Equinix - Q2 2023
August 2, 2023
Transcript
Operator (participant)
Good afternoon, and welcome to the Equinix second quarter earnings conference call. All lines will be able to listen only until we open for questions. Today's conference is being recorded. If anyone has any objections, please disconnect at this time. I would now like to turn the call over to Chip Newcomb, Senior Director of Investor Relations. Thank you, sir. You may begin.
Chip Newcomb (Senior Director of Investor Relations)
Good afternoon. Welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we've identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K, filed February 17th, 2023, and Form 10-Q, filed May 5th, 2023. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter, unless it's 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 on the Equinix Investor Relations page at www.equinix.com. We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page 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 in one hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Charles.
Charles Meyers (CEO and President)
Thank you, Chip. Good afternoon, and welcome to our second quarter earnings call. As reflected in our results, Equinix continues to enjoy momentum in our business as digital transformation accelerates the pace of innovation and changes the way business is done. By 2026, IDC is forecasting that 40% of revenue from Global 2000 companies will come from digital products, services, and experiences, a dynamic that is reshaping the basis of competition in nearly every industry and making digital an unprecedented force for economic growth. These secular drivers, combined with an accelerating appetite for companies to rapidly integrate AI into their operations, are driving increased demand for data center capacity as a broad range of service providers extend and scale their global infrastructure to support the clear enterprise commitment to hybrid and multi-cloud as the IT architecture of choice.
Equinix remains exceptionally well positioned to respond to this demand environment, delivering against the need for infrastructure that is more distributed, more cloud connected, more sustainable, and more ecosystem-centric than ever before. Against this backdrop, we had a great second quarter, with solid gross and net bookings, very strong pricing dynamics, excellent pipeline conversion, and healthy new logo growth. We continue to drive disciplined sales execution at scale, with more than 4,100 deals in the quarter across more than 3,100 customers, demonstrating the continued strength of our unmatched go-to-market machine and approach. Turning to our results as depicted on slide three, revenues for Q2 were $2.02 billion, up 14% year-over-year, driven by strong recurring revenue growth, power price increases, and timing of xScale fees.
Adjusted EBITDA was up 7% year-over-year, and AFFO was again better than our expectations due to strong operating performance. These growth rates are all on a normalized and constant-currency basis. With customers deployed in all three regions, now representing approximately two-thirds of our recurring revenues, we continue to invest behind the scale and reach of our data center services portfolio. We now have 53 major projects underway across 40 metros in 24 countries, including 11 xScale builds that we expect will deliver approximately 90 MW of capacity once opened. This quarter, we added 12 new projects, including new data center builds in Lisbon, Monterey, Mumbai, and our first build in Kuala Lumpur, Malaysia. Over the past several years, we have seen Malaysia emerge as an increasingly important location for digital infrastructure.
By expanding Platform Equinix in Johor and Kuala Lumpur, the two most strategic markets in Malaysia, we will enable local and global businesses to leverage our trusted platform to bring together and interconnect the foundational digital infrastructure that will power their success. Additionally, we are delighted with the recently announced results of Singapore's Data Center Call for Application, where Equinix was one of a very limited set of participants selected to build incremental data center capacity in the critical Singaporean market. Equinix is honored to have this opportunity to strengthen Singapore's digital capabilities, delivering sustainable infrastructure that will fuel the economy, cultivate critical ecosystems, and align to Singapore's Green Plan.
Multi-region customer wins this quarter included Cogent Communications, a U.S. multinational ISP, using Equinix's robust ecosystem and interconnection platform to optimize and enhance their global services, Apcela, a provider of software-defined, cloud-optimized networks for digitally transforming global enterprises as they leverage Equinix Fabric and other digital services for low latency network and cloud connectivity. Our global interconnection franchise continues to thrive, with over 456,000 total interconnections on our platform. In Q2, interconnection revenues stepped up 11% year-over-year on a normalized and constant-currency basis, driven by healthy pricing, increasing traffic levels, and strong gross adds. Net interconnection adds remained on the lower side at 4,100 due to continued grooming activity and consolidation into higher bandwidth connections.
The number of unique interconnection relationships across our Platform Equinix continues to expand, with over 110,000 unique pairs, reflecting the exceptional value of our scaled digital ecosystems. Equinix Fabric had another strong quarter, with total virtual connections passing 50,000 for the first time, and the addition of new capabilities to support data-intensive workloads like AI and cloud migration. Beginning in the third quarter, Fabric customers will be able to provision virtual connections to cloud providers with bandwidth up to 50 Gbps, with Google Cloud as the first cloud partner to support this capability. Internet Exchange saw strength in our EMEA and APAC markets, with peak traffic up 4% quarter-over-quarter and 25% year-over-year to nearly 32 terabits per second.
Key interconnection customer wins this quarter included a gaming and entertainment company, expanding interconnection across all three regions to optimize the gamer experience, a Tier 1, a Brazilian telco leveraging Platform Equinix to establish its digital presence through network hubs, beginning with South America and Miami. Turning to our xScale portfolio, we continue to see strong overall demand as cloud adoption remains a driving force in digital transformation. In Q2, we leased 10 megawatts of capacity in our Osaka two asset, with cumulative xScale leasing now over 200 megawatts globally. We have a strong funnel of additional xScale opportunities for the back half of the year. We also won three new native cloud on-ramps this quarter in Bogota, Madrid, and Toronto, further strengthening our cloud ecosystem, which represents nearly 15% of total interconnection on our platform.
Key enterprise to cloud ecosystem wins this quarter included one of the largest auto insurers in the U.S., continuing to expand interconnections on our platform to optimize its networks and multi-cloud connectivity, and a leading European automotive company deploying at Equinix to support reliable and scalable connectivity to the cloud worldwide. As businesses increasingly look to consume their digital infrastructure at software speed, we're continuing to enhance our platform strategy and expand our partnerships. In Q2, we announced our expanded partnership with Hewlett Packard Enterprise for pre-provisioned HPE GreenLake for Private Cloud Enterprise and HPE GreenLake for Private Cloud Business Edition, both available on demand at select Equinix IBX data centers. These new offerings in seven metros around the globe will help businesses expand their hybrid multi-cloud strategies while providing greater agility, control, and predictability of workload costs and data.
