Equinix Inc (EQIX) — Q2 2022 Earnings Call Transcript

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we have identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed February 18, 2022, and 10-Q filed April 29, 2022. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy to not comment on financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations 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, 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 the call up in 1 hour, we would like to ask these analysts to limit any follow-on questions to 1. At this time, I'll turn the call over to Charles.

Thank you, Chip. Good afternoon, and welcome to our second quarter earnings call. On the heels of a record Q1, we had an outstanding Q2, with strong and sustained demand across our product portfolio, broad pricing momentum, and solid sales execution, with particular strength in Americas and EMEA, resulting in record growth and net bookings and our best-ever quarterly revenue step-up. As our customers progress and accelerate their digital transformation journeys, the relevance of Platform Equinix continues to grow. In our recent global tech trend survey, nearly 70% of the 2,900 IT decision-makers polled indicated their intention to adopt private or hybrid as their cloud architecture of choice, with over 45% of those polled working with 3 or more cloud providers and over 80% indicating their intention to sustain or increase their spend on interconnection. Today, we're seeing this demand for interconnected digital infrastructure across our regions. This quarter's bookings sizably surpassed the prior peak, a great indicator of the strength of the business and our go-forward pipeline. Our business remains resilient and highly diversified, with nearly 1/3 of our 10,000-plus customers closing incremental business in any given quarter. Despite macro conditions, this customer demand, paired with lower-than-expected churn, is driving us above the upper end of our Analyst Day revenue guidance this year and benefiting our AFFO per share guide, with the impact of pricing increases still largely unrealized. Turning to our results. As depicted on Slide 3, revenues for Q2 were $1.8 billion, up 10% over the same quarter last year, representing our 78th consecutive quarter of top-line revenue growth, a clear reflection of the durability of our business model across economic cycles. Adjusted EBITDA was up 8% year-over-year, with AFFO meaningfully ahead of our expectations due to continued strong operating performance. Interconnection revenues continue to outpace the broader business, growing 13% year-over-year. These growth rates are all on a normalized and constant currency basis. Customers continue to embrace Equinix as the best manifestation of the interconnected digital edge. And we continue to scale, extend and innovate across our data center services portfolio. We now have 49 major projects underway across 34 metros in 21 countries, with 13 new projects this quarter, including new data center builds in Dublin, Montreal, New York, Paris, Warsaw, and our first build in Chennai, India, the first of several anticipated metro expansions in this fast-growing market. Our unparalleled global scale and reach continues to be a strategic advantage, driving success with service providers looking to extend their reach and rapidly implement as a Service models and with enterprise customers across nearly every sector of the global economy as they modernize their infrastructure and embrace hybrid and multicloud. Wins this quarter included a multinational energy conglomerate, implementing their hybrid cloud strategy across multiple regions, leveraging Network Edge and Equinix Fabric; and F5, a global technology leader in application security and multicloud networking, establishing additional networking nodes in all 3 regions to better support their customers. In May, we closed our acquisition of 4 data centers from Entel, extending Platform Equinix into Chile and bringing our global footprint to 70 metros across 31 countries. Equinix has a decade-long history in Latin America, and this acquisition provides significant expansion capacity, enabling both local businesses and multinationals the opportunity to accelerate their digital transformation and our LatAm aspirations. We also expect to close on the acquisition of one additional data center from Entel, extending our reach to Lima, Peru in Q3. As the world's digital infrastructure company, we believe it's our responsibility to help bring about a more sustainable future. In 2022, we continue to advance our bold future-first sustainability strategy and are pleased to have been recognized by Sustainalytics as among the best large-cap REITs for ESG and to be ranked seventh on the US EPA's National Top 100 list of the largest green power users. We continue to accelerate the transition to cleaner energy grids and recently executed our second Virtual Power Purchase Agreement in Finland. Once operational, these 2 new wind projects, combined with our prior projects, will bring Equinix's total renewable VPPA capacity to 300 megawatts, and we continue to explore additional PPA projects across all 3 regions as we progress towards our goal of 100% clean and renewable energy. Turning to our industry-leading interconnection franchise, we're seeing continued diversification of our ecosystems and robust activities, including