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Operator: Good afternoon, and welcome to the Equinix Fourth Quarter Earnings Conference Call. All lines will be able to listen only until we open for questions. Also, today’s conference is being recorded. If anyone has objection, please disconnect at this time. I’d now like to turn the call over to Chip Newcom, Director of Investor Relations. You may begin.

Chip Newcom: 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 November 4, 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 not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.

In addition, we’ll provide non-GAAP measures on today’s conference call. We provide a reconciliation of those measures 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 the discussion along with certain supplemental financial information and other data. We’d 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 an hour, we ask these analysts to limit any follow-on questions to one. At this time, I’ll turn the call over to Charles.

Charles Meyers: Thank you, Chip. Good afternoon, everybody, and welcome to our fourth quarter earnings call. We had a great finish to 2022, delivering one of the best bookings performances in our history, led by the Americas with continued strength in demand and favorable pricing trends across all three regions. For the full year, we delivered more than $7 billion in revenue for the first time and completed our 80th consecutive quarter of revenue growth, an amazing 20 years of continuous growth, all while driving AFFO per share performance above the top end of our long-term expectations. As we look to the year ahead, even amidst a dynamic and complex global landscape, it’s increasingly clear that the secular tailwinds of digital transformation remain strong.

In 2023, IDC estimates spending on digital technology by organizations will grow 8x faster than the broader economy. In the current macroeconomic environment, we believe spending on digital transformation will remain robust for two simple reasons. First, as companies work harder for each incremental revenue dollar, digital is seen as a critical driver of competitive differentiation, accelerating time to market and enabling product set evolution. And second, digital transformation is increasingly a means to do more with less, enabling businesses to reduce costs and drive operating leverage while simultaneously becoming more agile and responsive in serving their customers. In the context of this secular demand environment, we remain confident that Platform Equinix is uniquely positioned to support our customers’ digital infrastructure needs.

Digital leaders are demanding infrastructure that is more distributed, more ecosystem-powered, more flexible and more interconnected because it is fundamental to their ability to differentiate in the marketplace and lower their costs. Our market-leading global reach, vibrant digital ecosystems and comprehensive interconnection platform allow our customers to scale with agility, speed to launch of digital services, deliver world-class experiences and enhance value to all their stakeholders. While we will continue to closely monitor the macro environment and we’ll adapt our execution accordingly, the fundamentals of our business remain strong, and we’re investing behind the momentum we’re seeing, including adding quota-bearing heads, evolving our product set and expanding our industry-leading data center portfolio.

With regards to power, our multiyear hedging efforts continue to create visibility and predictability for Equinix and our customers in the coming year. Effective January 1, we raised pricing, passing on the full impact of these additional power costs to our customers, increasing costs but giving our customers much needed budget certainty and, in most cases, leaving them with rates below the prevailing spot market. Overall, we believe we remain in a good position relative to competitors and the broader market, and I’m pleased with where we landed for our customers and our business. Turning to our results, as depicted on Slide 3, revenues for the full year were $7.3 billion, up 11% year-over-year. Adjusted EBITDA was up 8% year-over-year and AFFO per share grew 11% year-over-year.

These growth rates are all on a normalized and constant currency basis. Our data center services portfolio continues to extend its scale and reach. And given strong demand and high utilization, we see continued opportunity to deliver highly attractive returns on capital, as evidenced by the largest development pipeline in our history. We currently have 49 major projects underway across 35 metros in 23 countries, including nine xScale projects representing over 34,000 cabinets of retail and over 75 megawatts of xScale capacity. New projects this quarter include new data center builds in Istanbul, Seoul and Tokyo, and our first builds in both Johannesburg, South Africa and Johor, Malaysia. Our new IBX in Johannesburg augments our current footprint in Africa, entering the largest and most digitally developed nation on the continent.

And our new IBX in Johor represents our entry into one of the most requested markets in Asia Pacific by our global customers. Equinix remains the best manifestation of the interconnected digital edge. And with these new builds, our unparalleled global footprint will span 75 metros and 35 countries. The strength of our global platform continues to shine, with nearly 90% of our revenue coming from customers operating in multiple metros and nearly 2/3 coming from customers operating in all three regions. Key multi-market wins this quarter included one of the world’s leading hospitality companies, finding performance gains at the edge by deploying in strategic markets across all three regions; and a leading cloud and CDN provider extending coverage and scaling globally to support new services and meet growing demand.

IDC estimates that more than 750 million cloud-native applications will be developed globally by 2025. And as this digital transformation wave continues, customers see Equinix as the logical point of nexus for hybrid and multi-cloud deployments. This quarter, we won four new cloud on-ramps, including one in Mumbai, making it the 12th metro on Platform Equinix enabled with native cloud on-ramps from all five of the leading cloud providers. No other data center operator has more than one metro with all five clouds. In our xScale business, we continue to see strong overall demand, leasing approximately 8 megawatts of capacity across our Tokyo 12 and Osaka two assets with meaningful expansions in our forward pipeline. Enterprise wins leveraging the cloud this quarter include a global technology company in the payments industry, deploying infrastructure to place their corporate and customer networks closer to AWS and Azure; and a leading paints and coatings company choosing Equinix for its cloud on-ramp capabilities and virtualized service offerings.

