Equinix (EQIX) Q3 2023 Earnings Call Transcript

Equinix (EQIX -0.91%)
Q3 2023 Earnings Call
Oct 25, 2023, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Equinix's third quarter earnings conference call. All lines will be able to listen until we open for question. Also, today's conference is being recorded. If anyone has any objection, please disconnect at this time.

I would now like to turn the call over to Chip Newcom, senior director of investor relations. Sir, you may begin. 

Chip Newcom -- Director, Investor Relations

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'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 10-Q filed August 4th, 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'll 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' 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'd like to turn the call over to Charles. 

Charles Meyers -- President and Chief Executive Officer

Thank you, Chip. Good afternoon, and welcome to our third quarter earnings call. Despite an increasingly complex macro environment, we delivered another solid quarter of results and continue to drive strong value creation, raising both our dividend and our AFFO per share outlook for the full year. While we continue to operate in an environment characterized by customer caution, this caution is balanced by a clear commitment to digital transformation and accelerating interest in AI and a growing reliance on Equinix as a critical partner in designing and implementing hybrid, multi-cloud and data-centric architectures.

Customers continue to see digital as a critical priority, and they remain focused on optimizing existing infrastructure spend and capabilities across cloud, network. and other categories. Demand remains strong. New logo growth is accelerating, and we see a highly favorable pricing environment, allowing us to deliver higher MRR per cabinet yields driven by price, power density and strong interconnection demand.

The net result is solid revenue growth, a strong forward pipeline and continued optimism about our differentiated ability to deliver compelling value to our customers and in turn, to our shareholders. In Q3, our go-to-market engine continued to execute well with more than 4,200 deals in the quarter across more than 3,100 customers, including record new logos from high-value targeted customers. We saw solid performance across all aspects of our platform strategy with data center services, digital services and our xScale offerings, all coming together to address the evolving demands of our customers and strong cross-regional bookings highlighting the power of our unmatched global reach. On the AI front, we continue to cultivate and win significant opportunities across our existing customer base and with AI-specific prospects.

A recent Gartner poll found 55% of organizations are in pilot or production mode with generative AI. We are seeing this manifest in accelerated interest from both enterprise customers and from emerging service providers looking to service this demand. We see strong similarities between the evolving AI demand and the multi-tiered architectures that have characterized the cloud build-out for the past eight years. And believe that our broad portfolio of offerings in tandem with our key technology partners will allow us to capture high-value opportunities across the AI value chain along three key vectors.

First, in our retail business, we will aggressively pursue magnetic AI service provider deployments to support on-ramps, inference nodes and smaller scale training needs. We are well positioned here with nearly 40% market share of the on-ramps to the major cloud service providers, key players in the AI ecosystem. And in Q3, we're proud to have been recognized at a 2023 Google Cloud Customer Awards winner for our work supporting Google AI technology. Key wins in this area for Q3 included Core Wheat, a specialized GPU cloud provider, deploying networking nodes at Equinix leveraging our unique multi-cloud on-ramps and network connectivity across multiple metros.

And Lambda, selecting Platform Equinix to offer customers expanded regional connectivity, higher networking performance, security and scale for an enterprise-grade GPU cloud, dedicated to large language models and generative AI workloads. Second, we intend to meaningfully augment our xScale portfolio, including in North America to pursue strategic large-scale AI training deployments with the top hyperscalers and other key AI ecosystem players, including the potential to serve highly targeted enterprise demand. We expect some builds will be tightly coupled with our retail campuses like our newly announced Silicon Valley 12x asset while other builds will be larger-scale campuses in locations with access to significant power capacity. And finally, in response to burgeoning enterprise AI demand, we will leverage our unique advantages to position Platform Equinix as the place where private AI happens, allowing customers to place compute resources in proximity to data and seamlessly leverage public cloud capabilities, all while maintaining control of high-value proprietary data.

We also anticipate a dramatic acceleration in inference workloads and see Equinix as well positioned to deliver performance and economic benefits derived from our reach, network density and cloud adjacency. While still early, we're seeing broad-based demand for private AI from digital leaders with specific wins in the transportation, education, public sector and healthcare verticals, including Harrison.ai, a clinician-led healthcare artificial intelligence company that is dedicated to addressing the inequality and capacity limitations in our healthcare system, by developing AI-powered tools in radiology and pathology. An exciting opportunity that not only drives our business, but clearly aligns with Equinix values. As AI demand accelerates, we are adapting our product portfolio and our physical platform in response to evolving customer requirements.

In terms of data center design, we're using our co-innovation facility in Ashburn to evaluate technologies to support escalating power requirements and have already commercialized our early work in this area with liquid cooling solutions that are supportable in all markets, including support for direct-to-chip liquid cooling in 45 markets across all three regions. We are already supporting significant liquid cool deployments across our range of deployment sizes and densities and we look forward to sharing more with you on our progress in this space. Turning to our results, as depicted on Slide 3, revenues for Q3 were $2.06 billion, up 14% year over year driven by strong recurring revenue growth and power price increases. Adjusted EBITDA was up 9% year over year, and AFFO per share was better than our expectations due to strong operating performance and timing of recurring capex spend.

Interconnection revenues grew 9% year over year with continued strength from Equinix Fabric. These growth rates are all on a normalized and constant-currency basis. Our data center services portfolio continues to perform well. Given the strong underlying demand for digital infrastructure and the long duration in delivering new capacity, a factor that continues to drive positive pricing trends, we're investing broadly across our global footprint.

