Great! All right, thank you very much. Appreciate everybody being here. My name is Frank Louthan. I'm the senior analyst at Raymond James, covering data centers, telecom, and a bunch of other stuff. Very pleased to be hosting this discussion here with Keith Taylor from Equinix. Keith, you know, why don't we just kinda jump in and kinda talk about the state of the business? Had your analyst day last year, or as anticipated. You know, kind of walk us through kind of what's changed then in, you know, in the business environment, and what's in, you know, and what's impacted your view of the business in any way since then?
Yeah, that's a very open-ended question. So I've got free rein here. Look, I think the business is probably more attractive today than it was a year ago, largely because you see the benefit of AI and what I think is going to happen. That said, you've got macro conditions that are a little bit more difficult. Even though we felt, you know, I was saying it last year, and I still maintain it, the macro conditions in the world that we see today is difficult. But because companies are moving faster and faster to digital, that digital transformation that's taking place, I think that plays really well into companies like Equinix, and there's not a lot of us out there. And so you've got a really deep pipeline.
I think you have a really broad opportunity, notwithstanding these macro conditions, and you have a supply environment that is increasingly more difficult and will become more difficult over time. That's why I feel the business is probably in a better spot, quite openly. Pricing is strong. The opportunity is great. I think we're well positioned. As I said in our first meeting today, probably to some of you in this room, a lot of the competition are all running to the same spot on the map. And I think that creates a wide opportunity for Equinix. Again, we want to win the business. We want to win the smaller to medium size, in some case, large footprint deals, but that's not the place we're gonna play.
We're gonna play in what Equinix does best, which is, you know, a hybrid multi-cloud environment with strong interconnectivity and ecosystems, and I think AI has a will have a nice home inside Equinix. But it's probably not gonna be the training models. That's very much like the compute environment, you know, of the early cloud days, where a lot of our peers were building on behalf of large hyperscalers for compute, but we didn't see that as a good use of our capital. And so today, we'll use xScale for maybe some of those, those AI initiatives through the hyperscalers that we sell to, but most of our business will be focused on, you know, the creation of the opportunity and how AI will present itself.
But just the entire, you know, just the overall digital transformation that's taking place, again, I think we'll be a really strong recipient of that. As I said, the pipeline is deep, pricing is good, we're working on our costs, and, you know, we delivered a really strong Q1, and I personally, I feel a very strong Q2. That said, I was supposed to say that I won't be making some forward-looking statements, and please refer to our SEC documents.
Glad, glad we caught that. Everybody can commit those to memory.
Sorry about that, Chip.
Yeah, so you know, last year here, AI was a little bit more of a conversation. Clearly, now it's a lot more in the business. That changed pretty quickly. So, you know, put it in perspective for us a little bit. To what extent do you see AI driving bookings in the business now, versus some of these, you know, other types of business that you're pushing besides the large models?
Today, AI is not a big component of our business, in our core business. As it relates to the xScale joint venture, it's, I think, meaningful. There's a reason that we have sold all that capacity over the past few quarters, and we're near 100% sold out overall that is built and is being built. So we're in a really good spot from that perspective. But as it relates to the core business, where I think you really care, which is much more important to, to, I think, the shareholders, it's still early days. It just... Yes, the NVIDIAs are doing well, and you hear about the hyperscalers, but how it presents itself to, to the enterprise, I think is still early.
But we are winning, you know, you know, a number of different AI initiatives, from some network aggregate AI, network aggregation points to, private AI clouds that are built with partnerships. I think that that's just the beginning. It's just the small tip of the iceberg. But I'm, again, I don't, I don't believe AI is gonna have a magnificent impact on our business this year. It just isn't. It's just the way that things are rolling out. And even as the CFO of a business, you know, you have to think about, how does a CFO use AI in its, as it thinks about its own enterprise?
Today, you know, I'm in a number of different CFO peer groups, and yes, it's there, but it's not presented itself in a way that's easily consumable yet, and I think that just comes with time. So overall, it's early days, and. But I think that's good because we are winning business. It's just not as significant as maybe some of you expect or would want, but we're also not chasing these large, large footprint deals.
So, you mentioned kind of some of the internal uses, and you guys have always been kind of forward-thinking, eat your own cooking with a lot of this technology advances. If you look out a couple of years, how do you think AI can help you guys on cost savings and margins and so forth in the industry as you use it sort of for internal processes? I hear about that a lot from my other colleagues covering other industries and research, that their businesses are adopting this. How do you see this helping Equinix?
