Earnings Call Transcript - EQIX Q3 2022

Operator, Operator

Good afternoon, and welcome to the Equinix Third Quarter Earnings Conference Call. I would now like to turn the conference over to Katrina Rymill, Senior Vice President of Corporate Finance and Sustainability. You may begin.

Katrina Rymill, Senior Vice President of Corporate Finance and Sustainability

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we have identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 18, 2022, and 10-Q filed on July 29, 2022. 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 financial guidance during the quarter unless it is done through explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We have made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page from time to time and encourage you to check our website regularly for the most current available information. With us today are Charles Meyers, Equinix's CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up within an hour, we would 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

Thanks, Katrina. Good afternoon, and welcome to our third quarter earnings call. We had another outstanding quarter as global demand for digital infrastructure continues to grow, and customer preferences trend convincingly toward architectures that are highly distributed, persistently hybrid, deeply cloud connected, and increasingly on demand. All factors fueling Equinix's position as a trusted partner in digital transformation. This vigorous demand backdrop fueled another great quarter, delivering record gross and net bookings, with strong demand across all three regions, resulting in our 79th quarter of consecutive revenue growth and further demonstrating the resiliency and durability of our business, even in the face of a complex and challenging macro environment. It is increasingly evident that the global pandemic has been a catalyst for a fundamental shift in how customers view digital transformation and its importance as a strategic imperative. This commitment to digital transformation continues even in the face of a broader dynamic of belt tightening, as companies look to do more with less and see digital as a catalyst to both maximize revenues and optimize costs. While we continue to closely monitor macro conditions and adapt our execution accordingly, the fundamentals of our business remain exceptionally strong. Our expansive global reach and robust interconnected ecosystems continue to attract a wide and diverse customer set as they prioritize digital investments, and embrace Platform Equinix as a point of nexus to support hybrid and multi-cloud. This wave of digital infrastructure demand and our highly differentiated value proposition are translating to a robust pipeline, a highly favorable pricing environment, and low churn, all fueling record performance across the business year-to-date and setting us up for a strong trajectory as we look to 2023 and beyond. As customers navigate rising interest rates and broad-based inflation, they're benefiting from our scale purchasing power and our sophisticated capabilities in hedging, risk management, and sustainability. Our operating scale and scope give us a variety of levers to manage an increasingly dynamic environment, hedging currency, power, and interest rates, investing in advanced procurement teams, expanding renewables coverage, and taking a programmatic approach to improving the efficiency of our world-class data centers; an advanced set of capabilities supported by a strong and flexible balance sheet. Specifically, on power, we have a keen focus in this area and continue to feel confident in our position. Our approach to multi-year hedging is affording Equinix the visibility and predictability to communicate to customers in advance of expected power price increases, and is allowing us to deliver cost points to customers that remain highly favorable against spot rates in many markets, as volatility persists. While our aim remains to dampen this volatility for our customers through hedging, we do expect meaningful increases in power costs in many markets, and per our contracts, the full impact of these additional power costs will be passed on to customers. Overall, we believe we remain in a good position relative to competitors and the broader market. Turning to our results, as depicted on Slide 3. Revenues for Q3 were $1.84 billion, up 11% over the same quarter last year, driven by strong recurring revenue growth. Adjusted EBITDA was up 11% year-over-year with AFFO meaningfully ahead of our expectations due to strong operating performance. Interconnection revenues continue to outpace the broader business, growing 13% year-over-year. These growth rates are all on a normalized and constant currency basis. Equinix continues to extend its leadership as the most interconnected