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Adaire Fox-Martin

Thank you, Chip. Hello, everyone. Good afternoon and a warm welcome to our earnings call for the first quarter 2025. I'm very pleased to share that in Q1, our team executed exceptionally well and outperformed across multiple facets of our business. I'd like to call out three salient indicators of this strong performance.
First, our team delivered better-than-expected financial metrics, including revenues, adjusted EBITDA and AFFO. As a result of this performance, we are raising our guidance on each of these metrics. Second, our sales team executed remarkably well in building customer momentum, improving deal conversion and shortening the deal cycle, all whilst maintaining favorable pricing. Third, our strategy is resonating in the market.
Our moves around serving better, solving smarter, and building bolder have already enabled us to cultivate a stronger pipeline for the range of products and services offered by Equinix. This gives us continued confidence in our projections for healthy recurring revenue step-up through 2025 and in our growth ambitions for the long term.
Before diving into our operating results, I'd like to take a moment to welcome Harmeen Mehta, who has joined our executive team as our Chief Digital and Innovation Officer. Harmeen is a visionary leader with a proven track record of digital transformation and innovation.
She and her team are crucial to the execution of our strategy. Her experience and leading complex programs and developing innovative solutions should equip Equinix to better serve our customers and enhance both efficiency and user experience across our organization.
So now I'd like to take a closer look at key financial metrics. As a reminder, the growth rates shared are all on a normalized and constant currency basis. In Q1, we delivered revenues of $2.2 billion, up 8% year-over-year, excluding the impact of power pass-through.
This was driven by strong recurring revenue growth as we begin to see the impact of our second half 2024 bookings performance manifest itself in our recurring revenue trajectory. Our strong recurring revenue growth was offset by lower xScale leasing and fit-out fees in the first quarter as we expected.
Adjusted EBITDA margins increased to 48% of revenues and AFFO per share increased 9% year over year. In both instances, results were above our expectations due to strong operating performance, lower utilities costs, and the timing of spend. Keith will provide additional insight into these numbers shortly.
Turning to our customer momentum. We continue to cultivate and win significant opportunities across our product set and in service to the enduring demand for both AI and the broader set of workloads associated with cloud services.
We had several notable AI wins in Q1 including (technical difficulty) deployments across five markets. Generally, customers are increasingly looking to Equinix to deploy their most complex and interconnected inferencing and training infrastructure.
Block will be the first company in North America to deploy the NVIDIA DGX Superpod with DGX GB 200 systems. By deploying at Equinix, blocks can leverage our unique ecosystems to ensure data privacy, flexibility, and edge connectivity to thousands of partners.
We also had a significant AI win with Groq, the pioneer in AI inference. Groq are rapidly scaling their high-performance infrastructure through Equinix. Our unique ecosystems and wide global footprint will serve as a connectivity gateway to their customers and enable efficient enterprise AI workflows at scale.
In our enterprise cloud ecosystem, Panasonic Information Systems expanded our partnership with Equinix in Q1 to support their evolving cloud database requirements. They've chosen Equinix for our seamless high-speed connectivity across key cloud platforms like AWS, Azure, and Oracle.
We also saw expansion with Repsol, a global multi-energy company leading the energy transition. Repsol expanded their US operations in partnership with Equinix. With us, they have adopted a hybrid and multi-cloud environment that will support both their business and sustainability objectives.
Essity, a leading hygiene and health company, is globally deploying Equinix's interconnection services, including Equinix Fabric and Network Edge, to enhance their efficiency of care whilst reducing their environmental impact.
And finally, Brink's is rapidly expanding their digital footprint with Equinix deploying virtual points of presence across key US metros with additional expansion planned in the coming quarters. This architecture will ensure robust connectivity, security and reliability in support of their growing business needs.
This wide variation in customer use cases closed in Q1, underpins the core value proposition of Equinix and our durable business model. It enables us to cultivate the pipeline, we will need to achieve our revenue growth targets for the remaining quarters of 2025.
Turning now to our strategy. The momentum we experienced in Q1, coupled with our performance against key nonfinancial indicators demonstrate that we are on the right track. As I shared last quarter, we are focusing on three strategic moves in pursuit of our long-term growth ambitions, serving our customers even better, solving smarter for them, and building bolder for them.
Thus, better is our strategic move focused on ensuring our customers have the right resources in the right place at the right time so that we deliver value at every stage in their relationship with us.
In Q1, our improved deal conversion and shorter deal cycles resulted in more than 4,100 deals across more than 3,200 customers. This pushed our gross and net bookings considerably past our expectations for the quarter. I am pleased to note that our Q2 bookings performance in April is pacing in line with our targets despite the uncertainty prevalent in the macro environment.
[Pulse marker] is our strategic move focused on simplifying the consumption of our digital infrastructure and interconnection solutions. In Q1, we saw strong momentum for our Secure Cabinet Express product, a preconfigured colocation solution that makes it faster and easier for our customers to get up and running in our data centers.
Now available in more than 75% of our IBXs around the world, this product accounted for 1/3 of all new cabinet sales in Q1 and nearly 300% increase year-over-year. Customers love it because it takes what used to be a complex, time-consuming process and turns it into a repeatable streamlined experience.
Our industry-leading interconnection franchise continues to perform well. Interconnection revenues grew a healthy 9% year over year on a normalized and constant currency basis with more than 486,000 total interconnections now deployed. Equinix Fabric continues to over-index with strong adoption of Fabric Cloud router in the quarter.
With Build Bolder, we are building for the future, accelerating innovative ways to expand access to more digital infrastructure for our customers. This means we have shifted our strategy from building many smaller IBXs and phases to building fewer IBXs and larger phases.
We have now 56 major projects underway in 33 metros across 24 countries, including 12 xScale projects. in the Americas, we added our Washington D.C. 17 project, which is expected to deliver 4,700 cabinets or approximately 50 megawatts of capacity to this key market in 2027.
In APAC, our Johor 2 asset is expected to add greater than 2,000 cabinets of capacity in one large delivery in 2027. And in EMEA, we are actively looking to accelerate delivery of capacity in metros like London and Paris.
We continue to make good progress across our xScale joint ventures, with our announced projects more than 85% leased and preleased. This quarter, we opened our Frankfurt 10 asset, which was 100% pre-leased and we have a strong funnel of additional x-scale opportunities in the coming quarters.
Whilst we are optimistic based on our strong Q1 performance, we are closely monitoring the rapidly evolving macroeconomic environment. We have seen minimal impact from tariffs on our business directly in the immediate term. However, there are a concern for many of our customers and therefore, are also a concern for us.
The tariffs are felt acutely among specific industries in which many of our customers operate, particularly in consumer goods, transportation, energy and materials. Further, the uncertainty surrounding these tariffs, if protracted, can understandably lead to a wait-and-see investment posture amongst customers across all industries.
We hosted our Americas customer advisory board last week. At that event, our customers who represent a broad spectrum of industries told us that they have made no significant adjustments to their digital infrastructure strategies beyond some prepurchases of equipment.
These customers are collectively signing firm demand, which supports our operating plans despite the economic uncertainty. Whilst we are tempering our optimism with prudent caution we believe that demand for our digital infrastructure will persist through varying business cycles and economic policies.
Technology remains a critical driver of revenue growth whilst allowing companies to reduce costs, enhance operating leverage and operate with more agility and responsiveness to their customers' needs.
Additionally, Equinix is highly diversified across geography, product mix, industry and segment, which historically has contributed to our resilience in the face of market dislocations. This, along with strong financial performance, positive customer momentum, a healthy balance sheet and a strategy that is resonating in the market keeps us confident in our operating outlook for underlying recurring revenue throughout 2025.
With that, I'll turn it over to Keith to cover the quarter's financials.

