Q1 2025 Equinix Inc Earnings Call
Good afternoon, and welcome to the Oakland next first quarter earnings Conference call all lines will be able to listen only until we open for questions. Also today's conference is being recorded if anyone has any objections. Please disconnect at this time I'd now like to turn the call over to Chuck NUKEM Senior director of Investor Relations.
Speaker Change: Sir you may begin.
Good afternoon, and welcome to today's conference call.
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.
So adults may vary significantly from those statements and may be affected by the risks we have identified in today's press release as well as those identified in our filings with the SEC, including our most recent Form 10-K filed February 12, 2025, and our most recent Form 10-Q.
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 as policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.
Speaker Change: Today's conference call, we will provide non-GAAP measures, we provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reason why reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at Www Dot Equinix Dot com.
Speaker Change: 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.
Speaker Change: We would also like to remind you that we post important information about equinix on the IR page from time to time and encourage you to check our website regularly for the most current available information.
Speaker Change: With us today are a deer park, Spartan Equinix, as CEO, and President and Keith Taylor Chief Financial Officer.
Speaker Change: Following our prepared remarks, we'll be taking questions from sell side analysts in the interest of wrapping this call up in one hour, we'd like to ask these analysts to ask one question each at.
Adair: At this time I'll turn the call over to Adair.
Speaker Change: Thank you chip Hello, everyone. Good afternoon, and a warm welcome to our earnings call for the first quarter 2025 mm.
Speaker Change: I'm very pleased to share that in Q1, our team executed exceptionally well and outperformed across multiple facets of our business.
Speaker Change: I'd like to call. It a three salient indicators of this strong performance.
Speaker Change: First our team delivered better than expected financial metrics, including revenues adjusted EBITDA and SFO.
Speaker Change: As a result of this performance we are raising our guidance on each of these metrics.
Speaker Change: Second our sales team executed remarkably well in building customer momentum improving deal kind of origin and shortening of the deal cycle, all whilst maintaining favorable pricing.
Speaker Change: Third our strategy is resonating in the market.
Speaker Change: Move it around serving better solving smarter and building Boulder have already enabled us to cultivate a stronger pipeline for the range of products and services offered by our clinics.
Speaker Change: This gives us continued confidence in our projections for healthy recurring revenue step ups through 2025, and then our growth ambitions for the long time.
Speaker Change: Before diving into our operating results I'd like to take a moment to welcome Harmine matter, who has joined our executive team as our chief digital and innovation officer.
Speaker Change: <unk> is a visionary leader with a proven track record of digital transformation and innovation.
Speaker Change: She and her team are crucial to the execution of our strategy.
Speaker Change: Her experience in leading complex programs and developing innovative solutions showed equipped equinix to better serve our customers and enhance both efficiency and user experience across our organization.
Speaker Change: So now I'd like to take a closer look at our key financial metrics. As a reminder, the growth rate's shares are all on a normalized and constant currency basis.
Speaker Change: Thank you Juan we delivered revenues of $2 2 billion up 8% year over year, excluding the impact of power pass through.
Speaker Change: This was driven by strong recurring revenue growth as we begin to see the impact of our second half 'twenty 'twenty four bookings performance manifest itself in a recurring revenue trajectory.
Speaker Change: Our strong recurring revenue growth was offset by lower ex scale leasing unfit I'd fees in the first quarter as we expected.
Speaker Change: Adjusted EBITDA margins increased to 48% of revenues and <unk> per share increased 9% year over year.
Speaker Change: In both instances the results were above our expectations due to strong operating performance lower utilities costs and the <unk>.
Speaker Change: <unk> of spend Keith.
Speaker Change: Keith will provide additional insight into these numbers shortly.
Speaker Change: Turning to our customer momentum, we continue to cultivate and win significant opportunities across our product set and in service to the enduring demand for both AI and a broader set of workloads associated with cloud services.
Speaker Change: We had several notable wins in Q1, including liquid cooled deployments across five markets.
Speaker Change: Generally customers are increasingly looking to equinix to deploy their most complex and interconnected inferencing and training infrastructure.
Speaker Change: We will be the first company in North America to deploy the Nvidia D. G X Super pod with D. G X G. P 200 systems.
Speaker Change: By deploying out of Equinix blocks can leverage our unique ecosystem to ensure data privacy flexibility and edge connectivity to thousands of partners.
Speaker Change: We also had a significant win with Croc the pioneer in AI inference.
Speaker Change: Rock are rapidly scaling their high performance infrastructure through Equinix.
Speaker Change: Our unique ecosystems and wide global footprint, well solve other connectivity gateway to their customers and enable the efficient enterprise AI workflows at scale.
Speaker Change: In our enterprise cloud ecosystem, Panasonic information systems expanded their partnership with Equinix in Q1 to support their evolving cloud database requirements.
Speaker Change: They've chosen equinix for our seamless high speed connectivity across key cloud platforms like AWS Azure or under article.
Speaker Change: We also saw expansion with Repsol, a global multi energy company, leading the energy transition.
Speaker Change: <unk> expanded our U S operations in partnership with Equinix.
Speaker Change: With us they have adopted a hybrid and multi cloud environment that will support both our business and sustainability objectives.
Speaker Change: S T a leading hygiene and health company is globally, deploying equinix interconnection services, including Equinix fabric and network edge to enhance their efficiency of care, whilst reducing their environmental impact.
Speaker Change: And finally spring is rapidly expanding their digital footprint with equinix deploying a virtual points of presence across key U S. Metros with additional expansion plans in the coming quarters.
Speaker Change: This architecture will ensure robust connectivity security and reliability in support of their growing business needs.
Speaker Change: This wide variation in customer use cases closed in Q1 underpins the core value proposition of Equinix on our durable business model.
