue to compound value for our shareholders. And finally, 2024 CapEx is expected to range between $2.8 billion and $3.1 billion, including about $240 million of recurring CapEx.

Adaire Fox-Martin, CEO and President

Thank you, Keith. In closing, we had a strong first half of 2024. We stand apart from our competitors by seamlessly integrating a global footprint with cutting-edge infrastructure. This allows us to effectively address the wide range of opportunities in the era of AI from the training needs of the service providers to the business needs of our enterprise customers. It also positions us to continue to effectively address the broader set of demands of our customer base. We believe our unwavering commitment to discipline, simplicity, and focus, combined with our amplified go-to-market efforts, will continue to drive growth and deliver higher value for our employees, customers, partners, and shareholders. With that, I'll stop here and open it up to questions.

Operator, Operator

Our first question comes from Simon Flannery from Morgan Stanley. Please proceed.

Simon Flannery, Analyst

Hi, thank you, good evening. Adaire, congratulations on the new position. And thank you for the comments on your Listening Tour and where you see the opportunities. I'd love to get your high-level perspective on what led you to take the role at Equinix. Obviously, you've known them from the Board, but you came from Google, you worked at SAP before that. So you've got a great perspective on the cloud needs of the hyperscalers and the AI opportunity. So it'd be great if you could just put all of that into context on where you see Equinix being positioned for the training, but particularly for the inference wave of AI? Thank you.

Adaire Fox-Martin, CEO and President

Thanks very much for the question, Simon, and thank you for the kind words. It's certainly been a whirlwind of 10 weeks since I formally took the position and a lot that I've heard and understood during the listening and learning sessions. I have to say I remain exceptionally positive about the opportunity ahead. One of the main reasons, or one of the many reasons, actually why I took the role with Equinix is obviously understanding the strategy of the company and its unique position in the ecosystem. I believe that Equinix is uniquely positioned to offer a range of enabling services for our customers so that they can actually capitalize on the opportunities presented by various different technology platforms. When I think about our demand and the customer needs, it is actually much broader than the AI portfolio. Many of our customers have made a very significant commitment to hybrid and to multi-cloud. As customers become more at ease with cloud as a technology paradigm, we can see many more workload-based decisions beginning to occur. So decisions about where particular workloads are best suited. As I look at this in the context of AI and the AI demand, that initial short-term demand is indeed coming from the service providers, and this is reflected in our xScale business and in the bookings performance that we've seen in the xScale business. And as you heard in our remarks, this is something that we're looking to expand globally. But many CIOs, like during the early days of cloud, are looking to ensure that they have an AI strategy. And we are beginning to see the beginnings of enterprise training and enterprise funnel as we look at customers looking to evolve their strategy into proof-of-concept and beyond that into working production systems. As I said, I think retail will have a much broader demand and a more meaningful long-term upside from AI as these use cases move from proof-of-concepts into production. There is, of course, a lot that Equinix is offering to our customers here, both in our retail business and of course on the xScale side of the house. And I think this unique balanced approach to the opportunity represented in the broader demand context but also in the era of cloud is something that's extremely exciting. I'm looking forward to leading the company through this journey.

Simon Flannery, Analyst

Great. Thanks for your thoughts.

Operator, Operator

Next, we'll go to the line of Nick Del Deo from MoffettNathanson. Please go ahead.

Nick Del Deo, Analyst

Hey Afternoon. Again congratulations, Adaire on taking the helm. Adaire, you had mentioned simplification, focus, and amplifying go-to-market as some of the areas that seemed interesting to you initially. I guess, can you expand a little bit on what you saw and things you might see on that front in the coming years?