Our industry-leading interconnection franchise continues to perform well with revenues for the quarter growing 13% year-over-year on a normalized and constant currency basis, outpacing the broader business. We now have over 446,000 total interconnections on our platform. In Q4, we added an incremental 4,500 organic interconnections, slightly lower than our historical run rate due to seasonally slower gross adds, customer consolidations into higher bandwidth BCs on fabric and some elevated grooming activity. Equinix Fabric saw continued growth and is now operating at a $200 million revenue run rate, one of our fastest-growing products. Attach rates for Fabric continue to move higher with 40% of customers realizing the benefits of connecting their digital infrastructure at software speed.

Internet exchange saw peak traffic jump 7% quarter-over-quarter and 28% year-over-year to greater than 29 terabits per second, driven by FIFA World Cup streaming demand and reflecting the continued strategic importance of having the world’s largest Internet exchange footprint on Platform Equinix. Key interconnection wins this quarter included one of Korea’s largest conglomerates, establishing interconnection in Seoul for SJC2, the Southeast Asia-Japan Cable, which will be ready for service this year, and the largest water authority in the Netherlands, implementing Equinix Fabric to directly and securely connect to distributed infrastructure and digital ecosystems to ensure a clean water supply. Turning to our digital services portfolio, we saw continued momentum with Equinix Metal and Network Edge, driving attractive pull-through to Fabric.

Digital services wins this quarter included a leading insurance and financial services company evolving their internal systems from their own data center to a public cloud plus Metal approach at Equinix; and a Belgian advertising service provider using Equinix Metal for fast, efficient, reliable data movement to support localized online advertising. And our channel program delivered its seventh consecutive record quarter, accounting for nearly 40% of bookings and nearly 60% of new logos. Wins were across a wide range of industry verticals and digital first-use cases with hybrid multi-cloud as the clear architecture of choice. We saw continued strength from partners like AT&T, Avant, Cisco, HPE and Microsoft. Key wins included delivering a critical time-sensitive site migration for a multinational banking and financial services client in partnership with Options IT and Dell, leveraging a combination of Equinix Metal, Network Edge and Fabric to overcome supply chain delays and ensure continuity of operations while interconnecting to critical trading platforms.

So let me turn the call over to Keith and cover the results from the quarter.

Keith Taylor: Thank you, Charles, and good afternoon to everyone. To start, we had a great end to the year, finishing Q4 with healthy bookings, strong pricing, which included a nice uplift in MRR per cabinet in each of our regions and a solid forward-looking demand pipeline. We closed over 17,000 deals across more than 6,000 customers in 2022, and no single customer represents more than 3% of our MRR, highlighting the tremendous scale, reach and diversity of our go-to-market engine that continues to produce despite volatile and shifting macro conditions. Given the weaker U.S. dollar relative to our prior guidance rates, FX has shifted from a meaningful headwind to a tailwind, which is positive, although 2023 exchange rates still remain below the average FX rates for 2022.

And while we continue to remain vigilant to the challenges in the broader economy, we do remain optimistic about our business and the key demand drivers and feel we’re very well positioned to grow and scale due to our industry-leading risk management efforts across procurement and strategic sourcing, power and treasury and our future-first sustainability program. Also, the diversity and mix of our customers is benefiting us, with large established businesses constituting a majority of our revenues has greater than 80% of our recurring revenues come from companies generating $100 million or more in annual revenues. And more than 85% of our recurring revenues in the quarter come from customers deployed in three or more data centers, making Equinix a core vendor for our customers’ digital infrastructure needs.

Equinix remains in excellent financial health with strong liquidity positions, low net leverage, allowing us to be both strategically and operationally flexible in this current market environment. Now as part of our larger programmatic approach to managing power costs, we initiated efforts to enhance our customer communications last fall, providing our customers insights into our efforts while continuing to protect our customers and ourselves against the rising costs through our multiyear hedging efforts. At the start of 2023, we raised our power prices primarily in the EMEA region to recover these rising costs. While power markets remain volatile, our hedging approach meaningfully dampened the impact of the inflated energy costs for many of our customers.

We expect these power price increases will generate approximately $350 million of incremental revenues and costs in 2023. And as a result, the cumulative power price increases are expected to increase our revenue growth by approximately 500 basis points. Now despite these increases, our cost management efforts have protected both our adjusted EBITDA and AFFO on a dollar basis, but as expected, have negatively impacted our adjusted EBITDA margins for the year. We expect these higher energy costs to be transitory and should reverse course over our future yet-to-be-determined period, at which time both our gross profit and adjusted EBITDA margins will return to our targeted and expected levels. Now let me cover the highlights for the quarter. Note that all comments in this section are on a normalized and constant currency basis.

As depicted on Slide 4, global Q4 revenues were $1.871 billion, up 11% over the same quarter last year, above the midpoint of our guidance range on an FX-neutral basis, largely due to strong recurring revenues led by the Americas region. We continue to enjoy net positive pricing actions in the quarter. And similar to prior quarter, price increases outpaced price decreases by a ratio of 3:1. Q4 revenues, net of our FX hedges, included an $8 million tailwind when compared to our prior guidance rates due to the weaker U.S. dollar in the quarter. As we look forward, we expect a significant step-up in Q1 recurring revenues, largely due to strong net bookings performance and significant power price increases. Global Q4 adjusted EBITDA was $839 million or 45% of revenues, up 7% over the same quarter last year, at the top end of our guidance range due to strong operating performance.

