Earnings Call Transcript - EQIX Q4 2020

Operator, Operator

Good afternoon, and welcome to the Equinix Fourth 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 would 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're 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 identified in today's press release, and those identified in the filings with the SEC, including our most recent Form 10-K filed on February 21, 2020 and 10-Q filed on October 30, 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 in 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 the list of the reasons why the company uses these measures in today's press release from 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 fourth quarter earnings call. I hope that 2021 is off to a great start for all of you and that you and your loved ones are safe, healthy, and ready for an exciting year ahead. As I reflect on the extraordinary events of 2020, it's clear we are living in a time unlike any other in our history. Without question, the COVID-19 pandemic changed nearly every aspect of our lives. For some, the impact has been and continues to be devastating. Our hearts and our support continue to go out to those suffering or facing great loss. Despite the rapidly changing landscape, our focus has remained clear. Ensuring the health, safety, and well-being of our employees, customers, and partners, keeping our data centers safely operating around the world, and continuing to be a source of strength for our communities. I'd like to take a moment here to thank our employees for not only enduring but excelling in the face of adversity and for powerfully demonstrating our commitment to be in service to: in service to each other, to our customers, to our shareholders, and to the communities in which we live and operate. In the midst of all that has transpired, our business model has proven resilient, and we continue to innovate, execute, and deliver for our customers. We closed over 17,500 deals in 2020, reflecting the strength of our value proposition and highlighting the tremendous scale and momentum of our go-to-market engine. We expanded our scale and reach, both organically and through M&A, solidifying our position as a leading digital infrastructure provider in Canada, entering the Mexico market, and announcing our GPX transaction in India, which we believe will be an ideal springboard in this large and growing market. We completed 16 new expansions, our most active build year ever, and have a sizable construction roadmap still ahead to support our backlog and healthy pipeline. We've introduced transformative capabilities on Equinix Fabric and Network Edge, revolutionizing the way enterprises connect digital infrastructure, and we launched Equinix Metal, a fully automated and interconnected Bare Metal as a Service offering that provides even greater flexibility for customers to place their digital infrastructure where they need it, when they need it. We also had a very active year in the capital markets, leveraging our investment-grade ratings to refinance our debt, driving substantial interest savings into the business as reflected in our AFFO per share metric. For the year, we delivered $6 billion in revenue, completing our 72nd consecutive quarterly top-line increase and an amazing 18 years of continuous revenue growth. In terms of the road ahead, one post-pandemic reality is already clear: our world is increasingly and inescapably more digital. Digital is reshaping our everyday lives and is impacting every element of our customers' businesses, not just how they interact with their customers, but how they interact with their data, how they collaborate and innovate, how they support their employees, how they engage partners, how they architect their network. Everything is changing. Digital transformation is reshaping the competitive landscape across every sector of the global economy and is fueling demand for a new generation of digital infrastructure. Infrastructure that is more distributed, more cloud connected, and more flexible, characteristics that represent the hallmarks of Platform Equinix. As service providers build out their infrastructure to capture burgeoning digital demand and enterprise customers embrace hybrid and multi-cloud as the architecture of choice, Equinix continues to play a key role as a nexus for advancing their digital transformation journeys. We believe that the overall market for digital infrastructure will continue to expand significantly, creating a massive long-term opportunity for those providers able to adapt to the evolving needs of digital buyers. We believe Equinix is uniquely positioned to capture this expanding addressable market, and we entered 2021 with a clear set of priorities to build on our market leadership, reinforce our competitive advantage and invest in targeted ways to position us for sustained value creation. First, supporting our people and strengthening our extraordinary culture will continue to be at the center of our strategy. People are foundational to how we will navigate the challenges and opportunities ahead. Our goal is to ensure that our culture creates a sense of opportunity and belonging for all our employees, affording us a durable source of competitive advantage. This year, we're expanding our award-winning sustainability ambitions, a priority that has resonated with both employees and customers as diversity, inclusion, social justice, and climate change all remain front and center on the global stage. Equinix is an important component of greening digital infrastructure, and we have seen a significant