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

Good afternoon, and welcome to the Equinix Second Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you object, please disconnect at this time. I will now turn the call over to Ryan Burke, Vice President of Investor Relations. You may begin.

Good afternoon, and welcome to our second quarter conference call. Before we get started, I want to remind you that some of the statements that we make today are forward-looking in nature and involve certain risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identify in today's press release and in our filings with the SEC. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is our policy to not comment on our financial guidance during the quarter unless it is done through an explicit public disclosure. On today's conference call, we will provide non-GAAP measures. We provide a reconciliation of those measures to the most directly comparable GAAP measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We have made available on our website a presentation that we will refer to, along with certain supplemental financial information and other data. With us today are Adaire Fox-Martin, CEO and President; Olivier Leonetti, CFO; and Phillip Konieczny, SVP of Finance. At this time, I'll turn the call over to Adaire.

Thank you, Ryan. Good afternoon to you all. The AI-driven infrastructure cycle continues to accelerate, and it's playing directly to our strength. Demand for neutral interconnected sovereign infrastructure is compounding across our business and our global scale, differentiated portfolio and unmatched ecosystem are converting that demand into durable profitable growth. You see this clearly in our Q2 results. Monthly recurring revenue growth accelerated to 11% year-over-year on a normalized and constant currency basis. This marks our third straight quarter of double-digit MRR growth with strong profit performance. Annualized gross bookings grew 23%, our second highest volume on record. Total sales activity, inclusive of annualized gross bookings and presales grew over [30%], and we continue to see a record backlog. We added 9,700 net interconnections, our most ever and AFFO per share grew 18% on a normalized and constant currency basis. A direct result of the disciplined execution by our teams around the world. Given the strength of our performance as well as our bookings and presales momentum, we are raising our full year guidance and long-term outlook. For 2026, we now expect revenue growth of 11% to 12% and AFFO per share growth of 10% to 12%. This is the largest single guidance raise in the history of our company, reflecting broad-based durable demand and strong execution across our business. We continue to accelerate our capacity expansion to meet this growing demand. In fact, we will double the number of cabinets we deliver in the second half of the year. As a result, we now expect 2026 CapEx to range between $5 billion to $6 billion. Looking further out, we expect to deliver top and bottom line growth well ahead of the outlook we provided last year. Through 2029, we expect total revenue growth in the 10% to 13% range annually, with AFFO per share growing 9% to 12% during the same period. To capture the robust demand in front of us, we plan to invest $5 billion to $7 billion in CapEx annually through 2029. These are high conviction investments that we believe will deliver attractive returns whilst enabling the outcomes our customers need. And we fully expect the new capital we're deploying to deliver the mid-20% yields you have grown accustomed to. Olivier will provide a more detailed view of our outlook shortly. Our revised outlook reflects more than a strong quarter. It shows what a focused team executing the right strategy can deliver. And we're doing it in a market that's materially stronger than it was a year ago. As the market has evolved, the nature of the demand has given us greater conviction in our plan. A significant proportion of this demand comes from the world's largest enterprises, modernizing their on-prem infrastructure that was never built for today's broad-based distributed workloads. The remainder comes from net new AI native workloads and service providers powering them. In both cases, the majority are already Equinix customers, and they increasingly need solutions, we are uniquely positioned to deliver because of our consistent focus on this target market. All around the world, customers are confronting the same reality. Their networking, cloud and AI workloads are growing more distributed, complex and demanding, and they need infrastructure built for a new era. Their workloads don't live in one place. They run across clouds, models and geographies simultaneously in real time. That's something compute alone can't solve. It requires connectivity at the intersection of everything. That point of intersection is Equinix. We have been at the center of every major shift in enterprise technology over the past 30 years. We were the neutral ground where the Internet scaled. We were the neutral platform that made multi-cloud real. And now as inference and agentic AI unleash extraordinary capabilities alongside new layers of complexity, we are the neutral exchange where customers can run, connect and orchestrate it all. This kind of connectivity has never been more important and no one has built what we have built. Our ecosystem is approximately twice the size of the next largest provider. Now as we curate the emerging AI ecosystem, our competitive advantage is growing. Eight of the top 10 model providers as well as 8 of the top 10 neoclouds are already running their key networking workloads on Equinix today. That kind of ecosystem density creates a flywheel of growth and value creation. Our infrastructure attracts interconnection-rich workloads. Interconnection expands the ecosystem, a more expansive ecosystem attracts more of everything and our momentum continues to build. Let me share some recent customer examples that bring our momentum to life. Leading AI cloud infrastructure provider, OrionVM selected Equinix to power its fully managed private agentic AI bundle. helping enterprises deploy and scale sovereign agentic