Adaire Fox-Martin, CEO and President

For sure. Thank you very much again for the congrats, Nick. I appreciate that. First of all, when I look at the overall approach that I will take, it is about creating value, and it will always have a customer lens, an outside-in perspective ensuring that customer success translates and is equal to Equinix success in many regards. When I look at this, it means looking at how we continue to evolve the product portfolio, how we continue to drive critical partnerships so that we're at the center of the digital ecosystem and how we continue to enhance and evolve our go-to-market engine. Let me specifically pick up on the notion of simplification. When one simplifies, you bring core processes back to their very core. This enables you to be agile in your response and helps you to accelerate the underpinning pace of the business. And while this list is not exhaustive, there are definitely a few areas that I see we have some opportunity to continue to evolve and simplify things like our quote-to-cash process, elements like our customer lifecycle, and ways that we can systematize and process the customer's journey with us throughout their lifecycle. These types of enterprise-grade processes will help us remove friction within the system and help deliver that pace, agility, and simplicity. When I look at it from a focus point of view, it is about understanding not just the footprint that's in our core, but how we continue to grow and evolve our core business to meet the needs of our customers. This is both in our xScale business but also on retail, where we look at how our global footprint enables customers to operate and transact in environments where they may not need to invest in the physical infrastructure themselves to do that. I also think that focus is an important point when we consider our digital services portfolio and look at this through the lens of where we have adjacency, and augmenting some of that core functionality that we have that exists in the core footprint of the Equinix data center world. This is a point where we have the right to win, where customers would expect us to lead. So for instance, I look at the underpinning growth in our Fabric business, how important that can be as we look to continue to evolve our virtual interconnections portfolio. And this enables us to focus in perhaps on certain aspects of our product portfolio to ensure that we're investing where we can have the highest level of returns. And on our go-to-market side, we have new leadership in our go-to-market team. I think it's a very important aspect of our business to underpin our go-to-market processes with a very clear segmentation strategy that allows us to identify those customers that have the highest revenue perspective for us and to manage those customers in a high-touch environment but likewise, to allow us to extend our reach through channels and distribution effectively to customers who are in SME more general business-type space. So I hope that's given you a little bit of amplification on simplicity, focus, and the actual augmentation of our go-to-market. Thank you for the question, Nick.

Nick Del Deo, Analyst

Yes. That was terrific detail. Can I follow up with 1 on interconnection adds? Obviously, they dropped quite a bit sequentially. I think you called out optimization, grooming, and content and networking as drivers of that, but also noted strong adds. Maybe can you just expand a little bit on those puts and takes and how we should think about the path to getting interconnection adds back to a healthier and more sustainable level?

Adaire Fox-Martin, CEO and President

I'm happy to comment on that, and I can ask any of my colleagues here to add if there's anything that they would need to add to my commentary. First of all, as we noted, we had 3,900 net adds. We had, as Keith mentioned in his comments, the StackPath liquidation, which impacted us negatively 400. And so without that, we would have had 4,300 adds. Now let me just unpack some of the trends for you, Nick, to build on your question. First, on the positive side. When I look at the gross adds, it's the highest level in 2 years. Year-to-date, this interconnection demand is actually back to peak pandemic levels. In absolute numbers, our A-to-Z connections continue to increase, and we've seen this quarter-over-quarter. This is obviously the way that we define unique relationships between companies in a metro. I think this really speaks to the value of Equinix. So those things, coupled together, the gross adds, the absolute number of A-to-Z continuing to increase, the fact that we're at the peak pandemic levels, I think they are very good indicators of future momentum. Pricing is also trending very favorably. We have an 11% spread between churn and new additions, and you see revenue up to 9% year-on-year on a normalized and constant currency basis. So a number of positives as we look at the interconnection lens. On the churn side, we saw the churn elevated in 2023 and continued to worsen in early 2024. This was especially up in the EMEA Theatre of operation. I think networks have had the toughest operating environment, and we're continuing to see pressure in that segment of our industry customers. I would also say that M&A affects this where we have paid cross connects, but unpaid intercompany cross connects often replacing those in an M&A trajectory, and this takes some time for us to work through. Specifically, as it relates to EMEA, we can see that the data indicates some decelerating churn rate from the top 10 who have been churning in the past. So that again gives me the confidence to believe we'll move forward on a positive trajectory here, and this is an area of focus for me as we move forward over the course of this quarter.

Nick Del Deo, Analyst

That’s great. Thank you so much.

Operator, Operator

Next, we'll go to the line of David Barden from Bank of America. Please go ahead.

David Barden, Analyst

Hey guys, thank you so much for taking questions and Adair, welcome. I guess I have to be the one to ask. So obviously, the DOJ, SEC subpoenas continue to be subject of conversation around the company. So I guess if you could kind of give us an update on where we are and what it will take to put that to bed, that would be great. Also, a follow-up on that is in the aftermath of the conclusion of the independent review conducted by the Board. Were there any changes that you guys have made in this past quarter with respect to any kind of internal or external reporting? And then the last one, if I could, Keith, you referenced the unadjusted cabinets. I think this is the third or fourth quarter in a row we had to talk about why cabinets are in volume terms living up to expectations. And it's because of the densities and the better revenue per cabinet. Where are we kind of coming up with some language that represents the adjustment that you think investors need to see when they read the release or the first time around? Thanks.

