All right. Thank you all for joining us. I'm Ari Klein, Data Center Analyst at BMO. Pleased to have Equinix presenting here, and to my left is Simon Miller, Chief Accounting Officer at Equinix. Maybe if you can just give a brief introduction on yourself, and then we'll kinda kick off the Q&A.
Yeah, you bet. I've been at Equinix for about 12 years. Started supporting Charles Meyers, who was then president of the Americas. He went on to be the COO and now the CEO of the company. Spent another five years supporting Karl Strohmayer , who was more recently the CRO at the company. I've spent time in region as the Americas finance VP, running commercial aspects of deal review, accounting, billing, credit collection, and financial planning. And since taking over as CAO for the last five years, it's been more of a journey about globalizing the entire finance function. Spent a little less time on the commercial side of the business, but a ton of time in leadership meetings, talking about the strategy, how we're pursuing, and how and how we're delivering against those expectations.
Long time, seeing the company grow quite a bit. Back then, we used to talk about, what do you gotta believe in 2011, we used to talk about, what do you gotta believe to get this to a $3 billion a year company. Here we are 12 years later, sitting at about $8.2 billion. Tremendous journey.
Thanks for that. You know, for those unfamiliar, you know, maybe if you can provide a bit of an overview of Equinix, what differentiates the company, and why investors should consider investing in Equinix today?
Yeah, sure. Well, while we're, you know, a traditional REIT in a lot of senses, we're not traditional in terms of our overall business plan. We think of Equinix, its data centers and its suite of digital services more as a platform. We focused really since day one on our founding, on network neutral interconnection. So you hear us talk a lot about the value of interconnection. What that means for us when we're building out business cases for development of new properties. Is this good? You want this closer?
Yeah.
You bet. When we're evaluating new projects, we really focus on what type of interconnection density can we drive, and expanding on that. We don't, you know, we don't build a ton of data centers with a lot of density and megawatts. We focus on access to PoPs, and the critical applications that are low latency sensitive for our customers. We've found through churn rates over the years that those types of deployments are the most sticky, and that's why customers come to Equinix. It's access to the carriers, access to the internet. Nowadays, access to cloud providers and on-ramps, in the future, probably access to AI as well.
Through all of the waves of digital transformation across the industry, I would say that Equinix has played a key role in the delivery of those services.
Got it. Globally, Equinix has data centers in 71 metros and in 32 countries. What are some of the benefits of having a global platform, how is Equinix thinking about expanding further in international markets?
Yeah
... some of those markets that you could look to enter?
Yeah, for sure. That's a great question. The benefits are that, when you look at our customer base, the majority of our customers are greater than $150 million in revenue. A lot of our customers, greater than 65% are, you know, utilize our entire regional platform as well. Most of them, most of our customers are at least, what I would say, is multi-market. The more that we globalize, the more ability that we have to capture market share or wallet share for our customers as they expand globally.
Most of the time, when we expand into new markets, it's because a customer has been asking us for a couple of years that that's where they want to pin the flag on the map for their next deployment. We spend a ton of time talking to our customers, but not just talking to our customers, 'cause they would tell you they want you everywhere globally, that they even maybe aren't even thinking of being today. We always kinda cross-reference that with availability of power and availability of the telco telecommunications infrastructure there. Because, again, it all ties back to our strategy of being the platform of interconnection to deliver not just co-locations, but a host of digital services on top of that.
To do that, you need access to power, you need access to space expansion, and really good physical infrastructure. With a lot of the dynamics going on in Asia, you'll hear us talk about, you know, continuing our investments in, like, Indonesia, in Malaysia, and in India. A lot of our customers for years have been asking us to look into those locations. Given some of the power constraints and other constraints in Hong Kong and Singapore, we're kind of speeding that up a little bit. Africa, South Africa, we recently announced an investment in Joburg. We'll probably continue to look in West Africa. We don't have anything specific, but again, more customer questions and requests for us to explore there.
Then some maybe a little less important, but, I'd say equally strategic is, Latin America.
Got it. When you're looking to grow the platform internationally or just the platform overall, how do you balance organic growth with M&A?
Yeah, that's a good question.
How do you choose between the two? How are you thinking about that?