AI with a clear path to measurable ROI. Built on our secure neutral infrastructure, the bundle supports private AI deployments, heterogeneous compute and autonomous AI capabilities. And through OrionVM's collaboration with Tenstorrent, customers gain greater choice and flexibility at the AI accelerator layer. SCX.ai, Australia's sovereign AI infrastructure provider, partnered with Equinix to build the country's first sovereign AI inferencing node leveraging our Sydney operations. Equinix enables a faster, more governed path to integrating AI into core operations with a scalable foundation for expansion across Asia Pacific. Raymond James, one of the leading financial services firms selected Equinix to augment their on-premise model to our multi-cloud infrastructure. Our ability to enable low latency connectivity to their customers, cloud and SaaS providers as well as the strength of our overall financial services industry ecosystem were key factors in their decision to grow their business using Equinix. And we are working with Verizon to deliver enhanced enterprise connectivity by combining their adaptive network fabric with Equinix' neutral interconnection hubs. This integration via APIs allows for near real-time provisioning. Our unmatched metro density, global scale and advanced automation capabilities help customers like Verizon, lower execution risk and accelerate service delivery. These examples are enabled by our progress against our strategic pillars. Starting with Serve Better, we delivered annualized gross bookings of $424 million, up 23% year-over-year and notable acceleration from Q1. In addition, we delivered approximately $110 million of preselling activity. Collectively, that's over a 30% growth in total sales activity in the quarter. We have a robust pipeline entering the back half of the year and we've already closed over 45% of our bookings target for Q3. Our preselling motion continues to show very encouraging trends as we have now sold approximately 30% of our remaining 2026 retail capacity expansion. Secure Cabinet Express our standardized business-ready colocation offering is continuing to gain traction with cabinet orders up more than 30% year-over-year. It's a great example of how we're simplifying the customer buying experience to accelerate growth. On Solve Smarter, we are turning the demands of enterprise AI into products customers can deploy today. Most enterprises know what they want to build. The infrastructure to support that scale is the challenge. Our expanded collaboration with Cisco and NVIDIA tackles this head on by bringing standardized AI factory blueprint and automation across our global IBX network. And through our new partnership with Presidio, customers can test and validate before they scale. That's how we help enterprises move faster with greater certainty. Data sovereignty is a challenge for enterprises and an opportunity for Equinix. Most networks were built for performance, not compliance. Our new Fabric Geo Zones offering was built for both. Traffic either flows along compliant path or it is blocked. Sovereignty is no longer a configuration. It is a property of the network itself. Fabric Geo Zones is in preview with approximately 80 enterprises around the world. These are 2 examples of our customer-focused product road map, and we're just getting started. This week, we welcomed Chris Audie to Equinix as our Chief Product Officer. He brings extensive experience to the role, most recently as HashiCorp's Chief Product and Technology Officer for Infrastructure and AI. His strong background spanning product, software and infrastructure will help us accelerate and expand our solution portfolio. We also named Bruce Owen, a 16-year Equinix veteran with deep experience across our business as EVP Global Markets, overseeing our 3 regions. Chris and Bruce strengthen our leadership team at exactly the right moment. Turning to Build Bolder, our teams continue to execute at a high level. Our acceleration of more than 7,000 cabinets from 2027 into Q4 2026, reflects our confidence in our ability to deliver as well as our commitment to bring capacity online faster to meet growing demand. This quarter, we announced significant new projects in Chicago, Istanbul and Johor, with more expected throughout the remainder of the year. We now have 52 major projects underway across 33 markets. I also want to take a moment to emphasize something that matters deeply to us as we expand. In the communities where we build and operate, we're not a visitor. We are a neighbor. And that distinction has defined our approach for nearly 30 years as we have built the essential infrastructure that underpins the everyday experiences and connections people depend upon. Across all of our markets, we engage early and transparently, we listen and adapt to local needs and we invest for the long term because we are there to stay. That's how we build trust. It's what makes communities stronger over time. And it's why we have been able to consistently execute our projects on time and at scale. This quarter, we published our U.S. community principles. They reflect the standards that have long guided our approach and that we hold ourselves to. This includes funding energy and grid infrastructure costs directly, investing in renewable energy and water use efficiency and creating meaningful opportunities for the people around us. From construction and skilled trade jobs to pathways for veterans, to programs that build the next generation of technical talent. Based on our long-time leadership in these areas, I was in Washington, D.C. last week to support the ratepayer protection pledge. And our commitment to being a good neighbor extends to every community we're part of around the world. Let me close by saying Q2 was an exceptionally strong quarter and reflects a business that is hitting its stride. We have been deliberate about our strategy, focused in our execution and disciplined in where we invest. Now as the market evolves and expands, our efforts are paying off. And our decision to raise our guidance and put more capital to work reflects our confidence going forward. I'll now turn it over to Olivier to take you through the financials in detail.

