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

Okay. Thank you, everybody, for joining. Tim Long here, along with Brendan Lynch on my team. We will be hosting a fireside chat with Equinix. We're happy to have Jon Lin with us, President of the Americas. Jon has been with the company, it looks like about 12 years, so really looking forward to his insights. Before we start, we're going to throw it over to, I think, Chip to read the disclosures.

Great. Thanks, Tim. Some of what we're talking about today may include forward-looking statements. Please read our SEC disclosures for any risks and uncertainties associated with our statements today. So with that, I'll hand it back to you, Tim.

Thank you. And thank you, Jon, for joining us today. Maybe if we could start out kind of on the growth side. Obviously, it's been a pretty favorable backdrop for the data center business even before COVID. So maybe could you just talk a little bit about how you're thinking about growth in the Americas business? And then related to that, if you can talk a little bit about the channel strategy. It's a little bit different than some of the peers, so maybe if you can touch on how you're using channel to support that growth and any other positives that could come from the channel strategy.

Yes, absolutely, Tim, and thanks. Thanks for having me today. Overall, I'd say, again, given the situation this year, just incredibly proud and happy about how the team has responded both from an operation side and then just from the way that our customer conversations are happening and the way we're continuing to pursue the market. I think as you look at coming into this year and as you mentioned, like prior to the pandemic, the pace at which enterprises at large were looking at digital transformation, we were starting to see kind of a steady drumbeat in the acceleration of that. Certainly, this year has kind of kicked that into higher gear, I think. The first 3 months, the first quarter to 6 months of this, probably there was a bit of uncertainty about how to execute and kind of questions about what the new, new looks like. And I think certainly we've seen in the last 2 quarters more of a sense of "Okay. Now let's get on with it, right? Let's really figure out, hey, how can we adopt and transform digitally quicker even than the pace that we were seeing prior to the pandemic." And that's translated into great conversations, both in terms of with our existing customers and with new customers. And certainly, that's where our channel proposition has been such a great driver for us, right? I think over 30% of our bookings, over 60% of our new logos has been driven by this channel strategy. And we think about it around 3 real fronts there. One -- the first is our resellers, right? Obviously, companies that we've established relationships where they're bringing in additional value-added services, layering more of their capability on top. And that's an extension, both of our digital infrastructure, just the platform capabilities that we've brought allowing them to create value on top of that, but also, just as importantly is the relationships they've got with those end customers, right, exposing our brand and awareness to a new set of clients where there's already a trusted relationship and a trusted vendor there. The second piece around our alliance partners that we think about and we think about those as not directly carrying the paper for the end customer but really referring those solutions to us, and that could be our cloud service providers, that could be other technology partners that we're looking with. And again, that becomes a relationship where the 2 of us or maybe 3 of us, in some cases, can go into a conversation with a new customer for Equinix or an existing customer and say, imagine the possibilities by converging all of these things and then putting them, locating that technology solution on top of Equinix as that fundamental infrastructure, the increased value that you can get out of that investment of whatever you're buying from a hardware solution stack, it's going to provide more value to the enterprise. And then the last part that we look about is more of the traditional as you think about the channel for other data center companies might be like the brokers and kind of the referral, the agent stream. We think about that as a relatively small part of the channel. But it exists out there in the market and is kind of like more of a historical notion. But again, we've got great relationships out there that continue to be a future for us. And so with that, I think we did over, I want to say, 3,100 deals with -- or 4,400 deals with 3,100 customers last quarter. I think 2,100 of those were channel-attached or related, right? So that kind of gives you a bit of a scale of the conversations that we're having there in terms of the impact there. And certainly, I think given the pandemic, the hardest thing to do in an environment like this, especially in the first half of this year, was starting off fresh with a new customer relationship, right? And I think that investment that we've been making with the channel over the years served us extremely well, especially in the Americas around just, again, using the channels and being able to pivot to going with a channel-first strategy in kind of our new logo pursuit.

Right. Okay. Great. Thanks.

