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

Yes. I mean there are 2 ways to think about that. One is when it's actually leased and a customer is in it and occupying it, the customer is paying for the service. That's one way you would monetize it.

Then that's like a recurring revenue stream.

That's right, exactly. We're an equity provider. So that -- it is unconsolidated revenue due to the 20% to 25% share we have. So that flows through in kind of another category for us on the equity side. I'm going to let Chip who's a smart one share everything that I didn't get right. The second area, as I mentioned before, is that the venture hires Equinix to design the data center, to construct the data center, to operate the data center to manage the JV and then to lease it. So there are fee structures that come in from the venture as well. Some are nonrecurring and some are monthly recurring.

Yes. So in terms of right now, largely what you're seeing flow through our P&L, we get the recurring revenue fees for the fact that we're the books and record keeper. It's all of our employees who are actually running the data centers themselves. And so that's a small but growing portion of our recurring revenues. And then the bigger lumpier part is going to be the nonrecurring fees. So it's going to be those design and construction fees, the sales and marketing fees as we actually lease the facilities. And so right now, historically, the total fee streams we've been getting has been somewhere in the ZIP code between 1% to 2% of revenues in a given year. That will ebb and flow depending primarily on the leasing volumes that we're doing. But then the other part, as Tiffany mentioned, is as we then start stabilizing the assets, then you'll start seeing the profitability flowing through sort of below the line as the profits from joint ventures. The last element is, as we think about liquidity at some point, there then is also the opportunity for a promote. Nothing that we've done as of yet since we haven't monetized or our partners haven't monetized any of the assets thus far, but that is something that will be an opportunity as we look to -- or as our partners look to monetize in the future.

When we think about sort of the long-term monetization, you guys updated us in terms of guidance from an xScale perspective. Does that include the Americas JV? And like how should we think about the Americas JV specifically towards that sort of revenue, AFFO contribution?

So in terms of the guidance that we provided at our Analyst Day in late June, that incorporated our assumptions around our Hampton campus, but we hadn't included any of the assumptions as of yet around incremental land plots that will eventually push into the joint ventures.

Okay. What would you say that Atlanta campus is of the sort of bigger picture JV in the U.S.

It's a 240-megawatt campus. And if you figure the JV itself is going to be about $15 billion, and it costs somewhere between right now, $10 million to $12 million a megawatt to build, that's something less than 1/4 in terms of the potential total build-out of the joint venture.

And then when you say promote, that's somebody else coming and taking an ownership stake in the assets.

Yes, that would be our LPs going and selling off their portion or their stake in the joint venture. And depending on the return profile that they get, we can potentially get a promote on that.

Got it. Can we talk about competition? It seems like everybody is building data centers these days. How do you think about sort of the competitive landscape for building and developing some of these type of assets?

Well, look, anyone who's been in this space for a while knows building and constructing and operating a data center is hard business. It's a really hard thing to do. And we've got a long track record of being able to do this. Other folks might be entering it for one specific purpose. We are in the data center space for a multitude of purposes. We have 10,000 customers, as I mentioned, across all of the Equinix portfolio. So we don't get too distracted about that. I love the term that you share though. I'm going to ask you to do it here.

Yes. I mean part of what we're seeing in the marketplace, too, and we've joked about this internally, but there is an element of braggawatts right now in terms of everyone saying, well, I'm going to build a gigawatt and I'm going to build a 5 gigawatts. The simple fact is that as you think about a gigawatt, again, if you're building at $10 million a megawatt, that's $10 billion of capital that you have to put to work. And so what we're seeing even with some of the hyperscalers now going out and potentially thinking about monetizing part of their facilities or bringing in joint venture partners is that's a lot of money running after that. And not only do you have to have a lot of capital to build data centers, but you also then have to have power. You have to have all the mechanical and electrical to do that. And so to Tiffany's point, we've got a very long track record, and we're working not only about thinking about securing power for xScale, but for retail, but we're also then going out and working with the critical component manufacturers so that we're not going to have to be waiting for a generator for a crack unit, for static transfer switch. We've already got roughly $600 million worth of that MAP warehoused on our balance sheet. And the beauty of the combination of our industry-leading retail business plus xScale is it gives us that much more relevance to all of our vendors where we can very confidently say, hey, we're a BBB+ tenant credit. We can go and sign on the dotted line and say we're going to be good for it and then put all of that equipment to its highest and best uses, whether that be for retail or for xScale.

If we just were to take a step back, how do you sort of look at that overall competitive dynamic? Because you got private equity money, you got self-build, right? There's all these nontraditional data centers like the Bitcoin miners. How do you take a step back and like frame the overall size of that opportunity for us. And then maybe another way to phrase it is like where are we on the AI build-out?

Well, maybe one way to think about that is this. So if we took all of the capacity that Equinix is building right now across both retail and xScale, if we offered that up to one hyperscaler, just one, not the 12-, 15-odd hyperscalers plus the long tail of SaaS vendors, that still wouldn't see shape their needs for a single year. That's how much demand there is out there in the market. So there is very much a rising tide lifts all boats. Now I think the important part for us to what Tiffany was talking about earlier is we're looking to build generational assets that are going to be operating for the next 30-plus years. And so we're not necessarily going to look to build just for any old operator in any old part of the world. We're thinking about what is going to be the durability of these assets and how can we offer a differentiated type of offering and service for our customers. So I'd say that's what -- again, long-winded way of saying a huge amount of opportunity out there right now, but we're going to be highly focused in terms of how we want to pursue that opportunity. Anything else you'd add?