Keith Taylor

Thanks, Adaire, and good afternoon to everyone. As you've just heard from Adaire, we had a strong start to the year, delivering better-than-expected results across each of our core financial metrics. We had healthy gross bookings. Net pricing actions were firmly positive. MRR churn despite some large unexpected churn was lower than forecast, and therefore, net bookings were better than our expectations.
From a results perspective, if we start with revenues, and then we work our way down the income statement, every key line was better than expected. And as we look forward, our guidance implies healthy underlying recurring revenue step-ups for the year and strong cash gross profit and adjusted EBITDA margins.
As I mentioned last quarter, we expect to exit the year at or near the 50% adjusted EBITDA level, an important threshold for us. Now despite the continued strength of our business, and the strong secular demand environment across the digital infrastructure space, we will remain vigilant given the broader and volatile market conditions and, if necessary, adjust accordingly.
But that said, -- and as we've stated before, Equinix has thrived during periods of disruption largely due to the diverse set of high-quality customers across many industries and geographies, as they continue to expand their digital environments with us by buying more services in the existing markets, we're expanding into new markets with us.
Finally, our strong liquidity position an investment-grade credit profile provide us the strategic and operational flexibility, which allows us to invest in growth when others may choose to slow down or even pull back on their investments.
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. Global Q1 revenues were approximately $2.2 billion, up 8% over the same quarter last year, excluding the impact of the prior pass-through and near the top end of our guidance range. We saw a strong underlying quarter-over-quarter MRR step-up of $27 million for a solid bookings momentum from the second half of 2024, Offset by lower ex-scale NR fees as we expected.
Q1 revenues, net of our FX hedges, included a $4 million benefit when compared to our prior guidance rates. Global Q1 adjusted EBITDA was approximately $1.1 billion or 48% of revenues above the top end of our guidance range due to strong operating performance, including solid gross profit and lower-than-expected SG&A expenses despite the higher seasonal costs in Q1.
Q1 adjusted EBITDA, net of our FX hedges, included a $2 million FX benefit when compared to our prior guidance rates. Global Q1 AFFO was $947 million, up 13% over the same quarter last year and well above our expectations due to strong operating performance, favorable net interest expense, and solid FX mitigation strategies. Also consistent with prior year's recurring CapEx, both in dollar terms and as a percentage of revenues is lower in the quarter, in part due to timing of spend.
Q1 AFFO included a $1 million FX benefit when compared to our prior guidance rates. Global Q1 MRR churn was 2.4%, as expected. This core metric included two large and anticipated MR churn events. One of those events related to one of our largest customers as they evolve from a legacy service platform to a new service offering at Equinix related to certain of the Amsterdam and London deployments. The second large and an anticipated MR churn event related to a large multinational customer in our Singapore market as previously discussed.
For the full year, we continue to expect MR churn to average in our 2% to 2.5% quarterly guidance range. With respect to our nonfinancial metrics, they continue to trend favorably with global MRR per cabinet yield stepping up greater than 5% or $113 year over year on a constant currency basis, driven by favorable pricing actions and increasing power densities. Cabinets billing saw a strong step-up in the Americas region and solid performance in APAC, offset by softness in EMEA and related to the previously noted expected churn.
And finally, we had strong seasonal gross interconnection additions, resulting in a healthy net 3,900 total interconnections added in Q1.
Turning to our regional highlights, whose full results are covered on slides 5 through 7. On a year-over-year normalized and constant currency basis, excluding the impact of power pass-through to our customers, recurring revenues grew the fastest in our APAC region at 8%, followed by both the Americas and EMEA regions at 7%. The Americas region had a an outstanding quarter delivering its best growth in net bookings performance to date with continued favorable pricing trends as power density per cabinet increased.
We saw particularly strong demand from our financial services and AI-oriented customers with momentum across our Chicago, Dallas, New York and Silicon Valley metros as well as our Canadian business. Our EMEA business delivered a solid gross booking performance with strong retail volume and firm pricing, although impacted by the MR churn that I already noted. In the quarter, we saw booking momentum in Dublin is symbol and Stockholm metros.
