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

Great. Good morning, everybody, and welcome to the next session of the Morgan Stanley Cloud Secular Winners Virtual Conference Call. I'm Simon Flannery, covering telecom services and communications infrastructure. And when you think of cloud secular winners, we're happy to have one of the best positioned companies for that, and that's Equinix. And we have Bill Long, who's SVP, core product management. Welcome, Bill. And Katrina Rymill, who's VP of IR and Sustainability. So before we get into it, a couple of housekeeping items. There is the ability to answer -- ask questions online, and we'll try to get to as many as we can. We want to just cover our disclosure statement. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call is for Morgan Stanley institutional clients and financial advisers only. This call is not for members of the press. If you are a member of the press, please disconnect and reach out separately. Comments made on this call are not for attribution by members of the press. Please also note that this call is not for individual wealth management clients. If you have questions, please reach out to your Morgan Stanley financial adviser for more information. And Katrina, I know you want to add your comments as well.

Yes. Thank you, Simon, and thank you again for hosting us today. So before we get started, some of what we'll be talking about contain forward-looking statements. If you have any questions, please see our SEC filings for any of factors that might affect those statements.

Great. Thank you. Well, Bill, let's start with a broad-based question here. When we talk about cloud secular winners, help us understand Equinix's positioning and how you're really trying to take advantage of the tailwind from the secular shift to the cloud?

Yes, sure. So let's maybe start a little bit to just give a foundation for what Equinix is and sort of why we're uniquely positioned to capture some of that opportunity. So those who aren't as intimately familiar with Equinix, we operate over 200 data centers around the world in more than 54 metros. We're always adding new facilities, new metrics. So it's a little bit hard to keep track. But really, our focus for those data centers is on interconnection-rich, multi-tenant colocation facilities. So really, our goal in the world is to provide the infrastructure where networks can connect to each other. When I say networks, that means cloud networks, service provider networks, wireless networks, enterprise networks, where they can all connect together. And there's -- within our data centers, there's a rich ecosystem of those providers. And then we provide them a set of tools and capabilities where they can actually connect their infrastructure together. So I think it's important -- so that's obviously the basis of sort of where Equinix is coming from. And if you'll notice there, it's important to note that what we're not. We are not primarily a wholesale provider that really focuses on providing huge sort of core and shell data centers for cloud providers to put their huge compute farms. We do a little bit of that opportunistically. We have an xScale offer that does that. But really, our focus is more on that interconnection-rich retail colo type of facilities. And you'll also notice that I didn't say that we are sort of very focused on just sort of undifferentiated enterprise data center facilities. So what that means is that we don't have just lots and lots of servers from enterprises that are there with -- that could really live anywhere. And so with that background, if you think about the opportunities that we're going after, there's a couple. So first is to the cloud providers. So to understand sort of what the opportunity is in the shift to cloud, you have to understand how the cloud providers actually architect their infrastructure. So they typically have a huge compute farms, but how do they connect those compute farms to the rest of the world are in access nodes. So they'll actually put infrastructure in a facility where they can connect to the rest of the world. In a lot of times, those are in Equinix facility. So the cloud providers, one opportunity for us is when we win those access nodes for the cloud providers. And then this -- of course, there are some opportunities where we will win some of the infrastructure from a cloud provider where they want to put their infrastructure closer to the edge, where they want to be doing AI or some compute where they -- where for performance reasons, they don't want that to live deep in their server farms, they want to have those -- that infrastructure be closer to the actual users. So opportunity 1 for the shift to cloud is really to the cloud providers and the access nodes and those workloads for the cloud providers that want to live closer into the edge. The second big sort of opportunity is with the enterprises themselves. So as the enterprises are shifting their infrastructure into the cloud, that's providing really an architectural event where -- for them to architect their infrastructure differently. And typically what they'll do is, they'll take a lot of their workloads that currently live in their basements. Their -- so their data centers and their headquarter locations, and will move those -- they'll move that infrastructure some of it up into the cloud, but they'll typically leave behind one of these access nodes that acts as a pivot point for where that enterprise can connect to multiple network providers and can connect to multiple clouds. So they really want to choose a location that is cloud-neutral and network-neutral that can act really as a control point for their infrastructure for moving to the clouds. So as more and more enterprises move to implement to move into the cloud, it's providing a great opportunity for Equinix to access a piece of that market that was really previously unaddressable to us because those -- many of those workloads were actually hosted out of the enterprise basements. So hopefully that gives a little background on Equinix and some of the opportunity on both sides.