Speaker Change: It enables us to cultivate the pipeline, we will need to achieve our revenue growth targets for the remaining quarters of 2025.
Speaker Change: Turning now to our strategy the momentum we experienced in Q1, coupled with our performance against key nonfinancial indicators demonstrate that we are on the right track.
Speaker Change: As I shared last quarter, we are focusing on three strategic moves in pursuit of our long term growth ambitions.
Speaker Change: Serving our customers, even better solving smarter for them I'm building bolger for them.
Speaker Change: That's better is our strategic move focused on ensuring our customers have the right resources in the right place at the right time, so that we deliver value at every stage in their relationship with us.
Speaker Change: In Q1, our improved deal conversion and shorter deal cycles resulted in more than 4100 deals across more than 3200 customers.
Speaker Change: This pushed our gross and net bookings considerably past our expectations for the quarter.
Speaker Change: I am pleased to note that our Q2 bookings performance in April is pacing in line with our targets. Despite the uncertainty prevalent in the macro environment.
Speaker Change: So smarter is our strategic move focused on simplifying the consumption of our digital infrastructure and interconnection solutions.
Speaker Change: In Q1, we saw strong momentum for our secure a cup that express product.
Speaker Change: Pre configured co location solution that makes it faster and easier for our customers to get up and running in our data centers.
Speaker Change: Now available in more than 75% of our IV access around the world. This product accounted for one third of all new cabinet sales in Q1, and nearly 300% increase year over year.
Speaker Change: Customers love it because it takes what used to be a complex time consuming process and turns it into a repeatable streamlined experience.
Speaker Change: Our industry, leading interconnection franchise continues to perform well.
Speaker Change: Interconnection revenues grew a healthy 9% year over year on a normalized and constant currency basis.
Speaker Change: With more than 486000 total interconnections now deployed.
Speaker Change: Equinix fabrics continues to over index with strong adoption of topic cloud router in the quarter.
Speaker Change: With Bill Boulder, we are building for the future.
Speaker Change: Accelerating innovative ways to expand access to more digital infrastructure for our customers.
Speaker Change: This means we have shifted our strategy from building menu smaller IV Xs and phases, two building fewer IV xs and larger phases.
Speaker Change: We have now 56 major projects underway and starchy three metros across 24 countries.
Speaker Change: Clothing, 12 X scale projects.
Speaker Change: In the Americas, we added our Washington D. C 17 project, which is expected to deliver 4700 cabinets are approximately 15 megawatts of capacity to this key market in 2027.
Speaker Change: In APAC, our Johore two asset is expected to add greater than 2000 cabinets of capacity and one large delivery in 2027.
Speaker Change: And in EMEA, we are actively looking to accelerate delivery of capacity in metros like London and Paris.
Speaker Change: We continue to make good progress across our ex scale joint ventures, with our announced projects more than 85% leased and pre leased.
Speaker Change: This quarter, we opened our Frankfurt 10 asset, which was 100% pre leased and we have a strong funnel of additional X scale opportunities in the coming quarters.
Speaker Change: Whilst we are optimistic based on our strong Q1 performance. We are closely monitoring the rapidly evolving macroeconomic environment.
Speaker Change: We have seen minimal impact from tariffs on our business directly in the immediate term however.
Speaker Change: However, they are a concern for many of our customers and therefore are also a concern for us.
Speaker Change: The tariffs are felt acutely amongst specific industries in which many of our customers operate particularly in consumer goods transportation energy and materials.
Speaker Change: Further the uncertainties surrounding these tariffs if protracted can understandably leads to a wait and see investment posture amongst customers across all industries.
Speaker Change: We hosted our Americas customer Advisory Board last week.
Speaker Change: I thought event, our customers, who represent a broad spectrum of industries told us that they have made no significant adjustments to our digital infrastructure strategies beyond some pre purchases of equipment.
Speaker Change: These customers are collectively sick I'm getting firm demand, which supports our operating plans despite the economic uncertainty.
Speaker Change: Whilst we are tempering, our optimism with prudent caution we believe that demand for our digital infrastructure will persist through varying business cycles and economic policies.
Speaker Change: Technology remains a critical driver of revenue growth, whilst allowing companies to reduce costs enhance operating leverage on operate with more agility and responsiveness to their customers needs.
Speaker Change: Additionally, equinix is highly diversified across geography product mix industry segment, which historically has contributed to our resilience in the face of market dislocations.
Speaker Change: This along with strong financial performance positive customer momentum a healthy balance sheet and a strategy that is resonating in the market keeps us confident in our operating outlook for underlying recurring revenue throughout 2025.
Speaker Change: With that I'll turn it over to Keith to cover the quarter's financials.
Keith: Thanks, Derek and good afternoon to everyone.
Keith: As you've just heard from it there we had a strong start to the year delivering better than expected result.
Keith: Each of our core financial metrics.
Keith: We had healthy gross bookings.
Keith: Net pricing actions were firmly positive.
Keith: MMR churn.
Keith: Despite some large unexpected churn was lower than forecast.
Keith: And therefore net bookings were better than our expectations.
Keith: From a result perspective.
Keith: If we start with revenues and then we work our way down the income statement.
Keith: Every key line was better than expected.
Keith: And as we look forward.
Keith: Our guidance implies healthy underlying recurring revenue step ups for the year and.
Keith: Strong cash gross profit and adjusted EBITDA margins.
Keith: As I mentioned last quarter, we expect to exit the year at or near the 50% adjusted EBITDA level.
Keith: Important threshold for us.
Keith: Now despite the continued strength of our business.
Keith: The strong secular demand environment across the digital infrastructure space.
