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spk01: Welcome to the Equinix Second 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 objections, please disconnect at this time. I'd now like to turn the call over to Katrina Reimel, Vice President of Investor Relations and Sustainability. You may begin.
spk08: Good afternoon and welcome to today's conference call. Before we get started, I'd like to remind everyone that some of the statements we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K, filed on February 19, 2021, and 10-Q, filed on April 30, 2021. 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, is Equinix's policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure? In addition, we'll provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures, the most directly comparable GAAP measures And this is the reasons why the company uses these measures in today's press release on the Equinix IR page at www.equinix.com. We have made available on the IR page for our website presentations designed to accompany this discussion, along with certain supplemental financial information and other data. We'd 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. With us today are Charles Myers, Equinix's CEO and President, and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we'll be taking questions from sell-side analysts. In the interest of wrapping this call up in an hour, we'd like to ask these analysts to limit any follow-up questions to just one. At this time, I'll turn the call over to Charles.
spk13: Thanks, Kat. Good afternoon, everybody, and welcome to our second quarter earnings call. As reflected in our results, we are seeing significant momentum in our business as digital transformation outpaces previous expectations. Technology spend is accelerating, and Equinix remains uniquely positioned as traditional technology markets continue to shift to as-a-service consumption models, and hybrid multi-cloud is widely adopted as the architecture of choice. The pandemic has highlighted that digital infrastructure is not just a business enabler, but a primary source of competitive advantage for digital leaders across all industries. and we continue to see a multitude of trends driving infrastructure that is more distributed, more on-demand, and more ecosystem-connected than ever before, playing to our distinctive strengths. Our results reflect strong performance across our geographies, tremendous momentum in our market-leading interconnection franchise, and deep customer demand across our expanding portfolio of services. Against this robust demand backdrop, we had a great second quarter, delivering record bookings fueled by continued momentum in our America's business and a strong quarter from Equinix Metal. We processed more than 4,600 deals in the quarter across more than 3,200 customers, demonstrating both the scale and the consistency of our go-to-market machine. We achieved our 74th consecutive quarter of top-line growth and are pleased to have recently been included in the Fortune 500, an exciting milestone made possible by the confidence our customers place in Equinix and by the incredible commitment and passion of our 10,000-plus employees around the world. And we continue to expand our global platform with 35 projects underway across 25 markets in 19 countries, with Q2 openings in Bordeaux, Helsinki, and Silicon Valley. Aligned with our values and our purpose, we're also proud to share further enhancements to our bold commitments on sustainability, leaning in across all elements of ESG. In early June, we became the first in the data center industry to commit to being climate neutral by 2030, backed by science-based targets, an aggressive green financing plan, and a comprehensive sustainability agenda. Aligned with the Paris Climate Agreement, this commitment is a critical step to ensuring Equinix continues to advance investments and innovations to reduce greenhouse gas emissions and green our customers' digital supply chains. Additionally, as part of our ongoing focus on diversity, inclusion, and belonging, and our commitment to well-being, we recently hosted our second annual We Connect event, a 24-hour virtual gathering led by our employee connection networks and our VIB and well-being teams. This event celebrates equality, diversity, and connection and offers our employees an opportunity to listen, to learn, and to engage in courageous conversations as we build a culture and a community that can have a meaningful, sustainable impact on the future of our world. Turning to our results, as depicted on slide 3, revenues for Q2 were $1.7 billion, up 8% year-over-year. Adjusted EBITDA was up 7% year-over-year, and AFFO was again meaningfully ahead of our expectations. Interconnection revenues grew 12% year-over-year with solid unit ads and healthy pricing. These growth rates are all on a normalized and constant currency basis. Our global interconnection franchise continues to perform well. We now have over 406,000 total interconnections on our industry-leading platform. In Q2, we added an incremental 7,800 interconnections and now have 15 metros with more than 10,000 total interconnections, a reflection of the scaled digital ecosystems that drive our differentiated value proposition. Internet exchange saw peak traffic up 4% quarter over quarter and 31% year over year, and we're seeing IX diversify as large-scale peering expands to a broader base of enterprise customers. Equinix Fabric saw excellent growth across all three regions, driven by healthy unit growth and increasing yields as customers expand usage of higher bandwidth connections to interconnect regional and global footprints. More than 2,600 customers are now on Fabric, and we continue to see strong attach rates as businesses diversify their end destinations and evolve their connectivity needs in support of highly distributed infrastructure and the adoption of hybrid multi-cloud. Turning to digital infrastructure services, customers are responding very positively as we augment our portfolio to enable physical infrastructure delivered at software speed. We had strong bookings with Equinix Metal this quarter, including our largest win to date with our channel partner, Avant, for a blockchain company building a network of validation nodes across eight markets. Our network edge offering showed meaningful acceleration with average deal size increasing nicely as enterprise customers are deploying a diverse set of virtualized network functions from our marketplace of vendors. Importantly, and as expected, digital infrastructure services are also driving strong cross-selling activity and interconnection pull-through, with nearly 1,000 virtual connections already provisioned to support these deployments. Shifting to our X-Gale initiative, we continue to expand our plans in light of robust market demand and positive customer feedback. Late in the quarter, we announced agreements for additional joint ventures with GIC, Singapore's sovereign wealth fund, When closed and fully built out, the total investment between Equinix and GIC in our X-scale data center portfolio will be nearly $7 billion across 32 facilities globally with more than 600 megawatts of