increase in customer interest in this area. We continue to expand our efforts around renewables coverage, energy efficiency projects, green building certifications as well as our pursuit of science-based targets and innovative techniques to push sustainability forward in all three regions. Second, we will focus on simplifying and scaling our business to drive long-term operating leverage and enhance our customer experience. This will include targeted efforts aimed at streamlining and automating ordering and billing, enabling channel self-service, and delivering enhanced digital engagement options for our customers. In parallel, we'll continue to evolve and scale our highly productive go-to-market engine, investing in more quota-bearing headcount and leveraging our growing channel to amplify our reach to capitalize on the opportunity in front of us. Third, we'll continue to expand our global reach with an ambitious plan across both retail and xScale in direct response to customer demand. And fourth, we'll accelerate our digital services business, adding new product capabilities, expanding market availability, and augmenting our go-to-market motion, all aimed at accelerating new customer acquisition and positioning us for future growth as we drive attach rate across our expansive customer base. Turning to our results, as depicted on Slide 3, revenues for the full year were $6 billion, up 8% year-over-year. Adjusted EBITDA was up 8% year-over-year, and AFFO per share grew 12% year-over-year. Interconnection revenues grew 14% year-over-year, driven by strong adoption of Equinix Fabric and solid interconnection adds. These growth rates are all on a normalized and constant currency basis. Our longer-term product roadmap and platform vision continue to advance to support our position as the world's digital infrastructure company. We now have over 392,000 interconnections and continue to build out ecosystem density across our metros. In Q4, we added an incremental 7,700 interconnections, more than our top 15 competitors combined, fueled by continued strength in network and cloud connectivity. Internet Exchange saw significant increases, both in port capacity and traffic growth, with peak traffic up 8% quarter-over-quarter and 43% year-over-year, driven by cloud, content, and gaming segments. Equinix Fabric also saw strong growth, driven by port additions as well as existing customers upgrading to higher speed connections and increasing their use of our intra-metro offering. We also launched a new capability that allows Equinix Fabric users to quickly and easily connect to any other customer on Platform Equinix, unlocking the full value of our scaled digital ecosystems. And with Equinix Fabric integration built into both Network Edge and Equinix Metal, digital leaders are finding it easier than ever to use Equinix to create and connect their foundational infrastructure. In its first quarter as an Equinix branded product, Equinix Metal demonstrated solid momentum and is now available in eight global metros, with plans for an additional ten markets early this year. On the xScale side of our business, we continue to be very pleased with our JV strategy and are making significant progress expanding the reach and scale of that business. As planned, xScale is enabling us to extend our product set, capture hyperscale demand, and deepen cloud density while leveraging our balance sheet with the JV structure. We have an ambitious plan for 2021 and are resourcing xScale to accelerate growth. Plans include incrementing our existing JVs, entering new markets such as Australia, and evaluating new options to broaden our reach and leverage our existing land bank. We currently have eight xScale builds underway, spanning all three regions and are moving forward with the second phase of Tokyo 12, given early success in this market. Now let me cover highlights from the verticals. Our Network vertical, again, achieved record bookings, driven by carriers upgrading core, edge, and mobile networks to address shifting traffic patterns resulting from the pandemic, as well as continued strength in enterprise resale. Network service providers have proven to be some of our most productive channel partners, which has led to sustained momentum in this vertical. New wins and expansions included Senia Networks, a Danish network provider, connecting to partners in Amsterdam, Frankfurt, Hong Kong, and London, as well as a Fortune 500 cable operator, leveraging Equinix to re-architect core infrastructure for cloud access to support video-on-demand caching and delivery. Our Financial Services vertical also had a record quarter, led by multinational financial services firms, with particular strength in the Americas. Expansions included a Global 2000 fintech player expanding their equity options present to access our dense financial ecosystem and a Fortune 500 insurance company implementing a hybrid cloud strategy on Platform Equinix. Our Content and Digital Media vertical saw particular strength in video and digital advertising as companies are investing to bring their services directly to consumers. New wins included one of the largest shopping and e-commerce retail groups deploying infrastructure to support digital e-commerce activities; and Index Exchange, a top independent global ad tech marketplace expanding compute nodes to manage increasing traffic from customers. Our Cloud and IT vertical delivered solid bookings, increasing density and coverage of software-as-a-service providers and winning new cloud on-ramps in smaller markets, including Dubai and Melbourne. Expansions included