Equinix Inc (EQIX) — Q3 2021 Earnings Call Transcript

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 make 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 19th, 2021, and 10-Q filed on July 30th, 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 Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures, the most directly comparable GAAP measures and a list of the reasons why the Company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We have made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page from time to time and encourage you to check our website regularly for the most current available information. With us today are Charles Meyers, Equinix's CEO and President, and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in an hour, we'd like to ask these analysts to limit any follow-on questions to just one. At this time, I'll turn the call over to Charles.

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. 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 and accelerated the need to digitize business models in virtually every segment of the economy. And our strong results reflect the increasing demand for digital infrastructure, and Equinix remains uniquely positioned to help customers as they shift towards distributed, hybrid, and multi-cloud as the 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 in scale in our market-leading colocation franchise, expanding our relevance in the Cloud ecosystem through xScale, and tapping into massive sources of incremental demand by adapting to evolving customer needs with our 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 the AFFO was in line with our expectations. Interconnection revenues continued to outpace colocation revenues, growing 11% year-over-year, driven by solid fiscal cross connect growth and broad adoption of Equinix power. These growth rates are all on a normalized and constant currency basis. We processed more than 4,200 yields in the quarter across more than 3,100 customers highlighting the reach, scale, and predictability of our booking digits. We have a solid demand pipeline as we look into the final quarter of the year, and we continue to add capacity in service 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 interconnections on our industry-leading platform. In Q3, we added an incremental 7,800 interconnections, and now have at least one major cloud on-ramping, 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 significantly over index 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 2 data centers in Mumbai form a network-dense campus with more than 350 international and local companies, including 6 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 business. In October, we announced plans to expand in Australia with an agreement to establish $575 million in 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 previous slide-outs to our joint venture with GIC and signed 2 megawatts with hyperscalers in Frankfurt. We currently have 8 xScale assets under development, including our newly announced assets in Mexico and Sydney, which will collectively add 25 megawatts of capacity when they open 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. Turning to our Equinix Metal business, we saw strong revenue growth as Cloud-native and service provider customers continue to embrace the ability to deploy physical infrastructure at software speed. And Network Edge is seeing 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. Our network vertical continues to be foundational for the business, with strength in the quarter in cable and satellite sub-segments and continued momentum in joint go-to-market with our top 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 products at scale and in real-time. Our enterprise vertical saw another strong quarter led by manufacturing in FinTech and record channel activity. New wins and expansions included a Fortune 100-named manufacturing company deploying global network hubs to enable their stats 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 verticals saw particular strength in the Americas, as industry-specific cloud solutions continue to be a catalyst for innovation and new growth. Expansion this quarter included Adobe, a leading cloud software provider deploying infrastructures towards platforms and optimizing 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 workflows hosted on Equinix Metal, and a top 5 global software provider deploying core metal to support their growing user base and demand in both Mexico City and Sao Paulo. Content and digital media had a great bookings quarter with resurgence in this vertical being led by APAC and broad-based strength in the gaming and streaming sub-segments as consumer demand for at-home digital services remains strong. Expansion this quarter included Netflix, a global streaming service expanding across Platform Equinix to new and existing markets to support OTT delivery, Kingsoft, a Chinese cloud provider expanding into certain ports to support rapid sales growth, and a top 3 content distributor extending coverage and scale for its growing platform in the delivery of new and existing security solutions. Our channel program continues to shine, delivering another robust quarter. This important go-to-market notion 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 from joint enterprise pursuits 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 for Continental Group, a worldwide automotive parts supplier with 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 to cover the results for the quarter.

