EQIX earnings call for the period ending December 31, 2024.
Image source: The Motley Fool.
Equinix (EQIX -0.89%)
Q4 2024 Earnings Call
Feb 12, 2025, 5:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, and welcome to the Equinix fourth quarter earnings conference call. All lines will be able to listen only until we open for questions. Today’s conference is being recorded. If anyone has any objections, please disconnect at this time.
I would now like to turn the call over to Chip Newcom, senior director of investor relations. You may begin.
Chip Newcom — Senior Director, Investor Relations
Good afternoon, and welcome to today’s conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we’ve identified in today’s press release as well as those identified in our filings with the SEC, including our most recent Form 10-K filed February 12, 2025. Equinix assumes no obligation and does not intend to update on or comment on forward-looking statements made on this call.
In addition, in light of Regulation Fair Disclosure, it is Equinix’s policy not to comment on its financial guidance during the quarter unless it’s done through an explicit public disclosure. On today’s conference call, we will provide non-GAAP measures. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today’s press release on the Equinix Investor Relations page at www.equinix.com. We’ve made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data.
We would also like to remind you that we post important information about Equinix on the IR page from time to time and encourage you to check our website regularly for the most current available information. With us today are Adaire Fox-Martin, Equinix’s CEO and president; and Keith Taylor, chief financial officer. Following our prepared remarks, we will be taking questions from sell-side analysts. In the interest of wrapping this call up in one hour, we’d like to ask these analysts to limit any follow-on questions to one.
At this time, I’ll turn the call over to Adaire.
Adaire Fox Martin — Chief Executive Officer and President
Thank you, Chip. Good afternoon, and a warm welcome to our earnings call for the fourth quarter and full year 2024. Before we dive into the key figures, I wanted to take a moment to underscore that 2024 was a year in which we proved our ability to adapt and to deliver in equally successful measure. Our performance not only demonstrates the strength, resilience, and consistency of our business but also, and increasingly importantly, our ability to meet the future moments in the market.
Our unique business model enables us to serve the full spectrum of our customers’ connectivity and digital infrastructure requirements. This gives me great confidence as we continue to shape our organization to make the very most of the opportunity ahead. Now, turning to our results. We had an outstanding close to 2024.
Revenues for the full year were $8.7 billion, up 8% year over year, an amazing 22 years of consecutive quarterly revenue growth. Adjusted EBITDA was $4.1 billion, a 160-basis-point improvement in our margins year over year. AFFO per share, our lighthouse metric, grew 10% year over year. This performance is at the top end of our long-term expectations as we continue to compound value for our shareholders.
These growth rates are all on a normalized and constant currency basis, excluding lower power costs passed through to our customers. Our as-reported numbers and outlook have been tempered by a significantly stronger U.S. dollar during Q4. Our team has focused on executing against all the variables within their control to deliver an exceptional quarter and strong outlook, highlighting the underlying health of our business and the scale of our opportunity.
To give a sense of our accelerating pace of execution, in both Q4 and 2024, we delivered the best gross bookings performing in our 26-year history, with solid pricing dynamics and strong execution across all three regions. This translated to more than 16,200 deals across more than 6,000 customers in 2024. Supported by proactive demand shaping, putting in the right customer with the right workload in the right location, in 2024, we delivered record megawatts sold, including our best year ever for volumes sold in non-Tier 1 metros. Our channel program delivered nearly 30% of bookings and more than 50% of company new logos for the year, with wins across a wide range of industry segments and use cases.
In our xScale business, during 2024, we leased approximately 150 megawatts of capacity and nearly tripled the investment capital of the program. Our best-in-class operations team delivered greater than five 9s of uptime for our customers. They also decreased our PUE by more than 6%, lowering operating costs by $18 million for 2024. This supports both our customers’ efforts to green their digital infrastructure and enhances our operational efficiency.
Now, as we look to 2025, it is clear that the pace of technological change has never been faster. At the same time, I strongly believe that the market opportunity and Equinix’s relevance to that opportunity has never been greater. We are fortunate to host a diverse range of customer workloads within our data centers as we support their broad digital infrastructure needs, from networking and peering to capital market value creation, to hybrid multi-cloud architectures, and to the workloads driving artificial intelligence use cases and training. We remain confident that the continued democratization of and investment in AI represents a secular demand driver for our business.
We continue to cultivate and win significant opportunities for both inferencing and training workloads as we cement Equinix as the place where private AI happens. In Q4, more than half of the volume of our top 25 deals was related to high-performance compute and AI workloads. Importantly, we are increasingly seeing a diversification of AI and machine learning use cases across healthcare, finance, transportation, and gaming. Recent wins in customer production use cases include Outrider Technologies, the leader in autonomous yard operations, who are deployed at Equinix to support AI-based training and inference workloads that maximize freight throughput and enhanced safety in logistics yards.
To seize the market opportunity, we are on a journey to simplify the path for our customers to consume digital infrastructure. Our focus is on 3threestrategic moves: how we can, one, serve better; two, solve smarter; and three, build bolder. These critical priorities are already bearing fruit, and we expect them to enable our accretive growth in 2025 and beyond. First, we are serving our customers better by enabling our customer-facing resources to execute with precision and velocity.
We introduced automated quoting and capacity visualization tools, revised our compensation plans, and rolled out a more sophisticated approach to segmentation. These changes are part of our journey to accelerate value creation for customers as we nurture our opportunities into bookings and from bookings to revenue faster. It also means that we continually refine our cost to serve while simultaneously improving the customer experience. Second, we are solving smarter for our customers.
We are simplifying our product portfolio and working to make Equinix the easy button that manages the inherent complexity of hybrid multi-cloud and AI environments. We are prioritizing products that will continue to differentiate and extend the value of Equinix, particularly around our enduring value proposition of connectivity. This focus also resulted in our decision to end-of-sale Equinix Metal, so we can concentrate our development efforts on solutions core to interconnection. Finally, we are building bolder.