And finally, the Asia Pacific region had a solid quarter with strong momentum in Malaysia and India businesses and robust net pricing activity. Also in April, we were pleased to announce the signing of our first renewable PPA in Japan, advancing our commitment to supporting the addition of new renewable energy sources in the markets where we operate.
And now looking at our capital structure. Please refer to slide 8. Our balance sheet increased to approximately $36 billion, including cash and short-term investments of approximately $3.7 billion. In the quarter, we issued $500 million in Singapore dollar-denominated senior green notes at a rate of 3.5%.
Additionally, we raised approximately $100 million of equity through our ATM program during the mid-February to early March time frame at $927 a share. As we've said before, we consider our balance sheet to be a strategic tool that provides us with significant operational and strategic flexibility to invest behind the growth opportunity we see in the digital infrastructure market.
Over the near term, as we review our current leverage levels, our capital raising activities will be biased towards debt capital, given our ability to access these capital pools in lower cost markets around the world. both to refinance our maturing debt and to fund our Build Bolder growth initiatives.
Separately, in March, we are pleased to receive a positive outlook for Moody's as we continue to strive to obtain increased debt capacity and a higher credit rating from all of our credit rating agencies.
Turning to slide 9 for the quarter. Capital expenditures were $750 million, including seasonally lower recurring CapEx of $26 million, as expected. We opened 10 major projects since our last earnings call, adding retail capacity in Kuala Lumpur, Lagos, Manchester, Solana, Santiago, and Sao Paulo. We also purchased land for development in Bogota and Milan.
More than 85% of our current retail expansion spend is on our own land, our own buildings with long-term ground leases and over 70% of our announced retail expansion project spend is allocated to those largest metros where we have strong established ecosystems.
Now moving to slide 10. Our capital investments have continued to deliver strong returns. Consistent with prior years, in Q1, we completed the annual refresh of our IBX categorization exercise our stabilized asset count increased by 13 IBXs.
The PP&E related to our 2025 stabilized asset class was meaningfully larger than the prior two years and the performance to date was strong relative to those prior year cohorts. The ramping utilizations and the growth from the 2025 cohort is expected to favorably impact our cash yield metric over the course of the year.
Our now 190 stabilized assets increased recurring revenues by 3% year over year on a constant currency basis and are collectively 82% utilized and generated a 26% cash-on-cash return on the gross PP&E invested.
And finally, please refer to slides 11 through 15 for an updated summary of 2025 guidance and bridges. Do not all growth rates on an unsized and constant currency basis. Now given our strong Q1 performance relative to our expectations and due to the weakening of the US dollar against our other operating currencies, we're raising our guidance across each of our key financial metrics of revenues, adjusted EBITDA, AFFO, and AFFO per share.
For the full year, we're raising our 2025 revenue guidance by $142 million. This maintains a 7% to 8% normalized and constant currency growth rate while adjusting for lower power cost pass through to our customers.
Importantly, our outlook continues to imply a step-up in our underlying recurring revenue growth over the course of the year. We're also raising our 2025 adjusted EBITDA guidance by $85 million. Adjusted EBITDA margins are expected to be approximately 49% and now a 210 basis point improvement over the last year.
We continue to expect quarterly margins to step up over the course of the year with second half adjusted EBITDA margins to be at or near 50%. And we're raising our 2025 AFFO guidance by $69 million. This maintains our AFFO growth rate at 9% to 12%, and and AFFO per share growth of 7% to 9% compared to the previous year.
2025 CapEx is now expected to range between $3.4 billion and $3.7 billion. including approximately $180 million of on-balance sheet ex skill spend, which we expect to be reimbursed as we transfer assets into our US joint venture and about $270 million of recurring CapEx spend. This increase in CapEx spending is due to our newly approved projects and the higher FX rates as we Build Bolder behind the market opportunity in front of us.
So let me stop here. I'm going to turn the call back to Adaire.