We currently have 56 major projects underway in 39 markets across 23 countries, including 14 xScale builds that will deliver more than 100 megawatts of capacity once opened. More than 50% of our expansion capital is supporting capacity in our major metros where we have strong visibility to fill rates. Recurring revenues from customers deployed in more than one region stepped up 1% quarter over quarter to 77% as customers continue to move to more distributed architectures. On interconnection, we now have over 460,000 total interconnections with 4,200 net interconnections added in Q3 thanks to healthy gross adds, offset somewhat by continued grooming activity and consolidations into higher bandwidth connections.

Equinix Fabric saw continued momentum with record port orders and significant growth in provision bandwidth, up 8% quarter over quarter to more than 200 terabits per second. Internet Exchange had another strong quarter in APAC with peak traffic in the region, surpassing the Americas for the first time. Globally, peak traffic was up 9% quarter over quarter and 27% year over year to nearly 35 terabits per second. Recent interconnection and ecosystem wins include Southern Cross, expanding their relationship with Equinix by deploying their SX NEXT subsea cable into our LA4 IBX to boost aggregate capacity on their U.S.

to Australia and New Zealand network by 50%. And the Warsaw Stock Exchange, migrating their primary matching engine, and trading system to Equinix's Warsaw 3 IBX to offer more capabilities and enhanced trading performance. We continue to invest behind our platform strategy with revenue growth from our digital services portfolio significantly over-indexing relative to the broader business, including strong adoption of our network edge offering by enterprise customers. We're also seeing momentum in expanding our partnerships with leading technology companies, including the recent announcement of NetApp storage on Equinix Metal, which is an integrated full stack solution that provides enterprise customers low latency access to all clouds while keeping control of their data, a critical consideration for AI workloads.

Key digital services wins this quarter included McGraw Hill, a leading educational publishing company, deploying virtual hubs using Network Edge across multiple markets to connect to key cloud providers via Equinix Fabric. And a significant win with a global gaming company using Equinix Metal to support a major new product launch. Our channel program delivered another strong quarter, amplifying the reach of our sales team and accounting for over 65% of new logos with wins across a wide range of industry segments focusing on digital transformation initiatives. We continue to see growth from partners like AT&T, Cisco, Dell, and HPE.

Key wins included a top 5 U.S. public school district seeking to modernize aging IT infrastructure while improving systems uptime and enhancing cybersecurity. This win executed with partners, Dell Technology Managed Services, Carahsoft, and IMPEX Technologies, will deliver low latency, multicloud connectivity and secure network access to key ecosystem resources while lowering operational expenses. Now, let me turn the call over to Keith and cover the results from the quarter.

Keith Taylor -- Chief Financial Officer

Great. Thanks, Charles, and good afternoon to everyone. Let me start by saying I hope you and your families are doing well. Now notwithstanding these complex and difficult times, we continue to remain bullish about our business and the opportunities ahead as we work hard to expand our strategic and preferential position in the marketplace.

As you all know, one of the core tenets of our strategy revolves around long-term shareholder value creation. With that in mind, we continue to build capacity in markets that will enhance our platform positioning and differentiate our offerings into the future. Also, we continue to work diligently to maintain rigor with our pricing strategies while closely overseeing our spending decisions. As it relates to our capital structure, we've been able to maintain a highly advantaged balance sheet with ample liquidity and lower leverage.

This gives us the flexibility to opportunistically access the capital markets under terms and conditions that are beneficial to us. In addition, we're actively working to support other strategic operating goals, including how and where we source our supply chain, including energy costs, while increasing our investments in and around our future first sustainability initiatives, both highly important matters for our customers. Lastly, we remain pleased with our efforts to manage our derivative risks, including our exposure to foreign currencies and interest rates. Moving on to the business.

We continue to perform well. In Q3, we had solid gross and net bookings with strong customer demand. Our pricing dynamics are very positive. MRR churn is well within our targeted range.

Also, given the tight supply environment across many of our metros, we and our customers continue to look for ways to optimize deployment, including increasing the power density of the cabinets sold. This drives improved bottom-line profitability and higher return on invested capital. Global MRR per cabinet was up $57 quarter over quarter to $2,214 per cabinet, a 12% increase on our yield year on year on a constant-currency basis. With respect to our net cabinets billing metric, it remains flat compared to Q2, largely due to the meaningful increase in density of cabinet and the timing of bookings and churn at the end of the quarter.

We have a solid backlog of booked but not yet installed cabinets and the depth of our pipeline and the related coverage ratios support an expected strong bookings performance to close out our year. Now let me cover the highlights from the quarter. Know that all comments in this section are on a normalized and constant-currency basis. As depicted on Slide 4, global Q3 revenues were $2.061 billion, up 14% over the same quarter last year due to strong recurring revenue growth and power price increases.

Nonrecurring revenues remained flat compared to the prior quarter. Although as noted nonrecurring revenues, particularly those attributable to our xScale business are inherently lumpy, for Q4, our guide implies a meaningful step-up on nonrecurring revenues attributed to a number of deals expected to close across different markets this quarter. Q3 revenues net of our FX hedges included a $1 million headwind when compared to our prior guidance rates. Global Q3 adjusted EBITDA was $936 million or 45% of revenues, up 9% over the same quarter last year due to strong operating performance.

Looking forward, our Q4 adjusted EBITDA is expected to remain roughly flat due to the timing of our spend and specific one-time costs attributed to corporate real estate activities. Q3 adjusted EBITDA, net of our FX hedges, includes a $1 million FX headwind when compared to our prior guidance rates and $2 million of integration costs. Global Q3 AFFO was $772 million, above our expectations due to strong business performance and timing of recurring capex spend. Q3 AFFO included minimal FX impact when compared to our prior guidance rates.

