Q1 2023 Equinix Inc Earnings Call
Speaker 2: Welcome and thank you all for standing by. Welcome to the Equinix First Quarter Earnings Conference Call. All lines will be able to listen only until we open for questions. Also, today's call is being recorded. If anyone has any objections, please disconnect at this time. I would now like to turn the call over to Chip Newcomb.
Speaker 2: Senior Director of Investor Relations. Thank you, you may begin. Good afternoon and welcome to today's conference call.
Speaker 3: Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties.
Speaker 3: and those identified in our filings with the SEC, including our most recent Form 10K, filed February 17, 2023.
Speaker 3: 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 Equinix's policy not to comment on its financial guidance during the quarter unless it's done through an explicit public disclosure.
Speaker 3: In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com.
Speaker 3: We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about economics on the IR page from time to time and encourage you to check our website regularly for the most current available information.
Speaker 3: With us today are Charles Myers, Equalynx's CEO and President and Keep Taylor, Chief Financial Officer.
Speaker 3: Following our prepared remarks, we'll be taking questions from cell side analysts. In the interest of wrapping this call up in one hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Charles.
Speaker 3: Thank you Chip, good afternoon and welcome to our first quarter earnings call. We had a strong start to the year, delivering quarterly revenues right at $2 billion, with adjusted EBITDA and AFFO above the top end of our expectations. Despite a challenging macro environment, customers remain committed to their digital transformation journeys, driving 4,000 deals in the quarter across more than 3,000 customers.
Speaker 3: highlighting the scale and diversity of our go-to-market engine and the broad-based demand that continues to propel the business.
Speaker 3: We continue to see enterprises and service providers build out their IT infrastructure on platform Equinix. And that infrastructure is more distributed, more cloud-connected, and more hybrid than ever before. And while some customers are appropriately cautious about the timing of their investments given macro conditions, Equinix continues to be a critical partner in their efforts to advance hybrid architectures.
Speaker 3: unlock digital performance gains, and optimize cloud and network spend. As a result, our deal win rates remain steady compared to historical trends and we continue to see a robust pricing environment across all three regions.
Speaker 3: Turning to power, we're very pleased with how the organization has navigated a volatile energy market, and we remain in a strong position, significantly mitigating the impacts of this volatility for our business and for our customers. As previously discussed, we raised pricing in January to more than 7,000 customers across 16 countries.
Speaker 3: generating approximately $90 million of incremental revenue in the quarter, fully offsetting the impact of higher power costs. Thanks to timely and transparent communications, concessions and disputes are low, and our days of sales outstanding remain in line with historical trends.
Speaker 3: On the sustainability front, we are committed to responsible growth and continue to advance our bold future-first sustainability agenda. Sustainability is increasingly becoming a board-level issue, and Gardner estimates that by 2026, 75% of organizations will seek to increase business with IT vendors that have demonstrable sustainability goals and timelines, and will seek to replace those who don't.
Speaker 3: We recently published our 8th annual CSR report, and in 2022 we extended our industry leadership with 96% renewable energy coverage, making our 5th consecutive year with over 90% coverage.
Speaker 3: We're also progressing well on our science-based targets with a 23% reduction in operational emissions across Scope 1 and Scope 2 from our 2019 baseline.
Speaker 3: Additionally, Equinix continues to evolve its power procurement portfolio to increase the quality of its renewable energy purchases.
Speaker 3: This year we signed new long-term power purchase agreements for solar projects in Spain totaling 345 megawatts of capacity bringing Equinix's contracted renewable energy PPA portfolio to 715 megawatts globally once fully operational. Looking forward, where feasible, we'll continue to prioritize projects that create new sources of clean energy.
Speaker 3: percent year-over-year and AFFO was better than our expectations due to strong operating performance. These growth rates are all on a normalized and constant currency basis.
Speaker 3: Our unmatched scale and reach continues to differentiate our data center services portfolio, and the tremendous strength of our balance sheet positions us to sustain our investment in new capacity to support a robust demand environment. We currently have 50 major projects underway across 37 metros in 25 countries.
Speaker 3: Francois, Frankfurt, and Rio de Janeiro. Revenues from multi-region and three-region customers increased 1% quarter over quarter to an impressive 76% and 65% respectively.
Speaker 3: Key multi-region wins in a quarter included a Fortune 500 manufacturing conglomerate expanding its performance hub deployments across all three regions to assist with business unit divestiture and a cloud-native zero trust cybersecurity company using Equinix metal to expand its business across all three regions.
Speaker 3: Our platform remains the logical point of nexus for hybrid and multi-cloud deployments, and hyperscalers continue to look to Equinix as a critical infrastructure provider and a valued go-to-market partner.
