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

Hi. Good morning and good evening to all the investor clients who have dialed in to the Equinix presentation. This is Michael Funk from Bank of America. Very happy to have Jeremy Deutsch from Equinix here with us tonight for the presentation. His colleague, Katrina Rymill, has a disclosure to read before we begin. So I'll kick it over to Katrina.

Great. Thank you, Mike. And as always, appreciate you hosting us. So before we get started, some of what we'll be talking about today contains forward-looking statements. Please read our SEC filing for more information about factors that could affect these statements. Thanks, Mike.

Great. Thank you, Katrina. And as a quick reminder, the format tonight is going to be a 45-minute fireside chat. [Operator Instructions] Quick introduction of Jeremy. And I think Equinix is one of the more unique companies that I covered here in the U.S. in terms of their global reach. So very lucky to have Jeremy here with us tonight. He is the President of Asia Pacific and responsible for all the regional management strategy and growth plans for Equinix in Asia Pacific, including operations in Australia, China, Hong Kong, Indonesia, Japan, Korea and Singapore. So certainly able to comment on a wide range of geographies in APAC this evening. He's held multiple roles at Equinix, including Sales Director of Equinix Australia and Managing Director of Equinix Australia. He has almost 20 years of experience in the information and communications technology industry. So certainly a wealth of knowledge to bring to the conversation tonight. So I wanted to thank Jeremy for being here with us.

Mike, thanks for having me. I really appreciate the opportunity to come out to chat.

And maybe we can just kick off, and you can walk through what your priorities are in APAC.

Yes, sure. So you've sort of covered off some of the background there with the markets we operate in Asia Pac. We have 227 data centers around the world. 46 of them are across the Asia Pac region. So we've got a lot of focus on obviously making sure we support our customers across the region in a very strong fashion. As far as priorities go and where the focus has been, even in the last couple of weeks, we've made some announcements on new infrastructure that we're building in the region. So we announced a new facility a couple of weeks ago in Perth called Perth 3, PE3. And just today, actually, we announced a new facility in Osaka, Osaka 3. So we've been quite busy on the organic growth side. We've also, during this year, announced an acquisition in India, which is a location that many of our global customers -- and we have over 10,000 global customers. One of the most frequently asked-for locations that was missing in our platform potentially was India and specifically Mumbai. So this year, we've made an announcement of an acquisition in India with a company called GPX Global Systems of their Indian operations, which gives us 2 facilities in Mumbai. So I guess from that side, a big focus on continuing to organically scale our platform across the region for our customers and then entering new markets and extending that platform across the region. And really, all of that has been around supporting our customers through their digital transformation requirements. And I think that's the key reason that we're continuing to see a strong acceleration across the platform and across the Asia Pac region.

It's all a very helpful baseline for conversation. And I'm very interested in hearing about how APAC market is different from North America and Europe. Clearly, North America, more mature market in North America. But how do the customers differ? Is there a difference in the deal size you're seeing in APAC? Build time and cost? Power availability? Can you compare and contrast that market to EMEA and North America?

Yes, sure. So let me start off with the similarities first before I go to the differences. One of the amazing about the Equinix platform is how many of customers are deployed with us across multiple locations. So this may be multiple regions or multiple -- or cities. So over 80% of our customers are with us in more than one city or one metro as we call them. And over 60% of our customers are with us across all 3 regions. So you really have that cross-pollination between the regions and a lot of similarities baseline in the customers. Now as far as what the customers are focused on doing with us, again, a lot of similarities across the 3 regions. And probably I'll break it down for you to give you a bit of a flavor. The customers generally are coming to us to solve their interconnection requirements. They're coming in to make sure that they can plug into their network service providers in the market, the cloud service providers in the market and offer either their services to their end users or complete their digital architecture. And that's very consistent across all 3 regions. In actual fact, if you look at the third quarter, we did over 4,400 deals across 3,100 customers just across the global platform there. And that was very evenly spread as you look at it in the different sort of mix capabilities between the 3 regions. So a lot of those customers are coming to us for a highly interconnected footprint, so similar deal sizes that we're seeing across the regions there, similar kinds of requirements. In actual fact, it's often the same customer deploying very similar architecture in Europe as well as in Asia Pac as a they already have in the Americas. So a lot of similarities, I guess, is the thesis that I would give you as they're looking at scaling their platforms. So -- and one of the most interesting things we're seeing from our customers has been desire for e-mobility. When they're looking to do their architecture if they're doing hybrid multicloud, for example, they're leveraging an Amazon connection and Microsoft connection, their global connection. They want to be able to do that in their home market, which could be Amsterdam. And when they come to APAC, they want to replicate that it into a couple of markets to interconnect. They're looking for a location where they can pick up the exact same parts and build the exact same platform. And that's very much what the Equinix Cloud does and gives our customers the opportunity to leverage.

Jeremy, I wonder if you could do me a favor, and I think Katrina can jump in here for a moment, but your line is feeling a little bit faint. Do you mind disconnecting and dialing back in, and I can ask maybe Katrina about some of the ESG while you do that?