Keith: We will remain vigilant given the broader in volatile market conditions, and if necessary adjust accordingly.
Keith: But that said and as we've stated before.
Keith: Equinix has thrived during periods of disruption.
Keith: Largely due to the diverse set of high quality customers across many industries and geographies as they continue to expand their digital environments with us by buying more services in the existing markets, we're expanding into new markets with us.
Keith: Finally, our strong liquidity position and investment grade credit profile provide us the strategic and operational flexibility, which allows us to invest in growth when others may choose to slow down or even pulled back on their investments.
Keith: Now, let me cover the highlights for the quarter as depicted on slide four.
Keith: Note that all growth rates in this section are on a normalized and constant currency basis.
Keith: Global Q1 revenues were approximately $2 2 billion up 8% over the same quarter last year, excluding the impact of the prior pass through or near the top end of our guidance range.
Keith: We saw a strong underlying quarter over quarter tomorrow or step up of $27 million due to our solid bookings momentum from the second half of 2024.
Keith: Set by lower ex scale in Rfps as we expected.
Keith: Q1 revenues net of our FX hedges included a $4 million benefit when compared to our prior guidance rates.
Keith: Global Q1, adjusted EBITDA was approximately $1 1 billion or 48% of revenues above the top end of our guidance range due to strong operating performance, including solid gross profit.
Keith: And lower than expected SG&A expenses, despite the higher seasonal costs in Q1.
Keith: Q1, adjusted EBITDA net of our FX hedges included a $2 million of FX benefit when compared to our prior guidance rates.
Keith: Global Q Global Q1, <unk> was $947 million.
Keith: Up 13% over the same quarter last year, and well above our expectations due to strong operating performance.
Keith: Favorable net interest expense and solid FX mitigation strategies.
Keith: Also consistent with prior years recurring Capex, both in dollar terms and as a percentage of revenues is lower in the quarter in part due to timing of spend.
Keith: Q1, <unk> included a $1 million of FX benefit when compared to our prior guidance rates.
Keith: Global Q1, MMR churn was two 4% as expected.
Keith: This core metric included two large and then and then anticipated MLR churn events.
Keith: One of those events related to one of our largest customers as they evolve from a legacy service platform to a new service offering at equinix related to certain of their Amsterdam, and London deployments.
Keith: The second large and an anticipated MMR churn event related to a large multinational customer and our Singapore market as previously discussed.
Keith: For the full year, we continue to expect MMR churn to averaging our 222.5% quarterly guidance range.
Keith: With respect to our non financial metrics. They continue to trend favorably with global MMR per cabinet yield stepping up greater than 5% or $113 year over year on a constant currency basis, driven by favorable pricing actions and increasing power densities.
Keith: Cabinets billing saw strong step up in the Americas region, and solid performance in APAC offset by softness in EMEA related to the previously noted expected churn.
Keith: And finally, we had strong seasonal gross interconnection additions, resulting in a healthy net 3900 cat 900 total interconnections added in Q1.
Keith: Turning to our regional highlights whose full results are covered on slides five through seven.
Keith: On a year over year normalized and constant currency basis, excluding the impact of power pass through to our customers.
Keith: Occurring revenues grew the fastest in our APAC region at 8%.
Keith: Followed by both the Americas and EMEA regions at 7%.
Keith: The Americas region had an outstanding quarter, delivering its best gross and net bookings performance to date with continued favorable pricing trends as power density per cabinet increased.
Keith: We saw particularly strong demand from our financial services and AI oriented customers with momentum across our Chicago, Dallas, New York and Silicon Valley Metros.
Keith: As well as our Canadian business.
Keith: Our EMEA business delivered a solid gross booking performance with strong retail volume and firm pricing.
Keith: Although impacted by the MMR churn that all that I already noted.
Keith: In the quarter, we saw bookings momentum in Dublin.
Speaker Change: Symbol in Stockholm Metros.
Speaker Change: And finally, the Asia Pacific region had a solid quarter with strong momentum in Malaysia, and India businesses and robust net pricing activity.
Speaker Change: Also in April we were pleased to announce the signing of our first renewable PPA in Japan advanced our commitment to supporting the addition of new renewable energy sources in the markets, where we operate.
Speaker Change: And now looking at our capital structure, please refer to slide eight.
Speaker Change: Our balance sheet increased to approximately $36 billion, including cash and short term investments of approximately $3 $7 billion.
Speaker Change: In the quarter, we issued $500 million in Singapore dollar denominated senior Green notes at a rate of three 5%.
Speaker Change: Additionally, we raised approximately $100 million of equity through our ATM program. During the mid February to early March timeframe at $927 a share.
Speaker Change: As we've said before we consider our balance sheet to be a strategic tool that provides us with significant operational and strategic flexibility to invest behind the growth opportunity, we see in the digital infrastructure market.
Speaker Change: Over the near term as we review our current leverage levels.
Speaker Change: Our capital raising activities will be bias towards debt capital given our ability to access these capital pools in lower cost markets around the world both to refinance our maturing debt and to fund our Billboard Boulder growth initiatives.
Speaker Change: Separately in March we were pleased to receive a positive outlook for movie Moody's as we continue to strive to obtain increased debt capacity at a higher credit rating from all of our credit rating agencies.
Speaker Change: Turning to slide nine for the quarter capital expenditures were $750 million.
Speaker Change: <unk> seasonally lower recurring capex of $26 million as expected.
Speaker Change: We opened 10 major projects since our last earnings call, adding weak retail capacity in Kuala Lumpur logos, Manchester Salalah, Santiago and Sao Paulo, We also purchased land for development in Bogota and Milan.