Q4 adjusted EBITDA, net of our FX hedges included a $1 million FX benefit when compared to our prior guidance rates and $7 million of integration costs. Global Q4 AFFO was $658 million, above our expectations due to strong operating performance, including seasonally higher recurring CapEx and included an $11 million FX benefit when compared to our prior guidance rates. Global Q4 MRR churn was 2.2%, a derivative of disciplined sales execution, whereby we put the right customer with the right application into the right asset. For the year, MRR churn was better than expected with the average quarterly MRR churn at the low end of our guidance range. As we look forward into 2023, we expect MRR churn to remain comfortably within our targeted 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 revenue-growing region on a year-over-year normalized basis at 17%, followed by the Americas and EMEA regions at 10% and 9%, respectively. The Americas region had another quarter of strong gross bookings, lower MRR churn and continued favorable pricing trends led by our New York, Toronto and Washington, D.C. metros. The strength in the region remains broad-based, and the acquired Antel assets in Chile and Peru have performed better than we planned. Our EMEA region delivered a strong quarter with continued healthy pricing trends and an attractive retail mix as well as record inter- 40 new logos in 2022, and we’re already seeing customer interest for our Jakarta and Johor sites.

And now looking at the capital structure, please refer to Slide 8. Our balance sheet increased slightly to greater than $30 billion, including an unrestricted cash balance of $1.9 billion. As expected, our quarter-over-quarter cash balance decreased due to the significant planned increase in growth CapEx and real estate purchases and our quarterly cash dividend. I said previously, we plan to take a balanced and opportunistic approach to accessing the capital markets when conditions are favorable. As such, we’re happy to share that we recently priced a Japanese yen private placement, raising the U.S. dollar equivalent of approximately $600 million of debt with an average duration of greater than 14 years and a blended cost to borrow an attractive 2.2%.

This transaction is expected to fund in Q1. We also executed some ATM forward sale transactions in Q4, providing $300 million of incremental equity funding when settled. Pro forma for these transactions, we have nearly $7 billion of readily available liquidity and remain very well funded to meet our ongoing cash needs. Turning to Slide 9 for the quarter, capital expenditures were approximately $828 million, including recurring CapEx of $80 million. In the quarter, we opened six retail projects in Geneva, Los Angeles, Osaka, Singapore, Washington, D.C. and Zurich and three xScale projects in Dublin, Sao Paulo and Osaka. We also purchased our Geneva two and Sao Paulo four IBX assets as well as land for development in London. Revenues from owned assets increased to 63% of our recurring revenues for the quarter.

Our capital investments delivered strong returns, as shown on Slide 10. Our now 158 stabilized assets increased recurring revenues by 6% year-over-year on a constant currency basis. These stabilized assets are collectively 87% utilized and generate a 27% cash-on-cash return on the gross PP&E invested. As a reminder, similar to prior years, we plan to update our stabilized asset summary on the Q1 earnings call. And finally, please refer to Slides 11 through 15 of our summary of 2023 guidance and bridges. Do note, all growth rates are on a normalized and constant currency basis. Starting with revenues, for 2023, we expect top line revenues will step up by nearly $1 billion, representing a year-over-year growth rate of 14% to 15%. Excluding our power price pass-throughs, we expect top line revenue growth to range between 9% and 10%, above the top end of our long-term growth rates, as highlighted at our 2021 Analyst Day, reflecting the continued momentum in the business.

We expect 2023 adjusted EBITDA margins of approximately 45%, excluding integration costs. And excluding the impact of power price increases to revenues and higher utility costs, adjusted EBITDA margins would approximate 48%, the result of strong operating leverage and efficiency initiatives. We expect to incur $35 million of integration costs in 2023. 2023 AFFO is expected to grow between 9% and 12% compared to the previous year, and AFFO per share is expected to grow 8% to 10% at the top end of our long-term range from our 2021 Analyst Day. 2023 CapEx is expected to range between $2.7 billion and $2.9 billion, including approximately $150 million of on-balance sheet xScale spend, which we expect to be reimbursed as we transfer assets into the joint ventures and about $205 million of recurring CapEx spend.

And finally, we’re increasing the annual growth rate of our cash dividend on a per share basis to 10% due to strong operating performance. The cash dividend will approximate $1.3 billion, a 12% year-over-year increase, 100% of which is expected to be attributed to operating performance. So let me stop here and turn the call back to Charles.

Charles Meyers: Thanks, Keith. Our record of strong and consistent operating performance continued in 2022, and I’m proud of how the team delivered value for our customers and our shareholders. In 2023 and beyond, we believe the opportunity for our business remains significant as enterprises and service providers alike look to Platform Equinix as their key digital infrastructure partner to advance their digital transformation agenda. To expand our market leadership, reinforce our competitive advantage and drive sustained value creation, the leadership team and I have outlined a clear set of priorities for the coming year. First, we intend to press our advantage in our interconnected colo franchise, continuing to scale and evolve our best-in-class bookings engine, delivering on key projects to enhance operating leverage, further extending our superior global reach, refining processes and systems to enhance the Equinix experience for our customers and partners, and integrating our sustainability leadership into our services in ways that better help our customers meet their commitments to environmental and social responsibility.

Second, we intend to continue to enrich our platform value proposition by accelerating our digital services growth, delivering a more unified set of platform capabilities and by investing in ecosystem enablement, empowering key partners to bring their value to our platform more quickly and easily and allowing us to leverage their significant go-to-market reach. And we will advance these priorities by continuing to cultivate a culture that remains firmly people-first. We’re committed to making Equinix a place that attracts, inspires and develops the best talent in our industry, cultivating an in-service-to mindset and creating a place where every person every day can say, “I’m safe, I belong and I matter.” In closing, our business remains well positioned.