Speaker 3: This quarter, we won five new cloud on-ramps across Melbourne, Mumbai, Muscat, Tokyo, and Warsaw, as we continue to enjoy a strong leadership position in multi-cloud connectivity compared to our closest competitors. We're also seeing the unique breadth of our product portfolio across retail, colo, interconnection services, xScale, and digital services.
Speaker 3: resonate strongly with customers as they embrace rapidly emerging opportunities in AI. We've closed several key AI wins over the past few quarters and are seeing a growing pipeline of new opportunities, directly and with key partners, for both training and inference use cases that benefit from the unique performance characteristics and multi-cloud proximity of our platform.
Speaker 3: In our X-cale portfolio, we continue to see strong overall demand. In Q1, we pre-least our entire Frankfurt 16-AZEC, representing 14 megawatts of capacity, taking us to over 70% least or pre-least across our nearly 260 megawatts of operational and announced X-cale facilities. And we have a strong, final, additional X-cale opportunities in the coming quarters.
Speaker 3: for their private multi-cloud connectivity needs. And the HRS Corporation, a diversified media company deploying on platform economics to execute its cloud first strategy, including the deployment of network edge for their network aggregation.
Speaker 3: Turning to our industry leading interconnection business, we now have over 452,000 total interconnections on our platform. In Q1, interconnection revenue stepped up 12% year over year on a normalized and constant currency basis. And we added an incremental 5300 interconnections for the quarter. We saw some continued grooming activity and consolidation into higher bandwidth VCs on fabric that both moderated from the prior quarter.
Speaker 3: While gross ads remain strong, pricing is firm and the diversity of our customer interconnection continues to expand.
Speaker 3: As global data volumes continue to accelerate, Internet exchange saw peak traffic up 3% quarter over quarter and 26% year over year, to greater than 30 terabits per second for the first time. And as enterprises continue to embrace hybrid and multi-cloud as their architecture of choice, they are increasingly seeking the security, performance and convenience of Equinix Fabric.
Speaker 3: to connect to their choice of cloud and IT services across the broader digital ecosystem.
Speaker 3: Customer wins included Kaisa, Brazil's Federal Financial Services Company, partnering with Equinix to accelerate its business by optimizing and securing its network core via Fabric. We also continue to enhance our platform with our Digital Services portfolio. And saw strong news or growth for our Equinix Medal offering as we cultivate product-led growth. When this quarter included a Japanese video game company, utilizing Equinix Medal in all three regions to support a new product launch and restack in Australian staff, integrator, and managed services provider. Utilizing Equinix Fabric and our Edge services to optimize their solution offerings.
Speaker 3: Our channel program delivered another strong quarter, accounting for roughly 35% of bookings and 60% of new logos. Winds were across a wide range of industry verticals and digital or first use cases with strong engagement across the hyperscalers and continued momentum with partners like AT&T, Dell, Cisco, HPE, Orange Business.
Speaker 3: demonstrating how local partners can help deliver via clients in new equinx markets. Now let me turn the collar over to Keith and cover the results for the quarter. Thank you Charles, and good afternoon to everyone. As highlighted by Charles, we had an outstanding start to the year. As you can see from our financial results, the team delivered on multiple fronts in the quarter. We had record net bookings including power price increases.
Speaker 3: Excluding those power price increases, our net bookings performance was solid, the result of again net positive pricing actions across each of our regions and lower MRR turn.
Speaker 3: Global MR per cabinet yield increased by $124 per cabinet on an as reported basis, or about $27 per cabinet, adjusting for prior price increases and other one-offs.
Speaker 3: And as we highlighted on the last earnings call, we completed our efforts to strengthen our balance sheet, raising both debt and equity in the quarter and remaining well funded to meet our future growth expectations.
Speaker 3: Now, as you would expect, despite the continued strength of our business, we remain highly focused on the broader market dynamics.
Speaker 3: But as we've stated before, during periods of disruption, Equinix thrives given our high-quality and diverse set of customers who view Equinix as a mission-critical partner to place their ecosystem-driven digital infrastructure, whether it be a cloud on-ramp, a networking node, a cable landing station, or a trading platform. Do remember, 90% of our quarterly bookings come from those existing customers as they expand their current environment or maybe move to more markets or simply buy more services.
Speaker 3: Finally, our strong liquidity position, low dividend to AFFO payout ratio, and reduced debt leverage allows us to continue to invest, to extend our product portfolio and expand our global footprint, in both cases driving top line growth.
Speaker 3: Simply put, we're in a strong fully funded financial position, allowing us to meet all of our capital needs while maintaining the strategic and operational flexibility we need to grow and scale the business.
Speaker 3: Now let me cover the highlights from the quarter. Know that all comments in this section are on an arm-life and constant currency basis.
Speaker 3: As depicted on slide 4, our global Q1 revenues were $1.998 billion, up 16% over the same quarter last year, and above the top end of our guidance range, due to strong recurring revenues and the timing of ex-scale non-recurring fees.