a win with Fast Shop, one of Brazil's largest electronics retailers, who chose Equinix to help strengthen interconnection for its digital core, improve cloud connectivity, and integrate with the digital retail ecosystem. In Q2, we added an incremental 7,600 interconnections and now have over 435,000 total interconnections on our platform. Equinix Fabric saw a notable increase in provision capacity as channel enablement is driving network resale use cases and customers are increasingly using inter-metro connections on Fabric to connect across their deployments, including a win with Zivver, a cybersecurity company in the Netherlands using Equinix Fabric to connect deployments in Amsterdam and London to provide connectivity for its customers as part of its business expansion. Internet Exchange saw peak traffic up 4% quarter-over-quarter and 25% year-over-year, to greater than 25 terabits per second. Pivoting to our digital services portfolio, we continue to see strong growth and significant opportunity as customers increasingly leverage more Virtual as a Service and Edge solutions. Equinix Metal had a strong bookings quarter as partner-driven solutions like Pure Storage and Dell PowerStore on Equinix Metal are driving performance-centric hybrid cloud opportunities with enterprise customers. Network Edge also had a strong quarter, with a notable increase in large multi-instance deployments from enterprise customers. Both Metal and Network Edge are also driving attractive revenue pull-through to Equinix Fabric. Digital services wins this quarter included Protocol Labs, an open-source R&D lab, increasing its usage of Equinix Metal to support projects that decentralize the web and cloud storage, and a leading waste management services provider, leveraging Fortinet on Network Edge to connect their business units in Asia to their data centers in the U.S. across Equinix Fabric. Our strategy remains simple: to translate our unique and durable advantages into being the platform where buyers and sellers of digital services can come together, enabling them to deploy and interconnect the infrastructure that they need to transform their business. For service providers, demand remains robust as businesses around the world are planning major investments in digital technologies to support ambitious expansion plans following lessons learned from the pandemic. This year, Gartner projects that global spending on public cloud services will reach nearly $500 billion. And we're seeing strong demand across multiple vectors with these key cloud and IT customers. In the quarter, we added 3 new cloud on-ramps in Paris and London and now have nearly 200 on-ramps to the major cloud service providers deployed on our platform, making Equinix the home of hybrid multicloud. We also continue to see tremendous success supporting our hyperscale partners as they invest in subsea cables to facilitate the rapid growth of Internet traffic between continents. And in addition to being an integral part of hyperscale architectures, we continue to drive go-to-market alignment with these market-shaping players, partnering to meet end customer needs for hybrid cloud and making the hyperscalers some of our most productive channel partners. Hyperscaler demand for our xScale offering also remains robust. We had high leasing activity in Q2, pre-leasing our entire Dublin 6 asset, the first phase of our Paris 13 asset, and the second phase of our Frankfurt 11 asset, representing more than 38 megawatts of capacity. Looking across the various xScale JVs, we've seen strong demand, with over 170 megawatts now leased across our portfolio. And we currently have 11 xScale builds under development, of which more than 80% is pre-leased. On the enterprise side, Gartner also continues to view digital transformation not as a 1- or 2-year trend, but as a systemic and long-term theme. Our pipeline strongly supports this thesis, and our enterprise activity this quarter was robust with Americas and EMEA regions driving record bookings, with particular strength in banking and healthcare. Expansions included a leading U.S. healthcare software vendor, creating an edge hosting environment on the West Coast, and the Hertz Corporation, one of the largest worldwide vehicle rental companies, who deployed on Platform Equinix to support its digital transformation journey, locating infrastructure proximate to cloud providers and tapping into our digital solutions. And once again, our channel program continued to thrive, delivering its fifth consecutive quarter of record bookings, including strong performances for our EMEA and APAC regions, accounting for more than 35% of bookings and nearly 60% of new logos. Wins were across a wide range of industry verticals and digital-first use cases, with hybrid multicloud as the clear architecture of choice. We saw strength from strategic partners, like AT&T, Cisco, Dell, Google, and Microsoft, including a win with Orange Business Services for a security services technology company to deploy their payment card encryption solution while interconnecting to our financial services and cloud ecosystems. We're also proud to have been named HPE GreenLake's Momentum Partner of the Year for 2022 as we work together to deliver a consistent hybrid and multicloud experience for our joint customers. Now let me turn the call over to Keith and cover the results for the quarter.