Adaire Fox-Martin, CEO and President

Okay. David, thank you very much for the words of welcome. Maybe we'll start with the cabinet growth scenario. I'll throw that to Keith and then he can perhaps comment on the status of the investigation.

Keith Taylor, Chief Financial Officer

David. First and foremost, we continue to view net cabinet billings as a key focus area. As I mentioned in the prepared remarks, approximately 300 of those cabinets are related to StackPath's liquidation announced at the end of the quarter. Setting that aside, several factors are influencing our performance. One notable factor is the capacity constraints that have impacted net cabinet billings, along with the timing of churn, which is evident. The increasing density continues to play a role as well. I want to highlight two points for clarity. Firstly, we've achieved record gross bookings, indicating strong business volume, particularly in the Americas theater. Additionally, we recorded the highest net megawatts billing in the retail space, distinctly excluding xScale, demonstrating significant improvement over the last seven quarters compared to the previous six. This reflects the underlying health of our business and aligns with what Adaire discussed regarding gross interconnects. However, we are facing timing elements in the business. As you may know, we anticipated that Q2 might show negative results again, largely due to churn timing. When I mention "unadjusted," we can calculate that, indicating that even with a certain density level, we are managing around 2,000 due to that density factor. It's important to emphasize that there's substantial momentum in our business, alongside strong gross values, even though some churn is occurring, which we've been discussing in light of the current economic climate. Overall, the depth of our pipeline and the momentum we witness give us confidence that we will see improvements moving forward. Regarding our backlog, it has reached a level we haven't seen in quite some time, primarily because we engaged in more medium to large-sized deals during the quarter. This causes a slight extension in the book-to-bill ratio, resulting in a growing backlog as we configure these deployments for implementation. I hope that addresses your query. Now, turning to the DOJ, as Adaire was going to transition to this topic, we are actively cooperating with the SEC and DOJ. It's a process we are diligently navigating, and we remain confident in our approach and responses. You can take comfort in the fact that we not only filed our 10-Q last quarter, but also today, reinforcing the findings from the Audit Committee’s financial investigation. It’s essential to note that despite the short seller report and subsequent subpoenas from the SEC and DOJ, we are committed to responding appropriately as these circumstances unfold. In response to your question about changes in our approach, it’s important to highlight that we clearly stated in May that there were no restatements or adjustments necessary. Restatements pertain to materiality, while adjustments refer to modifications. Our system is functioning effectively, and our team is performing well, which gives us a solid basis of confidence. Nonetheless, we continuously reflect on ways to enhance our processes. Our team is evaluating various aspects of our operations, considering potential improvements in disclosures. Recently, we addressed redevelopment CapEx, an important disclosure that we had planned for before the short seller report. We aim for appropriate policy enhancements to put us in a stronger position, but again, we affirm that there have been no adjustments needed. We always seek to improve, recalling a saying from a fellow CFO that emphasizes continuous improvement. We will take insights from both councils and any responses from the DOJ and SEC to help us grow. In summary, I am very comfortable with our financial disclosures.

David Barden, Analyst

Alright guys, thank you so much. Thank you both.

Operator, Operator

Next, we'll go to the line of Jim Schneider from Goldman Sachs. Please go ahead.

James Schneider, Analyst

Good afternoon. Thanks for taking my questions, and welcome, Adaire. I was wondering if you can maybe expand on your comments earlier about AI workloads moving from service providers to enterprise. From your vantage point, how long do you believe it will be before that AI demand becomes more directly material on the enterprise side to Equinix on the sort of conventional retail side?

Adaire Fox-Martin, CEO and President

Thanks very much, Jim, and thanks for your question and your words of welcome. I think in the short term, the demand that we're seeing is primarily for training-based workloads. This is primarily driven in the short term by cloud and the various different technology partners that we have. This, as I've mentioned, is how our near-term pipeline is being represented and the beneficiary of this in many instances is our xScale business. In the enterprise mid-market retail business, we absolutely have AI-ready data centers, ready to take customer workloads. We have already closed a number of transactions where we are running smaller AI-based workload scenarios in the training world for enterprise-based customers. We are working with many of our CIOs to support their AI strategy as they look to integrate AI into their business and manage their cost while they're doing so. Some of our ecosystem partners have created almost a magnetism around Equinix as it relates to AI, companies like CoreWeave and Lambda that we announced last year in 2023, who have capabilities available today in Equinix data centers, and of course, the NVIDIA DGX private cloud offering that we also announced late in 2023. All of these have very active work pipelines. Some of them have active users who are making use of these systems now. So I'd say that we're seeing early traction in the enterprise level inference and type workloads beginning to occur in our data center environment. But that is something that we'll see extrapolate and grow over the medium to longer term.