Despite a challenging macroeconomic and sociopolitical environment, digital transformation remains a clear priority across all industries and digital leaders will continue to harness our trusted platform to bring together and interconnect the foundational infrastructure that powers their success. In that vein, we’re pleased to welcome Tom Olinger to our Board of Directors. As the longtime CFO at Prologis, Tom has extensive international operating experience spanning real estate and technology, which will benefit our business. I’d also like to thank Budd Lyons for his exceptional service and contributions to the growth and success of the Company over the past 15 years as he rotates off the Board. So let me stop there and open it up for questions.

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Operator: We will now begin the question-and-answer session. Our first question will come from Simon Flannery with Morgan Stanley. Your line is open.

Simon Flannery: I wonder — it’s good to hear the strong outlook for 2023 and the good commentary around current activity. Can you square that for us with some of the comments from Amazon and Microsoft and others about enterprises becoming more cautious in December and through the early part of the first quarter? You did talk a little bit about some grooming, I think, in interconnect, but I understand the core value proposition. But are you seeing any of that behavior? And what gives you the confidence that, that’s not going to be of a concern through some of your enterprise or other customers who are facing some challenges in this macro environment? And then the second one on the pricing. Good to see the color, the detail around that.

Has that — have you been able to successfully get the payments? Has there been any pushback from the customers around that or people who have a struggle to pay those increases? Any color on that would be great as you go through the first couple of billing cycles here.

Charles Meyers: Sure. Thanks, Simon. Yes, both questions, we fully expected would be there. In terms of the overall macro environment, I would say, I think that the discussion has been interesting in terms of the cloud providers talking about customers being a bit more cautious. I think in specifics around customers who have really significantly expanded their investment in cloud and the workloads they’re moving to cloud, et cetera, and many of whom I think have said, “Wow, cloud — our cloud bill has gone crazy on us, and we really need to step back and take a look at that.” I do think that we see some of that dynamic. We actually see that dynamic, to some degree, playing in our favor in that customers are actually, one, sort of saying, “Hey, what are — it’s not blindly sort of everything to cloud.

It is really what is the appropriate mix of infrastructure requirements and how are we going to use the various clouds and how we’re going to do that effectively? And how are we going to have the agility to move things between clouds?” And so, I think we’ve seen customers really, one, very committed to their digital transformation agenda; two, I do think that they — even though they have that commitment, it’s probably in the context of a sort of a broader belt-tightening environment for overall budgets. And so, I do think they’re being appropriately cautious about their investments. I think that they are — we’re seeing that they are — I heard one CEO characterize it as measure twice, cut once in terms of how customers are thinking about their investments.

But we definitely see them leaning in on digital overall. And I would say that we — even in the cloud space, the amount of adds that are going in and the incremental revenue that the cloud providers are adding is still absolutely staggering. And in terms of overall quantum, it’s quite consistent. It’s coming down because the growth rates are coming down because you’re on a very huge base. But overall, I think people still very committed to hybrid and multi-cloud as their architecture of choice. And I think they’re really viewing Equinix as a key partner in figuring out how to appropriately manage and efficiently manage infrastructure costs going forward. So while we are seeing, I think, and people being appropriately cautious in a macro environment that would dictate that, we’re still quite optimistic about the overall demand profile in our pipeline.

And our conversion rates continue to sort of make us feel confident in that. And then the second one, relative to the power pass-through, we feel very good. We’ve got — we’ve communicated that out to customers. We’ve had a lot of inquiries. Most of those inquiries are simply about explaining and providing them additional information on the charges. And so to this point, we feel very confident that we’re — continue to feel very confident we’re going to get full recovery of that. And we’ll continue to update you as we learn more. But right now, all systems go.

Operator: Our next question will come from Jon Atkin with RBC Capital Markets. Your line is open.

Jon Atkin: So maybe looking a little bit at the revenue growth guidance, if you could unpack — you talked about the energy price increases. But apart from that, cabinet growth versus cross-connect growth and various flavors of digital services. Can you talk a little bit about what you’re expecting for 2023?

Charles Meyers: Sure. Yes. Again, we’re very excited. As evident in the guide, we continue to feel very optimistic about the top line of the business. Obviously, it’s a bit elevated with the power price pass-through. But even on an adjusted basis, excluding that 9% to 10%, which is above the long-term guide that we had provided at the Analyst Day. So, I think it reflects the overall strength in the business. And we’re seeing really across-the-board strength. I think in colo and interconnection, in digital services and really across the regions. And we’re seeing a combination of solid volume and very strong pricing. And so, I definitely think pricing is going to continue to contribute, and that is separate and apart from the power price increase.

Even if you take that 9% to 10%, I think us increasing list pricing, which I think in sort of an inflationary environment, we have to demonstrate that we can do that. And I think we’re having good success with that. So, I think the colo business remains strong, unit volumes on colo interconnection growing at 13%. Again, we saw slightly softer unit adds there, but I think we feel like that will probably normalize through the course of the year. And then digital services, we came off a really strong quarter. 2022 was really, I think, the front end of an inflection point of really, people saying, this is a great way for us to think about how to really use the power of the interconnected edge at Equinix in new ways. And so, I think we’re going to see great strength there.

The Americas business performed — ’22 is just an amazing year for the Americas business. I think EMEA really demonstrated some strength coming off the back end of the interconnection price increases and continuing to really evolve that portfolio to the retail suite. And then Asia is our fastest-growing region at 17%. So again, I feel very good that we’ve got pretty comprehensive strength in volume and in price across products and across geographies.