Thank you, Adaire. Our unique positioning and strong execution are evident in our performance and raised outlook through 2029. We're driving momentum across our business with demand strength in every vertical, product and channel. Looking at Q2 results on Slide 7 of our earnings presentation with growth rates discussed on a normalized and constant currency basis. Recurring revenues increased 11% year-over-year, reflecting the underlying strength of our business and record bookings converted into revenue. Total revenues increased 16% year-over-year. As expected, we closed 134 megawatts of xScale leases, including Hampton, which contributed approximately $120 million in nonrecurring fees. Our adjusted EBITDA margin was 53%, up 300 basis points year-over-year. This is a result of continued cost discipline, scaling our operating leverage and our xScale leasing fees. Excluding xScale leasing fees, our adjusted EBITDA margin was up approximately 150 basis points year-over-year, and AFFO per share increased 18% year-over-year. Our nonfinancial metrics also continue to demonstrate momentum and our strategy in action. We added a record 9,700 net interconnections, we added 4,200 net cabinet billings and our backlog sold but not yet installed is at a record level. Churn was 1.8% primarily due to our renewal process execution and some delayed churn. We expect to be near the lower end of our typical 2% to 2.5% range for the back half of the year. On Slide 10, you see that our capital investments delivered very strong returns. Our 194 stabilized assets are collectively 82% utilized and generated a 27% cash-on-cash yields on gross PP&E. We continue to achieve these outsized returns on assets we have delivered in recent years. reflecting our focus on offering differentiated infrastructure and services to our customers. On Slide 11, total capital expenditures for the quarter were about $1.6 billion, approximately 90% of which was invested in capacity expansion. Since the last earnings call, we opened new projects in Madrid, Milan and Silicon Valley. Turning to our capital structure on Slide 12. We have approximately $7.7 billion of available liquidity, including our recently upsized revolving credit facility and our net leverage was 3.6x annualized adjusted EBITDA. We continue to execute on our access to lower cost capital around the world to fund our growth. Now please refer to Slide 14 to 18 for an updated view of our 2026 guidance with all growth rates on a normalized and constant currency basis. Based on the robust environment and the team execution, we're raising 2026 guidance for the second consecutive quarter. The raise reflects our recent outperformance and a stronger outlook for the rest of the year. For the third quarter, we anticipate continuing strength, including MRR growth of 9% to 11% year-over-year, total revenue growth of 10% to 12% year-over-year and an adjusted EBITDA margin of 51%. For the full year, with dollar amounts discussed prior to FX adjustments. We're raising total revenue guidance by $100 million, improving our expected growth range to 11% to 12%. We expect MRR growth to be around 10% at the high end of our prior range. We are raising adjusted EBITDA guidance by $62 million resulting in an adjusted EBITDA margin of approximately 51%, a 200 basis point improvement over last year. We're raising AFFO guidance by approximately $50 million, driving an increase in our expected AFFO per share growth range to 10% to 12%. And excluding real estate acquisition and xScale, we expect total capital expenditures to be $5 billion to $6 billion as we accelerate capacity expansion into the year. As Adaire mentioned, a significant portion of our planned capacity additions for the remainder of 2026 are already committed through bookings and presales, providing increased visibility into future growth and returns. Now turning to our long-term outlook update. We are clearly in a stronger environment, and the team is executing very well. We have been closely analyzing the market opportunity to calibrate where we stand and where we are headed. Through this, we have gained even stronger conviction in our strategy, positioning and trajectory. With AI as an accelerant, we expect demand to remain robust as customers modernize their technology architectures and increasingly orchestrate their strategies on our platform. Scaling our business will continue to be a focus, driving revenues, controlling expenses and enhancing our margins. Our competitive advantages drive returns on development that are unmatched. Recognizing this strength, we have developed a demand-driven capacity expansion plan that accelerates delivery time line, enables deployment flexibility in response to demand signals, minimizes earnings drag and maximizes our long-term growth profile. Demand is clearly exceeding the assumptions in our prior long-term outlook. Bookings, presales, backlog and pricing are strong and we are uniquely positioned to meet the durable demand by deploying capital over the next few years. We expect $5 billion to $7 billion of capital expenditures annually from 2027 to 2029 with the vast majority focused on capacity expansion, delivered into a target market where our value proposition is increasingly differentiated. More than 80% of this expansion will be in our top 25 major global metros. The result will be a higher-growth portfolio built over 30 years that is uniquely fit to serve the new technology era. And as always, our balance sheet and diversified capital program are critical differentiators. In combination with significant retained cash flow, we'll continue to access lower-cost sources of capital to fund our robust growth opportunity. Referring to Slide 19. We expect the following for 2027 through 2029. Total revenue growth ranging from 10% to 13% per year, beginning the period at the low end of this range and accelerating as the benefit of our capacity expansion plan builds. Adjusted EBITDA margin to reach 53% or higher by 2029. AFFO per share growth in the 9% to 12% range per year. Capital expenditures in the $5 billion to $7 billion range per year, excluding real estate acquisitions and xScale and dividend growth to approximate AFFO per share growth. Utilizing our balance sheet, we will achieve this with only a moderate leverage increase, allowing us to maintain our current and critically important investment grade credit ratings. In conclusion, demand is stronger and more durable. The team is executing, our confidence in future growth has increased, and we are accelerating capacity expansion to capture the opportunity in front of us. I'll now turn the call back over to Adaire.