Based on the demand signals we are seeing in the marketplace, we plan to build bigger data centers in fewer, larger phases, allowing us to optimally accommodate the full product continuum on our campuses across traditional retail, larger footprint retail, and xScale. This balanced approach should accelerate our delivery of salable capacity while allowing us to respond to our customers’ needs as market dynamics, particularly those related to generative AI, continue to evolve at a rapid pace. No other provider in the market offers this unique combination of a data center product continuum with interconnection density at a global scale. Whilst we delivered record gross bookings in Q4, we could have delivered an even stronger bookings outcome if we had available capacity in our Tier 1 metros.
By building bolder, our intent is to sprint toward this demand. More than 65% of our retail expansion is supporting capacity in major metros, and here, we have clear visibility into pipeline and fill rates. Now, pivoting to the operational highlights for the quarter. Our customers value our premium service and our global footprint.
With two-thirds of our recurring revenues now generated by customers deployed in more than 10 IBXs, we continue to invest to build our network of data centers across the globe. We now have 62 major projects underway in 36 metros across 25 countries, including 16 xScale projects. This represents approximately 34,000 cabinets of retail and 165 megawatts of xScale capacity, which will be delivered through to the end of 2026. In November, we were pleased to announce our Singapore 6 build.
This facility will provide 20 megawatts of capacity in one of APAC’s fastest-growing digital economies. This month, we opened our first data center in Jakarta. This new Indonesian presence expands our reach to 74 metros across 35 countries. Our interconnected digital ecosystems continue to drive growth and customer value.
We now have more than 482,000 total interconnections deployed on our industry-leading platform. We added an incremental 6,000 underlying interconnections in Q4. Interconnection revenue stepped up 9% year over year on a normalized and constant currency basis, now representing 19% of our recurring revenues. Equinix Fabric continues to over-index as customers increasingly adopt 25 and 50-gigabit-per-second circuits.
Interconnection and ecosystem customer wins and use cases included payments processing company, WebPays, who is leveraging Fabric cloud router to connect to their key cloud partners and lower their networking costs. Zayo, the largest independent fiber provider in North America, is aggressively expanding its fiber infrastructure in key markets with Equinix, delivering on-demand, high-capacity connectivity to meet the growing demands of enterprise and exponential bandwidth growth driven by AI. Our xScale portfolio continues to see strong overall demand as service providers expand to support their cloud and AI businesses. Since our last earnings call, we leased an incremental 31 megawatts across our Paris 12 and Paris 13 assets.
Cumulative xScale leasing is now over 400 megawatts globally. Whilst our announced and completed projects are more than 85% leased and pre-leased, we have a strong funnel of additional xScale opportunities in 2025 as customers increasingly look to secure capacity for delivery dates in 2027 and beyond. We secured two new native cloud on-ramps this quarter in New York and Mexico City. We host more than twice the metros with multiple native cloud on-ramps as our nearest competitor.
Native access to the cloud enables improved management of security, cost, control, and neutrality, especially for customers pursuing a hybrid and/or a multi-cloud strategy. Ease of connectivity and access to data stored in the cloud is a key requirement for inferencing use cases and training workloads. Our ability to deliver value for our customers and accretive growth for our shareholders in 2024 is a testament to the strength of our team and the quality of our differentiated business model. I’m proud of our performance and excited by the opportunity for our business in the year ahead.
With that, I’ll turn it over to Keith to cover the quarter’s financials.
Keith D. Taylor — Chief Financial Officer
Thanks, Adaire, and good afternoon to everyone. As already noted by Adaire, we had a great end to the year. The Equinix team continued to deliver across all levels of the organization. For the full year, our record gross bookings and robust performance across each of our regions highlight the diversity and strength of our unrivaled go-to-market engine.
We had solid net bookings and healthy net pricing actions while our pipeline conversion improved throughout the year. We also celebrated our 10th year operating as a real estate investment trust, a meaningful milestone for the company. Over this 10-year period, our as-reported lighthouse metric AFFO per share has grown 10% on an annual compounded basis, while we also returned more than $9.3 billion of capital to our shareholders via our quarterly cash dividends. Our customer focus and differentiated business model and strong consistent execution has truly allowed us to create value over the past decade.
And as highlighted by Adaire, we continue to see a very significant opportunity ahead and are positioning the business to drive accretive growth for the many years to come. Yes, this is in a very exciting time. And our nonfinancial metrics continue to trend favorably as we completed the year. Our net cabinets billing stepped up by 2,200 in the quarter, driven by continued strong booking activity.
Our backlog of cabinets sold but not yet installed doubled over the last year, which, when combined with our 2025 operating plan goals, should drive continued performance of this core metric. Net underlying interconnection additions also showed a healthy step-up as the gross cross-connect activity was at its highest level in three years. Finally, our MRR per cabinet yield stepped up to $2,326 per cabinet driven by net positive pricing actions and increasing power densities. So, simply put, we continue to drive value on both the top line and at the per-share level, while delivering meaningful operating leverage across the business.
On the sustainability front, we’re pleased to be recognized on CDP’s prestigious Climate Change A List for the third consecutive year, while also rated AAA by MSCI for the first time. We consider our sustainability efforts to be a fundamental tenet of our business, which both support the needs of our customers and drives operational efficiency, both very good for the business. And finally, as we look forward into 2025 and beyond, we plan to continue to adapt each of our organizations and our products and services to serve our customers better with greater efficiency. This includes the end-of-sale of our metal product offering while realigning the organization to enable us to make investments in other key priority areas.
Given the metal decision, we booked a $160 million impairment charge on specific assets related to metal. Separately, we recorded a one-off and discrete charge for the impairment of our Hong Kong 4 asset totaling $73 million. We also recorded a $31 million restructuring charge, primarily related to the reduction in force in the quarter. These decisions, although difficult at the time, are the right decisions for our business.