Jon Atkin: So just by way of follow-up and what you’re expecting in terms of customer decision cycle this year, book-to-bill intervals in your core business, it sounds like no change. I just wanted to kind of verify that. And then turning to xScale briefly, if you could maybe comment on pricing in the wholesale segment, and how is that keeping pace with higher build costs and higher financing costs?

Charles Meyers: Sure, yes. Generally, I think that the book-to-bill, we have not seen any extensions of book-to-bill. I think in terms of quote to book, in other words, what’s the sales cycle, I think we’re seeing some anecdotal evidence of this sort of measure twice, cut once. But again, the team has — is seeing strong conversion rates, solid pipeline and continue to feel good overall. So haven’t seen any material change, although again, anecdotal evidence that you’re seeing a little just caution in terms of customers really making sure that they’re buying exactly what they need in the right amounts. And that’s not surprising in sort of the macro kind of environment that we have. And then, Keith, I don’t know if you have any further comment on book-to-bill and then xScale.

Keith Taylor: Yes. The only other thing I would say in book-to-bill, last year, there were some supply chain constraints. We don’t foresee any meaningful amount of that this year as it relates to the installation of our customers, so continue to be optimistic about that. And as it relates to xScale, I was just saying in the prepared remarks, you can see that there’s a tremendous amount of capacity that we’re building across our xScale sort of portfolio. And it’s exciting. And so as that relates to not only the opportunity, and not counter to Simon’s maybe worried bit, we’re seeing the — a lot of volume opportunities sitting inside the xScale business. So that’s good. And then from a price point, no surprise, costs have moved up and pricing, therefore, has moved up to recover that cost and get the appropriate returns.

So, I feel good from both perspectives. One, there’s the volume that’s there. There’s the activity that we’re building to support that volume, and we’re getting the price points and the returns that we feel are appropriate for this juncture.

Operator: Our next question will come from Frank Louthan with Raymond James. Your line is open.

Frank Louthan: Can you walk us through a little bit of the difference between sort of what’s the pass-through from the revenue side, from the power increases versus what flowed through from the price hikes that you put in this year? And what had the biggest impact from the price increases? Was it more the base rents or the cross-connects? How would you characterize that?

Charles Meyers: Sure, yes. I mean, the power pass-through is a really easy one to think through. It’s on the order of $350 million on the revenue line and on the expense line. So — and it’s just — and that’s really what causes the 500 bp increase on the revenue line, obviously, without corresponding flow through to EBITDA. And so that impacts the EBITDA margin. But on a normalized basis, so as reported 45% guide but a normalized or excluding that 48%, which we think continues to look very good. And so — and in terms of power price increases on the rest of the portfolio, I think we’re seeing it — we’re going kind of across the board in space, power as well as in the digital services, making adjustments that we think are appropriate in the market.

And part of that is just reflecting the increasing expense environment and some of the costs inside of the business that are going up. But then part of that is also just, I think, a really strong reflection of the value we deliver to the customer. And so, I think you’re going to — you’re seeing the growth is certainly partially driven by strong pricing, and that’s pretty consistent across the space, power and interconnect.

Keith Taylor: And Frank, let me just maybe add on to what Charles said there. As we think about our business, and I said this at the Analyst Day two years ago and we’ll certainly update you in the June Analyst Day coming, but when you think about pricing, historically, it was running at about 6% of our bookings. And we’ve said that price increases are in the range of 3% to 5% and our stabilized revenue — our stabilized assets are growing at recurring revenue at 6% right now. So, I think you’re going to get it from a number of different spots: number one, inflation. You’ve got the inflationary impact, and of course, that is going to move the pricing up higher than where we historically have been. And Charles was also alluding to the fact we also are moving list pricing.

And so, when you look at list pricing, plus you’ve got the inflationary increases and then you’ve got the PPIs in addition to adding what we think is great value across our set of products and services, you have a broader influence coming from not just — you have quantity but you have price. And I think that’s something that we’ll continue to sort of track and update you on as we come to the June Analyst Day, as I said.

Frank Louthan: And can you remind me what your average contract length is?

Keith Taylor: Two to three years.

Frank Louthan: Remaining, two to three years.

Keith Taylor: Inside the retail business. xScale, of course, is longer than that.

Frank Louthan: What’s the average kind of outstanding at any — currently?

Keith Taylor: In xScale or in retail?

Frank Louthan: Just in retail?

Keith Taylor: Yes, the average is two to three. Again, I don’t have any more refined than that. That just gives you an indication of how things will renew. And as a result, one of the things I said at least in my prepared remarks is when you look at price increases relative to price decreases, we always talk about net positive pricing actions and you’ve heard us mention that quarter after quarter for years. It’s a reflection that it’s a living and breathing organism. And that there’s always going to be movement and you’re renegotiating with your customers. And some people, you’ll adjust down, but the bias is towards price increases, not only because that’s how the model works, but you’re really going to see that come through as again, you feel the inflationary impacts, you go through the power price increases, and it manifests itself in our — on a currency-adjusted MRR per cabinet number across all three regions.

And that will continue to be something that we will monitor very, very closely.