Adaire Fox-Martin

Thank you, Keith. In closing, we had a strong start to 2025, delivering better-than-expected bookings and financial results. Whilst the economic landscape is dynamic and uncertain, we believe that the secular demand environment for digital infrastructure and our services will endure. Equinix has a history of not only weathering challenging environments for growing through times of uncertainty.
We are committed to delivering value to our customers and stakeholders, and I believe that our focus on innovation, operational excellence and customer-centric solutions will continue to drive our success.
I would like to extend my gratitude to our employees for their hard work and commitment to our customers and partners for their trust in us and to our investors for their continued support. Together, we are not just navigating the complexities of today's market. We are shaping the future of the landscape for digital connectivity.
Finally, we look forward to hosting our upcoming Analyst Day in June. We plan to dive deeper into how we are building out our strategy and outline our plans to pursue the opportunity in front of our business. We expect to update our long-term financial outlook including how our investments will translate into attractive revenue growth, expanding margins and equity value creation for our shareholders. We also look forward to sharing additional data that we believe will he investors better understand our business.
So with that, I'll stop here and open it up to questions.

Question and Answer Session

Operator

Matt Niknam, Deutsche Bank.

Matthew Niknam

Thank you so much. On sales cycles, I think you referenced some improvements that maybe have shortened sales cycles. If you can maybe shed some more light on what's driving this -- and on the same topic, I'm just curious whether the macro has negatively impacted sales cycles at all in April. Thank you.