They allow us to reprioritize where we invest while also reducing the net drag on the business and improving our return on invested capital. Now, let me cover the highlights for the quarter as depicted on Slide 4. Note that all growth rates in this section are on a normalized and constant currency basis and exclude the impact of lower power costs passed through to our customers. Global Q4 revenues were $2.261 billion, up 7% over the same quarter last year and at the midpoint of our guidance range, with both solid recurring and nonrecurring revenue growth across our regions, despite a portion of our xScale fees being deferred into Q1.
Q4 revenues, net of our FX hedges, included a $22 million FX headwind when compared to our prior guidance rates given the meaningful strengthening of the U.S. dollar in the fourth quarter. Global Q4 adjusted EBITDA was $1.021 billion or approximately 45% of revenues, up 9% over the same quarter last year and at the midpoint of our guidance range due to strong operating performance, though down sequentially due to planned timing of spend and xScale fee mix. Q4 adjusted EBITDA, net of our FX hedges, included a $9 million FX headwind when compared to our prior guidance rates.
Global Q4 AFFO was $770 million, up 10% over the same quarter last year, due to strong operating performance offset by our seasonally higher recurring capex spend as expected. Q4 AFFO included a $2 million FX benefit when compared to our prior guidance rates. Global Q4 MRR churn was 2.5%, as planned, due to the previously discussed deferral of MRR churn from late September into early October. Normalized for this timing, churn would have been 2.2%.
For the full year, our average quarterly churn was 2.2%, well placed in the lower half of our 2% to 2.5% quarterly guidance range. Turning to our regional highlights, whose full results are covered on Slides 5 through 7. On a year-over-year normalized basis, excluding the impact of lower power costs passed through to our customers, APAC was our fastest-growing region at 13%, followed by the Americas region at 8%. Our EMEA region grew 2% year over year, dampened by the significant xScale leasing activity in Q4 of 2023.
Again, as noted earlier, xScale fees are inherently lumpy and can impact the quarter-over-quarter and year-over-year growth rates both at the consolidated and regional levels. The Americas region had a strong quarter with solid gross bookings as revenues for the region reached the $1 billion quarterly revenue threshold for the very first time. Also, our Americas team had strong sales across our global assets, achieving its best export quarter in 2twoyears. We saw particular strength in our Denver, Montreal, and Santiago markets, as well as continued momentum in our Tier 1 metros.
Our EMEA business delivered record gross bookings and firm pricing, led by our flat metros with strong momentum also in Geneva, Istanbul, and Milan. In the quarter, we signed our first power purchase agreement in Italy with Neoen to support 53 megawatts of new solar projects. This agreement brings Equinix’s total global renewable energy capacity under long-term contracts to greater than 1.2 gigawatts across 10 countries. And finally, the Asia-Pacific region had a great quarter with record gross bookings.
We saw particular strength in both our Osaka and Tokyo markets as we continue to capture significant AI deployments from both domestic and international customers. We also saw strength in our Mumbai, Singapore, and Sydney markets. And now looking at the capital structure, please refer to Slide 8. Our 3.4 times net leverage continues to remain low, both in absolute and relative terms to our peers.
As of year-end, we had cash and short-term investments of $3.6 billion on our balance sheet, due to record customer collections and our financing activity, which puts us in a solid funding position to meet our 2025 capital needs and sets us up for 2026. In the quarter, we issued EUR 1.15 billion in senior green notes at a weighted average rate of 3.4%. Additionally, we repaid $1 billion of senior notes in the quarter and raised approximately $700 million of equity through our ATM program. We plan to continue to take a balanced and opportunistic approach to accessing the capital markets as and when the market conditions are favorable, to fund our future growth.
Turning to Slide 9. For the quarter, capital expenditures were approximately $1 billion, including seasonally higher recurring capex of $115 million as planned. We opened three major projects since the last earnings call: Barcelona, Jakarta, and Rio de Janeiro. We also purchased land for development in Lagos and Paris.
More than 85% of our current retail expansion spend is on our own land, our own buildings, with long-term ground leases. Our capital investments delivered strong returns, as shown on Slide 10. Our now 177 stabilized assets increased revenues by 3% year over year on both an as-reported and constant currency basis. Stabilized assets were collectively 83% utilized and generated a 27% cash-on-cash return on the gross PP&E invested.
As a reminder, unlike prior years, we plan to update our stabilized asset summary on the Q1 earnings call. And finally, please refer to Slides 11 through 16 for our summary of 2025 guidance and bridges. Do note, all growth rates are on a normalized and constant currency basis. Starting with revenues.
For the full year 2025, we expect top-line growth of 7% to 8%. As noted, this is on a normalized and constant currency basis, which adjusts for the significant net impact of FX, but also lower power cost passed through to our customers and the end of sale of our metal product offering. And given our bookings momentum and our largest backlog of three years and timing of capacity additions across our major metros, our Q1 guidance assumes a $28 million step-up in recurring revenues, but continued healthy step-ups in recurring revenues over the course of the year. MRR churn is expected to remain within our targeted quarterly range of 2% to 2.5% per quarter.
We expect 2025 adjusted EBITDA margins to be approximately 49%, a 190 basis point improvement over last year, due to strong operating leverage, targeted expense management efforts, and anticipated lower power prices. And like our revenues, we expect quarterly margins to step up over the course of the year with a meaningful increase in Q2 margins over Q1 in part due to seasonality. And second half adjusted EBITDA margins are expected to be at or near 50%. 2025 AFFO is expected to grow between 9% and 12% compared to the previous year.
And AFFO per share is expected to grow between 7% and 9% despite the sizable investment in warehouse capital to support our future growth into ’26, ’27, and beyond and also the refinancing of debt maturing in the year. 2025 capex is expected to range between $3.2 billion and $3.5 billion, including approximately $200 million of on-balance sheet xScale spend, which we expect to be reimbursed as we transfer assets into our U.S. joint venture, and about $250 million of recurring capex spend. And finally, we’re increasing our 2025 cash dividend on a per-share basis by 10% due to strong operating performance, our tenth consecutive year of dividend per-share growth since our REIT conversion.