Additional key digital services wins this quarter included Bionexo of Brazil, a health tech company that offers digital solutions for managing healthcare processes using Fabric and Network Edge for seamless connections with partners and customers while reducing complexity and cost. Telna, a global mobile network infrastructure provider, using Platform Equinix to facilitate its marketplace for cellular connectivity among its customers. Our channel program delivered another strong quarter, accounting for 40% of bookings and nearly 60% of new logos. We continue to see growth from partners like Accenture, AVANT, Dell, Cisco, and HPE, with wins across a wide range of industry verticals and digital-first use cases. Key wins this quarter included partnering with Kyndryl to support a large American health insurance provider with their network and application modernization efforts, featuring the deployment of cloud-adjacent infrastructure and interconnection to the healthcare ecosystem.
Now, let me turn the call over to Keith to cover the results for the quarter.
Keith Taylor (CFO)
Thanks, Charles. Good afternoon, everyone. I hope you're all doing well and enjoying the summer months. I must say it was great to be back in New York City, spending time with many of you at our June Analyst Day in person. As you might have guessed, we were excited to share with you our views on the expanding market opportunity, our continued ability to manage through this dynamic and complex global environment while working to maximize the value of our business, perhaps most importantly, share our thoughts on how we believe we can deliver durable shareholder value. Now, as you can see from our Q2 earnings report, we again delivered solid results while addressing many of the complexities affecting our business. We had solid growth and net bookings and positive pricing dynamics, reflecting the continued momentum we see in the market.
Overall, we continue to focus on driving a higher yield on both our new and existing investments. On a constant-currency basis, including our net positive pricing actions, global MRR per cabinet was up $39 quarter-over-quarter to $2,156 per cabinet. Given the tight supply environment across many of our metros and the high utilization levels across our portfolio, we remain very focused on our strategy of putting the right customer with the right application into the right IBX. We're being particularly selective at backfilling space in certain constrained markets, focusing on high price points and increased power densities. As a result, the timing of these deployments may create some fluctuations in our quarterly net cabinets billing metric, an outcome we're actively managing across all three regions.
This is positively offset by strong stabilized asset growth, higher MRR per cabinet, and better returns on our invested capital. Turning to some of the macro factors affecting our business, we remain pleased with how the organization has mitigated the impacts of energy price volatility across our business and with our customers. Concessions and disputes remain low, and our cash collections are in line with historical trends. As it relates to our foreign operating currencies, we continue to hedge where appropriate to dampen the volatility attributed to the actions of many central banks to adjust interest rates. Also, we made some modest FX adjustments to our 2023 outlook, largely attributable to the recent devaluation of the Nigerian naira and the weaker Japanese yen, two of the currencies that we do not hedge. Now, let me cover the highlights from the quarter.
Note that all comments in this section are on a normalized and constant-currency basis. As depicted on slide four, global Q2 revenues were $2.018 billion, up 14% over the same quarter last year due to strong recurring revenues, power price increases, and the timing of xScale non-recurring fees. As we've noted before, non-recurring revenues, particularly those attributable to our xScale business and certain custom installation works, are inherently lumpy. Hence, NRR was down quarter-over-quarter as planned. Given our significant xScale pipeline, we expect to see a meaningful step-up in NRR in the second half of the year. Q2 revenues, net of our FX hedges, included a $3 million FX headwind when compared to our prior guidance rates.
Global Q2 adjusted EBITDA was $901 million, or 45% of revenues, up 7% over the same quarter last year due to strong operating performance, including an $11 million one-off software expense related to our Americas Managed Services business, and higher variable salaries and benefit costs. Q2 saw certain EMEA energy contracts reset at higher average rates, resulting in increased net utility costs as forecasted. Q2 adjusted EBITDA, net of our FX hedges, included a $2 million FX headwind when compared to our prior guidance rates, and $3 million of integration costs. Global Q2 AFFO was $754 million, above our expectation, due to strong business performance and lower net interest expense. Q2 AFFO included a $1 million FX headwind when compared to our prior guidance rates. Global Q2 MR churn was 2.3%.
For the full year, we continue to expect MR churn to average at the lower half of our 2% to 2.5% quarterly guidance range. Turning to our regional highlights, whose full results are covered in slides five through seven. On a year-over-year normalized and constant currency basis, EMEA and APAC were our fastest growing regions at 21% and 16%, respectively. When excluding the impact or the benefit attributed to the power price increases, EMEA and APAC region growth rates were 8% and 11%, respectively, while the Americas region grew 7% year-over-year. The Americas region had another solid quarter with continued strong pricing trends, solid momentum from our channel and public sector teams, and healthy exports across the global platform. We had strong activity in Boston, Chicago, and Culpeper metros, and the Canadian business.
Our EMEA business delivered a solid quarter with firm pricing, continued lower churn, and a healthy step-up in deal volume. Revenue was down slightly due to the timing of large NRR deals between quarters, with strength come from our Amsterdam, Dublin, and Frankfurt metros, while booking a substantial space and power deal in Lagos, Nigeria, with a large multinational energy company, highlighting the momentum across our platform, including our MainOne assets. Finally, the Asia Pacific region had a strong quarter with record net bookings and firm deal pricing, as well as strong imports to our Mumbai, Osaka, and Singapore markets. As evidenced by the number of new expansions, Chennai, Jakarta, Johor, Kuala Lumpur, customer interest in expanding their footprints into new Asian markets is high, and we're investing behind this demand. Now looking at our capital structure, please refer to Slide 8.