power capacity. We currently have seven X-scale builds under development across all three regions, and we pre-leased our entire Frankfurt 9 asset in Q2, representing 18 megawatts of capacity fully committed in advance of delivery. With this deal, we now have have now leased more than 100 megawatts of X-scale capacity and 100% of our open capacity at least. We are actively engaged with partners to develop entry plans in other expansion markets globally, including Australia. Now let me cover highlights from our verticals. Our network vertical delivered strong bookings across all three regions, with particular strength in APAC, as traditional carriers continue to invest in specialty telecom firms evolved their portfolios to address demand for cloud, mobile, IP services, and over-the-top delivery. New wins and expansions this quarter included McKay Brothers, a local telecom service provider, leveraging interconnection to better serve low-latency financial customers. Crosslake Fiber, a leading provider of network services, deploying in our London 4 and Paris 7 IDXs to support the first new subsea cable laid across the English Channel in nearly 20 years. and a global telecommunications provider expanding their presence to new locations, including Milan and Bordeaux. Our cloud and IT verticals saw continued momentum over-indexing in Europe as organizations accelerate hybrid multi-cloud adoption. Expansions this quarter included Zoom, a leading video communications platform, expanding coverage and scale to support market demand, and a cloud-delivered enterprise network security provider deploying infrastructure to support offerings in new locations. Our enterprise vertical achieved record bookings with broad global strength punctuated by an exceptionally strong quarter in the Americas across several subsegments, including healthcare, consumer services, business and professional services, and retail. New wins and expansions included Red Bull, a major sports energy drink manufacturer, deploying infrastructure across all three regions to take advantage of Equinix's cloud ecosystem. a leading global cosmetics retailer deploying digital infrastructure to optimize their network, move out of legacy data centers, and locate private infrastructure adjacent to their cloud providers, and a Fortune 500 global insurance provider optimizing their infrastructure to support multi-cloud. Content and digital media also achieved solid bookings led by growth in CDN, publishing and digital media, and gaming, as digital transformation continues to shape this vertical. Expansions include StackPath, a leading-edge computing and services provider, deploying infrastructure across multiple edge locations. Earnest Research, a leading data analytics company, transforming network topology and interconnecting to multiple files across Platform Equinix. And i3d.net, a leading provider of application hosting and infrastructure services, deploying on Platform Equinix to enable a consistent, high-performance gaming experience globally. And our channel program continues to outperform, delivering a record quarter and accounting for over 35% of goods. Wins were across a wide range of industry verticals, and use cases included multiple Equinix metal and network edge deals as the channel embraces our digital infrastructure services. We saw continued strength from alliance partners like AWS, Cisco, Dell, Google, IBM, and Microsoft. And we also had success with key resellers around the world, including a win with HPE, a leading Australian retailer, to modernize and scale their payments platform. which processes over 30 million transactions per day. So now let me turn the call over to Keith and cover the results for the board.
spk14: Thanks, Charles, and good afternoon to everyone. I hope you and your families are well and enjoying the summer months. So let me start by saying it was great to spend time with many of you, albeit virtually, at our June Analyst Day. No surprise, we were eager to share our plans on how we intend to scale, extend, and innovate the business over the coming years to drive long-term shareholder value. meaning more revenues, higher margins, and more cash flows. With respect to the quarter, the business continues to perform exceedingly well, as the macro environment for digital infrastructure continues to drive favorable demand. In fact, we exceeded our expectations. There are many highlights to share with you from the quarter. To start, we had record bookings activity at both the company and the Americas regional level. We enjoyed robust channel activity on lower-than-plan churn, Interconnection additions were solid both physically and virtually, and our digital infrastructure service lines, which include Edge and Metal, are gaining momentum. Simply put, we're continuing to execute against the goals highlighted at the analyst stage. And given our performance, we're raising our guidance across each of revenues, adjusted EBITDA, AFFO, and AFFO per share for the year. Now let me cover the results for the quarter. Note that all growth rates in this section are on a normalized and constant currency basis. As depicted on slide four, global Q2 revenues were 1.658 billion, 8% over the same quarter last year, due to strong business performance across our platform, led by the Americas region. And as expected, non-recurring revenues increased quarter-per-quarter to 7% of revenues due to a meaningful step up in X-scale joint venture fees in APAC and EMEA, and custom installation work across all three regions. As you can appreciate, non-recurring revenues are inherently lumpy, and therefore, as a result, we expect our Q3 non-recurring revenues to decrease by $8 million compared to Q2. Our backlog of booked but yet to be built cabinets has increased slightly, despite the 4,200 increase in billing cabinets in the quarter. Q2 revenues net of our FX hedges included an $11 million benefit when compared to our prior guidance rates. Global Q2 adjusted EBITDA was 797 million, or 48% of revenues, up 7% over the same quarter last year, meaningfully outperforming our expectations due to strong operating performance and timing of spend. Q2 included a planned rebound in repairs and maintenance spending and higher utility costs relative to Q1. Due to adjusted EBITDA, net of our FX hedges includes a $6 million FX benefit when compared to our prior guidance rates, and $4 million of integration costs. Global Q2 FFO was $632 million, including a $25 million recurring capex increase compared to the prior quarter, above our expectations due to strong operating performance and lower integration costs. Turning to our regional highlights, whose full results are covered on slides 5 through 7. APAC had the highest year-over-year revenue growth of 11%, followed by the Americas and EMEA regions, both at 8%. The EMEA revenue growth rate reflects the laughing of the significant interconnection price increases, another one-off positive adjustment from last year. We expect the EMEA growth rate to return to normalized levels in Q4. The Americas region saw continued strength with our second consecutive quarter of record bookings, as six of our seven largest markets improved over the prior year. Also, we're