Sure, can do. Give me a second.

Okay. Thank you. Katrina, are you still there?

Yes, I'm still here. I'm only -- sorry.

Yes. Sorry about that. He...

Okay.

Yes. And I wanted to ask about ESG and specifically in APAC, and I hope it's not too narrowing a focus. But one of the questions I've been asking, and clearly, I mean all the companies the last 2 days have articulated an ESG strategy. I think Equinix was relatively early with their own sustainability reports. But just on procuring renewable energy and challenges across markets in that procurement, are you able to talk to that at all?

Yes, absolutely. And it's interesting, Mike, you brought that up because the first time it was on about a quarter of our -- we did the one-on-ones last time. In about a quarter, the investors were asking about ESG. So as a topic, it is absolutely coming to the forefront. And when it comes to Equinix, we are very lucky. We started early on to think about particularly the pillars around environmental, social and governance. Kind of turning more to your question around renewables, for us, the environmental pillar, it is all about renewable energy. Energy is 98% of our carbon footprint. And the initial strategy was thinking about, okay, how do we help procure renewable energy to fund what is today over 500,000 U.S. homes' worth of energy that our customers are using? So we were the first data center to set a goal of 100% cleaner renewable energy. Last year, we were at 92% of that goal. And so making -- continue to make progress. Two areas we are looking at is both the composition of that 92%. So how do you continue to improve the mix? So it's about supporting incremental renewables coming out of the market. And then of course, how do you increase to that last part? For APAC, it is tougher. If you look at the split between the 3 regions, APAC is the lowest of the 3 at 75%. I think it's a combination of a little bit more of earlier markets. And the other area is there's -- many markets like Singapore and Japan, there's just not the quantity of land available that you have for, say, a large wind or solar farm. I think the next move you'll see us is in Australia. So it really is a very interesting market to add on the renewable piece. We're looking at on-site solar in some cases. The challenging part, you can't cover the whole load. Usually covers about 5% of the load. But we're looking at supplementing with potentially direct power purchase agreements or VPPAs in markets as well. But expect us to continue to kind of push and expand on the renewable side. And the last piece is for those of you who saw us through the green bonds, you saw us kind of codify our approach not just in renewables but green buildings, energy efficiency and other areas that we're trying to expand into. So we're very excited about the work and scope that's being invested upon in those areas.

And are you finding, when procuring renewables, that this cost is higher than traditional power? And I guess if so, are you able to pass it on to your customers? Or does that have a negative margin impact?

It depends on what and where you're procuring it. So for example, in Europe, you're procuring it directly from the grid because more of the grids are renewable there. So inherently, it doesn't actually mean more cost. What we've ultimately liked is for the utility grids themselves to be sourced primarily from renewables. And then you don't have to go through these various structures to support that. Same thing for VPPAs. Inherently, it just depends on how your VPPA is trading because you can both lose or actually gain money off of that. And then RECs, inherently, you are outright purchasing RECs, so there is a cost associated for that. But roughly, Mike, I'd say it's about 1% of our overall costs given those 3 different components right now. And that's -- you wouldn't -- just given the margin we have off of power and space, we don't necessarily charge directly for it. But it is very valuable to customers. We've done over 50 green power reports out to our customers, which is helping them certify the footprint they have with us. And it's becoming more of a requirement since for the supply side essentially for some of these big hyperscalers and networks.

Got it. And you're definitely right. I mean investor clients do care a lot more about ESG today than even in -- 12 months ago. So it's great to have that color, Katrina. And I think Jeremy has joined us back again?

Yes, Mike, I'm back. Hopefully, the crackling has gone.

Yes. No, you sound great now. So thank you. I wanted to follow along with your previous answer to the question that I had. And the question had to do with connectivity. And are there markets in APAC where -- I mean obviously, Equinix as a platform is based on interconnection and obviously connectivity and very high performance. Are there markets where connectivity is more challenging than others?

Look, I think there are certainly some markets in APAC where the capability for interconnection is growing. I would put India on that list. So that market, as I mentioned, is a big focus for many of our global customers. Having one location or the ability to connect that platform into a global architecture for organizations, I think, is pretty attractive for them. So I think further development in that market -- and GPX for us was a great acquisition opportunity because they'd already got the fundamentals of having highly interconnected facilities. So they have north of 200 customers, 130 ISPs in that platform. So it gives us a good foundation to start building that highly interconnected architecture. And that's really what our customers are asking for, is making sure that we get all that connectivity into the one location to make it easy for them to deploy their services and deliver their architecture. So yes, I would say that definitely, as you go out of the more established markets, there continues to be opportunity in Asia Pac where people are asking us to help them solve that problem.

And I wanted to dig into some of the metrics now if I could.

Sure.

Equinix reports great comparative metrics across regions, and one of them is the MRR per cabinet. And that fell in APAC in third quarter. Was that purely a function of mix? And what are you seeing in terms of pricing in APAC?