Global Q3 MRR turned step down to 2.2%, and we expect Q4 MRR churn to remain consistent with our Q3 levels in the lower half of our 2% to 2.5% quarterly guidance range. Turning to our regional highlights, whose full results are covered on Slides 5 through 7. On a year-over-year normalized and constant-currency basis, EMEA and APAC were our fastest-growing regions at 26% and 10%, respectively, followed by our Americas region at 7% year-over-year growth. The Americas region had a solid quarter across many of our key metros, and we experienced strong public sector activity.

As it relates to AI, sales activity discussed in Charles' remarks, the vast majority of the demand is destined for Americas' footprint. And as highlighted by Charles, this quarter, we won a mix of AI training, inference and networking deployments with a pipeline of anticipated deals to follow. Our EMEA business had a strong quarter led by our U.K. and Dutch markets and record digital services bookings.

In EMEA, as highlighted previously, we continue to lean into our future first sustainability strategy, including implementing heat export initiatives into Frankfurt, Helsinki, and Paris communities while supporting other innovative environmental initiatives to support many other communities and where we operate. And finally, the Asia Pacific region saw a solid performance led by our Hong Kong, India, and Singapore markets. Capacity constraints exist across a number of our markets, particularly Singapore. These supply constraints will help drive strong deal discipline and pricing power in these markets.

During 2024, we'll be opening new markets in India, Indonesia, and Malaysia, expanding our APAC platform and ecosystems in pursuit of larger opportunities given the demand for digital infrastructure. And now looking at our capital structure. Please refer to Slide 8. Our net leverage remains low relative to our peers at 3.5 times our annualized adjusted EBITDA.

Our balance sheet increased slightly to approximately $31.7 billion including an unrestricted cash balance of over $2.3 billion. Our cash balance remained flat quarter over quarter as our strong operating cash flow and financing activity was offset by our investment in growth capex and the quarterly cash dividend. As I've previously noted, we've been opportunistically looking to raise additional debt capital in reduced rate environments. To that end, in September, we raised $337 million of Swiss Franc denominated five-year paper at an attractive 2.875% rate.

Additionally, during the quarter, we executed an incremental $230 million of ATM forward equity sales, which we expect to settle alongside our Q2 ATM forward contract in late 2023. These financing transactions will help fund our 2024 growth initiatives, alongside other sources of capital while allowing us to maintain our strategic flexibility. Also in September, we published our 2023 green bond allocation report. As highlighted in the report, we have now fully allocated the net proceeds from our green bonds aligning our financing efforts with our commitment to create a more environmentally friendly data center footprint.

Turning to Slide 9. For the quarter, capital expenditures were $618 million, including recurring capex of $52 million. Since our last earnings call, we opened six new retail projects, including two new data centers in Dubai and Montreal. We also purchased our Dublin 1 and Montreal 1 IBX assets and land for development in Manchester in Washington, D.C.

Revenue from owned assets were 64% of recurring revenues for the quarter. Our capital investments delivered strong returns as shown on Slide 10. Our 174 stabilized assets increased revenues by 9% year over year on a constant-currency basis. Our stabilized assets are collectively 85% utilized and generated a 27% cash-on-cash return on the gross PP&E invested.

And 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% to 15% or approximately 9% growth, excluding the impact of power costs passed through to our customers, a reflection of our continued strong execution. We are raising our underlying 2023 adjusted EBITDA guidance by $17 million due to favorable operating costs and lower integration spend and we're raising our underlying AFFO guidance by $27 million to now grow between 12% and 14% compared to the previous year.

AFFO per share is now expected to grow between 10% and 11%. Capex is expected to remain in the $2.7 billion to $2.9 billion range, including approximately $215 million of on-balance sheet xScale spend, which we expect to be reimbursed for when these assets are transferred to JVs early next year and about $225 million of recurring capex spend, an increase over the prior quarter as we accelerate costs into Q4. Lastly, given our strong operating performance and our historically low AFFO payout ratio, we've accelerated the timing of our cash dividend increase into Q4 of this year from Q1 of next year. As a result, the quarterly cash dividend will increase by 25% to $4.26 per share this quarter.

Looking forward, we expect our annual cash dividend growth rate will track at or above our AFFO per share growth rate for a number of years. So, let me stop here and turn the call back to Charles.

Charles Meyers -- President and Chief Executive Officer

Thanks, Keith. In closing, we continue to see strong demand as customers embrace AI and advance their digital transformation agendas with infrastructure that is more distributed, more cloud connected, and more ecosystem enabled than ever before. Despite a variety of cross currents in the business, we are translating healthy bookings growth, a favorable pricing environment and increasing power densities into strong increases in cabinet yield. These dynamics, combined with the continued focus on driving operating leverage and expense discipline through the business, are allowing us to deliver compelling value on a per share basis.

As we close out '23 and look toward 2024, our forward-looking strategy and vision for our platform will enable us to amplify our unique strengths, leveraging them to expand our market opportunity and drive sustainable growth in a rapidly evolving landscape. We remain optimistic about the road ahead and steadfast in our commitment to show up every day in service too, starting with the resolve to align, inspire and empower our teams around our strategy and our mission, enabling them to deliver durable value and meaningful impact to our customers, our shareholders and the communities in which we operate. So, let me stop there and open it up for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Matt Niknam with Deutsche Bank. You may go ahead. 

Matt Niknam -- Deutsche Bank -- Analyst

Hey, guys. Thank you for taking the questions. Just two if I could. First, on the cabs billing metric.

I appreciate you, Charles, given some of that color around the increased power density. I'm just wondering if there's any additional color you can share with some of the softness in the cabs billing adds, some of the actions you may be taking to release some of that available capacity at higher mark-to-market rates and any sort of color you can share in terms of expectations for 4Q. And then second question, again, we appreciate all the color on AI. Just wondering if you can give us any more color on the conversations you're having with customers on their AI strategy, what role Equinix can play in helping them meet their goals and any sort of timing in terms of when this can become a little bit more material? Thanks.