Speaker Change: And then 85% of our current retail expansion spend is on our own land or own buildings with long term ground leases and over 70% of our announced retail expansion project spend is allocated to those largest metros, where we have strong established ecosystems.
Speaker Change: Now moving to slide 10.
Speaker Change: Our capital investments have continued to deliver strong returns.
Speaker Change: Consistent with prior years in Q1, we completed the annual refresh of our <unk> categorization exercise and our stabilized asset count increased by 13 IV Xs.
Speaker Change: The P. P D related to our 2025 stabilize the asset class was meaningfully larger than the prior two years and the performance to date with strong relative to those prior year cohorts.
Speaker Change: The ramping utilizations and the growth from the 2025 cohort is expected to favorably impact our cash yield metrics over the course of the year.
Speaker Change: Our now 198 stabilized assets increased recurring revenues by 3% year over year on a constant currency basis, I know collectively 82% utilized.
Speaker Change: Generated a 26% cash on cash return on the gross PP&E invested.
Speaker Change: And finally, please refer to slides 11 through 15 for our updated summary of 2025 guidance and bridges do note all growth rates are on a normalized and constant currency basis.
Speaker Change: Now given our strong Q1 performance relative to expectations due to the weakening of the U S dollar against our other operating currencies, we're raising our guidance across each of our key financial metrics of revenues adjusted EBITDA.
Speaker Change: <unk> and <unk> per share.
Speaker Change: For the full year, we're raising our 2020 or 2025 revenue guidance by $142 million.
Speaker Change: This maintains at 7% to 8% normalized and constant currency growth rate.
Speaker Change: While adjusting for lower power cost pass through to our customers.
Speaker Change: Importantly, our outlook continues to imply a step up.
Speaker Change: Underlying recurring revenue growth over the course of the year.
Speaker Change: We're also raising our 2025 adjusted EBITDA guidance by $85 million.
Speaker Change: Adjusted EBITDA margins are expected to be approximately 49% and now 210 basis point improvement over the last year.
Speaker Change: We continue to expect quarterly margins to step up over the course of the year with second half adjusted EBITDA margins to be at or near 50%.
Speaker Change: And we're raising our 2025 <unk> guidance by $69 million.
Speaker Change: This maintains our <unk> growth rate at 9% to 12% and <unk> per share growth of 7% to 9% compared to the previous year.
Speaker Change: 2025, Capex is now expected to range between three four and $3 7 billion, including approximately $180 million of on balance sheet X skill spend which we expect to be reimbursed as we transfer assets into our U S joint venture and about $270 million of recurring Capex spend.
Speaker Change: This increase in Capex spending is due to our newly approved projects.
Speaker Change: The higher FX rates as we build boulder buying the market opportunity in front of us.
Adair: So let me stop here I'm going to turn the call back to Adair.
Adair: Thank you Kate in closing, we had a strong start to 2025 delivering better than expected bookings and financial results.
Speaker Change: Well, it's the economic landscape is dynamic and uncertain, we believe that the secular demand environment for digital infrastructure and our services will endure.
Speaker Change: Equinix has a history of not only weathering challenging environments, but going growing through times of uncertainty.
Speaker Change: We are committed to delivering value to our customers and stakeholders and I believe that our focus on innovation operational excellence and customer centric solutions will continue to drive our success.
Speaker Change: I would like to extend my gratitude to our employees for their hard work and commitment to.
Speaker Change: To our customers and partners for their trust in us until our investors for their continued support.
Speaker Change: Together, we are not just navigating the complexities of today's market, we are shaping the future of the landscape for digital connectivity.
Speaker Change: Finally, we look forward to hosting our upcoming analyst day in June.
Speaker Change: We plan to dive deeper into how we are building out our strategy I outlined our plans to pursue the opportunity in front of our business we.
Speaker Change: We expect to update our long term financial outlook, including how our investments will translate into attractive revenue growth expanding margins and equity value creation for our shareholders.
Speaker Change: We also look forward to sharing additional data that we believe will help investors better understand our business.
Speaker Change: So with that I'll stop here and open it up to questions.
Speaker Change: Thank you we will now begin the Q&A session and we would like to ask analysts to limit their questions to one question. If you would like to ask a second question. Please reenter the queue. You may ask a question by pressing star one and to withdraw your question. Please press star two one moment please.
Matt Nick: Matt Nick now from Deutsche Bank, You May go ahead Sir.
Matt Nick: Hey, Thanks, so much sales cycles are there I think you referenced some improvements that maybe it's shortened sales cycles. If you can maybe shed some more light on what's driving this and on the same topic I'm just curious whether the macro has negatively impacted sales cycles at all in April. Thank you.
Speaker Change: Alright, that's great. Thank you so much and if I heard the question, Matt I guess I'm I'll pick it up in two parts and perhaps maybe just a commentary on customer demand as we see it and I think as our numbers show we had a very strong Q1 and in April we can see that our bookings.
Speaker Change: We are keeping pace with our target and so we're not seeing actually any significant shifts in demand during the April timeframe, meaning that we believe that we can meet our operating times despite the uncertainty.
Speaker Change: We'll continue to watch this very closely and I think as I mentioned in my opening remarks, we were very fortunate to have the timely event of our Americas customer Advisory Board just last week or so where are we have a very broad representation of our customers across industries and across segments.
Speaker Change: And these customers indicated no changes to their plans for digital infrastructure. Although some of them had noted a pre purchases of various different pieces of equipment and just to take it a little bit broader to give it a little bit more of a global view.
Speaker Change: Interestingly in EMEA, we're seeing an increasing level of optimism amongst our customer base and many of the requirements that are marching are actually playing into equinix. This favor.
Speaker Change: Fireman's around data placement and data sovereignty and requirements around local presence and investment are in that jurisdiction.