Fortinet, a global cybersecurity platform provider, expanding to support scale and user experience; and ServiceNow, deploying infrastructure closer to users in Europe to optimize performance, enhance user experience, and support their rapid growth. Our Enterprise vertical had a strong quarter driven by healthcare and retail as telehealth and digital initiatives see continued momentum. Work-from-home and collaboration-related use cases remain active, although less than pre-pandemic levels as enterprises shift their focus back to broader digital transformation initiatives. New enterprise wins included Atrium Health, the largest health system in the Southeastern U.S., deploying digital infrastructure to enable compliant, multi-cloud and business partner interconnection, as well as a Fortune 500 manufacturing company deploying digital infrastructure at Equinix to facilitate cloud connection. And our channel program had another great quarter, accounting for 35% of bookings. We saw particular strength with our hyperscale and technology alliance partners, capturing wins across a wide range of industry segments focused on digital transformation efforts as well as pandemic response. New partner wins included a Canadian automobile parts manufacturer accessing our network and cloud density to interconnect to the connected car and broader automotive ecosystems. We continue to expect channel bookings to be an important pillar of our go-to-market strategy in 2021 and beyond. 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. As Charles noted, we're living in unique times, and I hope you and your families are healthy and well. Despite the challenges of 2020, the Equinix team rallied at all levels of the organization and delivered another strong year for our investors, our customers, and our employees. We ended the year on a high note with record gross bookings, strong inter and intra-reaching deal flow activity, positive net pricing actions, and a healthy sales pipeline as we head into 2021. Also, we ended the year with a significant backlog of cabinets booked but not yet installed. Consistent with my prior quarter's comment, we anticipate a meaningful increase in our cabinets billing metric in the first half of 2021. So, simply put, we continue to drive value on both the top-line and at a per share level. Our core strategy as the world's digital infrastructure company continues to separate us from our peers. In the year ahead, we're leaning into our product and services initiatives, scaling and automating our business, and investing to expand our platform. We're also managing substantial construction activity at a level previously not seen. With 44 major expansion projects currently underway across 30 markets and 20 countries, including eight xScale builds. Our build efforts are dollar-weighted towards major metros that generate over $100 million in revenues. Both the OpEx and CapEx investments are driving and supporting the continued volume of high-quality interconnection-rich wins across both our direct and indirect channels, resulting in durable long-term value creation for our shareholders. We've also been active in the capital markets, benefiting from our investment-grade ratings that helped drive down our cost of borrowing. Over the past two years, we raised over $11.5 billion in capital, funding the growth and scale of the business while lowering our overall blended cost to borrow by approximately 160 basis points, another value driver as reflected in our AFFO per share metrics. Now, let me cover the highlights for the quarter. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on Slide 4, global Q4 revenues were $1.564 billion, up 8% over the same quarter last year and better than expectations, in part due to strong NRR activity, although offset in part by a one-off accounting adjustment. We enjoyed another quarter of net positive pricing actions, a strong reflection of how our operating model differs from our peers. Q4 revenues, net of our FX hedges, included a $9 million benefit when compared to our prior guidance rates. Looking forward, we expect NRR activity to decrease in Q1, although step up again in Q2. Global Q4 adjusted EBITDA was $711 million or 45% of revenues, up 5% over the same quarter last year, outperforming our expectations due to favorable revenue mix, strong operating performance, and lower utility costs. Our Q4 adjusted EBITDA performance, net of our FX hedges, included a $4 million net FX benefit when compared to our prior guidance rates. Global Q4 AFFO was $517 million, meaningfully above our expectations on a constant currency basis due to strong operating performance while absorbing seasonally higher recurring CapEx investments, a similar scenario to prior years. Consistent with AFFO, our operating cash flows increased significantly in the quarter, largely due to strong collection activities. Interconnection revenues were greater than 18% of recurring revenues, showing continued strong momentum across each of our regions, both on a dollar basis and as a percent of our recurring revenues. Turning to our regional highlights, whose full results are covered on slides 5 through 7. APAC and EMEA were our fastest-growing revenue regions on a year-over-year normalized basis, both growing 11%, followed by the Americas region at 4%. The Americas region saw its third consecutive quarter of record gross bookings with firm pricing, a high mix of midsized deals, and our highest number of new logos in two years. Additionally, the team continued to sell across the global platform, delivering on our second consecutive quarter of record exports to