Equinix, Inc. ($EQIX)

Good afternoon, and welcome to the Equinix First Quarter Earnings Conference Call. [Operator Instructions] Also, 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 Mr. Ryan Burke, Vice President of Investor Relations. You may begin, sir.

Good afternoon, and welcome to our first quarter conference call. Before we get started, I want to remind you that some of the statements that we make today are forward-looking in nature and involve certain 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 in our filings with the SEC, including our most recent Forms 10-K and 10-Q. 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 our policy to not comment on our financial guidance during the quarter unless it is 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 in today's press release on the Equinix Investor Relations page at www.equinix.com. We have made available on the IR page of our website a presentation to accompany this discussion, along with certain supplemental financial information and other data. With us here today are Adaire Fox-Martin, CEO and President; Olivier Leonetti, CFO; and Phillip Konieczny, SVP of Finance. At this time, I'll turn the call over to Adaire.

Thank you, Ryan. Hello, everyone, and a warm welcome to our Q1 2026 earnings call. This quarter's results reflect continued strength across the business as we capitalize on a large and growing set of opportunities. Demand is broad-based and durable. Execution is driving efficiency and AI continues to fuel infrastructure investments that play to our strengths. Before I get into our results, I'd like to start with some important market context. Over the course of the past year, my conversations with customers have changed. A year ago, they were about piloting AI. Now our conversations are focused on enterprise-wide adoption at scale. Two forces are driving this shift. Inference has grown from experimental workloads to an engine of real-time business decision-making. And the Agentic AI is moving from demos into distributed deployments with agents acting autonomously to achieve business outcomes. The reality is that most enterprise architectures are not optimized for these workflows. Agents need private low-latency paths to data wherever it lives. They perform best at the edge, closest to where the decisions get made. And they must be able to move freely across models and clouds whilst staying within jurisdictional boundaries. Performance, cost and compliance all suffer when today's agents run on yesterday's networks. Simply put, this deployment gap is an architecture problem. Enterprises need infrastructure that's purpose-built for the way AI operates, distributed, interconnected, sovereign by design and in close proximity to the data that matters most. This is a market that we are built to serve. Equinix is not simply the world's largest digital infrastructure company, we are the world's most deliberately curated digital ecosystem. And our Q1 results demonstrate the progress we are making to capture the market opportunity. In Q1, our recurring revenue grew 10% on a normalized and constant currency basis, coming in at the high end of our expectations. This is our second straight quarter of double-digit MRR growth. At the same time, we are driving continued margin improvement. Q1 was also the largest quarter of total sales activity in our history, inclusive of annualized gross bookings and preselling activity. Total sales activity was up more than 35% year-over-year. We drove significant interconnection and cabinet billing growth whilst reducing churn, reflecting ecosystem strength across our key operating metrics. And we are expanding our capacity whilst bringing new products to market that extend our runway for growth. Our progress stems from the extraordinary efforts of our team, and I'm proud of the way our employees are stepping up to meet the moment. Let me now provide some color on our overall results and what's driving our performance. As you saw in our press release, our Q1 results do not include the xScale Hampton lease. We are nearing execution on expanded mutual beneficial term with our customer. Olivier will provide additional details on how you should model Hampton. Adjusting for the timing of Hampton, our Q1 revenue, AFFO and AFFO per share results were all ahead of our expectations. Overall, our xScale pipeline is robust, given that our remaining capacity is in major metros. Our momentum reinforces our confidence in the trajectory for the year. As such, we have raised our guidance across several key metrics. I am especially pleased with the strength of the position we are building across the AI inferencing ecosystem. The expansion of our relationships with the world's leading hyperscalers, neoclouds, AI security vendors and model providers serves as a magnet for Agentic AI workloads. 8 of the top 10 AI model providers and 4 of the top 5 neoclouds are actively expanding with Equinix. They have placed more than 110 separate network nodes with us to support mission-critical and latency-sensitive elements of their architectures. Consistent with the prior quarter, approximately 60% of our largest deals in Q1 were AI related. Additionally, large capacity fabric connections have tripled from just a year ago. We believe there is meaningful upside to come, given we are still in the early days of the Agentic AI wave and inferencing adoption. This momentum is part of a broader uptick in customer demand spanning a wide range of AI, cloud and networking workloads. Now let me highlight some recent wins and associated use cases. Qubit Pharmaceuticals, a quantum AI-driven drug discovery company, relies on Equinix for the high-performance, low-latency infrastructure required to run millions of GPU-intensive molecular simulations. By deploying a dedicated GPU cluster in Equinix data centers with direct cloud interconnection, Qubit has reduced experimental cycles by 20x whilst lowering costs by a factor of 5. Most importantly, our solutions are accelerating the path from discovery to potential therapies that can save lives. Gammon Construction, a leading construction and engineering services company in Asia, chose Equinix because of our neutral platform, presence across major metros and connectivity solutions to enable their multi-cloud AI platform. They are using our fabric interconnection portfolio to power their network infrastructure which is the