All right. Good morning. Thanks everybody for being here. My name is Frank Louthan. I'm the senior analyst at Raymond James, covering data centers and telecom and other things. Very pleased to have Chief Financial Officer, Olivier Leonetti, here from Equinix. We're going to go through a few questions, and then we'll leave a little time at the end for some questions from the audience.
Yeah
start out with?
Just a quick disclosure statement. Some of what we will be talking about today contains forward-looking statements. Please read our SEC filings for more information about factors that could affect these statements. Thanks.
All right, great. I'm sure everyone will have that committed to memory.
Phillip and I will go through the motions together.
Yeah.
Phillip and I are partners in crime, so yeah.
Great. All right. Well, Olivier, maybe walk us through your vision for the company as you step into the role here. What can we expect from you that may be different from what we've seen in the past from Equinix, and what do you see as the opportunities that really attract you to the position?
Yeah. Again, thank you for having us. Thank you to everybody for being in the meeting room. Hope you're having a great conference. It's my first one, and I really enjoyed it. A lot of things going on in our company, we love your interest. I joined Equinix about a bit more than two months ago, and I joined this amazing institution for four reasons. One, attractive end markets being served. Two, amazing opportunity from the company to compete in those markets. We discussed a lot about that with Frank. Three, our culture, and four, this partnership is important, it's the vision from our CEO. It looks like a marketing comment, after a bit more than two months, I was wrong. Our end markets are better, our ability to compete is better, our culture is better, the vision from our management team is better.
What I'm going to do differently is not a lot. I'm going to be a member of the team to really augment, accelerate, facilitate the vision. I'm going to be one of many shaping the future for this amazing company in those amazing markets. We'll talk about that, I'm sure.
Okay, great. Maybe update us a little bit from, you had the analyst day last year, that you do every two years. Maybe update us what's changed there and what have we seen in the year since that, roughly a year.
Two things. If you go back, we have been in business for three decades. We were the pioneer to facilitate the internet. That's first decade. The second decade was to facilitate the cloud revolution. This decade is going to be to facilitate AI. Our CEO has said many times, I think it's a great way to talk about how excited we are. This moment is our moment. Why. The AI revolution, which is at the start, is creating the need to have a diverse marketplace where players are going to meet and exchange data. That's what AI is about. That's going to play to our advantage. To answer to your question, what is new since Investor Day? This vision is playing out in a way which is augmented relative to what we had expected.
Those end markets are stronger, and our ability to deliver what our customers need is stronger. What do they need? They need a global network. They need a diverse network with different participants being on it, cloud, new cloud, AI lab, enterprise. They need neutrality. They need latency. AI will need to compute fast, being close to where the enterprise is important. We need also connectivity solutions, which are going to be fast, easy to use. All of that is at play. Equinix is delivering on this. Equinix is the biggest marketplace on Earth able to deliver this. As a result, you started to see the numbers being better than what we thought. I give you some numbers for this year. We're going to grow recurring revenue by 10% for the year. We did that in first quarter, we did that in second quarter .
Double-digit growth is the start, and we have been able to clock on those numbers now for a period of time. Two, EBITDA margin 51%. Three, an important statistic, one we're going to focus a lot is AFFO per share growing at 10%. You see, this is our moment, the value proposition of the company resonating, and us being able to deliver attractive returns as a result.
Maybe take that a little further and your value proposition that as you approach customers, what is that, how are you differentiated from the competition to be able to accomplish all these things?
Yeah. Don't hesitate, Phillip.
Yeah.
If you see today, in the world of AI. You want to go back a rich marketplace, a marketplace where all the cloud providers are going to be participating. You want the new cloud, the new entrants, to be part of this marketplace. You want the AI lab to be part of this marketplace. Of course, you need the enterprise. You need this marketplace, which is global, neutral, and close to the action to manage latencies. What is different is that nobody can offer all of this. Could you have players offering a one-to-one connection, a cloud to a cloud? Some people have started to do that. Yes. Could you have some carriers which are local doing some of that? Yes. Nobody can do everything we are doing. That's different.