enjoying healthy booking activity across our smaller markets too, including Atlanta, Boston, Denver, and Seattle. Deals were focused on retail interconnected deployments with healthy pricing. And the Americas region also benefited from strong imports from the other two regions, a reflection of our continued focus on platform sales. Our EMEA region had a strong quarter led by Dublin and Stockholm and our newly opened Bordeaux market. as well as high exports to the other two regions. Enterprises contributed approximately one-third of the region's bookings, up significantly over the prior year. We're also seeing good momentum across our flat markets. And the EMEA region benefited from non-recurring revenues related to X-scale fees earned from the pre-lease of our entire Frankfurt 9 and London 11 buildings, 37 megawatts of demand. And finally, the Asia-Pacific region had a solid quarter led by Singapore and Japan with strong regional bookings. Pricing for small and medium-sized deals remained strong, and we're seeing good traction with Equinix Metal. The APAC region's quarterly MRR growth was partially constrained due to COVID-related capacity delays in Singapore and political uncertainty in our Hong Kong market. And now looking at the capital structure, please refer to slides eight and nine We entered the quarter with cash of about $1.8 billion, and our net debt leverage ratio is 3.8 times our Q2 annualized adjusted EBITDA, highlighting the financial flexibility and strategic advantage we have relative to anyone else in our space. In May, we raised $2.6 billion, including an incremental $1 billion in green notes. Since Equinix's inaugural investment grade issuance in late 2019, we've reduced our annualized interest expense by approximately $196 million, offset in part by the incremental debt capital raised. Our blended cost of borough is now the lowest in the industry at approximately 1.7%, and our weighted average maturity is nearly 10 years. We also raised $100 million of ATM equity in the quarter. We continue to expect to use both debt and equity to fund our future business needs with an increased lean towards debt capital. Turning to slide 10 for the quarter, capital expense shows we're approximately $692 million, including a recurring capex of $45 million. We opened three new retail projects this quarter, including new IVXs in Bordeaux and Silicon Valley. We also purchased land for development in Frankfurt and Helsinki. Revenue from own assets now represents 58% of our total revenues due to the acquisition of our Singapore III IVX. On the X scale side of the business, after quarter end, we contributed our Dublin V assets to the EMEA joint venture in return for net proceeds after our 20% equity contribution of $49 million. Our capital investments delivered strong returns as shown on slide 11. Our 153 stabilized assets increase recurring revenues by 3% year-over-year on a constant currency basis. These stabilized assets are collectively 86% utilized and generate a 27% cash-on-cash return on the gross PPE invested. Looking forward, we expect to exit the year closer to the top end of our stabilized asset growth rate, in part due to strong America's revenue growth. Please refer to slides 12 through 16 for our updated summary of 2021 guidance and bridges. Do note our 2021 guidance does not include any financial results related to the pending GPX India acquisition, which is expected to close in Q3. For the full year 2021, we're raising our revenue guidance by $50 million and adjusted EBITDA guidance by $27 million. primarily due to strong operating performance and favorable FX rates, although slightly offset due to the timing of spend as we proactively pull forward expenditures to mitigate supply chain risks. This guidance implies a normalized and constant currency revenue growth rate of approximately 8% at midpoint compared to the prior year, and an adjusted EBITDA margin of greater than 47%. And given the operating momentum of the business, we're raising our 2021 AFFO guidance by $15 million, going 10% to 12% on a normalized and constant currency basis compared to the previous year, while also increasing our AFFO per share range. 2021 CapEx is now expected to range between $2.7 and $3 billion, including an approximate $450 million of on-balance sheet X-scale CapEx a significant portion which is expected to be reimbursed by either the current or future JVs, and $193 million of recurring capex spend, a slight increase over the prior quarter due to timing of spend as we mitigate supply chain risks. So let me stop here and turn the call back to Charles.
spk13: Thank you, Keith. The momentum behind digital transformation is as robust as ever and shows no signs of letting up. As the world's digital infrastructure company, Equinix plays a unique role in this evolving story and is positioned to be both a catalyst and a key beneficiary as we partner with customers to unlock the enormous promise of digital, both economically and socially. As we discussed at our recent Analyst Day, we are focused on three strategic levers as we execute on this transformational opportunity. First, we will continue to scale, doubling down on the strength of our core business, investing to further scale our go-to-market machine to win new customers, putting our capital to work to add capacity in existing markets, and executing on targeted operational improvements to standardize, simplify, and automate, driving expanded operating margins and providing a better experience for customers and partners. Second, We will extend the reach of our platform and accelerate our aspirations in Xscale. By the end of this year, we'll be in 66 markets around the world and see continued opportunities for expansion and growth across both retail and Xscale. And third, we will continue to innovate across our portfolio, supporting scalability, self-service, and energy efficiency across our co-host state, delivering advanced features to sustain momentum in our market-leading interconnection franchise, and driving adoption of our digital infrastructure services to deepen our relevance to customers. Our ability to scale, extend, and innovate starts with our people and with our commitment to building a diverse and inclusive workplace where every person, every day, can confidently say, I'm safe, I belong, and I matter. We show up every day with an in-service-to mindset, starting by being in service to each other, which enables us in turn to be in service to our customers, to our communities, and to you, our shareholders. Kirkus creates passion, and we are inspired by ours to be the platform where the world comes together, serving as an enabling force for our customers and unlocking their incredible potential to deliver the innovations that enrich our work, our life, and our planet. So let me stop there and open it up for questions.
spk01: Thank you, sir. At this time, if you would like to ask a question, please press star 1 on your touchtone phone. Please ensure that your line is unmuted and please record your name and company name to be introduced. Once again, it is star one at this time. Our first question comes from Jordan Sadler with KeyBank Capital Markets. Sir, your line is open.