Our balance sheet increased slightly to approximately $31.6 billion, including an unrestricted cash balance of over $2.3 billion. As expected, our cash balance decreased slightly quarter-over-quarter due to our investment in growth CapEx and a quarterly cash dividend, offset by our strong operating cash flows. Our net leverage remains low at 3.6x our annualized adjusted EBITDA. As mentioned previously, we plan to opportunistically raise additional debt capital in reduced rate environments where we currently operate. This will create both incremental debt capital to fund our growth and place a natural hedge into these markets. Additionally, during the quarter, we executed about $200 million of ATM forward sale transactions, which will be settled in early 2024, to help fund our 2024 growth plans alongside our other sources of capital. Turning to Slide 9.
For the quarter, capital expenditures were $638 million, including a recurring CapEx of $40 million. Since our last earnings call, we opened seven retail projects across both the Americas and EMEA regions, and two xScale projects in Frankfurt and Tokyo. Revenue from owned assets increased to 64% of our recurring revenues for the quarter. We expect this trend to continue, with over 85% of our expansion CapEx spend on owned or long-term ground lease properties, including 100% of our 16 builds in the Americas. Our capital investments delivered strong returns, as shown on Slide 10. Our now 174 stabilized assets increased revenues by 10% year-over-year on a constant-currency basis. Taking out the benefit attributed to the power price increases, stabilized assets increased 7% year-over-year.
Our stabilized assets are collectively 85% utilized and generate a 27% cash-on-cash return on the gross PP&E invested. Finally, please refer to Slides 11 through 15 for our updated summary of 2023 guidance and bridges. Do note all growth rates are on a normalized and constant currency basis. For the full year 2023, we're maintaining our underlying revenue outlook with expected top line growth of 14%-15%, or 9%-10%, excluding the impact of power cost passed through to our customers, a reflection of our continued strong execution. We're raising our underlying 2023 adjusted EBITDA guidance by $20 million, primarily due to favorable operating costs and lower integration spend. We're raising our underlying AFFO guidance by $28 million to now grow between 11% and 14% compared to the previous year.
AFFO per share is now expected to grow between 9% and 11%. CapEx is expected to range between $2.7 billion and $2.9 billion, including approximately $120 million of on-sheet, on-balance sheet xScale spend, which we expect to be re-reimbursed as we transfer assets into JVs later this year or early next year, and about $220 million of recurring CapEx spend. Let me stop here. I'll turn the call back to Charles.
Charles Meyers (CEO and President)
Thanks, Keith. In closing, we had a strong first half of the year and continue to see a robust demand environment as key secular drivers positively influence buying behavior, even in the face of a challenging macro climate. The relevance of Platform Equinix continues to grow as service providers scale out their global infrastructure in response to growing enterprise demand for hybrid and multi-cloud as the architecture of choice, and the associated need for hybrid infrastructure to deliver performance, agility, scalability, and sustainability. In this context, we believe Equinix remains uniquely positioned and highly differentiated and will continue to drive disciplined execution of our strategy with a focus on extending our market leadership, driving operating leverage, expanding our platform capabilities to fuel sustained growth, and delivering superior returns on capital.
All of which we are confident will translate to distinctive and durable value for our customers and sustained performance for you, our investors, with a keen focus on AFFO per share as our lighthouse metric. Let me stop there and open it up for questions.
Operator (participant)
Thank you. If you would like to ask a question, please unmute your phone, press star one, and record your first and last name slowly and clearly when prompted, so I may introduce you. To withdraw your request, please press star two. Again, to ask a question, star one. Our first question comes from Ari Klein with BMO Capital Markets. You may go ahead.
Ari Klein (Equity Research Analyst)
Thanks, and good afternoon. Maybe on the AI front and as it relates to xScale, there are some exceptionally large leases being done with the vast majority of those in the U.S., where xScale doesn't have a presence. How are you thinking about potentially entering the market to capture some of that demand?
Charles Meyers (CEO and President)
Yeah, we've talked about this in a few different forums. I, I do think that our, our posture has probably evolved a little bit in terms of our thinking around xScale in the Americas broadly and in the U.S. specifically. I think AI is part of that. So, it's not the only factor, but I, I, I do think we had already been thinking about certain markets where we believe that what we see is, you know, as I said, around the world, is that the markets where we have the full portfolio, xScale, retail, digital services at scale, really perform best. I mean, you can argue a little bit of, you know, whether it's chicken or egg there in terms of what, you know, what's driving what.
It's what we do see is that, you know, when we have the full portfolio, we're able to address a broader set of customer demands. So I think as we looked at that, we do think that there, there are markets in the U.S. that we would like to have an xScale presence. So we're, I think we're, we're looking at how we would do that, you know, and, and potentially, through a combination of organic and potentially inorganic pursuits. So I, I do think that AI is a part of that, but really only a part. I think that, you know, the continued demand for cloud services and, and the, the commitment to cloud, cloud adoption, I think that, you know, continues at pace with the enterprise.
All of that, you know, driving really a strong pipeline across the world and, and, does lead us to believe that, thinking about how to, how to solve for xScale in Americas is, is something that is, is, on our minds.
Ari Klein (Equity Research Analyst)
Thanks. Then just the Americas and EMEA saw cabinet decline. Sounds like maybe there was some timing and churn potentially there. Can you provide some color on, you know, some of the moving pieces and maybe give us a sense of the size of the backlog?
Charles Meyers (CEO and President)
Sure. Yeah, I mean, I'd, I'd start with the backlog question and tell you the backlog continues to be very healthy. You know, we don't... We do see, as, as we've said over the years, billable cabs can really be a pretty volatile metric, and it can swing meaningfully, both due to, timing of installs and therefore backlog, and in particular, churn activity. Undoubtedly, we, we recognize that billable cabs has to grow over time to fuel the business, but we, we do see short-term fluctuations in that metric as we really optimize the platform. If you look at it, as you noted, we've always encouraged people to really look at rolling four-quarter averages, because of that volatility.
If you look at Americas are running about 90%, the rolling four-quarter is about 90% of what it's been for the last three years, typically. EMEA is actually its rolling four-quarter average is actually meaningfully ahead of what the three-year average is. APAC is lower, with three consecutive quarters of really lower cab ads. It's a bit of a, a unique dynamic in APAC, related to some of the capacity constraints in Asia, you know, particularly Singapore, which is why we are so excited to have been able to announce the allocation of capacity to Equinix in the Singaporean market. You know, so we, I think that we're, we're comfortable there.