When we're going into an entirely new geography, an entirely new market, we prefer to buy our way in, quite honestly, and keep that management team on board for a longer than normal integration period. Not just a couple of months, right? We really wanna leverage their local knowledge. We want to leverage their existing, you know, contract structure and really just how to do business locally. In some of the markets that we're getting into, it's not as crystal clear as maybe some of the traditional markets that we've gotten into in Europe and certainly in the US. There's not like a bright line of like: Here's when you get your access to power, here's when this permit clears.
Having that local expertise is just hugely important, and I expect that we'll continue to do that. We've made a couple of what I'd say are small bets, but like, if you, if you look at what we just announced in Johor, we're really leveraging off of our local team. You could throw a rock and basically hit the new development site compared to where our existing, you know, Singapore assets are. Where we can leverage the local talent that's already in place in Equinix, we'll continue to do that. It's definitely our preference when we're going into new geographies to acquire our way in there, and then maintain, you know, management for a period of time.
Is the strategy the same in the xScale piece of the business? I think there you pretty much, you've leveraged your JV partners...
Yeah.
You've grown organically. Could M&A ever be a part of that piece of business?
For sure, yeah. I think it could be. It's gonna depend on the multiples that are out there right now. Some of the multiples on the sell side are still in excess of what, the pump, the public multiples are. Once that sort of evens out, I would expect that we would look at that type of expansion, the same way that we do on the retail side of the business.
Got it. Taking a step back, how have the demand drivers for the data center business evolved over the years, and to what extent will those be different over the next few years?
Yeah. Boy, AI comes to mind. That's a new one. We have yet to see how that materializes at a project level for Equinix directly. I mean, there's a lot of heat going to the hardware vendors right now, as I think people queue up to make sure that they're getting whatever allocations of chipsets, GPUs, and other hardware. Gosh, for Web 1.0, Web 2.0, the increase to cloud, these are all just huge shifts in the market, where Equinix was at the right place at the right time with the right suite of services to deliver against those applications. I think we got a little bit more of a boost unexpectedly from the pandemic as well. That kind of...
The digital transformation, I think that's going on right now in the enterprise is as big a one as I've seen since I've been at Equinix. Boy, back about 8, 10 years ago, it was a little bit cloudy, and we were wondering where we existed in that space because there were a lot of companies that were founded in the four walls of Equinix. You know, companies like Facebook or Yahoo that deployed their own hardware inside of Equinix. You know, that was back when they were getting Series A funding in the hundreds of millions of dollars, and now, you know, now investors are investing in the tens of millions of dollars, and people are leveraging cloud-based architectures to deliver that stuff. That was a threat to our business model at the time.
We invested heavily and focused heavily on focusing on the enterprise's transformation in that digital world, and pursuing as many cloud on-ramps as possible, and cable landing stations as possible, so that no matter what, it still came down to delivering an interconnection platform that provided value, not just for the cloud or other SaaS providers or IaaS providers, but also for the enterprise. Well, you fast-forward here another almost 10 years, and enterprise bookings relative to what they were 10 years ago, are an immense increase for us. It's the other side of now investing in that hybrid cloud model, which is now the flywheel is going, and you're seeing companies like SAP or Oracle, they're no longer signing on-prem licenses for their software. They're moving everybody to cloud-based architectures.
That means they're gonna have to move all their boundary systems in some way, shape, or form to that cloud-based architecture. Equinix is getting an unfair advantage of that. I think we saw a little bit of an acceleration of that during the pandemic as well, as more folks were looking to ensure that a big chunk of their workforce could be serviced remotely.
Got it. You briefly mentioned AI.
It's, you know, clearly emerged as a, you know, pretty big theme.
Yeah
... you know, more recently. How is Equinix positioned to capitalize on some of the AI trends? How early days are we?
Yeah.
Within your business, where do you see the most opportunity? Would it be on the retail colo side or maybe on xScale?
Yeah. It still feels very early, although I will say this pressure wave feels a little more ubiquitous than other recent trends like 5G or edge data centers and edge computing. It feels like everyone's gonna participate, whether it's the hyperscalers doing offerings or the enterprise utilizing those offerings and creating their own unique brands of AI for either their own customer set or internal use. It's still early in terms of seeing how it's all gonna be sort of frameworked and projectized. I think there's a run on the hardware stuff early on here, and there's a fair amount of training that needs to happen at the bot level for a period of time before something is released to production, whether that's for internal use or external use.