base for innovative solutions such as AI-powered robotics and drones for on-site risk assessments and smarter decision-making. During the quarter, we expanded our partnership with Options IT, the #1 provider of infrastructure to global financial services firms. They selected Equinix because of our presence in the locations that matter most to their operations and ecosystems, including London, New York, Singapore and Tokyo. We are enabling Options IT to deliver private cloud and AI-managed infrastructure solutions to grow their business whilst meeting the data sovereignty requirements of their customers. We also grew our relationship with Maersk, a global leader in integrated logistics as it digitizes critical supply chain infrastructure. Maersk recently selected Equinix as its primary data center partner to support high-performance and AI workloads, including its first liquid-cooled AI deployments in Frankfurt. Our global footprint, secure and resilient operations and industry-leading interconnection capabilities are supporting Maersk's ongoing network transformation and long-term growth strategy. I'm exceptionally grateful to all our customers and partners for trusting Equinix to help move their business forward. The outcomes we are enabling for them reflect rigorous execution against our strategic pillars. Starting with Serve Better, we delivered annualized gross bookings of $378 million in Q1, up 9% year-over-year, with approximately $140 million of preselling activity on top of that. As I mentioned earlier, that's 35% growth in total sales activity in the quarter, resulting in a record backlog. Transaction volumes continue to demonstrate a broad base of workload requirements with over 3,800 transactions spanning more than 3,100 unique customers in the quarter. Importantly, we also saw increased customer adoption of our self-service portal. Our portal is a key area of focus as we work to create a better customer experience. It also drives efficiencies within Equinix compared to a traditional quote-based ordering. This is one example of our broader focus on digitizing processes and workflows across the company. Customers placed 20,000 orders through our portal in Q1, up 12% year-over-year, and we intend to continue driving enhancements to this solution. Turning to Solve Smarter, our customers consistently raised 2 key challenges to us. The first is AI infrastructure fragmentation. Enterprises are spending too much time and budget, navigating dozens of disconnected AI model providers, GPU clouds, data platforms and security services. The Equinix Distributed AI Hub, which we introduced at NVIDIA GTC, solves this by giving enterprises a single private low-latency connection to the entire AI ecosystem. Unlike AI marketplaces built by providers with their own services to sell, our distributed AI hub is completely neutral, providing access to all models and clouds so customers can select what's best for them. The second challenge facing customers is network complexity. Most enterprise networks are not designed to handle distributed AI workloads, and it's resulting in degraded AI performance, inflated costs and compliance risk. Equinix Fabric Intelligence solves these problems by monitoring network performance in real time, automatically adjusting configurations and flagging anomalies before they become outages, all without human intervention. Unlike other network management tools that sit on top of the network, Fabric Intelligence is built directly into our fabric interconnection platform. This is a structural competitive advantage given the more than 500,000 live interconnections across our ecosystem. Our innovation is extending our market leadership and driving growth. Total interconnection revenue was up 9% year-over-year in Q1, boosted by fabric revenue growth of 26% year-over-year. Fabric bookings were up 70% year-over-year as our attach rate continues to increase. These growth rates are all on a normalized and constant currency basis. On Build Bolder, we continue to expand our capacity to meet demand. We have 46 major projects underway across 32 markets, including 6 xScale projects. More than 70% of this retail expansion CapEx is in our major metros, with the remainder focused on critical expansion markets, particularly in our Asia region. Given the strength of our presales motion, approximately 25% of our 2026 retail capacity expansion has already been sold. We continue to meaningfully grow our pipeline for new powered land and capacity expansion opportunities that can enhance our long-term growth prospects in key metros and deliver attractive returns. And we're not just growing, we're doing it responsibly. Last week, we released our annual sustainability report. It shows how we are building essential infrastructure the world needs in ways that are affordable for our communities, sustainable for our planet and reliable for our customers. These have long been core Equinix values, and they will continue to guide our future investment decisions. In Q1, we announced an important investment in one of the world's most sustainability-focused markets as we signed a joint agreement with Canada Pension Plan Investment Board to purchase atNorth. This deal will further enhance our position in the Nordics by giving us access to an installed and active development pipeline of approximately 800 megawatts expected to come online over the next 5 years. atNorth's footprint in key markets such as Copenhagen is complementary to our existing EMEA operations and is well positioned to serve enterprise, cloud and AI growth. The transaction is subject to closing conditions and is expected to be immediately accretive to AFFO per share upon closing. Overall, Q1 demonstrated continued momentum across the business, and we see significant opportunities to accelerate growth as we deliver on our strategy. I'm now going to turn the call over to our new CFO, Olivier Leonetti, to go into more detail on our financials. Olivier joined us in March. He has already proven to be an excellent addition to our leadership team. Previously, Olivier was CFO of Eaton and Johnson Controls, 2 large suppliers to the data center industry. He has a strong track record of delivering profitable growth and creating shareholder value, and we look forward to his contributions to our success as we work to deliver healthy revenue growth, margin expansion and superior returns. Olivier, over to you.