There is some, some churn activity that I think is, in the markets and some, some backlog that I think is gonna roll through. I think we'll, when we look at that on a rolling four-quarter basis, I think we'll see those things, normalize a bit. Let me. We knew this would be a cabinet issue, so I want to maybe give you a little more concrete insight into, into the billable cabs. If you look at it, specifically on the churn side, over the past five quarters, we've had about, 37 deployments a meaningful size churn. 85% of that total cab volume coming from those churns are what we would consider favorable churn.
Basically, cabs that are in constrained markets where we really welcome the additional capacity and can sell it at a very positive mark to market. Given the trajectory right now that we're seeing in the market on pricing, on power density, on interconnection, as we refill those cabs at prevailing prices and power densities, we actually expect uplifts on those 30, about the 87%, 85% of those cabs in the 50%-70% MRR uplift range.
That's, that's just a reflection of kind of the kinds of actions that we're taking to optimize the platform that have impacts on billable cabs, but really positive impacts and upside in terms of, 'cause we, we, we look at it, and we, we believe we're gonna get $ millions of extra MRR by, by sort of turning those cabinets over, or $ tens of millions on an annual basis with 0 CapEx. That's some of the dynamic that you're seeing there. I think it'll move around a bit as we identify that. Now, granted, there's, there's, there's not that many of those out there.
That is a, a dynamic that is impacting-- has impacted the billable cabs, a bit, over the last couple of quarters.
Ari Klein (Equity Research Analyst)
Thanks. Appreciate all the color.
Operator (participant)
Our next question comes from Michael Rollins with Citi. You may go ahead.
Michael Rollins (Managing Director of Equity Research)
Thanks, and good afternoon. Curious if you could unpack a bit more of the stabilized constant currency growth without the power price increases that I think was cited at 7% year-over-year in the quarter? As you look at the opportunities that you were just describing in terms of re-leasing opportunities and the current environment, is there an updated view of what stabilized organic growth should look like for Equinix over the next few years?
Charles Meyers (CEO and President)
Yeah, it's a good question, Mike. I, I do think that we had, you know, we had guided to a range, you know, lower than certainly that 7% that we're seeing, absent the PPIs. Obviously, PPIs are having a major impact there and, you know, reflected and as reported of 10, but I think that's not really a valid, valid number, you know, 'cause that'll, that'll bounce around a little bit, and we'll, you know, based on, you know, what, what's happening with power pricing. I do think that 7%, obviously, is a very attractive level. I do think that we're seeing that pricing right now is very firm. We are raising...
You know, we've raised prices on our, on our underlying colo products, and on an interconnection, you know, meaningfully, and continue to see strong demand, and stable churn. I think that's gonna be a positive factor. The other one that I just mentioned in the previous conversation, a little bit about billable cabs, is power densities. Power densities are definitely on the rise. So, you know, some of the churn activity that I just talked about there, those 37 deployments were, you know, are, are many of them are in stabilized assets, and so you're gonna see some uplift there as you turn, turn some of that over. So, long answer or not answer, non-answer to your question in terms of, you know, what, what is the right range?
Obviously, I think we have been talking about 3 to 5. 7's obviously nicely above that. I would certainly hope that, you know, I do think the current dynamic of pricing in the market is a major driver. And so, we'll just track that and see how we have. Obviously, we love being, you know, above that, that guided top end, and if we feel like that's a sustained trajectory, we'll come back and look at that.
Michael Rollins (Managing Director of Equity Research)
If I could just follow up with one other. You, you mentioned the variability of the power side of the equation. You know, as you're looking at the pricing environment for power, specifically, any updates of how power pricing and power revenues and those surcharges might look for 2024?
Charles Meyers (CEO and President)
Yeah, I figured that might come up, too, Mike. What I'd say is that we are obviously, we're just a little over halfway through the year. We've been hedging into our positions, and in some markets, hedging in at rates that are, you know, below where we had been, previously, and in some cases, a bit mater- or, you know, somewhat materially below that. Obviously, we still have a significant portion of our hedging positions yet to fill, there's a lot of the year left. It's impossible, I think, for us to predict exactly what will happen, so I don't want to be too concrete on this matter.
I would think that there, there might be some markets, if current course continues, where we will hedge into a rate, in 2024, that is below what it was in 2023. As we said to our customers, and I think as we communicate to our customers, and they've really sort of embraced and understood the benefits that our hedging program provides, and we've told them, you know, if that, if that is to, would occur, you know, we would pass that through to you as well. So, so I think, you know, how many markets that might occur in? Not sure.
As we said, when we provided the guide and when we provided, you know, at, at Analyst Day and in other forums, we said: Look, we're, you know, this sort of assumes nothing relative to power price, you know, increases or decreases, and we'll adjust that accordingly or sort of normalize it out. Because, you know, what's really important from our perspective is the underlying performance of the business. While, you know, we do recognize that, you know, power price, for example, has some impact on the optics of, of margin, you know, I think it really isn't an underlying, fundamental, sort of impact on the business. So we'll let you know.
I, you know, a shorter answer would be, I do think that we may see some markets in which we would see a PD or a price decrease next year, and others that we would see it flat and, and perhaps others, where we'd see it go up. Still more work to do in terms of hedging into our positions. We'll keep you updated as we know more.
Michael Rollins (Managing Director of Equity Research)
Thank you.
Charles Meyers (CEO and President)
Yeah, bye.
Operator (participant)
Our next question comes from John Atkin with RBC. You may go ahead.
John Atkin (Managing Director of Equity Research)
Yeah, a couple of questions. I was curious just about decision time frames by customers, closing rates, book to bill, that sort of thing. Then, if you look at stabilized gross margins, looks, looks like that was down. Forgot if you might have mentioned this earlier, but why, why, why the pressure on stabilized gross margins? Thanks.
