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

Good day, everyone, and thank you for joining KeyBanc's Virtual Technology Leadership Forum. My name is Jordan Sadler, and I'm our data center REIT analyst, and I'm very pleased to be joined today by Eric Schwartz of Equinix. Hi, Eric, and thank you for being with us today for this fireside chat.

Thanks, Jordan. Just as we get started, for the normal reasons, I just need to offer up a disclosure that some of what you and I will talk about today contains forward-looking statements from me. Please -- I would just ask everybody in the audience, please read our SEC filings for more information about any factors that could affect these statements, so that we're all set on that.

Awesome And before we jump right into the nitty gritty questions, why don't we do a quick intro from the audience? You've been with Equinix for about 15 years or so, if I recall correctly, filling the role of Chief Strategy and Development Officer currently for the last 2-plus years, but as President of EMEA for more than a decade prior to this current position. Why don't you give us a quick take on your current role?

Sure. So I've been in my current role for strategy and development now for a little over 2 years. And it really brings together a number of global functions for the company partially focused on a number of things that drive our growth. So I'm responsible for M&A, lead a team there. We have a parallel business development team that's active in developing strong commercial partnerships with the likes of companies like Dell and Cisco and HPE but also a number of carriers, a number of financial institutions. I also have responsibility and lead the team that's executing our xScale program, something I expect we'll talk a little bit about today, which is our focus on delivering data center services at large scale for hyperscale customers. And then I have other responsibilities that take me into how we manage our real estate investment and then the broader analytics efforts we run across the company.

Great. That's a great overview. So jumping right in, I want to get your view on some of the most important digital trends that will drive digital transformation of the enterprise and data center demand going forward.

Sure. The -- we've all seen and heard and read about the acceleration of digital transformation that the pandemic has helped to drive despite the very negative circumstances or impact of the pandemic as a whole. But within that, we see companies continuing to push their digital transformation, whether they're companies that were born digital and are expanding around the world to serve customers or whether they were not born digital and are looking to evolve their models into digital. And so it plays out in a few ways. One is there's just a requirement for infrastructure. That's data centers, that's hardware and that's networking, it's all the things that underlie the applications. And increasingly, as companies look to be more nimble and are potentially more focused, the number of companies who have that capacity in-house is shrinking. And that's been a trend for quite some time, and it's played to our strength of being a supplier of at least some of those capabilities. The second has to do a lot with architecture. We've obviously seen great or massive or substantial uptake of cloud capabilities. And as we -- as those efforts mature and become more sophisticated, the clear architecture of choice that we talk to customers about and that they talk to us about are hybrid architecture, so some public, some private and heavily interconnected. And I expect we're going to see more of that, not less, just because the -- as the use cases expand and grow, the requirement for distributed and interconnected in architectures is only going to grow. And then I also think that I'm increasingly viewing myself as middle age or later. And as the consumer population becomes more digital-native, their demand on the companies that their customers have becomes increasingly digital, and that's just put much more impetus on companies who are competitive and looking to be successful to figure out how to meet that audience in -- anywhere in the world, really, effectively. And the performance requirements, the security requirements, the legal, regulatory, data sovereignty requirements, all of those things are -- the bigger this all gets, the more complex they get. And it's -- I think there was a time when there was an assumption you can work around maybe some of those requirements and it's now become clear that those are requirements from governments or others. And that's going to drive further investment to be both compliant but also to meet the requirements of the market.

That makes sense. And a little bit of a segue into -- you mentioned global and really being anywhere. Equinix has quite a presence across the globe currently. But which nascent markets do you view as having the greatest potential in digital infrastructure growth?

So high on my list is India, and we have an acquisition that we announced, acquired a company named GPX that's based in Mumbai. That's -- we announced that last year and it's been going through the process, but I'm optimistic that we'll close that this quarter. And India is a tremendous market for digital infrastructure and capability. This will give us presence in Mumbai, which is the leading market, but there are a number of markets across India that show strong potential. And so that's a big opportunity for us and definitely our next step. Beyond that, we have no presence in Africa today, and the economy is there, particularly the larger ones like Kenya, Nigeria, South Africa, Ghana, are -- there's substantial investment and there's an opportunity for Equinix, I think, to establish ourselves there, recognizing that the markets there will have their own unique characteristics. And then there are a couple opportunities for us in Latin America. We're in Brazil and Colombia and Mexico today but probably a few more markets that we want to expand to there. And then Southeast Asia, very -- we're fortunate to have a strong presence today in several markets. But the growth in the Southeast Asian economies has been extremely strong, and that creates a pull-forward infrastructure in the sorts of things we do. So we're -- global is a core element of our proposition and India being the next step, I'm highly invested, a lot of energy in making sure that we can continue to expand our footprint.