the other two regions. Americas interconnection adds remained strong. Cabinets billing trended back to normal levels, and we expect a large step-up in cabinet billing in the first half of 2021. Bell Canada assets had a good start under the Equinix banner, and our integration efforts remain on track. Our EMEA region saw solid bookings in the quarter, including our best intraregional deals in two years, with firm pricing led by activity in both our Amsterdam and Frankfurt markets. Revenue growth remains strong, although we expect some moderation in 2021 as we lap past our successful cross-connect repricing initiative in 2020. Also, we're investing broadly in our growth and emerging markets, or GEMs, to meet the anticipated demand in these edge metros. And finally, the Asia Pacific region had its second-best gross bookings quarter with a solid mix of small ecosystem-accretive deals in our Singapore and Japan businesses. Utilization rates remain high. We expect to bring new capacity online over the coming quarters in key markets to ease the anticipated capacity constraints. And now looking at our capital structure, please refer to Slide 8. At year-end, our balance sheet is greater than $27 billion, including unrestricted cash of approximately $1.6 billion, a meaningful decrease over the prior quarter due to the close of the Bell Canada asset acquisition and the settlement of debt refinanced in the quarter. Also, we moved our Paris 9 asset into the EMEA JV and closed our Japan JV with GIC in December. As a result, net of our equity investment, the JVs reimbursed us over $300 million in the quarter. At year-end, our xScale joint ventures had total assets on their balance sheet of greater than $1 billion, including the capital deployed. In 2021, you should continue to expect a meaningful increase in xScale activity. Our net debt levels remain low relative to our peers at 3.8 times our Q4 annualized adjusted EBITDA within our targeted range. Over the past two years, we refinanced a large portion of our historically high-yield debt structure. Yet, we still have another $1.8 billion of debt to refinance over the coming quarters, which at current rates would result in another $50 million plus in annualized interest savings. Turning to Slide 9 for the quarter. Capital expenditures were approximately $834 million, including a recurring CapEx of $74 million, a meaningful increase over the prior quarter, but as expected. Our construction and procurement teams continue to actively manage our expansion pipeline, delivering capacity at robust build levels while incorporating the health, safety, and well-being of our internal and external teams. Over the past year, we've experienced an average construction delay of a few weeks due to the pandemic, a trend that we will continue to monitor and assess. In Q4, we opened four new expansion projects in D.C., Frankfurt, Paris, and São Paulo. Additionally, we added seven projects to our expansion tracking sheet, including our entry into Genoa, Italy in support of the subsea cable landing station opportunity. Genoa 1 will have direct fiber access to Milan 5, our new flagship facility in this metro ready to open in Q1. We continue to expand our ownership, acquiring land for development in Genoa, Madrid, Mexico City, Milan, and São Paulo. Revenues from owned assets currently represent about 55%. Our capital investments delivered strong returns as shown on Slide 10. Our 147 stabilized assets increased recurring revenues by 4% year-over-year on a constant currency basis. These stabilized assets are collectively 84% utilized and generate a 27% cash-on-cash return on the gross PP&E invested, a step down over the prior quarter due to the impact of a weaker U.S. dollar on our non-U.S. stabilized assets. As a reminder, similar to prior years, we plan to update our stabilized asset summary on the Q1 earnings call. Now please refer to slides 11 through 15 for our summary of 2021 guidance and bridges. Do note, our 2021 guidance does not include any financial results related to the pending GPX India acquisition. Starting with revenues for 2021, we expect top-line growth of 10% to 11%, reflecting the continued momentum in the business and favorable FX rates relative to the prior year. On a normalized basis, revenues are expected to grow 7% to 8% over the prior year. MRR churn is expected to remain in our targeted range of 2% to 2.5% per quarter for the year. For Q1, we expect the MRR churn to be at the lower end of this range. We expect 2021 adjusted EBITDA margins of approximately 47%, excluding integration costs, the result of operating leverage in the business, offset by investments in our product, xScale, and business simplification initiatives. We expect to incur $30 million of integration costs in 2021 for various acquisitions. 2021 AFFO is expected to grow 10% to 12% compared to the previous year. AFFO per share is expected to grow 8% to 10%, including integration costs. We've excluded any capital market activities here. 2021 CapEx is expected to be $2.5 billion to $2.8 billion, including approximately $180 million of recurring CapEx spend, which represents about 3% of our revenues. This guidance also includes approximately $250 million of on-balance sheet spend related to xScale projects, which we expect to be reimbursed for in the future as we move or sell assets into either our current or our future JVs. And finally, we expect our 2021 cash dividends to increase to slightly greater than $1 billion, a 10% increase over the prior year or an 8% increase on a per share basis. So let me stop here and turn the call back to Charles.