One of the key success factor of our company is to nurture a rich marketplace. We are expanding. We're going to double our capacity. I'm sure we'll talk about that with Frank Louthan. This new capacity is created to make sure that we have all the participants needed in those. That's different. I give you some statistics. New cloud, four of the top five are part of the network. They have deployed with us more than 110 nodes in our network. Eight of the top AI lab as part of the network. All the cloud providers are part of the network. Right? It's difficult to replicate. Another part of the value proposition, and our CEO has mentioned that many times, is we are not in the compute business.
We are in the connection business, and we want connections which are going to be easy to implement, with no human being involved, managed at the press of a dashboard, and probably powered by AI to allow to identify which players do you want in your network. We do this. That's different. We want to, today, keep increasing the barriers to entry, our competitive advantage, to make all of that even stronger than now.
Maybe just to add onto that and take a step back, I think there's been a little bit of a homogenization of the data center industry. All these things that Olivier talked about around our differentiation, keep in mind that we've got over 10,500 customers in our customer base. We did 3,800 transactions in first quarter with over 3,100 unique customers. We're not selling 100 megawatts to one customer and selling out a facility. We're a very differentiated business model as it relates to the broader data center industry. I think it's really important to take a step back and make sure that folks understand that differentiation, and all the statistics of how we're curating ecosystems. Because of that, we're driving returns and yields on our assets that are in the mid-20s. That's very different than a lot of others in the data center industry.
Let me build on this, if you don't mind, Frank.
Yeah.
If you see the evolution of what we do in the era of AI, I'm going to make an obvious statement. AI is to compute data at the edge from various sources. Right? We are starting to be the place where this compute at the edge is happening. Evidence of this, the average, sorry to mention a technical term, rack at Equinix is 5 kilowatt per rack. This is the average rack density. We have in our network today racks which are 100 kilowatt plus. Why would you need a rack like this in our network? They are liquid-cooled. We are enabling this. Why do you need this? To compute at the edge. You see why do you need to compute at the edge?
You need to send a fast action to an object, but also it's too expensive to compute in other places because of the traffic cost. You start to see really the value proposition of what we do increasing step by step, the marketplace, the edge compute, and the ease of connection.
Yeah.
Again, increasing the competitive advantage in what we offer to our customers.
That's great. That actually touches on a topic that I wanted to bring up. I think I've been covering you guys since 2009, give or take a month, something like that. From day one, I get the question about obsolescence risk. As you mentioned, your average is 5 kW per rack. You've got customers wanting 100. Walk us through the obsolescence boogeyman here that always seems to come up. It's had quite a resurgence based on inbound calls I've got in the last couple of months. Talk to us about why that has risen a threat and how you've managed that all these years, because so far it hasn't been an issue, but of course, it's coming now, and of course, you never know. Talk to us about that.
Yeah. It's a great question. Let me give you an example. If you go to our headquarters in the Bay Area in San Francisco, we have one of our oldest sites. It's in San Jose. You have 4 generations of data center, the first one and the last one. The last one, the biggest microchip in the rack from the number 1 microchip manufacturer, 100 kilowatt to a few, 4, 5 kilowatt. This full ecosystem is attractive to our customers. All of those cabinets with different level of power are today growing, because again, you need compute at the edge, you use the 100 kilowatt. You need also to use the cabinets for communication. Those worlds need to be part of the ecosystem. Obsolescence today is not something which is a concern to our company.
Yeah. We've always talked about putting right application and the right workload in the right data center. I think exactly to Olivier's point, when you look at some of our older facilities, they're the most network dense, they're the most valuable. When there is space, trust me, there are customers who want to go into that space. We've constantly been maintaining these over the years, and so they're absolutely fit for purpose for those specific workloads. As we talked about, some of these higher dense applications and workloads, they're going into our newer facilities. We have 100 of our existing 280 plus data centers, which are fit for purpose for liquid cooling. We always are thinking about the right mix of applications and the right locations for our customers.
All right. Great. With that, maybe let's talk a little bit about competition. We've had a very strong market for data centers the last few years. It's been fun. With that always attracts new competition. Talk to us a little bit about what do you see as some of the biggest competitive threats in the next couple of years, and how you're positioned to address that?
