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Equinix Inc (EQIX) Q3 2018 Earnings Conference Call Transcript


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Equinix Inc (NASDAQ: EQIX)
Q3 2018 Earnings Conference Call
Nov. 01, 2018 , 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Equinix Third Quarter Earnings Conference Call. All lines will be in a listen-only mode and to be open for questions. Also today's call is being recorded. If anyone has any objections, you may disconnect at this time. I will now turn the call over to Ms. Katrina Rymill, Vice President of Investor Relations. You may begin.

Katrina Rymill -- Vice President, Investor Relations

Thank you. 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 affected 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 26, 2018 and 10-Q filed on August 8, 2018. 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 the 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 our IR page of our website a presentation designed to accompany this discussion along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page from time to time. I 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 like to ask these analysts to limit any follow-on question to just one. At this time, I'll turn the call over to Charles.

Charles J. Meyers -- Chief Executive Officer

Thanks, Katrina. Good afternoon and welcome to our third quarter earnings call. I'm privileged to host my first call today as CEO and I feel honored to lead the incredible team of nearly 8000 dedicated Equinix employees around the globe in service to each other, to our customers and to our shareholders. I'm as excited as ever about the role we play in helping customers drive their digital transformation agenda and about the value creation opportunity this represents for our investors. Having been a part of the leadership team at Equinix for the past eight years, I'm extremely proud of our track record of success. We have more than quadrupled the size of our business since 2010, have now deployed over $22 billion of capital across the globe to build the world's leading interconnection platform and we are rapidly emerging as the trusted center of the cloud-first world.

As stewards of some of the most important digital infrastructure in the world, our priority is and will remain delivering exceptional, durable and quantifiable value to our customers. In doing so, we believe we can sustain a demonstrably superior business model, which will in turn deliver outsized returns for our shareholders. I'm fortunate to build further on this strong foundation, and as a global team, we will certainly remain focused on extending our core sources of differentiation, superior global reach, market-leading network and cloud density, the industry's most comprehensive interconnection portfolio, scaled digital ecosystems, and an unwavering commitment to service excellence. But I also recognize that we must continue to adapt and evolve in response to the rapidly changing needs of our market.

We will continue to refine our priorities for the business as we shape our operating plan and prepare to update you on our 2019 guidance early next year. However, I want to outline six immediate priorities that are worth noting as central elements of our go-forward agenda. First, we will expand our go-to-market engine investing behind the significant momentum we have helping customers implement hybrid and multi-cloud as their architecture of choice. Second, we'll evolve our capabilities and product portfolio to make Equinix a more powerful easier-to-use, more accessible platform to drive digital transformation, delivering new services that will help us sustain and enhance cabinet yields over the coming years. Third, we will look to more deeply engage a short list of high-priority partners that we believe can substantially extend our solution and amplify our go-to-market reach.

Fourth, we will significantly sharpen our focus on driving increased operating leverage to enable investments in the business, drive long-term margin expansion, and fuel AFFO per share. Fifth, we'll focus on delivering against our hedge strategy allowing us to advance our global leadership in the cloud ecosystem while reducing strain on our balance sheet. And finally and most importantly, we will continue to invest in our people and our culture as the primary engine behind our sustained performance. As we execute against these priorities, we will be appropriately sensitive to near-term results, but our focus as it always has been will remain firmly on the creation of sustainable long-term value, and as appropriate, we will not shy away from investments in the business when we are confident that those investments will generate an outsized return. With this in mind, I am excited to share our strong operating results for Q3.

We had a great third quarter with revenues and adjusted EBITDA above the top end of our guidance ranges, reflecting the continued execution of our strategy and the growth of our interconnection platform. As depicted on Slide 3, revenues were $1.284 billion up 9% over the same quarter last year. Adjusted EBITDA was 7%, above our guidance due to lower integration costs and timing expense and AFFO was ahead of our expectations. These growth rates are on a normalized and constant-currency basis. Bookings were strong across the regions with a record in APAC and particularly robust growth in the cloud and content verticals. Interconnection revenues continued to outpace colocation growing 13% year-over-year. Our metrics across interconnection counts, billable cabinets and MRR per cab were all healthy this quarter and reflects solid execution of our strategy. We also saw substantial progress with our three latest acquisitions, Infomart, Metronode and Verizon, all of which are tracking well against our expectations.

For Metronode, we're building further in Sydney and Melbourne, as well as our new Metronode perch which has seen increased interest from cloud service providers and multinationals. For Infomart Dallas, we continue to refine our long-term master plan for the Infomart location including our final phase of Dallas 6. And finally for Verizon, we opened new capacity in five key markets including our marquee asset, the NAP of the Americas in Miami, the government-focused campus of Culpepper, as well as new capacity in Denver, Houston and Sao Paulo. The strong pipeline for these locations combined with focused churn management give us confidence that the Verizon assets will return to growth next year. Now, let me make a few comments on our organic development activity.

We are actively investing capital with 30 expansion projects under way across 21 of our markets in response to customer demand. In the third quarter, we opened nine builds across Frankfurt, Miami, Rio de Janeiro and Singapore. Greater than 80% of current expansion project CapEx is allocated to metros, each generating over $100 million in revenues. These markets are well-established campuses that drive predictable fill rates and high levels of interconnection. With respect to our Hyperscale Infrastructure Team or HIT, we're seeing continued momentum and a strong pipeline as we design and build initial capacity, expand our team and work to finalize our financing structures, which have generated tremendous interest in which we expect to have in place by early next year. In parallel, we're adding capacity in hybrid facilities such as London 9 and 10 to capture early wins and maintain momentum. We'll open our first dedicated HIT facility Paris 8 early next year and have seen strong pre-leasing with key cloud customers.