Thank you for the kind words, Adaire. I'm delighted to be here. Nearly 2 months in, I'm excited about the strength of the markets we serve and very impressed by Equinix company culture, vision and unique positioning to serve accelerating customer demand. I look forward to helping enable our vision by prudently allocating capital and thoughtfully utilizing our balance sheet to drive durable, profitable growth. As Adaire summarized, we are executing well across our business. This was the largest quarter of total sales activity on record, up 35% year-over-year, reflecting broad demand and strong execution. Customer activity increased across all of our verticals, products and channels. Turning to Q1 results on Slide 7 and with all figures discussed on a normalized constant currency basis. Recurring revenues were $2.3 billion, up 10% year-over-year as our bookings performance from the second half of last year is converting into revenue. Total revenues were $2.4 billion, up 8% year-over-year. Adjusted EBITDA was $1.2 billion, up 13% year-over-year, resulting in a 51% adjusted EBITDA margin, which is up 190 basis points quarter-over-quarter and 300 basis points year-over-year. This is a result of our continued cost discipline, forward cost benefits and scaling our operating leverage. As we have discussed, driving additional efficiency would be a focus moving forward. Quarterly AFFO surpassed the $1 billion mark for the first time, increasing 11% year-over-year and AFFO per share was $10.79, up 10% year-over-year. Please note that adjusted for the Hampton xScale lease signing, which I will provide details on in a moment, we came in above the midpoint of our Q1 revenue and adjusted EBITDA guidance ranges. As Adaire mentioned, we are nearing execution on the Hampton xScale lease. These types of negotiations are fluid, and we have adjusted the expected timing while discussing expanded mutually beneficial terms with our customers. Here are the moving pieces as they relate to guidance over the past couple of quarters. Our guidance for Q4 2025 assumed $54 million of nonrecurring revenue from the deal based on the original terms being considered. Our guidance for Q1 2026 included the expanded terms with an expected contribution of approximately $80 million of revenue, $65 million of AFFO and $0.65 of AFFO per share. The expanded economics are now included in our guidance for Q2. This timing shift does not impact our full year outlook because the economics were already incorporated. Now to our nonfinancial metrics, which also demonstrate strong momentum. We increased physical and virtual net interconnections by 5,800 with particular strength in fabric additions. We added 4,100 net cabinets billing and our backlog of cabinets sold but not yet installed is at a record level. Churn came at 1.7%, primarily due to the benefit of some delayed churn and through focus and execution during our renewal process. For the full year, we are tracking towards the low end of our 2% to 2.5% guidance range and MRR per cabinet increased to $2,524, up 7% year-over-year, reflecting the firm pricing environment and continued increase in density. On Slide 12, our capital investments continue to deliver very strong returns. Consistent with prior years, this quarter, we completed the annual refresh of our stabilized pool, which increased by 5 IBX data centers. Our 192 stabilized assets increased recurring revenue by 6% year-over-year, are collectively 82% utilized and generated a 26% cash-on-cash return on growth PP&E. Turning to our