Equinix, Inc.

Good afternoon and welcome to the Equinix first quarter earnings conference call. All lines will be able to listen only until we open for questions. Also, today's conference is being recorded. If anyone has objections, please disconnect at this time. I would now like to turn the call over to Chip Newcomb, Senior Director of Investor Relations. 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. Actual results may vary significantly from those statements and may be affected by the risks we've identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K, filed February 16, 2024, and recently filed 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's policy not to comment on its financial guidance during the quarter unless it's 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 to the most directly comparable gap measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We've made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page of our website 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 one hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'll turn the call over to Charles.

Thank you, Chip. Good afternoon, and welcome to our first board earnings call. We had a great start to 2024, driven by our high FQ1 bookings performance on record, strong conversion rates, continued favorable pricing dynamics, and lower than expected churn, all resulting in our 85th quarter of top-line revenue growth, the longest such streak of any S&P 500 company. We closed more than 3,800 deals across more than 3,100 customers for the quarter, demonstrating both the scale and the consistency of our go-to-market machine. And we again saw accelerating hyperscale demand, which translating to robust X-scale leasing in both EMEA and AI. While we continue to operate in an environment of broader economic uncertainty and see some level of corresponding customer caution, our forward-looking pipeline is strong and we remain optimistic about the opportunity ahead. Digital transformation, particularly given the rapid adoption of AI, serves as a powerful catalyst for economic expansion, and our customers remain steadfastly committed to their digital initiatives. recognizing the pivotal role they play in fostering long-term revenue growth and driving operational efficiency. As we continue to make digital infrastructure more powerful, more accessible, and more sustainable, we're thrilled that Mary Williamson has joined our team as Chief Customer and Revenue Officer. Mary is an operational and visionary leader with unique skills and experience to help drive the next chapter of our growth and brings a proven track record of building new routes to market, enhancing the customer experience, and accelerating go-to-market productivity. On the sustainability front, we continue to advance our bold future-first agenda, with Gartner estimating that by 2027, 80% of CIOs will have performance metrics tied to the sustainability of their IT organization. It's clear to us that companies are prioritizing sustainability in their digital infrastructure decisions. We recently published our ninth annual ISR report and continued our industry leadership with 96% renewable energy coverage across our growing portfolio. marking our sixth consecutive year with over 90% coverage. Equinix PPAs now support more than one gigawatt of new clean energy in high-impact markets, and we continue to seek additional clean energy projects that will support our growth. In late April, we were pleased to announce our first renewable energy PPA in Singapore, an important part of our plan to continue to grow in this strategically critical market. This project will provide 75 megawatts of solar and is in line with Singapore's Green Plan 2030, which seeks to have all business sectors supported by cleaner energy sources. In parallel, we remain highly focused on improving the energy efficiency of our existing facilities, as measured by power usage effectiveness. In 2023, we invested $78 million in high returning efficiency projects. improving our average annual PUE by over 8% year-over-year to 1.42, another lever in continuing to drive performance in our stabilized assets. We also continue to make progress on adjusting the thermostat in our facilities, with more than 50 of our data centers now operationally ready to enable A1A and strong industry support for the implementation of this important new temperature standard. Turning to our results, as depicted on slide three, revenues for Q1 were $2.1 billion, up 7% over the same quarter last year, driven by strong recurring revenues and X scale fees. Adjusted EBITDA was up 6% year-over-year, and ASFO per share was meaningfully better than expectations due to strong operating performance. Interconnection revenues stepped up 9% year-over-year. These growth rates are all on a normalized and constant currency basis. Our unmatched scale and reach continues to drive performance in our data center services portfolio. Given strong underlying demand for digital infrastructure and a long duration in delivering new capacity, we see a growing scarcity mindset, and therefore, we continue to invest broadly across our global footprint. We currently have 50 major projects underway in 34 markets across 21 countries, including 14 X-scale builds. representing more than 16,000 cabinets of retail and more than 50 megawatts of X-scale capacity through the end of 2024. This quarter, we added new projects in Frankfurt, Madrid, Osaka, and Silicon Valley. Key multi-market wins this quarter include ServiceNow, expanding with Equinix in multiple locations globally, powering their continued growth, including new Gen AI workloads. and Wasadi Technologies, a cloud object