Darren Gryniuk

All right. That's great. Thank you for the question, Matt. I guess I'll pick it up in two parts. Perhaps maybe just commenting on customer demand as we see it. I think as our numbers show, we had a very strong Q1.
And in April, we can see that our bookings are keeping pace with our target -- so we're not seeing actually any significant shifts in demand during the April time frame, meaning that we believe that we can meet our operating plans despite the uncertainty.
We will continue to watch this very closely. I think as I mentioned in my opening remarks, we were very fortunate to have the timely event of our Americas customer advisory board just last week or so, where we have a very broad representation of our customers across industries and across segments.
And these customers indicated no changes to their plans for digital infrastructure, although some of them had noted prepurchases of various different pieces of equipment. And just to take it a little bit broader to give it a little bit more of a global view, Interestingly, in IMU, we're seeing an increasing level of optimism amongst our customer base.
And many of the requirements that are merging are actually playing into Equinix's favor. Requirements around data placement and data sovereignty and requirements around local presence and investment in that jurisdiction.
And from an APAC perspective, is a lot of diversity as I'm sure you're aware, market-to-market, but very much still in the narrative for our APAC customers a very broad emphasis on AI and on digital transformation more broadly. So I think definitely a recognition that technology is a very critical driver of growth.
And most of the organizations that we've spoken to and as we see it in our demand pipeline are working hard to protect opportunities that they see, technology-enabling as top line opportunities for their business. and those projects and processes that underpin enhancing their productivity and initiatives around that topic. As it relates to enhancing productivity, let me speak a little bit to the motions that we've seen inside our own sales organization during Q1.
I guess I'll speak to you a little bit with my CRO hat on here. because productivity of our selling engine is a very important aspect that will help us drive towards our overall margin targets. And this has been a very key area of focus for us. We saw during Q1 conversion times up. We also saw in Q1 a creation of an out-of-quarter pipeline for the remaining quarters of 2025.
That was very healthy. And as I mentioned, time to close reduced. I guess there are a couple of aspects as to the reasoning behind that.
First of all, we have been very circumspect in our qualification process at the front end of our pipeline build as we move into each quarter. which means that we're really executing against very highly qualified opportunities as they navigate through the sales process.
Secondly, we've made some changes to our contracting process. and created standardized contracts and then just some process to support the implementation of those standardized contracts, so for a specific example for deals that were under 25,000 of MRR, we applied these standard contracts and had no exceptions to those contract terms during Q1 at all.
So this meant that for our deal cycle times, we were able to reduce the median cycle time in our small deals by more than 20%. And and larger deal cycle time just because of some of that behavior reduced by approximately 5%.
So this is -- some of the -- some of the measures behind the productivity gains that you saw from our our sales force in Q1. I'd also maybe just add one other aspect. I'm getting more standardized on the solutions that we sell also helps our teams rent and repeat a sales motion.
And we certainly saw that when we applied the team to secure Cabinet Express as a product, and that enables us to create a solution bundle that teams became familiar with presenting with a standardized contract and then, of course, with the standardized implementation process following the sale. So all of these things leading us towards enhanced sales productivity and obviously then working to ensure that this is one part of the margin expansion that we're focused on at every level in the business.

Operator

Aryeh Klein, BMO Capital Markets.

Aryeh Klein

Good afternoon. Can you maybe unpack a little bit more the expectation for recurring revenue growth to step up in the second half of the year or the rest of the year and some of the drivers behind that -- and with expectation for accelerating growth also include an increase in cabinet net adds.

Adaire Fox-Martin

Okay. In cabinets -- I missed the last part. Cabinets. Okay. Thanks very much for the question, Aryeh. So as we move into the second half of the year, first of all, we bring with us our bookings momentum from the second half of 2024.
And those sales become implementable solutions and revenue that begins to turn the clock for us in 2025. We saw some demonstrated step-up of that in our Q1 results. And we'll continue to see that throughout the first half of the year.
Secondly, I think the very strong bookings performance in Q1 also bodes well for a second half step-up because the opportunity to implement those customers and turn the booking into recurring revenue in the second half exists as it does for bookings that we would close in Q2.
So the opportunity to continue the momentum that we saw in Q1 with our Q2 bookings framework enables us to not just add second half but first half of 2025 into the MRR step-up that we're expecting to see in the second half of 2025.
In terms of our cabinets, We, of course, are experiencing some interesting dynamics around density as we look at our markets and the opportunity that this represents for us more holistically as an organization. We're continuing to see evolving density dynamic. It's very important to our business. And I think that Equinix is ahead of the game in responding to this. We were the first to have broad-scale liquid cooling across all of our geos.
And we saw a number of implementations of that occur in the first quarter of 2025. We will continue to see net cap increase across the quarters. We have, of course, seen a challenge in EMEA in Q1 around our cap billing and our cab additions in EMEA.
This is largely due to the churn that Keith mentioned in his remarks. And we did also, in addition to that churn that we were anticipating have an unanticipated bankruptcy occur in Q1 for our Technicolor, which impacted us in EMEA and and one other bankruptcy, which impacted us partly in Q1, but we know we'll have a continued effect in Q2, and we will see that play out a little bit as we look at our cap billing during the course of Q2.

Keith Taylor

And then just to add on to what Adaire said there, already, the -- despite what we talked about there, the depth of the pipeline is Dara referred to the conversion rates, which continue to be strong -- that's why we feel confident in the growth of the recurring revenue throughout the rest of the year.
And one of the other things that we suggested to despite the unanticipated bankruptcies and the like -- we still -- we believe recurring revenues are going to grow nicely. And you're going to also see more profit Q2, certainly over Q1, as I said on the last earnings call and the second half certainly over the first half. And so we're on a nice trend despite absorbing some of those challenges. And as we said, some of this is anticipating planned inside the forecast.

Operator

Jonathan Atkin, RBC Capital Markets.

Jonathan Atkin

Thanks. Interested in interconnect, what drove the the strength, including in fabric any use cases emerging -- or was it more of a sales effort on that particular product? Any color would be appreciated.

