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

I'm Jon Atkin with RBC. Pleased to be spending the next 20 minutes on the fireside chat with Keith Taylor, Chief Financial Officer of Equinix. Welcome, Keith.

Thanks, Jon. I'm going to be making some forward-looking statements in all likelihood. So please do refer to our SEC documents. Now you can go.

Well done. So maybe just to kind of set the stage because there's a mix of folks in the audience, and you did have your Investor Day in June where you laid out kind of multiyear guidance. So maybe just to level set, remind us kind of what you see yourself doing over the next several years around top line EBITDA, AFFO and so forth?

Yes. So we did -- June 25, we had the Analyst Day. I think many of you are aware of it. Really, it was a story about growth. Investing for the future, taking up our CapEx, roughly $1 billion a year for the next 5 years, to $20 billion to $25 billion of investment over -- through 2029. Obviously, we felt revenue continue to grow with an aspiration to get to double-digit revenue growth. And then AFFO. The underlying business is going to grow healthily. But with refinancing and the raising of additional capital, we have a little sort of -- we have a little bit of an investment horizon in 2026, and that sort of 5% to 9% growth. And then the dividend would continue to accelerate. And I thought -- one of the things, Jon, I know you didn't ask for this, but I'm going to give to you anyway. I thought it was a very forward-leaning sort of investor-focused sort of presentation because I also said we're going to only raise debt. We're going to use our balance sheet and the cash that we generate, plus debt, and we're going to invest in this growth. And I think all of you -- or many of you probably already met Adaire. And if you haven't, she's a force to be reckoned with. Great lady, great CEO. And her aspiration is to grow as fast as we can. But the challenge that we have is the time line to grow the business because it takes 2, 3, in some cases, 4 years to develop the capacity, the time horizon of when you invest versus when you realize the fruits of that investment are beyond the planning cycle. And so our aspiration is to grow as fast as we can with a margin that will be 52% or plus over that time period, by the time we get to 2029.

So your global. Have been for quite some time. A lot of it organic, some of it inorganic. But as you look at kind of the pie chart of Americas versus EMEA versus APAC, where you're allocating capital? Where you see the kind of the demand opportunities? What's different compared to today around geographic mix?

Well, I think probably for many in this room, I mean, the opportunity is immense around the globe. And we're investing heavily in the United States. But we also have some very critical markets around the globe in Asia and in Europe. xScale is a little bit different. At least xScale, our 2.0 exercise, is first focused on the U.S., but you'll see us talk about major metro -- or sorry, larger campuses in Asia and Europe, hopefully in the not-too-distant future. But that's the appetite. It is a global opportunity. The markets are growing. We tend to be a little bit different than a lot of the other players, largely because we -- if it's not xScale, we're selling 4,000 transactions a quarter to 3,000 customers, or something of that order of magnitude depending on the quarter. Where xScale is you're selling to a large hyperscaler and a lot of people are chasing those opportunities. We've got one project that's currently underway that quite openly when you step back, we thought it was sizable at the time, but it's really 240 megawatts. Seems like it's not that significant anymore. Having said all of that, it does feel like it's going to be a really good market to build in, which is outside Atlanta. We're already preparing the land, and we're going to get the buildings up as fast as we can because the appetite for that type of offering is very real. But let me just stop there and make sure I answered your question.

Yes. So kind of still global and maybe opportunity driven in terms of...

I think it's opportunity-driven, but there's markets around the globe, as we all know. I think all of you know is they're very difficult to build in. And so you have to recognize that, that is the case, and Singapore is a perfect example of that. And we're building out our Singapore 6 asset, which is 20 megawatts, but we want more capacity in Singapore. That's almost SGD 1 billion market for us. And so because you can't build maybe at the rate and speed you want to, we're also building in Johor, in Kuala Lumpur in Malaysia. We just opened up our Indonesian site. We just opened up Chenai. We just bought a business in the Philippines. We're preparing land in Thailand, in Bangkok. So there's a number of things that we're doing that I think really matter to that part of the world. We're investing heavily in Hong Kong. Although there's one building that we -- at the end of last year, we said that we're going to take a charge against. It was more because it was an old building that came with an acquisition, but we're investing heavily in the Hong Kong market because we think it's really important. Largely because Chinese companies coming to the Greater Bay Area of China, which includes Hong Kong. We think that's going to be an entree from Chinese companies coming out of Greater China into Southeast Asia and other parts of the world. And so we remain very excited about these -- the markets in Asia, and equally so in Europe. And then there's emerging markets that we think are really attractive. And 1 day, I'd love to say that we have an asset in Riyadh. We're building out in -- where we have business in Abu Dhabi, in Dubai, in Oman, in Muscat, in Salalah. And so we're going to continue to invest in that part of the world. And then the U.S. is, I think, I mean, it's just a great place to build right now. And so it's an exciting time for the industry.

