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Operator
Good afternoon and welcome to the Equinix second quarter earnings conference call. All lines will be able to listen only until we open up for questions. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd now like to turn over the call to Katrina Rymel, Vice President of Investor Relations. You may begin.
Katrina Rymel
Good afternoon and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be identified by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent form 10-K, filed on February 21, 2020, and 10-Q, filed on May 7, 2020. 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 financial guidance during the quarter unless it is done through an explicit public disclosure. In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We have made available on the IR page of our Web site a presentation designed to accompany this 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 our IR page from time to time and encourage you to check our Web site regularly for the most current available information. With us today are Charles Myers, Equinix's CEO and President, and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in an hour, we'd like to ask these analysts to limit any following questions to just one. At this time, I'll turn the call over to Charles.
Charles
Thank you, Katrina. Good afternoon and welcome to our second quarter earnings call. As we all continue to navigate various health, economic, and social changes occurring in our world, our key priorities remain clear, focusing on the health, safety, and well-being of our colleagues, customers, and communities, and enabling our customers to respond effectively to the increased urgency of digital transformation as a critical business priority and a driving force in the global economy. Even in the face of an uncertain macro environment created by the global pandemic, the Equinix business continues to perform well. and our relevance in enabling digital business and connectivity remains a core tenet of customer purchasing decisions. In Q2, we delivered the third best gross bookings in our history, driven by a record quarter in the Americas, continued strength in channel bookings, robust interconnection performance, and a high volume of small deals. Our expanding go-to-market engine continues to fuel the business, generating over 4,200 deals in the quarter across more than 3,000 customers. And the importance of our global reach continues to shine as our customers scale and expand across the globe, leveraging our platform across 56 metros in 26 countries. We're continuing to increase the scope of customer deployments, and customers operating in all three regions now represent 62% of revenue, up 1% quarter over quarter. Our organic expansions continue, opening Hamburg this quarter and adding Bordeaux as a strategic subsea landing location in support of a key hyperscaler. and we're using disciplined M&A as a tool to enter new markets and scale our platform. On June 1st, we announced our intent to acquire 13 Bell Canada data centers, expanding our coverage in Canada to a national platform and unlocking opportunities for global corporations to capture growth and innovation in the Canadian market. This acquisition, which is expected to be immediately accretive upon close in Q4, reflects Equinix's continued commitment to executing platform-enhancing acquisitions on financially attractive terms. Before we get into the detailed core of the results, I want to share a few thoughts on our commitment to social change and our continued work to build a culture and community that can have a meaningful, sustainable impact on the future of our society. Recent events in the US have triggered outrage and an outpouring of emotions around the world. We have actively tapped into this energy, fostering a rich and inclusive dialogue on the topics of equity and social justice, with a focus on improving our collective understanding of each other and creating a commitment to action which is imperative to moving us forward positively as individuals, as a company, and as a society. While still early in our journey, our vision remains clear. For Equinix to be a culture where every employee, every day, can truly say, I'm safe, I belong, and I matter. And for our workforce at all levels to better reflect and represent the communities in which we operate. We acknowledge that we have work to do in achieving this vision, but are fully committed to demonstrating measurable, enduring progress against a multi-year strategy and continue to believe that our culture remains a key competitive differentiator. Our approach includes traditional aspects such as diversity targets, bias training and mitigation, community philanthropy programs, and employee mobilization. But we also believe that lasting change will only happen by pushing ourselves even further in our pursuit of becoming a truly equitable and global organization. Our objective is to continue to make our culture a critical competitive advantage, seeking to engage every leader and every employee at Equinix. and integrating diversity, inclusion, and belonging into every aspect of how we run the business. As a company, we will continue to put in the work and reaffirm our commitment to cultivating a workplace and a society that embraces and vigorously defends equality and diversity. Now, turning to our results as depicted on slide three, revenues for the second quarter were $1.47 billion, up 8% year over year. Adjusted EBITDA was up 9% year-over-year, and AFFO was again meaningfully ahead of our expectations. Interconnection revenues continued to over-index substantially, growing 16% year-over-year, reflecting the important role of interconnection in digital transformation and highlighting our clear market leadership in this area. Unit volume was fueled by growth in provision capacity to support increased traffic and solid new product performance, reflecting our ability to meet the evolving connectivity requirements of hybrid and multi-cloud architectures. These growth rates are all on a normalized and constant currency basis. We now have over 378,000 interconnections, and we continue to see healthy expansion of our dynamic ecosystems across the globe. In Q2, we added an incremental 8,000 interconnects driven by streaming, video conferencing, enterprise cloud connectivity, and investments in local aggregation to support work from home. Internet Exchange had one of its best quarters ever, with peak traffic up 44% year over year, as the peering community augmented capacity for video conferencing, gaming, and over-the-top video, replacing headroom that had been exhausted by COVID-related traffic growth. ECX Fabric also had a great quarter, eclipsing 2,200 participants and demonstrating robust multi-cloud adoption, particularly from network providers, with one-third of them scaling bandwidth to five or more clouds. We're also making good progress in integrating the packet business with strong new logo engagement and continued go-to-market integration as we work to deliver on our vision for platform Equinix to underpin the foundational infrastructure for today's digital leaders. We're also strengthening Equinix's leadership position in the cloud ecosystem through expansion of our hyperscale strategy, allowing us to service both retail and large footprint in key markets while maximizing the efficiency of our balance sheet through our partnership with GIC, We're seeing strong customer demand in our initial X-scale JV in Europe and will soon expand this JV