Speaker Change: And from an APAC perspective is a lot of diversity as I'm sure you're aware of market to market, but very much still in the narrative for our APAC customers are very broad emphasis and on and on AI and on digital transformation more broadly and so I think you know definitely a recognition that technology is a very key.
Speaker Change: Critical driver of growth.
Speaker Change: And most of the organizations that we've spoken to and as we see it in our demand pipeline are working hard to protect our opportunities that they see a technology, enabling is topline opportunities for their business and those projects and processes that are underpinned enhancing their productivity.
Speaker Change: And initiatives around that topic.
Speaker Change: As it relates to enhancing productivity, let me speak a little bit to the motions that we have seen inside our own sales organization.
Speaker Change: During Q1, I guess I'll speak to you a little bit with my I C. R. O hatch on her and because productivity of our selling engine is a very important aspect that will help us drive towards our overall margin target.
Speaker Change: And this is being a very key area of focus for US. We saw during Q1 conversion times up. We also saw it in Q1, a creation of an out of quarter Pope pipeline for the remaining quarters of 2025 that was very healthy.
Speaker Change: As I mentioned time to close reduced I guess, there are a couple of aspects as to and the reasoning behind that first of all we have been very circumspect in our qualification process at the front end of our pipeline build as we move into each quarter, which means that we're really X.
Speaker Change: Accusing against very highly qualified opportunities as they navigate through the sales process.
Speaker Change: Secondly, we've made some changes to our contracting process and created standardized contracts and then just some process to support the implementation of those standardized.
Speaker Change: Founded ice contracts so far as specific example for deals that were under 25 K a M. R. We applied the standard contracts and had no exceptions to those contract terms during Q1 at all so this meant that for our deal cycle times, we were able to reduce the median size.
Speaker Change: Time, and our small deals by more than 20% and larger deal cycle time, just because of some of that behavior reduced by approximately 5%.
Speaker Change: So this is some of the you know some of the measures behind the productivity gains that you saw from our our Salesforce in Q1 I'd also favorite I'd just add one mother aspect.
Speaker Change: Getting more standardized on the solutions that we sell also helps our teams a rinse and repeat our sales motion and we certainly saw that when we apply the team to secure a cabinet express as a product and that enabled us to create a solution bundle that teams became familiar with presenting with us.
Speaker Change: It is contract and then of course with a standardized implementation process. Following the sale. So all of these things are leading us towards a you know enhance sales productivity on and obviously then working to ensure that this is one part of the margin expansion that we're focused on at every level and in the business.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next caller is Ari Klein with BMO capital markets. You May go ahead.
Speaker Change: Okay. Thank you and good afternoon.
Speaker Change: Can you, maybe unpack a little bit more of an expectation for recurring revenue growth to step up in the second half of the year or the rest of the year and some of the drivers behind that.
Speaker Change: And with the expectation for accelerating growth also include an increase in our cabinet adds thanks.
Speaker Change: In cabinets I missed the last part.
Speaker Change: Cabinet adds on cabinet adds okay, and thanks very much for the question. Thanks very much for the question Ari.
Speaker Change: So as we move into the second half of the year first of all we bring with US our bookings momentum from the second half of 2020 for and those sales become intimate Implementable solutions and revenue that begins to turn the clock for us in 2025.
Speaker Change: We saw some a demonstrated step up is that in our Q1 results and we'll continue to see that throughout the first half of the year.
Speaker Change: Secondly, I think the very strong bookings performance in Q1 also bodes well for our second half step up because the opportunity to implement those customers and turn the booking into recurring revenue in the second half exists.
Speaker Change: As it does for our bookings that we would close in Q2.
Speaker Change: And so the opportunity to continue the momentum that we saw in Q1 with our Q2 bookings framework and enables us to not just add second half of 'twenty 'twenty four but first half of 2025 into the MRO step up that we're expecting to see in the second half of.
Speaker Change: 2025.
Speaker Change: In terms of and in terms of our cabinets.
Speaker Change: And we of course are experiencing some interesting dynamics around density as we look at our market and the opportunity that this represents for us more holistically as and as an organization and we're continue to see evolving.
Speaker Change: That dynamic is very important to our business and I think that Equinix is ahead of the game in responding to this we were the first to have broad scale liquid cooling across all of our Geos and we saw a you know a number of implementations of that a car in and in the first quarter of 2025.
Speaker Change: And we will continue to see a net caps and increase across our across the quarters and we have of course as seen a challenge in EMEA in Q1 are around our cabs billing and archives additions in EMEA. This is largely due to the churn.
Speaker Change: As Keith mentioned in his remarks, and we did also in addition to that churn that we were anticipating havent unanticipated bankruptcy a car in Q1 for Technicolor, which impacted us in EMEA and one other a bankruptcy, which impacted us partly in Q1, but we know.
Speaker Change: We'll have a continued effect in Q2, and we will see that play out a little bit as we look at our caps billing during the course of Q2, Keith with you and then just to add onto what are there said there already.
Speaker Change: Despite what we talked about the depth of the pipeline as they are referred to the conversion rates, which continued to be strong. That's why we feel confident in the growth of the recurring revenue through the rest of the year in one of the other things that we we suggested two despite though.
Speaker Change: Anticipated bankruptcies in the late <unk>.
Speaker Change: Still we believe recurring revenues are going to grow nicely.
Speaker Change: And Youre going to also see more profit.
Speaker Change: Q2, certainly over Q1 as I said on the last earnings call in the second half certainly over the first half and so we're in a nice trend.
Speaker Change: Despite absorbing some of those challenges.
Ed: And Ed.
Ed: As we said some of it was anticipated and planned planned inside inside the forecast.
Ed: Yeah.
