Equinix, Inc. ($EQIX)

All right. Good morning. Thanks, everybody, for being here. My name is Frank Louthan. I'm the senior analyst at Raymond James covering data centers and telecom and other things. And very pleased to have Chief Financial Officer, Olivier Leonetti, here from Equinix -- we're going to go through a few questions and then we'll leave a little time at the end for some questions from the audience. But do you guys have a.

Yes just start out with disclosure statement. Some of what we will be talking about today contains forward-looking statements. please read our SEC filings for more information about factors that could affect these statements. Thank.

All right. Great. Sure we want to have that committed to memory.

Yes. And Phillip and I will go to the motions together. Phillip and I partners in crime.

All right. Well, Olivier, maybe walk us through kind of your vision for the company as you step into the role here. What can we expect from you that may be different from what we've seen in the past from Equinix? And what do you see as the opportunities that really attract you to the position?

So again, thank you for having us. Thank you to everybody for being in the meeting room. I hope you're having a great conference. It's my first one. And I really enjoyed it. A lot of things going on in our company. So we love your interest. So I joined Equinix about a bit more than 2 months ago. And I joined this amazing institution for 4 reasons: one, attractive end markets being served to amazing opportunity from the company to compete in those markets we discuss a lot about that with Frank. Three, our culture. And fourth, -- this partnership is important is the vision from our CEO. And after it looks like a marketing comment, but after a bit more than 2 months, I was wrong. Our end markets are better, our ability to compete is better. Our culture is better and the vision from our management team is better. So what I'm going to do differently is not a lot. I'm going to be a member of the team to really augment, accelerate, facilitate the vision, but I'm going to be one of many shaping the future for this amazing company in those amazing markets. We'll talk about that, I'm sure.

Okay. Great. So maybe update us a little bit from you at the Analyst Day last year that you do every 2 years. Maybe update us for kind of what's changed there? And what have we seen in the year since that roughly a year.

So 2 things. I mean, if you go back, we have been in business for 3 decades. We were the pioneer to facilitate the Internet. That's first decade. The second decade was to facilitate the cloud revolution. This decade is going to be to facilitate AI. Our CEO has said many times, I think it's a great way to talk about how excited we are -- this moment is our moment. Why the AI revolution, which is at the start, is creating the need to have a diverse marketplace where players are going to meet an exchange data. That's what AI is about. That is going to play to our advantage. Now to answer to your question, what is new since Investor Day, this vision is playing out in a way, which is augmented relative to what we had expected. Those end markets are stronger, and our ability to deliver what our customers need is stronger. What do they need? They need a global network -- they need a diverse network with different participants being on it, cloud, new cloud, AI, lab, enterprise, they need neutrality, they need latency I will need to compute fast, close -- being close to where the enterprise is important. And we need also connectivity solutions which are going to be fast, ease to use. All of that is at play. Equinix is delivering on this. Equinix is the biggest marketplace on us. able to deliver this. As a result, you started to see the numbers being better than what we thought. I give you some numbers for this year, we're going to grow recurring revenue by 10% for the year, we did that in Q1. We did that in Q2. Double-digit growth is the start, and we have been able to clock on those numbers now for a period of time. two, EBITDA margin 51%; and three, an important statistic one, which is 1 we're going to focus a lot is AFFO per share growing at 10%. So you see this is our moment, the value proposition of the company resonating and us being able to deliver attractive returns as a result.

So maybe we take that a little further and sort of your value proposition that as you approach customers, what is that? And then how are you differentiated from the competition to be able to accomplish all these things?