Charles Meyers -- President and Chief Executive Officer

Yeah, you bet, Matt. Yes, we absolutely figured that we would have a question there on the cabs, as you might imagine, key topic in the discussion. I want to start by just reinforcing that with the flat cabinet growth is really not driven by a lack of demand, as you heard in the script. We had another really solid bookings quarter with overall deal counts in line with what we've been seeing.

And so, I think it's not a demand problem, per se. As I said last quarter, look, we recognize billing cab adds have to be part of the growth story over time, but the pressure on the metric is really linked to some other positive dynamics in the business as you sort of alluded to there. So, let me unpack that a little bit for you and give you a little more detail. I think the force that I think maybe we didn't fully appreciate the past couple of quarters or didn't highlight as much as the extent and the pace of the evolution on the power density.

And so, we really dug into that this quarter and looked at that for the last several quarters. And what we found is really an expanding delta between the power density of our churn cabinets and that of our newly sold cabinet. So, we look back over these first three quarters of '23, where we've had a flatter profile on the bill cabs or billing cabs, and we've turned cabinets over that period an average density of 4 kilowatts per cab, but we've added new billable cabs at an average of 5.7. So, that's really a major factor that our cab equivalent metric is not density adjusted.

So, the reality is we've been paddling hard against that increase in density when it comes to cabinet growth. Additionally, and we talked about this in prior calls as well, we do have some capacity constraints, somewhat -- ones in certain markets. And those are driving some proactive churn on our part, and we see a level of customer optimization at the cabinet level similar to what we've been talking about on interconnection, but we're seeing very little customer churn or full customer churn. And so, I'm not -- I'm definitely not saying that all of our churn activity is necessarily desirable or wanted.

But as you can see in our churn metric, we're managing the overall churn really well within our guided range. So, as I said -- I talked about last quarter, these 37 deployments with really positive mark-to-market when you look at both price and power density and when we look at Q3, we actually saw that general range of 60% to 70% uplift as broadly applicable. So, in other words, our average of our churn cabinets -- our new cabinets were about 60% to 70% above what we had churned. And so, obviously, that dynamic is super attractive in terms of in really explaining why we're driving healthy revenue growth even with the limited growth in billable cabs.

So, I mean, we've always said we're not ones to chase volume as a business objective, because I think that often results in a loss of discipline in the process. We're very much playing the long game when it comes to our commercial decision-making. And although cabinet growth is going to have to be a part of the story over time, we're really seeing that the current dynamics are allowing us to drive, as we said, strong MRR per cab, solid stabilized asset growth and really, I think, the return on capital is going to continue to be very favorable. So, I think all of that translates into what we see as the really most critical bottom line, and that's AFFO per share and dividend growth.

And I think sort of the results are really strong in that area. So, that's context on the first question and on billable cabs. Second one on AI, definitely seeing it show up. We talked about in the script about a number of deals that we won in the quarter.

AI and ML are not new things for us. We kind of talked about that. We've been working, I think, through AI opportunities with digital leaders for several years now. There's a lot happening across the platform.

In fact, people don't maybe remember it, but we announced our NVIDIA Launchpad offering with them over two years ago. And really, that's been a unique opportunity for us to get in early with customers as they're piloting AI initiatives in their business and really monitor AI demand in the marketplace. And so, we've closed a number of deals with service providers this quarter. There's definitely an emergent set of service providers, Core Wheat and Lambda we talked about that I think are really sources of incremental demand for us.

We closed those deals really in the retail footprint focused on networking and inference-type nodes. And I think that what we're seeing most of with customers is working with them on three big questions when they're thinking about AI. Where do I put my data? And I think we're seeing a lot of people looking at sort of cloud adjacent data as the answer. And I think that plays right to our advantages.

Secondly, how they bring compute and other data sources in other words, data that's not their own to their own data. And then finally, how do they deliver AI generated business insights to the users of those insights economically and with high performance. And so, those really are the areas that we've been deeply engaged with our customers. I think that it's a contributing factor to our probably our best forward-looking pipeline, multi-quarter pipeline that we've seen in a long time.

And so, I do think AI is a very positive force in the business overall.

Matt Niknam -- Deutsche Bank -- Analyst

That's great. Thank you.

Operator

Our next question comes from Frank Louthan with Raymond James. You may ago ahead.

Frank Louthan -- Raymond James -- Analyst

Great, thank you. Just a quick question on -- so on the channel, you mentioned 65% of new logos coming from the channel. What percentage of overall sales are there? And then how do the logos in the channel tend to perform longer term versus those from the existing sales force, they produce the same amount of repeat business? 

Charles Meyers -- President and Chief Executive Officer

Yeah. I think our bookings percentage is probably in the 40-ish percent range from our channel. You do have to recognize, Frank, and we've been very transparent about this. Our channel is not really a sell-through channel as much.

It's really more of a sell with sort of meeting the market. But what we're using is the extensive relationships that our channel partners have, particularly in the broad enterprise to identify opportunities and then bring our unique value to the table. And so, that often results in essentially a joint selling proposition between ourselves and our partners. And over time, I would say that I think we need to be moving toward a bit more of a sell-through model that would provide even more economic leverage to the model.

But we do see our channel wins as very on par in terms of quality of business and our ability to sell into them. Sometimes even more readily -- we can capture incremental wallet share even more readily because of the strength of our channel partners from a relationship perspective inside of those accounts. And so, I'd say very much a positive force for us. And as we look at now sort of deepening our channel relationship with key technology partners, we talked about the NetApp offering with NetApp Storage on Metal.