Charles Meyers, CEO and President

Thanks, Keith. In closing, as 2020 showed us, our world is a very dynamic place. I'm proud of how we have navigated and adapted through this challenging environment, and I'm pleased with our increasing momentum in unlocking the tremendous opportunity ahead. We had a strong finish to the year, delivering across each of our areas of strategic focus, all while maintaining a disciplined and long-term oriented approach to our capital allocation and shareholder return strategies. Undoubtedly, as with all times of transition and transformation, there will continue to be challenges ahead. But I am as optimistic as ever about our business and the opportunity to serve our customers, partners, and shareholders as the world's digital infrastructure company. We need to continue to invest in extending our market leadership and ensure our long-term relevance to the expansive opportunity presented by digital transformation. As a society and as a company, we learned a lot in 2020. And I believe there are a plethora of silver linings that will come from this past year. We enter 2021 filled with gratitude, ready to tackle the challenges and opportunities ahead and collectively energized by the pursuit of our purpose: to be a platform where the world comes together, enabling the innovations that enrich our work, life, and planet. So let me stop there and open it up for questions.

Operator, Operator

Our first question is from Michael Rollins with Citi.

Michael Rollins, Analyst

I was curious if you could talk a bit more about the revenue growth guidance, organic constant currency of 7% to 8% for 2021. What's driving the difference between 2020 and '21? And with the investments that you're making this year, how do you look at the opportunity to grow in the future? Can you accelerate that? Would you expect to maintain that level? Just some additional color would be great.

Charles Meyers, CEO and President

Yes, I'll begin, Mike, and then Keith can add his thoughts. As we've previously discussed, it is becoming increasingly challenging to grow on a larger base while remaining disciplined in our strategy, which is our primary focus. We believe this approach will continue to drive value creation. We are witnessing strong interest from customers who appreciate our value proposition, but it requires significant productivity to achieve the bookings necessary for growth, especially considering the overall size of the business. Regarding our investments, we believe they will enable us to sustain and potentially increase our growth rates over time. We have already seen some positive results from these investments. Without the previous investments in our product teams and other business areas like xScale, we likely would not have achieved the growth we experienced in 2020. This has allowed us to invest in the business and generate returns. In terms of operating margins, 2020 was an unusual year and challenging for everyone. We decided to keep investing in our people and provide them with job security, and I still believe that was the right choice for the company. I'm confident that the long-term return on this decision will be significant. Interestingly, employee turnover decreased because people sought the stability provided by a strong employer like Equinix, which was more than we anticipated. This decrease in turnover somewhat limited our ability to adapt and evolve our workforce in response to changing business needs and strategy. We faced a decision about whether to hire beyond our expected headcount or to hold back in an effort to manage expenses. We probably found ourselves somewhere in between. This is definitely a factor contributing to the growth of SG&A as a percentage of revenue. Addressing that trend is a priority for us in 2021 and beyond. However, we feel it is essential to continue investing in the business because the opportunities related to digital transformation for our customers are significant, and we are well-positioned to capitalize on them. Keith, do you have anything to add?