Thanks, Charles, and good afternoon to everyone. I hope you're all doing well and enjoying the summer months. Well, as you can see from our results, Q2 was one of our best quarters to date, if not our best. The go-to-market engine continues to convert our healthy pipeline into record bookings with attractive pricing, coupled with low churn dynamics. In fact, it was our eighth straight quarter of increasing net bookings activity, and our forward-looking pipeline remains robust. Our success and the momentum in the business are strong indications of the value customers place on our highly differentiated ecosystems, the breadth of our service offerings, the global scale and reach of our platform, and of course, the quality of our operational delivery. With a great first half of 2022, we're again raising our underlying guidance across each of our core financial metrics. Now as you can see from our performance, we continue to manage and instrument the business to perform across varying economic cycles, even ones like we're experiencing today. While all things macro remain within our focus, we do feel well positioned to address the volatility in the market, and here's why: we have low customer concentration, with no customer representing greater than 3% of our revenues, and our top 50 customers continue to diversify across our platform and as a percentage of revenues. With regards to supply chain, our best-in-class design and construction and strategic sourcing teams are delivering projects consistent with our budget expectations with limited delays and have access to greater than $300 million of inventory holds to mitigate future disruptions across a number of critical functions. On inflation, we've largely been effective in protecting our customers and partners from the market fluctuations. But as we continue to assess the likely go-forward trends related to the cost of energy and construction, in addition to the broader inflationary increases affecting wages and other operating costs, we do expect to raise our prices. And with 60% of our revenues coming from outside the U.S., a strong dollar in Q2 has had a notable impact on our as-reported numbers and outlook, yet our sophisticated hedging program has meaningfully dampened the impact to our financial statements. Now let me cover the highlights for the quarter. All comments in this section are on a normalized and constant currency basis. As depicted on Slide 4, global Q2 revenues were $1.817 billion, up 10% over the same quarter last year and above the top end of our guidance range due to better-than-expected step-up in recurring revenues and strong xScale NRR fees. Full MRR per cabinet yield reached the new mark of $2,000 per cabinet. Q2 revenues, net of our FX hedges, included a $20 million impact when compared to our prior guidance rates due to broad dollar strength. Global Q2 adjusted EBITDA was $860 million or 47% of revenues, up 8% over the same quarter last year, above the top end of our guidance range due to strong operating performance. Q2 adjusted EBITDA, net of our FX hedges, included a $10 million FX impact when compared to our prior guidance rates and $4 million of integration costs. Global Q2 AFFO was $691 million, above our expectations due to strong operating performance and included a $9 million FX impact when compared to our prior guidance rates. Global Q2 MRR churn was 2.1%, again at the lower end of our guidance range. Looking forward, we expect MRR churn to continue to trend favorably and remain at the lower end of our 2% to 2.5% per quarter range. Turning to our regional highlights, whose full results are covered on slides 5 through 7. APAC was the fastest-growing region on a year-over-year normalized MRR basis at 14%, followed by the Americas and EMEA regions at 11% and 9%, respectively. The Americas region had a record bookings quarter with great performance in our Canadian and Mexican businesses as well as our Denver and Silicon Valley markets and healthy new deal pricing. The Americas go-to-market edge then continues to sell the platform with strong global exports. The Entel Chile assets are performing well against our initial expectations, and we look forward to adding Lima, Peru to our global footprint in August. Our EMEA region also delivered a record bookings performance, with broad-based strength across our cloud, enterprise, content, and digital media verticals, led by our London and Paris markets as well as our emerging markets. In the quarter, we saw healthy retail activity with strong pricing across our varying deal sizes and solid adoption of our digital services products. The integration of the MainOne assets into our platform is progressing well, and the business is tracking ahead of our expectations. We're seeing increased focus on sustainability across our European stakeholders, and thus, we're taking an active leadership role through the European Data Centre Association to address this growing and critical matter. And finally, the Asia Pacific region had a strong quarter with robust channel activity, led by our businesses in Australia and Singapore. I would also like to take this opportunity to thank our Shanghai operations team for their dedication and effort during their very strict COVID lockdowns over the past quarter which ensured 100% uptime. Their efforts are a shining example of what we call the magic of Equinix as they put 'we' before 'me' to ensure our customers' critical infrastructure remained operational. And now, looking at our capital structure, please refer to Slide 8. We ended the quarter with cash of approximately $1.9 billion, an increase over the prior quarter, largely due to our April green bond debt offering and strong operating cash flow created by the business, offset by our growth CapEx, the cash dividend, and the acquisitions closed in the quarter. In June, Fitch Ratings upgraded us to BBB+, given the strength of our business performance and its cash-generating capabilities as well as our balanced capital funding posture. We're very appreciative of the support received from Fitch. Additionally, during the quarter, we executed some ATM for resale transactions, which will provide approximately $400 million of incremental equity funding when settled later this year. Looking forward, as stated previously, we'll continue to take a balanced approach to funding our growth opportunities with both debt and equity while creating long-term value for our shareholders. Turning to Slide 9 for the quarter, capital expenditures were approximately $490 million, including recurring CapEx of $35 million. In the quarter, we opened 4 retail projects in London, Mexico City, Milan, and Tokyo and 2 xScale projects in Frankfurt and Sydney. We also purchased land for development in Bogota and Mumbai. Revenues from owned assets stepped up to 61% of our total revenues, reflecting our long-term strategy of both developing and purchasing land and IBXs. Our capital investments delivered strong returns as shown on Slide 10. Our 162 stabilized assets increased recurring revenues by 7% year-over-year on a constant currency basis. These stabilized assets are collectively 87% utilized and generate a 28% cash-on-cash return on the gross PP&E invested. And finally, please refer to slides 11 through 15 for an updated summary of 2022 guidance and bridges. Do note, our 2022 guidance now includes the anticipated financial results from the Entel Chile acquisition, which closed in May. For the full year 2022, based on the momentum we're seeing in the organic business, we now expect our revenues to increase 10% to 11% on a normalized and constant currency basis over the prior year, trending above our Analyst Day revenue range, a reflection of the healthy digital infrastructure demands that are driving the momentum in our business. Relative to our prior guidance, we're increasing our revenues by $65 million, including $30 million of revenues from the Entel Chile investment. We expect 2022 underlying adjusted EBITDA to increase by a net $33 million compared to our prior guidance, including $18 million from Entel Chile. We now expect to incur $30 million of integration costs in 2022. We're raising our underlying 2022 AFFO by $33 million to grow between 8% and 10% on a normalized and constant currency basis. And given the strength in our business, 2022 AFFO per share is now expected to grow between 8% and 9% on a normalized and constant currency basis, above the top end of our prior guidance, with both the MainOne and Entel acquisition immediately accretive to our business. 2022 CapEx is now expected to range between $2.3 billion and $2.6 billion, including about $185 million of recurring CapEx and about $110 million of on-balance sheet xScale spend. So let me stop here. I'm going to turn the call back to Charles.