spk11: Thank you. Good afternoon. So during the investor day last month, you guys outlined the 7% to 10% annual AFFO per share growth through 2025. but you also suggested that next year could come in in the lower half of the range, I think, as efficiency initiatives took some time to ramp and you didn't have as much benefit from refinancing opportunities that have taken place. Given the acceleration you're still seeing in this quarter and the bump you've seen here, can you speak to, you know, what the trajectory looks like heading into next year And then separately as a follow-up, I'm just curious about the ATM in the quarter. I think, Keith, you talked about significant incremental debt capacity given sort of the leeway offered by the agencies. And so I'm a little surprised to see the equity raise in the quarter. Thanks.
spk14: Okay, great. Thank you for the questions. Let me take the first one, and then we'll – well, let me take the first question. First and foremost, when we came off the analyst day, one of the questions we spent a lot of energy talking about was the AFF overshared growth rate in the first – sorry, in 2022 relative to the broader guide. The reason I said it was going to be in the bottom half of the range instead of the top half of the range was, one, it was a reflection of all the investments we're making across our portfolio this year, not only as it relates to X scale, but also our digital infrastructure services and then all the efficiency initiatives. So we're absorbing the full annualized impact of those costs in 2022. Now, as a result, it tends to cause us to be a little bit more dilutive on the per share metric relative to the broader guide. In addition, of course, you've got a very strong guide for this year as well. We've had the benefit of refinancing out of the majority of our high-yield debt. So you've got a little bit of wind at your back, and you won't have that wind at your back next year. So that's the primary reason. Relative to the comments we made about this year and raising our guide, probably not a big surprise to many of you is, We saw a lot of this coming, and it's reflected in our long-term model. That all said, we still have the ability to move our numbers up. But it's a five-year plan, as you can appreciate. And so I wouldn't say that we're changing the trajectory on the guide for analyst day just because we had one good quarter. That doesn't feel like the right thing to do. Secondly, as I released the ATM, like anything, we are going to use a little bit of debt and equity. This was really... commenced with our commitment to our rating agencies to tap periodically the ATM facility, but we've dramatically reduced what we anticipate that we would otherwise use. And as a result, you saw the $100 million, but the message that I had in the prepared remarks was really the lean is towards debt capital. on a go-forward basis for obvious reasons. One, the cost of that debt capital and even over the last few weeks has continued to trend downwards. And so that will be the lean on a go-forward basis. So there is always going to be a little bit of a blend, but again, I want to make sure that everybody fully appreciates we want to use the debt capacity that we have on our balance sheet. to its fullest advantage, but still at the same time, maintaining a very positive relationship with our rating agencies.
spk13: Yeah. I might augment this a bit in terms of Jordan, in terms of just saying, I think in a environment as attractive as we, as I believe we're operating in now, and in terms of seeing, um, so much growth opportunity for the business, I think the ability to continue to ensure that we have the ability to respond to that, um, and, you know, uh, and the balance sheet to do so is just something is top of mind for us. As Keith said, I think that the lean is definitely towards debt for, you know, the obvious reasons. But I think it probably makes sense for us to, you know, I think have some level of ATM just to continue to have optionality in the business.
spk01: Thank you for your question. Our next question is from David Guarino with Green Street. Your line is open, sir.
spk03: Hey, thanks, guys. I want to ask you regarding the 3% stabilized revenue growth in the quarter and your comment on the acceleration of that through the rest of the year. Was that just due to the timing of when the America is looking to hit during the quarter? I thought it would be a little bit higher. Could you just remind us of the top end of your stabilized growth rate? Sure, David.
spk13: Yeah, we typically guide three to five, so we're kind of at the bottom, you know, lower end of that range this quarter. I think there are some timing effects in there. There's also some one-time items, I think, that, you know, that are flowing through. But as we really unpack that and look at what we expected, you know, towards the back half of the year, I think we feel good about us, you know, sort of moving more towards the top end. And I think that's partially due to just really, obviously, really strong continued momentum in the American business and, you know, out of the full portfolio of assets there. So, you know, an 8% quarter there, obviously some strong NRR in there, but even on the MRR side, you know, 6% growth, really strong quarter. And so, yeah, I think towards the back half of the year, we're feeling really good about the trajectory there on the stabilized assets, same store number.
spk03: Okay. And then maybe switching gears, you noted strong bookings in the Atlanta market. Could you comment on which data centers in that market saw the strong demand? And specifically, I guess, could you comment if your 180 piece tree data center is gaining any traction versus other properties in that market?
spk13: Yeah. I mean, that's where our focus is. I believe that's AT1 and putting the energy in there and continuing to build that ecosystem, which we believe has the critical mass of of interconnection and ecosystem depth that is really necessary to scale a market effectively. So, yeah, we're seeing good success there in that. And, again, the emphasis is on that Peachtree location on AT1.
spk01: Thank you for your question. Our next question is from Sami Badri with Credit Suisse. Your line is open.
spk12: Hi. Thank you for the question. Charles, I have a question for you, and this is kind of going back a couple of quarters. I believe in the back half of 2020, you discussed that there was going to be an enterprise acceleration. And I know that dynamics now are actually picking up across the majority of the tech sector, and we've seen some large-cap tech results that have reflected this, including your results. But how would you describe your expectations in the back half of 2020? to what you're seeing right now? Is this coming in line or is this coming ahead of what you were expecting in the back half of 2020?
