The conference call for Equinix's Third Quarter Earnings has begun and all lines will be able to listen until the question session. The call is being recorded and any objections should be disconnected. The call is being led by Chip Newcom, Senior Director of Investor Relations. He reminds everyone that some statements made during the call are forward-looking and may be affected by risks and uncertainties. Equinix assumes no obligation to update these statements. They also will not comment on financial guidance during the quarter unless it is publicly disclosed. Non-GAAP measures will be discussed and a reconciliation will be provided on the Equinix Investor Relations page. A presentation and supplemental financial information can also be found on the IR page of their website. Important information is regularly posted on their website and should be checked for the most current information.

Equinix had a successful third quarter, with strong results and increased value creation. Despite customer caution, there is a commitment to digital transformation and a growing reliance on Equinix. Demand remains high, with new logo growth and a favorable pricing environment. The company's go-to-market strategy is executing well, with a large number of deals and record new logos from targeted customers.

In the third quarter, our platform strategy performed well, with data center services, digital services, and our xScale all meeting the needs of our customers. We also experienced strong interest in AI from both existing and new customers, and believe our partnerships and portfolio will allow us to capture opportunities in the AI value chain. We are particularly focused on supporting AI service providers in the retail sector, and have already secured key wins in this area.

Equinix plans to expand their xScale portfolio in North America to cater to the growing demand for large-scale AI training deployments. They will also focus on providing private AI solutions for enterprises, leveraging their unique advantages. Equinix has already seen success in this area, with wins in various industries such as transportation, education, public sector, and healthcare. They are adapting their product portfolio and physical platform to meet the evolving needs of their customers as AI demand continues to grow.

The company is utilizing their co-innovation facility to evaluate technologies for increasing power requirements in data centers, and have already implemented liquid cooling solutions in 45 markets globally. In terms of financial results, revenues for Q3 were up 14% year-over-year, with strong growth in recurring revenue and power prices. The company is investing in 56 major projects across 39 markets to meet the demand for digital infrastructure, with a focus on major metros. Recurring revenues from customers deployed in multiple regions increased by 1% quarter-over-quarter.

In the area of interconnection, Equinix has seen significant growth in both total interconnections and net interconnections added in Q3. Their Equinix Fabric and Internet Exchange services have also experienced strong momentum, with peak traffic in APAC surpassing the Americas. Recent interconnection and ecosystem wins include Southern Cross and the Warsaw Stock Exchange. Equinix is continuing to invest in their platform strategy, with revenue from their digital services portfolio outpacing the broader business. They have also expanded partnerships with leading technology companies, such as NetApp. Key digital services wins this quarter include McGraw Hill using Network Edge to connect to cloud providers.

Equinix had a successful quarter, with a significant win from a global gaming company and strong growth from their channel program. They also saw success with partners like AT&T, Cisco, Dell, and HPE, particularly with a top US public school district seeking to modernize their IT infrastructure. The company remains focused on long-term shareholder value creation and is working to expand their platform positioning and maintain a strong balance sheet.

The company is actively working towards achieving its strategic operating goals, such as sourcing supply chain and increasing investments in sustainability. They are also managing derivative risks well. In Q3, the company had solid gross and net bookings, positive pricing dynamics, and low MRR churn. The company is optimizing deployment and increasing power density to improve profitability. Global MRR per cabinet increased by 12% year-over-year. Revenues for the quarter were $2.061 billion, with recurring revenue growth and power price increases driving the increase. Non-recurring revenues remained flat.

The company expects a significant increase in non-recurring revenues for Q4 due to expected deal closures. Q3 revenues and adjusted EBITDA were up compared to the same quarter last year. Q4 adjusted EBITDA is expected to remain flat due to timing and one-time costs. Q3 AFFO was above expectations, and MR churn is expected to remain consistent in Q4. EMEA and APAC were the fastest-growing regions, followed by the Americas. The Americas region had a strong quarter with activity in the public sector and demand for AI deployments.