Absolutely. And perhaps just give us a little bit of a snapshot of how many clouds these customers are connecting to and why Equinix rather than going to AT&T or something and connecting directly to AWS that way. What's the value proposition here for Equinix?

Yes. So that's a good question. So for -- at the high end of the enterprise, so you're talking the biggest, let's say, 10,000 sort of enterprises around the world. They're all using multiple clouds. And that's everything from AWS, Azure, Alibaba to long list of SaaS providers. So we are seeing very broad cloud adoption and the connectivity to multiple clouds. So it's not just providing the ability to connect to one cloud, it's the ability to connect to multiple clouds. So that is -- having those ecosystem participants is super important. But two, the difference between using a network to connect to clouds versus being in Equinix, there -- at certain scales, if you're doing relatively low scale and you're only connected to a few cloud providers, using a network is a great way to do it. And we actually have -- the vast majority of how networks connect to clouds is actually in Equinix as well. So if you're a network provider and you want to connect to a cloud, that happens -- those cloud edge nodes are in Equinix. So if you're an AT&T or Verizon or one of those guys, you have to come to where the cloud provider is, which a lot of the time is in Equinix. So we like it both ways. So it just depends on the needs of the customer and what scale they're operating. So if you're connecting to a lot of clouds and you're doing at really high scale, the sort of lowest total cost of ownership way to do that with the highest throughput and best performance is going to be to be colocated in a facility where you can directly access those clouds.

Right. And maybe talk about the Cloud Exchange product and how the rollout of that is going, and the adoption rate?

Yes. So Cloud Exchange is -- we put a lot of focus into Cloud Exchange and turning that into sort of the interconnection platform going forward. The name Cloud Exchange is a little bit of a misnomer. You can use -- it's a real-time platform where you can set up a virtual connection, really to any destination anywhere in Equinix. So if you have a single port in Cloud Exchange in one location anywhere in the world, you can access pretty much any other customer anywhere in the world within Equinix. From an adoption -- so it's a good multi-purpose tool. It allows us to provide access to our full ecosystem. And again, it's more -- you can connect not just to the cloud, but you can connect to their network service providers that are doing it. There are insurance companies and state and local government that are sort of saying, "Hey, if you want to connect to us, this is the way to do it." So we're seeing a lot of good adoption on that. But roughly about 20% of our customer base is on Cloud Exchange today. The customers that are not on Cloud Exchange, we have a long tail of sort of single site customers. And that long tail of single site customers, the adoption is not as strong. A good reason is because if you're in multiple locations, you can use Cloud Exchange to connect those multiple locations. It's one of the primary use cases. And that long tail of single site customers is not adopting it. But if you -- at the high scale, our largest customers, the adoption is actually -- is really strong. So we've rolled that platform out to roughly 45 different metros. I think there's -- it accesses 170 or something like that of our IBXs, our data centers. So that's a little bit on Cloud Exchange.

Right. And then you talked about the virtual nature of that. So just give us, again, an overview of interconnect more broadly and how this fits into that? And what the overall trends in interconnection are?