spk13: Yeah, as you indicated, Sam, we were pretty optimistic and bullish about the momentum we were seeing with the enterprise customer, even during the the more peak levels of the pandemic, et cetera. And so we were seeing people, despite that, saying, you know, hey, we've got to be investing in digital. And so it was showing up in terms of our pipeline build and our bookings. And just qualitatively in the conversations we were having with customers. And so that's why we were kind of signaling that optimism. I think that has definitely translated how we expected it. And I would say that this quarter was even stronger than I think we would have thought it was going to be. And that's as reflected in our results and therefore in the adaptation of our guide. And so I think the business is just a really strong quarter from an enterprise perspective. As I said in the sort of script, across all three regions, across a variety of sectors, enterprise bookings were very strong. Chowdhury's channel is a big part of that, working not only in terms of pursuing hybrid cloud opportunities with our key alliance partners and cloud players, but also with our reseller partners. sort of portfolio partners. And so, yeah, I think we're seeing it, you know, in line or better than we had thought. And I think we expect to continue to sustain, you know, output and growth from the enterprise segment and, you know, probably over-indexing again. Cloud and IT and enterprise have been over-indexing for, you know, a very long time now. You know, and enterprise just seems to be, you know, just on a tear in terms of its growth right now.
spk12: Thank you for giving us color on that. One quick follow-up, and I want to ask you this because this is the question a lot of investors actually ask me, and where do you think enterprises are in their kind of IT modernization cycle? Are enterprises 20% there, 40% there, 60%? Where would you put them as far as a cycle in terms of where they are in their upgrades and modernization efforts? Yeah.
spk13: I mean, it's obviously really hard to pinpoint that with any precision. But what I would say is I do think it's still relatively early, right, in terms of, you know, people, whether they want to use, you know, a baseball analogy or whatever. I think it's early innings, right? We haven't, you know, we haven't passed the midpoint here. And, you know, so I think there's a long way to go in terms of people who still have, a lot of legacy IT architecture that they're looking to adapt to that sort of hybrid multi-cloud world. And then the other comment I would make is that the pace of change itself is just continuing to accelerate. And so I think that the technology life cycles and refresh cycles are shortening. I think people are thinking differently about how that, as I said in my comments, a number of very large technology markets are dislocating as they shift to as a service. And as we talked about at Analyst Day, that provides an upside opportunity for us to get a bit more wallet share as those things are delivered as a service with Equinix as a point of nexus for consuming those services. Because we're getting both the underlying, you know, service providers themselves locating infrastructure at Equinix, and then we're often able to deliver those services on the platform aligned with things like fabric and metal and other things that are allowing us, you know, more wallet share. And so, you know, I think we're, you know, it's still early days. I think there is a, you know, a long period of, you know, IT architecture and digital transformation investment in front of us, you know, for the foreseeable future. on it. Thank you.
spk01: Thank you for your question. Our next question is from Simon Flannery with Morgan Stanley. Your line is open.
spk07: Great. Thank you very much. Good evening. Just on the normalization point again, can you just talk about the supply chain side of things, and are there any challenges that you see both in terms of availability, particularly as you get into more of the infrastructure businesses, and then just inflation, which some of the others in the food chain have been talking about with freight costs, etc.? ? And you mentioned some of the challenges with COVID in some of the Asian markets, like in Singapore, I think. We've also heard more stories about limitations on power and water, and some municipalities kind of looking at data centers in a slightly different lens. You obviously highlighted your ESG initiatives, but any color around how you see that evolving and how Equinix's position for that would be great.
spk14: Thanks for the question, Simon. I'll take the one around supply chain. Suffice it to say, we've been investing quite heavily, as you've heard us speak of, in our procurement and strategic sourcing initiatives under a very strong leadership. And as a result, we are getting ahead of some of the perceived constraints in the marketplace. And we're not only managing our access into the production cycles for this year, but it's also contemplating our consumption needs for next year. That marries up nicely with also the inflationary exposure that one might otherwise have. By entering into broader commitments, you can mitigate some of that inflationary pressure as well. That all said, I think we're making some great – we're having great successes in working with our partners, our vendors, and our suppliers. And then I would also go on to say that inherent in our contracts is a lot of inflationary protection. So there's the aspect of supply and demand, and then there's the aspect of pricing. Again, we're very confident that our contracts will appropriately contemplate the exposure to the extent that you've got a higher inflationary environment over the coming years. And so from both perspectives, we want to squeeze that line in both to to make sure that we protect our interests and revenue, but we also have access to deliver demand and support the cost model. And I think we're doing a good job of that as a company. Charles, did you want to talk about the Singapore? Sure. Yeah.
spk13: I mean, there's a little bit there in terms of, you know, I think the question of, specifically as it relates to Singapore, I think there was a COVID-related delay in terms of the timing of that facility that created a little bit of revenue headwind relative to the timing because demand for that is so strong for us that we had planned on that coming online a little bit earlier. And so we're seeing a little bit less, despite that delivered a really strong quarter. And I do think there is a broader phenomenon, as you described, in terms of markets thinking about how they're going to allocate capacity and deal with the demand for data centers and the environmental impacts. What I would say is that that's exactly why we're making the level of commitment into ESG and particularly the environmental side that we are. I think we're really positioned to tell a story there as now the leader going out and saying, you know, we're going to be climate neutral by 2030. I think we're going to be in a position to really, you know, partner with municipalities to say, hey, you know, look, there's a ton of economic and social benefit being driven by digital. I talked about that in the analyst, you know, to the tune of $100 trillion, and people want to tap into that. But they want to do so responsibly. And I think our ability, you know, to make the investments in ESG is going to continue to be something that really differentiates us. And that's not true only in Asia by any means. There's a number of markets around the world facing those same things. And honestly, I think that's going to be a thing, you know, one of the areas where we continue to separate ourselves from the pack. I wanted to add a piece of color on the prior question, too, on the supply chain sort of constraints and issues now. As I've talked to some people about it, there's really kind of three areas in our business where you think about it. You have the data center build side of things. There, because of our size, our market leadership, et cetera, I think we feel like we're in a very good position to gain access to the equipment we need to continue to hit our delivery dates. And so feeling in good position there, but obviously continuing to monitor trends. Then you have the networking side of our business where maybe we're a little less But what we've done is really said, okay, we're going to go ahead and make investments, you know, to mitigate risk there. And in fact, that's an area where we've had, you know, real success. And again, that showed up a bit in the quarter and in our guide as we think about pulling some costs in. And then the third level of it is really at the digital infrastructure services line with things like metal, and that's an area where it's a smaller business for us, and so it will be less impactful, but we are looking there about how we can partner with a number of folks to mitigate supply chain impact there, especially since we just came off a very strong bookings quarter for metal, and so we want to make sure that we can continue to sustain that momentum.