I still think there's a lot to figure out there. Whether it's a training module or inference, I feel like Equinix is uniquely positioned to take advantage of that in either case. On the training side, that's heavy compute and storage. It's more likely that we'll deliver an xScale solution in that world and, with, you know, given our focus on the top hyperscalers in the world, we will have as good a shot, if not a better shot than others, of taking down the business that we see as strategic in that space. Not every opportunity that's out there, but ones that we think are viable and long-term.
Then, when we get to a larger portion of delivery being inference, I think that Equinix will again get its, you know, an unfair share of the opportunities out there, just simply because of how interconnected we are and the fact that however you deploy that final solution for AI, it's gonna need low latency and proximity to the carriers and to other service providers in the data center to ensure that you get the best throughput. In those situations, Equinix wins, right? I mean, it's just. That's, that's been our mantra since our founding, and it's been a huge driving force in our strategy holistically. Specifically how it happens, though, Ari, I don't know. Check back in a year.
Something tells me that this will all actually materialize a lot faster than maybe other paradigms have. It seems like there's a lot of money and momentum behind it, and I think there's a lot of enterprises specifically looking to get scale and leverage out of AI. In a world of increasing interest rates and inflation, that's just gonna be even more of a catalyst to see things happen here.
Are you seeing those types of deals, kind of start flowing through the pipeline, or is it even too early?
Yeah, it's a little too early. I think you're seeing a lot of banter about stuff, like a potential deal that might show up, but it is entirely possible, though, that, like, when we're talking about, you know, leasing large swaths of xScale footprint right now, to hyperscalers, that really we're talking to their infrastructure team. It's hugely possible that embedded inside of that is some portion of that infrastructure that's gonna be de-dedicated to AI. They may not even know what it is, but if it's delivering, you know, some amount of a, of a global SaaS office type of, you know, or office type applications, to the extent that they embed AI in that in the future, it could totally be on the table.
Got it. On the demand side, it's been pretty healthy record or near record bookings for a number of quarters in a row here. How sustainable is that in a tougher macro backdrop? We've heard cloud providers talking about slowing consumption in their businesses. How does that impact Equinix and, you know, what's the outlook, I guess, from there?
We're definitely seeing customers sharpen their pencil a little bit, as Charles likes to say, they're measuring twice and cutting once. The overall pipeline still looks very healthy. We're seeing a few things slip, no degradation or stuff falling out. I've said this a lot today and when I've met with investors in the past, like, the digital transformation for enterprises, it's done. It's happening. I mean, it's just very hard to find on-prem licenses for anything anymore, whether it's infrastructure as a service or software as a service, you have to have a hybrid cloud strategy going forward to either service your end users and customers or your internal end users and customers. There's still a long tail on that.
It's still very easy. I mean, we're an Oracle shop internally. I got the notice two years ago. Every other, you know, customer that's on Oracle got the notice two years ago. It's a specific negotiation with Oracle, how long you stay on the on-prem stuff. If you're slower... Thankfully, we were a little ahead. We started converting a lot of our applications to be cloud ready, like a year earlier, so we were anticipating that Oracle would come to us. There are other companies that, you know, they may have gotten that notice, and they were caught flat-footed, and so they're starting their journey a little later. There's still...
Gosh, it's hard for me to even look beyond five years and say it's gonna slow down there because it's gonna enhance over time, and once you've built. Let's say you have to replace an ERP and get that cloud ready. Now, you've got to focus on all the boundary systems to make sure that not only do they work with that cloud solution, but that they scale with it, and that's. There's gonna be a lot of, you know, try and buy solutions out there, and there's gonna be winners and losers on those boundary systems. All of that is gonna it's gonna end up with being some portion of the critical infrastructure for every enterprise to be in or adjacent to Equinix.
Okay, then on the Cross Connect side, we have seen net adds come in a little bit. You know, what's kind of driving that? How do you think about just the overall demand backdrop for Cross Connect and interconnection overall? You know, I think we've seen some grooming.
Yeah
... taking place.
Definitely.
You know, are we at kind of trough levels?
Hard to predict that because there's so many influencers going on right now. Macroeconomically, that's a big one, and volatility. I would say, even though we don't disclose it or and give a number externally, the gross adds continue to be really healthy and strong. We look at overall traffic on the Internet Exchange as well, and that continues to be extremely robust. Other than how it all nets out, we're still seeing good leading indicators that it's, you know, it continues to be a strength of the business. I would say that, you know, given some of the probably budget challenges that some of the companies have had relative to inflation, they're probably looking a little bit harder at their footprint.
