Equinix sees record number of data center leases, struggles with increased MMR churn

Equinix CEO and president Charles Meyers addressed shareholders during the company’s fourth quarter 2023 earnings call, relaying that the year ended well with digital transformation and AI driving an increase in xScale data center leases and momentum for the company’s data center and digital services portfolios.  

Meyers noted a focus on private AI, saying, “On the AI front, we saw strong momentum across the value chain in Q4 as we cultivated key partnerships and won significant opportunities.”

Scale was also a key theme. Equinix added nine new data centers in Q4 and that the company’s interconnection services performed well.

“In Q4,” he said, “interconnection revenues stepped up 8% year-over-year on a normalized and constant currency basis, and we added an incremental 4,300 organic interconnections for the quarter. We, again, had healthy gross adds activity, offset somewhat by continued grooming and consolidations into higher bandwidth connections. Internet exchange saw peak traffic up 3% quarter-over-quarter and 22% year-over-year, to nearly 36 terabits per second, led by expansion from existing customers.”

Meyers reported a strong performance for Equinix’s channel program, which accounted for 35% of bookings and over 50% of new logos for the quarter.

Keith Taylor, CFO of Equinix, also reported a solid end to 2023, saying, “For the full year, our healthy gross bookings allowed the team to close almost 17,000 deals across more than 5,900 customers, again highlighting the diversity and strength of our unrivaled go-to-market engine. The net positive pricing activity, both in the quarter and throughout the year, created strong pricing dynamics resulting in normalized and constant currency MRR per cab yield stepping up $38 for the quarter and $127 for the year to $2,227 per cab.”

Taylor also noted that the company had record xScale leasing over the year, generating approximately $40 million of nonrecurring xScale revenue in the fourth quarter.

Global performance rises

Global revenues for Q4 were $2.11 billion, Taylor reported, up 15% year-over-year, which he ascribed to the increased xScale revenue, power price increases, and recurring revenue growth. CapEx for the quarter was $996 million.

“Global Q4 adjusted EBITDA was $920 million or 44% of revenues,” said Taylor, “up 12% over the same quarter last year due to strong operating performance, although down quarter-over-quarter due to a $15 million charge related to our planned corporate real estate activities and a higher seasonal increase in repairs and maintenance spend. Global Q4 AFFO was $691 million, above our expectations due to strong business performance and favorable interest income, offset in part by higher seasonal recurring CapEx.”

Churn improvements ahead

MRR churn was 2.4%, which Taylor noted was on the higher end of Equinix’s range.

“For 2024,” Taylor said, “we expect MRR churn to stay in the upper side of our churn range in the first half of the year, then moderate down in the second half, and we expect this key metric to average within our targeted 2% to 2.5% per quarter range for the year.”

Of the churn rate, Meyers said, “Only a single-digit percentage of our churn is full customer churn. So almost all the rest of it is all people moving around resizing footprints, that kind of activity.”

Meyers noted that the churn was most notable in Europe.

Taylor also discussed regional performance, saying, “On a year-over-year normalized and constant currency basis, EMEA was our fastest-growing MRR region at 27% due to power price increases followed by our APAC and Americas regions at 9% and 7% MRR growth, respectively.”

Looking forward, Meyers laid out four areas where Equinix will be focusing efforts in 2024:

• Expanding global reach while adding capacity to existing high-demand markets
• Bringing new products and solutions to multicloud networking
• Prioritizing sustainability management partnerships
• Increasing collaboration with key partners

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