Thanks, Keith. In closing, we had an outstanding first half of 2022, and our business continues to deliver strong and consistent results. Despite a challenging macroeconomic and sociopolitical landscape, demand remains robust as customers continue to invest heavily in digital transformation. And as infrastructure needs evolve, Platform Equinix is increasingly relevant as a point of nexus in IT architectures that are more distributed, more hybrid, and more cloud-connected, giving us a distinctive value proposition and meaningful pricing flexibility. The emergence of the cloud continues to disrupt the multitrillion-dollar global IT market, fueling both our hyperscaler relationships and our broader service provider business as successful new entrants extend and expand their infrastructure to drive revenue growth and traditional technology leaders build out distributed delivery infrastructure as they transform to as-a-service models. We continue to invest behind this momentum, both in expanding the reach and scale of our data center platform and in accelerating the evolution of our digital services portfolio, which is seeing strong customer interest. In that vein, we're pleased to welcome Jeetu Patel and Fidelma Russo to our Board of Directors. As veteran operating leaders at Cisco and HPE, they bring deep knowledge of both technology and go-to-market aspects of the evolving digital infrastructure landscape. And we're excited about their contributions as we continue to innovate our service offerings for the digital leaders of today and tomorrow. So let me stop there and open it up for questions.

Congrats on the quarter. Just first, maybe on bookings. So you talked about record quarterly gross and net bookings, Americas and EMEA leading the way. I'm just wondering if you can talk a little bit about how trends evolved over the course of the quarter and whether you've seen any moderation, maybe either late 2Q or early 3Q, just in light of the macro backdrop. And then one follow-up. Keith, you mentioned the $400 million in ATM equity issuance. I'm just wondering, with leverage under 4 turns, can you talk about the strategic rationale for the issuance and how you're thinking about potential uses.

Hey, Matt. It's Charles. I'll take the first question and pass it to Keith for the second one. The trend line on bookings remains strong. We are witnessing genuine commitment from companies towards digital transformation, and this strength is evident across regions and sectors, both in our service provider and enterprise segments. This applies to nearly every sector, as mentioned earlier. There has been no moderation; in fact, our pipeline heading into Q3 is stronger than it was heading into Q2. We have good forward visibility and are optimistic about the overall demand outlook for the business.