Sticking with the topic of cross-selling, but from a different angle, specifically on acquisitions, Equinix recently closed on the acquisition of 13 data centers from Bell Canada, which makes a lot of sense from a scale and cross-selling perspective. Jon, do you see a lot of other similar opportunities in the Americas for such acquisitions?

I think we're focused on integrating the Bell acquisition. I think we completed the Axtel acquisition earlier in the year as well and seeing great progress and momentum out of those. I'd say, overall, we'll look at -- always look at opportunities out there in the market. But again, we're really excited about the opportunities with the acquisitions that we had just done. And we just kind of -- think we're 50-plus days in now post-close on the Bell Canada acquisition. We still have a lot of work to do in terms of the overall integration. I'd say we're very encouraged though, right? I think the market response, both in terms of the broader IT market as a whole as well as the existing customers and partners that we had and the relationship with Bell Canada has been extremely encouraging, right? And I think when you think about, in the past, our presence in Canada was one where we were in Toronto, and we're playing an important role around interconnection just in the Toronto market. And now having that broad kind of pan-Canadian coast-to-coast presence and our ability to more robustly address the needs of the Canadian enterprises at large, I think it's an extremely exciting time for us up North. And we'll continue to look at all markets across the Americas and around the world as well, so...

Great. Yes. You certainly have a lot on your plate at the moment. Just in terms of acquisitions, I know Equinix pointed to the recent acquisition in India as being customer-led. When you think about acquisitions, how much of that is specifically at the behest of customers versus opportunities that you're seeing on your own?

Yes. I think, in a lot of ways, when we say customer-led, right, it's not about one specific customer, like an anchor tenant, so to speak, that's pulling us into that market. It's really, when we look across our entire customer base, 10,000-plus customers strong, and all of our relationships, both with the carriers, with the CSPs, with kind of like the people that are driving digital transformation and kind of the digital economy at large. When you ask them, where are they kind of leaning in and shaping, it's the same kind of overall demographics and kind of demographic analysis that you might expect that we'd be doing organically, right? So I think we just want to vend those things up together and say, "Hey, these are the economies that make sense. This is the play where it's a combination of population, digital economy, kind of network and carrier infrastructure that makes sense." And again, when we really can confirm that and have that be resonant with our existing customers and know that they're kind of leaning in alongside with us, that's what gives us all the confidence to be able to pull a transaction like that off. I'd say the same thing about Mexico, right? Certainly, our customers were clamoring to ask us for that. And the same thing with the Bell Canada acquisition, we've been asked to have a broader presence across Canada for a number of years now, so...

Sure. Makes sense. Great, Jon. Maybe pivot a little bit to talk about the edge. Just would love to get your view on how you think Equinix is going to play in kind of the edge compute world. Obviously, you guys have a pretty large footprint of data centers. And you also have a lot of tools on the technology side that some of your peer companies do not have. So number one, I'm curious what -- how you think Equinix will play in the evolution of that market. And second and related, how do you think about how the ecosystem changes? We've seen some tower companies buying small data center companies. We've seen some partnerships between the two. So how do you think that, that partner ecosystem evolves?