platform with four on-ramp wins this quarter, bringing the total in our portfolio to more than 200 on-ramps across 44 markets. We now have 11 metros across Platform Equinix enabled with on-ramps from all five of the leading cloud providers. No other competitor has more than one. In addition to placing critical networking nodes in on-ramps at Equinix, hyperscalers are also integral to our go-to-market notion as customers continue to aggressively migrate workloads to the cloud and demand cloud proximity for their own private cloud implementations. As indicated in our recently published Global Interconnection Index, current trend lines indicate that more than 80% of Global 2000 companies will be interconnecting with more than four hyperscale providers and over 30 SaaS providers or other business partners, on average by 2026. We're continuing to invest behind the momentum we're seeing in our data center services business with 46 major projects underway across 31 markets in 21 countries. We continue to build capacity under our xScale offering, including 10 ongoing xScale projects that we expect will deliver another 80 megawatts of capacity once opened. This quarter, we added six new projects, including new data center builds in Barcelona, Tokyo and our first organic build in Jakarta, Indonesia. Our new IBX in Jakarta will add a strategically important high-growth market to our platform, as we look to enable local businesses and global organizations to unleash Indonesia's digital potential. This commitment to market-leading reach continues to drive our business with customers operating in all three regions, now accounting for an amazing 64% of our recurring revenues. Key customer expansions this quarter included StackPath, a leading-edge computing platform provider, which expanded into Dubai and Mumbai to support the growth of its worldwide edge compute delivery and security offerings. A win with a global multinational airline leveraging Equinix to connect to their federated ecosystem of partner airlines, as well as a significant multi-metro expansion with one of the world's largest custodian banks, deploying across all three regions and utilizing the full suite of Equinix digital services. On that note, our digital services portfolio saw continued momentum as companies increasingly demand infrastructure and interconnection services that can be delivered as a service and on-demand. Equinix Metal had a strong bookings quarter as customers leveraged flexibility and agility across multiple metros. Wins this quarter included a major design win with a global SaaS provider and a significant expansion with a leading pediatric treatment and research facility using Network Edge and Equinix Fabric to create an edge hosting environment in key U.S. metros and enable seamless and high-performance connectivity to their cloud partners. In Q3, we added an incremental 7,300 interconnections and now have over 443,000 total interconnections on our platform. Equinix Fabric had another strong quarter as interconnection diversity continues to increase. Expansions this quarter included Colt Technology Services, further expanding its footprint in Europe and interconnectivity with Equinix Fabric to optimize performance for its customers, as well as the financial software tools and enterprise applications provider implementing a global network optimization project leveraging Equinix Fabric. Internet Exchange saw peak traffic up 8% quarter-over-quarter and 28% year-over-year to greater than 27 terabits per second, representing the largest peak traffic growth since prior to the pandemic. Our channel program delivered a six consecutive record quarter accounting for 37% of bookings and approximately 60% of new logos, and remains a critical vector in how we are expanding our reach and scaling our go-to-market engine. We continue to see particular strength from strategic cloud technology and systems integrator partners like AWS, Cisco, Dell, Google HPE, Infosys, and Microsoft. This segment accounted for approximately half of our channel bookings and continues to grow in both deal and dollar volume. With these partners, we jointly offer a blend of IT and networking technologies that will allow customers to interconnect seamlessly with hyperscale cloud and other as-a-service providers, and benefit from solutions that deliver optimal performance, cost, security, agility, and scale across our global platform. Channel wins included a U.K. insurance firm with Equinix Partner Softcat for a data center consolidation and modernization project at our London campus where technology elements from HPE, Cisco, and Palo Alto Networks are being brought together in a cloud-adjacent architecture, all directly interconnected to Microsoft and AWS. Now, let me turn the call over to Keith and cover the results for the quarter.