Keith Taylor, Chief Financial Officer

Yes, I would like to add a few comments. One notable observation from 2021 compared to 2020, especially when we look at Q1, is the significant decline in our non-recurring revenue. As we've mentioned previously, this revenue can be inconsistent. We anticipate an increase in Q2, which aligns well with the additional cabinet installations we expect as a business. It's also important to remember the price increases that occurred last year. As I stated in my earlier remarks, we will have to account for that, which means we won’t see the same advantage, but it will still impact our run rate. Additionally, we are continuing to invest in xScale and there is considerable activity happening in that area. However, we are not relying on this for our projections for the year regarding fees or contributions from our joint venture equity interest. Overall, when considering the business, we expect growth of 10% to 11%, with normalized growth being 7% to 8%. Notably, the Americas region saw about 4% growth as I mentioned last quarter. Throughout Q1, we anticipate modest growth in the Americas, followed by an acceleration in the latter three quarters of the year, which is quite encouraging based on our plans.

Operator, Operator

Our next question is from Phil Cusick with JPMorgan.

Richard Choe, Analyst

This is Richard for Phil. Just wanted to follow up on that a little bit about the Americas growth. I assume some of that is the growth of the acquisitions of Mexico, Packet, and Bell. What kind of growth rates are you expecting from them versus kind of the average for the overall region?

Charles Meyers, CEO and President

Keith, do you want to take that? Regarding Packet, we don't view it as a regionally-focused investment, as the capabilities will be implemented globally. We certainly anticipate significant growth that will outpace the rest of the business, and we expect to see success in various regions as well. Other businesses are also likely to see strong growth, though there are other factors to consider. I believe it’s more about sustained performance after navigating much of the churn related to the Verizon assets and the churn that occurred there. We're seeing a stabilization in the business along with several productive booking quarters from the Americas.

Richard Choe, Analyst

And to follow up on that, the churn, I guess, was a little higher in the second half of the year, the 2.6%, but you said it would be lower in the first quarter. Is it mainly because of the rise in churn as well? Or is there something else there that is showing that improvement or driving that improvement?

Charles Meyers, CEO and President

No, we mentioned in the last call that we expect this quarter to be within the range again. We encountered some timing issues and unexpected churn this quarter that brought us to 2.6%. I'm hesitant to say we'll be back in range in Q1, but I firmly believe that's our expectation. There were several churn incidents in the last couple of quarters from acquired assets that didn't align with our typical targets. I don't see this as a fundamental issue but rather as results of assets that aren't part of our current strategy. Additionally, about 20 basis points of the Q4 churn were linked to a large, lower-margin managed services deal in Europe. If we exclude those factors, the churn performance looks consistent with our expectations. Churn will be a key focus for us this year, and our revenue outlook will largely depend on our ability to meet the churn targets we've set. It’s a critical area for us. We’re not observing any fundamental issues, just typical fluctuations as clients adjust their architectures and the usual frictional churn that occurs in our business. Overall, I think it’s nothing more than that.

Operator, Operator

The next question is from Tim Long with Barclays.

Timothy Long, Analyst

I wanted to ask on the interconnect business. Maybe a two-parter. Can you just update us on the initiatives for global pricing there for the international markets, getting them more up to Americas type of levels? And can you talk a little bit about your view of that, kind of as we head into 2021, particularly with the really strong cabinet equivalent billing in the first half? Could that be a positive indicator for what we'll see from interconnect activity as we head into the first part of the year?