to include our seventh asset, Paris 9. This facility is slated to open early next year and is immediately proximate to our market-leading Paris campus and is already 100% pre-leased to a major hyperscaler. We're also tracking to close our new X-scale JV in Japan with GIC in Q4, adding new locations in Osaka and Tokyo. Now let me cover highlights from our verticals. Our network vertical achieved record bookings driven by robust reseller activity and network expansion to support traffic growth. Expansions included Colt, a global telecom provider, adding capacity at the interconnected edge to support increasing user demand, as well as Vocus Communications, an Australian specialty fiber and network solution provider, deploying infrastructure to increase scale and improve end-user experience. Our financial services vertical had second-highest bookings with strength in global financial and insurance firms as they accelerate digital transformation. New wins and expansions included a leading Nordic insurance company leveraging hybrid multi-cloud and distributed data, and Galileo Financial Technologies, a payment solutions platform re-architecting their network and securely connecting to ecosystem partners. Our content and digital media vertical also saw solid bookings with particular strength in gaming and video, driven by the spike in demand for indoor entertainment. New wins and expansions included IOTA, a leading audience technology platform looking to expand their footprint to serve the ad tech industry, and Moody's, leveraging ECX Fabric to re-architect their network and multi-cloud access for increased performance. Our cloud and IT vertical also showed strong bookings, led by the infrastructure and software sub-segments with continued momentum in cloud adoption. We continue to extend our market-leading cloud density, adding 10 cloud on-ramps this quarter alone. as cloud providers expand services into new metros, including Bogota and Mexico City. New wins and expansions included Cisco, extending service capabilities to additional regions to support new product offerings and security and client demand for Cisco WebEx communication solutions, and BMC Software, a leading platform provider of digital workflow solutions, deploying infrastructure to support their expanding customer base across the region. Our enterprise vertical saw solid bookings and broad-based demand with particular growth in business and professional services, government, and energy, despite some COVID-related friction. COVID continues to shift enterprise spending patterns, resulting in increased demand for various cloud-based services, including telephony, messaging, and conferencing. New enterprise wins included a Swedish engineering company optimizing its global network to provide optimal employee experience. A global spirits distributor to switch from building its own on-premise data centers to Equinix to support rapid deployment, as well as Fung Group, a global leader in supply chain solutions, leveraging ECX Fabric to digitize its supply chain ecosystem. Our channel program had a record quarter, accounting for over 30% of bookings and delivering great productivity from this go-to-market vector. The channel program continues to be a new logo engine for the company, generating over 60% of all new logos. We had great wins with reseller and alliance partners, including Orange Business, Cisco, AT&T, Microsoft, and Dell, across a wide range of industry segments, with projects focused on both digital transformation and COVID-19 response. New channel business this quarter included notable wins with AT&T for a global insurer transitioning from on-premise data centers to a hybrid multi-cloud solution to enhance elasticity and performance, and with Vodafone for a premier global energy company supporting their adoption of SD-WAN, and hybrid multi-cloud enablement. Now, let me turn the call over to Keith to cover the results for the quarter.
Equinix
Thanks, Charles, and good afternoon to everyone. It's nice to speak with you again. I, like Charles, hope you and your families are doing well and staying safe. With respect to Equinix, the business continues to perform well. Q2 revenues, adjusted EBITDA, AFFO, and AFFO per share were ahead of expectations. Despite disruptions experienced by our customers, our suppliers, and partners, our employees over the past few months, In the quarter, we had significant gross PAG and net bookings, including very strong net positive pricing actions. Interconnection activity was very healthy, both at the physical and the virtual level. We're making solid progress across our new edge services products. Our performance against our key operating metrics was, again, positive, including solid increases in our MR per cabinet and billable cabinet metrics. For the quarter, we're tracking against our expectations on COVID-19-related impact and costs. As expected, there are certain cost trends going both directions and we'll continue to make the appropriate adjustments to our forecast as needed. And as you've heard us say before, but it's certainly worth repeating again, achieving an investment grade rating and now from each of our three credit rating agencies after Moody's May upgrade has proven to be a highly strategic and valuable milestone, enabling us to access the debt capital markets expeditiously, while broadening the investor base and tightening the credit spread on our issued debt. This is particularly important during times of great volatility and disruption, like today. In June, we refinanced $2.6 billion of high-yield debt at a blended interest rate of 2.07%, the lowest interest rate ever achieved by any BBB-rated issuer. Interest savings on an annualized basis will approximate $50 million, and these savings will effectively offset the dilution associated with our $1.27 billion equity raise in May. We have an active construction pipeline with 29 projects underway across 20 markets in 14 countries, and we continue to work closely with our suppliers and partners to deliver capacity as close to the targeted dates as possible. Now let me cover the quarterly highlights and note the growth rates in this section are on a normalized and constant currency basis. As depicted on slide four, global Q2 revenues were 1.47 billion, up 8% over the same quarter last year, our 70th consecutive quarter of revenue growth, including a $3 million net FX benefit when compared to our prior guidance rates. We've seen positive momentum in the first half of the year driven by strong net bookings and price increases. resulting in a healthy recurring revenue uplift, but lighter than planned non-recurring revenues due to the timing of custom work and decreased smart hand revenues. Global Q2 adjusted EBITDA was $720 million, or 49% of revenues, up 6% compared to the prior quarter and 9% over the same quarter last year due to strong operating performance and favorable revenue mix, including a $1 million net FX benefit when compared to our prior guidance rates. Global Q2 AFFO was $558 million, above our expectations on a constant currency basis, largely the result of strong operating performance. We continued to manage the business and support of our AFFO per share goals. Turning to our regional highlights, whose full results are covered on slides 5 through 7. EMEA and APAC were the fastest MR growing regions on a year-over-year normalized basis at 16% and 10% respectively, followed by the Americas region at 3%. The Americas region saw record gross bookings with healthy pricing and strong exports to the other two