Equinix Q3 2021 Earnings Call Transcript

Participants

Corporate Executives

• Katrina Rymill, Vice President of Investor Relations
• Charles Meyers, President and Chief Executive Officer
• Keith D. Taylor, Chief Financial Officer

Analysts

• Aryeh Klein, BMO Capital Markets
• Jordan Sadler, KeyBanc Capital Markets
• Jon Atkin, RBC Capital Markets
• Phil Cusick, JPMorgan Chase & Co.
• David Guarino, Green Street
• Simon Flannery, Morgan Stanley
• Michael Rollins, Smith Barney Citigroup
• Eric Rasmussen, Stifel Nicolaus
• Colby Synesael, Cowen Inc
• Frank Louthan, Raymond James

Presentation

[Operator]

Good afternoon, and welcome to the Equinix Third Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Katrina Rymill, Vice President of Investor Relations and Sustainability. You may begin.

[Katrina Rymill, Vice President of Investor Relations at Equinix]

Good afternoon, and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements that 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 we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 19, 2021, and 10-Q filed on July 30, 2021.

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 for our disclosure, is Iconic's policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release of 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 in 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' CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in an hour, we'd like to ask these analysts to limit any following questions to just one.

At this time, I'll turn the call over to Charles.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Thanks, Kat. Good afternoon, everybody, and welcome to our third quarter earnings call. We had a great quarter achieving our 75th consecutive quarter of top line revenue growth and a record Q3 on bookings, a clear signal of strong market demand. Our results were fueled by continued strength in our Americas business and robust performance for our channel program globally as key partners continue to see Platform Equinix as a point of nexus for digital transformation solutions. The pandemic has triggered an accelerated need to digitize business models in virtually every segment of the economy, and our strong results reflect this increasing demand for digital infrastructure.

And Equinix remains uniquely positioned to help customers as they shift towards distributed, hybrid and multicloud as a clear architecture of choice. As we continue to strengthen our position as the world digital infrastructure company, our focus remains on creating distinctive and durable value for our customers and our shareholders, driving growth and scale in our market leading colocation franchise, expanding our relevance to the cloud ecosystem through xScale and tapping into massive sources of incremental demand by adapting to evolving customer needs with a rapidly growing digital services business.

Turning to our results. As depicted on Slide 3, revenues for Q3 were $1.7 million, up 8% year-over-year. Adjusted EBITDA was up 4% year-over-year, and AFFO was in line with our expectations. Interconnection revenues continue to outpace colocation revenues growing 11% year-over-year driven by solid physical cross-connect growth and broad adoption of Equinix Fabric. These growth rates are all on a normalized and constant currency basis. We processed more than 4,200 deals in the quarter across more than 3,100 customers, highlighting the reach, scale and predictability of our booking digit.

We have a solid demand pipeline as we look to the final quarter of the year, and we continue to add capacity to service this demand with 11 major projects delivered this quarter in key markets like Frankfurt, New York and Singapore and 31 more major projects underway across 23 markets in 16 countries. Our global interconnection franchise continues to thrive with over 414,000 total interconnection on our industry-leading platform. In Q3, we added an incremental 7,800 interconnections now have at least one major cloud on-ramp in 42 metros around the world, 2 times more than the nearest competitor, a clear indication that Equinix is the home of the interconnected cloud.

Internet exchange saw peak traffic up 6% quarter-over-quarter and 30% year-over-year to over 21 terabits per second as traffic growth remains robust. Equinix Fabric saw excellent growth, continuing to significantly overindexed within the broader interconnection portfolio. More than 2,800 customers are now on Fabric with attach rates moving up into the right as businesses diversify their end destinations and service providers integrate Fabric into their own solutions. In September, we extended Platform Equinix into our 27th country with the close of our GPX acquisition, entering the strategic Indian market.

Our two data centers in Mumbai for a network that is campus with more than 350 international and local companies, including six on-ramps to the world's leading cloud service providers and a robust network ecosystem. GPX represents an ideal entry point into this top 10 GDP country, and we expect to expand our operations significantly in India over the coming years as we tap into this rapidly growing market. In parallel with our tremendous retail success, we continue to expand our xScale basis. In October, we announced plans to expand in Australia with an agreement to establish a $575 million joint venture with PGIM Real Estate to develop two data centers in Sydney, which will provide more than 55 megawatts of capacity when fully built.

Also, during the quarter, we closed the first phase of our previously announced EMEA two joint venture with GIC and signed two megawatts with a hyperscaler in Frankfurt. We currently have eight x-scale builds under development, including our newly announced Matrade 3, Mexico C3 and Sidney nine assets. which will collectively add 25 megawatts of capacity when they opened in the first half of 2022. The total investment of our various hyperscale joint ventures when closed and fully built out is now expected to be more than $7.5 billion across 34 facilities globally with more than 675 megawatts of power capacity. Turning to our digital infrastructure services.

Our Equinix Metal business saw strong revenue growth in cloud native and service provider customers continue to embrace the ability to deploy physical infrastructure at software speed. And Network Edge saw robust growth as established customers purchase more virtual network functions across additional metrics. By year-end, we expect Network Edge to be available in 25 metros around the world. So now let me cover highlights from our verticals. Our network vertical continues to be a foundation for the business with strength in the quarter in cable and satellite subsegments and continued momentum in joint go-to-market with our top network partners across the globe.

Expansions this quarter included Zayo Group, a global communications infrastructure company, adding interconnection and colocation capacity to support demand; Vocus, Australia's leading specialist fiber and network solutions provider, building infrastructure in both Sydney and Melbourne to offer network services; and Hurricane Electric, a global network service provider utilizing Equinix Fabric to allow enterprise customers to access their IP transit product at scale and in real time. Our enterprise vertical saw another strong quarter led by manufacturing and fintech and record channel activity.