Charles Meyers, CEO and President

Overall, we are very pleased with the performance of our interconnection business and its impact on the broader business performance. Although we report it as a separate product line and highlight its growth, it continues to significantly outperform the rest of the business. It's a central part of our value proposition and supports the overall strength of our offerings in digital transformation. Regarding pricing, we experienced significant success with our pricing normalization efforts in Europe throughout 2020, and we are mostly past that phase now. As mentioned, this has influenced the year-over-year revenue growth comparisons in Europe, but we are starting to see those benefits reflected in our current run rate. We will keep assessing opportunities for further pricing adjustments, but nothing significant is anticipated in the near future, especially since we have just made changes in Europe. It's important for us to consider our underlying costs and their trends to determine if adjustments are necessary to maintain our margin profile. Our primary focus remains on the value we deliver to our customers. We believe the value is significant, especially as they implement Equinix Fabric as a foundational component of their hybrid multi-cloud architectures, which gives us confidence that we will continue to achieve strong pricing from our interconnection services. Lastly, Keith mentioned that we expect strong cabinet additions due to our robust backlog, which will further enhance interconnection since we are seeing solid ratios that ensure we maintain a disciplined strategy. We are not dependent on large footprint deals that lack interconnectivity, and instead, we are seeing cabinets drive interconnection growth. Overall, we expect these elements to progress smoothly together.

Operator, Operator

The next question is from Ari Klein with BMO Capital Markets.

Aryeh Klein, Analyst

Charles, you mentioned in the prepared remarks some of the bigger picture changes as the world digitizes. Can you talk about how this is impacting deal flow, deal sizes? Any impact on sales cycles? Are they lengthening in any way as a result?

Charles Meyers, CEO and President

Yes, we've noticed that digital transformation is becoming a top priority at the Board level, significantly affecting how businesses approach electronic commerce and customer interactions. There's a shift in how they leverage data and utilize AI to gain a competitive edge and design their networks. These factors are crucial to our sales pipeline and are driving our strong quarter-over-quarter bookings. Companies are increasingly viewing Equinix as a key point for their data, integrating it with cloud services worldwide to derive insights and distribute those insights to the right people within their organizations. Network re-architecture remains a core focus for us, particularly with offerings like Equinix Fabric, Network Edge, and Metal, which are enhancing the speed and efficiency of network re-architecting. When examining our business mix, we've handled 17,500 transactions over the year and are concentrating on areas where we can showcase unique value, which is why our pricing remains strong. We're observing advantageous pricing trends and stable spot pricing in many aspects of our business due to our robust value proposition. Sales cycles are not lengthening; on the contrary, they appear to be shortening, especially for follow-on sales after bringing a customer onboard. The initial engagement may take time, but subsequent sales seem to occur more rapidly, indicating potential for increased productivity in our sales efforts moving forward.

Aryeh Klein, Analyst

And then just real quick on xScale. You're building in Brazil, you mentioned Australia being in the roadmap. Where does the U.S. stand on that list?

Charles Meyers, CEO and President

Yes, we have discussed this previously and generally stated that it is not a top priority for us. We believe the competitive intensity of the hyperscale business in the U.S. is quite high. I would say that supply and demand are balancing out more in the U.S. markets, which were somewhat out of sync for a period. Overall, I remain open to potential opportunities as they arise.

Operator, Operator

The next question is from Sami Badri with Credit Suisse.

Sami Badri, Analyst

One for you, Charles, is you commented about an enterprise acceleration really starting to come into fruition, at least in 2021. Do you still really believe this to be kind of the case or the observation for the year? Or has your view slightly tilted mainly tied to some of the sales cycle commentary you just gave? Just want to get your latest thinking on any kind of enterprise acceleration mainly taking place in 2021.

Charles Meyers, CEO and President

Yes, I believe we are witnessing a significant acceleration in the enterprise aspect of our business over a multiyear period. This is connected to the traditional service provider density and ecosystem we have, along with our geographic reach, which supports hybrid and multi-cloud solutions for enterprise customers. When we report externally, we discuss our Network segment, Financial Services segment, and Enterprise segment. Each of these segments includes substantial enterprise components. Our enterprise resale in the network vertical is included in these reports, yet we also have a significant Enterprise business sold through network service provider partners. On the Financial Services side, while we have our trading ecosystem, the larger portion is actually the Enterprise Financial Services business. The financial services sector has a high IT spending and a thoughtful agenda focused on moving to hybrid and multi-cloud architectures long term. This has generated enterprise momentum for our business in recent years, which I believe will continue into 2021. Our sales engine is quite effective. While we have not fully transitioned yet, it aligns well with Equinix’s overall strategy, considering the large addressable market we are still beginning to explore. This means that solution selling may take longer as we help customers envision their hybrid and multi-cloud futures and our role in them. However, once they overcome this hurdle, we see significant opportunities for increased revenue. I expect enterprise to perform well as a segment for us in 2021.