capital structure on Slide 10. At quarter end, we approximately had $3.1 billion of cash and short-term investments on the balance sheet, and our net leverage was 3.8x annualized adjusted EBITDA. During the quarter, we issued $1.5 billion of senior notes at a blended effective rate of 3.1%, reflecting proactive execution in the market and our ability to take advantage of lower cost debt around the world. Our balance sheet and diversified capital program are competitive advantages in all macro environments, particularly so in the kind we see today. In combination with significant retained cash flow, we continue to access lower cost sources of capital to fund our robust growth opportunity. Now looking at capital expenditures on Slide 11. Total capital expenditures for the quarter were about $1.3 billion, approximately 90% of which was growth and value-accretive capacity expansion. We continue to expect mid 20% unlevered cash-on-cash returns on investment. Since the last earnings call, we opened 6 projects, adding critical capacity to meet demand across 6 metros. Before we get into guidance, I'll briefly address the energy environment given developments in the Middle East. We systematically hedge energy costs to provide predictability to our customers and broader stakeholders, particularly in volatile periods. Globally, we are more than 90% hedged for 2026. And as usual, we are progressively hedging into the future. As a result, we expect minimum impact for 2026, even if energy prices were to remain elevated. Finally, please refer to Slides 13 to 17 for an update of 2026 guidance with all growth rates discussed on a normalized and constant currency basis. Based on the robust environment and the team's execution, we are raising guidance across key financial metrics. For the second quarter, we anticipate continuing strength across the business, including MRR growth of 10% to 11% year-over-year. For total revenue, the largest piece to consider is that it includes the expanded economics from the Hampton xScale lease signing that I provided a moment ago. Again, please note that these economics were already included in our guidance for the full year. They simply shifted from Q1 into Q2. For the full year, we are raising total revenue guidance by $21 million based on our Q1 outperformance, improving expected total revenue growth range by 100 basis points to 10% to 11%. We're raising adjusted EBITDA guidance by $24 million, resulting in adjusted EBITDA margins of approximately 51%, a 200 basis point improvement over last year. Additionally, we are raising AFFO guidance by approximately $40 million, improving our expected AFFO growth range by 100 basis points to 10% to 12%. This corresponds to a similar 100 basis point improvement in our expected AFFO per share growth range to 9% to 11%. We continue to execute on our capacity expansion to meet robust customer demand. Excluding xScale and land acquisitions, we now expect total capital expenditures to approximate the top end of our prior range at $4.1 billion, including $280 million to $300 million of recurring spend and approximately $3.8 billion of nonrecurring spend. Given our confidence in the growth opportunity in front of us, the team continues to evaluate opportunities to accelerate our capacity to deliver growth and value to our shareholders. Overall, we are pleased with our progress and confident in our plan. We will continue executing with discipline to deliver on our goals and create shareholder value. I now turn the call back over to Adaire.