Keith Taylor, Chief Financial Officer

Thanks, Charles, and good afternoon to everyone. As you can see from our results, the Equinix team continues to execute for our customers, our communities, and for our investors. Our go-to-market engine delivered record gross and net bookings in Q3, closing over 4,200 deals with more than 3,000 customers. Our success is derived from the breadth of our service offerings, the scale of our growing platform, the quality of our operations organization, and the focus of our investing for the longer term. For the quarter, our net bookings performance moved up significantly, both compared to our Q3 expectations and the same quarter last year due to strong growth activity, a favorable pricing environment, lower-than-expected churn, and the strength of our digital services offerings. Again, we had net positive pricing actions. Consequently, our consolidated MRR per cabinet increased to greater than $2,000 per cabinet despite the weaker foreign operating currencies. Note that the expected price increases or PPI discussed by Charles are not in either our reported or our guided numbers. These price increases will be passed through to our customers in 2023. Over the past couple of months, we've been communicating with our customers about the pending power price increases. Most recently, we've notified them of the expected range of their power cost increase at the market level. The dialogue with our customers highlighted the value of our multi-year power planning and sourcing efforts, which is expected to meaningfully dampen the impact of inflated energy costs to many of our customers, both relative to the competition and the broader market. Finally, notwithstanding strong bookings performance in Q3, our forward-looking pipeline remains healthy. Our backlog and our book-to-bill interval remains constant, allowing us to remain confident as we look ahead into Q4 and plan for 2023. So given the momentum in our business, we're again raising our underlying guidance across each of our core financial metrics for the year. While our business remains well-positioned and resilient, we continue to keep macro factors top of mind. Consequently, we chose to increase the liquidity position of the company. At quarter end, we had over $2.5 billion of unrestricted cash in our bank accounts, and full access to our $4 billion line of credit, increasing the financial and operational flexibility of the business. Our net leverage remains low at 3.5x our adjusted EBITDA, creating plenty of balance sheet flexibility. Now let me cover the highlights for the quarter. Note that all comments in this section are on a normalized and constant currency basis. As depicted on Slide 4, Global Q3 revenues were $1.841 billion, up 11% over the same quarter last year, above the top end of our guidance range on an FX-neutral basis, largely due to strong recurring revenues. Q3 revenues net of our FX hedges included a $9 million impact when compared to our prior guidance rates, largely due to weaker euro and British pounds. Global Q3 adjusted EBITDA was $871 million or 47% of revenues, up 11% of the same quarter last year, above the top end of our guidance range due to strong cash flows profit and lower than planned operating costs, including professional fees and consulting costs. Q3 adjusted EBITDA net of our FX hedges included a $5 million FX impact when compared to our prior guidance rates, and $4 million of integration costs. Global Q3 AFFO was $712 million, above our expectations due to strong operating performance and lower net interest expense and included a $5 million FX impact when compared to our prior guidance rates. Global Q3 MRR churn was 1.9%, a continued reflection of our disciplined sales execution to put the right customer with the right application into the right asset. For Q4, we expect MRR churn to continue to trend at the lower end of our 2% to 2.5% per quarter range. Turning to our regional highlights, whose full results are covered on Slides 5 through 7. APAC was the fastest growing region on a year-over-year normalized MRR basis at 19%, followed by the Americas and EMEA regions at 11% and 10%, respectively. The Americas region had another great quarter of strong gross bookings, lower MRR churn and favorable pricing trends led by our Washington DC and New York metros. In August, we added Lima, Peru to our platform as part of the Entel acquisition, expanding our Latin American footprint, our fifth country and extending the Equinix platform to 32 countries and 71 markets globally. Our EMEA region delivered another record bookings quarter with strong pricing and robust channel activity, led by our Amsterdam, Dublin, and Frankfurt markets with strength in our IT services and enterprise verticals. The Asia Pacific region had a strong quarter with robust exports from Japan. As part of our future-first sustainability strategy, we're very proud to announce a partnership with the Center for Energy Research and Technology at the National University of Singapore to explore sustainable technologies and alternate fuel sources for data center infrastructure. Looking at our capital structure, please refer to Slide 8. Our balance sheet increased slightly despite the weaker non-U.S. operating currencies to $29.3 billion, including an unrestricted cash balance of $2.5 billion. Our cash balance increased quarter-over-quarter due to strong operating cash flow, and about $800 million of ATM activity settled in the quarter. As stated previously, we'll continue to take a balanced and opportunistic approach to accessing the capital markets when conditions are favorable. On the debt side of the house, on the heels of the rating upgrades from both Fitch and Moody's last quarter, S&P increased their debt tolerance for the company by one leverage turn, thereby increasing the level of flexibility from our balance sheet. We're pleased and appreciative of the rating improvements over the past quarters. I look forward to our continued dialogue with our rating agencies. Turning to Slide 9. For the quarter, capital expenditures were approximately $553 million, including a recurring CapEx of $50 million. In the quarter, we opened 6 retail projects in Istanbul, Madrid, Manchester, Melbourne, Paris, and Toronto, and 2 xScale projects in Frankfurt and London. We also purchased land for development in Monterrey, Mexico. Our capital investments deliver strong returns as shown on Slide 10. A 160 stabilized assets increased recurring revenues by 7% year-over-year on a constant currency basis. These stabilized assets are now collectively 88% utilized and generate a 29% cash on cash return on the gross PP&E invested. Finally, please refer to Slides 11 through 15 for an updated summary of 2022 guidance and bridges, including the anticipated financial results from the Entel purchase. For the full year 2022, due to strong momentum that we're seeing in the organic business, we now expect our revenues to increase between 10% and 11% on a normalizing constant currency basis over the prior year. Relative to our prior guidance, we're increasing our underlying revenues by $15 million due to strong recurring revenue performance. We expect 2022 underlying adjusted EBITDA that increased by $46 million compared to our prior guidance due to strong revenue performance and more operating spend. We now expect to incur $20 million of integration costs in 2022. We're raising our underlying 2022 AFFO by $52 million to grow between 10% and 11% on a normalized and constant currency basis due to strong operating performance and lower net interest expense. As a result, our AFFO per share is now expected to grow between 9% and 10% on a normalized and constant currency basis, above the top end of our prior guide, including the impact from our Q3 ATM activity. Finally, 2022 CapEx is now expected to range between $2.1 billion and $2.3 billion, including about $190 million of recurring CapEx and about $135 million of on-balance sheet xScale spin, down slightly due to timing of expansion spend. So let me stop here. I'm going to turn the call back to Charles.