Sami Badri, Analyst

Got it. And then just one quick follow-up on adjusted EBITDA margins. On one side, pulling this up, you have interconnection; xScale should have slightly higher margins. And now you have to 35% of sales coming in from the channel. The perception is that your adjusted EBITDA margin should level up a little higher than what you're guiding to in 2021. Could you maybe just give us a little bit more of an idea, a multiyear view in terms of how you see the trajectory playing out?

Charles Meyers, CEO and President

Sure. Keith, you want to start maybe with a view of what the moving parts are on the guide? I’ll add color as needed.

Keith Taylor, Chief Financial Officer

Sure. It’s important, one of the things we spoke of last quarter was that there are a number of one-off items that were going through the quarter. You look at the guide we offered in Q1 and then for the year. We will see a recovery of that. There are some one-off costs that were in Q3 that benefited us; one-off benefits, I should say. In Q4, there were one-off costs. But when you look into Q1, you get to see an EBITDA performance that is substantially up relative to what you would have previously anticipated. Q1 tends to be one of our lower EBITDA quarters, but you can see that we're stepping it up. So it gives you a sense of a meaningful step-up in the quarter, including absorbing net seasonal costs. As you look through the next three quarters, typically what you’d see is that our EBITDA margins would continue to increase throughout the year. You take that thinking on a lot of what Charles has said, translate that into our AFFO. Again, broadly, if you look at it in total, AFFO is growing nicely. When you look at it at the share level, it's growing 8% to 10%. So the fact is, excluding integration costs specific to acquisitions, you're going to see our AFFO per share grow about 10% to 12%. There’s a lot of value coming into the business. There's a lot of value coming from xScale. There’s still potential for much more to come if we execute against our strategy. There is a tremendous amount of activity that we will be embarking upon this year with xScale. We're optimistic that this will continue to drive more value to not only the margin line but also our core metric, which is AFFO per share.

Charles Meyers, CEO and President

The additional color I might add is that we feel we're generating operating leverage. As I've previously said, we are offsetting that operating leverage by investments this year into product teams, xScale, and business simplification. We’ve referred to some of these in my prepared remarks. We need to bend the cost curve within the business. We continue to believe we can, over a multiyear basis, expand operating margins and see additional leverage.

Operator, Operator

Our next question is from Jordan Sadler with KeyBanc Capital Market.

Jordan Sadler, Analyst

I just wanted to touch base on the Americas cabinet billing during the quarter. It rebounded, but yet still seems a little bit below historical levels even after last quarter's churn event. You pointed to in your prepared remarks a large step-up coming in cabinets billing, I think, in the Americas in the first half. Can you point to the drivers there? Did the fourth quarter come in all the way around relative to what your expectations were?

Charles Meyers, CEO and President

Keith why don't you grab that and I'll come back.

Keith Taylor, Chief Financial Officer

There was higher churn in the fourth quarter than we initially expected, similar to what Charles mentioned earlier. This was partly due to a managed services provider issue in Europe, but there were also instances in the U.S. Currently, we believe we've turned a corner. The first quarter may appear a bit softer, mainly because we're reducing the non-recurring revenue by about $20 million. The positive trend is coming from the installed cabinets, with the backlog from signed deals that are booked but not yet installed. This gives us confidence in revenue growth and momentum for the rest of the year.

Charles Meyers, CEO and President

The only other thing I might add is that we continue to focus on delivering not only cabinets but delivering higher yield. That's maintaining discipline on workloads and opportunities that we pursue. We're seeing good success in preserving high yields per cabinet. Over time, our product portfolio will allow us to continue to expand yield or at least sustain the very high levels we have today. That, combined with backlog translation, are good signs for the Americas business.

Operator, Operator

Our next question is from Michael Rollins with Citi.

Michael Rollins, Analyst

Katrina Rymill, Vice President of Investor Relations and Sustainability

That concludes our Q4 call. Thanks, everyone, for joining.

Operator, Operator

Thank you for participating in today's conference. You may disconnect at this time.