James Schneider, Analyst

Thanks. And then as a follow-up, last quarter, you outlined your plan for your DC2 data center to both modernize and expand capacity. As you look across your portfolio, do you foresee the opportunity to do this more broadly across more facilities?

Keith Taylor, Chief Financial Officer

Yes. I think, Jim, you're referring to our DC2 redevelopment, if I'm not mistaken.

James Schneider, Analyst

DC2, excuse me.

Keith Taylor, Chief Financial Officer

And I just want to make sure. We think the universe of what we call redevelopment projects like that is 5 to 7-ish. They're strategic, they have scale, they are of size and of great importance. We're doing those types of redevelopments because of the value that we get to create introducing more capacity into that highly connected data center and get a good return, not only a good return on both the redevelopment element of it, which is, but also the enhancement aspect of it. Overall, the universe isn't massive. We have 264 data centers, as Adaire alluded to, we think it is 5 to 7 strategic assets strewn throughout the world that we'll do that to.

Michael Elias, Analyst

Great. Thanks for taking the questions. And Adaire, congratulations on taking the helm. Maybe to kick things off, one of the things that we've noticed is the differential in densities between what's being churned and what's coming in. As I think through kind of the evolution at the chip level, it seems like there's an acceleration in power consumption there. Do you view this as a structural trend, i.e., we could be talking about 4 or 5 quarters from now, you taking in cabinets at 7 kW per cab and churning at 4? Thus, this represents an increasing headwind to that cabinet number. I guess that's my first question. Just trying to get a sense around is this going to become a greater and greater headwind?

Adaire Fox-Martin, CEO and President

Yes. 10 weeks in. So this is certainly one of the areas that I've done a little bit of a double-click on here. I can certainly see that there are absolutely some shifting dynamics in the business. Keith highlighted this increasing power density in the cabs that are churning in versus, as you pointed, those that are churning out. For us, perhaps, this is something where we would look to see the billable cabs as a measure, maybe not being as tightly tied to revenue growth as we've seen it in the past. That's something that I think we're reflecting on. If I think about our xScale business, kilowatts probably is a cleaner metric. But when I think about it from retail, our MRR per cab and our billable cabs that perhaps is the right P times Q math that we have now, even though growth is probably more weighted towards the cabin yield versus the cabin count at this point. I think that we can continue to supplement that with quarterly insights into how we're seeing the density evolve as our business evolves and as the capabilities within our data centers continue to evolve. It's certainly something that's a whole process for us here. I think as Keith mentioned, just to reiterate, I think those very strong gross bookings plus the leading indicator of cabinets sold not yet installed are indicators that we will improve on this number in the second half.

Michael Elias, Analyst

Great, thanks for the color there. If I could just squeeze one more in. I believe the expectation at the beginning of the year was for churn to step down in the back half. Is that still your expectation? And maybe as part of that, could you give us a sense for the churn that you're seeing among medium and small-sized deployments? Thanks.

Adaire Fox-Martin, CEO and President

Yes. I'll comment on this, and then perhaps, Keith, feel free to add. I mean, certainly, we're seeing that our churn in the range of 2% to 2.5%, which is the range that we guided to is something that we can continue to manage. I think that if we normalized for StackPath in this quarter, we'd have been slightly better than our expectations in terms of where we landed. We also have a supply and demand situation in the market, which has a very positive trajectory on pricing. So maybe this gives us the opportunity to be thoughtful about managing our overall churn dynamic so that we could selectively use proactive churn to help us drive and improve some yields here. I see that some of the challenges that we had in the first half will still exist at the macro level. There's certainly a need for customers across all industry segments to do more with less. Optimization is still something that customers are looking to do because it does give them that outcome on the more-with-less tangent. We definitely have a number of our customers who are in a tougher environment in terms of the industry that they're operating in and the dynamics of that industry. That being said, we see that we will be managing within our full year as per the guide to the ranges that we set. From a thought process incoming to this, in the world of cloud, this is quite a usual process. There is potential for us to look at some enhancements in terms of management and proactive management early on of our customers engaged with us as it relates to their use profile and intention to churn. I think there is an opportunity for us to lean in and support our customers as they optimize and to engage in churn-type discussions much earlier in the process than we've been doing thus far.