The cash dividend will be approximately $1.8 billion, a 13% year-over-year increase, 100% of which is expected to be derived from operating performance. So, I’m going to stop here and turn the call back to Adaire.
Adaire Fox Martin — Chief Executive Officer and President
Thank you, Keith. In closing, Q4 was a record quarter for Equinix in a year of record performance. 2024 demonstrated the enduring market demand for the services offered by Equinix, the execution excellence of our team in prosecuting that demand in service to our customers, and our continued drive to improve our profitability and our return to our shareholders. In 2025, we will double down on these qualities and further prime ourselves for growth.
We will focus on the elements of our business that define our relevance and our differentiation in a rapidly evolving world: our product continuum, our global reach, our interconnection density, and our cloud connectivity. We will embrace the relentless pursuit of efficiency and effectiveness in all that we do. We will work to make it easy at Equinix for our customers and our partners so that we can deliver the greatest value and capture as much of the opportunity as possible, driving attractive revenue growth, expanding margins, and increasing profitability. With that, I’ll stop here and open it up to questions.
Questions & Answers:
Operator
Thank you. We will now begin our question-and-answer session. [Operator instructions] Our first question comes from Simon Flannery with Morgan Stanley. Your line is open.
Simon Flannery — Analyst
Great. Thank you very much. Good afternoon. Adaire, good to hear the comments on the interest on artificial intelligence and inference.
We had a lot of news in the recent weeks on DeepSeek and the implications for the industry, and it seems like there’s a general sense that inference may be coming more important relative to training and quicker. I’d love to get your perspective on that development and how you think about inference coming through your numbers in 2025, 2026, and beyond. And I think, Keith, you just mentioned briefly on the U.S. xScale JV.
It’d be great to just get a little update since you’ve announced that project. Where do we stand in terms of identifying markets, build programs, and so forth? Thank you.
Adaire Fox Martin — Chief Executive Officer and President
All right. Thank you so much for the question, Simon. Yes, it’s been an interesting period of time. I think we’ve seen a step-change in compute efficiency along the performance curve, and that is something that I expect to continue.
We expect to see continued innovation in the sector across both training and inference, which we think is a net positive for the space. The drop in inferencing costs that’s implied by the work released into the open source market by DeepSeek, I think, will enable the economics of AI transformation to become a little bit more feasible for a broader set of organizations. And so, that’s why we feel that this will represent a circular demand driver for our business. As it relates to the actual workload characteristics and the role of inferencing and how that will play out, certainly, we believe that, within the next three years, 80% of apps and processes that operate within businesses will be infused with AI.
And in fact, if our own business is an example of that, that is something that will be true for us, too. You can see the absolute relevance of Equinix to this market opportunity. We are right in the demand center of this opportunity. And in Q4, as I mentioned in my remarks, 50% of the top 25 deals that we closed in Q4 were very much related to deals where high-performance compute associated with training workloads and inferencing requirements were very prevalent and present.
One of the things that I think plays very strongly into Equinix’s value proposition is that it is very clear that the market will be multi-cloud. And that means that we will have data landing everywhere across all of these clouds. And then in addition to that data profile, there will also be apps and agents that land everywhere in order to process the information associated with the applications and underpinning capability that they are running. So, for us, this means that our interconnection density and that heritage of Equinix in connectivity is something that will be extremely important as these apps and agents bounce to and from wherever the data is located.
We see that we have a wonderful opportunity to look at how we continue to make it easy at Equinix for our customers to deploy these technologies and how we have a pivotal role in abstracting some of this complexity through programmatic interfaces that will make it easier for our customers to deploy models, easier for our customers to access the APIs that will be key in this architecture and easy for our customers to deploy and mount agents on globally deployed PoPs. So, we’re very positive on the opportunity, very positive about the innovations that we continue to see. We know that this is a market where the innovations will continue to come and at a fast pace. And we believe that our position is one that is very balanced and appropriate toward actually encapsulating and garnering as much of that opportunity as possible.
So, very excited about the potential here.
Keith D. Taylor — Chief Financial Officer
And Simon, let me just capture the second question that you’d asked, and again, thanks for asking it. I think there’s two aspects in which I want to share with you and the rest of the listeners today. There’s what’s going on in the matrix site and what’s going on in xScale. In Adaire’s prepared remarks, as you’re aware, we have 16 xScale projects currently underway.
Now, as part of that, one of the things that we’ve announced, that basically 87% — roughly 87% of all projects that have been built that are under construction have been presold are either leased or preleased. So, it gives you a sense of the momentum, at least as it relates to the one-off fees, the nonrecurring fees, such as sales and marketing. So, that gives you a sense of just the aspect of where we are in that. As it relates to matrix, which really is the tripling of our xScale business, we’re working hard on the Hampton site, including working with the different — with the utility provider and infrastructure — or power infrastructure providers to get the power ready or available for when we need it.
We’re also investing in a lot of what I call forward linear commitments, both as it related to power and basically the MEP equipment. Our goal is to have an asset up in 2027. That is our goal and that’s what we’re working hard toward. So, it gives you a sense we’re making progress there.
That all said, we’ve got three other sites that we’re continuing to look at in the United States, without even discussing where could we go somewhere else outside of the U.S. So, again, making, I think, really good progress. The last thing I’d probably want to just leave you and everybody with is, in the guide that we shared with you, there’s roughly $40 million of incremental operating expense associated with the amplification of our xScale business. Under new leadership with Tiffany and putting the resources behind it, given that we’re going to triple it, we’re making a really heavy investment.