regions in the quarter. The Americas growth rate was partially muted by our decision to waive certain smart hand fees and the timing of planned churn. We expect the Americas growth rate to step up in the second half of the year. We also completed the integration of the Mexico assets and won several key internationally-based magnets into our network and cloud verticals as customers start to leverage the value of the Equinix platform into our Mexico markets. Our media region saw strong bookings in the quarter, particularly across a number of smaller and emerging markets, including Dublin and Madrid. Paris continues to perform well, a market that we're seeing an increase in demand and a tightening of supply. Our broad build-out initiative across the region remains active. Interconnection was substantially up on a year-over-year basis, driven by volume and pricing initiatives. And billing cabinets stepped up in the quarter. And finally, the Asia-Pacific region saw another very strong quarter of bookings, including a record into our Japan markets, and the region enjoyed solid exports, particularly into EMEA. APAC Interconnection had a strong quarter with many providers scaling network connections for future growth, but higher than average net ads in cross-connects and intrametro connections. And now looking at our capital structure, please refer to slide 8. We continue to increase our operating and strategic flexibility through the management of our balance sheet and capital allocation decisions. Performing for the debt refinancing activities, we have approximately $2.7 billion of unrestricted cash and investments on the balance sheet for total liquidity, including our available revolving line of credit of almost $5 billion. We will use this liquidity alongside our capital and balance sheet initiatives to opportunistically expand the business both organically and inorganically as we work to maximize long-term shareholder value creation. Including the benefit of the $1.7 billion equity transaction completed in May, our net debt leverage ratio decreased approximately 3.3 times the Q2 annualized adjusted EBITDA, well within our targeted leverage range. Turning to slide 9 for the quarter, capital expense shares were approximately $482 million, including a recurring capex of $30 million. We had seven openings in Amsterdam, Chicago, Dallas, Hamburg, Hong Kong, Toronto, and Washington, D.C. This included the opening of Dallas 11, a new IBX completed on the InfoMart Dallas campus, which is an interconnection epicenter and a major hub for the southern U.S. And we announced four new expansion projects, the majority of these projects to be developed on own land, being Bordeaux, Hong Kong, Milan, and Warsaw. We continue to expand our ownership, acquiring land for development in both Frankfurt and Manchester markets. For the year, we now expect capital expenditures to increase by approximately $150 million, which reflects the anticipated timing of the closing of the Japan joint venture with GIC. Once this transaction closes, GIC's portion of the capital expenditure spent prior to the close date will be reimbursed to Ethnex, an amount that is expected to range between $150 and $200 million, including certain previously incurred costs. Revenues from owed assets is currently 55%, a metric that we anticipate will increase over the next 18 months. Our capital investments deliver strong returns as shown on slide 10. Our 148 stabilized assets increase recurring revenues by 6% year-over-year on a constant currency basis. These stabilized assets are collectively 84% utilized and generate a 28% cash-on-cash return on the gross PPN invested. Now, please refer to slides 11 through 15 for our summary of 2020 guidance and bridges. Starting with revenues, we expect to deliver an 8% to 9% growth rate for 2020, a reflection of the continued momentum in the business and includes a net FX benefit of $23 million compared to our prior guidance rates. Non-recurring revenues are expected to remain at these levels for the rest of the year. MRR churn is expected to remain in our targeted range of 2% to 2.5% per quarter for the remainder of the year. We expect 2020 adjusted EBITDA margins of approximately 48%, excluding integration costs, the result of strong operating leverage in the business, including the revenue mix, offset in part by the anticipated investments on our go-to-market and product organizations, and higher than initially planned salaries and benefit costs. We expect to incur $20 million of integration costs in 2020 for the integration of our various acquisitions. And we're raising our 2020 FFO, which is expected to now grow between 14% and 18% compared to the previous year. For 2020, we expect AFFO per share to grow between 8% and 12%, including the effect of the capital market activities completed in Q2. So let me stop here and turn the call back to Charles.
Charles
Thanks, Keith. We are delighted with our Q2 results and are pleased with the continued outperformance of the business, a result of our focus on providing customers distinctive and durable value as they embrace digital transformation. Our impact for customers and the financial results that follow are the reflection of the dedication, flexibility, and ingenuity of our teams. Over the course of Q2, we, like many others, had to rapidly adapt our business, adjusting our go-to-market motion to current realities, evolving operating procedures while maintaining our exceptional service reliability, and executing on highly attractive equity and debt deals to enhance liquidity and drive AFFO. Customers remain at the center of everything we do, and our customer satisfaction rating moved up the last two quarters to its highest score in the last three years. While we are delighted with how the business is performing, we fully recognize the strain, the shifting challenges, and the continued uncertainty we are all facing. And as such, we will remain diligent in closely monitoring market dynamics and further adapting our business as appropriate through the back half of the year. The secular drivers of demand for digital infrastructure have never been stronger. And we believe that Equinix is uniquely positioned to execute on the expanding opportunity presented by the accelerating importance of digital transformation and the shift to hybrid and multi-cloud as the architecture of choice. We remain steadfastly focused on evolving our platform to respond to this unparalleled market opportunity. Investing to drive top-line growth, leveraging our operating scale to fuel attractive AFFO for share growth to our investors, and delivering positive impact to our many stakeholders as we continue to build an enduring and sustainable culture in business. So let me stop there and open it up for questions.
Operator
Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press Star 1, unmute your phone, and record your name clearly. Our first question comes from Tim Long with Barclays. Your line is open.
Tim Long
Thank you. I appreciate the question here. I wanted to start off with a smaller, newer piece of business with Packit, if I could. It sounds like it's moving along pretty well. I'm just curious if you can give us an update on how you're moving along with features and the Salesforce and the channel with the ability to sell the new products, and maybe just a little color with the business that you're doing now, if you can give us a sense maybe what kind of customers or applications are being sought out by those to take on this new business for you. Thank you. Sure.