And do you think -- should we expect that GPX is a good example in terms of how you enter these markets and expand into some of these adjacent markets so you can -- so through M&A or acquisition as opposed to de novo builds?

Yes, we've I think got a pretty good track record of using that model of acquiring in a market and using that as a platform for further growth. And so GPX fits that model. Our acquisition in Mexico with Axtel lines up with that. We entered Brazil through an acquisition and have grown from there, and there are a number of other examples like that. And so the strategy built on an initial acquisition works well for us, and at this point in time, speed to market matters. And so where we have that opportunity, we'll certainly pursue it. At the same time, we've also entered markets on a greenfield basis, where we didn't see the right opportunity to acquire, and we certainly have that capability and can deploy that as well. So it becomes a -- it's a market-by-market decision that we make. It is somewhat opportunistic, but it's within the context of the strategy that we know which markets are the ones where we can be successful, and we'll continue to drive that. One of our -- just as a counterexample, we recently opened in Bordeaux in France, which always -- people are excited about Bordeaux. I'm not sure it's entirely because of the data center, but that was a market where we had both customer engagement. We obviously operate in Paris, so we're already in-country. But we acquired land and then built a new facility there and are seeing good results from that investment, and it's just an example of how we can enter a market on a greenfield basis and use the capabilities that we have on a global -- with global customers, our global ability to execute to really launch and build momentum.

That makes sense. I mean that seems like more of a tangential add, right? You're already in-country, you sort of have the platform, sees and buy a piece of land and...

I know that talking about Bordeaux just generates greater interest than in some of the other markets that might not be as appealing from a tourism standpoint. So I just had to get that in there.

That's funny. I think we'll have to get a property tour going sometime in 2022. So in terms of -- we talked about M&A and adding some of these markets. But how would you say you balance your time or capital even in terms of new market expansion versus growth of an existing maybe nascent market, right? So how do you prevent yourself from spreading yourself too thin from a geographic position as opposed to going deeper in existing markets?

Yes. So we've been consistent on this. So I've been with the company 15 years. And I think we've been consistent for at least 15 years on this, which is, from a return standpoint, it's always better to expand in an existing market than it is to take on a new market just because we have established infrastructure teams and we're scaling. And so our focus and priorities will always be to ensure that we have capacity and growth in the markets where we're established as the first priority. And then the second priority, there's a little bit of nuance to it, but we'll generally look for opportunities in new markets that are in countries where we already have presence, and so Bordeaux being an example of that but also if we expand in India beyond Mumbai. And then third, we'll look to new countries to enter just because there's an additional investment required for that. We're fortunate that we're in a position with our balance sheet and both -- and our operational or execution capabilities that we can fully cover our plans and needs in the existing markets and have the capacity to continue to add 1, 2, 3, depending on the situation, new markets each year as we go. And in this year or in the last 12 months, we've successfully taken on a number of new markets in Canada and working on building that momentum there. And so we have that capacity to cover both, but it is in that priority.

That's helpful. And then staying on the M&A topic for a second here. If I recall correctly, you presided over EMEA when the company bought Telecity, which is a larger M&A transaction when you already had a presence in many of those markets and the whole of those markets, Equinix as a company. So I'm kind of curious here in terms of the appetite for M&A in existing regions, M&A in the U.S., for example.

So just a quick clarification, Telecity overlapped with us in several markets but actually expanded our footprint substantially into a number of markets across Europe. So Equinix today in Stockholm, in Helsinki, in Dublin, Milan, Istanbul, Warsaw, Sofia, our presence there is built on what we acquired from Telecity because Equinix wasn't there, and that was part of the motivation for the Telecity acquisition. In terms of acquisitions in existing markets, the Telecity acquisition is a great example where there's certainly financial benefit, and we had a very clear integration plan that we've executed, too, but there are strategic benefits as well, including the new markets and acquiring several really key interconnection hubs as well. So -- and certainly, everyone -- I would assume everyone on this call is aware that the transaction activity and environment in our industry is running high. A lot of activity this year. And so what I would say is, first -- and we shared this at our Analyst Day conference, our strategy and our focus is organic development and expansion of the business, and we have a plan, and we've laid out figures around guidance, revenue growth, et cetera. And we purposefully do that, excluding M&A, and that's to both signal and confirm that we are executing on an organic basis and growing the business, and that creates value for us. And then from the acquisition side, there's fundamentally 2 criteria. One, it's got to strategically fit with where we're going and where we intend to be. And then secondly, it's got to be a good financial transaction. And in that regard, we're more opportunistic and it depends on what the opportunities are in the market, what transactions are available to us. We're fortunate that because of our size and our reputation and ability to execute with confidence, that we're sought out by many parties looking for transactions. And so we get to evaluate them. But the critical element is that we'll continue to execute our core organic strategy and then supplement with M&A as the opportunities present.