Thanks, Olivier. The first half of 2026 has been a strong one, and it has set the stage for something bigger. The demand signals are clear. Our strategy is working and the investments we are making today are designed to drive sustainable long-term growth well above our prior expectations. We will maintain our relentless focus on disciplined execution that solves the challenges our customers face and creates value for our shareholders. And our team stands ready to capture the opportunities ahead. With that, let's open the line for questions.

[Operator Instructions] Our first question comes from Eric Luebchow with Wells Fargo.

Great. Adaire, I just wanted to get your view on the long-term guidance raise. Obviously, a huge change from last year. So maybe you could just talk through a high level kind of what you're seeing in the market that's given you the degree of confidence to raise CapEx this much. And as we think about the forward growth mechanism for revenue of 10% to 13%, I think, previously you had talked more about it being more based on MRR per cabinet growth than installed billable cabinets. Has that changed at all based on the CapEx increase based on the pipeline that you talked about in your remarks?

Thanks so much for the question, Eric. Let me maybe start with the view from this year to last. I think that we have seen definitely acceleration in the AI infrastructure cycle, as I mentioned in my prepared remarks, and that plays directly to the strengths of Equinix. We're uniquely positioned, I believe, to enable our customers and our partners to execute their AI strategies, particularly as they shift to inferencing. And we're pretty rapidly seeing customers become much more sophisticated in how they are pursuing their AI requirements. I think it's fair to say that broadly, we have a broad depth and breadth of customer demand across our portfolio. So AI is an accelerant to the ongoing digitization activities of our customers. In Q2, we saw that the vast majority of our largest deals were driven by AI workloads similar to what we've seen in the previous quarters. We also spoke about the execution of our team, how our team has performed exceptionally well. I think if I look at the difference between this time last year, execution is essentially better across the board. Sales activity, how we're operating, margins and cash flows, capacity expansion, how we're financing our growth, and I mentioned externally the market dynamics changing to move inference ahead of perhaps where we initially scheduled or intended that it would be at, and that's much stronger than everything we saw a year ago. We've been very thoughtful. We've gone back and looked at everything, including the shape of our customer demand, including the optimization of things like our expenses, our CapEx and our finance plans. So our revised outlook, I think, reflects more than a strong quarter. It reflects a market opportunity that has materially improved over the past 12 months. And this has been a huge collective effort, and I'd like to just take a moment to thank our team for all of the work that they've done in this year.

One additional point, it is important, Eric, we put that in our prepared remarks, most of the deployment of the capital, 80% of it will be in our top 25 metros. Markets where we -- that we understand well, where we have a competitive advantage, where demand is higher than supply, and we have already today a strong ecosystem, with the utility providers, with the global contractors, with the community. So we feel today as comfortable as we could be about this updated long-term guidance.

The next question comes from Aryeh Klein with BMO Capital Markets.

Adaire, with AI strategies being implemented, are you seeing any changes in underlying deal metrics or compositions? Are different markets more in demand? What about deal sizes and interconnection attach rates, especially with the strong net adds this quarter?

Thank you. Thanks, Aryeh, for the question. I think we're definitely seeing some changes in terms of deal structures. Certainly, the density of our deals is moving upwards as customers seek to secure the capacity that they need for their energy and their compute future. So that's absolutely one change that we're seeing in the deal mix. As far as interconnection is concerned, as you can see from our prepared remarks, we had a very strong interconnection quarter, adding over 9,700 net adds and interconnection revenue growing at around 9%. And as customers come on to our platform in the first instance, then we see our interconnection revenue increase as that progresses. I think even in the face of increasing footprint sizes from our customers, our pricing has remained very firm and we are managing to secure the yields that you have come to see from Equinix over the past.