So you talked a little bit about growth indirectly through, say, tuck-ins or new market entry. There's also just pricing. There's less churn. Churn can be maybe at the lower end of the range. There could be revenue optimization. There could be head count in terms of solutions engineers and quota-bearing headcount. How do you kind of view that all of those sort of things trending because they all do influence the top line as well as EBITDA? So a lot to unpack there. So start with sales...

We only have 20 minutes, so we're going to throw all in as much as we can anyway. No, I think there's different aspects of it. Certainly, there's a volume play. And I think many of you probably feel that demand isn't an issue. And the real issue is supply. And so getting the supply into the market. So that's number one. So I think if we have the inventory, we'll be able to sell it, particularly in the markets that are very rich with opportunity. Pricing is firm. Firm is maybe an understatement. Depending on the market you're in, pricing is strong. But then there's markets that tend to be a little bit softer based on the competitive dynamics and the supply coming into the market. And so each market has to be analyzed to optimize against the opportunity. Having said all of that, then you have you have the ability to operate quite efficiently at the asset level, but then you've got all the corporate costs and the borrowing cost. And I'd say we're managing our -- we're managing our cost model very effectively. We're investing heavily in Harmeen, who is our new CDIO, and AI and all things system-oriented. That includes processes, and that will take costs out of our equation. We've got a new CCRO in Shane Paladin. I think he has go-to-market strategy and all the things that we do to create demand and keep customers insight. Our assets are going to be important, including the AI initiatives that we put into understanding the predictive analytics on what's going to drive outcomes. And so between investing in those areas that we can drive down, I think, our cost to operate. And then we're going to invest heavily in our go-to-market, the front end of the customer-facing initiatives. And at the same time, I said at Analyst Day that we're going to continue to raise capital, is going to be debt oriented. We're refinancing what we have. But the capital that we raised -- the last deal that we just did a couple of weeks ago was in Singapore. Again, USD 500 million equivalent at 2.9%. So well below the average rate that I assumed at 4.9% at the Analyst Day. And since Analyst Day, we almost had a 100 basis point move in the 10-year treasury. And so we're going to be able to raise capital eventually in the United States, but the next port of call is going to be probably in North America, not in the U.S. And then we're going to go back to Europe because I think the opportunity is right. And so we'll be able to drive that. I think that cost to borrow further than -- probably lower than where we were guiding to, largely because the market, as I said at that time. If the markets allow or permit for it, will borrow money cheaper. And then we're really undertaking a very strict review on capitalization because the market had asked us to do that, or the investors did. And so we're doing that as a team and looking at that. So a number of things are working very much in our favor. Maybe the last thing I would say, and I've said it to some of the people in the audience already. When the market speaks, whether or not you agree with our posture, the market has spoken. So we need to respond to the market conditions and what our investors are expecting of us. And Adaire is -- and Adaire and I are very, very much aligned on what we need to deliver for 2026, which was the low end of that range. And let me just leave it that. The message was delivered, and so we will respond accordingly.

And then customer retention, a couple of words on that?

Well, churn for us, it ebbs and flows. I've said a couple of things with our investors today. But suffice it to say, I would love to see us get our churn rates down. Largely, as your base gets -- starts to increase, keeping a churn rate of 2% to 2.5% is generally in that range. It's hard as the base gets bigger and bigger and bigger. And so our goal is to find ways to get that -- our churn percent down. But right now, I'd say we're not shifting our thoughts on that right now. And I think the work that we're doing on our analytics and reshaping our go-to-market positioning, we -- just to give everybody a sense, our entire go-to-market, plus the support functions, are roughly about 3,000 employees -- 2,500 to 3,000 employees. And so you want to make sure everybody is selling from the right vantage point. And I think the -- obviously, there's work that we can do to make sure that we do better. And then at the same time, work on the churn analytics and get the predictive behaviors of our customers analyze through an AI lens that will help us get ahead of it. And I think that's going to be an opportunity for us as well. Maybe not over the next couple of quarters. But as we look into '26 and beyond, I think it's going to -- it will pay dividends for us.

So as more workloads become associated with AI, whether it's from hyperscale customers that also reside in your data centers or enterprise. How does the latency -- the traditional kind of latency value prop of Equinix play into what you see as coming -- the coming wave of AI inference workloads?

Yes. I -- Look, I'd like -- I don't think I'm wrong in this assumption. I liken it very much to the advent of cloud and just where cloud was going. A lot of compute was done in locations. But at some point, you need to aggregate or deliver an availability zone, or aggregation node, or network node. And I think that holds true for AI as well. The models will get trained. And whether they're sovereign, or foundational, what frontier oriented models, they will continue to develop over time across different markets, and across different regions of the world. They will eventually need to converge and inference will become a bigger part of it. And I thought we're pretty clear that we'll be the beneficiary of inference, less about training and in sovereign models. It doesn't mean that we won't have -- we won't create value from that. I just think that's not really where our sweet spot is. And so having the diversity of network, the diversity -- pardon me, the diversity of cloud on-ramp, the cable landing stations, both origination and termination. These all play into a strategy and then you can get into satellite and the like that I think we're going to be the best representation of that opportunity as we continue to work with customers to distribute the AI opportunities. And let me give you another example. I mean you've heard us talk about it. We're really excited about just what Groq's doing with us around the globe. And that's just -- that's the front edge of these opportunities. And if they get it right, then we got it right, because that is where inference will start to accelerate and there's more and more companies that will start to look more like them. Not to mention there's the GPU as a service, the private AI cloud. They're all the service providers that are going to have AI-oriented solutions. And it's the combination of all of those that I think will make a difference for Equinix because we are low latency. Because we have the on-ramps. We have the networks. We have the latency sensitive environments.