Charles Meyers (CEO and President)
Yeah, I'll let, I'll let Keith tackle the second one. I'll give you the first one, I'll give you a little color on the quarter. Really solid quarter from a bookings perspective. I think we saw, even though I think there are some customers who continue to be cautious in the overall environment, you know, what we saw in Q1, as we told you, we saw a little more deal slippage from Q1 into Q2, but we had said that close rates were pretty consistent. In Q2, we saw the same thing. We had saw actually very good pipeline conversion, and we, we saw sales cycles, you know, not, not really extended very much in line with our historical norms.
We saw the push rate from quarter-to-quarter actually come bounce back to where it had been previously. I would say overall, a very solid quarter. You know, I do think the dynamic that we described previously, which is some customers just being cautious about how much capacity they're buying, you know, obviously negotiating hard, which is a norm for us, those kind of dynamics. Then in some cases, going back and if they have more capacity than they need, coming back and having a dialogue with us about whether we want to take some of that back. As I said, that, that is a bit of the dynamic coloring some of our
'cause when we see opportunities that look very favorable for us to do that, we'll take advantage of them, and that's some of the, some of what's impacting the billable CABS numbers. Overall, though, I would say, you know, I feel good about the quarter from a sales execution standpoint and from a overall customer sentiment standpoint, and also feel good about where we are in terms of overall funnel for the second half of the year. Obviously, we, you know, we have a big hill to climb every quarter in terms of a lot of deals. You know, 4,100 deals in a quarter, you got to do a lot of selling.
Our team, I think, had a really strong Q2, and based on, you know, my customer visits and time with the sales teams, I think there's a lot of optimism for the second half of the year.
Keith Taylor (CFO)
Hi, John. Relating to the second part of the question, no surprise, you'll see the sort of the margin erosion across a number of the key metrics, whether it's on a total basis, whether it's in Europe, or whether it's in the stabilized assets. It's primarily related to the reset of the energy contracts. As you know, as you look at the first quarter, we had the benefit, if you will, of contracts, the power contracts where they were. As they reset, there was a meaningful step up in the second quarter, and that was felt throughout a number of our core metrics.
As you look forward, most of that's now going to stabilize, which is the, the good part. That was all factored into the pricing sort of structure that we had when we started the year. We, we anticipated what was, what the price points were going to be on an average basis, and that was the rate at which we passed through to our customers.
John Atkin (Managing Director of Equity Research)
Then lastly, wondering if you're seeing any tailwinds, in segments of your cross-connect business that you would attribute to AI, given that you might expect a little bit of an uptick in connectivity requirements as these training models get spun up. Are you seeing that at all or not?
Charles Meyers (CEO and President)
We've seen specific instances of interconnect to support AI. In fact, we had a pretty significant win this quarter in the AI realm with a AI-as-a-service provider that really put their core network nodes with us to really drive interconnection to the multi-cloud connectivity and really to support the inference and interconnection to the cloud. So we do-- we did see that. I, I wouldn't say that's likely shown up. In fact, that hasn't shown up in our results yet 'cause we just booked the deal. But I think that's indicative of some of what's going on out there. It's probably a little tough to tell.
Interestingly, on, on interconnect, John, what I would say is that, you know, we've seen really strong gross add activity, it's really in line with our 9-quarter averages. That's, I think, a really encouraging sign. In fact, interconnect to clouds as the ZN is up meaningfully year-over-year. It was moderated a little by the financial ecosystem, which was a little down year-over-year in terms of gross adds, but we're very stable on the, on the interconnect side, in terms of gross adds. I, I'm sure that some of that is, is attributable, you know, to AI.
On the churn side, we are seeing a little bit more, you're also seeing a little more churn activity with cloud as the ZN, but more between, between service provider types, cloud to cloud, cloud to network, et cetera. That's, I think, a lot of grooming, a lot of 10 to 100 migration and some M&A activity. So I gave you a little more there than you were looking for on interconnect, but I do think that, you know, we're, you're, you're gonna see a lot of, a lot of data transfer happening. I think we're just really well-positioned on that in terms of our multi-cloud connectivity and the and the sort of more advanced nature of Fabric in terms of being more agile to that demand over time.
We're, we're excited about that opportunity, and that certainly is coming up a lot, out there in the market as, as, people are talking about it. Really, I think more, a lot more on the service provider side, but, but also enterprises really talking about the things they're doing, to bring AI into their operations.
John Atkin (Managing Director of Equity Research)
Thank you.
Operator (participant)
Our next question is from Simon Flannery from Morgan Stanley. You may go ahead.
Simon Flannery (Managing Director of Equity Research)
Thanks very much. Good afternoon. You, you talked about the power density requirements a couple of times. How, how are you thinking about that strategically? Are there redesigns or retrofitting you're thinking about doing to your IBXs? How does that impact the xScaleS that you've built so far and that you might build from here? I know people like Meta have been reconsidering data center design.
Charles Meyers (CEO and President)
Yes. Yeah, we certainly are actively thinking about what our, the, the evolution of our design and ensuring that it's evolving and keeping pace with the market. You know, in our retail space, we do have the What's really nice about the retail business is when you serve a very broad range of customers with differing density requirements, you're able to sort of dense up and, and extract more from the, the system over time. We've really, I think, benefited from that. When you, in the, you know, in more of the hyperscale or xScale type arena, you know, it's, it's a little more challenging. I think you have to just be, because you allocate all that power out, typically to a single customer or maybe two in a facility, and it's a little bit different.
I do think average, you know, density, design densities are gonna need to be going up. I think that also, though, your ability to... Cooling is often the, you know, is often the constraint. I think there are we are actively looking at, in fact, in our innovation center in D.C., we're actively looking at and testing liquid cooling as a way to, you know, get more out of the, our current designs, as well as implement as, as a more standard feature in our go-forward designs. So I do think we're gonna you're gonna be seeing design densities going up, and you're also gonna be seeing us use technologies to augment existing facilities to get more out of them.
Simon Flannery (Managing Director of Equity Research)
Great. Thank you.