Thank you, Olivier. Our Q1 results demonstrate strong performance and our outlook reflects underlying strength across the business. We see immense opportunity ahead to drive revenue, enhance margins and deliver attractive AFFO per share growth. But we take nothing for granted. Our continued success demands focused execution against our strategic priorities and disciplined investment to unlock structurally higher returns. Above all, it calls on every member of our Equinix team to deliver exceptional value for our customers each and every day. This is the mindset guiding us forward, and I'm confident in our direction. We are well positioned across our markets. We are building momentum in key growth areas, and we remain focused on delivering against the goals we have set. With that, let's open the line for questions.

[Operator Instructions]. Our first caller is Aryeh Klein with BMO Capital Markets. Aryeh Klein with BMO Capital Markets. We'll go to the next caller, Michael Rollins with Citi.

Olivier, congratulations on joining the team. I had a question regarding... And Adaire, I had a question about some of the comments you made earlier in the call. So I think if I got this right, you mentioned that 8 of the top 10 -- I think it was maybe hyperscalers and 4 of the top 5 -- neoclouds are actively expanding with Equinix for AI, 110 separate network nodes. And I'm curious if you could provide more color, is that 110 in addition to whatever cloud nodes they typically would have? And can you characterize the types of interconnectivity demand that you're already seeing for those AI nodes and how that's informing you maybe early in this environment? -- of the type of growth that's out there from AI for your business model?

Okay. Mike, thanks so much for the question. And maybe let me just clarify a couple of points. So I mentioned that it was 8 of the 10 AI model providers, the LLMs and 4 of the 5 neoclouds have deployed between them 110 or so separate network nodes to Equinix. And that is in addition to all of the nodes that we see that are being deployed by the hyperscalers in order to manage their connectivity journey. When we look at the role of the neos here, we can see that for many of them, their journey is evolving a little. Their value proposition was always based on pricing and based on GPU access and largely facilitating large-term training footprint, mostly focused with the SaaS and the hyperscalers. As we can see, they're transforming into AI inference workloads and looking to pursue enterprise customers and medium-sized SaaS companies. We see them as potential inference magnets for our ecosystem going forward. And we see many of them converging, as I've mentioned already, in engaging at Equinix. It's about a couple of things in terms of use cases. It's about network nodes that provide connectivity to the CSPs and the NSPs for the neos and the LLMs. It's about AI inference nodes for densely populated metros, so a little bit of a different picture. And it's about fabric access to the enterprise customer base of Equinix. So that sums up the 3 things that we're seeing for the neo use of our environment.

Our next caller is Cameron McVeigh with Morgan Stanley.

I wanted to ask about the $140 million in pre-leasing activity. Just curious how tenant appetite is changing and if tenants are willing to commit further in advance for longer terms and really how that's translating to the terms for Equinix, whether through pricing, terms or deposits? Any color there would be helpful.

So pricing remains firm, whether we're looking at presales or booking within the quarter. And I think the presales booking really provides our customers with security, security in terms of the infrastructure that they're defining and the opportunity to ensure that they are solving for their own compute and energy future. So this is something that I think we've done only in the recent past, but we're seeing a great benefit from that in terms of the conversations with our customer and our long-term ability to serve them.

Matt Niknam with Truist.

Congrats on the quarter. My question is more big picture around macro. Have you seen any macro dynamics, particularly around rising memory or fuel and energy costs and the prospects for higher IT costs later on in the year affecting customer behavior at all, whether it's pulled forward demand or pushed out deals if customers are running into supply shortages?

I think as it relates to concerns about energy costs, Olivier mentioned our hedging program, which means that we're in a position to be able to continue to support our customers at the price points that we're operating today. I would say, based on the demand environment that we see that it is a very durable and broad-based demand environment. It is very diverse. And we're not certainly seeing any pullback from customers as it relates to increasing costs, et cetera, at this point in time. I think you can see that reflected just in the sheer scale of the numbers of transactions and those transactions occurred across all of our customer segments and also actually equally enough across all industries that were all growing at roughly the same percentage in Q1.

Our next caller is Frank Louthan with Raymond James.

As you see the rising demand for AI inferencing, is there any difference in the incremental capital required that you're seeing to fulfill those new workloads versus what you've traditionally seen? And can you quantify that if there is?

No, we don't see any difference in the capital that will be required. Notwithstanding the fact that our strategy has been to be very metro focused. We are located in 77 metros across the world, and we will continue to build on that footprint. But that's already embedded into how we've managed our capital because that's part of our 27-year history, and therefore, we don't anticipate any capital differences. I'm going to ask Phillip to add some additional comments here.

Yes. The only thing that I would add on to that, Frank, is that we are always kind of skating to where the puck is going, as I say, and thinking about the types of requirements that are needed for the deployments. And so when you look at some of our facilities that we're going to be bringing online in the next few years, the densities that we are building towards are much higher and much more suited for a lot of the requirements that we're hearing from our customers. So we're always thinking about where we need to go and what the requirements are of our customers, and we're building towards that.