New wins and expansions included a Fortune 100 manufacturing company, deploying global network hubs to enable their SaaS analytics offering; a leading technology manufacturer deploying a custom liquid-cooled environment and solution center to support the next generation of high-performance compute; and a Fortune 250 online retailer and e-commerce platform deploying across Platform Equinix with low latency, cloud-adjacent network hubs to support their retail branded sites. Our cloud and IT vertical saw a particular strength in the Americas as industry-specific cloud solutions continue to be a catalyst for innovation and new growth.

Expansions this quarter included Adobe, a leading cloud software provider deploying infrastructure to support its platforms and optimize sustainable participation in key digital markets and ecosystems; Wasabi, a U.S.-based object storage company, expanding their offering on Equinix Fabric into APAC and EMEA, enabling customers to easily connect their bare metal workloads posted on Equinix Bell; and a top five global software provider deploying core metals to support their growing user base and demand in both Mexico City and Sao Paulo.

Content and digital media had a great opening this quarter with resurgence in this vertical being led by APAC and broad-based strength in the gaming and streaming subsegments as consumer demand for at-home digital services remains strong. Expansions this quarter included Netflix, a global streaming service expanding cross-platform Equinix in new and existing markets to support OTT delivery; Kingsoft, a Chinese cloud provider expanding into [Indecipherable] to support rapid sales growth; and a top three content distributor extending coverage and scale for its growing platform and the delivery of new and existing security solutions.

And our channel program continues to shine, delivering another robust quarter. This important go-to-market [ocean] accounted for over 35% of total bookings, nearly half of our enterprise bookings and more than 60% of our new logos in the quarter. We are benefiting from tremendous momentum in hybrid cloud adoption and seeing particular strength on the joint enterprise pursuit with our key alliance partners such as AT&T, AWS, Dell, HPE and Microsoft. Wins were across a wide range of industry verticals and included a marquee win with NVIDIA, IBM and SBA or Continental Group, a worldwide automotive parts supplier building an interconnected global network to optimize workloads and speed up AI training for their advanced driver assistance systems.

So now let me turn the call over to Keith and cover the results for the quarter.

[Keith D. Taylor, Chief Financial Officer at Equinix]

Great. Thanks, Charles, and good afternoon to all. Well, let me start by saying the Equinix business continues to hum. And once again, we met our expectations or better. We had a very solid quarter. The macro environment for digital infrastructure continues to drive expanding market opportunities as demonstrated by another outstanding bookings quarter both at the gross and the net level from our industry-leading go-to-market engine. Our bookings backlog remains both significant and elevated as we work to install the substantial volume of business closed through the past few quarters, and our forward-looking pipeline is extremely healthy in all of our regions.

Our channel sales activity was the best in our history, and our global platform delivered healthy inter- and intra-region activity. We had firm MRR per cabinet yields with yet again net positive pricing actions, a validation of a differentiated operating model compared to others in our space. On a year-to-date basis, our global design and construction and ops teams have delivered more than 18,000 cabinets of retail capacity and 40 megawatts of xScale inventory while also rolling out critical network infrastructure assets across our targeted markets in support of our Fabric, Network Edge and metal service offerings.

We've seen no major delays to date in delivering new capacity despite general market concerns related to supply chain challenges, a reflection of the efforts put forth by our best-in-class procurement and strategic sourcing teams. Now let me cover the results 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 Q3 revenues were $1.675 billion, up 8% over the same quarter last year due to strong business performance across our platform led by the Americas region.

Nonrecurring revenues represented about 7% of revenues due to an increase in custom installation work and EMEA xScale joint venture fees. For Q4, we expect NRR to trend downward decreasing sequentially by approximately $12 million due to lower xScale fees and the timing of large customer installations. Q3 revenues, net of our FX hedges, included a $6 million headwind when compared to our prior guidance rates. Global Q3 adjusted EBITDA was $786 million or 47% of revenues, at the high end of our guidance expectations due to timing of spend and low integration costs. Q3 adjusted EBITDA, net of our FX hedges, included a $3 million headwind when compared to our prior guidance rates $3 million of integration costs.

Total Q3 AFFO was $628 million, the result of strong operating performance consistent with our expectations. Similar to prior years, we expect seasonally higher levels of recurring capex in Q4 as our operating teams work to complete the 2021 projects. Global Q3 MRR churn was 2.1%. We continue to expect MRR churn for the full year to be at the lower end of our target quarterly range of 2% to 2.5%. Turning to our regional highlights, whose full results are covered on Slides five through 7. The APAC region's revenue grew 11% year-over-year, followed by the Americas at 7% and EMEA at 6%. As previously discussed, we expect the EMEA growth rate to return to normalized levels in Q4 as we lap interconnection price increases and the other one-off positive adjustments from last year.

The Americas region saw continued strength with our third consecutive quarter of record bookings with a broad distribution across metros, including some of our smaller markets, such as Boston, Denver, Mexico City, Seattle and Toronto. The Americas sales teams continue to sell the global platform with a notable increase in activity coming from our Canadian team and benefit derived from the transaction with Bell Canada, which is outperforming our expectations. Our EMEA region had a solid quarter with strength coming from our Amsterdam, Frankfurt and Madrid markets as enterprise customers and the channel drive bookings.

And as we aim to meet high sustainability and efficiency standards while progressing towards our 2030 science-based targets, new builds like our recently opened Fabric ABX serve as a model to land in the cityscape of positively contributing to the local micro climate. And finally, the Asia Pacific region had a solid quarter with momentum across all of our metros led by Singapore. New deal activity focused on small- to medium-sized deployments with firm pricing and continued strength in our cross-border selling. Our Hong Kong market saw a nice rebound in bookings performance, although it continues to feel constrained given the market uncertainty.