Operator (participant)
Our next caller is Eric Luebchow with Wells Fargo. You may go ahead.
Eric Luebchow (Managing Director of Equity Research)
Thank you. Thanks, appreciate the question. You know, one, one for Keith. I think you mentioned the non-recurring side of the business would see a material step up in the back half, and so maybe you could provide a little more color on that. Is that more custom install work, xScale fees, maybe just the right runway rate to think about for NRR as we look out, you know, the remainder of the year?
Keith Taylor (CFO)
Yeah, Eric, as you can tell from the guidance we delivered, we've said Charles has mentioned a few times, the recurring aspect of our business is performing exceedingly well. The non-recurring, a lot of what you experienced, particularly with the step-ups and the step-downs, relates to the xScale fees. As you're wholly aware, there's two non-recurring xScale fees, and there are two recurring xScale fees. As it relates to the non-recurring, it's really the sales and marketing fee that has the biggest impact to our business. As we said, the pipeline is very deep. There's a lot of opportunity that's right in front of us. We anticipate that there will be a very large set of fees that get earned over the second half of the year.
Right now, we're targeting that to be in the fourth quarter. I guess there's always a scenario where it could be the third quarter, but it's really a, it's a second half, anticipated, close. With that, you know, that's what we've, we've got in the guidance. Then, you know, on top of that, of course, the recurring, you know, the recurring, the, the recurring part of our business is still, you know, you're seeing a nice, meaningful step up on that, and you just have to go to the midpoint of the guidance over, over the rest of the year, and you can see that, that one of those quarters is gonna be one of the largest step-ups you've ever seen in our history. Part of that, of course, is driven from the non-recurring fees.
Eric Luebchow (Managing Director of Equity Research)
Great. Thank you. And, and just one follow-up. If I look at churn, it ticks up a little bit to 2.3%. Just wanted to confirm, is that related to some of the volatility you're seeing with cabinet build metrics you mentioned earlier in the call, some of the network grooming on cross connects? Any way to think about, how we should think about churn going forward, still in the lower end of the 2% range, or will it be a little more variable based on what you said earlier?
Charles Meyers (CEO and President)
Yeah. Not so much related to the interconnection, because that, that does, on a net basis, not, probably not having a, not a huge driver on the churn metric. It is, it is related in part to those deployments that I talked about when I was giving color on the billable Cabs, that, you know, related to churns that we view as favorable. Again, those 37 deployments, the 85% of those Cavs are gonna have mark-to-markets that are in the 50%-70% positive range. So that's, you know, we're, we're, we'll take those, take, take those when we can get them.
So, and, you know, several of those in Singapore, and so we will even, even with our additional allocation, you know, that's out there in the future, you know, in terms of build. So it's a precious resource to have capacity in the Singaporean market, particularly capacity that has the kind of characteristics that we do in terms of cloud proximity and, and, you know, sort of network density and, and ability to drive the, the performance, et cetera. So, so we'll, we'll take that capacity, and those are, those are some of the things that led to us seeing a little bit of an uptick there.
As we said in the, in the prepared remarks, you know, we're, we're comfortable that we on a, on average for the year, will land in sort of the lower part of our, of our guided range. You know, you may see a little, little spikes in there like we did, a little bit higher this quarter. That generally is probably more attributable to favorable type churn activity.
Keith Taylor (CFO)
Actually, if I just maybe just add one other thing. You know, as we look forward, and Charles alluded to it earlier on, as we think about some of the negotiations we have to get back capacity in some highly constrained assets and markets, part of that is Singapore. So we are working on one thing that, you know, clearly we'll identify it if we come to an appropriate negotiated outcome. Suffice to say, those are the examples of things that cause those small blips, but we'll sort of call it out for you.
Charles Meyers (CEO and President)
Thank you both.
Operator (participant)
Our next caller is David Barden with Bank of America. You may go ahead.
David Barden (Managing Director of Equity Research)
Hey, guys. Thanks so much for taking the questions. I, I guess, Charles, when, when you look at the kind of the global landscape and, and you start extrapolating the, you know, the dynamic that we've started to see in, in places like Northern Virginia or Toronto, Mexico City, Silicon Valley, how should we, as investors, think about the P versus the V, equation, as, you know, power availability kind of constricts V? How do you think about your ability to, ramp the P on the price to kind of monetize that, you know, scarcity element of, of the business that you're in? Thanks.
Charles Meyers (CEO and President)
Yeah, there's a lot in that question. You know, on the, you know, on, on P times V or Q, or whichever you prefer, you know, it's, you know, I think we're, we're, we're, we're definitely seeing a firm pricing environment, and I think that's true of the data capacity industry at large. I think that we see... You know, we obviously operate in the retail side of the business at a very different price point than the prevailing broader industry, which I think is, centers more around a wholesale or, or hyperscale type, price point. Both are, are on the rise, and I think that's gonna continue to be the case, you know, for, for a bit of time here. I think in terms of volumes, I think volumes are also going to grow.
You know, the question of whether or not power availability would constrain supply is an interesting question. I think that, you know, it could in market by market, but I think that, you know, on our side, we feel very comfortable that our relationships and our visibility to power allocations are gonna allow us to continue to execute on the build plan that we have in place. On the xScale side, I think it's a little more challenging, but we are actively working with, you know, with the folks to make sure we identify that. We're also actively looking at alternatives, and for example, things like on-site power generation, I think are probably more of a reality in some of those in that market over time. We've done that in certain markets.
In fact, our, our recent Dublin facility is, you know, has, you know, on-site power generation, with, with fuel cells, natural gas-based fuel cells, as a primary source of power. We actually use, you know, Bloom Energy fuel cells in Silicon Valley, not as a primary source, but as a... I think that, you know, that's, that's, I think we're gonna continue to see trends in that, in that area. I, I don't... I also think that you're gonna see that, you know, if necessary, the, the positioning of, of certain forms of data center capacity, particularly in the hyperscale area and, and some of AI training, may adapt to simply go where the power is. I think that you may see some of that movement as well.