Speaker 3: As was noted before, non-occurring revenues, particularly those revenues attributed to interact scale business and custom installation works are inherently lumpy.
Speaker 3: And given the momentum we're seeing in our ex-kill business across all three regions, non-recurring revenues could fluctuate meaningfully over the next three quarters of the year.
Speaker 3: Q1 revenues, net of our FX hedges included a $2 million tailwind when compared to our prior guidance rates due to our weaker US dollar on the quarter.
Speaker 3: Global Q1 Adjusted E, but I was 944 million or 47% of our revenues. I've 18% over the same quarter last year and again, above the top end of our guidance range, due to strong operating performance including flat quarter-quarter SG and A-spent.
Speaker 3: As expected, Q1 adjust to DeBodot benefited from lower seasonal power consumption and favorable energy head rates, which will reset higher starting in Q2 as anticipated, resulting in increased net utility spend over the next three quarters of the year. Q1 adjust to DeBodot net of our FX edges included a $2 million FX benefit when compared to our prior-
Speaker 3: consistent with prior years.
Speaker 3: Q1A FFO included a $2 million FX benefit when compared to our prior guidance rates. Global Q1M, our term, was 2%, a continued reflection of our disciplined sales strategy.
Speaker 3: For the full year, we expect MRR churn to average at the low end of 2 to 2.5%.
Speaker 3: year, we expect MRR churn to average at the low end of two to two and a half percent of our quarterly range.
Speaker 3: During the entire regional highlights, we saw results covered on slides 5 through 7. On a year-over-year, normalized basis, EMEA was our fastest growing region at 28% due to our significant power increases.
Speaker 3: Excluding the benefit attributed to those prior price increases, EMEA growth was 14%. Our APAC and America's region growth rates were 15% and 9% respectively.
Speaker 3: The Americas region had another solid quarter with strong performance from our public sector team and continued favorable pricing trends. We saw strong momentum in our Chicago, Culpeper, Seattle metros and Brazilian business.
Speaker 3: Our NIA business delivered a great quarter, successively executing on our Power Price Increase program while also seeing more than expected MRR turn. In the quarter we saw booking strength in our Amsterdam, Dublin and Manchester metros.
Speaker 3: And finally, the Asia Pacific region had a solid quarter led by our Mumbai, Tokyo and Singapore markets with strong new local additions and firm pricing.
Speaker 3: Now, while Singapore remains capacity constrained as part of our IBX optimization efforts, we continue to proactively negotiate with certain customers with larger deployments to recover capacity which we anticipate can be back-billed at much higher rates, although could affect our end-quarter MRR turn and that cabinet's billing metric.
Speaker 3: I'm now looking at the capital structure. Please refer to slide 8.
Speaker 3: quarter-over-quarter due to strong operating cash flow, while we also raised approximately 580 million of yen denominated debt and closed out the prior year's forward sales from our ATM program.
Speaker 3: Turning to slide 9 for the quarter, capital expenditures were $530 million, including seasonally low recurring cap acts of $22 million.
Speaker 3: Since our last earnings call, we opened four retail projects in Frankfurt, Paris, Singapore and Sydney. We also purchased land for development in Calgary and Madrid.
Speaker 3: Revenues for modded assets were 63% of our recurring revenues for the quarter.
Speaker 3: Our capital investments deliver strong returns as shown on slide 10. Our now 171 stabilized assets increase revenues by 11% year over year on a constant currency basis.
Speaker 3: stabilized assets increased 7% year-over-year.
Speaker 3: In system with prior years, in Q1 we completed the annual refresh over IBX categorization exercise.
Speaker 3: Our stabilized asset count increased by a net 13 IVXs. Now, stabilized assets are collectively 85% utilized and generate a 27% cash on cash return on the gross PP&E invested.
Speaker 3: And finally, please refer to slides 11 through 15 for updated summary of 2023 guidance and bridges.
Speaker 3: Do note all growth rates are on a normalized and constant currency basis.
Speaker 3: For the full year, we'll raise our revenue guidance by $30 million and adjusted EBITDA guidance by $20 million primarily due to favorable FX rates and lower integration costs.
Speaker 3: This guidance implies a revenue growth rate of 14 to 15 percent, inclusive of power price increases, or 9 to 10 percent, excluding the power costs passed through, and adjusted EBITDA margins of 45 percent, excluding integration costs. We now expect to incur $33 million of integration costs in 2023.
Speaker 3: And we're raising 2023 AFL guidance by 44 million to now grow between 10 and 13 percent compared to the previous year. An AFL per share is now expected to grow 8 to 11 percent.
Speaker 3: 2023 CAPEX is expected range between 2.7 and 2.9 billion, including approximately 150 million of on-balance sheet at X-scale spend, which we expect to be reimbursed as we transfer assets into the JVs, about 205 million of recurring CAPEX spend.