Yes. So in interconnection overall -- but let's start with sort of the differences, the pros and cons of Cloud Exchange versus like a physical cross-connect. For a long time, Equinix had our Internet exchange product to enable the IP peering world. So when networks -- when IP networks want to connect to each other, so if it's Netflix connecting to Comcast, as an example, there's a thing called Internet exchange that will allow multi parties to connect to multiple parties. And that works pretty well at lower scale. So at 10-gig, multiple 10-gig type of scale. But as that starts to scale up, customers want to have a physical cross-connect between those 2 different destinations. So we basically follow the same pattern as the IP peering world for the cloud connectivity world. So we're seeing those same patterns emerge in Cloud Exchange where customers or the whole ecosystem is using Cloud Exchange at -- if you have 10-gig and multiple 10-gig type of scale. But as that starts to scale up, and you want to be able to peel off to 100-gig and multiple 100-gig type of speeds, our customers are peeling that off and being able to use a physical cross-connect. So having a full portfolio of solutions where you can have a good, real-time product that can enable connections dynamically at relatively low scale, but as customers scale up, there's a sort of high performance, high capacity way for them to scale into physical cross-connects is an important part of that story. So we see -- having a product -- products that do both of those is important. But interconnection -- so that's sort of on the product side. For the more of the interconnection dynamics overall, we continue to see really strong sort of secular trends with interconnection. We had 15% year-over-year growth, which is outpacing the growth of the rest of our business. And it's really -- we added as many -- as much interconnection as our next 10 competitors combined. So it just shows the strength of -- if you have those ecosystems and you have a strong secular tailwind of companies going through digital transformation, it's been driving those good trends really across all of our regions for interconnection.

Great. And you just talked about that -- I think U.S. is much more developed in terms of interconnect. Where is EMEA and Asia Pac in terms -- can we see them in terms of percent of revenues, et cetera, heading towards the U.S. over time?

Yes. I think as you -- I think of interconnection in terms of both connection density and ARPU. So if you look -- the Americas has both the highest ARPU and the highest density of interconnection. And in the long run, I don't think there's any fundamental reason why APAC and EMEA are different. But we're going to -- and that means from both adding interconnection density as well as being able to -- over time, the pricing will come more in line with our global pricing. But that's -- but we're going to be very, very careful as we do that. So some of the things we're seeing in APAC specifically, we're seeing a lot of good ecosystem diversification. So historically, our APAC business was very focused on network providers. But we're starting to see a lot of managed service providers and enterprise adoption taking off in APAC. So that's a good diversification. And then in EMEA, we recently implemented a price increase. Historically, EMEA interconnection pricing has been much lower. And we've introduced pricing increases in EMEA and that's going very well, but that's going to take a couple of years to make its way through the system as we reprice that base. So I think there's...

Any sense of the scale of that?

So if you look at the -- and we're doing it market by market for the different markets. And you're going to see that -- you might have -- if you look at the EMEA interconnection revenue growth in the past, starting in Q4 and going into Q1, you can see some of the goodness there. And it's going to take us about 2 to 3 years for that to fully play through.

Great. Katrina, you very nicely announced a deal for us this morning to have something else to talk about. You bought some data centers up in Canada from BCE. Perhaps you could just highlight what interested you about that market and those assets and the kind of the parameters of the deal?

Yes, absolutely. And I think folks kind of knew this one was coming. We had done the equity deal and said that we were far along in discussions with an acquisition. So this morning, we announced the acquisition of 13 data centers from Bell. This is very exciting for us because we've had good presence in Canada, but it's just in the Toronto market. So we've been expanding -- with this acquisition, we're essentially going from 1 to 8 metros. We've been very successful in the Canadian market, but it's primarily been multinational selling into Canada. Still having a national footprint across these metros is really going to help us target more of the multinational -- more of the Canadian companies to be able to expand there. Canada, in general, is a very attractive market. It's growing roughly 8%. Our Equinix organic assets are growing in the low to mid-teens. And we're excited to be able to expand there. As about 600 customers, 500 of those are net new, primarily enterprise. And we expect to close this in second half. From a financial structuring perspective, it's attractive. It will be AFFO accretive day 1. And we purchased it at roughly a 15x EBITDA multiple.

Great. And I think you've had a lot of success with other acquisitions of taking these customers. What's the latest stat in those customers who are in all 3 regions. It's -- that's one of your...

Yes, 61%. So 61% of our customers are deployed across all 3 regions, 87% are multi-metro. And you even hear it with some of the stats that Bill's talking about in terms of like ECX Fabric adoption, right? That's much better with multi-metro customers. We see better traits around lower churn, better pricing. So there's a whole bunch of factors that want to lead us to having customers with larger footprints.