I, you know, I don't think, you know, quantity is gonna be, you know, material constrained, materially constrained in our retail business by power availability, but it is something that I think we, as an industry, need to continue to grapple with.
David Barden (Managing Director of Equity Research)
Thank you, Charles. As a follow-up to that, specifically to that point about going to where the power is, do you see a shift in your CapEx allocation into kind of, let's just call it, more novel land bank development opportunities? Obviously, we've seen reports that Meta, for instance, is looking to do 1 gigawatt in Wisconsin or other places like this that, you know, would not tend to be in the traditional geography of data centers.
Charles Meyers (CEO and President)
Yeah, short answer is, not yet. In fact, obviously, the vast majority of our demand and our revenue and our profitability is sourced from, you know, sort of our large campus environments around the world, and, and that's where the bulk of our land investment has been. You know, you're, you're seeing the rise in our sort of owned asset revenue because we're continuing to build now on owned land and owned facilities around the world. The bulk of our land bank is really still going towards that. That doesn't mean we'd necessarily be opposed to that. I think that would more likely be a xScale-type thing, which would probably run through the JV. You know, I do think those are the kinds of things that we have to be thinking about.
I do think in terms of more, you know, some of our xScale, though, I think, is gonna be more proximate, more proximate to our campus locations in those areas where we think we can support that. I don't think it's out of the question we'd do that. Right now, the shorter answer to the question is no, that's not really yet part of our equation.
David Barden (Managing Director of Equity Research)
Got it. Thank you, guys.
Keith Taylor (CFO)
David, as you probably noted just on, you know, the number of projects that we have underway across, 40 markets today, again, we're actually spreading our capital far and wide, to capture the opportunity and, most of the, the sort of major centers around the globe. As a result, that's gonna be, I think, more of the emphasis going forward. Smaller bite sizes that make sense, and particularly those ones that are adjacent or contiguous with their existing facilities. That's just what you're seeing. Then you heard us talk a little bit about, at least in the prepared remarks, the new markets that we're sort of entering into.
We'll continue to, to push our, our advantages in our, in the markets that we have today, but also go to markets where others are less likely to go, and we get to enjoy the sort of the experiences of a retail business versus just focusing on hyperscale.
David Barden (Managing Director of Equity Research)
Thanks, Keith. Thanks, Charles.
Charles Meyers (CEO and President)
You bet.
Operator (participant)
Our next caller is Brett Feldman with Goldman Sachs. You may go ahead.
Brett Feldman (Managing Director of Equity Research)
Thanks for taking the question. Keith, I want to come back to some of the comments you made in the prepared remarks about dealing with some stresses in the supply chain. Obviously, you've been grappling with that to some degree for a number of years now. I'm just curious, how broad-based is it? Is it, is it concentrated in the markets? Is it around certain elements that go into development? Then just to clarify, is that distinct to the quite literal physical supply chain, or were you embedding within that challenges associated with power procurement and permitting? Thank you.
Keith Taylor (CFO)
Yeah, Brett, just, just generally speaking, given the demand for data centers and all, all things, surrounded, to that industry, the supply chains continue to be constricted. I think even at the Analyst Day, Charles made a reference to the fact that generator, 3-megawatt generator, today has a roughly, 120 week timeline. It gives you a sense of how far out you have to start thinking and planning.
One of the things that we tried to emphasize at the Analyst Day was, you know, we look at all of our, you know, look at all our markets, all of the projects, and, and, and, and determine exactly what we need where, and then we, we have a very sophisticated procurement team that focuses on, on making sure we, we work with the larger, larger providers and, and get availability either to production capacity or slot in the production line or available capacity, you know, from the inventories. I just think that's something that we prudently do. We manage ourselves and, and, it's something that's going to be very important on a look-forward basis as well. You have to tie that back into the comments Charles made about power.
In the end, you have to have the available power, you have the available cooling, making sure that you have the, the appropriate kit to roll out the data centers, in a fair way that you can deliver the capacity to the, to, to the need. Again, a lot of work is done on that. The team, the team, you know, the construction, the design, construction, procurement, sourcing teams are all working together in tandem, we look out 5 years. In some cases, as I said, we'll go out as far as 10 or 15 years, like the London market, where we see a, you know, broad future opportunity as well.
Charles Meyers (CEO and President)
Yeah, and Brett, I, I'd add that, I do think that one thing I didn't mention previously that I'll, I'll, I'll, I'll put in there now is that I think one of the really critical factors in ensuring availability for what, you know, is inevitably gonna be a somewhat constrained resource on power, in, in places around the world, is to bring forward a really thoughtful, approach to sustainability. You know, that was one of the driving forces, I believe, in terms of our, successfully, getting an allocation in Singapore.
So similarly, I think our ability to work closely with, and I've been, you know, on the phone with, you know, utility CEOs, you know, in the recent past, talking about, you know, these, these topics in terms of, you know, how to, you know, put our heads together and try to solve for some of these things, and sustainability has to be, I think, part of that picture. So, so I do think that, you know, that's, that's something we're gonna bring to the table. We're gonna lean in and, and really continue our market leading emphasis on sustainability, not only for our customers, but in tandem with our partners, on the utility side as well.
So I think those are, those are other factors that I think come into play when we really think about the, the power, the power issue.
Brett Feldman (Managing Director of Equity Research)
Thank you.
Operator (participant)
Our next caller is Matt Niknam with Deutsche Bank. You may go ahead.
Matt Niknam (Equity Research Analyst)
Hey, guys. Thank you for taking the question. Just a couple, like, housekeeping ones for me. First, if you can comment on what drove the slight increase, I think it was about $10 million increase to recurring CapEx. Also I noticed DSOs stepped up somewhat modestly. I think accounts receivable is about a headwind of $100 million in the quarter. Just wondering if there's anything that you'd call out beyond typical Q2 seasonality. Thanks.