No. Great..

Tiffany, I wanted to ask you because you came from the retail side of the world. Now you're in the xScale side of the world. How do you sort of go about creating synergies between the 2 businesses? How do you sort of see them fitting together?

Yes. Look, every customer we have hyperscale down to enterprise SaaS operators, they all have distributed architectures. They all have a different need, a different workload need or application or use case need for what they're trying to solve. And now when you have xScale plus retail plus our interconnection business, we can take these really complicated distributed networks and make them very easy for customers. And that's the value that Equinix provides with having retail up to xScale.

Is there like a pull like -- so for example, if you're going to develop that Atlanta hyperscale facility, is there a pull towards more enterprise in that -- in sort of your retail business in that facility? It's probably not enough data to see that, but would you expect that to be something that happens?

I expect in our xScale campus that we will have interest from hyperscale kinds of customers, SaaS operators as well as large enterprise organizations. I expect that we'll see demand from each of those segments.

And you've actually seen historically, we've built both together. So as you look at with what we've done in Europe, whether it's in a Frankfurt or in a Paris or in a Dublin, generally speaking, our xScale campus will be either in relative proximity or in some cases, directly next to our retail facilities. And so that gives us the ability to, again, operate across both sides of the coin.

Got it. We have a few minutes left. I'd ask the audience for questions, if that's okay.

Yes.

Go back to the power supply. How much of a gating factor are utilities going forward here? Do we talk about grid modernization, utilities can't get gas turbines for a couple of years from GE Vernova. So how do you guys get the power, right? Does that smooth the cycle out? Because it seems like there's a lot of supply going, as Brandon said, a lot of demand. But does the power supply become a gating factor? And how much does it push things to the right when you're building?

Yes, I would start with power is certainly a challenge right now. One is we operate in different jurisdictions. So supply is different in each jurisdiction is one thing I would say. In those that certainly have challenges, we have all of the above kind of strategy to power. So take what we can from the grid. We're also doing some on-site power generation as well. We have a turbine in Dublin. We have fuel cells in some of our locations. So we're looking at different power options depending on where we are. And in some instances, we might need to do our own on-site power generation to bridge what the utility is able to provide us.

Yes. And I'd add to part of -- even as we think about some of our sustainability efforts, being that bridge, we can also then be helping as some of the grids are transitioning. So case in point in Dublin, where some of our xScale facilities are running on gas turbines. Well, at some point, we do want to connect into the grid. But as they're trying to transition to more renewables in the Irish grid, we can then become a swing demand provider so that if the wind is not blowing or the sun is not shining, we'll then turn on our turbines or back and forth. So we're thinking holistically not just about our own position, but also how do we fit within the broader grid.

Other questions. Do you have a preferred sort of alternative power to use nuclear? You mentioned nat gas and wind and solar. Is there a preferred sort of alternative power besides grid power?

I think the best power you can get are green electrons. And the best way you could get that is right from the grid. That would be the first choice. And then as you start to move down, it's how much renewable energy can you get and where -- or not even necessarily renewable, but clean energy because you mentioned nuclear, like we'll take whatever clean energy we can get. That would be the first choice. And then after that, it's taking whatever energy you can get from the grid that isn't necessarily clean and then using things like PPA, where we have PPAs all around the world to help as well.

And as you can appreciate, too, we're talking to just about anyone and everyone. And so whether we're thinking about traditional energy sources or even some of the new start-ups out there, someone like an Okla, where we have been working with them. We actually have a reservation for one of their first generators whenever that gets up and running on an SMR side of things. And so we're taking really an all-of-the-above approach. Got it. Yes, question.

On the same topic of our availability, have you ever turned down a location that was otherwise and effective opportunity because of our unavailability?

Well, what we look at is the time horizon. Typically, power isn't available for a period of time. So it really depends on for what horizon are we buying it. There are plenty of instances where we have a very vast land bank at Equinix, and many of that will buy land knowing that power is going to come in 3, 5 or 8 years, which is perfectly acceptable as well.

Yes. And I'd add, too, there are differences between what we might be doing on xScale relative to what we're doing in retail because in retail, you might put up a single building, and that will give you capacity for 2 to 3 years in some cases. Relative to an xScale, if you're signing an entire building up with a single customer, then you're sold and you need to move on to the next opportunity in terms of power. Also, the consumption, if you're doing a 30-megawatt build or 30-megawatt phase and you do 2 phases, will very quickly consume that capacity. So it will vary depending on xScale versus retail.

Just to finish out, in closing, I suppose you have a number of JVs in place. You're expanding them rapidly. How do you sort of help investors understand what xScale means to Equinix over the next 5 years? Like what's the opportunity?

Well, I think first and foremost, as we talked at our Analyst Day, xScale is a huge growth opportunity for us. And really, what we're doing in terms of the context of Build Boulder is investing across the entire continuum of digital infrastructure, recognizing that we will have customers who need to have a single cabinet in a shared cage environment like our Secure Cab Express product all the way up to xScale, where we're going to be selling 30, 60 megawatts, even in some cases, potentially entire campuses. And so there really is this broad market opportunity for digital infrastructure. But as it relates to xScale, Tiffany, anything you'd add?

I would add that just like you're seeing the growth for Equinix, you will see growth for xScale. We have that ambition across and interconnection, all 3 levers of the business.

Got it. With that, I think we're out of time. So everybody, thank you for being here. Tiffany, Chip.

Thanks, Brandon.

Thanks for having us.