Those are great examples. We do have a similar sort of offering with Pure. And so, those things are really relevant as customers are saying, "Hey, we're really deeply thinking about where to place our data," we have technology opinion about the storage providers we'd like to use, and we really would like to place that at Equinix to get proximity and adjacency to the cloud. And so, I think those -- that's a great example for the kind of deals that we're winning in the channel, and that continues to be an important part of the business.

Frank Louthan -- Raymond James -- Analyst

OK, great. Thank you.

Operator

Our next question comes from Jon Atkin with RBC Capital Markets. You may go ahead.

Jon Atkin -- RBC Capital Markets -- Analyst

So, I was interested in if there's anything notable to call out that drove the growth in EMEA where things seem to have accelerated a bit versus APAC, which saw a slightly slower growth. And then on pricing, which I think you mentioned in the earlier part of your prepared remarks, where do you see the main levers? Would it be renewal spreads on cabinets or harmonizing cross connects or anything to kind of call out around pricing to think about in 2024? Thanks.

Charles Meyers -- President and Chief Executive Officer

Sure. Yeah. I mean I think when you adjust for the PPI, I mean, because the EMEA numbers are obviously done on an as-reported basis are driven significantly by PPI. And so, there is that and we certainly are seeing, I think, good performance across our regions.

APAC, I think, is over a multi-quarter period here, a little -- has more constraints to deal with. And so, from a capacity perspective, and as we've talked about Singapore being sort of a prominent example there. But I would also say that in EMEA, I think a more prominent feature for us to continue to be looking at internally. And I realize that there's not as deep a transparency or granularity in the information available to you, but the deal mix in EMEA continues to be extremely favorable.

And the team has done a really great job going from, what I think, was a little more dependency on some of the large footprint business over time and now in a post xScale world, really shunting the really large stuff off to xScale and I think weaning away from a dependency on large footprint demand even in the enterprise I think always has the sort of the prospect of greater churn probability over time. And so, the deal mix in EMEA has really shaped nicely, I think, over the last couple of years, and I think really kudos to the team on the ground there to make that happen. Then on pricing, I would just say that I think pricing broadly speaking, is very favorable. Part of that is just simply driven by, I think, an understanding from customers that increases in underlying costs are driving a rising price environment across a whole range of things.

And so, that's one factor. But then I think that perhaps the more important 1 for us is, I think, being able to deliver really compelling value for them and being able to articulate that effectively to them. And so, in terms of the -- where it's coming from, yes, I do think there's continued pricing activity on all -- across our portfolio, interconnection, space and power, and on our digital services. And then I think that the -- and that includes both uplifts on list pricing and, as well as on renewals.

And so, I think you're really seeing that show up in terms of -- as I just -- I tell you, when you look at a dynamic that says OK, if you're churning cabinets at x and you're selling new cabinets at 1.6 or 1.65x, that's a very attractive dynamic. It's not driven entirely by price because power density is a meaningful part of that. And then actually, new cabs mature even further as interconnection goes into those over time. And so, I think those are some of the dynamics on the pricing front.

And I think it's -- has been a little hard for people to hold all that in their head and figure out exactly why that you have some of these dynamics in there. But I think you're seeing it show up in terms of the MRR per cab, as well as the overall revenue growth rates and then particularly dropping it to the AFFO per share results.

Jon Atkin -- RBC Capital Markets -- Analyst

And then lastly, the new logos you mentioned, are there any particular verticals where you're seeing penetration that's driving the new verticals? And then on the churn side, anything to kind of think about for the coming quarter or year around where you might fall within your typical range for MRR churn? Thanks.

Charles Meyers -- President and Chief Executive Officer

You always get full value for your questions, Jon. So, on new logos, I would say, the -- I think we're seeing a pretty varied set of -- across verticals in terms of -- we're not really seeing a heavy concentration. I think that more -- I would say that more, what I would consider, data-centric or data-intensive industries are where we're seeing that focus on digital transformation and on AI. And so, we talked about some of those in terms of transportation, healthcare, et cetera, and we've identified a few wins there.

But interestingly, things like manufacturing have been tremendously strong for us. Retail has been tremendously strong for us. Financial services, very strong, very forward-leaning posture on AI, a very forward-leaning posture on cloud, but one that is moderated by sort of compliance, security, distributed infrastructure requirements, etc. And so, they continue to be that sort of ideal customer for us that really is using a broad range of infrastructure options but wants to place their data and some of their private infrastructure in proximity to all that.

And so, we have seen, I think, very strong performance across verticals on new logos. It seems like every earnings report has a different highlight in terms of what we're talking about on new logos. And then on churn, I think we kind of gave the key highlights there. We are, again, well within our range, a little bit of churn that we are either being proactive about or that we're being sort of receptive to customers looking to optimize footprints because we believe there's meaningful upside there.

And again, I think an environment that in transparency does have some level of optimization from customers who maybe were buying a little more than they needed at, I think, in the '21, '22 time frame, but I think are really tightening that up to ensure that they're buying just what they need and then adapting to the hybrid and multicloud architectures. And so, churn is something that I think we have to continue to really keep a close eye on and right now, they're performing where we would have expected in terms of our churn as a percentage of MRR.

Jon Atkin -- RBC Capital Markets -- Analyst

Thank you.

Operator

Thank you. Our next caller is David Barden with Bank of America. You may go ahead. 

David Barden -- Bank of America Merrill Lynch -- Analyst

Hey, guys, thanks so much. Two questions, if I could, please. Just Keith, apologies for my voice. Keith, what -- I'm trying to kind of understand my takeaways for the 2024 trajectory.