Some grooming related to that, just general cost-cutting and consolidation of internal footprints. Then on top of that, we have M&A and people grooming as it relates to integrations on that side. Then just, you know, transfer from like 100 MB to 10 Gb, for instance, and aggregation points on that. You know, you buy one piece of glass where you needed maybe five before, or fiber optic connection, sorry.
Keith likes to talk a lot about, the net positive pricing actions.
In the business. Can you just talk a little bit about the pricing levers that you have? You know, how much opportunity you see in the business to continue to push pricing, maybe where you see the most opportunity?
Yeah.
Has there been pushback, just in this backdrop, on some of those increases that you have pushed through?
Yeah, we're always very sensitive. For those who follow us, we just did a very large power price adjustment on our customers, primarily in Europe. There's still a lot of sensitivity out there in the market, getting better than $350 million of revenue just from that one thing. We generally like to increase prices kind of subtly across various markets over a period of time. We have the luxury of having shorter contract terms than traditional wholesalers. We don't sign, like, a 15 or a 20-year lease with our customers. We generally sign them up for 3 to 5 years on the initial contract. If we don't do a stated renewal, it auto-renews for another year.
At any point in time, upon renewal, given specific market level dynamics and what competition is doing and prices locally, when we get to a renewal spot, we'll raise prices. Given the overall economic conditions that are going on right now and globally across the entire Equinix platform, we've seen roughly about 10% inflationary impacts. In some areas, it's spiked higher, in some areas, it's a little bit lower, but we've already adjusted, for instance, list prices on new deals. You know, we carry, like, 92% of our revenue in any period, annual period from the previous year's MRR jump-off. It takes a while for those new deals to be filtered in and be felt through the entire base of MRR. As those new deals get signed up, we'll adjust pricing.
As we go through and do renewals, you'll see this in the price, positive pricing actions that Keith likes to talk about. You'll see it happen there. It'll be more of a feathering in, where you look like five years down the road, and the entire footprint is right-sized to what the current economic conditions are. We'll always lag a little bit just because so much of our base is coming in from pre, you know, pre-negotiated deals. In some markets, we're tied to CPI indexes, in others, we just have similar to a traditional real estate lease, we might have a stated price increase on space, somewhere from, like, 3%-5%. We always get an opportunity after, like, call it three years, to renegotiate everything.
I think in Q1, same-store revenue growth was 7%. You know, how are you thinking about that metric? Is that a reasonable level that you can continue to grow at? Does it moderate a little bit? I think historically, maybe been a little bit lower than that.
Yeah. Historically, it's been lower. I mean, as we have more assets enter that stabilized tier, I mean, they're generally some of our stronger assets, quite honestly. I mean, I think there's an equal opportunity for that to continue to grow, especially as we enhance some of those offerings with digital services. Yeah, I mean, overall, I think it's reflective of a strong business model, putting the right applications in there, signing people up, getting renewals, and gaining efficiencies at the asset level.
Is there a region where you think you have the most opportunity to push pricing higher? I think EMEA probably lags the other two regions.
Yeah. Just from a practical standpoint, we just dropped so many PIs on them for power. It would be psychological at that point to come in and hit them over the head with space as well. I'd probably say we'll feather it in more over in EMEA. You know, between Asia and the US, it's really a hodgepodge, and it comes down to the metro level and how network dense a facility is, who do we have competing with us in region, in market there. Nothing I would point to that says one is specifically better than the other.
If, anyone in the audience has any questions, we can take them.
It might be a bit of a lucky question, but to the extent that you're more a connectivity player of the digital industry, with the suppliers that are going on now, hyperscalers who are getting all the attention, do you get tangential benefit from that, or are they able to just do that on their own without your connectivity?
Yeah. Just for those watching on webcast, the question, and correct me if I'm wrong, is, with all of the continued activity of hyperscalers, do we see our core business model, I'm assuming, around retail, getting tangential benefit from that? Yeah, the answer is absolutely. You know, most of what the hyperscalers are doing. They build, by the way, their own data centers with land that they bought on their own, much more than they buy from us or our competitors, quite honestly. I mean, they build footprints that, in many cases, are like half the size of what Equinix has built in its entire history in one year. You know, it's a game of optimization for them as well.
There are some markets where it's easier for them to utilize somebody to go do all the permitting and get the allocation of power because they just don't have the resources. They're always doing an optimization game, and I would say the way we look at it is, how many of the on-ramps are we getting from these folks? How many markets do we have all five of the players out there that are offering cloud on-ramps? Because that's where the enterprises and the users are gonna engage with not just the hyperscalers but other SaaS and IaaS providers as well.