Shifting to interconnection. Our global interconnection platform is powering digital transformation for nearly 10,000 customers around the world and we see continued adoption across our market-leading portfolio. We now have over 294,000 cross-connects with healthy net adds despite some pressure from 100-gig migrations. Virtual connections had strong adds in the quarter and we now have over 13,000 virtual connections under ECX fabric, supporting more than 1300 customers. ECX Fabric functionality supports secure high-speed connections not only to cloud service providers, but between any customer on platform Equinix, solving for a variety of IT consumption use cases. We'll expand the ECX Fabric to include full inter-regional connectivity early next year.

Our Internet exchange platform also saw continued momentum with peak traffic up to over 40% year-over-year. This quarter, we launched new Internet exchanges in Bogota and Amsterdam and now operate this service in 34 markets globally. Now, let me cover highlights from our verticals. Our network vertical captured record new logos, as regional carriers extend their global reach to support infrastructure at the EDGE, augmented by solid bookings from wireless operators and cable providers. Expansions included a Global 2000 Chinese telecom operator expanding their footprint in Europe to support hyperscale requirements and a Fortune 500 telecom provider upgrading to 100 gig to better serve enterprise customers. Our financial services vertical saw broad strength, led by banking, insurance and capital markets. New wins included Navy Federal credit Union moving infrastructure to improve data management and a top 10 global stock exchange, deploying with Equinix and securely access our expansive financial ecosystem.

In content and digital media, we saw record bookings, led by APAC as digital transformation continues to accelerate. Customer expansions included several high-profile wins including both Alibaba and Tencent. Our cloud and IT vertical produced strong bookings, led by hyperscaler demand in APAC and a rapid increase in participants on ECX Fabric globally. We continue to enjoy new logo wins in this space as well, including infrastructure providers Bill Cloud and TechFlow Services. The enterprise vertical continues to be our fastest-growing vertical recording strong bookings and new logo capture. We're seeing diversified growth across multiple sub-segments led this quarter by manufacturing, healthcare and travel, demonstrating the relevance and flexibility of interconnection-oriented architectures to any type of firm undertaking digital transformation. New wins included Lenovo transforming network topology and localizing traffic to improve performance; a Fortune 100 airline transforming supply chain management; and a multinational oil field services company connecting to the cloud via Platform Equinix.

Channel sales had another strong quarter, again contributing more than 20% of bookings and over 40% of our new logos as partners like AT&T, Telstra, Microsoft and NetApp, all mobilized their extensive go-to-market power to help extend our enterprise reach. New channel wins this quarter included a digital wealth management as a service provider that we jointly targeted with Orange Business Services winning the opportunity to provide the platform for their private cloud infrastructure in 12 countries worldwide.

Now, let me turn the call over to Keith to cover the results for the quarter.

Keith D. Taylor -- Chief Financial Officer

Thanks, Charles, and good afternoon to everyone. As highlighted by Charles, we had a solid third quarter with revenues, adjusted EBITDA, AFFO, and AFFO per share ahead of expectations and guidance with strong gross bookings in the quarter, a top three result for us and we delivered our highest every quarter-over-quarter organic stepup in recurring revenues. The sales pipeline remains at an all-time high with a significant number of multi-market, multi-regional opportunities. Across each of our regions, MRR per cabinet yields remained firm with spot pricing improving in the Americas for small-to medium-sized deals.

Also, we had net positive pricing actions in the quarter, a reflection of our value-based decisioning versus simply growing for growth sake. Cross-connect additions both physical or virtual were strong and interconnection revenues continue to grow faster than the overall business. Our hyperscale activity across all deployment size is healthy and we're making great progress with our HIT financing initiatives.

Turning to acquisitions. We made substantial headway with our M&A integration efforts. We're raising our annualized revenue run rate for both Infomart and Metronode to $37 million and $70 million respectively. With respect to Metronode's increased performance, we have significantly reduced the adjusted EBITDA multiple used to acquire these assets. Effectively, this acquisition is now accretive, much sooner than planned, and looking forward to 2019, we plan to open new capacity across Metronode's assets and leverage the value of our multi-city footprint in Australia. Also, we continue to feel very good about the progress we've made with the Verizon asset purchase. While the quarterly revenues were essentially remain flat through the end of the year, largely due to the previously described MRR churn, we feel highly confident that the incremental capacity brought online and the strong current booking activity will return the Verizon assets to growth in 2019. Finally, as it relates to our 2018 integration costs, we are lowering the estimated cost to integrate our acquisitions to $40 million.

Now turning to the third quarter. As depicted on Slide 4, global Q3 revenues were $1.284 billion, up 9% over the same quarter last year, above the top end of our guidance range. Note all our growth rates in this section are normalized and on a constant-currency basis. EMEA and APAC were the fastest-growing regions at 14% and 13% respectively on a year-over-year basis followed by the Americas region at 5%. Absent the Verizon churn, the Americas business would have grown at greater than 6%, better than the broader market growth rates, reflecting the continued momentum of our substantial Americas business. While the foreign currencies continue to put pressure on our operating results, our FX hedges are working effectively to mitigate the volatility of the U.S. dollar. Simply put, the hedged FX rates are currently higher than their current spot rates. Q3 revenues net of our FX hedges included $14 million negative currency impact when compared to the Q2 average FX rates and a $1 million negative currency impact when compared to our FX guidance rates. Global Q3 adjusted EBITDA was $613 million, up 7% over the same quarter last year and better than our expectation due to revenue flow-through, timing of our operating spend and lower integration costs. Our Adjusted EBITDA margin was 48%. Our Q3 adjusted EBITDA performance net of our FX hedges had a $7 million negative impact when compared to the Q2 average FX rates and a negligible negative impact when compared to our FX guidance rates. Global Q3 FFO was $402 million. Our AFFO per share of $5.01, higher than expected. This reflects the third straight quarter we've eclipsed the $5 per share threshold in a quarter. Exclusive of integration cost, AFFO per share would have been $5.12. Our AFFO absorbed higher income tax expense in the quarter and increasing recurring capital expenditures. Looking forward, we expect the level of third quarter taxes to be more reflective of our normal tax burden, as the tax expense over the first two quarters benefited from deductions related to acquisitions and refinancings. Q3 global MRR churn was 2.4%. For the year, we continue to expect 2018 MRR quarterly churn to average between 2% and 2.5%. Turning to the regional highlights whose full results are covered on slides 5 through 7.