Charles Meyers: Yes. And Frank, I’d offer that in a sort of — we’ve become very adept at sort of managing and optimizing sort of the overall return profile in the business. And as you look at the current environment, which is strong underlying demand signal, high utilization rates in some markets, particularly we have some markets that are quite tight, it really gives us the opportunity as we look at how to optimize to not only sort of in a rising rate environment, look at how to optimize that and upon renewal, either take unutilized capacity and resell it at significantly higher rates or, in some cases, look to do that proactively. And so, I do think that, that works well for us as we continue to demonstrate that we’ve got a level of pricing power in the business.

Operator: Our next question comes from Michael Rollins with Citi. Your line is open.

Michael Rollins: Just a couple of expense questions and then a revenue question. So on the expenses, as you close the books on 2022, if I’m looking at the slides, it looks like there was some impact both to revenue and EBITDA or expenses from the power pass-throughs you previously have discussed, Singapore. Can you share the funnel dollar amounts of impact that we should just be bouncing off of for 2023? And then as you look at 2023, are there incremental sales or product investments that we should be mindful of as we think about the types of opportunities, Charles, that you were discussing in the priorities to enrich the platform? And then I get to the final question of just, what are some of those examples maybe specifically on how you’re trying to enrich the platform for 2023 and beyond?

Charles Meyers: You want to take the first one on the PPI from ’22?

Keith Taylor: So Singapore, let me step back first. And when I talk — when we think about Q4, which obviously is the most current guide, you see that we did slightly better than we guided to despite some of the movements. And as we sort of mentioned in the last call, we normally accelerate some costs into fourth quarter, largely for repairs and maintenance and some outside consulting work. And we expect it, our utility costs, to go up largely because of the seasonal aspect, less about the Singapore PPIs but the seasonal aspect. And part of the reason that we did a little bit better was those utility rates didn’t go up as much as we anticipated. And then we’ve seen some moderation in price. Price and power is still inflated but moderated relative to some of our assumptions.

So when you look at the fourth quarter, I would say that it performed exactly as we anticipated with a little bit of benefit attributed to power savings and really with the operating performance and then better revenues. Specifically to Singapore though, when we look at the sort of the net hit for Singapore last year, think of it in the order of magnitude of $50 million to $60 million. The reason I’m giving you a range is there was a substantial increase or a weakening of the U.S. dollar relative to the Singapore dollar. And so when you look at the net impact, it had a little bit of a knock-on effect on our results because obviously, you’re absorbing a cost at a higher exchange rate. And so that would — that gives you a sense of where we are in Singapore.

As you then sort of fast forward to 2023, one of the things that we had mentioned in 2022 for the costs that we do not recover from Singapore in 2022 because we were out of market, market has moved to Equinix and part of the recovery that you’re seeing and it’s embedded in that $350 million is basically recovering cost that — the cost increase in Singapore that we didn’t recover in 2022. So it gives you a sense, there’s think of, again, in the order of magnitude of $50 million to $60 million, is that number that you should be thinking about.

Charles Meyers: And of course, the overall quantum in 2023 is much larger, as I described earlier. And so — but that’s — but I think we’re clear on that in terms of how that affects both revenue and margins.

Keith Taylor: Does that answer your question, Mike? I want to make sure that we — because you’re asking about the P&L. I want to make sure that we hit that question for you.

Michael Rollins: Yes. So it looked like just on the Slide 12 and Slide 13, just to dig in just for another moment just to make sure I fully appreciate the difference. So it shows the 11% constant currency without power pass-through, 10% after the power pass-through and then it shows a difference in margin as well. So is that the $50 million to $60 million? Or is there an additional amount that we should just be thinking through when making the adjustments to compare it to what’s happening in 2023?

Keith Taylor: No. I mean, it’s relatively — is consistent with what we said. I mean, part of what you’re getting is a normalized versus a normalized without power pass-through. And so the difference between those two is we’re saying that if — we would have done a little bit better had we not been exposed to that Singapore exposure.

Michael Rollins: And then just on the cost for 2023, maybe moving to that, are there any specific sales or operational investments?

Keith Taylor: Yes, definitely. Let me give you a little color on that, Mike. So we — the investments that we were — and I’ve talked about this in a few different forums, that we’re holding a pretty tight line on G&A. We are definitely investing in the go-to-market engine so that’s a clear area of investment. I think we’ll be approaching closer to 700 quota-bearing heads. And so we’ve definitely made that investment. Some of those are — many of those were already on board at our Connect sales event — sales kickoff event and are raring to go for the year. But we’re still adding some as we speak. Product is really not an area of significant incremental investment, but we are adapting sort of exactly how we’re spending our product level investments.

Scott Crenshaw has come in on the digital services side, and I think we’re evolving our areas of focus. We’re going to continue to focus on — we think Metal continues to have significant opportunity. Network Edge is continuing to see momentum in the market. But I think evolving Metal to be a more foundational platform for the ecosystem to bring value to our platform is something we see a lot of value in. And so, we’re excited about the VMC on Equinix that partnership with VMware. And I think that’s sort of more of sort of the color of things to come in terms of more investment in the ecosystem. And so, I think that’s something you’re going to see. And then we’re also going to probably make some efficiency and continued efficiency programs that we think are going to drive long-term, either power efficiencies in terms of PUE improvement, and/or labor efficiencies in the business because we do believe that at some point down the road, we’re going to have to use margin expansion as a way to drive AFFO per share growth.

If you look at the current guide, it’s really being driven by top line growth and then flow through, right? And so — and we’re — but at a very healthy margin. So absent the PPI, we’re at about 48% margin, a little bit of an increase, about 10 bps from where we would have been in 2022. We would have been higher than that because we are delivering operating leverage on G&A and other areas of the business. But we’ve reinvested it into those areas that I just described for you.