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 over the past few quarters. And our forward-looking pipeline is extremely healthy in all our regions. Our channel sales activity was the best in our history, and our global platform delivered healthy inter and intra-region activity. We have firm MRR per cabinet yields with yet again, net positive pricing actions, a validation of our 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 with support from our Fabric, Network Edge, and Metal service offerings. We've seen no major delays to date with delivering new capacity despite general market concerns related to supply chain challenges. This is 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 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. Non-recurring revenue represented about 7% of revenues due to an increase in custom installation work and EMEA xScale joint venture fees. For Q4, we expect MRR 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. Total Q3 adjusted EBITDA was $786 million or 47% of revenues at the high end of our guidance expectations due to the 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 at $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. Total Q3 MRR turn was 2.1%. We continue to expect MRR turn for the full year to be at the lower end of our targeted quarterly range, up 2 to 2.5%. Turning to our regional highlights, whose full results are covered on Slides 5 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 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 America sales teams continue to sell the global platform with notable increases in activity coming from our Canadian team, 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 Frankfurt IBX serve as a model for positively contributing to the local microclimate. 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 zones. Our Hong Kong market saw a nice rebound in bookings performance, although it continues to feel constrained given the market uncertainty. Regarding 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 at a weighted average maturity of over 9 years. Turning to Slide 9 for the quarter, capital expenditures were approximately $678 million, including recurring CapEx of $48 million. We opened 11 new projects this quarter, including new assets in Frankfurt, Osaka, and Singapore, and purchased land for development in Barcelona, Frankfurt, and Helsinki. On the Zale side of the business, we opened our Sao Paulo 5 and Frankfurt 9 assets. We also closed the first phase of our media 2 joint venture with GIC for net cash proceeds after a 20% equity contribution of approximately $140 million, including more than $4 million coming from the contribution of our Sao Paulo 5 asset into the joint venture after the quarter ends. On a separate note, we continue to actively manage our practices, suppliers, and have built up an appropriate inventory of parts and components as we hedge against supply chain challenges in support of our business needs. Finally, total recurring revenues for our assets stepped up 59% due to the acquisition of our Sydney 1 and Sydney 2 IBXes. 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 generate a 27% cash-on-cash return on the gross PP&E invested. We expect to exit the year closer to the top end of our stabilized asset growth range, partly due to strong Americas revenue growth. Please refer to Slides 11 to 50 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, reflecting our continued strong execution. Revenues include about $5 million from the GPX acquisition and reflect updated FX rates. We expect 2021 adjusted EBITDA margins before integration costs to be greater than 47% and now include about $3 million from GPX acquisition and reflect updated FX rates. We expect to spend $80 million on integration costs in 2021. 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.

Thanks, Keith. Our business continues to perform exceptionally well, delivering strong and consistent results throughout the 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 pursue 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're 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 for 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 a service mindset, starting by being 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.

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

Sure, yes. I think we're seeing strength across the board, but really the enterprise side of the business is where a lot of the new customer adds are coming from. Most of those, about 60%, are coming through the channel, as we talked about in the script. So we're seeing a big uptick; that said, more than 35% of the bookings are coming through the channel. 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 pursuits with us in terms of pursuing hybrid multi-cloud opportunities and people implementing hybrid architectures. In fact, we had our top 4 alliance partners in this quarter accounted for 10% of the total bookings. That's not 10% of the channel book, that's 10% of the total bookings. So really strong momentum with the channel partners across a number of verticals and use cases, but real strength in terms of how people are thinking about using corporate data to draw insights, how they want to store that data centrally, act on it from a variety of cloud resources, and then AI as a key driver. In fact, we had a big 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, we had an event today that we call Connects, with about 500 registrations for that event for enterprises talking about a variety of use cases implemented on Fabric. So we're seeing some really good momentum.

Thanks. 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?

Again, I do think that's a durable trend. I would always comment that there are some potential lumpiness in churn at times. If you look at the trend line on that, the line of best fit is clearly downward. So we've had a good year. As we said, we expect our full-year churn to be toward the bottom end of the range that we talked about, 2% to 2.5%. I think the big driver of that is really the mix of business. We're getting the right deployments, the right kinds of customers, the right kind of use cases. 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. I do think it's durable, and I think that's going to continue to be a key driver in the business going forward.

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

Sure. I'll start, and then Keith can jump in if he wants to add anything. I'd say this: other than some small one-time 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 going to be more longer-term volatility into 2022 that we're really looking at. As you said, similar to currency, we've got a pretty extensive hedging program that really feathers in our hedges over a multi-year period. We're about 85% hedged in the unregulated markets, which represent most of our largest markets. Our contracts allow us to adjust pricing based on underlying costs. We're actively working to implement adjustments where we think that's appropriate. Our experience in Europe with the cross-connect pricing increases over the last couple of years gives us confidence that we'll be able to accomplish that effectively. There's no doubt there's more volatility in the energy markets, so we're watching those closely and will continue to adapt our strategies accordingly.