You've had a stronger-than-expected year to date through 3Q and you're guiding to kind of a weaker-than-expected jumping off point in 4Q into 2024, but then you're talking about the strong bookings. And so, I'm wondering if it's too easy to read into the fourth quarter and maybe we should be looking at the second half as a jumping off point for first half '24 rather than the fourth quarter specifically? And then the second question, if I could. Maybe Charles, when you mentioned that your churn is 4K cabs and the new clients are coming in to 5.7, what does that look like? Is that like one-tenths for every three new 4s? Or is that literally just the directional movement of the new client is 50% more power dense? Thank you.

Keith Taylor -- Chief Financial Officer

So, David, let me -- so I'll take the first question and then pass to Charles. Thank you for the questions. I think it's important for us to highlight and share with everybody how the business is performing. Very much like Charles has said, the company is performing well.

And notwithstanding the comments around the billing cabinets because you don't grow revenues like you grow revenues as we did over $40 million quarter over quarter when you don't -- when you're not creating value, and it's coming through price and volume and all the things that we do. So, as you sort of pass forward to the fourth quarter, again, a nice step-up in both recurring and nonrecurring revenue. I think at midpoint of guide, we're up $73 million over the prior quarter on a neutral basis -- on a currency-neutral basis. And so, that's an impressive increase.

And so, let me give you a little bit of a size on the nonrecurring piece. You've seen nonrecurring being relatively flat quarter over quarter. There were ebbs and flows generally with a large deal done in the xScale business. But the xScale business, we see an order of magnitude of roughly $30 million.

So, that gives you a sense of the size of the uplift in nonrecurring. That leaves you with plenty of room on the recurring revenue. Again, $73 million in the midpoint of guide. So what's going on in the cost side of the equation? Well, there's always some seasonality as we all know.

But as we sort of said in our prepared remarks, there's two things that I want to bring to the top. Number one, no surprise, the company is working hard to be as judicious as we need to be with our spend, including our corporate real estate assets. And so, we've embedded a fairly large charge inside the quarter relating to corporate real estate. And so, the order of magnitude of think of that as a $20 million to $30 million range, just to size it for you.

The second piece is, yes, the business, as you know, we've been able to deliver a good year, and we're setting ourselves up now for 2024. And that's where our focus is because we know we had strong bookings in the third quarter. We feel we're really well positioned for booking activity in the fourth quarter. And that sort of sets the stage or sets the table for 2024.

And so, we did accelerate some costs into the year into the last quarter, both on an opex basis, and you can certainly see it on a recurring capex basis. And so, we made that decision, one, because we could deliver better than the market was anticipating and simultaneously make sure that we get some of the investments behind us so we could focus '24 on things that are important for '24. And so, it's a combination of those two things that really have made a difference if you look at flow-throughs. But as you then enter into the new year, you've really set the stage for a good start to 2024.

If we deliver against those that booking expectation, I think it sets the table really nicely for a 2024 start. So, let me leave that. I hope I answered your question there.

Charles Meyers -- President and Chief Executive Officer

So, I'll take the second one, David. It's pretty simple, really, in terms of -- it's really what I was talking about there in terms of the 4 to 5.7 is really a macro average, an overall aggregate average for the -- again, that's for the first three quarters. We basically said, look, this is the number of cabinets that were churned out over that period of time. And this is the total contracted power that was churned out over that time, divide those two and you get four.

And then here's all the new cabinets we booked during the year. And here's the new contracted power on those and to buy those and you get 5.7. And the reason I think it's important to characterize that as an average, I actually think it will be harder for us to deal with it was all exactly four-kilowatt cabinets being churned and all exactly 5.7 kilowatt cabinets are being added. The reality is that the workloads have quite a range.

We still see meaningful demand well below that 5.7 and obvious -- that's obvious since that's an average. And then you see some meaningfully above that, right? And you might see we might see deals that are 10, 15, 20, or more kilowatts per cab. And as we said, we may even be looking at liquid cooling to support some of those very high-density requirements. And I think that's important in that I think it's an opportunity for us as we have this dynamic of space being freed up to the extent that we can match that up with power and cool it appropriately using liquid cooling or other means or traditional air-cooling means, then I think that's an opportunity to unlock more value from the platform.

And so, that's a dynamic that we're very focused on. But what I gave you in terms of the 4 to 5.7 is really an overall average.

David Barden -- Bank of America Merrill Lynch -- Analyst

No, helpful color, guys. Thank you so much.

Operator

Our next question comes from Michael Rollins with Citi. You may go ahead.

Michael Rollins -- Citi -- Analyst

Thanks. Good afternoon. First, curious if you could discuss the factors that led to the decision to adjust capital allocation and boost the dividend per share in this fourth quarter and then just kind of the go-forward metric of how to think about dividend growth? And then I have a follow-up, if that's OK.

Keith Taylor -- Chief Financial Officer

Yeah. Sure. Michael, well, just broadly speaking, clearly, we think of ourselves as very advantaged by the cash that we keep on our balance sheet, the liquidity position we have available to us and how we're setting up our debt structure, particularly in low-rate environments. And I think that will continue to hold true as we look into 2024 and certainly into 2025.

No surprise. I know this wasn't directly in your question, I'll come to the dividend in a moment. The cost of debt is going up. And so, we're trying to be very judicious how we raise our capital, continue to find balance.

But we know and we've set the stage, if you will, coming out of the Analyst Day for a five-year view on what we think we can accomplish as a business. And we know how much capital incrementally we need to raise all else being equal inside that business plan. And so you're seeing us execute against and strike where we can when it's opportunistically favorable to the business. And that's why you saw those rates Swiss franc put on the balance sheet right away.

We've got the positive carry and so we move on and that's good liquid capital for us. So, then as you look about how do we distribute some of the cash flow back to our investors. And no surprise, we are -- we've made a commitment to pay out 100% of the taxable income inside the qualified structure. And the way that, that happens is through a distribution of the dividend.