Charles
Sure, Tim. Thanks, Charles. You know, I guess it's important maybe to back up and continue to put the, you know, acquisition of packet into overall context. You know, I think that as we have talked about on prior calls, you know, this was a way for us to continue to adapt to the changing consumption patterns of our customers in terms of how they want to, you know, sort of gain access to the value, if you will, of the Equinix platform. And I think we, you know, adding the bare metal service that, you know, Packet brings to the table and integrating that with the bare metal service that we had under development organically, we think really represents a big opportunity for us to continue to adapt to those changing needs. The integration is going well. We've now aligned on a coordinated and integrated roadmap and coordinated that into a single offering that we will deliver as a company. We have continued to integrate the go-to-market motion. We've actually taken some folks from within the eClinics organization blended them into the sales team and have that acting as a bit of an overlay today to our larger sales force. Still early days there, and I think probably a lot of the customer activity is with some of the more digitally native targets that Packet had traditionally been serving, but we're really starting to see a building funnel of enterprise targets, particularly large enterprise targets, as well as some service provider targets sort of types that are really resonating with the packet opportunity and that offering. So it continues to go well, again, still very early days, but one of the things that we've been talking about internal is we talk about delivering physical infrastructure at software speed, which has kind of been a rally cry or a tagline that really resonates with us internally and more importantly resonates with our with our customers. So, again, a product roadmap is well aligned now. The engineering teams are underway on bringing a fully enterprise feature set, the full enterprise feature set to the bare metal offering over the coming quarters. And go-to-market motion still, you know, relatively early, but good momentum in the pipeline.
Equinix
Okay.
Tim Long
If I could just do a quick follow-up. You talked about pricing. It looks like Europe and Asia saw a pretty good MRR per cabinet, AST growth. Could you just give us a little highlight on why you're seeing better pricing there? Then I'm done. Thank you.
Charles
Sure. You know, the key to pricing for us is really continuing, you know, targeted discipline in our sales targeting. And we've talked about that for many years now, right? Delivering the, you know, targeting the right customers with the right use cases into the right IBX locations. And I think we're really doing that well in terms of adapting or delivering against the use cases that are really important to customers right now in terms of hybrid multi-cloud implementations, WAN re-architecture, distributed security, a number of things that are really highly featured, and I think they're digital transformation plans. And when you're doing that, I think you're able to deliver outsized value and therefore get good, solid pricing, and we're seeing that show up in our yields. So I think, you know, and if you look at it, the way our quarter was composed in terms of bookings, you know, we talked about 4,200 deals across 3,000 customers. That means we're doing a lot of deals, you know, more sort of small to mid-sized deals, interconnection-oriented, ecosystem-centric, and that really helps us on the pricing front. In Europe in particular, we're also seeing the effects now of the roll-through of the interconnection pricing adjustments that we've made. And I think those have gone really well. Obviously, generally, customers don't jump up and applaud when you raise pricing on your services. But I think in this case, our team has done a really good job of articulating the value that people are getting from interconnection. And I also think we've been very measured and kind of appropriate about how we phase those implementations and those price implementations and working with the customers and so forth. So thus far, it's gone well. We're starting to really see that roll through in the impact on the NMEA numbers in particular. Okay, thanks very much.
Operator
Thank you. Our next question comes from John Atkin with RBC. Your line is open.
John Atkin
Thanks very much. Two questions. First one probably for Keith. I'm just interested in kind of the medium-term impact margin puts and takes as we think about where you are in Asia back now, comfortably past the 50% margin threshold. What are the factors to kind of think about at a corporate level of you getting towards those levels over the next kind of several years? And then I have a follow-up on X scale. Thanks.
Equinix
Yeah, sure, John. I think overall as it relates to margins, as we sort of said in our prepared remarks, We're very pleased with where we are. We're pleased with where we are. Pricing actions have certainly been a net positive to us, and so that's represented itself very well in our gross profit, EBITDA, and our FFO margins. All that said, there's a number of things that are going on in the business, and one of the things that we did want to certainly highlight was we want to continue to invest in our go-to-market and product organizations here. And this ties nicely back to what Charles really talked about with packet. So there's an example of where we can continue to drive profitability up. I think Q2 was, I don't want to say it was aberrational, because obviously it was an outcome of many, many great things, including revenue mix, where our non-recurring revenue came down and our recurring revenue went up. And as a result, we got a favorable mix shift, something that we think will continue for the rest of the year. But the other part is we want to continue to invest in the business, and we think we're on our track to deliver against our expectations. Again, I refer you back to the June 18th analyst day. We believe we can deliver 50% of our margins or greater. I don't think that's ever a question for us. It's doing it with the right discipline and mindset, knowing that we want to continue to invest in the business and Right now, we just see a very substantial opportunity, not only in the assets we have today, the ones we're acquiring, an example being Bell Canada, and so we'll continue to make those investments. At the same time, I think we can continually find ways to drive more profitability into business if we're not investing in our future growth.
John Atkin
And then, I don't know, Charles, if you would have anything to add to that, but my second question was just on X scale, and I think there have been maybe some management changes, wanted to maybe get any commentary on that, any kind of milestones around future JV financings, and then if you could maybe provide a little bit of color or maybe a reminder on the fee structure that you've secured in these agreements so we can kind of understand more of the impact on AFFO.
Charles
Sure, John. Yeah, maybe I'll make just a couple, reiterate a couple comments on the margin side and just, again, say I think we're seeing, as we've talked about in the past, we're continuing to try to look at driving operating leverage in the business. I think we're being successful in doing that. And then, you know, again, we're seeing some positive benefits associated with a mix of business, mix shift benefits. And then, again, that's balanced against the reality that we want to continue to position ourselves to take advantage of what we think is a really big growth opportunity in front of us as hybrid and multi-cloud really plays out. And so we will continue to invest in the business. And that will be both on the CapEx side and the AppEx side, which I think will be a bit of a moderating factor on the margins. But I think we can continue kind of up and to the right over the long haul. Relative to X-Scale, things continue to really go well in that overall. We did have some adjustments. Jim Smith has made the decision to step down from his role as managing director of the program, but does remain as an advisor to the initiative. We've asked Krupa Raval, who's been on the X-Scale team, now for a period of time and, you know, incredible background. And we've asked him to step into the MD role. He's done that and really kept the continuity with the team. The team that's recruited in there, I think, is incredibly strong, very experienced, and has really started to hit their stride. So it's going well. We talked about in the script that we are probably likely adding or very soon adding the Paris 9 asset. That is 100% pre-leased to hyperscaler, and we continue to see good customer interest in pipeline on the other facilities. The JV in Japan has now been announced. We're working towards closing that later in the year, and then we're looking at additional JVs beyond that. Good momentum overall. And then relative to the fees, maybe I'll let Keith comment quickly on kind of how that's structured and impact on the business.