Americas region had another solid bookings quarter both within the region and exported to the other two regions. The Americas team delivered solid revenue and adjusted EBITDA results with a record high levels of small-and mid-sized deals. MRR yield per cabinet remained firm due to healthy deal mix and strong interconnection performance while absorbing the expected Verizon churn. Cabinets filling were lighter than the prior quarter due to timing of customer installations. We expect this metric to rebound in Q4. Let me add another strong quarter led by our Dutch and German businesses. We continue to significantly expand across the region with 19 builds currently under way, largely driven by cloud and enterprise opportunities.

From a cost perspective, I do want to note that we're seeing higher utility prices across the EMEA markets. This cost increase has been partially offset by our utility hedges, which will roll off over the coming quarters. Our new utility hedge positions will track consistent with market movements and these increased costs are reflected in our updated guidance. And Asia-Pacific delivered record bookings with particular strength in Singapore with key wins from the content, cloud and enterprise verticals. Cross-connect counts had a strong quarter-over-quarter step-up and MRR per cabinet remained firm in this region. Turning to our interconnection activity, we added over 6000 cross-connects net in the quarter which was above and again incremental port -- significant incremental port capacity. The Americas and Asia-Pacific interconnection revenue stepped up to 23% and 14% respectively while EMEA was 9% of our recurring revenues.

From a total company perspective, interconnection revenues were 17% of total recurring revenues. Now looking at our capital structure. Please refer to Slide 8. With respect to our balance sheet, it continues to scale and remains greater than $20 billion. Our unrestricted cash balance is approximately $900 million, a decrease over the prior quarter due to capital expenditures and our quarterly cash dividend, offset in part by our operating cash flow. Net debt leverage ratio remains at 4.3x our Q3 annualized adjusted EBITDA. We also accessed our ATM program over the quarter ranging $266 million or roughly 612,000 shares at an average price of $434 per share to fund our future investment needs.

To day, under an ATM program, we've issued just under 1.4 million shares at an average price of approximately $450 per share. We've continued to be highly supportive of this type of program, as it allows us to access the market on a timely basis recognizing our strong desire to fund the business with the balance due to both debt and equity, while working to maximize our shareholders' value. Turning to Slide 9 for the quarter. Capital expenditures were $546 million including a recurring CapEx of $55 million. We opened nine expansions this quarter adding over the 8000 cabinets and currently have 30 construction projects under way. Also we purchased our Bogota facility as well as our Frankfurt land parcel for future campus expansion.

The company has now land bank capacity across 25 markets and almost $450 million in investment to date. Also we now own 80 of our 200 IBXs and revenues from owned assets stepped up to 48%. We continue to expect revenues from owned assets to increase its 2/3rd of our development activities will be on owned properties. Our capital expenditures are delivering healthy growth and strong returns as shown on Slide 10. 128 stabilized asset revenues grew 2% year-over-year on a constant-currency basis, largely driven by increase in colocation and interconnection revenues. Excluding the slightly increased Americas churn this quarter and the high nonrecurring revenue in Q3 of 2017, our stabilized assets would have grown at approximately 4% similar to last quarter. These stabilized assets are collectively 84% utilized and generate 30% cash on cash returned on the gross PP&E invested.

And finally please refer to slides 11 through 16 for our updated 2018 guidance and bridges. For the full year 2018, we're increasing our revenue guidance by $15 million, largely due to favorably from our recent acquisitions, offset in part by a $7 million negative currency impact. Also we're raising our adjusted EBITDA guidance by $9 million, primarily due to lower integration costs, offset in part by a $3 million negative FX impact. This guidance implies a year-over-year revenue growth rate -- pardon me, this guidance does imply a 9% year-over-year revenue growth rate and a healthy adjusted EBITDA margin of 48%. And the momentum of the business has continued to drive both AFFO and the AFFO per share growth.

We're raising our 2018 as-reported AFFO per share guidance approximately $20.32 per share at the midpoint of guidance or 22 -- $20. 82 per share excluding integration costs. With assumed weighted average shares outstanding of 80.2 million on a fully diluted basis, AFFO is expected to grow at 13% year-over-year on an as-reported basis. We continue to expect our 2018 nonrecurring capital expenditures to range between $1.8 billion and $1.9 billion. And finally with respect to our cash dividends for the fourth quarter, the dividend will be $2.28 per share. For 2018, we now expect the total cash dividend payout to be about $727 million and AFFO payout ratio of approximately 45%.

So with that, let me stop here and I'll turn it back to Charles.

Charles J. Meyers -- Chief Executive Officer

Thanks, Keith. In closing, we delivered a great third quarter with strong flow-through into adjusted EBITDA and AFFO and healthy metrics across the board. Today, we're the clear data center market leader and our growth, scale and innovative product portfolio puts us in a great position to build on a business model that is truly and substantially differentiated from our peers.

As we set our sights on 2019, we will focus on the six priorities outlined in my opening remarks building upon our unparallel global reach, interconnection and ecosystems sharpening our focus on driving operating leverage, extending our balance sheet through HIT and enhancing our financial model with accelerated logo capture and new service innovation. These efforts all center on delivering long-term value creation and putting Platform Equinix in the pole position to power digital transformation across the globe. So let me stop here and open it up to questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question is coming from Sami Badri of Credit Suisse.

Sami Badri -- Credit Suisse -- Analyst

Hi, thank you. My questions is mainly on HIT. It has been a couple of quarters and we've only seen about one dedicated Hyperscale development project announced in your expansions which is Paris 1. I guess my main question is when HIT was first announced, the takeaway some investments or investors had actually was that there would be several announce made per quarter or per year going forward or maybe just more than one. Could you give us more color on the degree of selectivity or being around these deals? Or why they have not been more announced yet? Because It's been a couple of quarters.