Adaire Fox-Martin

Thank you. Thanks very much. Yes, I think we had a very solid quarter in Q1 -- we saw a very strong gross demand in Q1 for interconnects and of course, added 3,900 new interconnections to the portfolio. I think there are probably some elements that begin to add some color to that demand profile that we saw in the quarter. First, when you think about our interconnection growth generally, it tends to follow a number of trends.
And certainly, when you have new customers and new deployments, this helps create interconnection activity and interconnection demand. And we saw that in a number of places. First of all, with the net new adds that we had during the quarter, creating needs for interconnects -- but also as you enter new markets, the possibility for interconnection density is also something that we've seen become very apparent.
And that's through of our Jakarta and Joe Barge entries, which both look very, very promising as it relates to interconnect. We also can see that our VCs are now accommodating much greater volume and a broader set of use cases.
So for us, we really view interconnection as a portfolio of solutions. And the growth drivers of that portfolio will be the number of counterparties and the density of the network rather than just scaling terabytes per second.
And so we continue to look forward to growing this aspect of our product portfolio and making it easy for our customers to bring on board this capability into their infrastructure.

Operator

Eric Luebchow, Wells Fargo.

Eric Luebchow

I appreciate you taking the question. Maybe you could just update us on the progress of the US xScale JV. I know you have a site in Atlanta with more sites under consideration. And just related to xScale, how we should think about the moving pieces of nonrecurring revenue over the remainder of the year? I know you've got some fit-out costs in there that are coming out, but I just wanted an update there. Thank you.

Adaire Fox-Martin

Yes. I'll perhaps do a frame and then I'll ask Keith to add some specificity as needed. So in terms of our xScale pipeline, nothing has changed about our pipeline. We've got a strong overall pipeline. And as you can see, strong pre-leasing sentiment against that pipeline.
And we continue a very structured, consistent and coherent engagement with the support of our partners. And as far as the Hampton location is concerned, we're very excited about that build-out. We have begun to prepare the brand there and are continuing to progress on that project as expected.
We also see that the opportunity around our ex-scale portfolio continues remain with a strong demand profile. And certainly, whilst there have been some rumors around certain hyperscalers pushing back, others are pushing ahead.
And certainly, hyperscalers are organizations that can move past periods of consumption very, very rapidly.
And I think what's important to understand for Equinix is that we have a very broad range of relationships with our hyperscalers -- and it's not just an AI orientated relationship but a broader cloud demand and a connectivity relationship and they continue to be exceptional partners and customers to us.
And I think this bodes very, very well if they become more selective in their leasing decisions over the future months. So I'd say net as far as our xScale portfolio is concerned, demand is up and to the right. and we continue to augment our own internal team.
In fact, some of our SG&A investments this year will be deployed into our xScale organization to ensure that we're servicing the opportunity that we see ahead of us for our xScale portfolio Keith, anything that you would add?

Keith Taylor

Yes, Eric, just maybe a couple of other quick points. As Dara said, we're absorbing -- we plan for roughly a $40 million investment in the SG&A line in 2025 related to xScale. And as you know, we're making investments not just for today, but the recognition that these projects are going to take multi-years to build and deploy. And so that's part of what you're seeing. But I think what's even more interesting notwithstanding the success that we have had.
When you actually look at Q1, we certainly had a lot of nonrecurring revenue, and that, in fact, you can go back to Q4, we had a lot of nonrecurring revenue associated with that scale -- we also had that in Q1. And when you look at Q1, it was it was a tremendous quarter as you look at the performance of the P&L and how we manage yourself from a cash flow perspective, -- and that had still some noise in it related to these fit-out costs.
As you get to Q2, which we're guiding you to, basically, nonrecurring revenues are going to go down about $38 million, largely because of bag scale. If not only because of xScale. And you're going to see an even more pure quarter in how we can deliver the performance of the business.
So I think you've got the if you will, the best of both worlds today, you've got the core business that's performing exceedingly well, and you've now got -- we're past the installation phase for many of our -- for many of our skilled deployments. And now we're focusing on growth into that market, not only as it relates to pre-lease, but as we work towards the development are over or to fuel a large franchise in the Americas.

Adaire Fox-Martin

That being said, as I mentioned at the start, we do have a strong pipeline of x scale opportunities that we look forward to executing against over the course of the year.

Operator

Vikram Malhotra, Mizuho.

Vikram Malhotra

Thanks for taking the question. Just looking at the cadence, you mentioned a step-up in growth if you could compare that to the growth comp in '24. It seems like 2Q the growth comp is tougher and then it eases up a little bit. So if you can just talk about some of the EBITDA growth the AFFO. Is there like a step down in 2Q before it steps up?

Keith Taylor

I just want to make sure, Vikram, if you -- are you referring to the revenue side of the equation or EBITDA and AFFO.

Vikram Malhotra

I see, if you can give color on all three revenue, EBITDA, and AFFO.