And basically, you limit your taxable income and avoid excise taxes, if you pay out that dividend. Now with that the business, we've been saying this for the last few quarters, and I'm sure it's not lost on everybody. the operating performance of our business, and that's what the primary, that is the sole makeup of our dividend. We're returning capital through strong operational performance and the taxable operational performance of the business, which, of course, mimics the book operational performance has been accelerating.

And over the years, and certainly lately, we've been doing all we can to, if you will, to mitigate a point of time where we've under distributed. But we're at a point now where we can't hold back that momentum any longer. And as a result, we want to give our tax teams the flexibility to manage the tax provisions and tax positions this year instead of having to worry about what we file in September of next year for 2023. So, we accelerated the decision.

So, that's sort of why we did it in Q4 and then just the sheer size of the investment or the distribution is to give you a sense of the momentum in the business and how much the taxable income is growing relative to the business. And so, we needed to release that and create capacity for ourselves, not just for this quarter and closing out the 2023 year, but certainly for 2024 as well. As we look forward, we have pretty darn good visibility on what we think that taxable income is going to look like. And so, we wanted to mitigate basically an under disputed issue in 2024, and we solved the problem by making this decision.

Michael Rollins -- Citi -- Analyst

Thanks. And then just on one other thing that you mentioned earlier. You mentioned the opportunity to try to improve the power density in the existing footprint. And just curious if you could share with us how the power utilization of your portfolio compares to the cabinet utilization of your portfolio? And the opportunity based on access to the utility load and thinking about the cost, like how much further can you take the power in the existing portfolio? Thanks.

Charles Meyers -- President and Chief Executive Officer

Yeah. Great question, Mike. It's unfortunately not a particularly simple matter. But I will give you an answer to your question, which is our power utilization is actually meaningfully lower than our cabinet utilization, right? And so, that does represent, I think, some opportunity for us if we -- to the extent that we can match space and power and have the appropriate cooling requirements to unlock productive value creation capacity from the platform.

Again, it's not super straightforward because you have to ensure that you can -- you have the -- draw can be very different facility to facility. And your ability to augment available power is very substantially either due to availability of power from the utility or from our own ability to do that in terms of the equipment available to power distribution in the facility, et cetera. And so, I do think that there is opportunity there to be had. And I think it is something that is working to our advantage in terms of the kind of overall dynamics of the business now, but one where we always have to continue to ensure that we are delivering superior reliability to our customers, understand exactly what their requirements are, can cool it properly, deliver the reliability and resiliency they need and sort of manage all those factors simultaneously.

So, I do think, though, that you are -- I think you're properly interpreting an opportunity there that says, OK, well, then if you're churning cabinets out at lower, selling them at higher and you have some sort of headroom from a power perspective and you're freeing up space or cabinet capacity, can you take action to sort of augment power over time in ways that would allow you to create value. I think the answer is yes, and we'll be hard at work figuring out how to do that best.

Keith Taylor -- Chief Financial Officer

Mike, maybe I can just add on one other thing to what Charles has said. One of the main objectives coming from Ralph's organization is to drive efficiency into the IBXs. So, we're perpetually looking for ways to drive more efficiency and create the capacity -- incremental capacity that Charles refers to. We're also looking at new design and construction techniques to run them more efficiently.

And that drives down our PUE. And PUE is good for the customer. In some cases, we're held to certain PUE with our customers. And so, it drives the efficiency into the business and creates that capacity that hopefully we can resell.

But these investments, particularly with some of the older data centers to the extent a new technology or certain components of our MCE become available, and we choose to make an investment. You're not expanding as necessarily the footprint but you're making an investment that frees up stranded capacity or energy, that works really well for the business and, as I said, for the customer.

Charles Meyers -- President and Chief Executive Officer

Yeah. And one last comment I'd make, Mike, is that I do think this highlights what a very different business we have. Because when you're talking about a very large number of customers in a facility, that's extremely different. And so, we wouldn't have that same view relative to an xScale facility, for example, right? I mean that you design it as a certain power capacity, you sell that to a customer, sometimes an entire building to a customer at that and sort of that is what it is.

One or two customers sort of it doesn't matter. But when you're talking about very large numbers of customers with very widely ranging power requirements, it represents both a challenge and an opportunity and one that I think, over time, we've developed a set of processes and capabilities to manage quite effectively.

Michael Rollins -- Citi -- Analyst

Thanks.

Operator

Our next caller is Eric Luebchow with Wells Fargo. You may go ahead.

Eric Luebchow -- Wells Fargo Securities -- Analyst

Appreciate it. Thanks for the question. So, maybe you could touch a little bit, Charles, on the kind of the enterprise sales in the quarter in the pipeline? I know with rates moving higher recently and some concerns around potential recession in the U.S. Are you seeing any of them pulling back an IT spend to being more cautious in their outlook as they look kind of at their IT stack and hybrid cloud migration and any signs that they're kind of optimizing costs that are evident in any of your churn numbers?

Charles Meyers -- President and Chief Executive Officer

Yes. Great question, Eric. As we said in the script, you heard me say that it was an environment that we -- I thought was characterized by customer caution. And I think that's true.

And I've been out as I very much like to be out in the field with our teams, both in the data centers, in the sales offices, with customers, with partners, et cetera. And I think I would say that there is a sentiment that says, hey, customers are very forward leaning from the standpoint of recognizing they need to invest in digital and digital transformation and AI, although I think they're very early in those endeavors in many cases. But they also are facing the natural constraints that are created in a more challenging macro environment from a budgetary standpoint. So, oftentimes, they're trying -- one, they're trying to move dollars around to ensure that they can fund their digital transformation initiatives.