Charles J. Meyers -- Chief Executive Officer

Sure. I mean there's a number of progress. We've got -- I think about HIT as a three-legged stool. There's demand, supply, and finance. And the demand side is very strong, very solid pipeline of deals. What you're speaking to is really supply side. Paris 8 actually is our first HIT facility, I was actually out there last week, walked through the facility, it's in great shape and on track to open, I think, in next -- in the next few months. So that's tracking well. But there are -- and there are a number of other projects we just have not announced them. We have a strong land bank and a number of projects under way in terms of our approvals. They just have not made their way through. And to some degree, we're not waiting on those necessarily to have the joint venture fully under way. So there are projects under way that were in the planning phases on. But we just have not announced those as of yet.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you for the color on that. And my next question has to do with interconnection. Your EMEA MRR per cross-connect is about 1/3rd the level of Americas and your APAC level is about double. Longer term, should we be assuming this MRR rate in EMEA increases as enterprises deploy hybrid clouds through the region? And maybe can we just get a sense if pricing will ever go up over this next two years, just so we can start adjusting and projecting accordingly?

Charles J. Meyers -- Chief Executive Officer

Yeah, fair question. And when I asked our EMEA team in our operating review. So we absolutely ought to expect that. And so we've been -- when we did the Telecity acquisition, we talked about the fact that there was a delta there and we believe that the value -- the unique value that our cross-connects provide to our customers justify that value. And so there's always a little more complexity than one would hope as you do those integrations and try to get them put together and obviously some friction in the system in terms of those increases rolling through, but the short answer to your question is, yes, I think that we should continue to see that rise as we deliver that value to our customers.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

The next question is coming from Colby Synesael of Cowen and Company.

Colby Synesael -- Cowen & Company -- Analyst

Two questions if I may. First of all, Charles, thank you for giving us an overview here as a focus to start off the call. I'm curious though does that change any of the guidance that you guys provided at your Analyst Day earlier this year? Is all that's still intact even within new areas of focus under your leadership?

And then secondly, one of the things that struck out -- stuck out was the stabilized growth of 2% and I know that you mentioned Americas churn being part of the impact, the other one being the tough comps. Is the Americas churn just what's going on in Verizon? Or is there something else there? And to that point, the U.S. or Americas business just grew 5% on a year-over-year basis and that's somewhat similar to what your typical stabilized growth is. One would assume that that should be growing faster. Can you just talk a little bit about what your expectations are for growth rates in the Americas on a go-forward basis? Thank you.

Charles J. Meyers -- Chief Executive Officer

Sure. Lots in there, Colby. So let me go after them one at a time here. As to the priorities and whether or not what we talked about at Analyst Day still holds, the answer to that is yes. So we still are feeling good about those ranges and then as to what it means for 2019, we're going to come back in February and give you a sense for that. So I think we still have more work to do in terms of digging through the details of how those priorities will play out, and when and how and through what means, we'll make the investments in the business and that may all play into our forward year look. But right now, we still feel good about the ranges that we provided at Analyst Day.

As to the stabilized asset growth, it was like quarter, and as we dug into it, there's a number of -- into the underlying drivers, we don't believe that the result reflects any really an erosion of the business fundamental. So one, as we said -- as we talked about and as we said in the script, one is a tough comp due to, I guess, some of the elevated MRR in Q3 of last year. The churn, although it was in line with our expectations, it was a little concentrated in our stabilized assets. And so I think that impacted -- it was in line for what we expected, but it did impact the stabilized asset growth and some of that being Verizon, some of that being organic. But nothing unusual in my mind. There were some specific churns and some stabilized assets associated with multitiered architectures coming through but that's nothing new for us. And so I don't see anything there that I'm overly concerned about.

So normalized for those, that would take us into the sort of 4% neighborhood. That said, 4% is below our historical norms and I would say that we probably believe that we're going to continue to see a little bit of headwind on that metric due to a couple of factors. First, the 10-gig to 100-gig migrations tend to be concentrated in our interconnection hubs, which are almost all in the stabilized asset pool. And so as you noticed in the stabilized asset performance, interconnection was down a little bit and that one specifically as well. And so I think that's part of that. Now we do expect that that's going to taper over the course of 2019. It tends to start with the biggest players, because they're the ones with the highest motivation and the wherewithal to do it and then it rolls from there. And so we do think that will continue through 2019, but taper to some degree through the year.

And then secondly, we've got a handful of assets in the stabilized pool like New York 9, which is 111 8th in New York and then Atlanta 2 which is 56 Marietta Street in Atlanta. Both of those are traditional multi-carrier telco hotels -- carrier hotels and we're actively migrating customers and trying to actively shift interconnection density from those sites to our owned facilities in those markets whether that be Secaucus or our 81 facility. And we view that as a critical business priority. So we're stimulating that to happen and when we looked at the site by site results in a stabilized asset growth, some of that is showing up in that. So I do think that that's going to be more toward the low end, kind of where we've been in sort of 4% neighborhood.

And then the last point is the Americas. I think the Americas is an amazing business. $2.5 billion business approaching 5000 customers, still growing above the prevailing retail market growth despite having a drag from the Verizon business, which is a business about the same size as CoreSite, but dead flat. And so we -- as we said, we were going to turn that with -- as churn mitigates and as we get the new expansions online and we really feel like Verizon's going to return to growth next year and we think that will provide some lift for the Americas business.

But recognizing also that the growth in that business is growing a business that is 23% interconnection and yielding almost $2400 of cap. So a very attractive business. I think that we -- I think we do have an opportunity over time. One of the priorities you heard me talk about in my six key priorities was continuing to innovate and deliver new services that we believe can have attached rates on top of our cabs and that's something -- well, that's probably not going to impact the number next quarter, the quarter after. We think that's the way we can continue to get juice out of the Americas business over time. So long question, equally long answer.