Equinix
Sure. So, John, just as it relates to the fees, there's really four primary fees. So, put aside the equity ownership. Right now, we're treating the businesses both looks like the Japanese JV will be an equity-oriented investment, likewise the initial EMEA JV. And so the way it works is there's basically an asset management fee, a facilities fee, a development fee, and a sales and marketing fee. And when you break those down, some are recurring revenues, some are non-recurring. And then the benefit we get from the profitability created by the joint venture, that comes in below the line through income from an affiliated entity. And so that's how it sort of, the fee structure works right now. It's still pretty early on, as you know, because we've just got the first two assets up. Charles alluded to Paris 9 and having that 100% pre-leased, and we're actively engaged across a number of other assets, both in the development and also in the marketing of those assets across the platform. So we're pretty excited about the performance that a group that's going to take a leadership role in this entity. So great progress to date.
John Atkin
Thanks very much.
Operator
Thank you. Our next question comes from Colby Sinasel of Cowen. Your line is open.
spk00
Great, thank you. Just a few. Last quarter, you called out a $0 to $50 million headwind to guidance, revenue guidance for COVID-19. I was wondering what the headwind or impact was in the second quarter and if you still feel that you're going to be within that $0 to $50 and maybe you could tighten that up a little bit if possible at this point. Secondly, your America's growth missed our estimate. I think that was probably one of the weaker parts of the quarter. Keith, I know you mentioned the smart hand wave fees, but I think that's just a $3 million impact. And on the churn side, when I look at least the cabinet and the interconnects, both those numbers still went up, yet the revenue came down, which to me seems to suggest more of a pricing impact. So I'm trying to get a better understanding there. And then before Katrina kills me, just one last one. Your previous guidance on organic growth was 7% to 9%. You raised it to 8% to 9%. And I believe that excludes FX. Yet the only change I saw in your guidance was in fact FX. I'm wondering where that extra 1% to 8% of the low end came from. Thank you.
Equinix
Charles, do you want me to take the first part? I just want to make sure, because we're in different locations, everybody, so just making sure that we're going to organize accordingly. Let me first start off by saying, look, we're absolutely delighted, Colby, with the performance of our business for the second quarter. And as you know, when we went into the quarter, we gave ourselves a relatively wide range of wide berth from zero to 50. And for this quarter, as you know, we basically delivered slightly above the top end of our guidance range. So said differently, then, we basically got a lot of flexibility through the second half of the year. And we chose to leave it intact other than FX, very similar to what Charles did last quarter. He made the reference to the fact that we're going to adjust for currency, and here's the range of zero to 50. But we're also going to hold absent FX. We're going to hold AFFO. We're going to target at midpoint. Well, when we look at the second half of the year, there's just a lot of uncertainty that still remains, not too much in our business per se, but the reality of how all of the turmoil gets manifested into our results, we left that flexibility inside our guide. And so what you're seeing is not per se any specific headwinds. On the margin, there's a few adjustments that are affecting us. We obviously have slightly larger bad debt reserve than we had before, but that was planned for. I made some reference to the fact that there's costs going both directions. Clearly, our travel and entertainment is relatively low to almost zero. But offsetting that, of course, is our salary and benefits costs, less attrition, less paid time off, And we're doing a very good job of hiring the staff that were slated to be hired. And so our salaries are a little bit higher. So I think that sort of deals with perhaps the majority of the discussion other than the Americas. Americas, as we said, relatively flat this quarter. Colby, you're right. There's $3 million of smart hand fees. There's also the impact of the Brazilian currency, fairly substantial degradation to an unhedged currency. And then you've got non-recurring revenues. When you look at it from a pricing perspective, though, MR per cabinet was relatively flat, quarter over quarter. And so we're delighted with where we are. We allude to the fact that pricing was strong, good gross bookings. We have momentum in the business, but you also have some things, timing of churn and the smart hands, plus non-recurring in Brazil, all affecting the results. And that's the benefit you get, therefore, of having a very global and diverse set of assets that Things are going to move around on a continuous basis. In this case, you're starting to see currency trends moving in our favor. And so, albeit we might be a little bit more susceptible to weaker currencies in the Americas, you're seeing uplifts in Asia and in Europe. So, let me stop there. Charles, you jump in if there's anything you want to add or if there's anything you need to clarify.
Charles
No, I mean, I think, again, on the zero to 50, obviously we saw, you know, the smart hands impacts across the regions in the quarter, as well as, you know, a fairly meaningful impact on our custom NRR, you know, and so, but So the NRR was meaningfully impacted. I think we had a strong recurring revenue quarter. Bookings were solid. We are seeing some level of friction still out there, but as our results imply, the team powered through that and had a good quarter. But we have two sort of big step-up quarters remaining in front of us in the back half of the year. And as we look at that, and plus I think a very uncertain environment still in terms of you know, sort of a second wave, if you will, on COVID and the implications of that and, you know, how the, you know, protracted economic impacts are going to begin to affect companies, et cetera. We felt like it was prudent to, you know, sort of maintain the revenue guidance and just, you know, just book the FX impacts into there. So that's where we landed. Great. Thank you.
Operator
Thank you. Our next question comes from Frank Loudon. With Raymond James, your line is open.
Frank Loudon
Great. Thank you very much. So talk to us a little bit about, you know, more in the Americas. You know, we've talked in the past about what's going on with the Verizon space and how all that policing is going. Talk to us a little bit about that, and then follow up thoughts on inorganic growth for the remainder of the year. I know you've already done one deal, clearly not shying away, but what are your thoughts on those opportunities? Thanks.