Ed: Thank you Jonathan Atkin with RBC capital markets you May go ahead.
Thanks interested in Hum Interconnects, what drove the kind of a strength including in fabrics.
Ed: Any use cases emerging or was it more kind of a sales effort on that particular product any color would be appreciated. Thanks.
Speaker Change: Thank you. Thanks very much yeah. So I think we had a very solid quarter in Q1, and we saw a very strong gross demands you know are in Q1 for our Interconnects and of course added 3900, new interconnections add to that portfolio.
Speaker Change: I think there are probably some elements that you know begin to and add some color to that demand profile that we saw in the quarter and as far as you know when you think about our interconnection growth generally it tends to follow a number of trends and certainly when you have new customers and new deployments.
Speaker Change: This helps create interconnection activity and interconnection demand and we saw that in a number of places first of all with the net new adds that we had during the quarter, creating needs for Interconnects, but also as you enter new markets. The the possibility for our interconnection density is also something that we have.
Speaker Change: They've become very apparent and that's true of our Jakarta, and Joburg entries, which both look very very promising as it relates to interconnect.
Speaker Change: We also can see that our vcs are now accommodating much greater volume and a broader set of use cases, so for US we radio view interconnection as a portfolio of solutions and the growth drivers of of that portfolio will be the number of counter parties on the density of the network.
Speaker Change: Rather than just scaling terabytes per second.
Speaker Change: And so we continue to look forward to growing this aspect of our product portfolio and I'm, making it easy for our customers to bring onboard this capability into their infrastructure.
Eric: Thank you. Our next caller is Eric <unk> with Wells Fargo. You May go ahead Sir.
Eric: I appreciate you taking the question maybe.
Speaker Change: Maybe you could just update us on the progress of the U S upscale JV.
Eric: Site in Atlanta with more sites under consideration.
Eric: Related to upscale how it how we should think about the moving pieces of.
Eric: Nonrecurring revenue over the remainder of the year I know you've.
Eric: You've got some sit out Boston, there that are coming out, but just wanted to and I'll take that thank you.
Eric: Yeah, I'll I'll, probably do a frame and then I'll ask <unk> to add some specificity is needed.
Eric: And so in terms of our X scale pipeline and nothing's changed about our pipeline. We've got a strong overall pipeline and as you could see a strong pre leasing a sentiment against that pipeline.
Eric: And we continue on a you know a very structure to a consistent and coherent engagement and with the support of our partners and as far as the Hampton location is concerned we're very excited about them about the buildout, we have begun to prepare a pair of prepare the ground there and.
Eric: Ah you know are continuing to progress on that project and as expected and we also see that and the opportunity a round and our ex scaled portfolio continues to remain with a strong.
Speaker Change: A band profile them and you know certainly while it's there have been some rumors around certain hyperscale, there's pushing back others are pushing ahead and certainly a hyperscale. There's our organizations that can move past periods of consumption very very rapidly and I think what's important to understand.
Speaker Change: For equity because it's that we have a very broad range of relationships with our hyperscale, there's and it's not just an AI oriented our relationship with our broader cloud demand and a connectivity relationship and they continue to be exceptional partners and customers to us.
Speaker Change: And I think this bodes very very well if they become more selective in their leasing decisions over the future months. So I'd say net as far as and our exco portfolios concerns demand is up and to the right and we continue to augment our own internal team and in fact, some of our SG&A investment.
Speaker Change: This year will be deployed into our X scale the organization to ensure that we're servicing the opportunity that we see ahead of us for our X scale portfolio that Keith anything that you would add.
Keith: Yeah, Erika just to maybe a couple of other quick points. So as you know what's out there said we're.
Speaker Change: Absorbing.
Speaker Change: For roughly 40 $40 million investment in the SG&A line.
Speaker Change: In 2025 related to X scale, but as you know, we're making investments not just for today, but the recognition the recognition that these projects will take multi years to build and deploy and so.
Speaker Change: Part of what Youre seeing.
Speaker Change: What's even more interesting.
Speaker Change: Not withstanding the success the sort.
Speaker Change: The success that we have had when you actually look at Q1, you certainly had a lot of nonrecurring revenue and Thats. In fact, you can go back to Q4, we had a lot of nonrecurring revenue associated with X scale. We also had that in Q1.
Speaker Change: And when you look at Q1, it was a tremendous.
Speaker Change: Tremendous quarter as you as you look at the performance of the P&L and how we manage yourself from a cash flow perspective.
Speaker Change: That had still some noise in it related to these fit out costs, because you get to Q2, which we jewelry, which we're guiding you to.
Speaker Change: Basically nonrecurring revenues are going to go down about $38 million largely because of a big scale.
Speaker Change: We have not only because of X scale, and so youre going to see an even more pure quarter and in how we can deliver the performance of the business. So I think you've got the if you all the best of both worlds today, you've got the core business is performing exceedingly well and you've now got where we're past the installation phase for many of our.
Speaker Change: For many of our Aig's scale deployments and how we're focusing on growth into that market normally as it relates to the COVID-19 pre lease, but as we work towards the development of our over our <unk> franchise in the Americas that being said you know as I mentioned at the start we do have a strong pipeline of X scale opportunities that we look for.
Speaker Change: Core to executing against over the course of the year.
Speaker Change: Yeah.
Thank you our next caller comes from Vikram, the Grommet Malhotra with Mizuho you May go ahead Sir.
Speaker Change: Thanks for taking the question just looking at you know kind of the cadence you mentioned a step up in growth.
Speaker Change: If you could compare that to sort of the growth in 'twenty four it seems like <unk>, the growth's going to suffer and then it eases up a little bit. So if you can just talk about some of the you know the EBITDA growth.