Yes. It's an area where we have a number of the team invested in really understanding like what does the edge mean, right? What does it mean both for the service provider community, what does it mean for the end customers kind of most importantly, at the end of the day? And what is it -- what's the right way for us to play? I think our current value proposition of Equinix being in 63 metros, soon to be 64 or 65 in the early part of next year, it gives us coverage that we feel is extremely robust, right? We can cover 90% of the population with like 10 milliseconds of latency access. For the vast majority of use cases that we've heard about or talked with clients about, about what does edge mean, like that's very, very good coverage, right? I think that opportunity at kind of what I think of as really the far edge, right? Like being in 200 cities across the U.S. or needing like sub-5 millisecond access for applications. Those use cases are still evolving, right? I think everybody is feeling it out, trying to understand what does it look like. I do feel like there's a bit of a chicken and the egg around because that's not really available to be solved for broadly, it's hard for developers to envision like -- kind of create application use cases that really require that. But like I said, at the same time, I think everybody is trying to understand what are the capabilities around that, does 5G change things, how does small cell evolve around that. I think -- and certainly, we have robust conversations with the tower companies, as you know, Tom's part of our Board. It's -- we think about that as how can we partner together around that, right? I think at the -- when you look at it from a macro perspective, having 4 or 5 different companies try and invest the capital to build out hundreds of sites across the U.S. alone, not even counting the rest of the world, I just don't think like there's a -- and from an overall ecosystem perspective, the desire to put that kind of capital outlay out around, right? So I think it's -- it definitely will be a let's figure out -- everybody in this ecosystem needs to figure out together how to solve this on behalf of, at the end of the day, what the end customers really need, whether that's end content providers, CSPs or the enterprise at large, so... Kind of a long-winded way of saying, it's early days, but -- and we're looking at a lot of different optionality there. In the meantime, in a lot of the conversations we are having with customers, we are kind of capturing some of those edge use cases today in the deployments they're doing with us, right? Again, when you think about our existing customer base, I think over 88% of our revenue is from customers that are sites that are multi-metro with us and over 60% of our revenue is customers that are like in -- across 3 regions, you're starting already to see those conversations, right? So we've got a robust set of those discussions over the last 10 years, even about how can we help them around the world to get to as close to the end users as they need to for their apps.

Right, right. Okay. And understanding it's early days and you guys are still kind of kicking the tires, but is this ultimately something you think that Equinix will view as an incremental TAM opportunity? Or is this just moving some of these capabilities from a central data center to an edge?

Yes. I definitely think it's incremental. I'd be -- and the applications that are being described and use cases. I mean in many ways, I think all of the use cases that we're seeing evolve out there are incremental, right? It's new ways to compute, new ways to process data. And even if some of that is existing ways, there's just so much more data being created and so many more companies trying to figure out how to transform what their legacy business process might look like into a data stream and source that they can either pull more analytics from or, in a lot of interesting use cases, just monetize that data, right? And I think -- so I guess, at the end of the day, I just -- we continue to see -- I think we're still -- we're no longer in the early days of that digital transformation storm. I think it's kind of like the -- still the first 1/3 of the baseball games, so to speak, right? And so it's still kind of maybe getting toward the middle innings of "Hey, how do we really do this? How can we start monetizing at scale?" And again, I think that's when you're really going to start seeing even more robust kind of adoption across the board around, "Hey, how can we drive more demand and more creation of IT infrastructure?"

Okay. Great. Thank you.

And Jon, sticking with the theme of innovation. Equinix Metal is now live in, I think, 4 markets and soon we're going to be rolling out to 10. What are you looking for as indicators of success? And what can we and the investment community look for indicators of success as well?

Yes. I think overall, when we look at our opportunity there, it's about providing infrastructure kind of which we have been doing, but doing that software speed, right? And so transforming from a case where customers have to do the like the build-out with us inside of our space, shipping gear, like having all of that and instead being able to pivot that and say, how can we help these customers get into more markets more quickly? That's what we're really trying to explore, right? And so I think when we look at what does success mean, it means it's not purely a revenue target at this point, right? It's about how can we make sure that what we're driving on that is aligned with and fundamentally making it easier to capture our core value, right, which is this interconnection focus kind of like application-aware edge-adjacent capability that we're bringing in for digital infrastructure. So I look at that as the stages of success that would be exciting for us are: one, adoption and uptake by more traditional enterprises, right? I think that's one where you're starting to see the entire developer community at large become such a bigger portion of what enterprise IT does, right? And you're seeing a pivot now from infrastructure being the driver and kind of like server procurement being the driver of decision-making to app developers being the driver of decision-making. And so that's why it's so important for us and then so exciting for us to be able to have that because, in the past, we didn't really have a story to talk about around APIs, around how can we drive digital adoption more quickly, how can we be moving as quickly as software does. And when you think about digital infrastructure, in the traditional lexicon, that might be data centers and towers and networks. I think the way customers are thinking about digital infrastructure, that fabric of APIs that you're using is just as important for them, right? And so our ability to carry that into the future and saying, "Hey, when we think about digital infrastructure, it's not just what exists today. It's what's going to be into the future, what's the total ecosystem of different components in there." That's cloud providers, that's the APIs that they're using, that's the software stacks. And our effort is not just on Metal, but also on the open-source initiative, participating in CNCF. These are all areas where we think of that as incremental opportunity to engage with our customers.