... I don't know yet. And again, my peers don't know. I think it's gonna help. It's easy to say that, but it's sort of - look, we use 200+ cloud companies inside our environment as Equinix, from the Oracles to the Workdays to Box. You can go through the list, Salesforce. We use them all. I think it's their investment in AI, AI and how it presents its opportunities to us. I think that's forthcoming. But it will be produ - It's not about really what we do, it's what do we consume, and how do we consume it that will make a difference?
And then, certainly there are some aspects, I'm sure, as we go through our data and analytics efforts, there will be some advantages that we'll certainly benefit from, but it's-- that's not what's gonna move the needle for us, Frank. And I said, you know, I said this earlier to a few of the people in this room in our first meeting this morning, Equinix is embarking on a number of strategic initiatives. We've already done-- we're well through what we refer to as workforce management, our Project Home initiative, which is the location of our staff to hubs around the world, and the importance of that. And that in of itself should deliver one margin point to the business. So it gives you a sense of the value that decision made.
And then there's a myriad of other things we're looking at, our go-to-market engine, our CRM tools, our digital, how we digitally express ourselves, through that, that sort of business unit. They're all, they're all there for the taking, and the efficiency it will create, particularly around human capital consumption and efficiency. That's just part of the reason we talked about the Analyst Day, you know, a healthy growth in AFFO per share or cash flow per share. It's not just from the revenue growth, it's also coming from our ability to operate the business more efficiently. And so it's gonna be a reduction of the SG&A as a percent of revenue going forward, and we know we can do that as a business.
Now, as I think many of you know, we have a new CEO who started yesterday, and we're excited for Adaire to be part of the team. We have a new Chief Customer and Revenue Officer in Mary Williamson. So we've got a lot of exciting things that are coming, and I think when you look at those two individual leaders, they in themselves are very customer focused, customer oriented, go to market. They come from impressive organizations, and so we're really excited to see how they start to put their fingerprints on our business as well. Look, we can push from the ground up. We can run the place more efficiently. We can, you know, we can go raise capital, I think, generally, relatively efficiently, if not sort of the best in the industry.
But it's also, how are we gonna push down from the top? How do we create, how do we widen the aperture of our opportunity? I think they'll have a meaningful impact on our business on a go-forward basis. So by squeezing from both ends, I think that's what drives the value on a per-share basis. As I said, I think it was... Well, maybe it wasn't last year, but when I look at the value that we can create on a per-share basis, if you look at us over the last five years and what we've guided to this year, and you look at our largest, you know, our larger peers, we're creating a lot of value every year, because, one, we've got the pricing, we have the efficiency, we have the capital structure, and we have all the growth potential, and that presents itself.
And I think that's a really exciting opportunity for Equinix. In some respects, and I said this many years ago, I still feel it today, we can grow faster. It's easy to grow faster. It's just, I don't think you're gonna like what growth faster looks like. And you don't get all those other things when you grow overly fast. And I, you know, I've really, I've prided myself and our organization on being really disciplined about how we grow the business, and we grow it within an appropriate set of parameters that delivers the value to the organization, and you see it in our price points and our revenue growth and, and the margins that we generate, and that's sort of the right place to play for Equinix.
All right, great. Well, one of the—so we—you touched a little bit on, you know, changes in the business a little bit, you know, new, new leadership, looking at things a little differently. One of the conversations we have a lot with investors over the years is how, you know, the cloud business impacted you. Is it really an enemy? It's really not, not so much the case. Of course, now there's the fear that AI can do that. Talk to us a little bit about how, you know, cloud and AI and so forth are enablers of your business versus being more of a threat.
Well, I think you just have to go back to look, go back to sort of first principles. Not everybody wants to live in one cloud. They don't, and they're not going to. And so having a hybrid multi-cloud environment where you have 2,000 networks residing inside your environment, or 3,000 cloud and IT services companies, or north of that in both cases, you're affecting the on and off-ramps to the internet and to the cloud. And as AI continues to get consumed and inference, inference becomes a bigger component of it, we think we're the best representation, if not the best at what we do, to benefit from that.