Speaker 3: Our Q1 results were strong, and our outlook remains positive with the overall demand for digital transformation fueling our conviction around the long-term secular drivers of our business.
Speaker 3: We look forward to our upcoming analyst day in June where we will further outline the significant opportunity ahead and discuss our strongly differentiated position in capturing this opportunity as we enable our customers to access all the right places, partners, and possibilities. We also look forward to diving more deeply into our evolving platform capabilities.
Speaker 3: our industry leading go to market engine, and sharing expectations of how all of this will translate into durable and differentiated value creation for our investors, our customers, and the communities in which we operate. So let me stop there and open it up for questions.
Speaker 2: Thank you. If you would like to ask a question, please unmute your phone, press star 1, and record your first and last name and company when prompted. Our first caller is Matt Nicknam with Deutsche Bank. You may go ahead. The figure is where the cash is located.
Speaker 3: Hey guys, thanks for taking the questions. Just two quick ones if I could. First on bookings trends, can you comment at all in terms of linearity and whether you saw any you know potential slowdowns owing to some of the macro choppiness that really picked up in March? We've heard maybe similar theme from some others across tech.
Speaker 4: And then just second one on cap allocation, specifically just related to potential inorganic opportunities. Just wondering what you're seeing in terms of opportunities both domestically and abroad, whether stellar expectations have become more reasonable just in the context of leverage now sitting just shy of three and a half turns.
Speaker 3: Thanks. Thanks, Matt. Yeah, look, I think overall, as we said in the script, I think we continue to feel good about the demand level. I think definitely customers are feeling tighter budgets, looking to stretch their dollars, but I think their commitment to digital is strong, and I think how they're using us in terms of looking to capture.
Speaker 3: good. And so we we probably saw a few more deals slip into the following quarter than we would have in previous in previous quarters. And then on on sales cycle, just to give you more of a concrete data point to hang your hat on. We we usually see about 45% I'm sorry about 40% of our deals.
Speaker 3: extend beyond a 90-day sales cycle. And that rose in this last quarter to about 45%. So a little bit of an increase, but not particularly material. And as we saw a little bit of slippage, actually, our linearity in Q2 is already looking pretty good. So we started with a little bit richer funnel, and so we're off to a good start in Q2. So again, I think that's a good start in Q2.
Speaker 3: you know, thanks to our team's efforts is in a really good place. And as I've said in a number of settings, you know, I, you know, I do think there's going to be opportunities for us, both organic and inorganic. I don't think we're, you know, we're starting to see, I think, some softening in multiples. And I think that's likely to, you know, continue depending on kind of overall.
Speaker 3: I do think we probably expect some capital allocation towards that. I think our balance sheet puts us in a really good position. Keep anything to add there. I might have to catch this maybe out a couple of quick points to what Charles said. The other part about the leverage being a little bit lower than we typically run at is part just because of the money that we raised and the opportunity we sort of went.
Speaker 3: both operationally and structurally, but we're going to consume the cash. And in many ways, we're paying today for one, we're fully funded for all that we see, but you look forward in time and say, well, what are we going to do in 24 of what we're going to do in 25? And so you're already, or we're already thinking ahead and hands my comments that we want to continue to raise, Capitol.
Speaker 3: All that said, at the end of the day, we're going to consume the cash, we're going to consume it into our growth cycles, and our leverage is actually going to go up because we're measuring it on a net basis. Again, I just think we all like the flexibility and the liquidity we have as a company and we can use that to our fullest advantage going forward.
Speaker 2: That's great. Thank you both. Thanks Pat. Our next caller is John Atkin with RBC. You may go ahead.
Speaker 4: Thanks. Got a couple questions. One on slide 10, you have the stabilized growth 11% top one. I think that's a record and I just wanted to get a sense as to what was driving that. And then another metrics question, just the America's Cabinet equivalent actually is down sequentially an MRR.
Speaker 4: Just a bit in APAC and in EMEA the cabinet spilling number didn't grow at all. The footnote referenced timing of installs and churn and whatever you can kind of drill down on that a bit. Thanks.
Speaker 3: Great question, Jon. So on stabilized growth, obviously incredible results, you know, fueled obviously in part by PPI on the power price increase. So 11% is definitely really high. If you take out the effects of power price increase, that still takes you down to about 7%. So really attractive.
Speaker 3: And if you take out the new stabilized assets, which are obviously less mature and probably growing faster than others, would take it down to about 5% from the previous sort of portfolio of stabilized assets. So that's still at the high end of the 3 to 5 that we've been talking about. But this is pretty typical of the dynamic, as you very well know, when you add...
Speaker 3: mature, but then I think would tend to rise back. And so overall feel really good about stabilized assets and I think they're a reflection of the strength of the business model. Billable cabs, yeah for sure definitely, you know, good solid quarter in America. APAC is coming off a really strong quarter last quarter and so was flat this one.