Is that increasing or decreasing the returns that you're looking at going forward with that higher density requirement?

No, the densities that -- the returns we're underwriting against even those higher densities are still in that mid-20s percent that we've been talking about for a long time.

Our next caller is Vikram Malhotra with Mizuho.

I just want to clarify 2 things. One, just the bookings dipping sequentially, how much of that is seasonal? And maybe if you can give some composition of traditional enterprise versus maybe chunky bids. And then just secondly, the interconnection business, given kind of the rapid tripling almost of the fabric business, how is that playing into interconnection revenue growth overall? You mentioned sort of network enhancements needed there. So I'm just wondering like how does that flow through? Does that mean in the future, you see a greater pickup in the interconnection side?

Yes. So just to comment first on the sequential nature of our annualized gross bookings. First of all, we've completed Q1 and Q1 is seasonally a quarter that has traditionally been lower. But I have to say that I am especially pleased with the performance that we had in Q1, given that we came off the back of such a large Q4. And so I think that the team worked really hard to deliver what is our largest Q1 ever and driving our largest backlog ever. So I look forward to moving that into revenue in the future. And I'm proud that the delivery of our bookings in Q1 isn't just related to top line, but we did it at margins that are growing and profitability that is growing, too. Across the Q1 booking profile, we saw strength, as I mentioned already, across various different industries, but we also saw some very broad-based strength in our under 1 megawatt deal cohort. As it relates to the second question around interconnection revenue and interconnection revenue growth, and we're obviously very pleased by the performance that we've seen here. Our interconnection revenue growth was at 9% on a normalized and constant currency basis. Fabric revenue growth was at 26% and our fabric bookings grew 74% year-over-year. And this kind of growth, the value proposition that we're delivering to customers is really behind our investment strategy around our distributed hub and our fabric intelligence, which is in pre-preview with a number of customers and partners who are very positive about the outcomes that we're driving with this solution set.

Our next caller is Jonathan Atkin with RBC.

Yes. I wanted to just follow up on that last response and maybe ask you more directly. Is there a scenario over the next several years where interconnection growth would exceed the growth that you're seeing and would represent a meaningfully increased percentage of your overall revenue composition?

I guess in some way, Jonathan, we're probably seeing that in our stabilized assets where like our stabilized assets are growing at 6% and interconnection within that asset group is growing at 9%. I do believe that there is opportunity for us to continue to grow our footprint and the range of services that we are offering to our customers here because we fill a very specific niche in the market in terms of providing that neutral environment where the ecosystem around AI converges. And so there is potential for upside here, but that is not yet factored into our plans.

Our next caller is Irvin Liu with Evercore.

Welcome, Olivier. I appreciate the color on energy hedging. Just given your exposure to the Middle East, I wanted to understand whether recent geopolitical cross currents in the region have or have had any impact on your operations, specifically related to your ability to sell and/or add IBX capacity.

Yes. Thank you very much for the question. First of all, I think the most important thing for us is the safety of our employees, our customers and our partners, and that was our most important priority as we navigated recent events in the Middle East. Thankfully, all of our people have remained safe, and our facilities are fully operational. We do have a limited footprint across the region. We have a total of 6 data centers across the Middle East region, and they're comprising about 1% of total revenues. We have one project underway in Dubai at our DX3 facility, which is a construction project. And we have seen the RFS date of that project be impacted due to the conflict. So limited operational impact, we were able to keep our facilities up and running. But we're watching the situation very carefully. Our long-term view is that the region will continue to see growth and investment in digital infrastructure as the Middle East itself looks to position itself as a global AI hub.

Our next caller is Nick Del Deo with MoffettNathanson.

I guess first, I want to congratulate Olivier on his appointment. And my question is also for him. I was wondering if you could elaborate, kind of share with us your high-level capital allocation and operating philosophies and whether your previous vantage point as a supplier to the data center industry provides any initial insights into areas where you think Equinix might improve the business or things you'll be focused on?