Charles Meyers, CEO and President

Thanks, Keith. Our results this quarter continue to reflect strong execution by our global team and highlight the unique position that Equinix enjoys in facilitating digital transformation. As we continue to deliver exceptional business results, I want to also highlight our significant progress in advancing our future-first sustainability commitments. This quarter, in addition to our continued investments and commitments around environmental sustainability, we're very pleased to have launched the Equinix Foundation, an employee-driven charitable organization working to advance digital inclusion through philanthropic grant-making and strategic partnerships. The foundation reflects our ongoing commitment to social sustainability, and we're excited about the work we can do to build a better, more inclusive, more sustainable world, harnessing and amplifying the passion of our people to help close the digital divide in our communities across the globe. As we advance Q4 and position for 2023, our highly differentiated position continues to drive strong momentum, robust customer demand, and a deep, high-quality pipeline. We're delivering sustained growth at the top line and AFFO per share, while maintaining our clear focus on driving operating leverage across our business. We continue to effectively exercise multiple growth levers, including expanded market reach, enhancement of our product portfolio, accelerated new logo capture through our multi-channel go-to-market engine, pricing adjustments that reflect our exceptional value, and a commitment to a bold innovation and sustainability agenda, all of which demonstrates the resilience of Platform Equinix and highlights our ability to deliver distinct and durable value to our customers and our shareholders. So let me stop there and open it up for questions.

Operator, Operator

Our first question is from Jon Atkin from RBC Capital Markets. Go ahead. Your line is open.

Jonathan Atkin, Analyst

Thanks. I've got two questions on energy. One is, Keith, if you could maybe refresh us on what portion of cash OpEx this quarter was for energy? And then on the PIs that you're pushing through starting next year, can you talk a little bit about to what extent it applies to customers that are in the middle of their contracts versus renewables and new contracts? Thanks.

Keith Taylor, Chief Financial Officer

So, Jon, I'll take the first one, and I think I'll pass the second one to Charles. It's roughly 13%. Again, it moves around quarter-on-quarter and it's also dependent on, in some cases, the currency movements. But for this year, you should see that range anywhere from 12% to 13% on a per revenue dollar basis.

Charles Meyers, CEO and President

Yes. Regarding the power indices, our contracts allow us to adjust them during the contract period without any limitations related to renewals. To provide some context, while we've briefly mentioned it, we will share more details in the 2023 guidance. Thanks to the exceptional efforts of our teams, we are confident about our position regarding the power index issue and the overall power market. We are currently hedged at over 90% in our deregulated markets and will be making further adjustments to those positions in the upcoming weeks and months. We've informed our customers of these planned increases and, as Keith pointed out, we can offer them cost points that are significantly better than the current market rates. Overall, we're in a favorable position. Although the adjustments haven't been implemented yet since we are still at this year's hedge rates, we've provided our customers with advance notice of what they can expect. Generally, they were aware that changes were coming and, in many instances, are relieved that the adjustments are not as severe as they previously anticipated.

Jonathan Atkin, Analyst

And if I could ask a little bit about cloud, we saw slowing growth at two of the three largest CSPs, not just percentage, but even in terms of incremental revenue dollars. I wondered what does it mean for your business in terms of maybe affecting the pace of cloud repatriation? And more broadly, as you look at your cabinet adds, how much of that would you attribute to things like Cloud Repatriation versus new logos versus just existing customers upsizing? Maybe talk a little bit about those moving parts.