Keith Taylor

Maybe, Adaire, do you want to talk about the revenue let me deal with the, if you will, the EBITDA and AFFO side of the equation. As we all know, and for those that have followed this for many years, there's seasonality in our business.
So in Q1, when you look at the cost model, despite what we delivered and how we performed better than our expectations. There's still some seasonal costs that go through the first quarter. And so we absorbed that.
And so as you look through the second, third and fourth quarter, there's always there's ebbs and flows. And you've historically seen that in our results, particularly when you look at cash SG&A. As you're all aware, we made some tough decisions in the fourth quarter of last year, and so we're going to we're going to reap the benefits of those decisions.
But suffice it to say, as I said in my prepared remarks, the margin is going to improve throughout the year, and that's an important thing. And so some of that is coming certainly from revenues. -- and therefore -- and gross profit and SG&A. So you're getting, if you will, the Trio coming down to that bottom line.
But as it relates to AFFO, the recurring CapEx component of that, again, there's a very large seasonal impact on AFFO. In Q1, our recurring CapEx relative to revenue was about 1.2% on -- by the time to get the fourth quarter, of course, we tend to do a lot more in the second half of the year on the recurring CapEx side.
And so that has some impact on AFFO. But suffice it to say, we continue to see strong profits strong AFFO, we obviously give you -- we give you the performance in Q1. We're optimistic about the rest of the year, as we've spoken about.
And we're also absorbing the higher cost of financing in both Q2 and Q3, we are financing -- refinancing out of some debt, and we anticipate raising more debt as we draw down our -- down on our cash to invest in this -- in our Build Bolder initiative and pay the dividend, we're going to draw down on that cash to replace it with incremental debt capacity as we look into '26 and beyond.

Adaire Fox-Martin

Just on the revenue side, there is a step-up in the second half of the year as we planned. This step-up will be supported by a number of factors, some of which I've mentioned already. the implementation of bookings that we closed in the first half of 2025.
The opportunity to incorporate those bookings into our MRR recurring revenue exists once we close in the first in the first two quarters. And I mentioned that we have a strong pipeline of opportunities that we're working on in Q2 and our April indicator is positively disposed towards reaching that target.
Secondly, there would be an element of nonrecurring revenues in our total revenue picture in the second half. And these are things that we would actually actively work on during the course of this year to ensure that we close that component of our revenue in the time frame necessary to meet these step-up requirements. But from an MRR perspective, once you really close the bookings in Q2, your year is laid out very clearly in front of you.

Operator

Mike Funk, Bank of America.

Michael Funk

Yes. Thank you very much. Darren, nice to meet you and Keith. Good to speak with you again. Quick question on inferencing. Microreported very strong Azure on the growth to see mean better than expectations.
You made a slight comments in your prepared remarks. Is there a read-through from what Microsoft reported -- any commentary you can make on the demand that you are seeing from customers in entrenching.

Darren Gryniuk

Yes. Very happy to do that. I think we continue to cultivate and win very attractive and significant AI opportunities. In fact, in Q1, of our top 25 deals, 50% of those deals were AI-related. So keeping in tandem with the type of breakdown on those deals that we saw in Q4.
And as I mentioned already, liquid cooling deployments were implemented across 5 markets during Q1. And -- when I look at what's making up that demand, I think we continue to see the service providers chasing capacity, and we're part of it. And whilst some of that is initially training based we're definitely starting to see inference with the rock deal that closed in Q1 as a tremendous example of that.
If I then take that lens and apply it to our enterprise customers, -- at an enterprise level, our customers are investing in very targeted use cases rather than in large scale deployments or investments. And much of this targeting is underpinned by some of the uniques of the value prop that I believe from an inference perspective, Equinix brings to the enterprise customer base.
First of all, there's a very flexible data strategy, allowing our customers to distribute their data anywhere and to move that data easily and freely between cloud, public and private infrastructure. Secondly, we have a privacy first approach. So not only is the data secure, not only are the models protected, but operations can be aligned with the regulatory requirements of that customer either from an industry or a location basis.
Thirdly, from a network perspective, our networks are ready for low latency inferencing. And for the execution of what is effectively always on AI systems. And finally then, I think the last part of the value prop really rights to the platform and the ecosystem of Equinix.
We have massive partner access and flexibility, and this is such an evolving landscape for both the data and service providers that we give our customers the opportunity to be able to adapt in that evolving landscape. And we're actually seeing the demand manifest itself in a couple of key areas.
One is in the whole area of AI factories or centers of excellence, where organizations in most of the industry verticals now are centralizing their AI development efforts and getting their IT team to manage these centralized clusters, both for cost and governance reasons.
AI factories can leverage models that have been developed elsewhere. -- they're then turn fine-tuned and then some inferencing happens on those clusters. And the most recent announcement that we made with NVIDIA around the opportunity to offer an NVIDIA instant AI factory service lends well into this trajectory that we're seeing on customer demand.
And then the second element of customer demand would absolutely be around distributed AI inferencing. As customers are now beginning to deploy AI models for inferencing the comments that I made earlier about data residency, the ability to process the days in the country where the data originates sometimes for regulatory compliance reasons, it lends itself well to our global footprint.
The level of latency that might be required at a metro, so for edge AI workloads. Customers don't want to develop gear that will support inferencing from stores, airports, restaurants, et cetera. for lots of reasons, including OpEx and physical security reasons.
And so they are looking for on-demand metro-level latency connections and Equinix is ideally positioned to provide those.
So we see the demand manifest itself in a number of ways across our enterprise customers and still very much see this as a supply constrained market where there is absolutely more demand than supply, and we're happy to be part of that solution for the industry.