Yes. And so you presumably will go in and remodel those data centers so they start to have that IBX look over time. Is that right?

That's correct. If we look at the current assets, it's roughly at 60% utilization. So we do have some existing capacity to sell on day 1. There's a variety of different sites. Ottawa is very strong with the governments. We now have a Canadian West Coast presence with Vancouver and Kamloops. Montreal is a good market for the hyperscale. And then we have Winnipeg in Calgary on the enterprise side. So it's very different use cases there. We, as always, during this process, leading up to the announcement and up to the close do a thorough review of all those sites to determine what's the immediate need in terms of the standard reinvestments. And then -- from operational perspective. And then obviously we're looking very closely at sale strategy and integration so we can be off and running.

Great. So Bill, let's get back to the cloud. We're obviously in the middle of this pandemic, COVID-19, and we're talking on the Zoom platform. And I think, clearly, there was a massive surge in network traffic and in video sessions and a lot of that sort of sustained at a plateau. So help us understand what happened in the immediate aftermath of the lockdown and how Equinix benefited from that. And operationally, what's going on? And then perhaps more importantly, what do you see as the long-term implications for Equinix and this potential accelerant of cloud migration?

Yes, that's a great question. So first off, I mentioned that our focus really is providing the place where networks connect to each other. So we see very much the core of the Internet and the core of connectivity. We don't see as much of -- like when you're connecting from the carrier network to your home, we see where, again, Comcast is connecting to Netflix. So we see the core. The Internet exchanges around the world that we operate, we saw, depending by market, everywhere from 20% to 40% increase in traffic as COVID was going. Luckily, we were in a very fortuitous part in the sort of technology upgrades. So a lot of customers had just finished deploying a lot of 100-gig infrastructure. So there was a lot of 100-gig unused capacity there. So as we saw this big surge in traffic, there was a lot -- the excess headroom capacity was there to be able to absorb it. So that was great news that things like Zoom and lot of the other video conferencing platforms were able to scale up to absorb that capacity. Now very quickly, we saw customers ordering a lot of cross-connects, a lot of -- again, a lot of the video conferencing platforms and others. We have 370,000 connections. So we saw a couple key customers ordering a couple hundred more connections, ordering cross-connects. So yes, we did see a good sort of demand in interconnection cross-connects. But in the grand scheme of things, it's not a huge needle mover in 1 month. But a lot of those customers, the ability to be able to turn up a lot of 100-gig cross-connects allowed platforms like Zoom, like Netflix, and they've talked about this publicly, to be able to scale their infrastructure. They weren't in the same facility as the network providers. We would have had a real problem [ if they crawl even near. ] So the ability -- sort of the option value for being a cross-connected way and being able to spin up hundreds of gigs of capacity was really -- really helped make this call work that we're on right now. So that was sort of in the short term. In the longer term, we actually just had our -- one of our customer advisory boards. And what's happening is, there are 2 types of projects that enterprises are -- sort of they're going through as they're trying to figure out how they evolve their infrastructure to accommodate COVID. One is, they're all under cost pressure. So the criteria that they're using of which infrastructure projects make the cut and which don't. Projects that have less than a 12-month payback are continuing to be funded. And luckily, a lot of the things that -- when customers are doing WAN optimization and the migration to the cloud, a lot of those have -- meet that 12-month payback criteria. So we were asking, "Hey, what do you do -- what are your -- is this impacting the projects you plan to do?" And they were saying, "No, it actually is acting as an accelerant just for those cost-saving reasons." Secondly, everybody is looking at what they can do to accelerate their digital transformation capabilities. It's everything from telehealth to any way that you can take your brick-and-mortar business and make that digitally enabled, those projects are also being accelerated. But those types of things and how people are -- so they're making the architectural decisions now, I think we're really going to see the impact of this probably in 12 to 18 months as people have had time to look at their architecture, figure out what they can do better and to actually implement that architecture. So I think you are going to see this be an accelerant of people wanting to deploy sort of digital ready infrastructure. But I think that's going to take a 12- to 18-month kind of time frame to really make its way through the system.