spk07: Good color. Thank you.
spk01: Thank you for your question. Our next question is from Brendan Lynch with Barclays. Your line is open.
spk10: Great. Thanks for taking my question. You recently put out a press release related to the channel, and it was clearly another strong quarter for the channel in 2Q. Maybe you could talk a little bit about your changing approach there and what type of investment you might need to make to bring the new structure to fruition.
spk13: Yeah, yeah, it really incredibly strong performance from the channel and it's been that way for every quarter for as far back as I can remember. We've just been really delivering well in that arena. I would say that there's a few things. One, the relationship that we have with what we refer to as our alliance partner group, we mentioned several of them in the script. Again, the usual suspects, AWS, Microsoft, Oracle, et cetera. You know, those are folks that we are partnering with as enterprises, you know, think through their demand for hybrid infrastructure. You know, they are wanting to advance sales cycles for their public cloud services. And in order to do so, they have to have a, you know, a comprehensive answer for the customer, you know, in terms of the hybrid infrastructure story. And so, Together, you know, that's a very much a, you know, one and one equals three kind of story. And we can bring that to the customer and have really been effective in winning business together. And so we're seeing real strength there. On the reseller side, you know, people that are combining value in certain ways with Equinix value to solve customer problems, we're seeing, you know, a nice uptick there. And what I would say is we're seeing more concentration in terms of, you know, a smaller number of our really Well, highly capable resellers delivering more of the revenue. And I think that's a good general dynamic for us. And in terms of the investments we're making, the big area there is really to continue to upgrade our processes and systems, which to be very honest, we're not designed channel ready from the beginning. and continue to adapt those to be more, you know, channel friendly so that quoting, ordering, customer support can all be done in ways that support, you know, a customer of a customer or a customer of a channel partner in this case. And so the adaptation of our systems is a, you know, that's a multi-year, you know, sort of, you know, trajectory. But that's really some of the key areas that we're making investments to, you know, to really better serve the channel partnership.
spk10: Great. Just one follow-up on that. I believe you have a goal of getting to about 50% from channel sales. What is the timeframe for that, and also what effect on margins will the increased channel sales have?
spk13: Yeah. People have asked me that question, and I've answered that, so I think you're probably referring to statements I've made in the past that I see no reason why we couldn't be 50%. I don't know exactly when that will occur. I think that I do think that success with our, as we're seeing channels, you know, channel partners embrace some of our, you know, newer services like Metal and Network Edge. You know, Network Edge is almost inherently a sort of a channel service because we're partnering both with people that are providing their virtualized network functions, and then with providers who are bringing that to market in tandem with other value. You know, I think we're seeing a bias towards continued strength in the channel, but we also have a continued, you know, continued great success with our direct selling team. And so, you know, both are growing nicely. So I don't know, you know, channel's been over indexing a bit. And so I think we will trend, you know, towards higher numbers. But it's hard to predict, I think, exactly where we land. I think if the newer services really accelerate, I think that could bring us to higher channel percentages faster. And in terms of impact on margins, they're really not particularly meaningful in terms of our current model is slightly higher cost in that we often are double comping on commissions when we have our direct team partnering with channels. But when you look at the customer lifetime value of these contracts, the implication of that to margins is actually quite small. And given the very attractive profile in terms of return on capital and margin of some of these newer services, I don't feel like that's going to be a significant drag on margins. And in fact, I think our other areas of margin expansion are going to overpower those.
spk10: Great. Thanks for the color.
spk01: Thank you for your question. Our next question is from Eric Klein with BML Capital Markets. Your line is open.
spk06: Thanks. Just maybe in the Americas, the cabinet additions have picked up, which I think you've been alluding to, you know, over the last couple of quarters in the backlog. And now you mentioned that at least overall cabinet backlog exceeded that bill backlog. So how should we think about utilization rates, I guess, moving forward? It's around 73% now. a little bit lower than it's been historically? What kind of rate would you like to get to?
spk14: I'll take that one. Clearly, you're right. We had a really good quarter, something that we foreshadowed for the last two quarters, particularly around the west coast of the U.S. So great success in particular with the cable landing station. That all said, we've introduced some new capacity of the Silicon Valley 11 asset, has come online. And so when you look at the overall utilization rate, it's still in the mid to low 70s. That said, we're going to continue to have success in the Americas. Charles alluded to it. I've mentioned it. And so I would assume that that utilization level is going to continue to move up as we consume the inventory of the assets we've built. I'd also add, just on that basis, And I made the comment in my prepared remarks, the amount of booked but yet to be billed inventory is up slightly despite all of the inventory that moved into the billing queues. And so that's a real positive. So it gives you a sense that there has been substantial bookings already that will consume that inventory. The other thing I think is really worthy of note this quarter and, for that matter, through the rest of the year, we anticipate that we'll continue to be selling into what was historically known as Verizon assets. We've seen a real nice move up in, as we said, six of the seven markets plus some of the smaller markets in the U.S., and that includes much of the capacity related to the formerly known as Verizon assets. So we're excited about the momentum. I think you're going to see the Americas region continue to perform well. As we said last quarter, and we're telling you this quarter through the rest of the year, and we'll update you on 22 when we get there. But overall, we're just delighted by the success we've seen on the heels of all this opportunity.