And as I said, that’s roughly $40 million embedded in the guide that you’ve seen. So, it tells you about how committed we are to this next opportunity that’s in front of us, both as we exit 2025, but more as we look into ’26, ’27, and ’28.
Operator
Thank you. Our next question comes from Eric Luebchow with Wells Fargo. Your line is open.
Eric Luebchow — Analyst
Hi. Thanks for taking the question. Adaire, I just wanted to touch back on the demand funnel that you talked about and the bookings momentum. Maybe you could talk a little bit about what your forward pipeline looks like today.
And you mentioned in your prepared remarks pursuing kind of a larger end of the retail colocation spectrum or maybe small wholesale depending on the definition. Maybe you could talk about how your bookings have trended in that segment and what the pricing and returns may look like relative to your more core interconnection-dense-based retail business.
Adaire Fox Martin — Chief Executive Officer and President
Eric, thank you. Thank you very much for the question. So, first of all, let me say that I had the pleasure in Q4 and continuing into Q1 of being both the CRO of the company and the CEO. So, I had the opportunity to be very close with the team as they executed on our Q4 quarter and delivered, as we already mentioned, record gross bookings in the quarter.
In terms of the footprint that we see, one of the other elements that I made in my remarks was that we had the highest volume of non-Tier 1 metros sold in — during the course of the year, and Q4 was no different from that perspective. This is, I think, largely due to a number of tech service providers who are looking for large footprint capability in order to grow their own businesses and their own services. And of course, that footprint capability needs to be a contiguous one. And this is where the team works closely with our customers to ensure that this demand-shaped program happens very early on in the engagement.
In terms of pricing, we are absolutely seeing a positive progress in pricing in terms of being in a set of circumstances where there is much demand, of course, and broad-based demand for the products and services offered by Equinix. So, we continue to see some pricing strength across even the Tier 2 scenarios that we are selling into.
Eric Luebchow — Analyst
Great. And just one follow-up for me. Maybe you could just update us on what your current expectations are for this year. I know you had forecasted picking up in Q4 and you’ve gone through some grooming activity from the service providers throughout the last year.
Any update on where you think that settles back to the kind of lower 2% end of the range on a sustainable basis? Thanks.
Adaire Fox Martin — Chief Executive Officer and President
Yeah. So, I think as you saw for Q4, our churn was 2.5%. And as Keith mentioned in his remarks, this was due to the deferral of a churn from late September into early October. And that put our Q4 churn at the top end of our range.
In normalizing for that, we would have had a 2.2-percentage churn number for Q4, which, in fact, is the average churn rate across 2024. So, in 2025, we absolutely expect our churn to be within that 2% to 2.5% MRR range, and that’s what we will manage to. For any MRR business, churn is a reality. And just as a reminder, as we discussed through this topic, our definition of churn includes any reduction in products or services consumed at an order line level.
So, we count that decrease even though the customer might be growing with us on a net basis either in another location or — and even in another region. And I think there are a number of factors. So, one aspect of my CRO hat here has been the opportunity to work with the team to unpack this and to double-click into the data here. First of all, you can see that we have, on the churn side, looked at some of the factors that are associated with churning customers.
Now, much of the churn, as I mentioned already, is frictional. By that, I mean that customers are continually evolving what they’re doing inside an Equinix data center. It doesn’t mean that they’re leaving our data center. It means they’re continually evolving their architecture and their structure in order to maximize the cost-benefit outcomes for them.
And I think this speaks to the health and strength of the platform as they continue to grow with us even when we’re seeing some of that frictional churn. Secondly, we know when we’ve looked at the data, that from both an interconnection perspective and a more than one or multiple metros or regions perspective, the customers who have interconnection with us have a much lower propensity to churn as do customers who are in a multiple regional scenario with us. So, while we expect our churn rate to be between 2% and 2.5% during the course of 2025, we intend to lean in during the course of this year on the front end of our sales process and to ensure that we are doing as much as we meaningfully can to ensure that we’re increasing the interconnection rate because we know that that’s one of the clear delineators around managing churn later in the relationship with the customer. So, a whole series of things that we’re looking at based on the data that we have seen.
But we are guiding to the range of 2% to 2.5% for 2025. And we’ll look to manage within that range and to the lower end of it using the data to help us guide how we approach and manage this topic with our customers.
Operator
Thank you. Our next question comes from Jonathan Atkin with RBC Capital Markets. Your line is open.
Jonathan Atkin — Analyst
Thanks. Two questions. One, I guess on power management and the other on kind of head count. On the first topic, in your older stabilized IBXs, I’m wondering how you’re meeting the challenge of customers potentially drawing more power within the framework of their existing service agreements, and how does that affect your ability to meet SLAs and even take on new business within those buildings? And then I’ll follow up later on the head count question.
Adaire Fox Martin — Chief Executive Officer and President
Yeah. I’ll work through the power one, and I’ll ask Keith to add anything to ensure that I cover all of the topics here. One thing I would say is that within the context of our business, Equinix has a 26-year history of managing power as an input and a valuable input into our data center environment. And we manage very carefully to a whole series of SLAs that we have with our customers in order to ensure that we are compliant to those SLAs.
And as it relates to our stabilized assets, I am not aware of any issues around a power draw that would impact how our customers are executing in the context of those stabilized assets. Keith, is there anything that you would add to that piece?
Keith D. Taylor — Chief Financial Officer
Yeah, Jon, and maybe just follow on the conversation, part of it was in Adaire’s prepared remarks that, no surprise to you, we also demand-shape based on the needs of the customer. And to the extent that there is a customer that is looking to increase meaningfully, where there’s more inventory in the form of a cabinet and more energy in the form of power, you got to demand-shape it in the right place because, as Adaire says, we have a very detailed set of processes that allows the team to manage energy that’s inside the four walls. That all said, it’s also probably not a surprise to you or anybody else, one of the key modifiers to the compensation plan for VPs and above is the power efficiency initiative or PUE. And so, we’re always working to drive down the amount of energy that gets consumed through different operational exercises or new technology, different software packages, and the like.