In response to the second question about using our ATM, I want to clarify that we have approached this on a forward basis and have not yet accessed the equity. There is significant disruption in the marketplace, and we are committed to our growth. As mentioned, we have 49 projects currently underway, with 13 new projects initiated this quarter. We are finalizing acquisitions and will continue to fund dividends. As we plan for the remainder of this year and into next, our goal is to maintain balance in the market and in our capital strategies while acknowledging market volatility. We executed a forward sale through several transactions at $680 per share during the quarter, being very selective in our timing. We believe this was beneficial for enhancing the overall liquidity of the business. It's important to recognize the momentum our business is experiencing, as noted in our prepared remarks and by Charles. Our investment in our assets will continue to be substantial, and we aim to ensure we have enough liquidity during uncertain times. Therefore, raising capital when possible is crucial, including utilizing cash on our balance sheet and exploring equity options. We are also considering some debt structures to strengthen our liquidity position to allow us to seize opportunities as they arise. Ultimately, our focus is on being prudent, maintaining balance, supporting our ratings, and creating liquidity for future decisions.

Same-store revenue growth was the best it's been in a while. I think, last quarter, you mentioned you got a 50 basis point benefit from energy. Is that still the case? And then can you talk about the pricing strategy outside of energy? It sounds like you are increasing prices. So can we see increases above and beyond the 2% to 5% that you've received historically?

Thank you, Aryeh. The same-store performance was outstanding this quarter. Regarding the contribution from energy, it’s likely a bit less significant than previously indicated. Overall, we had a very strong quarter. I believe around 40 basis points of the $6.7 million were tied to energy. However, I think we would still exceed $6 million even without that. This is a solid result, and I am optimistic that we can maintain our previously projected range moving forward. About our broader pricing strategy, we are taking a comprehensive approach. I've discussed the various components of this strategy before. One aspect is power, which involves ensuring we fully recover rising power costs in markets where that is happening, in alignment with our hedging strategy. We remain highly confident that our hedging, along with our ability to pass through costs, will help mitigate any business impacts. Additionally, we are implementing a general increase in list pricing for space, power, and interconnection, which tends to have a quicker effect because of its more dynamic nature. We are raising list prices in these areas. Moreover, we will begin to adjust escalators to more accurately reflect the current market conditions. We are already exploring new contracts priced at new list levels with updated escalators. As I mentioned in the prepared remarks, the current pricing effects are mostly unrealized. The guidance you saw today is not primarily driven by pricing but rather by strong unit volumes, though we are maintaining firm pricing. I believe we will start to see the positive effects of pricing in 2023.

Got it. If I can just follow up, is there a point at which the higher prices force companies to start to reevaluate their objectives around data center expansion and whatnot?

Yes, that's a great question. We constantly evaluate the elasticity of demand, and our findings indicate that our business is highly inelastic. For example, in Europe over the past few years, our interconnection pricing activity has shown strong performance with minimal churn impact. Additionally, we have analyzed how much companies invest in Equinix as a crucial element of their digital infrastructure strategy. They receive significant value from that investment, and changes in pricing have a limited effect on their overall plans. We aim to provide superior value and believe we can achieve that at higher price points, encouraging firms to integrate Equinix into their long-term strategies.

I guess I have two kind of higher-level questions. Charles, a lot of the investor base hasn't really lived through the possibility of a recession as it relates to data centers. And there's two big questions that we get. One is, will businesses kind of pull back on their data center budgets in a recession? And the second is, given all the IPOs we've seen, some of these companies, smaller companies, start to fail as we saw maybe back in 2001 and 2002. Is that going to create pressure for the data center business? And I guess, if I could ask a second question, maybe this one is for you, Keith. We obviously saw a well-regarded, short-selling investor come up with a thesis that said that the data centers have 2 problems. One is that they're going to end up competing with their biggest customers, and that's going to cannibalize the need for legacy data center businesses. And second, that it's not obvious the returns on the consolidated data center businesses are actually great. So I know you guys know the answers to those questions. So I'd love to kind of just air those out and hear what you guys are thinking now.