In the EMEA region, the company had a strong quarter with record digital services bookings, and they are implementing sustainability initiatives in communities where they operate. In the Asia-Pacific region, there were capacity constraints in some markets, but this will lead to strong deal discipline and pricing power. The company's net leverage remains low and they have a strong balance sheet with a cash balance of over $2.3 billion. They have been opportunistically raising debt capital in reduced rate environments and executed an incremental $230 million of ATM forward equity sales to fund their 2024 growth initiatives while maintaining strategic flexibility.

In September, we published our 2023 green bond allocation report, fully allocating the net proceeds from our green bonds to align with our commitment to create a more environmentally friendly data center footprint. Capital expenditures for the quarter were $618 million, including recurring CapEx of $52 million. We opened six new retail projects and made purchases in Dublin, Montreal, Manchester, and Washington, D.C. Our stabilized assets generated strong returns, with a 9% increase in revenues and a 27% cash-on-cash return on gross PP&E invested. Our 2023 guidance remains strong, with expected top line growth of 14-15% and increases in adjusted EBITDA and AFFO.

The company expects to maintain its CapEx spending and has accelerated the timing of its cash dividend increase due to strong operating performance. They anticipate strong demand for their services as customers embrace AI and digital transformation. The company is focused on driving operating leverage and expense discipline to deliver value on a per share basis. They have a forward-looking strategy to expand their market opportunity and drive sustainable growth in a rapidly evolving landscape.

The speaker expresses optimism for the future and commitment to their mission, which involves aligning and empowering their teams to deliver value and impact. They then open up for questions and the first question is about the cabs billing metric. The speaker provides more context on the decrease in cabs billing adds and mentions actions being taken to release available capacity at higher rates. The second question is about AI and the speaker talks about conversations with customers and Equinix's role in helping them meet their goals, without giving a specific timeline.

The speaker discusses the pressure on the billing cab metric and explains that it is linked to positive dynamics in the business, such as the evolution of power density. They note that there is a growing difference between the power density of churned cabinets and newly sold cabinets, and that this affects the cab equivalent metric. They also mention capacity constraints in certain markets leading to proactive churn, but overall, they are managing churn well within their guided range.

The company has seen positive results from their 37 deployments last quarter, with an average of 60-70% increase in revenue. They prioritize long-term growth and are seeing strong returns on capital. AI and ML are becoming more prevalent in their business, with several deals won in the quarter. The company has been working on AI opportunities with digital leaders for several years, and has been offering NVIDIA Launchpad for over two years.

The speaker discusses their company's success in the AI market and their partnerships with service providers. They mention working closely with customers on data storage, computing, and delivering AI insights. They believe AI is positively impacting their business and have a strong pipeline. The speaker also mentions that 65% of new logos come from the channel, which accounts for about 40% of their overall sales. They do not mention how these logos perform long term compared to those from their existing sales force.

The speaker explains that their channel partners play a significant role in identifying and bringing their unique value to the market. They also mention their goal of moving towards a sell-through model and highlight the strength of their channel partners in helping them capture incremental wallet share. They give examples of successful partnerships with technology companies and emphasize the importance of proximity to the cloud for customers. The speaker concludes by stating that the channel remains an important part of their business.

The speaker was interested in finding out what drove the growth in EMEA and if there were any notable factors. They also asked about pricing and where the main levers were, such as renewal spreads and harmonizing cross connects. The speaker mentioned that the EMEA numbers were driven by PPI and that they were seeing good performance across all regions. They also noted that the deal mix in EMEA has become more favorable and credited the team on the ground for making it happen. On pricing, the speaker said that it was broadly favorable.

The speaker discusses the factors behind the rising prices in their company, including increased underlying costs and their ability to deliver value to customers. They also mention the impact of pricing on their portfolio and the attractiveness of new cabinets. They mention the growth in MRR per cab and overall revenue, and the impact of these factors on AFFO per share. The speaker also mentions new logos and their penetration in certain verticals, as well as the expected range for MRR churn in the future.

The speaker discusses the performance of new logos across various industries, highlighting data-centric and data-intensive industries as key areas for digital transformation and AI adoption. They mention strong performance in manufacturing, retail, and financial services, with the latter being a particularly ideal customer due to their use of a range of infrastructure options. The speaker also mentions some churn, which they believe is due to proactive optimization by customers and a general trend towards multi-cloud architectures.