Therefore is there like a step down into Q before it steps up thanks.
Speaker Change: Okay.
Speaker Change: I just want to make sure a victim. If you will are you referring to the revenue side of the equation or EBITDA in <unk>.
Speaker Change: Oh I see if you can give color on all three revenue EBITDA and that's cool.
Speaker Change: Yeah.
Dirk: So maybe Dirk do you want to talk about.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Let me deal at least let me deal with fee. If you will the EBITDA in <unk> sided equation.
Speaker Change: As we all know and so those are the following us for many years there is seasonality in our business from Q1, when you look at the cost model to despite what we deliver and how how we performed better than our expectations. There is still some seasonality sort of seasonal costs that go through the the first quarter and so we absorbed that and so as you look through that.
Speaker Change: The second third and fourth quarter, there's always there's ebbs and flows and you've historically seen that in our results, particularly when you look at cash SG&A.
Speaker Change: As you're all aware, we made we made some tough decisions in the fourth quarter of last year and so we're going to we're going to reap the benefits of.
Speaker Change: Those decisions, but suffice it to say as I said in my prepared remarks.
Speaker Change: We're just going to improve throughout the year and that's an important thing and so some of that is coming certainly from revenues and therefore gross profit.
Speaker Change: And SG&A, so you're getting if you will the trio vitriol coming down to that bottom line.
Speaker Change: But as it relates to <unk>.
Speaker Change: The sort of the recurring capex component of that again, there's a very large seasonal impact on well site.
Speaker Change: <unk> in Q1.
Speaker Change: Our recurring Capex relative to revenue was about 112% by the time you get the fourth quarter of course, we we tend to do a lot more in the second half of the year and the recurring Capex side and so that has some impact on <unk>, but suffice it to say we continue to see strong profits.
Speaker Change: Strong effort. So we will obviously give you we give you the performance in Q1, we are optimistic about the rest of the year is as we've spoken about and we're also absorbing.
Speaker Change: The higher cost of financing and in both Q2 and Q3, we are financing or refinancing out of some debt and we anticipate anticipate raising more debt as we draw down or dive down on a cash to invest in this pool and our bold build Boulder initiative and.
Speaker Change: Pay the dividend, we're going to drawdown on that cash to replace it with with incremental debt capacity as we look into 'twenty six and beyond.
Speaker Change: Just on the revenue side and you know there is a step up in the second half of the year and as we planned them in this step up will be supported by a number of factors some of which I've mentioned already our you know the implementation of bookings that we closed in the first half.
Speaker Change: 2025, the opportunity to incorporate those bookings into RMR or recurring revenue exists once we close in the first and the first two quarters and I mentioned that we have a strong pipeline of opportunities that we're working on in Q2 and our April indicator.
Speaker Change: Is positively disposed towards reaching that target.
Speaker Change: And secondly on there would be an element of and you know our nonrecurring revenues in our total revenue picture in the second half and these are things that we would actually activity work on during the course of Sierra to ensure that we close that component of our revenue in the timeframe as necessary to meet they step up for <unk>.
Speaker Change: Garments, but from an MSR perspective, you know once you really close to bookings in Q2 year on year as laid out very clearly in front of you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next caller is Mike Funk with Bank of America. You May go ahead Sir.
Speaker Change: Yes. Thank you very much if there are nice to meet you and Keith good to speak with you again, a quick question on influencing Microsoft reported.
Mike Funk: Very strong growth.
It's even better than expectations you've.
Speaker Change: You made a slight comments your prepared remarks is there a read through for what Microsoft reported and any commentary you can make on the demand that you're seeing from customers and fronting.
Speaker Change: Yeah, very happy to do that and I think we continue to cultivate and win and a very attractive and significant AI opportunities and factoring that in Q1 of our top 25 deals 50% of those deals where AI related so keeping it.
Speaker Change: In tandem with that type of breakdown in those deals that we saw in Q4 and as I mentioned already liquid cooling deployments I were implemented across five markets during Q1.
Speaker Change: When I when I look at what's making up that demand I think we continue to see the service providers chasing capacity and we're part of that with them and whilst some of that is initially training based we're definitely starting to see and friends with the rock deal that closed in Q1.
Speaker Change: A tremendous example of that.
Speaker Change: If I, then take that lens and apply it to our enterprise customers and at an enterprise level. Our customers are investing in very targeted use cases, rather than any large scale deployments our investments.
Speaker Change: And much of this targeting is underpinned by some of the unique of the value prop that I believe from an insurance perspective, and Equinix brings to the enterprise customer base.
Speaker Change: First of all there's a very flexible data strategy.
Speaker Change: Our customers to distribute their data anywhere and to move that data easily and freely between close public and private infrastructure.
Speaker Change: Secondly, we have a privacy first approach so not only is the data secure not only other models protected but operations can be aligned with the regulatory requirements of that customer either from an industry or a location basis.
Speaker Change: Certainly from our network's perspective, our networks are ready for low latency and frame thing and for the execution of what is effectively always on AI systems.
Speaker Change: And finally that I think the last part of the body proper any rights to the platform and the ecosystem of Equinix and we have massive partner access and flexibility.
Speaker Change: And this is such an evolving landscape I have for both the data and service providers that we give our customers the opportunity to be able to adapt and that evolving landscape and we're actually seeing the demand manifest itself in a couple of key areas. One is in the whole area of AI factories are set.
Speaker Change: Yourself excellence, where organizations and most of the industry verticals now are centralizing their AI development efforts I am getting their <unk> team to manage these centralized clusters, both for cost and governance reasons AI factories can leverage models that have been developed elsewhere.