Michael Rollins: And just finally on some examples of the ways that you’d like to enrich that platform in terms of the priorities you were sharing with us earlier in the call?

Charles Meyers: Sure. A couple of areas, one is definitely on that ecosystem enablement side. We’ve got to make it easier for partners to bring their value to the platform. And so I think in terms of how we think about enabling them from the software side with APIs, richer APIs and easier — an easier experience for customers and partners improving our portal and our software level, programmatic engagement opportunities at the API level, that’s clearly going to be an area of investment. And then making the platform easier to use and more consistent. I think we — that’s one of the things we’ve heard from our channel partners, making it easier for them to quote and order and deliver our services, that’s going to be a continued area of investment for us as well.

Operator: Our next question will come from David Barden with Bank of America. Your line is open.

David Barden: I guess, Keith, you probably expect this question. But if I take your fourth quarter revenue and multiply it by four, I add the $350 million of power pass-throughs and I subtract it from the midpoint of your 2023 outlook, the math suggests that you’re telling us we’re going to see mid-$30 million per quarter sequential revenue growth versus what we saw in 2022, which was closer to mid-$40s million. And so, I just want to make sure I didn’t mishear anything about the strength of the platform and other things that we might need to be concerned about. And then I guess my second question is, other than raising your revenue growth guidance over the course of the year, as we think about the June Analyst Day, Charles, what are you — what kind of expectations do you want to set that we’re going to hear when we get to the midyear time?

Keith Taylor: So let me take the first question, David, and thanks for doing the math. So let me start off at the highest level. We expect to book more in 2023 than we booked on a net basis than we did in 2022. So you can see that the business is going to continue to perform at a nice clip. There’s a lot of non-recurring activities that go on in the business, particularly around xScale. But I would say that xScale, in addition, we expect to do more in 2023 than we did in 2022. You’ve got some currency movements and some relatively meaty movements. But currency is now starting to feel like it’s at our back. But as I said, 2023 rates are still below the average rates of 2022, and so you’re taking a little bit of a hit. And the order of magnitude of that hit, just to give you a sense on the averages is about $160 million to the top line.

So you’ve got a little bit going on there, but I think if you go back just to the fundamentals, all else being equal, if currencies continue to move as they had been, although we’ve been a little bit of a blip over the last couple of weeks, another 10% move in currencies is a substantial uplift in our revenues. And so not only would it recapture the averages that we saw in 2022, it would give you more wind at your back for 2023. And so bottom line is there’s nothing fundamental. We’re obviously giving you a little bit wider range, given the economic environment that we’re operating in today. That was very deliberate and it’s very early in the year. And so for those reasons, I say, look, that’s the guide. It’s got a wide range and we’re planning to execute against the plan that I just mentioned.

Charles Meyers: So in terms of the Analyst Day, I mean, I think we’ll — that will actually be progressed well into the year, and I think we’ll be able to give you a continued update on momentum in a number of areas. But I think we’ll also continue to give you visibility in how we’re evolving, driving the evolution to a more comprehensive platform value proposition. We’ll really talk about being the infrastructure platform of choice for customers as they implement hybrid and multi-cloud as the architecture of choice. And so, I think updating you on what that means for our sort of traditional interconnected colo business and what that means for expansion of the platform, continued improvement of the customer experience. And then on the digital services side, how we’ll continue to evolve the platform in terms of the service offerings with probably a real focus on Metal as a foundational piece of that.

And then also on cloud networking. Networking is definitely an area of value add that we have always had for our customers and I think an area that we can continue to evolve the platform in terms of how we make it easier for customers to interconnect a variety of forms of infrastructure in a very cloud-centric world. And so, I think we’ll talk you through those evolutions of the strategy and update you on where we’re making investments and how we see the long-term outlook playing out as a result.

Operator: Our next question will come from Eric Luebchow with Wells Fargo. Your line is open.

Eric Luebchow: So just curious on your development pipeline, I think it’s about as big as I’ve ever seen in terms of new expansion capacity. Maybe you can talk about, based on pretty tight industry supply, what kind of fill rates your utilization rates you expect to deliver on new development. Is it happening faster than it has in some historical periods? Then in terms of development cost inflation, have we started to see that cost curve flatten out? And do you think that, to some extent, could dictate how much your ability is to raise rents, excluding power pass-throughs as we look throughout the year?

Charles Meyers: Yes. I mean, we’re definitely seeing strong fill rates and that’s informing the continued investment in the development pipeline for sure. And I would say that we’re — so that’s — I think that’s — and I think we’re seeing — we’re underwriting to return profiles in light of that, that I think are very consistent with what we’ve seen in the past. I definitely do think, on the second part of your question, that we are — we’ve seen a meaningful uptick in cost, and we are expecting and anticipating and managing toward increases in pricing to maintain a consistent return profile. And thus far, I think we’re seeing that our ability to have those price increases materialize in the market, in other words, our pricing power remains strong.

So I think — and in terms of whether they’re stabilizing, I do think that, as Keith said, the supply chain situation, I think, is a bit more stable, and we were, I think, due to a good strong execution on our part and our scale and some of the capabilities we have, I think we managed it quite effectively. And I think we’re continuing to be diligent about that going forward. So, I think we’ve stabilized a lot of the risks on the supply chain side. Labor is tight still in some markets. And there, like for example, in France, where with the Olympics coming up, it’s just finding the ability to advance those projects on the time lines that you want is a challenging task for sure. So, I would say the labor piece is probably the one on the supply chain that is a little bit more an area to watch for us.