Speaker 3: EMEA actually had sort of no meaningful ads the last couple of quarters. And I know that creates a little sort of mental dissonance for people to see a couple of quarters without billable cabs. But I think it's important to remember that really the dynamics of the business are such, you know, in EMEA, actually, if you look at an eight quarter, 12 quarter trend, we've actually had a lot of strength there in terms of
Speaker 3: And that kind of can lead to some flat spots, I think, from billable cabs. But we always encourage people to really look at a longer-term trend. We clearly will grow, can, will, and need to grow billable cabs across all three regions. And with the size of the development pipeline that we have, that will happen.
Speaker 3: But let me give you just a data point on Europe . One of the things, this happened in Europe and it gives, you know, I think it's something to sort of hang your hat on and really reinforce why we talk so much about our strategy and maintaining discipline in our strategy. Because we could turn ourselves into cabinet slingers and that's really not what we want.
Speaker 3: So if you look at Europe , we actually had a turn this quarter in a market that is very tight, about 440 cabs. And that was a pretty low-dense implementation from a power density standpoint and not really well interconnected. And so we were getting a cabinet yield there well below our average.
Speaker 3: When we go to resell that, we will likely resell that in significantly more small to mid-sized deals than sort of one big footprint. And when you look at what's likely to happen there, we're probably going to increase the revenue and therefore the yield per cabinet when you get more interconnection, higher power density.
Speaker 3: And so, you know, this is why when, you know, you hear us talk constantly about right customer, right application, right asset. And that's more than just a sort of a clever, you know, thing for the earnings call. That's a way of life here in terms of how we drive our sales team. And I think that gives you a kind of a good reflection. So, you will see the buildable cab growth, but I think right now you're seeing, you know, good, healthy growth.
Speaker 3: rich or more density rich or what how to kind of qualify and characterize the AI demand you're seeing so far? Yeah I think it's a little early to tell but we have seen you know it's interesting because ChatGPT has created a media frenzy around AI but the reality is we've seen
Speaker 3: AI-related opportunities in our pipeline for the last several years. And for those that are familiar with the story and out on the Industrial Circuit with us, you've heard me talk about that. And I think that most typically it is people thinking about how to use their data and where to place their data. And what we're seeing is actually a trend towards people saying, we want to take our data and place it sort of intercloud. We want to have control of that data. We want to intersect it with other data sources.
Speaker 3: And so we've seen some of those. And then inference deals, which I think are gonna be a bit more interconnected, are where people are actually deploying, inference, AI inference use cases that are sort of, and I think where we're gonna be uniquely well suited is when insights are both one, when data sets are dynamic.
Speaker 3: and they're updated frequently and they're taking in a lot of new data. And secondly, where insights are real time and mission critical. I think, you know, and that really doesn't sort of fit the profile of the way current large language models like chat GPT are being used. But we do think that, you know, what's going to happen is people are going to build vertically oriented
Speaker 3: more suited to our X-Gale portfolio. And I think some of the inference stuff is probably gonna land in the retail portfolio at the digital edge. And so that's sort of the current dynamic, but early days, but I think an exciting incremental opportunity, and we're gonna talk a little bit more about that at Analyst Day.
Speaker 2: Thank you.
Speaker 1: Thank you.
Speaker 4: Next caller is Nick DelDao with Moffitt Nathanson. You may go ahead. Hi, thanks for taking my questions. First, Keith, I thought some of your comments about Singapore and the opportunities to better monetize that space were pretty interesting. Is the plan to just move those customers across the straight to Johor?
Speaker 3: First, you know, it dovetails nicely into what Charles was really talking about in the European theater, where you have a tight market, you make some decisions about looking to optimize the environment. And with that, sometimes customers move out some of the large deployments. As it relates specifically to Singapore, my reference was no different really than what, again, what Charles is talking about.
Speaker 3: But we do see an opportunity. There happens to be a larger installation related to a customer. Maybe it does move to a different market for us, and that would be fine. But the real focus is getting capacity in the Singapore market, getting a price uplift. And again, going back to what Charles talked about, we are sort of...
Speaker 3: leaving you with the breadcrumbs that we see something that we're looking at right now that is going to be of size and of course when we do that it has an impact on the net cabinets billing and of course it has an impact on our term metric. I maintain though our turn is going to be at the lower end of our range for the year, so I'm not worried about that, but this billing cabinet metric is the one that we're always sort of looking at.
Speaker 3: causes us a little bit of discomfort because we know we're doing the right thing for the business and yet it presents itself maybe a little bit unfairly to us. And so the bottom line is that that's an initiative that we would embark upon and Singapore is not the only market. Any place that we see that opportunity, again, refer back to Charles's comment, where we can get an uplift.