Just a question on maybe scale the largest data center market in the country around D.C., and what you see are, you know, the threats or concerns going forward, and then also particularly regarding power and getting power to your site?
Yeah, sure. The question was, what do we see as a potential threat around power to the D.C. campus? I'd say the good news there is if anyone's ever seen a bird's-eye view of D.C., and, well, Loudoun County in general, you'll see that Equinix is actually just this little small thing in the middle of it all, and the power consumers for the big deployments are actually radiating out all around Equinix. Look, I think we're working on a host of opportunities to ensure that we've got power continuity for a long term there.
I think that, you know, the, the local folks in government understand the importance, the importance of Equinix to that overall ecosystem and how much tax revenue it drives and jobs that it drives for everyone there locally. We have a very big voice there, and I think we have a lot of relationships going all the way back 25 years in our history. While there are some, you know, some specifics that I can't really discuss here, I would say that we're always looking for ways to ensure that we've got that continuity, and we'll probably end up be in a relatively good position compared to others in the space.
Maybe, sorry, right there.
Is the potential recession, could harm your business and forecast and, keeping it Cross Connect, right?
The question is, could the pending recession here potentially harm the business and lower occupancy rates? I think the biggest thing that we've seen so far is that it's maybe extending sales cycles a little bit. Much of our focus and investment has been around interconnection, hybrid cloud, hyperscalers, getting on-ramps to the cloud. As I mentioned earlier, the digital transformation for enterprises is here, and it's here to stay. There's a lot of external forces from vendors that are just gonna make that happen. For me, it's not. We're gonna win the deals we would have won anyway. It's just the specific timing.
I think in the short term, you're seeing a little bit of belt-tightening, people sharpening their pencils, making sure that they're allocating capital investments appropriately across their portfolio of investments. The deals that need to be close to cloud on-ramps, that need to be close to service providers, we're gonna get those. It's gonna happen. It just may take a little bit longer.
There is this concern out there that some of the big, you know, cloud providers decide to carve out their own connection to their, to their own customers. These was, you know, pieces that have been out there. It hasn't come to pass so far. How do you ensure that doesn't happen with the technology you provide, or is it just like you're saying, that they're more interested in optimizing and taking over this whole business?
Yes, the question is, will hyperscalers kind of replicate the interconnection platform that we have and go direct to their customers? Look, they offer today a host of connection products, quite honestly. In the world that we live in, I think long term, where there's no provider that has 100% of every solution, I just don't think that you can build 100, a walled garden around all of that, right? You think of some of the cloud providers' biggest partners out there, that's not a, they can't tighten down the interconnection. I think overall, large enterprises are gonna need and want access to other, service providers within our data center or just within their own topography.
While there might be opportunities for the hyperscalers to do that, it's hard for me to see them doing that in a way that's ubiquitous, that really chokes out competition from other service providers in general. You know, we're kind of selling, you know, pickaxes and shovels during the gold rush. Everybody can win. We're happy when everyone wins, and I think it's better overall for the consumer and for competition in general.
I'll squeeze one more in just on the balance sheet. It's in good shape, low leverage. What are the company's capital allocation priorities moving forward?
Yeah, we're gonna continue to be balanced. We've got a lot of cash on the balance sheet right now, but we also have more expansion projects than at any time in our history, so we got a lot of checks to write here in the next 12 months. Yeah, I think we're, you know, our strategy is gonna be balanced. We'll take down debt when it's accretive to AFFO per share. We'll take down equity when that's accretive to AFFO per share. We're viewed a little bit differently than a traditional REIT from the rating agencies, so we're constantly fighting a battle there to get improved leverage ratios. We'll keep doing that.
You know, I could see us over time, maybe, you know, limiting the amount of cash we keep on balance sheet. We'll continue to also look for creative ways, just given our global platform and ability to take down debt internationally. We'll continue to do that. Like you just saw with our Japanese yen offering, that gives us the ability to fund a lot of expansion projects in and around Asia, and we'll take advantage of that. Hard to move that money around globally, where there's other opportunities that are similar to what we saw in Japan, you'll see us do that as well.
Great. I think that's a good place to wrap it up. Thanks, Simon.
Thank you, Ari. I appreciate it.
Thank you, Simon.