spk06: Thanks. Maybe just a follow-up on the Americas. MRR per cabinet came down slightly in the quarter. Was that just timing, given the cabinet positions?
spk14: It is timing, and again, it goes back to that. It was a large, as I referred to, a large cable landing station deployment. It came at a different price point, and so you've got the timing impact as well as a very large deployment on the West Coast. But overall, from a pricing perspective, we're just seeing great success. Charles alluded to it in his prepared remarks. Just the number of deals that we're doing across a number of customers, The volume of activity in small to medium-sized deals with high focus on the pricing environment is playing out perfectly for the company. And as a result, despite timing, there's really nothing that is abnormal as it relates to our pricing environment.
spk13: Yeah, I think that's just kind of an area where the healthy pricing, you know, and the business mix that is being reflected in the, you know, across the board is just continues to be really strong, you know, and, you know, we're hitting that sweet spot in the market. Pricing is firm and then interconnection activity is high and all that comes together into a really, you know, an awesome story relative to yields. And so, yeah, It's been years now because people are always saying, oh, you know, can the Americans get better? And years ago, I was always like, well, geez, it's pretty darn good, you know, and yet it continues to rise. So it's really been a good story. Great. Thanks for the call.
spk01: Thank you for your question. Our next question is from Michael Rollins with Citi. Your line is open.
spk05: Thanks, and good afternoon. Just a couple of follow-ups. So first, there was a mention that the cabinet backlog increased in the quarter, and I was curious if that's relative to the 11,000 that was disclosed at the analyst meeting in June and how that might compare to historical levels of backlog. And then secondly, the gross new global customers added in the quarter increased to 270. I'm curious if you could unpack how the increase in this metric Could it influence your future results and where this increase may be coming from?
spk13: If I could take the backlog question, then I'll take that. Yeah.
spk14: So on the backlog, Mike, we did disclose $11,000. Over the last three quarters, you have seen an increase to this level. So I refer to this as an elevated level of backlog. And so it did increase slightly over the prior quarter. And as a result, again, it's a reflection of the momentum of the business. Also, to some degree, the timing of our booking activity. We had a very, very strong June. And because of the strong June, of course, that goes into book, but yet to be built. But overall, it's a momentum that we're seeing not only in the activity of the booking activity, what it means for the backlog, but even more importantly, the depth and scale of our pipeline as we look forward. And that's really about revenue on the come and In all three cases, it's been up into the right movement.
spk13: And on the new customers, you know, I'd say, you know, we continue to feel really good about our new logo capture capabilities, both direct and via channel. And interestingly, you know, via channel isn't necessarily showing up in customer count because oftentimes those are, you know, the customer record is the channel partner. It's actually there's even more strength than sort of up here on the face of the results overall. But in terms of where they're coming from, I think we're having pretty uniform success geographically. So there's no one region that is, you know, significantly outpacing the others. Obviously, a really strong quarter for the Americas. And that selling team, I think, has been doing an exceptional job. But we're also seeing good new logo capture across the other regions as well. And in terms of how it translates in the business, you do see that new logos over-index on a growth rate perspective from vis-a-vis existing customers. And so I think they have the opportunity if we can continue to do that. That's really why when we talk about this three-legged strategy, right, of scale, extend, innovate, scale is, you know, hey, the customers are buying. And so let's continue to get new customers and add capacity in existing markets to serve them. Then extending in terms of new geographies to increase wallet share. And then the innovation side, which is really bringing in, you know, new services and the ability to capture more wallet over time in terms of the service types. And so I think it gives us a really a multidimensional growth opportunity that's really showing up. So New customers definitely, I mean, look, we still get the bulk of our bookings from existing customers. And that's sort of always good news in that our customers are expanding. There's less friction in that. There's lower cost to acquire. Customer lifetime values continue to go up. But new customers are definitely the lifeblood for the business as well. We're having focus there and real success there, but it's fairly uniform both across GEOs and across our product set.
spk02: Thanks.
spk01: Thank you for your question. Our next question is from Colby Sinasel with Cowan. Your line is open.
spk04: Great. Two modeling questions, if I may. One, in the AFFO calculation, there was an adjustment for impairment charges of $33.6 million. I'm just curious what that is. And then secondly, you've done just over, I think, 48% margin in the first half. You're getting to just over 47% for the year, so obviously an implied downtick in the back half. Where are we most likely going to see that? Is that COGS? Is it sales and marketing? Or is it G&A? Thanks.
spk14: So let me just take the impairment charge first, and then between Charles and I will respond to the other one. There were some favorable tax adjustments associated with closing up some matters in the quarter. And as a result, because the tax line you have to keep pure, you'll see that there's basically a substantial decrease in tax. It was primarily in relation to a transaction we did in Australia, where we were indemnified by the other party. And as a result, you got the benefit on the tax line and you impaired your assets on the other line. And so net-net, it has no meaningful impact on the P&L, but it gets disclosed separately and it's grossed up. And so it sort of shows itself independent in the other income and expense line. So that's what happened there. But again, as it relates to FFO, there was no meaningful move because it was embedded in the other lines. Then as it relates to the margin question, yes, we've done very well the first two quarters of the year. As we continue to say, we want to guide you to what we think will happen for the year. No surprise. And although for the year we're saying greater than 47%, we are making a relatively meaningful investment. Q2, we added net roughly 250 heads to the organization portfolio. Q3 and Q4, we're going to add another 7,800 heads to the organization. As a result, you're absorbing the human capital that we need to invest in our growth. And so that's one aspect of it. Two, you've got the seasonal impact of utilities in the Americas that's coming through. And then three, because, you know, in Q1, Q2, we've had the benefit of a number of – non-recurring revenue items that don't carry a lot of cost with them. So the JV fees, when we sell an asset and we get a sales fee or we get a development fee, as you know, as you can see in our results, It comes through on the revenue line, but there's very little drag to the bottom line. And so, you know, it can be inherently lumpy, and we just don't see a lot of that through the second half of the year. If anything, as I mentioned, non-recurring revenue will go down Q3 over Q2, but then it's going to flatline in Q4, and there will be another one-off fee that likely gets recorded in the fourth quarter. But bottom line, that's what's going on.