Maybe sticking with that. The recent expansion of that asset in D.C. includes a co-innovation facility. Maybe you could give us some details on who you will be partnering with there and what we can anticipate.

Yes. I think the co-innovation facility is an exciting one for us because traditionally, in our data center space, we really said, hey, people are going to operate inside of our space, and we're going to use our traditional methods like our standard, I guess, operational mechanisms for kind of AC/AC and electrical distribution. And this is actually saying, hey, we want to push forward into our thinking about what does the data center of the future look like. And we're inviting vendors in not just from the IT kind of infrastructure stack, whether that's the Nvidias, the Intels and those technology providers and the like, but also more around, "Hey, what can we do different in terms of cooling? Like how can we push the edge for liquid cooling? How can we push the edge for mechanical systems? What's really the need for electrical redundancy into the future?" It's really much more forward-thinking about the data center itself and what are the right building blocks that we might want to try and evolve for into the future. And again, historically, we haven't really pushed around those edges as robustly in kind of our live production environments. We've had lab environments to do this. And so being able to marry those 2 together is pretty exciting for us.

Sure, makes sense.

Jon, maybe if you could just touch on kind of the hyperscale customer base and how you see the interaction there. I know the companies use JVs with this customer base in other parts of the world. So how does the strategy differ in North America? Or does it differ in dealing with JVs, their usage of JVs? And as far as hyperscalers, I mean, obviously they're going to continue to grow pretty rapidly. So what's the strategy to have a profitable way to participate in that segment of the market?

Yes. It's -- while we're using JVs for some of the footprints around the hyperscale use cases, I mean, obviously the hyperscalers themselves, were -- are long-standing customers for us globally and in the Americas, and we're capturing a lot of their interconnection-related kind of mission-critical footprints of them. I think when we look at the hyperscale opportunity or the xScale opportunity within the Americas, it's -- we saw more opportunity in terms of prioritizing need in APAC and EMEA. And certainly, we're hearing that from our clients. I think we're seeing robust demand for that, too, in the Americas, though. And so we're already starting a project down in Brazil. We're looking at opportunities in Mexico and I'd say even Canada. And when we think about the U.S., there's opportunities there for sure. I think it is, as everybody knows, an incredibly competitive environment with a lot of different solutions coming out of the market trying to get there. At the end of the day, when we're solving for the hyperscale need, we're doing that and we're using the JVs because we believe that it will like fundamentally add and contribute more interconnection value to what we're doing inside of that metro or inside of that market, right? I mean that's one of our central thesis for what we're accomplishing there. And I guess I would say we would apply that same rubric in the U.S., right? If we needed it, if we -- if there was an opportunity to do it in a differentiated way that it ended up being -- contributing substantially greater value to our proposition in that market, then I think we would figure out the right structure to do that. And so I think we're continuing to look at the opportunity. And I do think our interconnection franchise in the U.S. is very strong, though. And so I think there's probably less of a near-term need to be able to drive towards some of that.

Great. Jon, we're asking all of our data center presenters what we'll be talking about in 2023 and 2024 that we're not talking about now. We've talked a bit about innovation here, but I'd like to hear what you're seeing a little bit further out that's not on everybody's radar yet.