I would say, Aryeh, to add and Adaire covered that in her prepared remarks. The complexity of this ecosystem we are serving is more -- is increasing more than ever before. Cloud providers, neocloud, enterprise AI model, all of this trend is playing to Equinix strength.

The next question comes from Matt Niknam with Truist.

Congrats on the quarter. Maybe related on interconnect. Maybe Adaire, if you can speak to where you're seeing some of this increased demand coming from? And if, in fact, you have a product that is in such high demand. How do you think about the opportunity for maybe incremental pricing actions on interconnect over the longer term?

Thanks for your remarks. Matt, appreciate that. So just reiterating again, you saw the demand reflected in the adds of -- to our interconnection franchise. I think this is one of the unique value propositions of Equinix, one of the things that continues to differentiate us as a company. We have, of course, added capabilities to our interconnection portfolio through our fabric product suite, most recently the Fabric Geo Zones, which support sovereignty requirements and I think in last quarter, I mentioned that 20 customers were in preview with this product, and we already have 80 in preview this quarter with our products. Fabric Intelligence providing additional capabilities of observability and management for our customers. So I think that there is the opportunity here to really look at the compelling value proposition that Equinix offers and then the opportunity to elevate that value proposition for our customers through some of these fabric offerings, it's one of the jobs that Chris will have on day 1, which today is actually his day 1 as he gets started as our Chief Product Officer. Because we can see some very significant growth rates in FCR, for example, our cloud router 170% up year-on-year in bookings there. And some of that driven through non colo customers, which is also an interesting proposition for us. So this, I think, is an exciting area for us to continue to mine.

The next question comes from Frank Louthan with Raymond James.

When we're looking at the new guide and kind of going forward, what's the right level to think of the normal for nonrecurring revenue and the long-term guidance as a percentage of total revenue? How should we think about that with the new guidance level you set?

You should assume the traditional 5% of total revenue, that would be a good moderate assumption.

The next question comes from Michael Rollins with Citi.

So within the new guidance for revenue, can you share how each of the 3 geographic regions are progressing, how they should grow, each relative to the total portfolio? And as you invest more in the business, is your expectation that revenue growth within this range should be similar in each year? Do you see it accelerating? How does the higher investment levels kind of come through the P&L if you look over the next 3 plus years?

Thanks, Mike. I'll take the first part and Olivier perhaps will take the second part of the question. I think one of the benefits that we have as Equinix is the diversification of our customer base and of our portfolio. We have no concentration risk in terms of how our revenue is deployed across both our regions, the industries that we serve and the product groups and cohorts that we manage. As you can see from the deck, the Page 8 of the deck that accompanied earnings, we had a very strong performance in the Americas as it related to revenue performance. And even if we normalize for Hampton inside that performance, for the transaction, the NRR transaction that concluded in Q2, we still have low-teens double-digit growth in our Americas portfolio. And we had an amazing quarter in APAC, and I think that's beginning to pick up for us. A lot of -- tremendous activity from the teams there in terms of bringing new customers into the Equinix portfolio. And EMEA continues to perform exceptionally well, notwithstanding that 2 of our main metros in EMEA, Frankfurt and Amsterdam are highly constrained metros. So this balance, I think, is an important aspect of the overall portfolio that we manage. I think we will continue to see this kind of growth in the Americas given that much of the AI activity and company base exists here in the first instance. But as we move across the different regions, we can see that rapidly following in APAC, for example, with local vendors moving into the Southeast Asia market, in particular. And then with EMEA, it might have a different feel on it in that our growth portfolio may be underpinned by the offers that we have around sovereignty, which are particularly relevant to EMEA customers and clients. So I would say a strong balance following what you see already in the regional performance. Olivier, just on that breakdown?

Yes. If you look, Michael, at the range of growth per year, we should -- we expect the growth to be higher at the end of the planning period by 2029. This is going to be a byproduct of our CapEx deployment, and you should expect AFFO to follow the revenue growth. You could have a bit of volatility due to the lumpiness of NRR in a particular year, but that would be the overall trajectory. Another comment also, we think it's important in terms of CapEx deployment at stabilization, which is about 3 to 4 years post RFS, we expect to deliver the traditional 25% cash-on-cash returns that we have mentioned now for a number of quarters and years.

The next question comes from Jonathan Atkin with RBC.