Great. And I think, Katrina, you said your exposure to some of these more vulnerable segments of the economy is actually fairly modest, right?

Yes. I mean you saw -- just to kind of take a step back, you saw on our last May 6 call, we essentially widened our guidance range. So we had said, depending on how all the factors play out because there's a lot of moving parts out there, we've widened the guidance from 0 on the top end down to 50 as a negative impact from COVID, potentially kind of in the shorter term. In terms of our exposure, this goes back to Equinix is such a resilient business, whether it comes to diversity by metro, by customer type, by size, our top 50 customers represent only 39% of our overall revenue and they are deployed across 70-plus IBXs typically. In terms of exposure, again, the most impacted industries, which we would expect to be retail, travel, energy, transportation, represents roughly 3% of our overall business. And even -- like I don't expect those to be growing next year, that would be a stretch. But even in cases where there's a downturn, we are in the critical infrastructure. So if you're under pressure, you're still most likely selling digitally, and you still want to keep those platforms up and running. So it's certainly areas that we're watching very closely on, but we'll continue to kind of update the investors as we go along. But overall, we feel good about the position we have put out there on -- and again, we had actually -- on the May 6 call, we had reaffirmed our AFFO per share guidance for the year.

Right. No, just -- I think one of the concerns, say, back in March was will the lockdown put some challenges in terms of access to buildings and maybe even construction, something like that. So I mean it sounds like, from what Katrina was just running through that, it may not be business as usual, but by and large, the essential nature of these assets has allowed you to continue on much as before. Is that correct?

Yes. And we have done things where getting -- customers can't -- getting access into our IBX as we've done things like giving away our Smart Hands capabilities. So if you don't feel -- if a customer doesn't feel comfortable going into the IBXs, you can ship the gear to an Equinix data center. And we've always had a product where we would install that gear for you. While we're in this period where you want to be doing social distancing, we've actually been giving away our -- that Smart Hands capability such that customers -- there is not any financial incentive -- there is a financial incentive for customers to actually not come to our data centers. So we've seen the ability for our technicians to be able to get the gear installed. It has worked pretty well. And actually, I would expect that probably going forward, once we're out of this period, people will realize that, that product actually works pretty well. And that they didn't need -- hadn't need to get on a plane anyway to go in and install the gear. So I think you're going to see some of that being long-term trends there.

And what about new logos, if you can't do a tour in person of a data center, how is your ability to do that virtually and particularly given channel is a big part of what you offer. Or how you distribute it?

Yes. Let me start with that because what we said was we had a good new logo in Q1, but that -- Charles has said, that's an area that we're watching, right? Like if you expected to see any sales friction, it's going to be on the new logo side. In Q1, roughly 90% of our bookings came from existing customers -- over 90%. So it's going to be a lot easier to use those contacts, use those existing relationships than necessarily bring in a new logo. So that's an area that we'll continue to watch. I've not seen it for Q1, but we were thinking about that for the rest of the year. And then, Bill, what are you seeing on our side for new logos?

Yes. No, I think you hit it on it. It is even a little bit early to really tell what that part is going to look like. But like you said, that given such a high percentage of our bookings and revenue comes from existing customers, I think that's going to be -- continue to be a big driver going forward.

Yes. Also, I mean, there's been a huge efforts and change in our sales force because we are selling virtually. So we got up and running virtual IBX stores and those continue to be rolled out. We're getting creative, like we tend to have a very good close rate on whiteboarding sessions, which were traditionally done in person. So we're having our solution architects figure out how to whiteboard across the Internet now. And so I think there is a lot of change in both the sales team and the operations side to react to this. But the benefit is everyone's remote. So I think, as you kind of move past the initial shock in March around what it was like to work remote, I think you're having a whole bunch of new tools and collaborations -- ways that are coming out on the sales side.

And the construction is generally on target development activity?