Sure, David, I'll start and then hand it over to Keith. Regarding the broader question about recession and its potential impact on demand, especially concerning business failures and weaknesses in startups, I want to emphasize that we're currently not seeing any decline in demand for digital transformation investments. In fact, as companies anticipate a possible recession, many are looking to modernize their IT infrastructure and adopt hybrid and multicloud solutions for greater agility and cost reduction. Others see this as a critical opportunity to gain a competitive edge, which motivates them to invest further. For example, in retail, despite concerns that a recession might decrease consumer spending, we haven't observed any shift in their commitment to digital initiatives. They recognize the necessity of being prepared for the digital future, which is driving a strong performance in that sector. The same holds true for banking and financial services, which are also continuing to invest despite the potential challenges. Each quarter, we highlight various sectors showing strength in our business, which indicates how resilient the demand profile is. We're monitoring the situation closely, but our past experiences during recessions, alongside our current pipeline, suggest that demand remains robust. Therefore, we're prudently investing to keep up with this demand, including increasing our salesforce. As for startups, our exposure is limited since many of them begin in the cloud and only transition to hybrid infrastructures as they grow, so we haven't seen significant business failures affecting our bottom line. Regarding the short thesis, I believe it reflects a misunderstanding of the data center market and the positions of different players within it. Our relationship with hyperscalers is significant, both in terms of our contributions to their architecture and our collaboration in the market. They are among our most productive channel partners, often selling substantial contracts for cloud solutions. Our customers seek answers for their private infrastructure and how to integrate it with multicloud setups, and we are providing those solutions. I think this zero-sum view between us and the hyperscalers does not accurately represent the marketplace. Concerning returns, our business fundamentally differs in that regard too. We have impressive same-store sales and a 28% cash-on-cash return, growing at 7%, which sets us apart from virtually every other player in the industry. I couldn’t resist addressing that point, but Keith, feel free to add your insights.

David, maybe I could add just a couple of points to what Charles said, which is all very accurate. But the other thing I think is very important for our investors to appreciate is that we were very wise in our decision-making on how to manage the hyperscale relationships. We have the business that Charles alluded to that sits inside a retail business. And again, as the on-ramps, the aggregation nodes, the regional network gateways, and things are very critical to running their core infrastructure. But then there's the piece of the business that is substantial in scale and size, that we always chose not to do inside the retail business and instead set up a structure, which is our xScale business. And as we have just talked about, our xScale business is humming as well, given the momentum we're seeing. We have 11 builds underway. We're roughly 80% utilized across all the inventory that we have not only built but are building or are leased, I should say. And so that puts us in a very good position. Also, to isolate it in that we only have effectively 10% exposure on an equity basis to those investments. The other thing I think is important to note is that these hyperscalers, they're looking for alternatives to other than self-build with others because we can do it in locations cheaper and faster than they could do it themselves. And I think it's a testament to the quality of our global design and construction teams. And then the last part, I think, is really important to appreciate. A lot of these deals that are done, they're price-to-yield. And so the price-to-yield based on a cost model, prices aren't going down, and they're only going up. They're longer-term in nature, your price to yield, and I think it's a really important aspect of the contracting terms. And as a result, as I said at the Analyst Day last year, at maturity the likelihood, the revenues associated with hyperscale for us represent about 1% to 2% of our top line and will represent a full maturity, again, assuming we spend that $8 billion, plus 3% to 5% of our AFFO. And so we feel that is very resilient, not only to the overall performance of our business, but it's also resilient to the price to yield strategy that you deploy when you contract under these arrangements.

Well, and just to be clear, that last statement in terms of the percentage was relative to xScale. Our broader business with hyperscale is just meaningfully larger than that. It's a $1 billion-plus business outside of xScale run rate and growing nicely because we play a very critical role in that infrastructure in terms of what they do inside our retail facilities around the world and because of our relationship with them on a go-to-market alignment perspective.

A couple of questions, if I could. First, just on power. If you can give a little bit more detail of what you're seeing in terms of not just power cost in Europe and other markets where there could be issues, but also power availability. And how should investors frame the risk of the supply side of the equation? And then just switching gears over to the change in the annual organic revenue growth guidance, can you give some additional details of where the relative strength is coming from in terms of regions and/or verticals?