Colby Synesael -- Cowen & Company -- Analyst

Very much appreciate it. Thank you.

Operator

Next question is coming from Jonathan Atkin, RBC Capital Markets. Your line is open.

Jonathan Atkin -- RBC Capital Markets -- Analyst

One for Keith, one for Charles. On HIT, do you expect to have -- you talked about the financing in place in early 2019 and is that a comprehensive arrangement that would cover multiple markets or regions or single regions or would there be more like an initial arrangement to fund a discrete project or two?

And then for Charles, I wanted to drill down a little bit on the topic of parasitic tethering, in other words when other companies paid to be within your ecosystem and then connects, they basically just leverage your ecosystem as part of their value proposition. And it's not a new issue, but given the opportunity to look at this with fresh eyes in your new CEO seat, I wonder do you intend for Equinix to be a neutral platform fully open to all partners, no matter how they leverage your ecosystem? Or are there competitive dynamics such that you would be more selective about your partnering relationships with the resellers, carriers, carrier providers and so forth? Thanks.

Charles J. Meyers -- Chief Executive Officer

Great. Great question, Jonathan. Keith, do you want to take first?

Keith D. Taylor -- Chief Financial Officer

So, let me take the first one, Jonathan. As it relates to -- as Charles said, it's a three-legged stool. We absolutely have the demand as it relates to HIT. We also absolutely have the potential financing partners and the opportunity to finance. And so as making sure, we develop the supply on an appropriate basis. That supply is going to come in multiple markets as you probably can appreciate and Jim Smith and his leadership team are working hard to continue to develop assets that can be discreetly placed off balance sheet versus on balance sheet. As you're aware, Jonathan, we do some of our work already on balance sheet. We referred to last quarter London 9 and 10 as an example, where we've got hybrid facilities and HIT deployments that have moved into those assets.

But what we wanted making sure is we look forward, we want to have -- we want to laying up our financing partners with the same type of ideology that we have on how to fund the business. And so that might mean that we have discreet partners in different markets of the world, and in some cases, we might have a regional partner, JV partner. Rest assured, Jim Charles and I as well as others are working hard with our financial partners to identify the opportunities, recognized that this is something that we'll share more with you as we get further down the road. But suffice it to say there is the opportunity, there is the demand and there will be the supply and we feel very very good about our HIT business as it stands today.

Charles J. Meyers -- Chief Executive Officer

And Jonathan, I think (inaudible), but I think your question was a little bit about might that first JV -- is that first JV likely to be some sort of is it going to be comprehensive or regionally focused or what? I would expect it's more likely that we will pick one off that has a particular scope to it and that we will prove that out in terms of a partner in terms that we find acceptable.

What I've been telling the team internally here is we've designed the mousetrap, now we've got to catch the mouse. And so I think we'll go catch one in the first quarter that may in fact be one that has a more contained scope and then we would potentially add to that from there. That's certainly a possible scenario in terms of outcomes.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Got it.

Charles J. Meyers -- Chief Executive Officer

And then as to the second question on tethering. Very interesting question and you're right. It's not a new one, but I'm going to go to the end of your question first and simply say that yes, we believe that continuing to be a neutral party and an aggregator of traffic continues to be the sort of value-creating strategy for the business. Having said that, I also think that it's fair for us to get a return on our investment -- our substantial investment that we've made to build the ecosystems at scale inside of our facilities. And so call it a tax, call it a toll, call it what you will, but as appropriate, when people are tethering in to gain access to that value, we'll price our services appropriately to get a return on the investment that we and our shareholders have made. And so I think that's perfectly appropriate for the business. We will make sure that people can access infrastructure across from their facilities into ours when that's appropriate and a lot of our Hyperscale customers, for example, do that aggressively and we embrace that and want them to continue to be able to do that.

Carrier customers who are delivering value across the ecosystem, we want to embrace that and continue to empower and enable them. But customer -- providers who are directly competitive and are saying basically you can get cheaper services, but the ecosystem value of Equinix, that's something where again we wanted to maintain an open posture, but we also believe that we should be fairly rewarded for the investment and the value we've put into that ecosystem. So that's kind of our posture relative to that topic.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Thanks very much.

Operator

Next question is coming from Simon Flannery of Morgan Stanley. Your line is open.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you very much. Charles, just on the six priorities coming back to something that was talked about earlier. Some of them like expanding go-to-market evolving product, it sounds like it's one of these investor growth opportunities. Can you just scale it, are we talking about something material here or is this going to be fairly much within the run rate? And then Keith, can you just go into the leverage on the ATM? Are you trying to get down to the 4x leverage in the kind of 12 to 18 months. Are you comfortable for now in the low-4s?

Charles J. Meyers -- Chief Executive Officer

Yeah, thanks, Simon. So hitting the first one. If you read the priorities, they are definitely some of those where we use words like expand and invest and augment and it takes dollars to do those things. And so what I think we're going through the process of now as any companies should is saying, OK, what are our priorities as a company? What resources are available to us? How do we stack rank those? And to the extent, we can self-fund those investment priorities, we will seek to do that. At the same time, if we believe there are areas where we need to make investments, we'll look at doing that and figure out what the appropriate means of doing that is. And I think sometimes those might be OpEx dollars and sometimes those might be CapEx dollars. And so we're really sorting through all of that and I think really we won't have, I think, the details on that until we sort of go into the full 2019 plan and solidify that and we'll share that with you in February.

Keith D. Taylor -- Chief Financial Officer

Simon, just maybe just adding onto what Charles has said, it's not like we haven't been investing in a go-to-market and new product initiatives as well and so this is -- it's a continued expansion of the decisions that we've made previously. And under Charles' leadership, what we're going to do is really focus and emphasize the areas of investment. And so I just want you to feel comfortable that a lot of it is in our run rate. It does not mean that we will not make sizable investments, that will be something we'll determine at the time as we size the opportunity in front of us.