Yes. And Phillip and I will don't hesitate, Phillip. So if you see today, in the world of AI, you want go back rich marketplace, a marketplace where all the cloud providers are going to be participated. You want a neo cloud, the new entrance to be part of this marketplace. You want the AI lab to be part of this marketplace. And of course, you need the enterprise. And indeed, this marketplace, which is global, neutral, and close to the action to manage latencies. And what is different is that nobody can offer all of this -- could you have players offering a one-to-one connection a cloud to a cloud. Some people have started to do that. Yes, could you have some carriers which are local doing some of that, yes, but nobody can do everything we are doing. So that's different. And one of the key success factor of our company is to nurture a rich marketplace. So we are expanding. We're going to double our capacity. I'm sure we'll talk about that with Frank. This new capacity is created to make sure that we have all the participants needed. So that's different. I give you some statistics. Neocloud 4 out of top 5 are part of the network. They have deployed with us more than 110 nodes in our network. 8 of the top AI Lab as part of the network. All the cloud providers are part of the network, right? So difficult to replicate. Then another part of the value proposition and our CEO has mentioned that many times is we are not in the compute business. We're in the connection business, and we want connections. We're going to be easy to implement with no human being involved, managed at the press of a dashboard and probably powered by AI to identify which players do you want in your network. We do this. That's different. And we want to, today, keep increasing the barriers to entry our competitive advantage to make all of that even Trogen than now.

And maybe just to add on to that and take a step back when you -- I think there's been a little bit of a homogenization of the data center industry. And all these things that Olivier talked about around our differentiation, Keep in mind that we are -- we've got over 10,500 customers in our customer base. We did 3,800 transactions in Q1 with over 3,100 unique customers. We're not selling 100 megawatts to 1 customer and selling out a facility. We're a very differentiated business model as it relates to the broader data center industry. And I think it's really important to keep to take a step back and make sure that folks understand that, that differentiation and all the statistics of how we're curating ecosystems and because of that, we're driving returns and yields on our assets that are in the mid-20s. That's very different than a lot of others in the data center industry.

Let me build on this, if you don't mind, Frank. If you see the evolution of what we do in the era of AI. I'm going to make an obvious statement, AI is to compute data at the edge from via sources, right? We are starting to be the place where this compute at the edge is happening, evidence of this. the average -- sorry to mention a technical term, rack at Equinix is 5-kilowatt par. This is the average rack density, we have in our network today, racks, which are 100-kilowatt plus, why would you need a rack like this in our network. They are liquid cold, we're enabling this. Why do you need this? -- to compute at the edge. So you see why do you need to compute at the edge. Again, you need to send the facts, action to an object, but also it's too expensive to compute in other places because of the traffic cost. So you start to see really the value proposition of what we do, increasing step by step. The market plus the edge compute and the ease of connection -- so again, increasing the competitive advantage and what we offer to our customers.

That's great. So that actually touches on a topic that I wanted to bring up. I think I've been covering you guys since 2009, give or take a month, something like that. And from day 1, I get the question about obsolescence risk. And as you mentioned, you averages 5 kW per rack, you've got customers wanting 100, Walk us through the obsolescence bogeyman here that always seems to come up, it's had quite a resurgence based on inbound calls I've got in the last couple of months. . So talk to us about how you -- why that is, is the threat and how you've managed that all these years. Because so far, it hasn't been an issue. But of course, it's coming now, of course, you never know. So talk to us about that.

It's a great question. So let me give you an example. If you go to headquarters in the Bay area in San Francisco, -- we have 1 of our oldest site. It's in San Jose. You have 4 generations of data center. The first one and the last one. The last one, the biggest micro shift in the rack from the #1 microchip manufacturer, 100-kilowatt to a few 4, 5 kilowatt. -- this full ecosystem is attractive to our customers. All of those cabinets with different level of power are today growing because, again, you need compute at the edge. You use the 100 kilowatt. But you need also to use the cabinets to for communication. So those worlds need to be part of the ecosystem. So obsolescence today is not something which is a concern to our company.

We've always talked about putting right application and the right workload in the right data center. And exactly to Olivier's point, I mean, when you look at some of our older facilities there, they're the most network dense they are the most valuable. And when there is space trust me, there are customers who want to go into that space. And we've constantly been maintaining these over the years. And so they are absolutely fit for purpose for those specific workloads. . And as we talked about, some of these higher dense applications and workloads, they're going into our newer facilities, plus we have 100 of our existing 280-plus data centers, which are fit for purpose for liquid -- so we always are thinking about the right mix of applications in the right locations for our customers.

All right. Great. So with that, maybe let's talk a little bit about competition. We've got a very, very strong market for data centers the last few years. It's been fun. But with that always attracts new competition. Talk to us a little bit about what do you see as some of the biggest competitive threats in the next couple of years and how you're positioned to address that. .