And so, the extent that capacity gets created through that, then we have the ability to sell it to the customer inside maybe an older asset. But suffice it to say, again, as Adaire said, look, we manage inventory from a number of different vectors. Again, no surprise whether it’s the energy that is consumed, the cooling that is required, and the location of that, and we appropriately adjust our inventory availability for IBX on that basis. And again, I would just say that you’re going to put the right customer with the right application and the right needs into the right asset, and that’s one of our core tenets in managing our inventory.
Adaire Fox Martin — Chief Executive Officer and President
Thank you, Keith. And there was a second question on people.
Jonathan Atkin — Analyst
Yeah. I’m going to switch topics to expenses. So, on — in 2025, just wondering, broad strokes, any kind of SG&A or COGS or opex of any type that might not reoccur in 2026, whether it’s due to maybe some costs associated with your efficiency initiatives or IT or anything else that might not recur in 2026 that is an element of your ’25 guide?
Keith D. Taylor — Chief Financial Officer
Well, perhaps in this case, Jon, I’ll take this, and I’ll let Adaire maybe sort of jump in as appropriate. I think it’s very important to sort of really look at what’s going on inside the business certainly quarter over quarter, and then 2025 over 2024. But suffice it to say, and you can see that we’re delivering incremental margin this year over 2024 of roughly 190 basis points. 30 basis points of that is just coming — and I should talk about revenue, I can come back to that.
But it’s coming from basically lower power costs that gets consumed by the customer. And therefore, when you take down revenue related to power, of course, it’s the inversion of what we experienced in 2023, margins move up. And so, that’s one thing. I would anticipate, all else being equal, it feels like power costs seem like they’ve continued to step down year over year over the last couple of years.
And although customers consume more, just the overall cost, the unit cost of electron has been decreasing. The second thing I would just say is that 160 basis points of sort of operational improvement comes from a bunch of sort of many factors. One, the reference to the reduction in force in the fourth quarter, is clearly that’s something that is impacting, if you will, the financial results for 2025, and that would extend into 2026 as well. As we continue to end-of-life the metal business, again, metal was running at a negative EBITDA trend, and as a result, that will continue to improve both — we take the one-off cost, but we — as we continue to wind that down, again, ’25 over ’24, and certainly ’26 over ’25, it will reduce the revenues, but more operational performance will come into the business.
And then I alluded to in my prior remarks the decisions of investing in matrix. Today you’re investing today for what you will earn tomorrow, whether it’s on the capital side or whether it’s on the operating expense side. And suffice it to say, as we get more and more of these assets up and running in commercial, operationally commercial, the cost that we’re bearing today, you’re going to get a nice flow-through on profits because you’re bearing the cost of the capital and investing in the staff to support a much larger franchise in the business. And part of that is really associated with our matrix.
We’re tripling the size of the business. And we really — we need to invest in order to scale the business to the magnitude in which we plan to take it. So, those are the things I would say. And then if I could just maybe make one other comment because it really impacted the quarter-over-quarter Q4, what happened in Q4, and where we are in Q1 vis-a-vis sort of EBITDA margins.
Repairs and maintenance, we spend about 50 — on average, about $50 million a quarter. Again, that’s an average. In Q4 of 2024, we took our repairs and maintenance up. We wanted to get — we wanted to get at the front end of it.
And that increased to $83 million in the fourth quarter. As a result, when you look in the first quarter, we’re stepping back down to roughly the $50 million mark. And so, there’s a $30 million swing quarter over quarter in the amount of maintenance that is being done inside the assets. As we come to the back end of 2025, again, we’ll make some decisions about timing and the like.
But we — sometimes, you make the decision to accelerate costs or push them out depending on the circumstances. But what I wanted to leave everybody with is when you look at the first half of the year, you see a meaningful step-up in Q2 margins over Q1. But what you really see is the continued performance of the business to the second half of the year, as I said, at or near the 50% margin target. It just tells you about the operational efficiency that we’re building into the business.
And we haven’t even spent the energy yet of talking about what it means to change the processes and change the systems, which is a core priority that Adaire has for myself and the team.
Jonathan Atkin — Analyst
Thank you very much.
Operator
Thank you. Our next question comes from Nick Del Deo with MoffettNathanson. Your line is open.
Nick Del Deo — Analyst
Hi. Thanks for taking my questions. First, I want to talk a bit about capacity constraints. I think a year ago, you talked about there being capacity constraints in some key markets that were crimping sales, and you opened facilities over the course of 2024 to address that.
Adaire, you noted in your prepared remarks that bookings could have been better absent capacity constraints in some key markets. So, it seems like that issue has cropped up again. I guess, by when do you feel like you’ll be ahead of the ball on this front and unconstrained from an inventory perspective across at least most of your key markets?
Adaire Fox Martin — Chief Executive Officer and President
Yeah. So, we absolutely are pursuing opportunity with a vigor. And in fact, part of our build bolder strategy is ensuring that we’re leaning into those capacity constraints that we see in the market. Our capacity constraints vary region by region around which of our Tier 1 metros are impacted by this.
You would also see in the deck that we provided the expansion guide, which provides an indication of how much capacity we would be releasing in ’25 and how much will come into our inventory over the course of that year and the years that follow. It’s absolutely true that there are cases where we could not meet the contiguous capacity requirement of a customer in a Tier 1 metro. And if we had to have that capacity available, we could have met that demand for the customer. In most cases, we were fortunate to be able to demand-shape or to move them in on a smaller basis.
But certainly, we are right in the center, very firmly in the center of what is a very hot demand market at the moment. The underlying signals continue to demonstrate the relevance of the product portfolio, the solution set, the global reach, and so on that Equinix has to offer. As I mentioned, build bolder is a strategy that is very much focused on our retail portfolio as well as aspects of our xScale portfolio, which Keith has just covered. And our core focus when we think about this strategy is where we can have a differentiated value creation for these retail campuses.