But the point that we really need to make is, it's -- we are a different company. We have a point of differentiation and we are going to invest around that as being the global interconnection provider with all the different products and services that get attached to that. Having said that and going to your second question, which is really important, on going back to the ATM , the use of the ATM and our leverage posture, we still as a company have a very balanced view on making sure that we raise both debt and equity as appropriate. As you're also aware, we generate a lot of cash flow as reflected in our AFFO metric. So as a business, just naturally with our growth, we are going to delever. When we talked to you at the Analyst Day, we said a few things. Number one, revenue was going to grow 8% to 10%, AFFO was going to grow 8% to 12%, within those ranges over the period through 2022.

And that was reflective of an environment where sometimes it might be at the lower end of the range from an AFFO perspective to reflect funding requirements when we do a discrete funding whether it's debt or equity. And so our view is that we're going to grow revenue, we're going to grow our EBITDA margin and we're going to fund roughly $10 billion of capital as well as a growing cash dividend . And with that will require us to raise some additional capital. We will always have a balanced view to raising that capital with the posture of we want to get the investment grade and we think we can get there in a reasonably -- in a reasonable time frame under just current course and speed and being mindful about when we raise our capital and how we grow our business.

And my belief is that that's something that can happen on a reasonably short time period whether you think 12 to 24 months is reasonable, that's what I think is reasonable getting to investment grade while you're deleveraging the business because of growth. But overall, we are going to bring balance into our capital structure. And the impact to AFFO this quarter was roughly $0. 05 with the shares that we raised on an AFFO per share basis and about $0.11 for the year. And so we want to continue to make sure we balance that. We think about it in our forward guide for debt and the equity and we'll continue to update you accordingly as we raise more capital for our future growth opportunities.

Operator

The next question is coming from Jordan Sadler, KeyBanc Capital Markets. Your line is open.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thank you and good afternoon. I think last quarter on this call, you talked about an MRR stepup in the second half of 2018, that was expected to materialize and I'm curious is that going to step up to a greater degree in the fourth quarter? Or is there -- was there a mitigating factor in the third quarter that you would point to?

Charles J. Meyers -- Chief Executive Officer

Jordan, first and foremost, when you look at the MRR step-up, again we had our highest incremental organic step-up this quarter in Q3. As we look forward to the guide for Q4, we're using a guidance range of roughly $10 million on a revenue basis. If you look at the midpoint and take into consideration the midpoint or if you even take it up more to the higher end of the range, you'll see that there's another meaningful step-up in recurring revenue, because we're actually -- we're guiding -- we're probably going to take $2 million out of the quarter-over-quarter increase in nonrecurring revenue or said differently Q4 nonrecurring revenue will be that or will be below that of Q3 nonrecurring revenue. So we're seeing a meaningful step-up in Q4 recurring revenue as well.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

And was that specifically with regard to the Americas? I know you mentioned cabs billing there seemed to be a little bit of a timing issue there with a rebound to come?

Keith D. Taylor -- Chief Financial Officer

Certainly, the Americas, as Charles alluded, I think we're having a great success in the business that will continue to grow. But frankly speaking, we've got 13% and 14% growth -- organic growth in the other two regions on an organic and normalized and constant-currency basis. So a lot of that growth, more than 50% of our business resides outside of the U.S. now and so the majority of the growth will come from outside of the U.S.

Operator

The next question is coming from Philip Cusick, JPMorgan.

Philip A. Cusick -- JPMorgan -- Analyst

Two for Keith. Keith, can you expand and quantify the impact of the utility hedges? How has the green power initiative impacted this? And what should we expect for 2019? And then also as you think about the HIT fundraising, are there structures that you ruled out at this point or is everything still on the table? Thanks.

Keith D. Taylor -- Chief Financial Officer

As it relates to utility hedges, one of the things I just wanted to share with you and probably no surprise to anybody is there's regulated and unregulated markets. And in the regulated market, there's very little we can do. As it relates to the unregulated markets, we put hedges in place and we're always looking at buying forward in anticipation of future consumption not only what we consume today, but what we think we'll consume tomorrow. And so just make the underlying assumption that we're always putting hedges in place appropriately and hedging out roughly 70% of our exposure. Again markets are volatile and so we want to always let something float. As it relates to the green initiative, again we've invested heavily in alternative sources of energy. As you're aware whether solar or wind or otherwise we're making sure that we stick to our commitment of becoming carbon neutral as it relates to our consumption. And frankly that's costing us money today.

And the order of magnitude is roughly $10 million a year and that's an investment we've made this year. It was in our guidance, but it reflects that there is a need to become more green. It's a demand of our customers and the requirement is table sticks, I would argue and therefore we've made an investment. Certainly, there's dynamics in what we call our power purchasing arrangements with our service providers. It's going to fluctuate year-over-year depending on market conditions and the prevailing price and power on a kilowatt basis. But this year we are making an investment and we'll continue to make investments all else being equal. But power is a relatively important one. It's relatively -- it's our largest variable component. It represents between sort of 11.5% and about 12.2% of our revenue depending on the quarter. And so of course it's a meaningful mountain.

And if you think about a 10 basis point move, that's $5 million a year. So that's something that we pay very close attention to, and with rising rates, some of it we can pass-through to our customers on the move and fortunately we consume ourselves. That is the higher cost and we have to find other ways to mitigate the exposure associated with high utility prices. And so we're doing that as a business and again under the leadership of Charles and our team, we are focused very highly and making sure we can offset some of these incremental costs with other ways of running the business more efficiently, including making sure we also have incremental hedges put in place as appropriate.

Philip A. Cusick -- JPMorgan -- Analyst

Thanks, Keith.