Charles
And, Frank, I'm sorry, the first one was on Verizon, the Verizon assets?
Frank Loudon
Yeah, the Verizon assets and, you know, where you are as far as, you know, continuing to fill that space out to maximize utilization there.
Charles
Yeah. Yeah, again, it's been, you know, a good long time now that we've kind of integrated, so we tend to think about them all as really part of the platform now, so it's It's tough for us to think about or even fully measure that, but we are seeing good utilization. Obviously, we made some investments into some of the assets. We actually had some really strong deals this quarter into Miami and Culpeper, actually, and so we're seeing good progress on some of the very key assets there. Overall, as we said, I think that the Americas business, we expect that to step up to more like a 5% growth rate in the back half of the year. Again, it was a really solid quarter from a bookings perspective. Overall, I think with us starting to really having worked through the issues on the Verizon portfolio in terms of the churn and the things that happened there, and seeing that stabilize, I think we're looking at a solid back half of the year for the Americas there. And relative to inorganic, I think that there are plenty of opportunities out there still. We think that we're going to continue to have a posture that if you really look at it, our strategy remains unchanged. We have used M&A for market entry, for market scaling, for, you know, sort of capturing strategic interconnection assets and now for sort of capability additions as we look at the future of platform equinix and what that means. And I think there are opportunities in all those categories. Obviously, the Canadian deal was really an opportunity for us to really scale in a market and reach national presence in Canada. We think there are some other opportunities, you know, in terms of new market entries that that are areas that we continue to be focused on that are potentially actionable out there. And so, you know, and it's one of the reasons really that we went and did the equity deal is making sure that we kept some dry powder, you know, on the balance sheet to be, you know, be appropriately opportunistic about growth opportunities that present themselves.
Frank Loudon
All right, great. Thank you.
Operator
Thank you. Our next question comes from Michael Rollins of Citi. Your line is open.
Michael Rollins
Thanks, and good afternoon. I was curious if you could delve a bit more into what you're seeing out of the enterprise vertical in terms of the ability for them to make decisions and the growing interest that the management team has been describing that you're seeing for hybrid cloud architectures. Thanks. Sure.
Charles
Thanks, Mike. Yeah, I think that, you know, we're seeing a – there's a few things. One, I do think that we've seen some projects, you know, have delayed decision-making, so things pushed out, you know, further in the pipeline. But I think that's been offset to some degree by a broader realization that I think you've heard us and probably many other companies in ours and related spaces, for example, the cloud providers, talk about. this elevation of awareness around digital transformation and the priority that exists there, even in sectors of the economy that are meaningfully impacted by COVID. I think that what people are seeing is that those companies that were better prepared or further ahead in their digital strategies are weathering the storm better. And I think that, you know, that's leading people to say we've got to make that investment. In some cases, even if their businesses are a bit on their back, They kind of said, look, we're going to take that medicine, but we're going to invest in the business and in the future and make sure we're making the digital investments that are necessary. So that is, I think we are seeing a little bit of, you know, sort of both sides of the coin there, which is some delays, particularly new projects that might be, you know, delayed just by a variety of factors, including, you know, it taking longer to be able to visit sites, although we are now having tours and visits, um, into the sites, um, you know, on a, on an appointment basis. And so we're, we're sort of freeing, freeing up some of the, uh, the wheels are turning on that. Uh, but there is some of that, you know, if you look at new logos, they're a little bit, um, lower than our pre COVID, uh, levels. Um, but we also are there, they're targeted more at larger, uh, larger accounts with bigger wallet sizes. And so, a little bit of a mixed bag, but on balance, I think, you know, what the enduring phenomenon that we think we're really seeing is this increased commitment to digital and also very much in terms of people saying, look, we still have private infrastructure requirements. We want that private infrastructure over time to be, you know, is probably going to be smaller than what we are doing now, but we need what remains to be immediately proximate to the cloud. and deliver both performance and economics in a different way. And we think Equinix really rises to that challenge for them.
Operator
Thanks. Thank you. Our next question comes from Matthew Nicknam with Deutsche Bank. Your line is open.
Equinix
Hey, guys. Thank you for taking the questions. Just two, if I could. First, maybe to go back to the last question. In terms of sales cycles, any notable delays during the quarter that you'd call out that may have deferred some bookings into the third quarter. And then secondly, on the competitive front, if you could talk about the competitive backdrop in Europe, whether you've seen any changes in the landscape in recent months after some of the recent M&A, larger scale M&A in the region. Thanks.
Charles
Sure. You know, as I said, yes, we have, you know, obviously we've got a very, you know, sort of deep command of the pipeline in terms of deals that are in there. We did, you know, there were certainly some opportunities that we had originally as, you know, targeted to close this quarter that pushed out. But that's the case every quarter. Obviously, there's some of that. But some of those were, you know, what people would chalk up to COVID-related sort of delays in decision-making. On balance, when you look at it and you see our third best gross bookings quarter ever record in the Americas, obviously we've been able to sort of power through some of that and still deliver strong overall bookings results. So there's some of that. What we are seeing, I think, quite encouragingly is that those are just delays. They're not cancellations of projects. And at this point, we think it's just a matter of when we're going to bring those opportunities in. So, on balance, I think, you know, feeling very good and feel like, you know, the team really rallied and delivered an exceptional quarter given the broader circumstances that we faced. In terms of the competitive backdrop, I would say, you know, not a meaningful change. I feel like particularly in, you know, I know relative to, I think, commenting on the, you know, sort of post-interaction digital combination in Europe and impact there. I would say it still very much seems to be in a digestion phase, and I think customers are working to sort of figure out what that means for them. I think employees of those companies are trying to – or now that company are trying to figure out what it means for them. And we're trying to stay focused and deliver and execute effectively while that digestion occurs. And so I think obviously the performance of our business in EMEA sort of speaks for itself in the quarter. And we continue to, as I've always said, interaction you know, was always a very credible competitor for us in Europe and I expect they will continue to be one. You know, but we are, right now, I think we're seeing a digestion period and we're trying to, you know, take advantage of that while it exists. Thank you.