Great questions. When -- at least from our lens, when we're thinking about the far future, certainly just we think about the customer intersection and how can we make colocation and data center and the infrastructure that we're doing simpler to use. So we think a lot about what is the transformation from us looking like, a colo-led kind of discussion to be more of a platform-led discussion? And how -- what does that mean in terms of how we interact with our customers, both from a contracting basis, from a service delivery basis, where the expectations are and then also who are the personas that we're engaging with, I think that's the evolution that we're on, right, the journey we're on. The existing part right now is that feels pretty -- it's incremental, right? It's all additive to the discussions that we're already having with the infrastructure side. And I think it will continue. I think when you look at the landscape of IT infrastructure as a whole and digital infrastructure, you're seeing more and more discussion that there's no longer a question of is it going to be a multi-cloud universe, right? I think everybody recognizes multi-cloud is definitely the future state for the enterprise at large and what's required, which, again, translates to, again, a wide set of opportunities across the data center space, especially, I think, an outsized opportunity for us as we've kind of been the core of that, right? We've got more of those cloud on-ramps than any other provider by, I think, 2x and just our ability to help our customers get to that uniform experience around multiple cloud providers and on-ramps in multiple markets. You look at the convergence of companies and consolidation and globalization of the economy at large and how they're trying to get to more markets, our value proposition of being in the right places and being able to connect them to the right partners and unlocking those possibilities is something that I think is going to be really resonant and again, hold us well over the next 5, 10 years.

Great.

Great. Jon, that's very helpful. I just wanted to come back to one of the questions that Brendan asked about bare metal. Just curious when you talk and your sales folks talk to the enterprise base, obviously Equinix has kind of been a leader on some of the technology solutions above just power and cooling, and bare metal is the latest focus there. But firewalls and SDN and other -- more technology features that can add on to some of the contracts that you have with the customer base. So can you talk a little bit about how you see the evolution of that aspect of the business? So not just one of those point products, but how do you see the ability to upsell, if you will, some of these more technical services to the customer base?

Yes. I think it's -- in the conversations that we've been having with clients, they're excited about us as a partner because they know that we're always thinking not just about solving their problems for today, but how does that translate into the future, right? And whether that's us providing the services and creating more services ourselves, whether that's Equinix Fabric now and kind of our evolution of our interconnection franchise or Metal or anything that might come down the road, they know we're always thinking about what are the needs of digital infrastructure, what are the right adjacencies there, and how can we help them on that. But I think it's also just as importantly for them, they know that we're also going to be talking with the digital leaders of the service provider community throughout the world, right, whether that's the current generation and like the market leaders, Amazon, Microsoft, Google, you name it, right? We're driving the conversation out their features and capabilities and how to bring that to customers, but also the new generation of service providers, like whether again, like a Cloudflare, a Zscaler, a Zoom, that -- all of those layers are going to be part of the Equinix platform because that's who we seek out as part of our ecosystem. And so when we talk to the enterprise and they can see the track record that we've had of around engagement with every service provider that matters for any solution that they're going to need, they know that any incremental investment that they put in IT, just by putting it in the Equinix facility, they're going to be able to unlock more value because, again, we've got that broad relationship with all of these different partners and technology providers that they can tap into and have basically instantaneous connectivity that can deliver higher value more securely and more robustly. So it's, again, exciting times for us. I think our ability for our field teams to be able to tap into just like such a highly evolved technical capability on the preselling side with our solution architects, so that we're not talking to the real estate division. We sometimes are, but we're also talking about like, hey, is the CIO of an organization around, what's the fundamental architecture that they're building for, not just their IT infrastructure, but what are they thinking about moving to? How can we help them on the cloud journey? How can we help them on a multi-cloud journey? What's the right providers to use for what kind of application use cases? Like our technical selling teams are able to really deeply engage themselves in those conversations and really shape the conversation based on what we're seeing from the rest of our user base, right, which is, again, an incredibly powerful source of knowledge for them.

Okay. Great. Yes, it sounds like that's a lot of work, but definitely differentiated and helping the customer base. We think that's a really big opportunity for companies like yourself. Jon, I think we're running up at the end of this here. So I really appreciate the time, the insights into the company. Thank you very much. Everybody, have a great rest of your day and stay safe, and we'll catch up soon.

Absolutely. Thanks.

Thanks, Jon.

Take care.