Equinix, Inc. (EQIX) Earnings Call Transcript & Summary

Fair enough. Thank you, and good afternoon, everyone. Thanks for coming. This is the Equinix presentation. With me today, I've got their newest addition, CTO, Justin Dustzadeh. Justin, you joined Equinix from Uber this past September where you led architecture, design, engineering and operations, Uber's global network infrastructure and software platforms. Can you talk about your new role at Equinix and your plans to develop a technology road map for the company's future?

Sure. And thank you for having me. Before I start, I'd like to read our disclosure which is some of what I will talk about today contains forward-looking statements. Please visit our SEC filings and for more information about factors that could affect these statements. So as the CTO of Equinix, I'm responsible for driving technology innovation and developing the technology road map to advance the vision of Platform Equinix and also driving industry engagements within the developer community as we look to leverage ourself to technologies across our stack.

Okay. And sort of given your experience as a former customer, an end user of data centers in your prior roles throughout your career at Uber, at Visa, can you discuss the value proposition of Platform Equinix today and how you'd expect that value proposition to evolve?

Sure. And the differentiated value proposition of Platform Equinix really comes from our scaled digital ecosystems, our global reach, our track record of service excellence and our people. Our scaled digital ecosystems of over 9,700 customers are really a who's who of the digital world, our global scale and reach spanning 55 markets in 26 countries is unmatched in the industry. But our customers continue to expand their infrastructure with Equinix because of our track record of service excellence and our unique culture that puts the customer at the center of everything that we do. So as I look out to the future, I would expect Equinix' value proposition to evolve and are most deepened through the development of new ecosystems building the new markets as we push further out to the edge and also offering new products and services as we make Equinix easier to consume for our customers.

And what do you view as, given sort of your historical perspective, the biggest unmet opportunities for data center operators to better meet the needs of today's enterprise, network and cloud customers?

I think the biggest unmet opportunity for data center operators today is making our services easier to consume. So across industries, as businesses embrace digital transformation and shift to distributed infrastructure, leveraging a hybrid multicloud architecture, I think data center operators really have an opportunity to offer services that are easier to consume, but also in flexible ways, in new flexible ways. So to enable this transition, I think we are looking at ways to offer our services in both physical and virtual ways. And today, we actually consider ourselves not just as a data center company, but as a technology company that is solving our customers' problem. And with a -- as a service consumption model in the future, we believe that this will be a key differentiator for us as customers increasingly look to have the flexibility of consuming our services on both via physical deployment and CapEx spend as well as virtual deployments and OpEx spend.

That's helpful. And for the group, I'm going to continue along. I've got a few more questions for Justin, and then we'll open it up in the end. In terms of this technology road map that you've been tasked to create and help support Platform Equinix, can you frame up where the road map leads Equinix over the next 5 years?

I think our technology road map is really underpinned by the major technology trends that we see as critical to digital transformation for our customers. I will take a minute to talk about 5 technology trends that we see important to digital transformation. First and foremost, we see that distributed infrastructure and edge computing will accelerate hybrid multicloud adoption. So increasingly, we see customers moving computing from centralized data centers to distribute an infrastructure at the edge, where data exchange and interconnection with businesses and cloud service providers are growing at an exponential rate. Today, we are the aggregated edge for most of our customers, and we can help them solve for latency, bandwidth costs, hybrid multicloud adoption as well as regulatory requirements. And second trend is that IoT and AI will drive new requirements at the edge in terms of data processing and interconnection. So with the acceleration of AI and IoT adoption, we see more use cases that require increasingly complex and more real-time-sensitive processing of large sets of data at the edge that can originate from as many as 10 different sources. So to meet the scale and agility requirements of such use cases, I think businesses will continue to leverage cloud service providers, but also will want to be in proximity to the sources of data creation and consumption. And this really creates an emphasis for architectures that are vendor neutral, multicloud adjacent, virtually connected and at the edge, very much like an Equinix IBX data center, basically. And the third trend is that the rise of cybersecurity threats will require new data management capabilities. So today, no company or individual is immune to cybersecurity attacks and with the increase of cybersecurity challenges and data privacy regulations, most companies will need to move towards accessing cloud service providers, resources over private networks and also storing their encryption keys in a cloud-based hardware security module or HSM at a location separate from where their data resides. And that is very similar to the kind of the SmartKey solution that we offer at Equinix. The fourth trend that I'm going to talk to you about is that data regulation will continue to influence enterprise IT strategies. So today, many enterprises buy and sell data to get the competitive advantage. At the same time, these enterprises must adhere to government regulation framework and requirements. And what started in the European Union with the General Data Protection Regulation, GDPR, is now proliferating and transcending into many more local government regulatory frameworks. So overall, we see that trend towards stricter or new data privacy requirements will continue to increase, which in turn will impact how architectures will be implemented. We believe that this will drive in more distributed infrastructure as companies try to shore their data and partition their data and keep the data separate in certain situations between different regions. And finally, the fifth trend is that we see that digital transformation will provide the foundation for a more sustainable world. We anticipate that increasing pressures on world's resources and climate change will increase companies' desires to cut emissions and to ensure the greening of their digital supply chains. In 2018, over 90% of Equinix' energy consumption was covered by renewable sources, and we were recognized by EPA for our leading green power use. So in summary, these trends are all really great indications that enterprises increasingly are adopting distributed hybrid multicloud architecture as the implementation model of choice for their infrastructure.