Speaker 3: an optimization of the asset. We don't have to put more capital work, and you're driving value into the equation. And so that's just a real good outcome for us. And if we can do that in places where you are tight and there is the demand, we'll make sure that we do it. Yeah, Nick, I'd offer a little bit more color in that saying we have a few rare examples where I think we have footprints that probably would have been better suited to X-Scaled facilities had we had them at the time that we took them.
Speaker 3: There are other markets where I think we see some of that opportunity and other markets in which some of these capacity constraints might come into play. And it's also one of the reasons why I think we have to continue to lean in on sustainability. And the connection between those things is I think for us to make sure that we're going to be in line to get the power out.
Speaker 3: to be a digital leader but be that in a really responsible way. So a lot of sort of interconnections between those various thoughts and threads.
Speaker 4: That's great, that's great, thanks for that color. Charles, can I ask one on interconnection? You talked a bit how ads came back in Q1 versus Q4, or still below trend though. Can you share any updated expectations regarding when we should see that grooming dynamic debate and get ads back to more normal levels? Absolutely. Yeah, as you noted, there's a few, you know, none on the last call, and in the script, there's a few factors to play on interconnection.
Speaker 3: towards significantly higher speeds, you know, to support higher and higher traffic. And by the way, I think AI is going to only add fuel to that fire. So, you know, gross ads have been strong. That's one of the things that we really look at is say how many gross ads are there and I think that's a primary indicator of health and those have been very much in line with the four quarter averages.
Speaker 3: There is some grooming activity. As I said last quarter, we thought that would moderate. It did moderate to some degree, but was still there at an elevated level. I do think people are going to run out of low-hanging fruit on that one. And so I think that we'll eventually see, you know, more moderation there and that will help the net ads further. I think this trend towards higher speeds, though, is a more sustained trend.
Speaker 3: The diversity we're seeing in the interconnection system and ecosystem is increasingly rich. So more A to ZN, you know, sort of unique connections. And overall, just the strength is good. So 12% revenue growth, a little lighter on the unit side. I do think we'll see some more moderation of the grooming perc—
Speaker 3: at very, very attractive returns on capital. And I think that the opportunity for us to continue to sort of lean into that and grow that business, particularly as we grow Fabric and as we think about what the bigger cloud networking opportunity looks like and what our role in it is, continues to be a big part of the Equinix story. All right, that's great. Thanks, guys.
Speaker 2: Our next caller is Simon Flannery with Morgan Stanley . You may go ahead.
Speaker 5: Right, thank you very much. Good evening. I wonder if we could talk a little bit more about pricing outside of the power price increases. We certainly heard a lot on the hyper scale side of prices firming and you referenced some of the capacity constraints in the market. So what are you seeing both in X scale and then also just in your core business?
Speaker 5: around the opportunities to continue to take price both on new business and on renewals. And then maybe a little bit on metal, both in terms of customer adoption and in terms of your continuing to roll out the product across your footprint. Thanks.
Speaker 3: Lots in there, so let me try to hit them all. So, yeah, pricing definitely firm. Obviously, PPIs have gotten a lot of airtime, but I think perhaps the even more important trend is our ability to sort of sustain pricing power on the broader portfolio of service offerings. And so we have elevated our costs on space, power, and our connection.
Speaker 3: projects that we're underwriting, and as we said, we've got a very high degree of pre-leasing there. And so, and again, we've raised pricing both on the retail side, space, power, and on the interconnection units. So we have, and then you have the escalators, and we are, our escalators are also going up. And so in some cases, we're doing CPI.
Speaker 3: I mean, we gave you a headline stat there in Keith's script about how MRR per cab is increasing. Yes, a big chunk of it due to PPI, but even absent that, I think our yield per cab, which is an absolutely critical metric for us, continues to rise. So, and then on metal, we talked a couple about a couple that really...
Speaker 3: And we are seeing some uptake from developers and from sort of digitally native service providers. And we're also seeing some pretty big opportunities in our funnel about more traditional service providers or large enterprises looking to reduce the pain of managing the technology lifecycle and metal really helps with that. So we'll probably talk more about that at the analyst day as well. But...
Speaker 3: I guess, Keith, I just want to make sure, you know, we all have the right jumping off points. So thank you for the waterfall for the 2Q EBITDA guide. And I just want to understand, you know, the combination of forces of the kind of impact of the roll off of the hedges and the kind of increased usage.
Speaker 3: as they kind of merge together to kind of create this 43 million dollar kind of move down at the midpoint and then assuming that that's the right jumping off point you know that these hedges are the right levels for the rest of the year. It implies about a 14...
Speaker 6: million sequential EBITDA growth in 3Q and 4Q to get to the midpoint of the full year guide. Could you talk a little bit about, you know, what the drivers of that will look like? Is it going to be kind of a steady cost structure with pretty much volume and price being the drivers at the margin? Any color that would be super helpful. Thank you.