Charles Meyers, CEO and President

Yes, Jon, I believe Cloud Repatriation is occurring, but it might be receiving more attention than it deserves. We are still in the early stages of transitioning workloads from traditional IP architectures to the cloud. We have observed some slowdown from cloud providers, which was significantly influenced by currency fluctuations. Additionally, many of the reports indicate reductions in usage-based volume, likely stemming from non-mission-critical workloads. However, in conversations with CIOs, their dedication to shifting to cloud-based architectures and moving a significant percentage of their workloads to the public cloud, while integrating this with private cloud infrastructure, remains strong. For example, one CIO from a Fortune 200 company mentioned that out of their application portfolio of over 4,000 applications, only around 200 had been migrated to the cloud. This shows that there is still much progress to be made. The top five providers are adding about $3 billion to $4 billion of incremental recurring revenue each quarter, indicating that we have a long way to go. As organizations move workloads to the cloud, they encounter challenges when trying to integrate with data and applications still managed on-premises. This has become evident in our pipeline, as clients express the need for their hybrid and private clouds to work closely together in a distributed manner. Therefore, we anticipate ongoing strong demand for migration to hybrid and multi-cloud solutions for the foreseeable future.

Operator, Operator

Our next question is from Simon Flannery from Morgan Stanley. Go ahead. Your line is open.

Simon Flannery, Analyst

Great. Thank you very much. Good evening. Just a couple if I could. Just continuing on, it's great to hear that strong demand trends, are you seeing any softness anywhere, any kind of whether it's Europe or whatever? One of your competitors talked about small enterprises being under pressure at the margin there. It seems like there's certainly some caution around the uncertain and macro environment. If you put through some of these power price increases, does that change some of the profitability dynamics for some of these companies? And then just on margin, some really good performance I saw in, particularly in the Americas this quarter. Maybe you can update us on the 50% target and how Singapore is playing out as we exit 2022? Thanks.

Charles Meyers, CEO and President

Sure. There's a lot to discuss, Simon. I'll do my best to address everything, and feel free to bring up anything I might miss. We are aware of the challenging macro conditions. However, our bookings trajectory, sales execution, quality and volume of our pipeline remain very solid across regions and sectors. The trend I mentioned earlier is widespread; companies are transitioning to cloud-first hybrid IT architectures, recognizing the relevance of Equinix in this shift. While some customer segments may face more difficulties, we are less reliant on startups or small companies, as our focus is primarily on enterprise-level service providers and architectures. Demand continues to be strong. Regarding power in Europe, our European business is performing well. While we anticipate increasing power costs, it hasn't impacted us yet. Historically, we've effectively implemented pricing for interconnection. Our monthly recurring revenue per cabinet in Europe has increased by $100 over the past year, due to interconnection pricing and the business mix. While power costs will create some pressure, we expect the increases to be modest for most customers, especially those not heavily concentrated in high-impact markets. Even in the worst scenarios, the potential impact on monthly bills is around 15% to 20%. We don't believe this will hinder their overall commitment to digital transformation. We should be able to maintain current demand levels. As for margins, we performed slightly ahead of expectations in Q3, and Singapore exceeded our projections for the full year. We are prepared to implement necessary price adjustments in affected markets starting in 2023. Although customers may not welcome the price increases, they are beginning to see the benefits of our hedging programs in reducing volatility.

Simon Flannery, Analyst

Great. Thank you so much.

Keith Taylor, Chief Financial Officer

Let me just add a couple of other quick points, if I may, in addition to what Charles said. First and foremost, the objective to get to 50% margin targets, as Charles alluded to, we're doing better than we anticipated in the Americas. Singapore is better than anticipated. Overall, we're running the business with a great deal of discipline. So, we're seeing margin profiles that are better than you might have otherwise anticipated. In Q4, we’re making some discretionary decisions to accelerate costs into the fourth quarter. After that we continue to drive the business with greater efficiency. As it relates to the 50% EBITDA margin target, we're not shifting our emphasis to 50% EBITDA. We believe that we can get there. The performance of the business post the Analyst Day, we're actually doing better than we anticipated. You’ve got a very volatile and fractious market. If you look at it from a value on a per share basis, we are as good, if not better than we told you we were going to be. That's really important. The whole dialogue around small customers is part of the reason that we disclose in our prepared remarks the amount of transactions we did to give you a sense of just the volume of activity. We did 4,200 transactions, again, with 3,000 customers. Our pipeline is as strong as it's ever been. In fact, it's bigger this quarter than it was last quarter. We're really optimistic about the business and where we position ourselves to drive value into the overall equation. We're long-term focused, wanting to drive value to the investor while maintaining our focus on AFFO per share.