And as you -- how would you sort of characterize or what would you characterize as significant milestones as you sort of -- for Platform Equinix? As you look at the road map, how will you measure success from your seat?

I think Equinix is really the only company that sits at the intersection of all these major technology trends with AI, IoT, 5G, edge computing, hybrid multicloud. And the success of our technology road map starts with us understanding these trends first and then ensuring that we can effectively leverage technology innovations and also our preferential position to develop products and services that meet our customers' needs today and tomorrow as we expand our reach. And also, we have to make sure that we have a framework where we can incubate these new ecosystems as they evolve. So measuring success will also come from being able to develop real-world use cases that matter to our customers and that really relates to their challenges and our ability to actually leverage these use cases across our customer base. As an example, in edge computing, we are seeing unique use cases where for cloud and online gaming, a few milliseconds of network latency can make a big difference. And today, our existing footprint enables a constant delivery to 90% of the global population in major metros within 10 milliseconds of latency. So these are examples of how we can measure success of our technology road map.

Okay. And then -- so -- and just to sort of clarify, what are some other areas that Equinix could sort of expand into?

At the macro level, we will continue to expand our footprint across new metros and markets. At the same time, from a technology perspective, we want to rethink our technology stack and make sure that we have a framework to leverage the fast-evolving set of technologies that are emerging today, especially on the software-defined infrastructure side as well as cloud native technologies. And we have a vision for Platform Equinix to really offer services as a -- in a software-defined everything model to our customers. And this doesn't mean that customers still won't be able to deploy physical infrastructure at Equinix, but we want to provide them with the choice and ability to leverage our services in a virtual way, as I mentioned, so that they can have the option between CapEx or OpEx spend. And you see us do this already with products and services such as ECX Fabric, edge services and our bare metal efforts, which we will accelerate with the adoption of Packet.

I want to jump into that, the bare metal. Glad you touched on that. So there was a press release today describing sort of the closing on the acquisition of Packet. You -- previously, when you announced this transaction, you discussed the seismic shift in enterprise compute. What are some of the seismic shifts in enterprise workloads that you're seeing?

I think, across the board, as digital transformation accelerates, enterprises are becoming more and more distributed. So that's the first kind of shift that we see from an infrastructure deployment perspective. But also, as I discussed briefly, they are facing increased data privacy regulations. So that impacts in terms of -- that impacts how they build and expand and manage their infrastructure. But also, they're facing rising cybersecurity challenges and threats. So all of which means that we need to have a new approach to technology and IT architecture. So with such an ever-increasing set of use cases, I think the legacy IT architectures and technologies can no longer meet the fast-evolving and agility requirements of these new enterprise workloads and requirements. Just as 2 examples, I think, for OTT, for over-the-top video, content and digital media, companies are expanding towards the edge as they launch services around the world and need to make sure that their workloads can stay and their data can be processed adjacent to the customers -- to their customers. In the retail space, we see that a lot of our customers are re-architecting their network to enable digital business, but also to interconnect to business partners in a variety of use cases, spanning many different kind of applications. And then more broadly, we also see a trend around enterprises going global and building their own availability zones and regions, making sure that whether it's for data regulation and sovereignty requirements or for their availability or performance requirements, they have a global infrastructure that they can manage. And it really impacts the whole stack and how they build the infrastructure all the way from network, from the compute, from their bare metal and infrastructure. And we are actively engaged with a lot of customers in those use cases as well.

Can you just maybe expand on that, the enterprise use case for bare metal?

Yes. So the -- I think the -- yes, I would say for many of our customers, one of the greatest challenges is the ability to simplify, streamline and automate the digital supply chains that allow them to enable dynamic provisioning of their infrastructure. And as a practitioner, I have seen firsthand in some previous roles how difficult it can be to actually simplify and automate the bare metal stack and maintain it on a daily basis. So bare metal as a service is really a generalized compute that can serve a variety of use cases. And the combination of Equinix and Packet is really targeted toward interconnection-oriented use cases for the agility, flexibility and reliability needs of the digital business. You can think of it as the ability for customers to provision physical infrastructure and the speed of software at the edge and globally, leveraging Platform Equinix with all the other services that we can provide on top in terms of cloud on-ramp, global interconnectivity with our ECX Fabric or edge services and our private key solution that I talked about.

And would Packet lend itself to larger enterprise use cases? Or is this geared towards smaller enterprises?

I think bare metal as a service and Packet, specifically, they lend itself to both use cases for small and large enterprises.

Okay. And are there any other important ancillary offerings that you'd like to see integrated into Equinix' model on bare metal?