But overall, I think we feel very good about the underwriting, a lot of it still going into our core campuses that have sort of a really, really well-established track record of fill rate. But we’re also seeing some of our newer edge markets continue to perform well ahead of expectations. So yes, big development pipeline, managing it well and I think feeling good about our ability to sort of perform to that underwriting.

Keith Taylor: And Eric, let me just add maybe to what Charles has said. And again, in our prepared remarks, one of the things that was really important that we wanted to share with our — the group here is the fact that we’re funding the business. So, we not only have the cash on the balance sheet, we’re bringing capital — more capital on the balance sheet to fund 49 major projects that we’ve at least announced thus far across many metros. And we’re going to be in 75 metros in not too far from now. So, you got a sense, one, the capital plan is increasing. We think we’ve got the supply chain well secured. We have a really good procurement team and strategic sourcing team that makes sure that we have the resources available. And then you’ve got a global design and construction team, they’re doing just an excellent job delivering the capacity as quickly as we can deliver it.

And it’s tough out there in some markets. But I think it was really important to understand not only the volume there, we’ve got strategic planning, sourcing in place. We have the capital that we need. And we’re setting ourselves up to fund all those things through 2023 and put us in a really good position as we start 2024. And so leverage is not going to shift in any meaningful way so it gives us that enhanced flexibility. And at the same time, we’ve all effectively prefunded a lot of the costs into the model, and we are now enjoying the benefits of this large expansion or this growth initiative that Charles has alluded to, both on the physical side and on the digital side. And so, it’s the combination of all those things that really give us — make us feel very good about our capital plan, our balance sheet and the liquidity position we’re in right now.

Operator: Thank you. And we do have time for just one more question. Our last question will come from Nick Del Deo with SVB MoffettNathanson.

Nick Del Deo: First, Charles, you noted that interconnection adds were a bit soft due to seasonality, grooming and some virtual interconnections being consolidated. I guess, can you just expand a bit more on what’s specifically driving those trends, the relative importance of each one and why you feel comfortable that it’s going to normalize over the course of the year? And then second, in the current environment, you’ve got customers more cautious about spending in general but maybe more averse to capital outlays. Do you see that as sort of a net neutral for services like Metal or net positive or net negative? And do you feel like you’re educating your customers appropriately today to take advantage of them?

Charles Meyers: Yes, great question. Starting on the interaction, look, we feel really good about the interconnection business overall growing at 13%. We’re clearly being able to make adjustments to interconnection pricing alongside broader list prices, so the pricing element is strong there. As I said, we did see a little weaker — Q4 is seasonally a bit weaker, but definitely, this Q4 is weaker than prior Q4s. And I think there is some consolidation. I think it’s partially due to just, as I said, the behavior of customers for — interconnection is probably as close to we have to a usage-based service. It was — some of our digital services are more usage based. But in the colo environment, that’s as close as we have to usage-based services.

When people — things start to get paid, people immediately look at the things they can impact the fastest. And so I think it’s pretty common for them to look at the portfolio and say, do I have interconnection I’m not using or that’s underutilized that I could consolidate on the higher circuits? And I think that’s some of the dynamic that we’re seeing. So, I’d expect to — and then we did see a little bit of, in terms of these virtual BCs to cloud ZNs, a little lighter on gross adds, still very healthy gross adds, by the way, because the cloud — I think cloud and workload migration continues very full tilt and despite sort of what people are saying about the reducing growth rates of their cloud business, we’re still seeing that very. But it is a little bit lower in terms of gross adds than it was.

And so — but I think that we tend to see that — those kinds of dynamics as something that’s a bit of a burst of activity as people go through budget cycles and then they kind of run out of gas on their ability to sort of squeeze more out of that. And so we’ll monitor it closely. I continue to feel like the bottom line is that customers really see our interconnection platform as fundamental to how they’re thinking about go-forward hybrid and multi-cloud architectures. And so, I think the demand profile for the business for the interconnection over the long term is going to continue to be really strong. And then on the second part around digital services, I definitely think that we’re starting to see a realization from customers and the ability of our sales teams to articulate that services like Metal and their ability to deliver more on-demand infrastructure that can help customers be more agile is something we’re seeing an inflection point on.

We won some very marquee deals in Q4 of last year. I think we’re seeing very large service provider and enterprise customers starting to sort of test the waters. I think they see it as an opportunity to reduce their life cycle management of technology obligations and I think to be a lot more agile in how they implement infrastructure. And so, I think we’re definitely seeing the front edge of that. I think we’re seeing a lot of excitement about things like VMware Cloud on Equinix Metal. And so I think that we’ll continue to be quite optimistic about that piece of the business. But we’re definitely learning how to effectively sell that and how to sort of get in front of different personas. And I know Karl and the go-to-market teams are really evolving our approach in those areas, but we feel very optimistic about it.

Nick Del Deo: Okay. And do you feel this current environment helps that selling proposition or kind of makes it more challenging?

Charles Meyers: I think it helps it in many respects. I think overall, people are looking for a way to advance the digital agenda that they have and do it as efficiently and as effectively and with as much agility as possible. And so again, we’ve seen strong demand. I think that the — those services that are more on-demand, more agile, I do think, have an increasing level of appeal to customers.

Chip Newcom: This concludes our Q4 conference call. Thank you for joining us.

Operator: That does conclude today’s conference. Thank you for participating. You may disconnect at this time.