So it sounds like in the early innings of this journey, it's identifiable inference because Groq, G-R-O-Q, obviously, that's their business model. Inference as a Service. And you've got tech companies that are driving this. Where is the enterprise, because you mentioned the analogy with cloud? So as enterprises start to do inference within their own environments, do you have a view yet as to how soon that might happen? Early days? Any early kind of reference cases that you can cite?

I think we feel 2027 is going to be a real turning point for the industry as it relates to inference. That all said, we have reference points whether -- it's the large pharma bioscience companies that are doing local AI, sort of AI, private clouds that are very much used GPU clusters to optimize basically research, or development and output. So you see that to other companies that are in the services space that are selling basically their services to enterprises. Again, that's the front edge of, I think, the beginning of opportunity. You're starting to see liquid cooling applications go into our environment. We're liquid cool available, but you want to see the consumption of that type of architecture because that tells you the realness of what's coming into play. And then the other part, I would say that not all -- not all -- not at all AI -- let me say this differently. Not all AI deployments need to be liquid cooled. A lot of it can be air-cooled depending on the concentration. And that's, again, an indication that we cater to a wide array of customers with different parameters that need to live in a co-located, or multi-tenant data center environment. We're not selling to one customer that architects itself uniquely, that has to compete with everybody else in the space. And so that's why we have a different offering inside the retail space versus the xScale space, which creates a host of other issues.

So on xScale, you've got a lot of deep-pocketed competitors that are willing to take leverage higher that might be willing to build even bigger than, say, 240 megawatts. So how do you sort of see the competitive landscape? Is demand such that you don't focus so much on the competition? Or is it a factor that you have to kind of contemplate?

Well, we -- I think it's fair to say, I mean, we're a public company, and so you have to live within the confines of what a public company can and kind of not do. When you have a shareholder in a private equity environment that is willing to take their tolerance up to 10x or 15x, that's okay because it's short-lived and they can monetize off of that. We can't do that in the public environment. And so we focus on what we can do and so that's the comfort of realizing that we can't compete maybe head-to-head, but then we have our joint ventures and we have really strong partners. GIC is an awesome partner. CPP is an awesome partner. PGIM is an awesome partner. And there are other partners out there that we can potentially do business with. So it's the recognition that we will need to partner with somebody, to make sure that we can accelerate the growth opportunity in front of us. And we're already between Hampton and then the other sites we're talking about. And they're only -- I'm only talking about three sites. That would be -- that in itself if we execute against that over the not-too-distant, that will deliver over 1 gigawatt of capacity. And that -- and we're only scratching the surface as a company. So I think you're going to see Equinix start to accelerate. Largely because of how we're investing and what we're doing to shift the emphasis in the xScale environment.

Time for one quick question if there is one from the audience.

[indiscernible]

Yes, we are hosting AI Summit really to provide -- I was saying -- some investors, the community, the potential customers, the hyperscalers, the opportunity to understand how we're going to approach the AI initiative, and why we think we're going to be very relevant as we look forward in the future. And so some about technology, some about understanding just what we're doing and where we're doing it, and then also just the depth of our team.

Question at the end? Yes.

[indiscernible]

Well, the beauty is that we have the...

So question was about older carrier hotel assets, and how you future-proof yourself?

Yes. Look, I think, number one, those networks aren't going away. Two, we have Fabric, which basically connects all the sites together as if they're one. Three, the density factor in a carrier hotel is very different than basically a high compute environment. And so we have capacity that's available. To the extent we don't, we're building around it, and making sure that we connect it, connect the assets. But simply put, we typically have built them in campuses, or approximate to a campus. And so we have the ability to grow and scale. And you don't need to, per se, future-proof it in the sense that you sell the right customer with the right application at the right center, and you're not going to put a large AI, or a cloud-oriented workload in a network data center. And so we have the ability to continue to sell. And our goal is looking for ways to augment those carrier hotels where we can.

So you mentioned Fabric. It's obviously not a very capital-intensive product. Just within that segment then, is it growing at kind of a steady pace? Or is there any reason to think that the growth rate around Fabric would either accelerate or decelerate?

Well, I think -- I don't think you should decelerate, but I think it is a steady rate, but we want to see it accelerate. And so that's part of our goal for '26.

Very good. Well, thanks for your time.

Thank you.