And just as a follow-up, what's sort of the presenting portfolio in terms of circuit billing orientation? And when you factor in some of the ability to pass some of this through, what's the sort of benefit that you may layer in there in terms of the top-line?

About 80% of the portfolio is circuit-based. And again, that's been a key to our overall return story. We've been very effective in terms of driving aggregate returns across space and power because of that circuit-based power component of the business. In terms of passing through price increases, the main issue is how effective we can be in terms of implementing adjustments based on increases in underlying costs. Our contracts give us the ability to make those adjustments, and we'll look at that market by market and assess rate approaches.

Thanks. I was interested in xScale, and if you can maybe highlight any major differences with PGIM compared to GIC. More broadly, as we think about 2022 growth drivers for revenue, margins, CapEx, as well as AFFO, perhaps coming from xScale, anything to keep in mind?

Why don't I take the first one? I think Charles might take the second. The deal structuring between PGIM and GIC is very similar. In many ways, the construct was developed off of the contracting structure with GIC while we worked with PGIM. We're delighted to have another partner in a different market in support of our Australian business. As it relates to the performance this quarter, again, we've basically sold out most of the capacity that we've delivered to market. We're very eager to continue our builds. We have eight builds currently underway in xScale, and the team is working hard to identify appropriate customers for that capacity plus more. It's an exciting time for us in the xScale space as we're deploying $7.5 billion of capital across 34 assets, and we still have more to talk about. However, xScale in and of itself right now is not a big component of our revenues or AFFO. It does create lumpiness that you've seen in the non-recurring line; we just don't expect as much of that non-recurring revenue as we've seen before, but certainly as we look into 2022 and beyond, we'll see that step-up again from a non-recurring perspective.

Jon, on the other question, look, I’m optimistic about the business, how it's performing, and the magnitude of the opportunity ahead is pretty significant. There's been a little bit of noise in the quarter, but the fundamentals are strong. We added 8,000 interconnections in the quarter, 3,000 billable cabinet ads, record bookings for the past 3 quarters, and this is our best Q3 ever. Predictability on churn is at the low end, and we added another quarter of positive pricing adjustments. Our newly entered markets, especially, have huge opportunities in terms of growth. Digital services are seeing solid customer responses. So as I look into 2022 in terms of headwinds and tailwinds, I'm feeling really good about the bookings momentum, pricing, and our relevance to customers. Churn is looking good, and we have a favorable deal mix. We'll have to pay attention to potential headwinds like changing power costs, but I believe we can effectively leverage our strong bookings momentum.

And if I could throw one in on M&A, whether it's networking-related or software consolidation within the bare metal space, what degree do you usually look at those sorts of opportunities? Is there anything that you feel would augment the platform from that perspective?

Great question, Jon. We are continuing to learn in that area and we're accelerating our investment of energy in understanding that landscape. At the same time, we are digesting and learning from the business around digital services and how to adapt our approach to building capabilities. I see real opportunities and we'll continue to be active in that area in terms of looking for potential opportunities to add talent, technology, and capabilities.

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

Hey, Richard. I hope this party continues for a while. We feel good about that business. We had previously talked about when the Verizon term was going to abate, and now we’re seeing great performance from the sales execution in the Americas. We expect strong activity and growth to continue, with an increasing share of wallet and leveraging our channel partners to capture that.

Charles and Richard, remember this region is 75% utilized, so we have a substantial amount of capacity built in core markets. The sales leadership in the Americas is doing a great job in selling the global platform, and we are seeing real opportunity for increased revenue and performance.

And a quick follow-up, in the Americas, are you noticing a decrease in churn now, or has that not changed significantly?

Well, I mean, you've been in the story for a long time, Richard, but I think elevated churn in the past was due to targeting the right customers. We have had elevated churn while honing our sales strategy, but right deals are crucial for long-term growth. The sales teams are exceptional and I’m confident in our direction.