And now looking at our capital structure, please refer to Slide 8. We ended the quarter with cash of about $1.4 billion, and our net debt leverage ratio remains low, particularly relative to our industry peers. Our balance sheet remains highly flexible and liquid, and we have a low AFFO cash payout ratio. With regards to our outstanding debt, we have minimal near-term exposure to potentially rising interest rates with 95% of our debt fixed and a weighted average maturity of over nine years. Turning to Slide nine for the quarter. Capital expenditures were approximately $678 million, including recurring capex of $48 million.

We opened 11 new projects this quarter, including new IBXs in Frankfurt, Osaka and Singapore have purchased land for development in Barcelona, Frankfurt and Helsinki. On the xScale side of the business, we opened our Sao Paulo five and Frankfurt nine assets. We also closed the first phase of our EMEA two joint venture with GIC for net cash proceeds at our 20% equity contribution of approximately $140 million, including $34 million coming from the contribution of our Safala five asset into the joint venture after quarter end. On a separate note, we continue to actively manage our partners and suppliers and have built up an appropriate inventory of part components as we hedge against supply chain challenges in support of our business needs.

Finally, total recurring revenues from owned assets stepped up to 59% due to the acquisition of our Citi One and CD2IBXs. Our capital investments delivered strong returns as shown on Slide 10. Our 153 stabilized assets increased recurring revenue by 3% year-over-year on a constant currency basis. These stabilized assets are collectively 86% utilized and generated 27% cash-on-cash return on the group PPD invested. We expect to exit the year closer to the top end of our stabilized asset growth range, in part due to strong Americas revenue growth. Now please refer to Slides 11 through 15 for our updated summary of 2021 guidance and bridges.

Do note, our guidance now includes the anticipated results from the GPX India acquisition, which closed in September. For the full year 2021, we expect revenues to grow approximately 8% on a normalized and constant currency basis. Our updated revenue guidance implies our largest ever quarterly step-up in recurring revenues on a normalized basis, a reflection of our continued strong execution. Revenues include about $5 million from the GPX acquisition and reflect updated FX rates. We expect 2021 adjusted EBITDA margin before integration costs to be greater than 47% and now include about $3 million from the GPX acquisition and reflect updated FX rates.

We expect to spend $18 million of integration costs in 2021, and we expect 2021 AFFO to grow 10% to 11% on a normalized and constant currency basis compared to the prior year and to deliver AFFO per share growth of 9% to 10%. Our AFFO guidance includes some AFFO impacting accelerated spend, including recurring capex and elevated cash commissions associated with our strong bookings performance. 2021 capex is expected to range between $2.7 billion and $3 billion, including about $450 million of on-balance sheet xScale capex, a significant portion of which has been or will be reimbursed by the JVs, and $193 million of recurring capex spend at the midpoint.

So let me stop here and turn the call back to Charles.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Thanks, Keith. Our business continues to perform exceptionally well, delivering strong and consistent results throughout these changing times. The pandemic has been a driving force for digital transformation. And as businesses seek to respond to this imperative, the infrastructure underpinning these services must keep pace. We continue to prosecute multiple compelling growth factors: expanding our platform geographically, scaling our go-to-market engine to capture new customers and bringing new services to bear that will expand our addressable market. We are evolving the way we design, create and deliver our products and services to fuel our growth and meet the changing needs of our customers. To that end, I'd also like to welcome Ron Guerrier to our Board of Directors.

As a veteran CIO to Fortune 500 corporations and government, Ron brings a unique perspective to the Equinix Board as we continue to innovate our digital infrastructure offerings for the digital leaders of today and tomorrow. I'd like to close by expressing my gratitude to our more than 10,000 employees whose commitment to keep our customers at the center of everything we do, continues to drive our market leadership. They embody our commitment to show up every day with an in-service to mindset, starting by meeting in service to each other, which in turn allows us to be in service to our customers, to our communities and to you, our shareholders.

So let me stop there and open it up for questions.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question comes from Aryeh Klein from BMO Capital Markets. Please go ahead.

[Aryeh Klein, Analyst at BMO Capital Markets]

Thanks. It sounds like new customer net adds have been up a fair bit this year and to channel partnerships are doing really well. Can you provide some additional color on what you're seeing there? Maybe where are you seeing the most traction from new customers and also in the channel from a regional standpoint.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Sure. Yes, we're -- I mean, I think we're seeing strength across the board, but really the enterprise side of the business, I think, is where a lot of the new customer adds are coming from. And most of those, about 60% are coming through channel, as we talked about in the script. So we're seeing a big uptick, as I said, more than 35% of the bookings coming through the channel. And I think it's been really encouraging. We're really seeing strength with our top channel partners and really our top alliance partners, in particular, who are really engaged in joint enterprise pursuit with us in terms of pursuing hybrid multi-cloud opportunities and people implementing hybrid architectures.

And so in fact, I'll give you a stat. We had our top four alliance partners in this quarter accounted for 10% of the total bookings, and that's not 10% of the channel book, but that's 10% of the total bookings. So really strong momentum with the channel partners. And it's across a number of verticals and it's across a number of use cases, but real strength in terms of how people are thinking about using corporate data to draw insights, how they therefore want to store that data centrally, act on it from a variety of cloud resources and then also AI as a key driver.

In fact, we had a big win, a big joint win with NVIDIA on that front, as we talked about in the script. And so really great progress there. And I think the range of use cases is really strong. We had, in fact, an event today that we call Connect that was -- we had, I think, about 500 registrations for that event for enterprises talking about a variety of use cases implemented on Fabric, and so we're seeing some really good momentum.

[Aryeh Klein, Analyst at BMO Capital Markets]

Thank you. And then just on churn, it's tracking well below where it's been historically. What's driving that? And how sustainable do you think that is moving forward?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Yes. Again, I do think that that's a durable trend. I would always comment that there's some potential lumpiness in churn at times. And so -- but I think if you look at the trend line on that, it's been -- the line of [SFD] is clearly downward there, and so we've had a good year. And as we said, we expect our full year churn to be toward the bottom end of the range that we talked about, two to 2.5. And I think the big driver of that is really mix of business.