Keith Taylor, Chief Financial Officer

Michael, I just want to add to what Adaire mentioned. In the second half of the year, our pipeline is strong. We expect our gross booking activity to continue increasing. We anticipate that churn will align with our previous forecasts, which is crucial. In the fourth quarter, we have indicated that we are working with a significant customer in Singapore who is in the process of vacating their premises. We will provide an update on this by the October call. This is the area of concern regarding churn that we had factored into our guidance. It should be resolved by the end of the year, which will help us regain valuable capacity in Singapore. Our Singapore 6 asset won't be operational until late 2026.

Michael Elias, Analyst

Great. Thanks for the color.

Operator, Operator

Next, we'll go to the line of Michael Rollins from Citi. Please go ahead.

Michael Rollins, Analyst

Thanks and good afternoon. Adaire, congratulations on the new role. I'd like to hear your thoughts on the addressable market for your retail data center services in a different way. The presentation mentions that you have about 2,000 networks, over 4,800 enterprises, and around 3,000 cloud and IT service providers. Looking at the potential for future revenue growth, I'm curious about how much more potential you see for expanding your customer base in each of these categories compared to the opportunity to increase spending from your existing customers.

Adaire Fox-Martin, CEO and President

You want to take that first, Keith?

Keith Taylor, Chief Financial Officer

Yes, sure. I will do the first one.

Adaire Fox-Martin, CEO and President

Yes, I'll take the first or you go first.

Keith Taylor, Chief Financial Officer

The business is performing well, and I’m sure you’ve noticed that. One thing we've consistently seen is that while we’re comfortable with our churn range, our ability to provide guidance has remained strong. We faced a challenging fourth quarter in 2023, which has influenced our momentum heading into 2024. In this quarter, given the 21.59 figure, there was an impact from quarter-over-quarter currency fluctuations. We’ve shared those details, so I won’t reiterate them. We also experienced a drag from energy price declines and a one-off significant charge to our recurring revenues booked this quarter, which amounts to roughly $7 million. Several factors have influenced the sequential movement in recurring revenue, and there’s considerable variability in the non-recurring side. We’ll do our best each quarter to keep you informed. The success of the xScale business has introduced some volatility in non-recurring revenue, and we’ll aim to reconcile and normalize that for next year to give you a clearer picture of the underlying business performance. As we mentioned, we expect churn to slow in the latter half of the year and bookings to increase. Our pipeline has reached an unprecedented level, indicating strong churn. We have good visibility on this, contributing to the momentum you’re witnessing in the business. We remain confident despite tough macroeconomic conditions. The challenges faced by companies like StackPath show that some are struggling, but we recognize the evolving economic landscape. We understand our relevance in the digital environment, which remains favorable for Equinix, and expect supply constraints to persist. This combination fuels our optimism not only for how we close out this year but also for our positioning in 2025. Our focus is on driving value per share through prudent fiscal management and top-line growth, and we believe that is achievable. I hope this provides the clarity you were seeking.

Adaire Fox-Martin, CEO and President

And perhaps, just building on that and to address the first part of the question around the opportunity in our installed base and new market opportunities. This is something that I feel very, very positive about. Not only have we undertaken or already commenced a very deep refresh of our segmentation of our customer base. But in the context of that, we have looked at each of those elements and how we can create sales place scenarios that allow us to have almost like a rinse-and-repeat model from a selling perspective into a cohort of customers. I'm very excited about the upsell opportunity as a result of some of those programs in our installed base, but also about the outcomes of the segmentation exercise and the way that we will define our coverage model to enable us to reach further to prospects and bring them into the Equinix family as customers. So a piece of work that's underway, and I'm very confident about the prognosis and outcome of that work.

Chip Newcom, Senior Director of Investor Relations

Thank you, everyone, for joining our call today. This concludes our Q2 call.

Operator, Operator

Thank you all for participating in the Equinix Second Quarter Earnings Conference Call. That concludes today's conference. Please disconnect at this time, and have a great rest of your day.