spk04: But even with that fee that you just mentioned, you think that NRR is flat in 4Q versus the 3Q number?
spk14: Yeah, it is. That's correct. Okay.
spk04: Thank you.
spk01: Thank you for your question. Our next question is from Tim Herron with Oppenheimer. Your line is open.
spk02: Thank you. We've seen some pretty transformational outsourcing by the carriers, the hyperscalers. Do you guys think you'll be an important partner there and will that just also attract, do you think, you know, new enterprise customers to your locations? Thanks.
spk13: If I understand that, you're asking if the carriers themselves will be attractive partners for us to attract enterprise customers?
spk02: Well, AT&T is outsourcing their core network to Azure, and we've seen DISH announce something with AWS. Do you think, you know, will you be an important part of that outsourcing, you know, helping the hyperscalers and AT&T and other carriers are looking to do the same thing globally?
spk13: Yeah, I think so. I think that we definitely have an opportunity there. I think that, you know, that overall supply chain is definitely showing sort of signs of reshaping a bit. But as you know, carriers are a really important set of partners for us as it is. In fact, it's our enterprise success is actually, you know, more than what is reflected in some of our results that we report to you in this earnings deck, for example, because some of the revenues on the network side are really carriers selling to enterprises. And I think when you have this dynamic of carriers working with other providers that are really taking a different and more non-traditional approach to building their infrastructure, and DISH is a great example there, I think we absolutely have an opportunity to continue to play in our points of interconnection and really act as key points of nexus in some of these architectures that I think are going to be important pieces of the puzzle. So, yes, absolutely. In fact, our business development team is really quite active in really thinking through edge opportunities and, you know, some of these more emerging infrastructure, you know, areas with people making new significant investments like what you're seeing from DISH.
spk02: Just to follow up to that, do you think qualitatively the hyperscalers are more likely to outsource infrastructure or are they insourcing more? Where do you think the trend is heading there?
spk13: We do see a greater level of appetite from some of the hyperscalers to self-provision, but I think the demand is just so robust. that there's going to continue to be a huge amount of that that is going to need to come from third parties. And so, you know, as we've already said, our X scale aspirations aren't to sort of go, you know, sort of capture share in huge buckets. It is really to, you know, grow that business with, you know, by targeting attractive and strategically important, you know, locations and deployments. that we think play to the overall benefit of Equinix and deliver outstanding returns to our, you know, to the JV and to our JV partner. And so, and I think we're really executing very well on that strategy. So, I think there's plenty of opportunity out there, but there is some, I think some of the hyperscalers are seeing, you know, a desire to sell provision in certain markets. Thank you.
spk01: Thank you for your question. Our last question will come from John Atkin with RBC. Your line is open.
spk09: Thanks very much. So a question on hyperscale, slide 20, X scale. Looks like you did 37 megawatts of leasing. You've got 140 megawatts of capacity. And if I'm interpreting the lower right numbers correctly, 31 megawatts available to sell. So I guess my question is... what's the type of range that we should expect annually, quarterly, in terms of that leasing number, and at what rate does that 140 grow, you know, over, you know, kind of on a quarterly run rate?
spk14: Yeah, so, yeah, John, obviously, you know, one of the comments we made was we have seen a lot of success, and Charles made the comment, personally, I think virtually everything we've built was now sold out. And so we're going to continue to ramp up dramatically. One of the things that is critically important in the X-Scale initiative is forward planning. And quite openly, we've had more momentum in the business than we originally anticipated. So the teams are working exceedingly hard to... secure future inventory. And it's probably a little bit early to tell you exactly how that will present itself, but suffice it to say we'll continue to provide a really detailed summary of all the different bills that are going on across the three regions of the world. And again, we anticipate that X-scale will be in all three regions of the world now. And as we said with the GIC initiative, roughly $7 billion of capital over 32 buildings and 600 megawatts. That is through a time period in 2025. It will take us to 2025 and beyond. But that doesn't take into consideration some of the other initiatives that we're working on, including another joint venture with a different party. And so as we continue to progress, we'll just update you and the rest of the community. But we are seeing great success, if I can summarize. We've sold out of virtually everything that we have built, and we're continuing to procure and secure more land and capacity to build out for the future.
spk13: Yeah, it's not, it's certainly not precise, I realize, but I can tell you that the next 140 will come a lot faster than the first 140. And because, you know, we're definitely accelerating putting, you know, putting capital to work and seeing, you know, seeing good success.
spk09: Great. And then lastly, the balance sheet is showing 227 million in assets held for sale. Can you remind us what is it you're selling?
spk14: Those assets typically, so Dublin was the first example of that. Our Dublin private asset moved to the joint venture on July 7th, and so that's an asset that is available for sale. We have some other assets where, again, we're investing the capital on our balance sheet, and then we're going to transition or contribute it to the joint ventures, and we'll then thereby get a recovery of those investments, net of our equity, our ownership. So those are just the assets that are sort of queuing up to be delivered to the joint ventures.
spk09: Thank you.
spk08: Great, that concludes our Q2 call. Thank you for joining us.
spk01: This does conclude today's conference call. You may now disconnect.
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