Operator
Thank you. Our next question comes from Simon Flannery of Morgan Stanley. Your line is open.
Equinix
Great. Thank you very much. Good evening. Coming back to X scale, I think when you were talking about the project initially, you talked about mid-teens type returns. I wonder if you could update us on what, given you've done some leasing now, you've got a better sense of pipeline and economics. What's your latest thoughts on the return profile on these projects? And just coming back to the enterprises area, What's going on on the renewal side? What sort of pricing are you achieving on renewals? Obviously, your pricing commentary has been pretty bullish overall, but we do see a lot of pressure on IT budgets broadly. Are you seeing any of that coming through in terms of customers trying to get some relief when they renew with you? Thanks. Sure.
Charles
Yeah, I would say that relative to X scale and return expectations, I would say that when you look at it, we obviously get some of the benefit, particularly as it relates to our lens on the returns of both fees flowing through as well as the development returns, which give us a bit of a lift on the returns overall and I think will allow us to continue to have those into the double digits. I do think there is some pressure on returns caused by just an overall, you know, pricing environment that continues to be, you know, aggressive, I think, in terms of people competing aggressively for the hyperscaler business that is out there. So I think there's been probably a bit of pressure there, but I think that it continues to be a very attractive return profile, I think, both for us and for our partners. And for us, I think being able to do that with relatively limited, you know, sort of dry powder off our balance sheet, which we want to allocate to our higher returning retail business, I think the strategy still makes a ton of sense for us. But I would say some downward pressure on returns It'll be interesting to see, you know, whether that persists. I do think that, you know, Keith mentioned, for example, there are markets where we see supply tightening, and obviously that tends to, you know, improve pricing. But you do have a very, you know, powerful set of customers in the hyperscalers that are looking to, you know, sort of get the best available terms. So I think there's been a bit of downward pressure there. Relative to enterprise renewals, You know, as I said, what we're seeing, I think, is generally people are continuing to figure out how they can make most effective use of Equinix in pursuing their long-term hybrid multi-cloud, you know, architectures. And so that might mean that people are downsizing sort of elements of their architecture as they move certain applications to cloud. and then focusing their private infrastructure or the private part of their hybrid cloud into, you know, Equinix facilities proximate to the cloud and are still, you know, willing to renew those, you know, at what we consider to be very attractive rates that are good for us and deliver significant value for the customer. We do see some sawtoothing, which is because we have escalators, annual escalators built into our contracts, you you know, virtually across the board. Oftentimes when you see a renewal, you might see that if you implemented a, you know, a three to five percent annual escalator over a, you know, say a five-year contract, that at renewal you may be above market and you may see a sawtoothing of that occur. But that's all sort of part and parcel or all included in our overall model. which again continues to reflect overall positive net pricing actions which we think reflects, you know, the value that we deliver for customers. Great.
Equinix
Helpful. Thank you.
Operator
Thank you. Our next question comes from Jordan Sadler of KeyBank. Your line is open.
Michael Rollins
Thanks and good afternoon. So, um, just wanted to, uh, come back to X scale one more time. Um, it does sound like, um, you characterized overall bookings and solid and seeing maybe a little bit of friction because we talked to maybe the overall enterprise, um, with that also that characterization pertains to the X scale business as well. And it was, um, Paris nine leased during the quarter.
Charles
Yeah, I would say the, you know, I think the dynamics are a little bit different in that obviously we're targeting a much smaller set of customers. And so when you look at, you know, the, you know, the X scale dynamics, I think it's a bit more about, you know, where, where these, where these hyperscalers are in their expansion, how that matches up relative to a sort of capacity, you know, where it's needed kind of element. And so if you look at hyperscalers, If you look at the performance and results of some of the other companies that are more focused on that, they tend to be lumpy. They have a bit more boom and bust in their quarters based on the timing of bookings and where hyperscalers are in their cycles of expansion. I think the dynamic is a bit different, but yes, the leasing was completed in the quarter for Paris 9, and so we were very pleased to get that done, and we do see a strong pipeline. It just takes, those are a bit bigger, more complex deals with longer sales cycles, and I think the results in any given quarter tend to be a bit lumpier. Okay, and then just as a follow-up, I think you
Michael Rollins
Touched on interconnection pricing in Europe, the adjustment that you've made there. Where are you in the rollout of those adjustments, and what's sort of the magnitude of that pricing adjustment?
Charles
We are reasonably well advanced. I think that we'll continue to see those adjustments flow through over the course of the next year or so because we try to be fair and balanced and not overly aggressive or greedy about the timeline on which we wanted to implement those as we talked to our customers and tried to implement something that we thought was fair and balanced. So it'll continue, I think, through the course of, you know, the remainder of this year and well into next year, I think, you know, probably through the course of next year as well. But I think we've probably seen, you know, a good chunk of that, you know, probably more than, well more than half of that roll through and begin to, you know, into our results. But there is more work to be done. I think it will be a bit slower as we, as we go through the course of the next several quarters. And in terms of magnitude, you know, I forget what the percentage increase was. It was, you know, it was meaningful and that is showing up in the results. But again, you still are seeing interconnection prevailing pricing in Europe meaningfully below what it is in the Americas. And I don't think we will be in a point where we will equalize that, but we are making progress in terms of delivering I think pricing that's more consistent with the value delivered to the customer.
Equinix
Okay, thank you.
Operator
Thank you. Our next question comes from Nick DelDeo with Moffitt Nathanson. Your line is open.
Michael Rollins
Hey, thanks for taking my questions. You know, first, Keith, I want to drill down a little bit more on the EBITDA beat, which was pretty meaningful. I think you suggested it was a function of revenue mix. and you said you expect those mixed benefits to continue, but your guidance implies lower EBITDA in dollar terms the next couple of quarters relative to Q2 and margins that are quite a bit lower. Was there anything else besides the mixed shift that we should be bearing on, like power costs or, you know, anything along those lines?