So we have 32 projects. We said we saw a few modest delays in terms of ready-for-service dates. Nothing that materially impacted our guide. That is an area there's a tremendous amount of efforts going around to make sure that we continue to deliver the capacity. And I'm very thankful that we have such a sophisticated operations and procurement team that thinks about and manages this on a global basis. Now in terms of any delays, it's going to be a -- it's going to vary because the regulations and whether you have access to the sites, whether you can do construction vary per metro. In some cases, where we're critical infrastructure, we have -- can continue construction, and in some cases, an entire country may be shut down. And those rules are changing week by week. So it's an area that we watch closely. But again, we're across 55 metros. So I think it helps that -- any kind of 1 country impact will help you soften there.

Great. Bill, let's talk about competition, if we could, for a minute. I mean one of the challenges of being a market leader is you attract competition. And we've seen some M&A in the industry to try to build both global scale, but also more interconnect presence as well. So how do you see the competitive environment right now and your ability to continue to differentiate and lead?

Yes. No. So I think I talked a little bit at the beginning about how Equinix is a little bit different along the parameters of our geographic coverage, our operational excellence, the ecosystems in our data centers and then a rich set of tools that we have to pull all of those different pieces together. And I think if you look at -- when you bolt together a wholesale provider in one region with a retail provider, a colocation provider in another region, 1 plus 1 doesn't equal Equinix. So really looking at the assets that our competitors have on a base -- from a geographic coverage, you need to look at wholesale versus retail and what regions are really covered. And then you also want to make sure you're looking at what are the ecosystems that are actually available in those facilities. So what cloud edge nodes are available, how many networks are in those locations. You can look at things like PeeringDB for the count of ASNs and then a number of enterprise and ecosystem participants. So while you can sort of do M&A to plug some of those holes, and you can do -- you copy and paste marketing from Equinix, the reality, once you poke at those different parameters of geocoverage, operational excellence and looking at things like SLAs and install intervals, and then the ecosystems and the tools that you have to globally consistently put all of that together, we think our -- that is a very hard moat to be able to replicate with -- in any means because really the most differentiated thing we have are the people that are in our data centers. And that's really around the world, we have that ecosystem density. So I think -- again, I think when you separate out, when you pull each of the parameters apart, you think about what you really need in order to deliver on that interconnection value prop. It's a lot harder than bolting together some marketing material and sort of an asset in 1 or 2 metros.

Sure. You mentioned tools there. One the things that I think you hear a lot about Equinix is innovation and never standing still, continuing to look at new ecosystems but also bringing on new tools. Your Network Edge here came on recently. So perhaps let's just start a little bit with the corporate culture and the philosophy around always trying to look for that next opportunity because it seems like that's -- you can never rest on your laurels in this business. You've always got to be looking around the next corner.

Yes. I think the -- you said the culture. We are very much a customer-inspired-innovation kind of culture. So I mentioned earlier that we have these customer advisory boards. We have tons of listening mechanisms to figure out what our customers are asking us to do. So one of the big macro trends that -- and I've mentioned -- a couple of times that I've mentioned is, as more global GDP is moving digital, it's being digitally enabled, more and more global GDP wants to be able to access the Equinix value prop. They need a way to have distributed interconnection-rich retail infrastructure to be able to animate that digital transformation. But as larger -- sort of as that need goes, as more and more of that global GDP wants that, the buyers are less sophisticated. So when we're originally selling to cloud providers, network providers, expecting them to be able to architect, to ship routers and servers and load balancers to our sites, it was creating a barrier to be able to access our value prop. So what we're doing is we're systematically removing and eliminating the barriers to be able to access our value -- our core value prop. Again, our core value prop is exactly the same of providing the infrastructure to enable the networks to connect to each other. Just the substrate that we're using to animate that value prop is changing a little bit. And again, it's all in -- being inspired by our customers of help reduce the barriers for me to be able to use the Equinix model and be able to access that sort of core value prop.

Great. And maybe just talk a little bit about Network Edge and how that fits into that?