Speaker 3: Well, thanks David and thanks for sort of laying it out there and I think first if you start on the revenue line and you look at sort of the quarter over quarter movement, the first thing you notice is that it's not an only substantial increase quarter over quarter coming off such a big number from Q1 relative to Q4 last quarter.
Speaker 3: But one of the things that you'll appreciate and those hands built into my comments and my script, non-recurring revenue is moving around quite a bit. And right now we're making the underlying assumption that it's not hitting in any specific quarter. And so what you're seeing is a meaningful step down.
Speaker 3: non-recurring revenue between Q1 and Q2. So that's the first thing. So you feel that in many different ways but you certainly do feel it on the EBITDA line as well. The second thing is sort of attached to that is X-Scale is we are as Charles alluded to in his script we sold out one complete asset in Frankfurt and we are very active in some across all three regions of the world.
Speaker 3: between the next three quarters and we don't know exactly where so we haven't really guided as well as we maybe want to given the set of circumstances. And then the last piece I just say look there's an element of conservatism built into our model here for obvious reasons and again, we're trying to be very prudent about what we look at. We give you, we know what we did for the first quarter. We're running a little bit ahead. That was you know again associated with AgScale.
exactly what was the cost going to be for the year including when do the hedges roll off and when did some other start and what's going on in the regulatory or the regulated environment and then there's some other markets that you know we are going to be putting price increases through effective May 1st and that's Hong Kong and Tokyo. As we're looking at all of that more specifically you know our hedges, our costs are going up and so you're going to feel that throughout the rest of the year.
It's baked into the guide already, it was baked into the original guide, so this isn't a shift. And what you should see is really EBITDA profitability continue to increase throughout the rest of the year. So again, I think we've got the making of a really good plan here, but we're sort of holding firm on what we shared with you when we started the year, knowing that one other thing that's really working in our favor is currency.
And again, we get a little bit of currency, but we're all sort of reading the same thing. If you look at what the US dollar could do anywhere between now and the next 12 months, some are calling for a 5% depreciation, some are calling as high as a 15% depreciation.
of the US dollar and 60% of our revenues reside outside of the US. And you don't have to go very far to figure out what is the implication of that if 60% of our revenues move 5% or 15% before taking into consideration the hedges. You have a really substantial move on top line and on bottom line and that drives a lot of value on a per share basis.
So hopefully that gives you sort of a full look at all the things we're thinking about and trying to share with you, but you know at this point we felt really comfortable just sort of holding firm on our guide and just give you a little bit of FX and some operating performance coming out of Q1. Yeah, maybe I gave a little bit of a couple more colors that you know, I think I will tell you that
on cost of goods, we're continuing to drive efficiency sort of projects across the business to try to improve cost of goods and gross margin. Then when you look down further, I also think just given the broader amount, we're gonna continue to be diligent on spend. We did spend, we opened up the wallet a bit to make sure we could add some more headcount when we're trying to bring them up to productivity.
much. It's really great.
Our next caller is Michael Elias with TD Cowan. You may go ahead.
Great, thanks for taking the questions. You know, first you talked about, you know, organic and inorganic opportunities. Just wondering if you could give us a sense of the markets that you're prioritizing or perhaps regions that you're prioritizing from that perspective. And then also, you know, there were some press reports out earlier today suggesting that EconX is exploring the sale of
I think Southeast Asia is going to continue to be an area of opportunity, we believe, over time, and there's several key markets there that I think we've got our eyes on. We've actually done a couple of organic projects already in Indonesia, Malaysia, and we're going to continue to stay, you know, sort of eyes very wide open in terms of opportunities for us in that area. India, we've announced a new build in Chennai, but I do think there's a lot of opportunity in India, and I think that could be a combination over time of organic and inorganic. And I think that we also, I think one of the things that we have not done a lot of, or we haven't done any of it yet, but I think that could be on radar is thinking about opportunities from an X scale perspective in partnership, you know.
and all assets are very important to the platform. And in particular, Hong Kong is a very important asset to us and something that is important to our platform. So we don't think about the business as selling assets, but we do also think about ways, innovative ways, to allow us to scale and grow the business. And an example of that is...
our Jakarta business where we recently entered into a partnership with a large conglomerate so that we go into that market in tandem. It's an innovative way to actually raise capital. So overall, we're not in the business of selling assets, but we're always looking across our portfolio and trying to figure out how to optimize the capital structure. And I think that sort of best reflects our view that the platform, the Equinix platform...
power costs.
What's your sense of where these power price increases or maybe future decreases are heading from what you see across the market portfolio for 2024? And then just secondly, as we take a step back and the market tries to contemplate the forward growth opportunity for Equinix.
Is it helpful to consider the company's position on three vectors, the percentage coverage of core global markets, the percent penetration of key customer cohorts, and where the wallet level is, especially when you break out past the top 50 customers?