Equinix
Overall, when we look at the second quarter specifically, there's, you know, we made a comment about price increases. across the board. So number one, it was good to see that. But most of that was really focused in the EMEA region. And then offsetting that was non-recurring revenue. You saw the step down to roughly 4.8% of our revenue of non-recurring. And so that comes at a different margin profile. So you've got the benefit of those two things happening. So revenues are roughly at the high end of our guidance range on a currency-neutral basis, but the mix is favorable, and you saw the benefit of that going to the EBITDA. In addition, what we also saw was some moderation in our utility consumption. So we got some benefit attached to that. And then in some of the markets, particularly one I'll refer to is Singapore. There's a government concession due to the current climate. And those concessions come through in a couple of different fashions. It's tax abatements. It is rent abatements. in some cases it's salary adjustments. It is not, you don't apply for it, you are allocated it, and the company was the recipient of certain dollars from the Singaporean government, as an example. But overall, I would just say, look, we're on top of our numbers. I think the look forward is, as Charles alluded to, it's giving us the flexibility to look at the next two quarters, invest in the places that we need to, and therefore that's why, you see, revenues are moving up, but we're also keeping the cost model at roughly 48% pre-integration cost. And that gives you a sense of that we're still spending in the areas go to market, new product. The other thing I did, you know, I referred to in at least my, one of my prior remarks, salaries and benefits are going up inside the business. And, you know, that's not because that was something that was sort of an implication coming out of the pandemic. less people are taking vacation and how it gets represented in the financials, something that we want to certainly encourage people taking more and more time off. And also just the timing of our hiring. So you're getting the full quarterization of the hiring. We had a record hiring quarter in Q2, 400 net ads to the business in a quarter, and that's going to run through the next two quarters as well. And the last thing I would say, there's some seasonality built into it. into our spend, particularly around recurring capex, Q4 more specifically. And that's why you see the impact coming through our guide on the AFFO as well. So overall, we look at it on an annual basis. We're allocating the dollars appropriately. Some of it's just a little bit more front-loaded than originally anticipated, and you'll get the full quarterization impact of it.
Charles
Yeah, and I guess I'd just reiterate the S&B, the salary and benefits piece of that, which is You know, we are one, we were seeing lower attrition. I think that partially due to, you know, maybe concerns and, and, you know, about the pandemic also, I think it is just a reflection of, of people, you know, sort of being very excited about where we are and the culture and what the opportunities in front of us are. But that, I think that's rolling through in ways and we're, and we're hiring, we're, we're moving forward with our hiring plans across both go to market product technology. because we believe the opportunity is really big in front of us. The net impact of that in terms of is that, you know, we have more cost on the books, you know, and I think that we're kind of calibrating on that in terms of pace of hiring and that kind of thing. But, you know, even if we were at the same sort of targeted number of heads, with the attrition being a bit higher, It's you get some, you know, some time in there where it takes to rehire and that sort of keeps things a little lower. So we are seeing a little bit of that and I think that's part of what is impacting that in the back half of the year.
Michael Rollins
Okay, got it. That's great detail. And maybe one quick one on the ETX fabric. I think earlier this year you dropped a node into a partner facility in Belgium. which is the first one you've done like that. Any initial insights into how that's going or updates as to whether we'll see more deals like that?
Charles
Still very early days. We have not seen, and I think it's obviously happened right in the teeth of the pandemic, so I think probably still too early to tell there. I would say that I think that more broadly speaking, you know, our thinking about how we want to extend the utility in the reach of ECX Fabrics um you know uh you know both within our facilities continuing to build do our build outs um align this ecx fabric closely with our packet offering to make a more powerful edge offering in our own facilities and then i think also look to you know potentially position that um as as something that could be deployed um you know in in non-equinix facilities and so i don't know that it would look exactly like what we did in belgium but i do think the notion that we would be looking at extending the reach of the ECX Fabric and ensuring that the ability to use ECX Fabric as a way to plug back in from, you know, a bit of a further edge back into the ecosystem, and particularly the cloud ecosystem, is something that we are absolutely actively looking at. So I do think that's something that we'll be continuing to monitor and look at how to do that over time. Okay. Terrific. Thank you both.
Operator
Thank you. And our last question comes from Brett Feldman of Goldman Sachs. Your line is open.
Michael Rollins
Yeah, thanks for squeezing me in. It's really just a point of clarification. You've talked throughout this call about an outlook for improved revenue growth in the Americas in the back half of the year, and last quarter you were talking about growth improving to something in the range of 5% or maybe even better than 5%. as you were getting into the fourth quarter. I think that's still what's embedded in your outlook based on your commentary, but I just want to clarify that you're still targeting that 5%. And then whether it's 5% or anything, it seems like it's going to be better. I just want to be sure we understand where the momentum is coming from, the extent to which it's in MRR as opposed to non-recurring, because if it is on the MRR side, it would seem like you have really good momentum into 2021 as well. Thanks. Steve, do you want to grab that?
Equinix
Yeah, I'll take that, Charles. So, yeah, you know, the reference that Charles already said earlier on, but in my prepared remarks, he said the second half of the year. And Q3 looks like the quarter that we would see that step up. And it goes back to, you know, our comments. Number one, we saw good pricing. We saw record bookings. We still see some element of churn inside the Americas business for the next two quarters. That all said, when we calibrate across the remaining part of the year, We firmly believe that between the pricing and the momentum of the business, including a strong pipeline, you should see a step up in the growth rate. And that's something that, from our perspective, it would carry on into 2021. It's a little bit early to give guidance on that, but there's no reason why we wouldn't see that momentum continue.
Equinix
Thank you.
Katrina Rymel
That concludes our Q2 call. Thank you for joining us.
Operator
Thank you for your participation in today's conference. Please disconnect at this time.
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