Keith D. Taylor -- Chief Financial Officer

Sorry, just reminding me of your second question, which was hedge structures. I think all the structures are still on the table quite frankly and we're working with different partners. As Charles alluded to the fact that he met partner last week in Europe, there's partners in Asia, certainly partners all throughout the U.S. and elsewhere in North America. And so we'll continue to look at sort of the best structure for ourselves and of course our partner to reflect on whatever the best outcome is. But right now it would probably look more like a JV structure than anything else. But I think it just depends on the level of supply that we grade and over what period of time and that will determine if there's other ways we would approach such as fund a JV structure versus a fund structure versus something may be different.

And recognizing one of the forced thing that we might do is we do it on balance sheet. Sometimes we can get off balance sheet. There's a very discrete reasons whereas the hybrid facility and again we're going to make sure we -- it's the highest and best use of our capital, but we want to move most of this off balance sheet if we can. As we continue to get some momentum here on the billing side, we'll start to break out some of those details for you in the future. But it's not material enough right now and it results to adjust, but certainly as we get into 2019 and certainly '20, I think it will be more of a discussion that we'll be having on this subject.

Operator

The next question is coming from Aryeh Klein, BMO Capital Markets. Your line is open.

Aryeh Klein -- BMO Capital Markets -- Analyst

EMEA has been a strong market for you and you've got a lot of additional capacity plan there. Can you describe your visibility into demand for those additions? And then Charles, earlier in your six priorities, you talked a little bit about adding new services. Can you provide a bit more color on what those might be?

Charles J. Meyers -- Chief Executive Officer

Sure. So starting with EMEA and I would say this is true across the board, where as we look at Q4 and into next year and one of the things that we really improved over the last couple of years is our forward visibility on the pipe used to be that we struggled beyond the next quarter, but I think we really enhanced that and driven the sales discipline to have better visibility into the pipeline. And I think we have strong pipeline across all three regions. EMEA does have a really strong supply pipeline in terms of capacity, in the projects and the investments that we're making there. And again that business has performed very well. EMEA has a little bit of a different mix. It has a slightly higher -- large footprint mix. It's a bit of a different market in a number of ways, but that business continues to perform very well and deliver solid returns and we expect that that will continue in 2019 and beyond.

Relative to the new services, I think there's a variety of things. At the interconnection layer, ECX Fabric, we will continue to add the interregional element to ECX Fabric. That product is growing ahead of its business case in terms of both circuits -- ports, virtual circuits revenue and so we feel very good about that business. And we have talked about other augments to our business in terms of delivering things in the area of network function, virtualization and services that might be -- that we might be able to easily deliver sort of best-in-class virtualized functions to our customers as add-on services to our performance hub-type implementations.

And so that's something that we are partnering with very large players to bring forward and we think that we'll not only be able to bring their solutions which our customers are demanding but we'll be able to some degree mobilize their channel on our behalf which we're very excited about. And then beyond that, I think there is a set of investments that we -- in services in terms of how we can make our platform a more accessible, more easier-to-use, higher value-added digital transformation platform and that -- I won't be overly precise here in terms of what exactly that looks like, but simply say I think there are a number of things we can do to make it easier for service providers, for example, to view Platform Equinix as a place where they can deliver their value to end customers and a place where enterprise customers can consume that value more effectively.

So some of it is going to be about ease-of-use APIs developer toolkits, those kinds of things that really make the platform more accessible. So stay tuned and I think that will be an ongoing investment for us over the coming years.

Operator

The next question is coming from Erik Rasmussen of Stifel. Your line is open.

Erik Rasmussen -- Stifel -- Analyst

Thanks for taking the questions. First, circling back on the HIT initiative, you commented that the pipeline is healthy, but can you maybe give us a little bit more depth on the level of activity you're seeing and how that compares to your prior expectations? And any sort of like metrics that you can provide to help us better understand that opportunity?

Keith D. Taylor -- Chief Financial Officer

Yes. I won't quantify it specifically other than to say that we probably have way more demand in the pipeline than we would be able to or want to satisfy. And so as you guys know, our posture relative to the large footprint hyperscaler demand is that it is something that we want to participate in because we believe it's accretive to our premium retail strategy. And so we'll be selective about participating there. In the right assets, we'll put in once we get the HIT assets, once we get of the JV structured and we might have more balance sheet firepower that doesn't great opportunity cost in our retail business, we may step up the level of aggression. But right now, I would say that we're going to be selective about that business, we're going to -- and again there is right now way more demand that that Hyperscale community would like to work with us on, then we probably have the ability to do. So we'll continue to work with them. We'll prioritize projects based on their needs and based on what fits for us and we'll try to select and build facilities to take the right kinds of business.

I would also just highlight that our relationship with hyperscalers go well beyond the large footprint. And as you can recall in my Analyst Day presentation, I showed you that that's a $0.5 billion a year business with hyperscalers today and growing at a highly over-indexed rate relative to the rest of our business and 2/3rds of that is really below the retail -- is really retail business and highly interconnected both on the A side and the B side. And so we're going to continue to push that pedal down on that side of the hyperscaler business with every bit of energy and effort that we can. And then on the Hyperscale's large footprint side, we'll be selective and then probably step things up as the JVs come to bear.

Erik Rasmussen -- Stifel -- Analyst

Okay, thanks. And maybe just as my follow-up. Regarding Verizon, now that we're coming to the end of the year and you've been able to make progress on investing into that business bringing those assets up to par, what are your growth expectations for next year? Have you seen any significant improvements that might have altered your thoughts on that business? I guess I'm just trying to understand what you mean by return to growth at this point.

Charles J. Meyers -- Chief Executive Officer

One of the things we said previously that you should expect it to grow at or above our stabilized asset growth. Again, it's going to be very specific to the decisions we make. As you know, we sell across our platform and we think if you look at the Verizon assets in a very discreet way, that's one way to look at it. We' don't -- actually don't look at it that way, look at across our entire portfolio.