And is that something that you can give us a bit of an update on today? Sure. I'll start and keep going to jump in here. But obviously, very hard for us to protect anything on power. I would say that I would expect in general more volatility rather than less. We, I think, were...
I think there's a lot of still dynamics at play in terms that could impact power pricing broadly speaking. Now the good news is that I think that again this opportunity for us over the last almost year to really educate our customers about how we go about energy procurement and what it means and how it dampens the energy.
have been markets that have come down in price over the last several months, but recognize that customers were enjoying a very different price point than what with this spot was at in sort of the latter part of 22 and early 23 and so they were they were really that was a huge benefit to them and now some markets have have moderated some
You know, even I think that the fact that we had an energy transformation is underway in Europe under any circumstance That is going to be you know decade long multi decade long in nature I'd expect more volatility rather than less with and I think our approach to you know That market and how we've approached hedging etc. You know provides real
So you're going to see some elevation there, and so that shouldn't be a surprise in the next quarter. But I definitely think it's going to continue to be a volatile overall market. Before I go to the other question, you wanted to add anything on power? The only other thing I would add, Michael, to Charles' comment.
The other aspect of it is operationally we are highly focused on running the business more efficiently. We're very sustainable renewable and sustainable sustainability focused and as a business we want to continue to make sure we drive down the overall cost of the business and so that's going to be an important aspect on a go-forward basis.
And Charles also made the comments in his prepared remarks around PPAs and our desire to go into contractual arrangements with whether it's wind or solar developers and create capacity for the market. And we see that as a bigger part of our business going forward as well. I think it sort of taps down some of the volatility because it's predictable over
over an extended period of time, at least those arrangements are. But overall, it's the combination of all those things, our commitment to 100% renewable. That's a critical aspect of our energy strategy as well. Yeah, then Mike, on the other one, I think, I don't want to steal any of my thunder for analyst day, but I would say that I think we've always talked about multiple or multiple growth drivers and levers in our business.
I think we're going to continue to see that dynamic. The nature of distributed infrastructure continues to drive that. And so you're seeing hyperscalers expand their edge or their presence, both their edge and their core. And we want to be a partner to them in that. And so I think you'll expect us, you should expect us to see continued investment to align with that. And...
we're sort of a you know we're an underlying provider to these companies as they scale their infrastructure and I think that is allowing us to you know play in a very significant way but then you know also capturing net new markets I think if you look at service providers for example the number of service providers and the lifecycle from a small service provider to a scaled service provider is changing in this sort of more cloud centric world and so so I think we're going to continue
Thanks for taking the question. So Keith, it was good to hear in your comments your expectation that you're going to continue to see full year turn towards the low end of the range that you targeted. I think to a casual observer, that would sound very surprising, right? It's sort of a broadly difficult macro environment. We hear about slowdown in spending on cloud. And obviously, you pushed through some pretty significant price increases recently. And so I was hoping you could maybe elaborate on what gives you confidence that you're going to continue to see.
low-chern, and then just me remind us when you do see churn, what is driving it, and has that shifted it off and what you can store at least. Thanks.
Yeah, I think first and foremost it's a great question and our confidence really comes from the fact that the team does a deep analysis into our customers. I know it's a surprise to you when you look at our top 10 customers, again it's on the charts but top 10 customers represent about.
18% of our revenues, the top 50 represent about 37%, 38% of our revenues. We have a really long tail. So we have great visibility, particularly into our larger customers and what they are doing. So that's the first thing. The second thing is it's critical infrastructure. And it's not to suggest that companies don't struggle financially or there is consolidation, or they choose to bifurcate their infrastructure or even just choose to...
that gives us confidence that we're not going to see any meaningful term beyond what we've guided to. And Brad, the last thing I would just say that if there's visibility to something that comes in size, we're going to telegraph it anyway. But there's just no indication that that exists and it goes back to what is the customer fundamentally doing inside our business and it can...
So that's what gives you, I guess, the overall sense, and let me leave it there.
That's what gives you, I guess, the overall sense, and let me leave it there.
So do you add anything? No, I mean, I think we in terms of character of the turn I think there's a certain amount of ours that is more frictional turn associated with you know people evolving their their footprints or how they're serving and customers that's particularly true in network providers and some other service provider types You know, I think that I think you are seeing you you are going to continue to see some level of cloud migration Workloads that are well adapted to the cloud.
you know, that we keep it we always say this regard to turn the best defense against turn is getting the right opportunity to begin with and so sales discipline and executing you know as I talked about earlier and in the script that's really central to you know sort of maintaining that turn and I think our teams have done a great job on that and interestingly if the I guess the last category I give you
When we do M&A, you find that there's often sort of a turn tail that comes from that because people underwrite to a different sort of approach. And so, you know, you saw that in Verizon and you look at that we now are reaping the other side of that as we sort of manage through that. And I want to tell you that transaction is looking super attractive.
Goodbye.
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