Thank you for your question, Nick. First, regarding capital allocation, we're going to keep the course that has worked pretty well for the organization. First, what we want to do to fund our ambition -- ambitious CapEx program, growth program, we want first to use debt as a way to finance our growth. We can do that based upon the leverage we have today, 3.8x. I mentioned that in my remarks. We will use equity on an opportunistic basis, but the key is going to use debt. Relative to impressions, I guess that's the question. You had as a supplier of Equinix in my former life, I was -- we were all of us very impressed by what we have seen. We use Equinix always as a pioneer in this market. And after 2 months, I've been -- it looks like a marketing comment, but it's true. Impressed by the quality of the team, the culture and also and mainly the rigor with which we run the operation. And what we have said before, you see it at play, we have high-quality data centers in top-tier markets. We're connecting the world, and we are ready to power the AI Agentic workload. So very happy. We are very differentiated and looking forward to help Adaire and the team to grow this business even more.

Okay. Any particular areas where you're looking to drill down more or too soon to say?

No. We want to enable the strategy that Adaire has a lineup, Build Bolder, Solve Smarter, Serve Better. I'm going to be a [ too ] many among many others to enable this strategy, but no change today, not that there was a need to.

Our next caller is Richard Choe with JPMorgan.

I just wanted to follow up on the churn. 1.7% super low, but I think you mentioned some of it is delayed. Should we go back into the range. I mean, should 2Q be above range or the rest of the year at the higher end? Or could we be seeing a kind of maybe low end or towards the lower end for the full year if things...

Thanks very much for the question. As you saw at 1.7, we were below the low end of our range. And I think there were probably 2 elements as to why that was so. One was the timing of some churn, including our metal business moving forward into this quarter. And others really is just the continued focus that we've had on the renewal process from our teams. And so we're very pleased with the performance that we've seen in Q1. Notwithstanding that, we don't want to call victory too early. And therefore, I think to keep our churn in the range of 2% to 2.5% for the rest of the year is the right thing to do. We do believe that our focus on our available to renew contracts, we've been doing that much earlier in the cycle is actually starting to have an impact, but we will watch those trends closely over the next several or so quarters. And obviously, our aim is to bring churn down consistently over time. But for now, we're holding into the 2% to the 2.5% range for the year.

Our next caller is David Guarino with Green Street.

As we think about modeling in these large one-time fees related to the xScale leases, I was wondering if there's any framework you can provide us to estimate and forecast how large they might be. And then kind of tied in with that, we heard some rumors that the [indiscernible] Manuka campus might have been pre-leased, but you guys didn't comment on that at all. So could you give an update on what's happening with that project and how soon we could maybe expect another large xScale leasing fee after the Hampton one?

Look, these transactions are always very complex and multifaceted and particularly as we have very high demand assets locations that are energized within the right time frame in great locations. So I think as we look forward into the second half of next year in terms of Manuka, it is not timing that we have put into the short term. It is something that we are still working on. We have a very robust pipeline of interested parties. And obviously, we want to ensure that we're maximizing the outcome for our customers, for our shareholders, for the company. As we look forward into the second half of the year and into 2026, the guide assumes a total NRR of approximately 5.8% for the full year and a portion of that is associated with xScale leasing.

An additional comment, if I may, David, if you look at the balance of the year with the exception of the xScale deal we have mentioned many times now, the rest of the xScale deals are relatively small in nature, and we believe that the risk is balanced for the rest of the year.

Michael Ng with Goldman Sachs.

Adaire, you talked about agents performing best when closer towards the hedge. Have you seen some customer workload repatriation or a shift in investment away from public cloud as a result? And then when enterprises decide to do more in the edge, could you talk a little bit about the customer decision tree between colocated data centers versus on-prem today?

Sure. So I think the reality of the environment that our customers operate in is the environment that we've been describing on many of these calls, and that is a hybrid multi-cloud environment, where data sits across the plethora of all of those platforms. And that creates the opportunity for a neutral platform like Equinix to serve customers who want to run agentic workloads across those environments but need to access the information that sits in more than one location. So I would certainly say that customers have a multi-cloud environment that they are, of course, looking at the cost associated with their environments as well as important considerations, particularly in locations like Europe around sovereignty and the compliance to the sovereignty legislation, which may mean that certain parts of their data sets need to move into a private environment or be repatriated from cloud. But I wouldn't say that this is a broad-based conversation that we have across our customer base. I think as we talk to CIOs, it's a conversation that is less about on-prem and cloud and more about the journey from token management, token cost all the way through to those kind of sovereign data controls that ensure that the organization is compliant to whatever set of data governance rules that they have in place for their own business. And that's certainly a conversation that's an important one because we can help customers navigate that by providing through the distributed AI hub access to all of the players as well as to private SLM models, which companies have for smaller, less intense AI type activity. So I think the conversation is really about how you navigate from the token and the training all the way through to that compliance conversation often driven by sovereignty in some locations.