'Cause they're gonna want to be in a place where it's attractive to get to on a global basis, simultaneously with all of the different service providers in one room or in one building or in one, you know, one connection away. And that's something that's exceedingly unique to Equinix globally, and it's only gonna become more relevant over time.... And so cloud, as you know, we've got 40%, of the markets that we operate in, we have 40% of the cloud on-ramps. That's a good place to be, and that will only increase with time. Maybe not the percent, because, you know, there's only so many markets we're in, but the places that we will continue to create that connective tissue with our fabric solution and attract all these other customers, I think that just presents an environment that is unparalleled.
I don't see it as competition. I see it as sort of the evolution of an ecosystem, and cloud is a key component of that ecosystem, and we're as relevant as we've ever been to that. Then we have all the, you know, the connective parameters associated with it, and that's the networks and the regional network gateways, the aggregation nodes, the service nodes that make a difference. That doesn't change, and it doesn't change in time.
Part of the reason you hear us talking about redevelopment of assets, and the first one we've decided to do, that's another form of what we think is expansion CapEx, is because you've got an asset that is performing exceedingly well, and there's a reason we don't tell you the specific numbers on that asset. But what we did tell you, and that's our DC2, is the redevelopment investment that was built in the early 2000s. There's a reason that we're making a $75 million+ investment in an asset that probably cost—I forget what it is now, but probably $130 million from day one. We're making that investment because the cash flow that we will generate is not about a 25-year-30-year asset anymore. It's how do you turn that into a 50-year asset?
'Cause if you knew the numbers, you'd go, you'd do that all day long. That's why we broke it down into subparts, but we know that we can create incremental revenue and value off of an asset as you create more capacity, whether it's more space that you can take back or run the environment more efficiently and generate more revenue. It's one of our best-performing assets, and it's, you know, we'll deliver 15% more revenue off of that asset at a very high return that you just, you'd do that all day long. So I think, you know, that's the perfect example of why I think Equinix is so well positioned. And, and if you recall, on my...
And if you haven't—if you didn't see our presentation from Analyst Day last year, I encourage you to go back to it and just look at the Ashburn Campus slides that I showed, and how we started off as with a 22,000-foot data center, and then we built around that. And today, I know we have 15-20 data centers in the DC metro, and you look at us relative to all that's been built around us. That is built around us. It's not built there. It was built because of what we created. You want to keep on doing that, and there'll be select markets around the world that will become so important that you have to do sort of open heart surgery on and replace all the guts and gear 'cause you know that asset's gonna be there 50 years from now.
So hopefully that gives you a good sense that we live in an environment where our ecosystem is unique, and it requires, not only from us, but from our customers, that you've got to make these investments. We need that asset to be as efficient as possible and give us more capacity 'cause they're a limited set of capacity in that market.
So with that, you know, there's always been the power discussion that's come up the last couple of years. Obviously, that's, you know, been more of a challenge for the industry. You know, talk to us about, you know, pricing and availability of power and how that's impacting these kind of decisions to, you know, retrofit these data centers or new growth or so forth. How is that impacting your investment process?
Well, you're really in some of these. You're dealing with, you know, some of the opportunities I think Equinix has. When we go to a market, like Singapore is one of the most constrained markets, as many of you know, around the world, and the country or the leadership in Singapore decided they didn't want to just grow unabated in that market with data centers, and so they started to apportion out capacity. That holds true for other markets in the world as well, where there's a discrete amount of capacity that's available. The uniqueness of our model is we're not selling it to one customer. We're enhancing their digital migration, if you will, to the new world in which we all live, and so having access to power is critically important.
We don't build unless we have access to power. That all said, there's been environments that I think you all know that have been constrained that surprised the market because they overcommitted. DC, Northern Virginia is an example of that. But overall, you know, we, we've got 50 projects underway, roughly 34 markets, 21 countries. We're also looking at places, so I use Singapore as the, as the example, where we've been allocated more capacity. We're one of four companies that were allocated more capacity. It will be our SG6 asset. Exceedingly high returning asset, for obvious reasons, but the level of investment and commitment that we made to the Singaporean government and partnering with them and on their sustainability goals was very substantial.
And so we've done things where we get access to power, we give something back to the community on a multiple basis, and we get to grow and scale in a market that's really important. But equally, we know that we can't just rely on Singapore, and that's why we're building in Johor, which is in Malaysia, which is on the other side of the causeway. We're building in Kuala Lumpur. We're building in Jakarta. So all highly important to the Southeast Asia region, and that it just gives you a sense of you gotta also go to markets where there's access to capacity and energy. And so that might not be the traditional markets that we were once in, and so go to other markets. And then the beauty of our model is you can link them all together as if they're one.