But it's fair to say that we would likely see it growing at a stabilized asset level or better, but we also want to make sure we manage our inventory in a very positive way and push the customers to highest and best used principles in the right IT access with the right applications. One other thing I will just say this quarter we had a slight increase of that. If you look at our quarter which you can't see it anymore, we've fully integrated the business. But Verizon assets moved up this quarter -- sorry, the Verizon revenue increased this quarter over last quarter. Part of it was there is some nonrecurring activity as well, but we're starting to see the stabilization of the base, again recognizing that we acquired the business and we grew it substantially.

But originally when this asset was acquired and the 8-K that we filed when we did the transaction, as you know, there's a deterioration in revenue associated with the asset prior to our ownership. We've been able to stabilize it. We're investing in the core assets. We're integrating to our standards and we're investing with physical assets and human capital assets across the portfolio and we think we're making a tremendous difference. As we step back, we are absolutely delighted with the acquisition and how it's performing. Clearly, we like it, revenue to continue to step up and the churn to abate. We think that is realistically going to happen, because the gross booking activity inside the portfolio of asset is strong.

And so now that we have a strong portfolio, once we can get the churn to abate and continue to make our investments, I think that's my belief that you will see the Verizon assets grow nicely on a go-forward basis.

Operator

The next question is coming from Michael Rollins of Citi. Your line is open.

Michael Rollins -- Citi -- Analyst

Just a couple questions. First on the development side, if we look at the schedule and where cabinets are coming from, it looks like that some of the facilities that were churned on in the third quarter, you met a development in the America as well as in Asia has fallen off significantly. I'm just curious if that's sort of a temporary flow of what's been announced and if that actually should get better and how to think about development in growth in the Americas and Asia PAC over the next couple of years?

And then secondly on the sales pipeline that you described, are you seeing a shift in where the pipeline is coming from, and with respect to enterprise versus cloud versus networks, maybe a little bit more color on what you're seeing on the sell side, maybe how much is direct versus indirect, et cetera?

Charles J. Meyers -- Chief Executive Officer

Sure. Development pipeline first. I do think that what we tend to find these things sort of come in waves. And so I think we saw that we're in the midst of European sort of capacity wave. I think that if you look at the broader and deeper pipeline, I think that that does tend to start to balance out a little bit more. Although again as Keith said earlier, when the other two regions are growing at 13% and 14% respectively, those are probably going to take on more of the development dollars over time. So I think you will see some balancing of that, because there's also meaningful investments that we'll make in the Americas as we talked about the Infomart master plan there in Dallas and those kind of things.

So I think you'll see some balancing of that, but again we feel like we've got opportunities across the regions, but the growth is more substantial in EMEA and APAC. As to the pipeline, again good performance across our verticals and we continue to see it in virtually every segment. The pipeline is at its high in terms of historically. And so I would say one thing on the networks. Network is one we're seeing both continued sell-through demand, meaning they're -- as they sort of reorient their networks toward a cloud world and continue to invest in those and then also wireless continues to be a strong segment for us, but network we're seeing a lot of sell-through business as well to the enterprise.

And so certainly a portion of our network pipeline is actually aimed at the enterprise. And so we tried to characterize that internally here and right now I would say that the enterprise pipeline when you look at everything that we're selling both through our NSP partners and other partners alongside our strategic alliance partners and directly with our enterprise selling team is a really strong market that's overindexing materially relative to the overall pipe. And it's -- and again our motion right now though is even our channel motion is largely a sell with motion. And so it's not yet a really true fully empowered indirect channel that's going to bring those things to market on -- bring offers to market on its own.

We believe there's a way to change that and simplify and skew things more effectively into the channel and that's a priority for us to try to make that happen and I think we could accelerate things if we can do that, but right now the channel is working a little bit more as a sell with, but really bringing a strong new logo demand because of their position with the customer decision-makers.

Operator

And our last question is coming from John Hodulik of UBS. Your line is open.

John Hodulik -- UBS -- Analyst

Great, thanks. Maybe a question on the other acquisitions. Can you give us a sense on how Metronode and Infomart are progressing? And any color you can provide on the upside to guidance driven by those deals whether it's on the revenue side or on the cost side?

Charles J. Meyers -- Chief Executive Officer

Yes, John, in our prepared remarks, we actually talked about the performance of both Infomart and Metronode and the fact that we're stepping up the revenues. In fact, the performance on Metronode and our ability to integrate these assets more efficiently at speed than previously anticipated has allowed us to turn it from a deal that was going to be accretive after a period of time to being accretive immediately. And so we're seeing performance and part of the reason you're seeing the step-up in revenue guidance, again we took revenues up $15 million this quarter before the currency dilution.

That's because of the acquisitions. So bottom line is we're delighted. When we buy these businesses, integrate them into our run rate, our platform and then as Charles alluded to in the case of Infomart which is more an asset purchase have started to develop the master plan associated with that acquisition and the available land, that puts us in a very good position relative to where we originally were. Still a lot of work to do, no surprise, but we're integrating all the assets and we had eight integrations under way this year and we're almost through them all. Does not mean there won't be a little of work to do next year, but by and large we're taking down our integration cost would have the tail end of it and we just have to tidy up some things as we go into 2019. But we're in a very good position.

Katrina Rymill -- Vice President, Investor Relations

Thank you. That concludes our Q3 earnings call. Thank you for joining us.

Operator

This will conclude today's conference. All parties may disconnect at this time.

Duration: 63 minutes

Call participants:

Katrina Rymill -- Vice President, Investor Relations

Charles J. Meyers -- Chief Executive Officer

Keith D. Taylor -- Chief Financial Officer

Sami Badri -- Credit Suisse -- Analyst

Colby Synesael -- Cowen & Company -- Analyst

Jonathan Atkin -- RBC Capital Markets -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Philip A. Cusick -- JPMorgan -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Erik Rasmussen -- Stifel -- Analyst

Michael Rollins -- Citi -- Analyst

John Hodulik -- UBS -- Analyst

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