We're getting the right kinds of deployments, right kinds of customers, right kinds of use cases. And I think that's a lot of credit to our sales and marketing team in terms of what they're doing from a targeting perspective and to our commercial teams in terms of how we're really sort of focusing the business. So I do think it's durable, and I think that's going to continue to be a key driver in the business going forward.

[Aryeh Klein, Analyst at BMO Capital Markets]

Thanks for the color.

[Operator]

Our next question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

[Jordan Sadler, Analyst at KeyBanc Capital Markets]

Thanks. Wanted to touch base on some of the inflationary pressures that have been affecting folks. First, just maybe you could talk about the impact if any rising power cost may have had in the quarter on your full year guide. And maybe elaborate if you could, your hedging protocol by region.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Sure. I'll start and then Keith can jump in if you want to add anything. But I'd say this, other than some small onetime items on the power side that had a slight impact on our Q4 guide, we're seeing power costs pretty much come in where we expected for the remainder of the year and into early next year. I think there's -- it's more going to be the longer-term volatility into 2022 that we're really looking at. But as you said, similar to currency, we've got a pretty extensive hedging program, and that really feathers in our hedges over a multiyear period.

And we're about 85% hedged in the unregulated markets, which represent most of our largest markets. And so our contracts do allow for us to adjust pricing based on underlying costs, and we're actively working to implement adjustments where we think that's appropriate. But again, you guys, I think, recognize our business is different in that we're more heavily circuit-based on our power mix, so whereas it's a little more seamless to pass through those costs in the meter power environment.

It takes a little more finance to do that in the circuit-based power environment. But I would say that we are -- as I said, we're actively working on that in terms of how to do it. And I'd say that our experience in Europe with the cross-connect pricing increases over the last couple of years really give us some confidence that we'll be able to go get that done effectively. So no doubt there's more volatility in the energy markets. So we're watching those closely, and we're going to continue to adapt our strategies accordingly.

[Jordan Sadler, Analyst at KeyBanc Capital Markets]

Okay. And just, I guess, as a follow-up, what -- just one, what would the percent of the portfolio is sort of circuit billing-oriented? And then when you factor in some of the ability to pass some of this through, what sort of the benefit that you've maybe layered in there in terms of top line?

[Charles Meyers, President and Chief Executive Officer at Equinix]

I mean about 80% of the portfolio is circuit-based. And again, that's been key to our -- that's part of our overall return story. We've been very effective in terms of driving sort of aggregate returns across space and power because of that circuit-based power component of the business. And so -- and in terms of -- it's really more a matter of how effective can we be in terms of passing through price increases or underlying cost increases in the form of price to the circuit-based power environment. And so again, we have a contractual ability to do that, and it's just a matter of whether we can do it. I do think it won't be like circuit power, where we're going to get every bit of that back, so -- but I think that we'll look at that market by market and assess what the right approach is.

[Jordan Sadler, Analyst at KeyBanc Capital Markets]

Okay. Thank you.

[Charles Meyers, President and Chief Executive Officer at Equinix]

You bet.

[Operator]

Our next question comes from Jon Atkin from RBC Capital Markets. Please go ahead.

[Jon Atkin, Analyst at RBC Capital Markets]

Thanks. I was interested in xScale and if you can maybe highlight any major differences with PGI and compared to GIC. And then more broadly, as we sort of think about 2022 growth drivers for revenues, margins, capex as well as AFFO perhaps coming from xScale. But anything to kind of keep in mind, I know you're not going to give guidance on this call, but from a qualitative perspective, tailwinds and headwinds to kind of keep in mind for next year. Thanks.

[Keith D. Taylor, Chief Financial Officer at Equinix]

Sure. Jon, why don't I take the first one, and I think Charles might take the second one. As it relates to sort of the deal structuring between PGIM and GIC is very similar in many ways, the construct was developed off contracting structure with the GIC when we work with PGIM. Again, delighted to have another partner in a different market and in support of our Australian business. As it relates to sort of our ability to the performance this quarter, again, as you've heard from some of our prior calls, we've basically sold out most of the capacity that we've delivered to market, and so we're very eager to continue our builds. We have eight builds currently underway in xScale, and the team is working very hard to identify customer -- appropriate customers for that capacity plus more.

So I'd just leave you with it's an exciting time for us in the xScale space. We're putting the money to work. And as Charles alluded to in his prepared remarks, $7.5 billion of capital is going to be deployed across 34 assets, and we still have more to talk about. So why don't I leave it there and just recognize that xScale in of itself right now is not a big component of our revenues and our AFFO, but it does create some of the lumpiness that you've seen in the nonrecurring line, which we highlighted in our prepared remarks. Q4, we just don't expect as much of that nonrecurring revenue as we've seen before. But certainly, as we look into '22 and beyond, we'll start to see that step up again from a nonrecurring perspective, and then you'll also see more of the recurring fees come into play for xScale.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Yes. And Jon, on the other one, I'd say, one, look, I haven't been -- I'm as optimistic as I've ever been, I guess, on the business, how it's performing, what the magnitude of the opportunity ahead is. A little bit of noise in the quarter here, but I think that we had a -- we continue -- the business continues to perform. The fundamentals are very strong, 8,000 interconnection adds in the quarter. 3,000 billable cab adds. Record bookings really for the past three quarters, at least seasonally adjusted in terms of -- this was our best Q3 ever this quarter.

Great degree of predictability churn, as I said, at the low end. Firm pricing, we had another quarter of positive pricing adjustments as Keith talked about in the script, and we continue to see good momentum on our new markets. If you look at big markets that we're relatively earlier entrant in, in terms of in places like Mexico and now India, huge opportunities in front of us there to over-index and growth on those -- in those markets. And then digital services is really -- our customers are responding really well to those products, even though they're at an earlier stage of growth.