storage service provider, expanding across all three regions to support their continued growth. Our MRR per cabinet continues to rise, increasing $119 year-over-year on a normalized and constant currency basis to $2,258, driven by continued mark-to-market momentum, solid attach rates for interconnection and digital services, and increasing power densities. With respect to our net cabinet filling, capacity constraints in certain key markets and the meaningful delta in power density between churn cabs and booked cabs continues to pressure this metric. But gross additions remain strong, and our booked kilowatts in the retail business were at near record levels. Given strong bookings and upcoming capacity additions, we expect billable cabs to increase in the second half and continue to see cabinet growth as part of the long-term growth story for the business. Turning to our industry-leading global interconnection franchise, we now have more than 468,000 total interconnections deployed on our platform. In Q1, interconnection ads picked up to 6,200, supported by healthy gross ads and a moderation of consolidations into higher bandwidth connections. And we continue to see a healthy pricing dynamic, with a roughly 16% spread in the quarter between churned interconnects and new additions. Internet Exchange saw peak traffic up 5% quarter-over-quarter and 24% year-over-year to nearly 38 terabits per second, led by the Americas. We remain confident that Equinix's unique and durable advantages will continue to position our platform as the logical point of nexus for buyers and sellers of digital services to come together to fuel digital transformation and unlock the enormous potential of AI. This year, Gartner projects the spending on public cloud services will grow 20% to reach $679 billion as business needs and emerging technologies, including Gen-AI, drive cloud model innovation. We're seeing this translate into strong demand across multiple vectors with key cloud and IT customers broadly and with the hyperscalers specifically. In the quarter, we added one new native cloud on-ramp in Madrid, bringing us to 220 native cloud on-ramps across our portfolio, spanning 47 metros. This represents a nearly 40% market share of private cloud on-ramps in the markets where we operate. We remain an integral and growing part of hyperscaler architectures, with these customers collectively representing more than $1.3 billion of annualized revenue in Q1 in our retail business alone, with deployments across an average of more than 60 of our data centers around the world. Importantly, we're also seeing strong go-to-market momentum with these market-shaping players as we partner to meet end-customer needs for hybrid cloud and private AI, making the hyperscalers some of our most productive channel partners. In our X-scale program, demand remains robust as cloud and AI needs are translating into strong pre-leasing activity. Since our last earnings call, we've pre-leased an incremental 48 megawatts capacity across our Frankfurt 10, Osaka 4, and Osaka 5 assets. including approximately 34 megawatts leased in mid-April. This brings total X-scale leasing to nearly 350 megawatts globally, with nearly 90% of our operational and under-construction capacity leased, and a meaningful pipeline of opportunities to drive continued X-scale momentum in the quarters to come. Additionally, in mid-April, we announced our first U.S. X-scale joint venture with PGIM Real Estate for our SV12X assets. When combined with our existing joint ventures in Europe, Asia Pacific, and Latin America, this new JV will bring the expected global X-scale portfolio to more than $8 billion in investment across more than 35 facilities and greater than 725 megawatts of power capacity when fully built out. We're also making good progress on additional planned X-scale opportunities in the U.S., and we look forward to updating you on those developments in the coming quarters. Shifting to our digital services portfolio, Equinix Fabric and Network Edge continue to over-index relative to the broader business. We see solid interest from customers looking to use the combination of Fabric, Network Edge, and Metal for their digital infrastructure requirements. In support of this need, our engineering teams recently completed the integration of Metal and Fabric, significantly improving the VC creation experience for Metal users. Wins across the business included global security leader CrowdStrike, deploying a cloud-adjacent storage solution on platform Equinix in EMEA to leverage proximity to Equinix's rich ecosystem of cloud and storage provider customers, and an online AI and data analytics education company building out AI infrastructure to support learning for global practitioners. Our channel program delivered another solid quarter, with channel and partner influence deals accounting for over 30% of gross bookings and over 60% of new logos. We continue to see growth from the hyperscalers and from other key partners like AT&T, Avon, Dell, Kindrel, and Zenlayer, with wins across a wide range of industry segments and a broad mix of equity services. As we expand into new markets, our partners are accelerating our efforts to sell the global platform. In Q1, we had a number of wins with Zenlayer in Malaysia, including delivering co-location and interconnection solutions to a fintech firm, extending its reach into Kuala Lumpur, as well as supporting a logistics consulting firm extending into Johor. We also saw a win with Kindrel, who also selected platform equinix to service some of its largest customers in Canada, including from the public sector. So let me turn the call over to Keith and cover the results for the quarter.