The competition is intense, and it's keeping us up at night. It's a good thing. It's keeping us on our edge. The level of competition is actually the proof points that what we do is important in the era of AI. Carriers are on our network and competing with us and also collaborating. You have other players, as well, doing the same. A lot of cooperation, competition happening on the Equinix network. We serve a different purpose. Nobody today is able to do what I've mentioned. Could you do a one-to-one connection, a one-to-two connection? Yes. Could you do one-to-many everywhere all at once, latency, neutrality, density? Nobody can do this. We're not sleeping. We want to increase the number of data centers we're launching.
We want to make our connection business human-less to be implemented, and we want to create fast the best marketplace in the market. Competition is good, validating what we do, and good for our customers. Clearly, as a result of that, you see the execution, the speed of execution, and the sense of urgency at our institution being stronger than ever before.
Yeah. I think the marketplace, obviously, we've all talked about the demand environment. There's room for all boats, so to speak. I think that we feel like we occupy a unique place in the data center space. There is room for all these different workloads to live in different places and room for all of us.
All right. Let's talk about two of your products. You just talked about sort of interconnection and then also on the xScale side and the larger hyperscale facilities. I constantly hear questions from investors, folks like Lumen, that have looked around multi-cloud connectivity, worried that that's a threat to some of your interconnection revenue and so forth. You've touched on this a little bit, but maybe address more specifically how some of these telecom carriers that are looking to do that business, how does that impact or not impact your business and what you're trying to do?
Why do you have some carriers and other players part of the network? By the way, we know they exist, we know what they do, we know the footprint they have. It's a cooperation and some level of competition, too. We serve different purposes. A one-to-one or mainly maybe a U.S. connection, is what they will serve. Our customers today, they want a global footprint. A data center in Europe will have a lot of traffic coming from other parts of the world. We want to be differentiated. We are. We play in this dynamic place in complex connection businesses, and we can cooperate with the other players as well.
On the xScale side, you're building larger hyperscale facilities. It's a smaller part of your business than some of your peers. Talk to us about how you're incorporating that with what you do and where you're seeing success there.
xScale is not a retail, but it's not a full wholesale either. Why do I say this? They are not gigawatts centers. They are hundreds of megawatt centers. They are close to a metro. Without getting into too many details, you need to be about 30 miles, give or take, to a metro to manage latency. Those xScale sites are smaller, close to a large metro. We will share some of those sites. We see xScale as being synergetic with what we do. They allow us to do two things. In addition to have access to a site, they give us purchasing power with the power management company and more intimacy also with some of our large customers.
Okay, great. All right. We can't have a data center conversation these days without the power question.
Yeah.
Talk to us about the power. How do you see your ability to get that access? You have some pretty broad development needs. How do you see your ability to access power to reach your development goals?
I'm kind of embarrassed by what I'm about to say, because it's so different than what you have heard, right? We read an article this morning on The Wall Street Journal about how difficult it is to access to everything, right? We build something different, 60 megawatt data centers. We build those in metros. We have been doing that for 30 years. We have great relationship with the utilities, companies. We have great relationship with our general contractor, with the power management company. Today, we have been able to manage these constraints pretty well. We have not experienced any delay. If anything, our team has been able to accelerate the launch of data centers. We have been largely immune from those constraints. Again, we have access for the next five years to more land, power, water, power management equipment than we need.
Again, different use case. Let me speak about the community for a second, and we're proud of this approach at our company. We have a team across the world only doing community engagement for the world. We have a playbook. We are part of the community. Our playbook is as follows. We have been in the community for 30 years. We are green. We manage water. We recycle it. We invest in your schools. We invest in apprenticeship. We're different. We're going to stay. We've been with you for three decades. We're going to stay. That resonate, and that allows us to navigate. It's tougher than before, no question, but no delay. Our team is doing an amazing job.
What about the self-provisioning power? How have you thought about that process, and is that the solution that's right for Equinix? How do you think about that?
You cannot be in this business without thinking about alternative sources of power and local provisioning of the power, particularly to manage peaks in power load. We do all of this. We're even looking at data center in space. I think it's something which is fashionable nowadays. All of that is being part of the playbook of our company. We have local power provisioning using various sources, gas and green energy as well. We have to do that, and we do.