So it's not a surprise that Johor will be linked to our Singapore mothership, and nobody else gets that. Nobody else gets what we have in our Singapore One or Singapore Two asset, and so that's an advantage that we have. So again, overall, as I said, maybe at the forefront of our discussion is digital is only gonna be becoming increasingly more important in our world. And I think we're the best representation of that opportunity, and supply is only gonna get more constrained, and therefore, pricing is gonna work in our favor. And I know some of you, you've tried to give us great advice and say: Well, why don't you just stick it to your customers? 'Cause they'll pay it, and the answer is, our growth comes from our customers. We can't just go and be predatory with our pricing.
We've got to be very judicious in how we grow price and create value for the organization, and I think we've done a great job over the 20+ years to have moved our pricing up nicely. We continue to move our pricing up nicely, and I think that will play out very well on our return profile. So despite costs going up, our pricing has gone up to not only recover the increased cost, but I think we can generate more return than we had, you know, than we previously had anticipated.
So, talk to us how that's kind of flowed through with, you know, cabinet adds, MRR per cabinet. That was a pretty steady formula for a few years that shifted a little bit. You know, some of that's kinda how customers are buying it-
Yeah
... looking at high-density loads. Walk us through how that, how you're navigating that with the customers and the pricing and how it's showing up in the metrics.
Well, you've got a traditional data center that's already built. You can't bring more energy into the environment. You can't. So you're living with what you have, and so what you have to do is run it more efficiently. And so finding ways and methodologies to run it more efficient, so you can get some stranded space back, or you get more energy, all of that is really important. But as a customer, density is going up, and so how it presents itself and net cabinet adds, it hasn't been attractive over the last many quarters. But you probably are asking yourself: Well, how can they grow revenues if their cabinet count's not going up? It's because customers are putting more into that average unit of measure in a meaningful way. And so I think the real important metric is...
Look, I don't think we can get away from utilization or cabinet utilization, but I don't think it's a perfect metric. So we have to live in an imperfect world because we don't see a better alternative right now in that I think we gotta continue to give you cabinets. We gotta give you the color on density of cabinet. We gotta give you utilization and then pricing on an MR basis. So I think we gotta do probably a little bit more of continue to do what you're doing, but give the market the narrative of what's going on. Because it, we can't just give... Power's not gonna give you, it's not gonna be the answer for you. You know, we're not selling to just large hyperscalers. We're not selling a, you know, a 50 MW environment.
That's not, that's not how we operate. And, so I think it's gonna be a little bit of probably the same, unfortunately. We did say, though, on the first, on the first quarter call, we did more large, sort of large footprint deals. We call them LFP, large footprint deals. And so that, think of that as 250 kW and up. It's not really the hyperscale stuff, but we're doing more of that 'cause customers are demanding more of that. And I think, again, we're the best. We have the best sort of opportunity to win a lot of that business. And it's not to say there's not competition out there, 'cause there is competition out there, but I think we're, again, the best place for that to reside, as a general theme.
Okay.
So, hopefully it answers your question in some roundabout way.
Okay. No, great. Why don't we, you know, switch gears a little bit? So, you know, you recently completed the internal review, yeah, you know, by the board and the independent committee, some accusations there and some subpoenas. You know, walk us through that process, kinda what you learned from there and kinda what the result is and where you are as far as how that goes.
Yeah, I was hoping you weren't gonna ask that one, Frank. I gotta be honest.
I gotta—
At least it took you 24 minutes.
Ask a couple hard ones.
Look, it's... I don't wish it on anybody. I think it's one of those things that you just have to deal with it. It has a life of its own as soon as an accusation is made, particularly one as public as it was. You know, there's always gonna be short positions on our stock, you know, but when you look at it as a percentage of our float and the industry, you know, you just realize it's part of... And some of you might be short on our story, which is fine. I understand the model. But in this case, the accusations were about integrity, and that's something that you can't take lightly, for obvious reasons.
You trust me to stand up here and tell, you know, give you a best view on what I think we're gonna do. But we can't issue—we can't be in the public if we're not—if we don't have integrity. We can't do things in the public space. And so the work that our independent audit committee had to do to ensure that we had the integrity that we've represented over all these years, you basically gotta take your hands off the steering wheel and let it run. And so the independent audit committee hired independent advisors to basically check whether, you know, whether any of those allegations were fair or accurate. And they did that work. WilmerHale and AlixPartners, the forensic accountants, did the work to validate what we do and what PwC audits.