Our next caller is Madison Rezaei with Bernstein.

You've talked about potentially building multiple incremental gigawatts with the Build Bolder program. With the full year CapEx spend now around $4.1 billion, is this the kind of annual spend we should anticipate for the next couple of years? Is it more front-loaded? Do you think the intensity will ramp as you are sort of moving into more large campuses? And a short follow-up to that, are you anticipating maintaining the cash-on-cash return level throughout that build process?

Okay. Thank you for the questions. Maybe we'll take that between us given that there's a portion for each of us in here. First of all, as I think we mentioned in our materials, we have 3 gigawatts currently either in land under control or in development today at Equinix. So that's the broad base of the portfolio that we are working with. But as Olivier mentioned in his prepared remarks, we are at the top end of the range that we mentioned for CapEx earlier at Analyst Day last year. We are continuing to meaningfully grow our pipeline for new powered land and capacity expansion opportunities to enhance what we see as the long-term growth prospects in key metros, which, of course, we know delivers very attractive returns. So we're very pleased and excited about what we see in the business. We're very excited to position ourselves for growth. But you can see that we are at the top end of our range as it relates to CapEx from the Analyst Day event when we provided that guide last year. But perhaps I'll stick to Olivier and allow you to comment a little on the returns and so on.

So the diligence we have before to do deals, deploy new CapEx is very strong. The mid 25% is a target. That's not an aspiration. We are seeing that quarter after quarter. And we feel very comfortable with achieving that return target as we are in a market where demand is oversupply. So we can be very selective about the deals we take. We are, and we are very differentiated today. And interconnection is more and more an important part of the value proposition of the company. So we feel very confident about this mid 25% target.

Our next caller is Erik Rasmussen with Stifel.

Olivier, good luck and look forward to working with you. I wanted -- you talked about Maersk, one of your customer highlights, and they had a liquid cooling deployment in Frankfurt. But maybe just overall, can you give us a sense of where customer demand is for liquid cooling activity today? And how many active or signed deployments are using direct-to-chip or even immersion cooling? And how quickly is that moving from pilot to maybe scale production?

Yes. Thank you so much for the question. So we had quite a significant quarter in Q1 as it relates to liquid cooling orders, generally, of which Maersk was one. I believe it was a 50% growth in terms of our liquid cooling deployments. And today, we have 36 deployments across our footprint of customers using liquid cooling to facilitate the workload and density of the systems that they have put in place. It's active across all our regions, and it's something that we continue to evaluate and work closely on with our customers. So that's, I guess, the landscape that we see as far as liquid cooling is concerned. As I said, 36 deployments, 7 orders within Q1 across all of our regions, up 50% Q-on-Q.

Our last question comes from Joseph Osha with Guggenheim Partners.

I made it. Kind of a follow-up from the previous question. As you think about these fairly power dense agentic workloads out at the edge of the network, are you encountering situations where either from a physical space, a power or just a thermal standpoint, you're running into constraints? I'm just trying to understand how much of a challenge that is.

I think probably the availability of power would be the largest constraint in our environment. So as densification increases, quite often, we would need to put some space on hold around that particular implementation in order to ensure that at that IBX, we're meeting not only the obligations of the workload that is a highly dense workload, but also the service level agreements and the obligations that we have with the other customers who are sharing that space and power. And that's, I think, one of the reasons why you see the yield on our MRR per Cab grow so effectively up to our $2,524, up 7% year-on-year, partly due to the increase in densification and of course, the association of value-added products like interconnect with every installation as one of the measures of that.

I'll turn the call back over to you for any closing comments.

We just want to thank you all for joining us for our Q1 call. Have a great rest of your day.

Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.