Keith Taylor and Charles discuss the company's performance and the upcoming fourth quarter. Keith mentions that churn is something they need to monitor closely, but currently it is performing as expected. David Barden asks about the 2024 trajectory and Charles clarifies that the company is performing well and there has been strong bookings. David also asks about churn and new clients, and Charles explains that the new clients are 50% more power dense. Keith concludes by saying that the company is creating value and there will be a nice step-up in both recurring and non-recurring revenue in the fourth quarter.

The company has seen an increase of $73 million in revenue compared to the previous quarter, with a significant portion coming from non-recurring sources such as a large deal in the xScale business. The company is also focusing on cost control, including a charge related to corporate real estate and accelerating investments for 2024. This will set the company up for a strong fourth quarter and position them well for the future.

The speaker discusses the factors that have contributed to a successful start for 2024, including a combination of flow-throughs and booking expectations. They also clarify that the 4 to 5.7 average for churned and new cabinets is a macro average and that there is a range of demand, with some deals being above 5.7 kilowatts and potentially requiring liquid cooling.

The company has decided to adjust its capital allocation and increase the dividend per share in the fourth quarter. They believe their strong cash position and liquidity will continue to be advantageous, especially in low interest rate environments. They are being cautious about raising capital due to rising debt costs. The company has a five-year plan and knows how much capital they need to raise to achieve their goals. They are taking advantage of favorable opportunities to raise capital.

The company has a positive carry on its balance sheet due to Swiss franc rates, which allows for good liquid capital. The company plans to distribute cash flow back to investors through a dividend, which is limited to 100% of taxable income to avoid excise taxes. The company's operational performance has been strong and accelerating, leading to a decision to accelerate the distribution of dividends to give tax teams flexibility. This decision was made due to the size of the investment and the growing taxable income. The company has good visibility on future taxable income.

The company made a decision to mitigate an under-disputed issue in 2024. They are also focused on improving the power density in their existing footprint, as their power utilization is lower than their cabinet utilization. This presents an opportunity for them to create value, but it is not a simple matter and they must ensure they can meet customer requirements and manage all factors simultaneously.

The speaker believes that there is potential for creating value by increasing power in cabinets and using space more efficiently. The company is constantly looking for ways to drive efficiency and create capacity, and investments in new technology can free up stranded energy and benefit both the business and customers. The speaker also notes that this strategy would not apply to xScale facilities, which have a smaller number of customers.

The speaker, Charles Meyers, discusses the challenges and opportunities that come with selling power capacity to a large number of customers with varying power requirements. He also mentions that there is a sense of customer caution in the current market, with customers recognizing the need to invest in digital transformation but facing budgetary constraints due to a challenging macro environment. Meyers has been actively involved in the field with teams, data centers, sales offices, customers, and partners.

In paragraph 29, the speaker discusses how companies are trying to optimize their digital infrastructure by moving funds around and getting more value out of their IT spending. They mention the importance of understanding cloud spending and finding the right mix of clouds for different workloads, as well as potentially shifting to cloud-native workloads. The speaker also mentions the network as an area where customers are trying to save money and improve performance, specifically through WAN re-architecture. Overall, there is some caution but companies are making room for investments in digital and looking for the right long-term architecture. The speaker believes their company is well positioned to be a trusted partner on this journey. The speaker also briefly mentions an update on their expansion into the United States with xScale developments in Silicon Valley.

The speaker discusses the potential for M&A opportunities in the US for xScale, but states that their immediate focus is on development. They also mention the changing supply-demand landscape in the US, with a growing demand for AI training.

The speaker discusses the company's strategy to sell in a more attractive market and maintain relationships with major players in the digital ecosystem. They also highlight the importance of maintaining scale and relevance in the supply chain. The speaker mentions that it is premature to share any progress on finding a partner for domestic xScale, but they do not see a significant shift in the return profile. They note that the return yields and levered returns have improved and are now above single-digits.

The speaker discusses the advantages of the company's fee structure and how it has led to attractive equity returns. They also mention the increased returns in the xScale market and the importance of balancing investments in both retail and xScale. The speaker concludes by thanking the audience for joining the call.

This summary was generated with AI and may contain some inaccuracies.