Operator

Tim Horan, OpCo.

Timothy Horan

Thank you. On the supply side, do you think you are supply constrained or you may become supply constrained? And I guess can you raise prices to help manage that? Thanks.

Adaire Fox-Martin

Okay. So I think from a pricing perspective, during the course of Q1, we saw some very firm pricing certainly, as our customers also renew, there is a yield in terms of standard step-ups on auto renews. But also, there is the opportunity for us to lean into that renewal process. And given the supply dynamics, be able to command premium pricing for the services that we are offering.
In terms of capacity constraints, certainly under our Build Bolder program, we've been working very, very hard to look at our pipeline of opportunities and our pipeline of bills and to look at where we have the opportunity to be able to accelerate build so that we can meet our customer capacity requirements.
And we've managed to do that in three locations during the course of this year in NY3, DC16, LD14 to reduce the time to bring that capacity on by at least 1 year.
And so a lot of build work, as Keith mentioned, underway, 56 projects underway across 33 metros and this is something that we continue to evaluate and look at. And of course, looking at how we ensure that as we are navigating our -- with our customers that we are helping to shape the demand to where we have the capacity that best suits the customers' requirements.
So in Q1, it was lovely to see a mixture of installs and transactions occurring across Tier 1 and non-Tier 1 metros. So a number of different ways for us to challenge to meet the challenge of capacity requirements in the market today.

Operator

Michael Elias, TD Cowen.

Michael Elias

Great. Thanks for the question. It looks like on the cabinet delivery schedule, there are some movements from 3Q to 4Q and now you're delivering about just over 9,000 cabinets in the fourth quarter. As we start thinking about the trajectory into 2026, I know that you've done some pre-leasing in facilities, about nine months is when you start pre-leasing in -- just curious, is there any color you could give us in terms of the pre-leasing that you've done into those 9,000 cabinets that are coming online in the fourth quarter, that could give us some conviction on what the exit growth rate could be into 2026. Thank you.

Adaire Fox-Martin

Yes. You're quite right in terms of the capacity that's coming online, you can see a significant amount of caps in our Q4 time frame. I will say that in the same way that we manage our sales forecast and our pipeline forecast and our sales process, we manage very closely the RFS dates for all of the capacity that we are bringing online.
We have experienced in Q1 some presale activity as we experienced in the second half of Q4 without providing any degree of what that number is like we have absolutely experienced some customers who are looking to shore up both their compute and their energy future by committing to capacity that is further out in our delivery road map.

Operator

Michael Rollins, Citi.

Michael Rollins

Thanks. Good afternoon. In the second half of last year, the discussion picked up around Equinix going after some larger deal sizes as an incremental opportunity. So just curious how that progressed during 1Q, how that may evolve through the year? And as that evolves, should we be mindful of how that may impact the KPIs going forward?

Adaire Fox-Martin

Yes. Thank you very much for the question. As I mentioned, I think we saw a very solid and good mix of different deal profiles throughout our throughout our Q1 journey, not just across the metros and the tiers, but also across the size and scale of the deals.
So it was wonderful to see an increase in volume from our retail and our small and medium deals in our density rich interconnect-rich locations. And we also saw a continued increase in large footprint transactions.
Certainly, we can see, as you see, the density from our cabs move from 4.2% up to 6.8% in this quarter. And we can still see this increasing not just by service providers but also from enterprise customers around greater density in the cabinets and larger footprints to enable them, again, to secure the capacity that they need for their future business objectives.
And this, of course, is something that we are considering under our Build Bolder umbrella and something that we are considering as we look at the design and evolution of our data centers.

Chip Newcom

Thank you, everyone, for joining our Q1 earnings call. We look forward to seeing many of you at our Analyst Day in June. Have a good day.

Operator

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