Thanks, Mike. I'll start and then Keith can add. We're very aware of the global energy situation, especially in Europe due to the uncertainty from the war in Ukraine. It's not only about costs, which we monitor closely, but also about availability. Let me address both these aspects. There's not much new on pricing; power costs are rising in many markets, particularly in Europe. We're advanced in our hedging strategy for 2023 and are assessing how this will impact our pricing to customers. We are confident in our ability to implement this effectively. Availability is a separate concern that many are thinking about. While we acknowledge the risks, especially regarding power allocation in some countries, we feel confident in our ability to provide our services. There are three levels to consider, especially concerning natural gas and its implications for Nord Stream and overall supply. First, we look at whether the grid can deliver the electricity needed. This depends on whether the grid is mostly gas-powered and how vulnerable that power source is to potential shortfalls, particularly from Russian supply. Overall, natural gas contributes to only a small portion of electricity generation in our EMEA portfolio, from nearly 0% in the Nordics to about 30% in the Netherlands, U.K., Turkey, and Portugal. The second level involves markets dependent on natural gas and the risk associated with Russian supply. In this regard, only the Netherlands and Turkey rely on more than 25% of Russian gas. Thus, we believe the overall situation is manageable. The second question focuses on what local governments will do if the grid faces challenges. We believe regulators understand the importance of our facilities for the Internet, the economy, and society. Our critical infrastructure designations in these regions reinforce this. We're confident that our data centers will continue to receive the necessary support and allocations. Finally, if there were major interruptions in power supply, we’ve built resilience within our facilities. They are equipped to handle intermittent or extended outages, and our ability to maintain operations during adverse conditions is strong. Our history of exceptional availability in such situations showcases our team's preparedness and professionalism. This is a significant focus for us, and while the rising costs and potential availability risks are challenging, we feel equipped to manage them effectively.

And just while we're on the topic of power, maybe before getting to the revenue question, just one other follow-up. Any update on Singapore, which was a larger discussion during the 4Q earnings call?

Sure. Quick one, Mike. No real update. It's coming in pretty much as we had expected. And again, that exposure in terms of what we're kind of eating, if you will, relative to Singapore, we think, will resolve itself going into 2023. And so no real update. It has some level of impact on our business from a margin perspective this year, but we believe that we can resolve that going into '23.

And then just the regions and verticals of relative strength as you've increased your organic constant currency revenue growth guidance.

Yes, I'll share my thoughts on that and then let Keith elaborate. Our business is very diverse, and all of our regions are performing well. Europe had an excellent quarter, and the Americas continue to show strong performance. APAC is our fastest-growing region, which I anticipate will remain the case due to the ongoing dynamics in Asia. Europe had remarkable performance across various sectors. We're seeing strength across the ecosystem of our business. Service providers are ramping up to deliver the necessary services for digital transformation at Equinix, while enterprise buyers view Equinix as a key point for housing their hybrid IT infrastructure. In summary, we're observing growth across different regions and sectors. Keith, do you have anything to add?

Yes. Adding to Charles' comments, our overall growth is surpassing the guidance we provided at Analyst Day, indicating we can grow the business by 10% to 11% on a normalized and constant currency basis, excluding acquisitions. Of that growth, approximately 60 basis points come from power price increases we implemented at the start of the year. This highlights the impressive performance of our core business. Specifically, our Americas business is achieving growth rates of 10% to 11%, showcasing strong momentum across various verticals and markets as we expand our capacity. We are currently developing 49 major projects across 34 markets in 21 countries, reflecting our broad portfolio expansion. A significant portion of our growth is driven by our installed base, with over 90% of our bookings coming from this source. Although we see a decrease in concentration, the dispersion is increasing, which is a remarkable feature of our business model. Additionally, our pricing remains robust, with another quarter of net positive pricing actions. Specifically, this quarter, for every $1 decrease, there was a corresponding $3.2 increase. This illustrates the momentum within our business. Our digital services are also performing exceptionally well, contributing positively to our overall revenue growth.

So you talked a lot about influences around the business, around strong demand and power costs, pricing increases. I wonder if you can maybe flesh out a few of the other kind of headwinds or tailwinds as we think about how to model the rest of this year or next year around churn and G&A and maybe any other items that you want to call out and then crystallize maybe kind of the net impact of how you see margins and AFFO per share trend into next year.

Sure. I think there are definitely several factors at play in the business. Churn is continuing to be a positive aspect for us. Our understanding and management of churn has significantly improved, and we can accurately forecast it on a quarter-to-quarter basis. This contributes to our record levels of net bookings. In terms of general and administrative expenses, we see ongoing opportunities. While we are hiring to meet strong demand, we are being cautious with G&A increases, only adding where absolutely necessary. We're also focusing on automation and simplification to enhance efficiencies in the business, which will help us progress toward our long-term target of 50%. We are already noticing some improvements here. However, there are still headwinds, particularly regarding utilities. The situation in Singapore this year was quite unique, and we expect it to resolve next year. Nevertheless, rising prices may impact margins despite our hedging strategy and pricing adjustments. Our primary focus remains on increasing our top line and translating that into AFFO per share, which is reflected in our guidance and will continue to be our priority.