So I think as I look into 2022 in terms of headwinds, tailwinds, et cetera, we feel really good about the bookings momentum. We feel really good about the pricing and our relevance to customers and therefore our ability to support firm price points. Churn looks good. Good deal mix is going to continue to be absolutely key to maintaining that. As I said, I think the headwinds, more on making sure that we continue to -- we talked a little bit about power as a potential headwind there in some areas. We talked about, I think, continuing to drive operational efficiencies in the business. It's going to be a key focus for us to drive operating leverage.

And then continuing to work the backlog. I think we've got a big backlog, partially because we've got some big deals that have gone into that. We've got to continue to work them through that backlog. Certain deal types to have slightly longer book-to-bill, and I think we're seeing that as part of the complexity of implementing these more multi-vendor, hybrid multi-cloud kind of deals. And so we're continuing to sort of hone our capabilities there. So if we can continue to drive those things, I think we'll be able to really take advantage of the bookings momentum that's there. And obviously, we'll give you a color on all of that as we go into the 2022 guidance.

[Jon Atkin, Analyst at RBC Capital Markets]

And then if I could throw one in on M&A, whether it's networking-related or software consolidation within the bare metal space, but anything kind of noncore to the classic data center business from an M&A tuck-in perspective? To what degree do you regularly look at those sorts of opportunities? And is there anything that you feel would sort of augment the platform from that perspective?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Yes. Great question, Jon. I would say that we are continuing to learn in that area, and we're accelerating our kind of investment of energy into understanding that landscape. And at the same time, we're still digesting and learning some of the business around digital services and how to adapt our approach and build capabilities both from -- evolve capabilities both from a design and development perspective as well as from a deployment and go-to-market perspective.

And so we're continuing to hone our -- cut our teeth there and really learn those things in that market. But I do think there are real opportunities there, and so we'll be -- continue to be active in that area in terms of looking at potential opportunities both to add talent and technology and capabilities and really learning that landscape better over the course of this year -- this next year and beyond.

[Jon Atkin, Analyst at RBC Capital Markets]

Thanks a lot.

[Operator]

Our next question comes from Phil Cusick from JPMorgan. Please go ahead.

[Phil Cusick, Analyst at JPMorgan Chase & Co.]

Hi. This is Richard for Phil. Just wanted to ask about the strength in the Americas. It went from kind of a modest growth to now it seems like a very strong growth environment. What are you seeing there? And how long can the bookings continue?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Hey, Richard. Well, I hope that party continues for a while. I would tell you, I think we feel pretty good about that business. Again, we sort of -- we spent more quarters than I would like talking about when the Verizon churn was going to abate, and so I'm loving talking about the other side of that now. We're really the scale of that business, tremendous sales execution in the region both for bookings into the region as well as global bookings to the platform elsewhere.

So I would say we feel really good about the performance of the Americas region right now and expect that, that growth rate is going to continue to persist at elevated levels, and so we feel good about that. In fact, I think driving attach rates now to continue to increase share of wallet with our very, very large customer base and bringing them some of our new services is some of the new area of focus and really leveraging our channel partners to do that. So anything to add there, Keith?

[Keith D. Taylor, Chief Financial Officer at Equinix]

The other thing I'll just add, Charles and Richard, remember, this region is 75% utilized. So we have a substantial amount of capacity that we have built and we continue to build in core markets. And the other thing I'd just -- as Charles alluded to, not only the focus that we have on the right customers, but our sales leadership team in the Americas and beyond are doing such a great job of selling the platform, and so the opportunity that we said that we talk about between inter-region and intra-region is very real. So overall, very optimistic about what we're seeing in the Americas region.

[Phil Cusick, Analyst at JPMorgan Chase & Co.]

And as a quick follow-up, churn seems to be an issue in the Americas. Are you seeing that lower now? Or has that not changed as much?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Well, I mean, I think it was -- I mean, I guess you -- obviously, you've been in the story for a long time, Richard, so it's been -- but I think there was a period of time when we had elevated churn associated with really honing our customer mix and our core competitive advantages and making sure that we were focused on those. I would say that was back in the early days. I was here in the 2011, '12 time frame when we really set about honing our sales process and driving greater deal commercial scrutiny, et cetera.

And I think that -- so we had a little bit of elevated churn as we work through that process. And then we had a little bit during the period of time when we kind of digested some of the Verizon assets. We talked about the fact over a few -- several quarters ago where we had deals that candidly just we're outside of the traditional sweet spot that we would be focused on, and I think it's the right long-term value-creating decision for us to let those kind of things go and use that space and that capacity for advancing the strategy that we're really focused on. And so now you're seeing that.

And as I've always said, the most -- the best way to avoid losing a deal, to get the right deal in the door to begin with, and so that's where our focus is. I think our sales teams are really doing an exceptional job of that. Our new sales leader, [Kel Shaw] in the U.S., is just a dynamite sales leader doing an incredible job and it's got a great leadership team across the board there. And so -- and I got to give some credit John Lin to our President of the Americas. Just a great team really driving that thing.

[Phil Cusick, Analyst at JPMorgan Chase & Co.]

Great. Thank you.

[Operator]

Our next question comes from David Guarino from Green Street. Please go ahead.

[David Guarino, Analyst at Green Street]

Thanks. Hey, Charles. Can you elaborate on your comments about pricing being firm? What exactly does firm mean? And maybe specifically, if that's renewals or new leases. And then also, maybe just helpful if you could put some data behind it on the MRR per cabinet in the U.S. Could you tell us what that was excluding the large footprint deployments this quarter?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Sure. Yes. I mean when we say firm pricing, one of the big things we talked about is when we had net positive pricing actions in the quarter, so we essentially take the -- what we're getting in terms of uplifts on our pricing, our accelerators, if you will, or increased price increases that are contractually built in. We offset that against any potential downward movement that might occur on a rerates. Our business tends to move in a little bit of a soft tune that it's -- we'll see these price escalators over a kind of a three- to five-year contract.