And our intent is really to lean in here and to deliver retail capacity in as efficient manner as we can in order to meet customer demand. I mentioned in my prepared remarks that we have 62 major projects underway. And our goal is really to enable our design and our construction team to streamline this build cycle and bring larger critical retail capacity to the market faster for our customers, particularly in some of those key markets. So for instance, within our retail pipeline, we have created a pipeline review so that we can see where we have the opportunity to streamline the number of phases that will enable us to deliver this capacity.
And as a result of that, when we look at NY3, DC16, and LD4, these are all examples of projects that have been accelerated at least a year as a result of the build bolder lens that we are placing on the demand market that we — the demand opportunity that we see and the opportunity that we have to provide that capacity through to our customers. So, continuing area of focus for us, continuing area of optimization, and continuing engagement with our customers to ensure that we meet their demands and their requirements as best as we possibly can.
Nick Del Deo — Analyst
Great. That’s helpful. Thank you. Can I ask one more on the fiber market? There’s obviously a lot of demand — or a lot of activity for fiber to support AI.
Dark fiber wavelengths, new routes being constructed. You alluded to some wins with Zayo in your prepared remarks as an example of that. Do you think that this source of activity is going to be large enough to be a meaningful incremental driver of the business in coming years? Because I’d imagine a lot of it is going to terminate in your facilities.
Adaire Fox Martin — Chief Executive Officer and President
That’s quite possible, and we’re certainly seeing that with the Zayo partnership, the opportunity to support their journey. And again, I would just come back to the unique differentiation and value proposition of Equinix: global reach, densely interconnected, and dense with network service providers. And these are all elements that will be crucially important as we look to capitalize on future opportunities.
Operator
Thank you. Our next question comes from Michael Rollins with Citi. Your line is open.
Michael Rollins — Analyst
Thanks, and good afternoon. Adaire, you mentioned earlier some of the work that you’ve done on segmentation. And so, curious if you can give us an update as to where do you see Equinix being underpenetrated in certain key customer verticals. And if you can give us an update as you look at the 2025 guidance with respect to two paths? So, one path is as you look at constant currency revenue growth of 7% to 8% in the guide, how do you think about that in terms of expanding customers versus expanding customer spend? And then on the second path, how do you think about that in terms of the cabinet growth versus the pricing and MRR per cabinet expansion? Thanks.
Adaire Fox Martin — Chief Executive Officer and President
Thanks, Michael. I’m just jotting down the three elements of your question there to make sure that I address them. So, we undertook a very comprehensive segmentation exercise, looking at our customer base and looking at the customer base through a variety of different lenses. And the first output of our segmentation exercise is really to define where and how we best serve these customers, so with what kind of account coverage, what kind of account management, what kind of costs to serve.
And that’s really been the first focus of our segmentation exercise in terms of enhancing our operational efficiency and our operational effectiveness internally. That being said, it does give you an opportunity then to take your segmentation of your customers and look at it through the lens of the TAM, the total available TAM in the market, and to see where we are and how we are actually covering various different segments. We have a very balanced portfolio across the industry, so it would be hard to point to an industry where we don’t have a representation. But I think that our reach into accounts that are smaller in terms of revenue turnover and might fall into that general business type category, is harder.
Our focus has very much been on enterprise customers. And that’s really where your channel begins to play and that’s really where you can have a digital sales motion in order to make that reach possible. So, I also mentioned in my prepared remarks that one of the things that we had done as a result of our implementation this year was to make some amendments to our compensation plans. And one of the amendments that we have made to our compensation plans is actually around net new name acquisition.
So, how the team not only expand the footprint in an existing account but, to your point, enable us to actually expand the number of customers that Equinix service. So, we should see an uptick in that number during the course of this year based on that focus. And then the last question was relevant to cabinets. Sorry, Mike, you might need just to remind me of that part of your question.
Michael Rollins — Analyst
Sure. So, as you look at the constant currency revenue guide of 7% to 8%, how do you think about the contribution from cabinet growth versus pricing and MRR growth — MRR per cabinet growth?
Keith D. Taylor — Chief Financial Officer
Yeah, Michael, maybe I’ll take that, and Adaire can jump in. First, I think it’s important to really understand just where we are on the growth rate year over year. And as I said, there’s a little bit of probably noise in the fourth quarter, noise in the guidance. So, let me explain that.
For the fourth quarter, we know currencies — the currency has impacted us both from revenue all the way down to the bottom. As it related to the fourth quarter, it was $22 million. There was also $22 million of nonrecurring fees that we were anticipating to close in Q4 that did not close. And so, that would have put us to the top end of the guidance range.
That will happen in Q1. And in fact, the vast majority of it has already happened in Q1. So, that’s good. So, then when you start to think a little bit about the growth rate for ’25 over ’24, there’s — I want to reconcile how we got to the 7% to 8%.
There’s $147 million of FX. And so, everybody can take a view on it. Are we going to continue to have dollar strength throughout the rest of the year or not? But we’ve booked, at least in the guide, $147 million. Reduced power cost of roughly $50 million, impact of metal, reducing $45 million.
And then fit-out costs in the xScale franchise, which we typically don’t do, but we’re outside of the JV for a couple fit-outs just based on the structure, that’s a $40 million reduction. So, when you look at that, overall, you see how the business is performing. Having said all of that, so when you look at just the fundamental business, we absolutely anticipate that you’ll see increased gross bookings. That will come from higher density, or I should say, continued higher density.
That higher density, of course, does good things for the cabinet or the MRR per cabinet. But how it presents itself and the number of cabinet adds into the system is still to be determined. In my prepared remarks, I — given the backlog, given we know when we think the inventory is coming online, we have what we think is good visibility into continued cabinet adds into 2025. There’ll be some aberrations with some churn, but we’ll always guide you to that.