And Jon, let me add a couple of comments to Charles' remarks. You asked about the second half of the year. It's important to realize that Q2 included some nonrecurring revenues from xScale. Looking to next quarter, we expect our nonrecurring revenues to decrease by about $10 million compared to the previous quarter, but they should rebound in Q4. Additionally, we are making strategic investments in the business. We are committed to growing our top line, increasing value on a per share basis, and investing wisely. As Charles mentioned, we are expanding our quota-bearing heads, which comes with an additional $10 million in development costs in the latter half of the year that were not incurred in the first half. There will also be $11 million in lease adjustments affecting our Hong Kong leases in the second half of the year. We are investing $15 million in travel and entertainment, as we believe this will effectively support our go-to-market efforts and improve teamwork as we adapt to a post-COVID environment. Overall, I anticipate continued momentum in the business. While our guidance remains unchanged, we are strategically investing to position ourselves for a successful 2023. It's also worth noting that, excluding currency impacts, 60% of our revenues come from outside the U.S., which affects us. However, we expect this situation to normalize over time. We are relying on our hedging strategies and implementing necessary measures to enhance predictability and visibility for the future. This quarter, we reported $100 million in revenues affected by the weakness of non-U.S. currencies. As these currencies stabilize and other markets begin to raise interest rates to control inflation, we anticipate recovering that value. The revenue impact is $100 million, contributing $50 million to EBITDA and $42 million to AFFO. This quarter alone has seen a $0.46 impact on guidance due to FX, with much of that loss being compensated by improved business performance. We will continue to discuss these topics in Q3, Q4, and during our conversations in February regarding the 2023 guidance.

That's very helpful. xScale had a strong leasing quarter. Are you pricing in line with the market? Or are you seeing a slightly different trend?

Yes, I believe that xScale tends to have a more narrow pricing band. Pricing is largely influenced by the supply and demand dynamics in each market. We are confident in our ability to provide an excellent offering to our customers, but I would emphasize that xScale prices tighter within the market.

How many new logos did you sign in the quarter? And how has that been trending in the last few quarters? And in particular, what sort of verticals are you seeing the most strength with?

Overall, there are approximately 300 new logos in the quarter, with the exact number being 286. Much of the growth is driven by our existing customer base, but we are seeing it across the entire portfolio. We have discussed content and digital media, cloud, and IT services, which are all contributing. As companies advance in their digital transformation efforts, many pathways lead to Equinix. From our perspective, we believe we can succeed in any area we are actively pursuing. It’s challenging to identify a single highlight because if we have the capacity, we can sell in that market. I highlighted that we are experiencing significant opportunities in emerging markets outside of Europe, marking another strong quarter for us. These are secondary markets relative to our major ones, where we achieve over $100 million in revenue. The growth is evident across various geographies, verticals, and customers. The combination of these factors instills confidence in our pipeline and the level of activity from this past quarter. We have experienced growth in our net bookings for the last eight consecutive quarters, indicating strong momentum. While this quarter wasn’t extraordinary, it surpassed last quarter's outstanding performance.

Yes. I would add 2 more pieces of color around new logos, Frank. One, I would say, if you look at the nonfinancial metrics, we're in a relatively tight band on that. But I think the one thing that gets lost in that a bit is the number of customers that come to us through channel partners. And so those don't show up in that because we actually booked that through the channel partner. And so that really masks, I think, some of the momentum we like to see, particularly in the broader enterprise market, where we're relying on some of our key partners around the world, whether that be an AT&T or an Orange or a Telstra or whatever, a variety of types of partners that are bringing those customers to the table. And so I think that's something that’s kind of lost there, but an area, and given the strength of our channel, I think that's continuing to add significantly. And then the other thing I would say is our success with what we refer to as STAR targets, these sort of Global 2000-type companies that we're really focused on, good momentum there. In fact, we had a number of Global 2000 additions this quarter. I think the team is just doing a fantastic job of helping those large, complex global multinationals really think through their strategies on the enterprise side. And then on the service provider side, virtually every enterprise there, a lot of them are becoming service providers, and we're helping them on that journey because everything is going as a Service. And so I think we're seeing some real strength on that side as well.

Thank you. This concludes our Q2 conference call.