We'll get a renewal that might have some rerate, and then we'll kind of go through that cycle again. But in any given quarter, we're seeing those positive pricing -- overall positive pricing adjustments. And that's just, I think, a reflection of our ability to sustain those higher price points. As you can see in the Americas, actually, in all of the -- we've been sort of moving MRR per cab up and to the right for a long period of time. We've seen some really strong movement in EMEA over the last couple of years because of the interconnection price increasing.

I think we were slightly down in the U.S. on a constant currency basis, but that can go up and depend on the timing of installs and those kind of things. And so I mean, 23.93 per cab is just an exceptional number. And so I think if you look at that relative to the rest of the industry, I think you would find it to be sort of far and away the best kind of yield in the industry. And so -- and in terms of normalizing that for large footprint, we really aren't doing any really large footprint in the U.S. We occasionally will do an anchor deal in a facility, but we're not really active in the hyperscale or xScale kind of space in the U.S., and we've kind of talked about why that is in the past.

And if you look at the -- even in the other markets, we're doing that now almost strictly through the xScale business and through the joint venture, and so that's not rolling into the results that you see here. That really only rolls into our sort of core financials in the form of fees and other things that we think are quite accretive to the overall financial picture. So that's kind of picture on pricing. Pricing, I think, on xScale continues to be competitive, certainly, which is why returns in that business are a little lower, but that's also why we decided to go do this through joint ventures where 80% that capital is through a financial partner.

[David Guarino, Analyst at Green Street]

Okay. And then maybe just one clarification, too, on the stabilized revenue growth at the low end factory, that 3% to 5% range. I know Keith said it's going to step up again next quarter. But was the drag this quarter just due to timing of commencement on leases?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Could you repeat it? Is the drag the timing of what?

[David Guarino, Analyst at Green Street]

Of commencements on leases, was it just certain leases got pushed into next quarter? I guess if we're going to get to the high end of the guidance rate, I would assume you have a pretty big step-up in your revenue growth. So I was wondering if there was something driving it or just leases got pushed into Q4 in terms of when you'll start realizing revenue.

[Keith D. Taylor, Chief Financial Officer at Equinix]

Well, first and foremost, as Charles alluded to, in the end, we had just an outstanding quarter, again, from a bookings perspective and more particularly in the Americas region. And as we just sort of talked about, the Americas enjoys the highest pricing environment. So there's a number of things that are going on.

Part of it is, sure, timing, but it is also the conversion of our backlog into a billable cabinet that will make a big difference here. And so there's nothing that I would say overly extraordinary other than we're just seeing overall momentum in the business continue to scale. Churn starting -- abated where it is abating, and then you've got a good price point with the inventory that's waiting to be booked and -- sorry, not booked, go from backlog into billing item.

[David Guarino, Analyst at Green Street]

All right. Thank you.

[Operator]

Our next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

[Simon Flannery, Analyst at Morgan Stanley]

Great. Good evening. Thanks a lot. Just coming back to the inflation and supply chain commentary. Could you talk a little bit about what you're seeing on the construction and the development side of things, availability of labor, raw materials? What's going on in the various markets around the world both in terms of costs and your ability to pass that along as well as any impact on time lines for development? And then you've been very active on the xScale. But in terms of other M&A, how are you thinking about the landscape out there? Or is this going to be more focused on sort of small tuck-ins from here? Thank you.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Sure. So I'd start by saying that, generally, I think our team has done just an exceptional job navigating the current reality as it relates to supply chain around the world. Our bottom line message has been and continues to be that we really aren't seeing any meaningful negative impacts to our business, but that doesn't just magically happen. It happens by our team doing really great work to go and make sure that we are mitigating the risks that are out there. The way I check, we talk about it internally, is really four kind of levels to the supply chain potential risks.

The first one is really facility level. Or in other words, are those constraints out there impacting our ability projects on time and on budget? And while we've seen some modest level of delays on a few projects, those are typically actually more associated with COVID delays than they are supply chain, candidly. As Casey noted in the script, we've actually taken on some inventory or contractual forward commits to the tune of about $100 million that is giving us the confidence to be able to make sure that we can deliver our projects on time. That, combined with the fact that we've got a huge number of projects underway, and they're all over the world and we can move and step around, typically, it's fungible between sort of projects.

And so the team, the construction team, the procurement team, the sourcing team have just done a phenomenal job in terms of mitigating that in terms of IBX availability and the delivery time lines. The next level on it is really at the services level. In other words, our underlying services, particularly our network-related services like Fabric, Connect, et cetera and metal. Are we -- do we have the capacity to support the forecast there? And what we've done there is we've just forward purchased several quarters of capacity to give us the confidence that we can support that, and so feeling good about that as well.

The third level is really deployment level. In other words, case materials and other things that are needed as people build out their cages, and we've also stockpiled there. Occasionally, there are circumstances where people have nonstandard items that cause delays. But if they're sticking within the sort of the middle of the bell curve in terms of what their needs are, we're not seeing any delays there. And then customer level delays is sort of the last level, which is our customers delayed in terms of getting their IT equipment to load into the deployments. And if not, are they delaying or asking for delays for commencement and those kind of things?

And again, while we've seen a few of those things, they're just in the grand steel -- scope of things and in the scale of our business are just not particularly meaningful. So there's some -- there's probably a little bit of pressure on costs in some areas. We've been able to take advantage of our scale, I think, to mitigate that. We're continuing to -- people often ask the question as to whether cost to build is inflationary or not.