If you look at the history of Equinix over the last 20-plus years, Equinix has continued to evolve to serve the needs of our customers. Their founding customers came to Equinix as they were looking for a network-neutral operator that could provide them with the space, power and interconnection that they needed to enable the ecosystems that created the Internet. From that foundation, we continue to evolve and make sure that we keep focused on serving the needs of our customers and continue to make sure that our services remain easy to consume. As Equinix continues to evolve, I think technology will play an increasingly important role as space, power and interconnection has to-date in our business. Technology will also make us more agile and better enabled to serve the needs of our customers as they embrace digital transformation. I think, in closing, I personally think that we are really -- we live in very exciting times in the history of technology and infrastructure. The ability for our customers to securely manage and process data at scale on Platform Equinix, while having direct, secure and low latency connectivity to multiple cloud providers and cloud ecosystems is really creating a lot of opportunities for them to serve their users better and also benefit society in new ways.

Well, thank you. From the audience, I'll poll. Anybody have any questions to share? Yes, sir?

I've got 3 related questions about the edge computing opportunity. Well, first one, we've got over 200 data centers in [indiscernible]. Because of the 5,000 central office, what's the right level of distribution of this edge cloud? Is it in the hundreds or the thousands of locations? Second part is, to what extent does Equinix want to offer some of these near-edge, low-latency applications versus making it possible for your own customers to do that? And third is, does your status as a REIT do -- what does it allow you to do and to not do?

Great questions. So on the first question, as I mentioned, we are serving as the aggregate edge for most of our customers today, and we are seeing that the vast majority, if not all the use cases that our customers need today, can be effectively served by our presence and footprint and the connectivity options that we provide. And as I mentioned, just when it comes to content delivery, we are providing content -- we can provide content delivery to 90% of the global population under 10 milliseconds. And in the U.S., we did a quick analysis and I think in the major metros, 80% of the population is also within 10 milliseconds of network latency. And we are looking at options to see whether a closer proximity to end users could be valuable, and whether this is something that we need to get involved with. 5G is, obviously, one area that we're looking at. But -- and as you know, we are also involved in industry forums and the community to work with partners and the rest of the community in such use cases. So the short answer is that, today, we are serving a lot of those use cases successfully to our customers. And it doesn't mean that in the future, we will not look at that space. But today, I would say that the vast majority of edge computing use cases can be effectively met by what we have in terms of the infrastructure, the new bare metal as a service offering and the interconnection to cloud and to the rest of the ecosystem. And the second question, can you repeat the question, please?

To what extent can you -- do you think you will be offering some of these edge services as opposed to simply enabling your customers to offer it?

I think it could be both. As I said, it really depends on the use case and what the requirements for that -- for those use cases are. The typical kind of requirements that we see are around bandwidth, are around latency or around the agility to manage some of the network connectivities at the edge, whether it's IoT, whether it's kind of real-time processing of some data at the edge or whether it's going to bursting transfer of data. And these are -- there are different use cases, as you know, and I don't think there is a universal answer or a unique answer to all of these use cases. But at this point, most of the edge use cases that we are working on can be effectively delivered through our footprint in the major metros that we operate in. And on the third question about our REIT status, I think you might want to talk to our CFO, Keith, or my colleague, Chip, from our Investor Relations team, who is here with me today. We'll be happy to chat with you about that question afterwards.

Sir?

If I heard correctly, you said 90% of your energy usage is from renewable?

That is correct. In 2018, 90% of our energy consumption was...

[indiscernible]

That is true.

[indiscernible] is that self-generating? Or is that [ 2012, 2009 ] or it's actually from generation. That's probably renewable generators.

My understanding is that it's from a mix, but I will look to look further into this and chat with you afterwards. Thank you.

Okay. Anyone else? Last question. Yes, sir?

I had one question on the -- on the vertical services and/or [indiscernible] give us an example of what Equinix has versus some of [indiscernible] that you have that's actually quite similar or overlapping reinforced around data services? And what exactly is Equinix doing for data services or data management.

That's a great question. So there is -- so when you look at the data privacy and kind of regulations, there is a number of measures that companies are taking. And the first one is a physical separation of their infrastructure, let's say, an enterprise that has data centers or a footprint only in one country and they need to expand that globally in different regions. So through Platform Equinix, they can go to one or several of our data centers in the target region, and then we can provide the connectivity between their presence and the origin country and the new country through our ECX Fabric, and we can also enable cloud on-ramp connectivity in the new country or in the new region. And that's really kind of the foundational part of their infrastructure. With our bare metal offering now, they can also consume the bare metal stack for their new kind of implementation and deployment. And also, they can consume the other services that we offer, such as Network Edge solutions. And then we are not -- we're not operating at the same level as infrastructure as a service, where cloud providers are operating. So bare metal as a service is a specific offering, which is really about provisioning dedicated single tenant servers and automating the provisioning of that stack.

Okay, that is -- any one -- last quick ones? Okay. Otherwise, we'll wrap it up. Thank you very much for your time.

Thank you very much for having me.