Yes. So the competition is intense. -- and it's keeping up a. It's a good thing. It's keeping us on our edge. And the level of competition is actually the proof points that what we do is important in the era of AI. Carriers are on our network and competing with us and also collaborating -- you have other players as well doing the same. A lot of cooperation competition happening on the Equinix network. We serve a different purpose Nobody today is able to do what I've mentioned. Could you do a one-to-one connection, a 1 to 2 connection, yes? Could you do 1 to many, everywhere all at once, latency, neutrality, density, nobody can do this. But we're not sleeping. We want to increase the number of data centers we're launching. We want to make our connection business humanless to be implemented. And we want to create fast the best marketplace in the market. So competition is good, validating what we do and good for our customers. And clearly, as a result of that, we are -- you see the execution, the speed of execution and the sense of agency at our institution being stronger than ever before.

And I think the marketplace, obviously, that we've all talked about the demand environment. There is room for all boats, so to speak. And I think that we feel like can we occupy unique place in the data center space, but there is room for all these different workloads to live in different places and room for all of us.

All right. Let's talk about 2 of your products. You just talked about sort of interconnection and then also on the xScale side and the larger hyperscale facilities. You've got constantly hear questions from investors, folks like Lumin and that have looking at multi-connectivity worried that, that's a threat to some of your interconnection revenue and so forth. You've talked about -- touched on this a little bit, but maybe address more specifically how some of these telecom carriers that are looking to do that business, how does that impact or not impact your business and what you're trying to do? .

Again, so why do you have some carriers other players, part of the network. By the way, we know they exist. We know what they do. We know the footprint they have it's a cooperation and some level of competition, too, right? We serve different purposes, a one-one or mainly maybe a U.S. connection is what they will serve. But our customers today, they want a global footprint. But the data center in Europe will have a lot of tracking a lot of traffic coming from other parts of the world. So we want to be differentiated. We are and we play in this dynamic place in complex connection businesses -- and we can cooperate with the other players as well.

And then on the XL side, you're building larger hyperscale facilities, it's a smaller part of your business and some of your peers. Talk to us about how you're incorporating that with what you do and where you're seeing success there? .

So X-scale is not a retail, but it's not a full wholesale either. Why do I say this? They are not gigawatts centers, right? There are hundreds of megawatt centers. They are close to a metro without getting into too many details, you need to be about 30 miles, give or take, to metro to manage latency. Those scale sites are smaller, close to a large metro we will share some of those sites. So we see x scale as being synergetic with what we do. They allow us to do 2 things in addition to have access to a site, they give us purchasing power with the power management company and more intimacy also with some of our large customers.

All right. So we can't have a data center conversation these days with the power question. Talk to us about the power. How do you see your ability to get that access for you have some pretty broad development needs? How do you see your ability to access power to reach your development goals.

Yes. So am I embarrassed by what I'm about to say because it's so different than what you have heard, right, with an article this morning on the Wall Street Journal about how difficult it is to access to everything, right? We build something different 60-megawatt data centers. We build those in metros. We have been doing that for 30 years. We have great relationship with the utilities companies. We have great relationship with our general contractor with the power management company. So today, we have been able to manage these constraints pretty well. We have not experienced any delay. If anything, our team has been able to accelerate the launch of data centers. So we have been largely immune from those constraints. So again, we have access for the next 5 years to more land, power, water, power management equipment than we need. But again, different use case. Let me speak about the community for a second, and we're proud of this approach at our company. We have a team across the world only doing community engagement. For the world. We have a playbook. We are part of the community. Our playbook is as follows: we have been in the community for 30 years. We are green, we manage water, we recycle it. We invest in our schools. We invest in apprenticeship. We're different. We're going to stay. We have been with you for 3 decades, we're going to stay, that resonate, and that allows us to navigate. It's tougher than before. No question, but no delay. Our team is doing an amazing job.

And what about the self-provisioning power? How have you thought about that process? And is that a solution that's right for Equinix? How do you think about that? .

You cannot be in this business without thinking about alternative sources of power and local provisioning of the power particularly to manage PICs, so in power load. So we do all of this. I mean we're even looking at data cetane space. I think something which is fashionable nowadays. But all of that is being part of the playbook of our company. We have local power provisioning using various sources gas and green energy as well. So we have to do that and we do.