So, that’s how I think about that. As it relates to pricing, we think, again, in 2025, we’ll have positive or net positive pricing actions. That will represent about 10% of our gross bookings. How that presents itself on a stabilized basis, we still envision 3% to 5% price growth on our stabilized assets.
And again, that comes from — it does come from price, but it also comes from volume and more cross-connects as Adaire alluded to. So, hopefully, that gives you a little bit of sense of what’s happening. If I can just maybe say one other thing because I think it’s important. As you look at Q1, the difference between Q1 and Q4, the lion’s share of the degradation is $40 million is coming from currency.
So, it gives you a sense. And then $30 million is coming from lower nonrecurring fees. But as I told you, we moved $20 million. So, it would have been $50 million.
So, it gives you a sense, there’s a lot of noise between Q4 and Q1 and how that’s impacted the year. But we’re really — probably as you heard from Adaire, we’re really excited about where we are, the positioning. And we can see where the inventory is that’s going to come online and allow us to sell more to the customer over that — over the year. And the customer is consuming — the average deal size is just getting bigger, it’s getting more dense, and it’s getting larger, and that goes back to maybe a part of what Nick was asking, that the — we’re selling out some of the core assets faster than we anticipated, and we need to put more assets up as fast as we can despite the constraints in the marketplace.
Michael Rollins — Analyst
Thanks very much.
Operator
Thank you. Our last question comes from Jim Schneider with Goldman Sachs. Your line is open.
Jim Schneider — Analyst
Good afternoon, and thanks for taking my question. I was wondering if you could sort of comment on sort of the revenue trends, your underlying revenue decelerated by about 100 basis points last year, and you’re guiding to another 50-basis-point deceleration, if I’m not mistaken, 7% to 8% heading into 2025. I guess can you maybe comment on what the recurring revenue outlook is doing for 2025 all in? And then what is your confidence level that you can actually reaccelerate that revenue growth over the course of the year? And what would be the drivers of that?
Adaire Fox Martin — Chief Executive Officer and President
I’ll take a first stab, and then I’ll have perhaps Keith decompose some of the numbers for you. So, I think the guide that you see for 2025, that’s very much in line with our performance from 2024. And implied in this guidance is a step-up, as you’ve mentioned, of recurring revenue growth over the course of the year, giving us a very implied strong exit into ’26. That recurring revenue growth step-up is circa $28 million in — $28 million in Q1 and then stepping up during the course of the year into a $40 million type category for our recurring revenue.
So, I’m really very happy about that because this core recurring revenue element is a key element of our business and allows us to plan and consistently grow. As I mentioned already, I think we’re very firmly in the center of demand and have a very strong backlog to support this revenue and continue to see this very clear and compelling signal from the market. So, we very much look forward to taking the gross bookings and the records that you’ve seen over the course of ’24, taking that, and turning it into revenue as quickly as we possibly can in order to ensure that we have that strong exit out in 2026, and of course, doing that while we’re delivering 190 basis points of margin expansion. So, not just stepping up on our recurring revenue, but delivering it in a profitable context.
Keith, is there anything that you wanted to do on the mechanics of where that’s at?
Keith D. Taylor — Chief Financial Officer
So, Jim, maybe just to summarize what Adaire said, so that growth is all basically coming from the recurring line, which is — and so nonrecurring revenues as we look to ’25 is going to be flat — I would say, generally flat. And so, all that growth is coming from the recurring line. And then just reminding everybody, it’s really important, and Ralph knows this better than anybody as well as the construction teams, we need the inventory. If we had more inventory in the fourth quarter, we would have sold more.
Our backlog is at near an all-time high. And we just have to make sure that we can continue to deliver the capacity into the market. And that gives you the ability to continue to accelerate the top line.
Jim Schneider — Analyst
Thanks. Maybe just as a follow-up question. There’s been a lot of announcements in the market, whether that is Stargate or otherwise, about significant capacity additions over the next few years. So, I was wondering if you could comment relative to your own xScale JV with CPP and GIC going forward.
Anything that makes you feel differently about the pace with which you’re going to add that capacity via the JV? And is there anything you can do to actually accelerate that capacity addition further to bring it online per your earlier comment? Thank you.
Adaire Fox Martin — Chief Executive Officer and President
Yeah. So, in terms of some of the announcements that we’ve seen, obviously, this is a continued focus on the data center industry. And as I mentioned earlier, we’re very central to that. So, we’re very supportive of announcements like this because we feel that all boats can rise on that particular tide.
In terms of how this relates to our own plans, we, of course, have seen from the hyperscalers’ continued investment in their own capex stories from their recent earnings announcements. So, it doesn’t seem that there is any desire to step away from this in the short term. So, we feel that there is a lot of opportunity in the market for us to pursue. As we’ve mentioned already, we’re at 85% leased and pre-leased on the projects that we have already in pipeline.
Under xScale, looking across the Americas to find those next sites outside of the Hamptons, the one that we have begun to work and develop the site. So, we remain very focused on ensuring that we can capture as much of this opportunity as possible. The second phase or the second part of build bolder, because it is an and strategy, is focused on our xScale pipeline and how we execute against that pipeline and deliver that capacity as fast to the market.
Chip Newcom — Senior Director, Investor Relations
Thank you for joining our Q4 earnings call. This concludes our commentary.
Duration: 0 minutes
Call participants:
Chip Newcom — Senior Director, Investor Relations
Adaire Fox Martin — Chief Executive Officer and President
Keith D. Taylor — Chief Financial Officer
Adaire Fox-Martin — Chief Executive Officer and President
Simon Flannery — Analyst
Keith Taylor — Chief Financial Officer
Eric Luebchow — Analyst
Jonathan Atkin — Analyst
Nick Del Deo — Analyst
Michael Rollins — Analyst
Jim Schneider — Analyst