Operator, Operator

Our next question is from Michael Rollins from Citi. Go ahead. Your line is open.

Michael Rollins, Analyst

Hi, good afternoon. First, on the stabilized constant currency revenue growth 7% year-over-year, can you unpack that in terms of what was driving the strength between whether it was utilization, just overall pricing, interconnection, et cetera? The second topic is on capital allocation. Just curious in the wake of higher rates, if you're considering any changes to the pace and breadth of the development strategy. As the AFFO dollars augment the combination of non-recurring CapEx and the cash dividends, what does Equinix want to do with the balance sheet flexibility that you described earlier in the call? Thanks.

Charles Meyers, CEO and President

Yes, let Keith take the second part of that, Mike, and let me talk a little bit about stabilized assets. It was a tremendous quarter on stabilized assets. 7% is particularly strong. There is still a little bit of juice in there on the Singapore piece, but it was significantly above where we've been trending. I think it’s a combination of all those factors you're seeing: pricing at interconnection, utilization, power density, all those things probably really playing in. You’re starting to see the beginnings of price actions, not yet seeing the PPIs or the power price increases because those will roll through in '23. We've already adjusted list pricing on several of our products. Look at the right customer, right application, right asset, that's the way to drive churn down.

Keith Taylor, Chief Financial Officer

As for balance sheet flexibility, we fancy ourselves as pretty good capital allocators. We want to invest in the highest returning investment. No surprise, this quarter, we have 46 projects underway across 31 markets in 21 countries. We remain active and want to continue to grow and expand the business horizontally while investing in the vertical side of digital services. You’re going to see this combination. As we look into 2023, we’ll provide more guidance but we have an appetite to continue investing in the business. We enjoy the cash flows we generate and our low payout ratio basically self-fund that, and I feel extremely good about that. We’re looking to raise more debt even amidst the current environment. We’re being judicious about sourcing the debt based on prevailing costs.

Charles Meyers, CEO and President

You guys are pushing a lot of the buttons here, and I want to offer an anecdote. When I’m out talking to customers, their number one concern is not enough capacity. We're asked if we're building more capacity. I'm not hearing about quotas or power increases. We need more capacity, we need to continue investing in the business. I think it’s a reflection that we’re pushing up utilization, creating some pinch points. So from our perspective, we will continue to invest in organic growth prudently, always with a keen eye on the macro environment.

Michael Rollins, Analyst

Thanks.

Operator, Operator

Our next question is from David Barden from Bank of America. Go ahead. Your line is open.

Unidentified Analyst, Analyst

Hi. Good afternoon, everyone. This is for Dave. Charles, regarding your comments about expanding capacity, are you experiencing any issues similar to those in Northern Virginia and other regions concerning power transmission or procurement?

Charles Meyers, CEO and President

Yes, it's a great question. The answer is, yes. You're seeing that. Markets are thinking about how to allocate energy and realizing sustainability impacts of data centers in their markets. How they want to provide and support energy and permitting for those is a key area of focus for us. Overall, I think we’re in a good position with well-established relationships across markets, and the specification on the sustainability side makes people feel comfortable that we’ll support digital transformation and responsible digital growth. We could see companies unplanning turnover that they had planned because they want to ensure they have capacity and can operate under existing terms.

Unidentified Analyst, Analyst

Perfect, thank you. One more question. You've completed the purchase of Entel and announced a smaller deal in Latin America. Can you walk us through the Latin America strategy and where you see that business going?

Charles Meyers, CEO and President

Sure. The Chile addition with Entel was strategic, filling out our LatAm portfolio effectively. We feel good about coverage there and our business in Brazil continues to thrive. Our differentiated position in the market is strong, and we remain optimistic about early returns in Mexico. We’re delivering on performance bonuses we underwrote. We’re generally hitting bookings velocities that exceed our underwritten expectations. While there's potentially incremental opportunity in LatAm, we may prioritize M&A in other parts of the world. Southeast Asia and India are attractive markets for both organic and inorganic investment as is Africa, where we see room for exciting growth.

Unidentified Analyst, Analyst

That's great. Thanks so much, Charles.

Operator, Operator

Next question is from Aryeh Klein from BMO Capital Markets. Go ahead. Your line is open.

Aryeh Klein, Analyst

Thank you. Following up on churn, it's been low for a while. As we move into potentially tougher macro conditions, do you expect churn to tick up as you ask customers to absorb power price increases?