And it does, it takes a life of its own. And you all know we have a deadline, 40 days after quarter end, we've got to issue our 10-Q. The short sellers, they're smart people, and they absolutely know the timing limit they put on us. A clock starts ticking. And that work took until May 8th to get done. So as soon as we saw the report and the auditor, the audit committee decided what they needed to do, that took all that time, and I can't tell you how much money they cost our shareholders, both in time and energy and lost opportunity. But we got to the other end of it. No adjustments, no restatements.
PwC filed, allowed us to file our financial statements on May 9th, and you probably saw last week we raised $750 million. And then we immediately swapped it into euros at 3.9%, 'cause we have a euro bond coming due in November. I won't get into it, but basically, we're—I think we're free and clear. With the one, maybe closing comment is, when it takes a life of its own, it really does, and so you've got the DOJ and you got the SEC involved as well, and that, we got to get the other side of that. But, suffice it to say, the subpoenas have information on what they're looking for.
The work that was done by the independents hopefully contemplated, I believe, contemplated a lot of what's being asked for. And so that will, that process will take form. And again, we have very experienced people who ran the process. I assume they're in touch with both DOJ and SEC. I know they're in touch with both. And that work didn't start until the investigation was done. So it just takes. It'll take some time. And again, we're working with the regulators, and so hopefully we'll get the other side of this as fast as possible. So that's the only sort of small dark cloud that hangs over our head, and we'll have to burn through millions more of our money to see that through.
Okay. Got one more quick one, and maybe take a question from the audience. So rates have kind of stabilized. How does that impact your decision-making for financing them? I think maybe more importantly, how is that impacting your customers' decision-making and how they're moving forward with their business?
Well, I think it's a tough market. I mean, rates are stabilized. I mean, some can, you know, tells you a little bit about how schizophrenic we all are. You know, rates are, they're high, and they're still high, so they've stabilized. It feels like they're gonna come back down. We've got to make sure we refinance our, you know, our balance sheet. I think we're in a good spot, and so we've raised the capital. We're gonna do some other things later on this year. Last year, we sold forward $500 million in equity, which we'll pull down in the fourth quarter, I believe. And so between the money we have in our bank today, which is roughly $2.5 billion plus the $500 million, we've got great liquidity.
So I feel really good. But I feel, but I talk about the schizophrenia, you know, the worry, the worry is things are slowing down economically. Well, we've felt that for a good four or five quarters. We've felt, we've felt that. We've been sharing that with you. It just, it's now coming through, and now the market is worrying about the market slowing down, and so rates coming down, that's great for our capital structure, but I rather live in this rate level and have a really healthy economy. And right now it just feels as it's tough. But that's why, you know, I like the space we're in. All things digital have a home inside Equinix, and the pipeline's deep, and notwithstanding the economic environment we live in, I think customers are gonna continue to migrate to the new digital world.
All right, great. I've got a quick question. Nope? All right, Keith, maybe, you know, finish up. You mentioned earlier, you know, got a new CEO there. Adaire started yesterday. You know, walk us through, what, what can we expect to be the same, what can we expect to be different now with new leaders, some new leadership?
Well, I sort of said a little bit earlier that they're, Mary and—or Adaire and Mary are go-to-market experts, specialists. I just see that you're gonna, you're gonna see a very customer-focused business. Not that it wasn't, I just... You've got leaders who that is their specialty. And, you know, again, I'm excited. It's too early to give you the proof points, but I suspect that you're gonna see, you know, the business continue to evolve and go to market in a different way. And look, Charles is still our chairman. It's not like Charles has disappeared. So between Charles being the chairman and Adaire sort of getting her feet under her, you know, I think it's gonna be an exciting time.
Notwithstanding, you know, the broader conditions that we live in, but this world, Equinix is so well-positioned globally for what's next. I think we're gonna run the play more efficiently with a higher focus on go-to-market and digital-oriented services that I just think we're in a highly enviable position. So part of it's gonna be stay tuned, 'cause I don't know what's next, but I have a good sense that, you know, we've made the right decision on who's leading the organization. Charles taking the helm of the board feels like it's a good outcome for Equinix.
All right, great. Well, they're flashing the light at me here.
Thank you all for your time today.
Appreciate everybody being here. Have a great conference.