Yes. No, appreciate the question. So for us, pricing remains really healthy across the Asia Pac region, and we expect the MRR to continue to remain firm. I think it's important to keep in mind that on a quarterly-by-quarterly basis, there are some fluctuations depending on foreign exchange and installs and churn cadence, et cetera. So the moves on a quarterly-by-quarterly basis probably not necessarily giving you a correct indication of what's going on underlying. If you have a look at the year-on-year numbers for Asia Pac, you're seeing the MRR per cab remains very strong. In actual fact, it's up $100 year-on-year on a reported basis. And we really see that on the back of our customers continuing to leverage the platform and scale across the market. So we're very comfortable with where the pricing is sitting in Asia Pac. In an actual fact, in Q3, when we reported our results, we called out some significant strength in Singapore and Tokyo. And we have some new capacity coming on in Singapore as well in the first quarter. So we see a good opportunity for us to continue to support the market as they -- as customers scale across the platform.

And you mentioned there are opportunities on the cross-connects and cross-connects' growth, which lags in absolute numbers relative to the Americas and Europe but growing at a much faster rate. Do you expect to close that gap relative to the Americas and Europe?

Yes. Look, I think there's -- as we look at interconnection globally, I think it's approximately 18% of our revenues around the world. And if you're looking at Americas, Americas are seeing about 24% of the revenues coming from interconnection. Asia Pac's at 16%, and EMEA's at 12%. APAC, you're right, is growing very quickly, and we continue to see that opportunity to scale for our customers. Again, in the third quarter, we called out some significant strengths on the back of our Cloud Exchange platform in some of the markets where we're seeing some real adoption there. So that's our virtual cross-connect capability. So just to put it in a frame of reference, we provide both physical cross-connects where a cross-connected cable is run from one location in a data center to another. But now we also have the capability with our Equinix Fabric service to support connectivity to clouds or connectivity between countries, between different parties on that platform as well. And we've been seeing some real pickup there. But if you dig into it a little bit deeper, globally, we've said we have a set of markets -- in actual fact, 14 markets around the world where we have over 10,000 cross-connects in those metros. And in Asia Pac, we have 3 of those. So that's Sydney, Singapore and Tokyo. So you really have that opportunity where we're continuing to scale cross-connects' growth across the region, and we continue to see momentum in that. As far as at what stage do they start to approach other regions, I think that's continued aspiration for us, is to continue to grow and scale and support our customers with cross-connect capability across the region.

And I'm sure -- correct me if I'm wrong, but my understanding is that cross-connects, historically, were not so prevalent in Asia as well. It wasn't as much part of the model over in Asia. Are there structural differences in the region that make it more difficult to grow that business? Or are these mostly non-APAC customers that can kind of get the value of the cross-connect, and that's helping to drive the growth as well?

So across the Asia Pac region, again, as I'm sure you're aware and many of the investors are, Equinix has completed over 27 acquisitions over the last number of years of operations that we've been in place. With those acquisitions, you come with a slightly different cross-connect model in some of those acquired assets. Obviously, we move to normalize those across the region. But if you look at the very first acquisition in Asia Pac for Equinix, which was Pihana Pacific, they did have, in that level set, the ability for cross-connect. So it has been in the region for a long time. Some of the fundamentals that may be different in the region would be that earlier on, there was a higher prevalence of copper cross-connects in Asia Pac towards fiber cross-connects in other parts of the world. That is gradually starting to phase out. So that's one trend we've been seeing over the last handful of years. I think as far as the opportunity goes with connectivity now, it's really moved to focus on that enterprise cloud connectivity element. And we see that very consistently across the global footprint. So I think we'll continue to see that scaling growth across the Asia Pac footprint just as much as we will in the other regions.

And Equinix, generally, highlights the growth from existing customers on the platform across cross-geography customers. And so just wondering if most new logos in-region are regional companies or if they are from customers that are out of region.

So again, we get a very good mix there. So across our -- I mentioned some of the stats earlier about the customers that are with us in multiple metros and across multiple regions. So we really help our customers as they're continuing to scale. So if you will, think of the perfect ecosystem in any one of our cities, whether it's in Asia Pac or otherwise, is a really good combination of global network service providers, local network service providers, married up with local systems integrators, cloud service providers as well as global cloud service providers as well as hyperscalers, and then helping to support both branch office locations for global multinationals as well as head office locations for local multinationals or larger enterprises. So it really is a perfect combination in those digital ecosystems that we create, which is why we get such good adoption and capability in the platform because you really get that network effect. Once you have the right number of networks, the right number of cloud connectivity points, it makes it really easy for enterprises to come and deploy. And as you get more and more enterprises, they start connecting with each other as well, and you get that true digital ecosystem. And that's really what we look to create in each one of the markets.

And you mentioned Perth 3 earlier. And we had an Australian-based company on yesterday as well, and they were talking about some of their expansion throughout the region. And one thing we were talking about was the population density, right, in Australia and how that affects data center kind of placement or distribution. Does regional population density differences -- does that affect how you think about data center placement in APAC? Or is it similar to North America?