Keith Taylor (CFO)
Yeah. On the first one, just recurring CapEx is when you look at a year-over-year, Q2 tends to be... Q1 is our lowest spend on a seasonal basis. Q2, we're sort of right on line with where we thought we'd be at 2%, that was consistent with last year. Then you see over the next 2 quarters, we step it up even further. Part of it is just timing and making sure we do, we do the work that we need to, based on the needs inside the different buildings. As a result, it'll, it'll move around by quarter. You know, we can sort of massage at times into different, into different quarters, but I would just say nothing, nothing meaningfully has caused that.
It was an $18 million step up quarter-over-quarter, just to put, you know, to be exact about it. As it relates to DSOs, as I sort of said in the prepared remarks, our DSOs, our recovery, it's gone up a little bit, but what I would tell you is some of the things that we've been working on with our customers, as you can appreciate, as I said, there's not. There's certainly some discussion around the power price increases. Although we're, you know, we're, we're ahead of what we anticipated, there's still, still some negotiations, and as a result, you know, our DSOs had moved up a bit. Customers weren't, and some of the customers weren't paying their entire bills.
The instead of just disputing what the power price increase was, the whole bill was being held back, and some of those payments have since been made in the July timeframe. So DSO, I think you're gonna see that step back down to a more traditional level. Overall, I'd just say that liquidity in the business, the cash we're generating and the collections, you know, you'll get some seasonality. We're running ahead of what we anticipated we'd be for the third quarter already. As I said, I think DSO is an average days delinquent will go down.
Matt Niknam (Equity Research Analyst)
... Keith, just to clarify, too, it was more on the guide for recurring CapEx. I think that stepped up $10 million relative to the prior guide for the year. I'm just wondering if there's anything notable to be aware of there.
Keith Taylor (CFO)
I'm sorry, I misunderstood your question then. As it related. No, there's a little bit more recurring CapEx. You know, when we have capacity and we look across the portfolio and think, what can we do based on the capacities we have? Sometimes we work with Raouf Abdel's organization, said, we have capacity to put a little bit more recurring CapEx into the year. What you could do is pull it forward from one year and put it in, into, into the year prior. That's what you've just seen. We have. We felt we had a little bit more capacity to invest in some recurring CapEx this year, and it really takes away that obligation for next year.
Matt Niknam (Equity Research Analyst)
Perfect. Thank you.
Operator (participant)
Our last question comes from Nick Del Deo with MoffettNathanson. You may go ahead.
Nick Del Deo (Managing Director of Equity Research)
Hi, thanks for squeezing me in. you know, Charles, on the interconnection front, are you still expecting an improvement, in ads as we move through the year, like you communicated previously? Or do you think these headwinds are a bit stiffer than expected?
Charles Meyers (CEO and President)
Yeah, great question, Nick. I, I'd tell you, in all honesty, I'd expected we would have seen a bit of a moderation back up towards prior levels by now. But there's a lot of, lot of factors in play there. I think that the short answer is, I do believe we're going to see that, when I look at it, the gross ads continue to be really strong. Overall demand for interconnection is persistent. And as I said, it even growing with, you know, with cloud as the end. And so I, I think that, that is the most encouraging to me. When we look, really unpack what is, what is suppressed the net ads, it's clearly on the churn side. And so we've unpacked that in great depth, as you might imagine.
It really is almost all from the service provider side in terms of where we're seeing the elevated churn over normal levels. As we unpack it further, you see there is, there is definitely 10 to 100 migration, and I think that is accelerated a bit more than we expected, just because, and maybe we should have anticipated this, but as the cost of electronics goes down, it is more broadly available to people who have, you know, a sufficient number of interconnects to really justify that. We did see, you know, continued uptick, you know, it, it seems almost like what you're seeing is, you know, 10 to 100 migration was led by the most sophisticated customers with the most at stake.
You see another blip as sort of, the broader, the broader population begins to sort of integrate that. Again, it's not going to be relevant for everybody. You have to have some level of concentration to routes, to really make it, you know, make it a economically viable proposition. So you're seeing 10 to 100, you know, partially impacted there. You see some M&A activity, and that's true in the CDN space and in the network space. Those are finite things. They, you know, they work their way through, and then you, and then you go back to, you know, to some sort of a normal.
And then I would say the third area is just a more aggressive inventory management, particularly from the network space, where, as you, many of you know better than we do, there's some real, overall business challenges where people are, are looking to aggressively tighten their belt in any way they can. So I think those dynamics, several of those dynamics are finite in nature, and which is why I kind of fully had expected that we would return, you know. I don't know whether we get all the way back to sort of our previously guided range, but I think we'll see, potentially see some lift back there.
Independent of all that, even at our current level of ads, we're seeing, one, we're seeing very strong pricing, and, and that is driving, and we're seeing a migration towards higher port speeds on, on offerings that are priced by speed. And so that mix is helping. And you saw as a result, I think you're going to continue to see very healthy revenue growth. We'll track that. It's certainly my hope that we will see some elevation through the back half of the year, but we'll just have to see how that plays out.
Nick Del Deo (Managing Director of Equity Research)
Okay. Okay, great. Thank you. You know, in Singapore, obviously, great to see the 20-megawatt allocation you got. How long before you can actually bring that online? About how long will 20 megawatts last you?
Charles Meyers (CEO and President)
Well, we can't, we can't speak to the to the actual size of the allocation, so I, I, I don't doubt there is information out there, but I can't confirm or deny anything relative to the size of the allocation. I would simply say that we're very excited about what we got. We're very excited about the opportunity to build incremental capacity in that market. We believe it will give us some really solid runway in an incredibly important market. In the meantime, we're, we're continuing to, you know, sort of, very opportunistically harvest capacity to continue to meet the demands of our customers and to drive very superior returns in that market.
Nick Del Deo (Managing Director of Equity Research)
Okay. Thanks, Charles.
Charles Meyers (CEO and President)
You bet, Nick.
Keith Taylor (CFO)
Thank you, everyone. This concludes our Q2 earnings call.
Operator (participant)
Goodbye. This concludes today's conference. Thank you for participating. You may disconnect at this time and have a great rest of your day.