I would tell you that I think we're -- we've been able to keep up with it from a design standpoint and continuing to optimize our designs faster than costs are going up, so we're trying to keep ahead of the game there. But I think our team has done a really terrific job of managing those things, and I do think that we're -- we expect that things will start to stabilize over the course of 2022 from a supply chain perspective. So long answer there, but hopefully, that gives you some perspective.

[Simon Flannery, Analyst at Morgan Stanley]

And great color. And the M&A?

[Charles Meyers, President and Chief Executive Officer at Equinix]

From an M&A perspective, I would say we are -- we continue to think there's opportunity out there. I mean we talked -- I think Jon asked a question about M&A in the -- in sort of the digital services side of the business. But there's also, we think, continued opportunity in terms of extending our reach and looking for critical assets in the market that might be accretive to our strategy. And so -- and we've got the balance sheet and the firepower to go after those kinds of things, and so we'll continue to be active as appropriate there, always with a high degree of scrutiny on getting the right deals.

[Simon Flannery, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

Our next question comes from Michael Rollins from Citi. Please go ahead.

[Michael Rollins, Analyst at Smith Barney Citigroup]

Thanks and good afternoon. Curious for two questions. The first one is, when you look at what's happening on the network side for network customers, are you seeing an increasing amount of telecom and wireless companies place their core network infrastructure in your facilities rather than having their own mobile switching offices that they might have had in kind of the more legacy years of the telecom landscape?

And what kind of opportunity that is for you as you look at wireless and 5G trying to take more services to the edge? And then the second question is, what do you make of the tower companies investing in data center assets? And do you believe that your data center business as well as power portfolios are destined to be partners or maybe someday fall under the same ownership structure as you look out into the future?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Great questions, Mike, for sure. The -- I would say on the network side, I'd say it's a mixed bag. I think that there is a movement towards people viewing third-party facilities, particularly facilities like Equiix, where there's large degrees of aggregation as logical places to put portions of their core infrastructure. That said, I think these companies are also -- have a long history of building on in their own facilities, and I think that is -- there are still a lot of forces within those companies that want that to continue.

And so I think we've been very active on the business development front, and we have seen some there and in terms of how they might think about quoting certain portions of their core 5G infrastructure, for example, into our facilities. And we have the Dallas proof-of-concept center there that we've been actively working with both equipment providers as well as service providers on sort of proving out some of those potential value propositions. So I think we're still -- that will happen over a long course.

I do think we're more successful with people who are coming into those markets as disruptors because they think differently about it. And so -- and I do think there are some pretty interesting opportunities there. And we're working with a few. I want to say the names right now, but I'm not sure that they are publicly that I can, so I won't. And -- but there's some interesting things going on there. As to the tower side, we've been -- we believe there is some synergy between sort of companies that have broad-based real estate assets that are sort of proximate to communications infrastructure, which is sort of the definition of tower companies.

And I can see why and understand why they may have an interest in data center assets and how they fit in potentially to their portfolio. But I would tell you that for the most part, we see a strong demand for traffic at the edge there to a very significant majority of that traffic to go back to the aggregated edge, and that's really our sweet spot. That's where our differentiation is. Definitely, there are use cases that where mobile edge compute out further, things like [chapter] automation and those kind of things.

I think there are real use cases that 5G is going to be able to accelerate, and we're certainly keeping our eyes on that and being active there from a business development standpoint. But I do think that -- I think it's more likely that we would partner in some way with those folks over time. It's not necessarily obvious to me that those have to live under same ownership structure. So -- but I think we'll just have to continue to see how the markets play out.

Keith, I don't know if you have a different view on that.

[Keith D. Taylor, Chief Financial Officer at Equinix]

No. Well said.

[Michael Rollins, Analyst at Smith Barney Citigroup]

Thanks.

[Operator]

Our next question comes from Eric Rasmussen from Stifel. Please go ahead.

[Eric Rasmussen, Analyst at Stifel Nicolaus]

Yeah, thanks. Questions. So getting back to xScale, you obviously made a lot of progress in Europe and APAC thus far and recently announcing another JV partner in Australia. But I guess circling back at what point do the Americas become more interesting as you look to expand xScale? Are you seeing any characteristics that are starting to get more exciting about this market than what you're seeing elsewhere or sort of we in the same sort of scenario?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Well, I think when people stop cutting each other's throats on pricing, it will be a little more interesting. But it's -- there's -- It's not -- I mean it's still a very competitive market, I think. And so I think that's different in terms of -- if you look at the broad Americas because I think there's opportunities in Lat Am for us. Obviously, we've already announced projects in Brazil. I think we bring some very distinctive advantages there.

I do think there's a ton of demand. And as we've always said, we're not going to say we're religiously out of the business of doing that, but I think it would have to be under a special set of circumstances in terms of why we think that fits with the strategy because we're -- the strategy, as you'll recall, is that we wanted to use those as opportunities to further our position in the cloud ecosystem, continue to invest in the relationship with the major cloud service providers and sort of broader set of hyperscalers and use that to create this advantage and overall position in the cloud ecosystem.

We feel very good about our position, particularly in the U.S. And whether or not the xScale would be particularly accretive to that, I think, is an open question. So -- but we're not -- we're definitely not -- it's not out of the question that we would do that. I just think it's -- I think right now, there are a lot of opportunities for us in other markets we think are more attractive.

[Eric Rasmussen, Analyst at Stifel Nicolaus]

Okay. And maybe just my follow-up. The Americas was strong once again this quarter. Would you characterize most of the strength is coming maybe from Bell Canada? Or is it other factors that you can comment on as it relates to the strength in that region?

[Keith D. Taylor, Chief Financial Officer at Equinix]

Well, there was a reference in the prepared remarks just to talk about the Canadian business is better than our -- it's doing better than we originally anticipated and good on the team, and they're also selling the global form out of Canada into our other assets around the world. As it specifically relates to the Americas business, I think it's -- it goes back to some of the fundamentals that Charles alluded to. We're targeting the right customers with the right applications and putting them in the right places.