And two, they're saying, hey, what can we do to get more out of our -- more bang for the buck out of our digital dollars we spend or the IT dollars that we spend broadly. And so, I think you're seeing that in terms of -- one thing that you're seeing a lot of people saying, "Hey, we really have to look at our cloud spend and understand that and determine what the right mix of clouds is and whether or not there are certain workloads that we've attempted to lift and shift to cloud, that we may want to think differently about" or you're seeing people saying, "Hey, are there things that eventually we need to get into a cloud-native sort of -- as cloud-native workloads and move them." And so, it certainly is working in all those directions. But I would say I think people are -- customers are really working hard to optimize their digital infrastructure. And I think we can be a real resource to them.

Network is another area, right? And we talked about Network Edge and customers being very responsive to that product offering. I think that is most commonly in the context of WAN rearchitecture and trying to save money on networking and still deliver higher levels of performance. And so, I would say I think there is some level of caution out there, but I think that it is one where people are really trying to make room to make the investments in digital and thinking about what is the right long-term architecture, hybrid, multicloud distributed and data-centric. And I think that positions us well to be a trusted partner to them on that journey.

Eric Luebchow -- Wells Fargo Securities -- Analyst

Great. Thanks. And just one quick follow-up. I was curious on the xScale kind of update, a development in Silicon Valley I saw.

So, you made it clear that your desire to expand more into the United States. Maybe as you look at the set of opportunities in the U.S., is development the best option you see today to attack that opportunity? Or is M&A another lever that you continue to evaluate in the U.S. for xScale?

Charles Meyers -- President and Chief Executive Officer

Yeah, it's a great question. I certainly don't think we would be opposed to that. I think if we believe there were assets that were available under reasonable terms from an M&A perspective and that we could do that, that would likely be a transaction that would be executed through some sort of xScale venture -- joint venture vehicle. And so, I wouldn't -- we're not opposed to that.

But I do think that probably our immediate focus is on development and we'll keep you updated on both of those fronts as appropriate.

Eric Luebchow -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

And our last question comes from Nick Del Deo with MoffetNathanson. You may go ahead.

Nick Del Deo -- MoffettNathanson -- Analyst

Hey, thanks for fitting me in. I guess to follow up on the xScale question in the U.S. I guess, what do you view as different about AI training that makes you want to support those deployments via xScale in the U.S. relative to cloud where you -- if I understand it correctly, you didn't see the opportunity as worth pursuing given how competitive the supply environment is?

Charles Meyers -- President and Chief Executive Officer

Yeah. I mean I think there's a couple of things there. One, I do think that the -- at the time that we made that judgment and we're communicating that judgment to the market, I would say that the supply demand characteristics and therefore, the return profile of xScale in the U.S. market was less than stellar.

I think that dynamic is changing. I think the supply/demand sort of landscape in the U.S., both because of sort of traditional AZ demand or hyperscale demand for the form -- in the form of hyperscale for AZs and those kind of things. combined with now a meaningful acceleration in demand for training, I think, changes the supply demand profile. And then I would -- and so I do think there is a more attractive market in which to sell.

The other thing that I think is something maybe that we appreciate even more powerfully now is and we talked about this when we did xScale to begin with. We said, look, we need to continue have really well developed and constructive relationships with the major players in the digital ecosystem. And obviously, the hyperscalers are at the top of that list. And so, we continue to work hard to make sure that we can be a partner in meeting their capacity needs and not only on the retail basis, but at least as one of probably a number of providers that they're going to need to leverage in the xScale arena.

And then the last thing that I think is maybe underappreciated is I think it's also important that we continue to maintain our scale and relevance in the supply chain. I think we are very well positioned there. And I think our procurement and supply chain teams have done an extraordinary job there. And I think part of the reason that they can do that job so well, one is the strength of our balance sheet; and two, is the scale of our operation.

And so, I think xScale is also a way for us to continue to maintain our position in that regard.

Nick Del Deo -- MoffettNathanson -- Analyst

OK. Are you able to share anything regarding how you're thinking about returns here? Or is that premature? And I guess, any progress in terms of line up partner for domestic xScale?

Charles Meyers -- President and Chief Executive Officer

Yeah. I mean I think that last part is probably premature. But I think the first, I don't think we see a dramatic shift in the overall return profile. I mean we have seen it already, I think, improved from where it was, where I think it was single digits there for a while.

If you were lucky, it was high single digits, where I think you're now seeing sort of full return yields and levered returns even above that. And for us, given that we get some advantages in the structure associated with fee streams, et cetera, I think -- and it's still an attractive equity return profile for us. And so, I think that -- but I think those returns have gone up where you're seeing cash-on-cash yields that are meaningfully higher, meaningful up into the double digits and much more attractive now. So, I do think that that return profile has improved.

It's going to continue to be a very competitive business, though, and one that will have a very return -- a different return profile than retail, which is, again, why we want to preserve our balance sheet firepower to the extent we can to continue to cultivate our retail business, while at the same time, recognizing the strategic importance of continuing to be active in the xScale market.

Nick Del Deo -- MoffettNathanson -- Analyst

OK. Thanks, Charles. 

Chip Newcom -- Director, Investor Relations

This concludes our Q3 conference call. Thank you for joining us.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Chip Newcom -- Director, Investor Relations

Charles Meyers -- President and Chief Executive Officer

Keith Taylor -- Chief Financial Officer

Matt Niknam -- Deutsche Bank -- Analyst

Frank Louthan -- Raymond James -- Analyst

Jon Atkin -- RBC Capital Markets -- Analyst

David Barden -- Bank of America Merrill Lynch -- Analyst

Michael Rollins -- Citi -- Analyst

Eric Luebchow -- Wells Fargo Securities -- Analyst

Nick Del Deo -- MoffettNathanson -- Analyst

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