Speaker Change: Then try and fine tuned and then some inferencing happens on those clusters and you know the most recent announcement that we made with Nvidia around them you know the opportunity to offer Nvidia incident, AI factory service lands well into this trajectory that we're seeing on customer demand.
Speaker Change: And then the second element of customer demand would absolutely be around distributed AI inferencing as customers are now beginning to deploy AI models for infant thing you know the comping comments that I made earlier about data residency the ability to process the days in the country, where the data originates sometimes for regulatory compliance.
Speaker Change: Reasons.
Speaker Change: It lends itself well to our global footprint they level of latency that might be required out of metro so far edge AI workloads.
Speaker Change: Customers don't want to develop gear that will support and printing from stores airports restaurants, et cetera, and for lots of reasons, including Opex and physical security reasons and so they are looking for on demand metro level latency connections and Equinix is ideally positioned to add to provide those so we see the demand.
Speaker Change: To manifest itself in a number of ways across our enterprise, our enterprise customers and still very much see this as you know, it's a supply constrained market, where there is absolutely a more demand than supply and we're happy to be part of that solution for the industry.
Speaker Change: Thank you. Our next caller is Tim Horan with L. P. C. O. You May go ahead Sir.
Tim Horan: Thanks, Doug on the supply side do you think you are supply constrained or you may.
Tim Horan: Become supply constrained and I guess can you raise prices to.
Tim Horan: How helpful manage that thanks.
Speaker Change: Okay. So I think from a pricing perspective during the course of Q1, when we saw some very firm pricing.
Speaker Change: Certainly as our customers also renew there is a yield are you now in terms of standard step ups on auto renews, but also there is the opportunity for us to lean into that renewal process and given you know the supply dynamics be able to command premium pricing for the services that we are offering.
Speaker Change: In terms of you know.
Speaker Change: City constraints.
Speaker Change: Under on our build bold our program we've been working very very hard to look at our pipeline of opportunities on our pipeline of bills and to look at where we have the opportunity to be able to accelerate build.
Speaker Change: That we can meet our customer capacity requirements and we've managed to do that are in three locations. During the course of this year in N Y three D. C 16, and L Day 14.
Speaker Change: To reduce the time to bring that capacity on a by at least one year.
Speaker Change: So a lot of build work as Keith mentioned underway 56 projects underway across 33 metros them and this is something that we continue to evaluate and look at them and of course, you know looking at how we ensure that as we are navigating our with our customer.
Speaker Change: Or is that we are helping to shape the demand to where we have the capacity that best suits that customer's requirements. So in Q1. It was lovely to see a mixture of our installs and then and and transactions occurring across tier one and tier one metros.
Speaker Change: Number of different ways for us to challenge them to meet the challenge of capacity requirements are in the market today.
Speaker Change: Thank you. Our next caller is Michael <unk> with TD Cowen you May go ahead Sir.
Speaker Change: Great. Thanks for taking the question it looks like.
On the capital the covenant delivery schedule are there are some movements from three 2% to four two and now you're delivering but just over 9000 cabinets in the fourth quarter as we start thinking about the trajectory into 2026, I know you've done some pre leasing in the interim facilities about nine months is when he started pre lease.
Speaker Change: And just curious is there any color you could give us in terms of the pre leasing that you've done into those 9000 cabinets that are coming online in the fourth quarter that could give us some conviction on what the exit.
Speaker Change: Growth rate could be into 2026. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah, you're quite right in terms of the capacity that's coming online you you can see.
Speaker Change: A significant amount of costs in our in our Q4 timeframe I will say that in the same way that we manage our sales forecast on our pipeline forecast on our sales process. We manage very closely the RFS dates for all of the capacity that we are bringing online.
Speaker Change: And we have experienced in Q1, some pre sale activity.
Speaker Change: As we experienced in the second half of Q4, our without providing any degree of what that number is like we have absolutely experienced some customers who are looking to shore up both their compute and our energy future or by.
By committing to a two capacity that is farther out in our delivery roadmap.
Speaker Change: Okay.
Michael Rollins: Thank you and our last caller is Michael Rollins with Citi. You May go ahead Sir.
Michael Rollins: Thanks, and good afternoon.
Michael Rollins: Half of last year.
Michael Rollins: Discussion picked up around the Equinix.
Michael Rollins: Going after some larger deal sizes as an incremental opportunity. So just curious how that progressed during <unk>, how that may evolve through the year.
Michael Rollins: And as that evolves should be mindful of how that may impact the kpis going forward.
Michael Rollins: Yeah. Thanks. Thank you very much for the question I have as I mentioned.
Michael Rollins: I think we saw a very solid and good mix of different deal profiles throughout our Q1 throughout our Q1 journey not just across you know the metros and the chairs, but also across the size and scale of the deals. So it was wonderful to see you know an increase in volume from our retail.
Michael Rollins: On our small and medium.
Michael Rollins: Ideals, you know in our <unk>.
Michael Rollins: Density rich our interconnect rich locations and we also saw a continued increase in large footprint and transactions.
Michael Rollins: Certainly you know we can see as you say the density for them are kobs moved from a a four point to up to a 6.8 are in this quarter and we can still see this increasing act not just by service providers, but also from enterprise customers are around greater density.
Michael Rollins: In the cabinets and larger footprints to enable them you know again to secure the capacity that they need for their appears future business objectives and this of course is something that we are considering under our build both our umbrella and something that we are considering and as we look at you know the design and evolution of our day.
Michael Rollins: The centers.
Michael Rollins: Okay.
Michael Rollins: Thank you everyone for joining our Q1 earnings call. We look forward to seeing many of you at our analyst day in June have a good day.
Michael Rollins: Goodbye.
Michael Rollins: This concludes today's conference call you May go ahead and disconnect at this time.