Yes. We were one of the first users of fuel cells, for example, in our Silicon Valley. We use gas turbines in some areas in Europe. And as Olivier said, we've kind of taken all power approach as we look forward. But I want to make 1 of their comments about the power situation. We've got 3 gigawatts of land under control. And we -- we're not in the business of speculatively buying land and then figuring out the power situation later. We are doing all this in parallel. And so when we buy a parcel of land, we either have fully contracted power agreements or we are in a very late have high, high confidence about our ability to get the power. So it's a key distinction that again, we're not out speculatively buying land and figuring these things out down the road.

Full conditions for us to sign a contract for a piece of property, land, power, water community, at the same time, yes.

All right. Great. And with that, so where are you on the -- the ambitious bill plans? You've got the resources you need to plan to power? Where are you on the bill plants you laid out last year?

Well on track -- we have solved the capacity constraints. We have solved the financing constraint. Now we want to offer great network created and great full stack interconnection solutions that work in progress. But the other constraints have been solved.

Okay. And then I'll have one more question, and then we'll take to see if there's some questions from the audience. If not, I've got a few more. But -- so new CFO I have to ask the capital allocation question to you. Talk to us about your view of capital allocation for -- as it relates to investors.

Yes. So there are a few things, which are going to be foundational regarding the way we manage our company. And I'm going to state some obvious facts, but they are always good when repeated. One investment grade is table stake. We think we can leverage. We have a 3.8x leverage. We believe we can increase the leverage, but investment grade is going to be critical. We want to maintain this. And we believe we can finance our expansion while staying an investment-grade company. So that's one constraint. The other constraint is we do not want to sacrifice the short term for the long term. 1/3 of our investors want us to do both. And we believe that we're going to be able to do both. So what does that mean? FFO per share is part of the algorithm. Our capital allocation as 4 tenets: one, investment grade, two top line, 3 EBITDA expansion, four an important for AFFO growth per share, which is attractive to you. So that's what we're going to focus on. Largely, I mentioned it, Phillip mentioned it as well. We have the land power, the water we need at times, we'll be opportunistic to do M&A. At North was one of them, but they are not needed for us to achieve our goals. So that's the framework.

All right. Great. So folks in money has a question there. There's a microphone or you can just raise your hand. We can grab the questions there. Yes, go ahead.

How fast do you see that power growing. You mentioned kind of the KW now and a few that are 100,000 Kw.. Is this growing at 10% a year? Or are we going to be at good year of the.

So this is -- I mean if you go to the sites, those 100,000, rack exist. They are already deployed. It would take time. It will be a diverse set of use cases. So if I give you a statistic, the average kilowatt per rack today at Equinix is 5. In Q1, the increase in density went up by 36% right? So we're still going to increase. And this Greece, you're going to have Phillip mentioned it earlier, it was a good set of statistics, low power, high-power coexisting. And again, the high power, something very new, which is the need to compute at the edge.

But just to put it in context, you talked about the 34% growth, that's still single-digit kilowatt per cab, right? So it's -- it's -- there's a big installed base for sure, and there are needs for those -- for all different types of workloads. So I think it's going to be a slow climb. But we are building our new facilities are building towards these increased density. So we feel like we're kind of going to where the market is and where it's going. We feel very confident about the ability to meet the diversity of the demand around those requirements.

ROTH of change is always slower. Any other question Yes, go ahead.

Space and others are eventually successful space? Do they still need the interconnection to service [indiscernible].

Yes. So I mean, everybody has to look at this, right? Elon has been pushing the idea first, people thought it was crazy originally, right? And some people are saying, okay, maybe we need to pay attention. We're looking at this. The physics are going to be challenging. It's over my pay grade. Would you use -- I mean we're speculating here. Do you need that for large language model Yes. Can that be the solution for what we do, retail network, proximity, the answer is no. The physics do not allow this footprint to serve what we serve. If you are in the wholesale business somewhere Arizona, Texas, maybe if you do what we do, we do, no.

Okay. Great. Any last questions? All right. Well, with that, Phil. Really appreciate the time here. Thank you very much. Thanks, everybody, for joining us today.

Good day.