Yes. So historically, if you wanted to do something like WAN optimization. So if you -- in the old architecture where you would have a data center in enterprise basement, you're having to pay a ton to have a network that at any time someone in Singapore wanted to be able to access your serves in Silicon Valley, they have to hairpin back and forth. So when you do WAN optimization, you're pushing your infrastructure out to the edge. But in order to do that, you want to have -- you need to have a router, a firewall, load balancer, SD-WAN infrastructure. And in order to do that, historically, customers would have to go and buy equipment. So they'd have to pay CapEx, they'd have to ship it. Someone would have to go and wire it up. So it was CapEx intensive, took a fair bit of sort of operational know-how in order to do that. And it typically took, at the earliest, 90 to 120 days. And a lot of times, it would be more like a 6-month type of project. So what Network Edge is, it's the ability to deploy a router, a firewall, SD-WAN, load balance their infrastructure on a platform infrastructure that Equinix owns that allows you to spin that up as a virtual router and allows you to be able to do that WAN optimization in minutes and with a full OpEx model instead of having to pay CapEx. So we've made it -- again, it's reducing the barriers for people to be able to access that core value prop. So instead, you go into -- to Equinix, you say, "I want a Cisco router in Silicon Valley. Please connect that to my Verizon MPLS network and out to AWS." And you can get that up and running in about 10 minutes.

And how is the rollout of that going, the adoption looking?

It's moving looking great. There's again this very fortuitous timing where people want to have -- be in new metros, do things like VPN aggregation. So when you're working at home, you want to aggregate all your local VPNs to all the people that are working at home. You want to aggregate that into a local aggregation point. And so we've seen good adoption of using Network Edge to be able to very quickly spin up a VPN aggregation. And instead of having to wait for gear to have to be shipped and installed, people are using Network Edge for that. So it's right in line with our -- it's actually exceeding our business case expectations. And it's -- I think it's a great sort of use case to show sort of if we shift the sort of consumption substrate that we'll continue to see good adoption.

Great. Well, we've mentioned edge already quite a few times this morning. Can we talk a little bit more about the edge, the opportunity there and the complexity. The tower companies might think that the edge is the base of the tower, other people might think it's a fiber node. Maybe the Equinix data centers are close enough within a few milliseconds of most locations. But tie edge in and how you're thinking about it and 5G in particular and what opportunities that might present for Equinix?

Yes. So I've been having a ton of conversations with a lot of different folks. And if you talk to -- if you talk -- there's a -- if you talk to actual people that operate the networks, what you want to have is few points of presence that you can possibly have that can still meet the performance parameters of the application you're operating. So if you think about what's the equation that network providers are trying to optimize, you want to be able to have -- there are advantages to scale, both from a cost standpoint as well as operational efficiency. So you want to have as few pops as you possibly can, but still meet the performance parameters of the application that you're trying to operate. And so that dynamic is durable. I think it's going to be there forever. But -- so when you talk to network operators, the performance parameter, so there's a good blog post out there with Azure. They say they want to be 30 to 40 milliseconds -- round-trip milliseconds away from big pools of global GDP. The -- in the Americas, as an example, 80% of the U.S. population is 10 milliseconds away from an Equinix data center today. And actual GDP is even more concentrated than that. So we think the vast majority of use cases that are currently available can be enabled with the sites that we have today. What's interesting though is with 5G, in particular, there are huge CapEx and costs going into the 5G enablement. And the question is what's going to pay for all that infrastructure. And so the biggest pool of sort of new dollars that we think is available there for 5G is really enabling enterprises. So historically, much of the wireless world had been about meeting consumer demand. 5G, a lot of the net new use cases that are bringing new revenue are going to be enterprise-enabled. In order to make that enterprise -- those enterprise use cases work, yes, you're going to need to have the -- of course, the wireless networks involved but they are also -- those enterprises are also going to want to connect out to the clouds, and they're going to want to connect to their existing enterprise infrastructure. So they're going to be looking for locations that are 10 milliseconds away that they can connect to their existing network infrastructure, and they can connect to clouds. And we think that Equinix is the best place by far to bring all of those pieces together and really unlock those new sources of revenue for the wireless providers.

Great. So Katrina, maybe you can just talk about how Equinix is doing all this sustainably? And what are the key priorities for the company in that ESG regard?