And at the same -- by the same token, we've got an inventory set that really caters to a diverse set of customers across the U.S. or the Americas as a whole. And so between the assets we serve, the customers we target and the delivery of services that are additive to colocation and interconnection, I just think we're in a much better space in our position. And as a result, we're going to win more than our fair share of the business out there.

[Eric Rasmussen, Analyst at Stifel Nicolaus]

Great. Thank you.

[Operator]

Our next question comes from Colby Synesael from Cowen. Please go ahead.

[Colby Synesael, Analyst at Cowen]

All right. Great. Thank you. Charles, in response to Jonathan Atkin's question regarding your outlook on 2022, my take from your response was the top line looks fine, but your concern is around margins. whether it's operational efficiencies or in particular, power costs. And as it relates to the question around power costs, I feel you may have created more questions and answers so far on this call, and I'd love to get a little bit more detail. Specifically, you guys, I think, had talked about it at your Analyst Day in June, seeing margins go up just modestly in 2022.

I'm curious if you still think that, that's possible. Secondly, you mentioned that you hedge in unregulated markets around 85%. How far out are those hedges? Does it seem like you're suggesting that you're okay with power costs going into 2022 but not necessarily for the full year? And then as it relates to the potential impact of power, do you think at the end of the day, this could be up 25 basis point impact, 50 basis point impact, hundreds of basis point impact?

Just anything that gives us a better sense because my concern personally is that we could now be in a situation where margins go down in 2022. And then just lastly, as it relates to AFFO, it looks like AFFO guidance implies a pretty meaningful step down in the fourth quarter. Is that just the maintenance capex component that you talked about, Keith? Or is there something else there? And what's the better jump-off point as we look to go into 2022? Is it the third quarter? Or is it the fourth quarter? Thank you.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Yes. Good questions, Colby. I'm not sure we'll be able to give you all the answers there, but I would say -- and obviously, we're not going to kind of give you a 2022 guide, but I would say that your -- generally, I would say we continue to feel good about the momentum in the business from a bookings and a demand perspective. I think that we did talk about driving efficiencies, and I think the pursuit of the 50% margin target is something we continue to be focused on, and that's an area where we continue to have work to do.

Exactly at what pace we can do that and what that implies for the 2022 margin, I don't know, and I do think it will require us to dig in deeper on power. And I don't think we're yet in a position where we can quantify any of that for you other than in terms of the hedging that we -- I mean they are multiyear hedges, but they're feathered in and so, obviously, do become less impactful as you look further out.

And so I do think that there's more risk as you go out, but I think the good part of that is that it gives us time to determine what our approach is going to be to -- passing those costs through and assessing how to do that and to what degree that is -- how much recovery we can see there. And we don't know the answers to all these things, and so I think we're going to track those. We're going to look at the markets where there's volatility. And I think that's something where, unfortunately, I think we'll just have to come back to you when we look -- as we look into the 2022 guidance and give you more perspective on that.

[Keith D. Taylor, Chief Financial Officer at Equinix]

Yes. Good questions, Colby. I'm not sure we'll be able to give you all the answers there, but I would say -- and obviously, we're not going to kind of give you a 2022 guide, but I would say that your -- generally, I would say we continue to feel good about the momentum in the business from a bookings and a demand perspective. I think that we did talk about driving efficiencies, and I think the pursuit of the 50% margin target is something we continue to be focused on, and that's an area where we continue to have work to do.

Exactly at what pace we can do that and what that implies for the 2022 margin, I don't know, and I do think it will require us to dig in deeper on power. And I don't think we're yet in a position where we can quantify any of that for you other than in terms of the hedging that we -- I mean they are multiyear hedges, but they're feathered in and so, obviously, do become less impactful as you look further out.

And so I do think that there's more risk as you go out, but I think the good part of that is that it gives us time to determine what our approach is going to be to -- passing those costs through and assessing how to do that and to what degree that is -- how much recovery we can see there. And we don't know the answers to all these things, and so I think we're going to track those. We're going to look at the markets where there's volatility. And I think that's something where, unfortunately, I think we'll just have to come back to you when we look -- as we look into the 2022 guidance and give you more perspective on that.

[Colby Synesael, Analyst at Cowen]

Thank you.

[Operator]

Thank you. And our final question comes from Frank Louthan from Raymond James. Please go ahead.

[Frank Louthan, Analyst at Raymond James]

[Technical Issues] about the bounce in the America has been a tougher market last year. What sort of change there? And how long do you think you can continue to see some better results out of those markets? Thanks.

[Charles Meyers, President and Chief Executive Officer at Equinix]

Frank, yes, as I said earlier, I think that business a strong trajectory. I think we expect that to continue. We don't see this as a temporary improvement. I think we're -- the business moving in a very solid direction. Strong demand from customers, good sales execution. And again, we don't expect that. And again, churn mitigating, getting the right customers, right deals, and I think that will continue to drive strong performance from that region. So which obviously is a pretty major driver of our overall performance.

[Frank Louthan, Analyst at Raymond James]

Can we expect this to be a little bit of a new baseline and kind of continue to grow from here? Or how should we think about the current trend?

[Charles Meyers, President and Chief Executive Officer at Equinix]

Yes. I mean, I think as to whether it really accelerates, I think that we have to continue to look at our success in driving new services revenues and what's the rate of new customer capture and attaches and those kind of things. But again, I think we feel really good about where the business is right now and feel like that's a sustainable growth rate for us.

[Frank Louthan, Analyst at Raymond James]

All right. Great. Thank you very much.

[Katrina Rymill, Vice President of Investor Relations at Equinix]

That concludes our Q3 call. Thank you for joining us

[Operator]

[Operator Closing Remarks]