We were one of the first users of fuel cells, for example, in our Silicon Valley. We use gas turbines in some areas in Europe. As Olivier said, we've kind of taken an all-power approach as we look forward. I wanted to make one other comment just about the power situation. We've got three gigawatts of land under control. We're not in the business of speculatively buying land and then figuring out the power situation later. We are doing all this in parallel, when we buy a parcel of land, we either have fully contracted power agreements, or we are in the very late stages and have high confidence about our ability to get the power. It's a key distinction that, again, we're not out speculatively buying land and then figuring these things out down the road.
Four conditions for us to sign a contract for a piece of property, land, power, water, community.
At the same time, yeah.
All right. Great. With that, where are you on the ambitious build plans? You've got the resources you need, the plan, the power. Where are you on the build plans you laid out last year?
Well on track. We have solved the capacity constraints. We have solved the financing constraint. Now we want to offer great network created and great full stack interconnection solutions. That's a work in progress, but the other constraints have been solved.
Okay. I have one more question, then we'll see if there's some questions from the audience. If not, I've got a few more. New CFO, have to ask a capital allocation question to you. Talk to us about your view of capital allocation as it relates to investors.
Yeah. There are a few things which are going to be foundational regarding the way we manage our company. I'm going to state some obvious facts, but they are always good when repeated. One, investment grade is table stake. We think we can leverage. We have a 3.8x leverage. We believe we can increase the leverage, but investment grade is going to be critical. We want to maintain this, and we believe we can finance our expansion while staying an investment-grade company. That's one constraint. The other constraint is we do not want to sacrifice the short term for the long term. A third of our investors want us to do both, and we believe that we're going to be able to do both. What does that mean? AFFO per share is part of the algorithm. Our capital allocation has four tenets. One, investment grade.
Two, top line. Three, EBITDA expansion. Four, an important four, AFFO growth per share, which is attractive to you. That's what we are going to focus on. Largely, I mention it, Phillip mention it as well, we have the land, the power, the water we need. At times we'll be opportunistic to do M&A at North was one of them, but they are not needed for us to achieve our goals. That's the framework.
All right, great. Folks, anybody has a question there's a microphone, or you can just raise your hand. We can grab the questions there. Yep, go ahead.
How fast do you see that power to the rack growing? You mentioned kind of a 5 kW now and a few that are 100 kW. Is this growing at 10% a year, or are we going to be at 100 kW?
If you go to the sites, those 100K rack exist. They are already deployed. It would take time. It will be a diverse set of use cases. If I give you a statistic, the average kilowatt per rack today at Equinix is five. In Q1, the increase in density went up by 36%, right? We're still going to increase. In this increase, you're going to have, Phillip mentioned it earlier, was good set of statistics, low power, high power coexisting. Again, the high power, something very new, which is the need to compute at the edge.
Just to put it in context, you talked about the 34% growth. That's still single-digit kilowatt per cab, right? There's a big installed base for sure, and there are needs for those for all different types of workloads. I think it's going to be a slow climb, but our new facilities are building towards these increased densities. We feel like we're going to where the market is and where it's going. We feel very confident about the ability to meet the diversity of the demand around those requirements.
Great question. Thank you.
Rate of change is always slower.
Yeah.
Any other question? Yep, go ahead.
Sure. If SpaceX and others are eventually successful with data centers in space, would they still need the interconnection type services that you're talking about?
Yeah. Everybody has to look at this, right? Elon has been pushing the idea. First, people thought he was crazy originally, right? Some people are saying, "Okay, maybe we need to pay attention." We're looking at this. The physics are going to be challenging. It's over my pay grade. We're speculating here. Do you need that for large language model? Yeah. Can that be the solution for what we do? Retail, network proximity, the answer is no. The physics do not allow this footprint to serve what we serve. If you are in the wholesale business somewhere in Arizona or Texas, maybe. If you do what we do, no.
Okay, great. Any last questions? All right. Well, with that, Olivier, Phillip, really appreciate the time here.
Thank you.
Thank you very much. Thanks everybody for joining up.
Have a good day.