Yes. Thanks, Simon. I mean, sustainability has just been jumping up as an overall priority from our customers on the policy side, on the media side and with investors. We're doing a lot of work around the environment, social and governance agenda. And in fact, if you look at our environmental footprint, a big part of that is energy usage. We were the first data center out there to commit to 100% renewable energy in 2015. We just released our 2019 report. So please check it out at sustainability.equinix.com. That's all of our latest metrics that are now out there. We're at 92% of our renewable energy -- of our energy coming from renewable sources. And we continue to look at ways for us to be a leader here. On the social side, there's a lot of work being done around diversity and belonging, inclusion, particularly relevant during both the pandemic and the unrest that we're seeing out there today in working with our employees around our DIB initiatives. We have a framework of, what we call, "I'm safe, I belong, I matter." And you just -- you feel the relevance of that. Literally, the term I'm safe as you go into a pandemic and what does that actually mean for our employees. So we're very excited about the work on this. I will say -- I'm pleased to say that the inquiries coming from customers has actually picked up. So we have not seen this dislodged by COVID. And the policy work, if you look like the green new deal over in Europe, they are continuing to aggressively push ahead on actions to help prevent climate change. So I would encourage investors to continue to reach out directly to companies. Your voice and influence directly to management team has a real impact on being able to fund these programs.

So when do we expect 100% then?

It's interesting. I would like to move the term of long-term commitment to short-term. So the other thing we're doing is we can get there. It's just kind of there's a tail that's a little bit more expensive to get there. So we're looking at different options. And the other thing, it's more than just 100% is the mix. So we'd like to roll out more VPPAs out there and so improve the energy mix of what we're doing to make a bigger impact as well. And then we're in parts -- groups like REBA, Renewable Energy Buyers Alliance, where we work with some of our biggest customers to influence utilities to put more renewables on the grid and continue to look at how else we can promote that.

Great. Okay. Well, we just have a couple of minutes left. But perhaps Bill will come back to the hyperscale. They're obviously, as you said, big customers of yours. You haven't really been in the hyperscale business yourself very much, but you do have this xScale project in Europe and in Japan and so forth. And I think you've sort of talked more about the opportunities of being near-large hyperscale deployments, even if that's not your main business. So perhaps talk about how you see this architecture evolving over time as we see a lot of these server farms getting put up across the world.

I'll touch on that, and then I'll turn it over to Kat to maybe give a little more update on some of the xScale stuff. So there are some differences by region. So in markets specifically like Europe, where you have -- there are more data sovereignty issues that vary by country. And so there are -- the ability for the hyperscalers to be able to deploy for huge server farms as they would like are somewhat limited by those data sovereignty issues. So you see more localized infrastructure than you do in some other regions. And because of that, a lot of times, you'll actually have the server farms being proximate to their access nodes, just driven by the dynamics of a lot of data sovereignty requirements. So we wanted to make sure that, if those 2 were going together, that we had a higher ability to be able to capture those access nodes while still having -- working with partners to have a good return on the xScale side of the house as well. So Kat, I don't know if there's more you want to add there.

No. Just really -- we continue to make progress. We announced our next Japan JV in April, which we expect to close later this year. And what we're doing is we're not looking going to all markets, we're really looking at rolling out xScale in international markets, particularly where we feel we have a competitive differentiator in an existing retail platform so that we can get synergies out of both of those. We feel -- I feel very good about the specific nature in which we're targeting these customers. We said that we're going after 12 hyperscale and SaaS customers. So that we are the sales leads for those. So we have global account managers who talks to a key customer like, say, Microsoft about both their retail footprint and where the [ many ] large footprints. The set of expectations though, we have 2 JVs out there. The construction of these sites will be over a multiyear period, and we'll slowly build and add more over time.

Great. Well, unfortunately, we're out of time. That's a great discussion. Bill and Katrina, thank you so much for joining us today and stay safe out there.

You too, Simon.

Thanks.

Great, guys. Thanks very much.

Thank you.

Thank you, everybody, for your time.