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? It would also be helpful to have data on the MRR per cabinet in the U.S., excluding the large footprint deployments this quarter.

When we say firm pricing, we see net positive pricing actions recurring in quarters. We're seeing substantial uplifts on our contractually built-in price escalators. Our business typically sees substantial pricing adjustments, and our experience indicates we're able to sustain those price points. Looking at MRR, the number has been strong relative to the rest of the industry. We've seen solid growth across various regions and really quite good results in EMEA.

Great, good evening. Just coming back to the inflation and supply chain commentary. Could you talk about what you're seeing on the construction and development side in terms of labor and raw materials costs? What impacts are you experiencing on timelines for development?

Generally, our team has done an exceptional job navigating current realities regarding supply chains worldwide. Bottom line is we aren’t seeing any meaningful negative impacts to our business. However, it doesn't magically happen - it’s due to our team's great work to mitigate risks. We've seen some modest delays on several projects, but the scale of our projects allows us to respond flexibly and supports our needs. We’re actively managing practices, suppliers, and have stockpiled inventory to hedge against supply chain challenges. We expect things will start to stabilize over 2022.

Great color. And the M&A?

We believe there's opportunity in extending our reach and looking for critical assets in markets that might be accretive to our strategy. We've got the balance sheet firepower to pursue those kinds of prospects and will continue to be active as appropriate.

Thanks. Curious about two questions. The first is about network customers; are you seeing more telecom and wireless companies placing their core network infrastructure in your facilities instead of having their own mobile switching offices? What kind of opportunity does that create for you considering the rise of wireless and 5G?

On the network side, there’s a mixed bag. There's a shift toward third-party facilities like Equinix for core infrastructure, but many legacy companies still prefer to build their facilities. We've had success engaging with newer companies entering markets as disruptors and are actively working to prove out value propositions. Some interesting opportunities are developing.

Second question is about tower companies investing in data center assets. Do you believe your data center business and power portfolios could partner or fall under the same ownership structure in the future?

We see synergy in companies with broad-based real estate assets close to communication infrastructure. I understand why they've shown interest in data center assets, but we see demand at the edge and will likely partner with those companies rather than merging altogether.

Thanks for the questions. Getting back to xScale, you've made progress in Europe and APAC, but at what point does the Americas become more interesting? Are there characteristics that are starting to get more exciting in this market?

When people start cutting each other's throats on pricing, it will be challenging. The Americas market remains competitive, but we are still focused on opportunities in Brazil and other regions where we believe we can add value. We’re open to xScale opportunities within the Americas but remain primarily focused on markets that align with our strategic goals.

The Americas was strong again this quarter. Would you say most of the strength stemmed from Bell Canada, or are other factors contributing?

Canadian business is outperforming expectations, and the focus on targeted customers and diverse delivery of services across the Americas is yielding positive results. We're seeing great performance across different customer bases and optimizing our delivery accordingly.

Just a follow-up about churn in the Americas. Are you seeing it lower now, or has that issue not changed as much?

Churn was higher before as we refined our customer mix and sales strategy. The sales teams are doing an exceptional job now, and I believe we can sustain this low churn as we focus our sales efforts.

Charles, it seems like your outlook for 2022 hints at concerns around margins, particularly from operational efficiencies or power costs. Can you clarify your hedging strategies and what potential margin impacts you foresee?

I can’t quantify any of that now, other than to say we're aware of potential risks and are monitoring them closely. Our multiyear hedges help, but they become less impactful over time, indicating more future risks. We will certainly delve deeper into this as we finalize our 2022 guidance.

When looking at the quarter-over-quarter impacts, Q4 historically has lower AFFO performance based on recurring CapEx. We previously elevated some costs slightly due to unexpected circumstances, including supply chain delays. Q4 also tends to see increased recurring CapEx.

Thank you.

The Americas has been a tougher market over the past year. What has changed, and how long do you think you can continue to see better results from those markets?

Yes, I believe that business has a strong trajectory, and I expect it to continue. We're moving robustly in the right direction, and customer demand, sales execution, and mitigation of churn all contribute positively to our outlook. Customer targets and key markets are vital to maintaining this trajectory.

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