Charles Meyers, CEO and President

No. We don’t see that. Our demand tends to be pretty inelastic, particularly true relative to power price increases, which we hope will be transitory. Whether we get back to pre-levels, I don’t know. But we don’t see churn as a driver for customers to leave our capacity. We will continue to monitor it closely, and I think we've done well forecasting churn, we have good data indicating we will maintain our low churn rates.

Aryeh Klein, Analyst

Thanks. Regarding spending in Q4, what are your expectations on margins?

Keith Taylor, Chief Financial Officer

Well, as I said in the prepared remarks, we accelerated discretionary spending in the quarter. I think it’s in the $20 million to $30 million range. You'll see some seasonal costs in Q4 that we absorbed. Overall, the business is performing better than we anticipated, and that’s allowing us to accelerate costs to put us in a good position as we start to think about 2023.

Charles Meyers, CEO and President

Just to give you a little more transparency, we’re also pulling forward some R&M, finalizing projects on the go-to-market side, and letting our teams increase T&E to reconnect with customers. We've been tightly managing G&A and will continue to focus on automation and simplification to grow G&A leverage. We feel good about the business trajectory as we head to year-end.

Aryeh Klein, Analyst

Okay. Thanks for the color.

Operator, Operator

The next question is from Sami Badri from Credit Suisse. Go ahead. Your lines open.

Sami Badri, Analyst

Thank you. Keith, earlier, you said that you have been in conversations with your customers about the price increases. Could you share what those ranges are? What are the general activities and trends you are seeing?

Keith Taylor, Chief Financial Officer

First, we want to have a go-to-market engine; customer-facing teams wanted to contact customers about power increases. Everybody sees what's going on in the broader market, particularly Europe, making sure customers understood effective power increases would occur. Depending on where you are, the market is different in terms of regulations. Unfortunately, I cannot provide a specific range. We give information specific to the market and customer on energy costs.

Charles Meyers, CEO and President

The commitment to digital transformation is very strong. Certainly, there's a need to tighten belts on IT budgets, but we’re seeing strong bookings and sales execution remain positive. We're working closely with our customers whose budgets may have constraints and are experiencing delayed decisions but overall they are committed to their digital transformation agendas.

Sami Badri, Analyst

Got it. Thank you. Lastly, on bare metal, what is the vision for Equinix and the metal solution overall?

Charles Meyers, CEO and President

Definitely, we think it can grow 2x to 3x and more from its current size. We want to integrate metal more fully. Feedback indicates customers want an integrated portfolio of digital services that address their needs. We believe public cloud will be a good home for many workloads, but we also recognize the potential of repatriation to colo-based solutions or metal-type solutions. Meeting customer needs is our priority.

Sami Badri, Analyst

Got it. Thank you.

Operator, Operator

And our last question today is from Matt Niknam from Deutsche Bank. Go ahead. Your line is open.

Matthew Niknam, Analyst

Thanks for taking the question. I understand you're expecting a 9% to 10% constant currency growth on AFFO per share this year, but you are facing challenges from rising interest rates and increased power costs. How confident are you in sustaining a 7% to 10% AFFO per share growth range for next year?

Charles Meyers, CEO and President

Sure. Clearly, we are not going to give you guidance for next year; we’ll provide that early. That said, if you look at our performance as we outlined at Analyst Day and what we've accomplished, we feel good about the trajectory of the business. Top line growth is strong, stronger than previously communicated, and that's driven by underlying business momentum. We believe growth will benefit from PPIs next year on top of strong underlying momentum. We think this translates into attractive AFFO per share growth. Combine that with a healthy dividend yield create a compelling story. Overall, we feel solid about the trajectory.

Keith Taylor, Chief Financial Officer

One thing to remember is we’re taking a hit to the top line of about $180 million due to currency, and about $85 million to EBITDA. This shows how the performance of the business is doing much better than anticipated. Expect that currency movements will benefit us, as central banks potentially adjust their rates, we’ll take advantage of the stronger dollars, improving revenue.

Matthew Niknam, Analyst

That’s great. Thank you.

Charles Meyers, CEO and President

Thanks, Matt.

Katrina Rymill, Senior Vice President of Corporate Finance and Sustainability

Thank you. That concludes our Q3 call. Thank you for joining us.

Operator, Operator

That concludes our conference. Thank you for participating. You may disconnect at this time.