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

So good afternoon, everyone, and welcome to TD Cowen's 12th Annual Communications Infrastructure Summit, again, Michael Elias, [indiscernible] for TD Cowen. For this session, we have Equinix. And from Equinix, we have their EVP of Global Operations, Raouf Abdel, who's back here with us for the second straight year, which makes me very happy. This is structured as a fireside chat. We have just under 30 minutes because I've gotten a little carried away with the prior sessions. We got questions prepared, but I will do my best. If you're okay with it to open it up to the audience. and I see some people in the audience who may have questions. So I'll just -- I'll through that out there.

There might even be some hecklers out there.

Yes. I think you could say there may be some hecklers.

Not tomatoes, none of that stuff [indiscernible] behave.

But Raouf, it's a pleasure having you. Thank you so much for...

Thank you for having me again. It's always a privilege and an honor to be at the conference and spend some time with you and this group.

Awesome. Thank you. Well, let's kick things off...

Do you mind if I do my regulatory disclosure statement.

[indiscernible] Yes, you go ahead. That's right.

For those of you that are not in a public company setting, you don't have to deal with this, but at Equinix, we do. So some of what I'll talk about today contains forward-looking statements. Please read our SEC filings for more information about factors that could affect these statements. Other than that, let's let it rip.

All right. Let's do it. So let's kick things off. For those of you who weren't here with us last year, can you give us a sense for 1 year role. But more specifically, given the evolution in the industry, how is your role evolving over the last year? And I'm sure it's the [indiscernible]. Over to you.

Yes. So think about my role as sort of the development end-to-end cycle of building our data centers from real estate to energy, to design, build the procurement aspects of that. And then ultimately, when we do build the data center, it's the operate side of it. So that whole life cycle of the data center and that I've taken on a couple of additional pieces of that to really try and bring it together and weave it together as one continuous sort of responsibility. And the short answer to your question, but I'm happy to elaborate is that our world has gotten a lot harder every dimension around what I like to sort of use the term resources. And those resources come in sort of multiple dimensions, you've got people resources, you've got manufacturing, you've got real estate and you got energy, which is the one that gets a lot of attention. But where to go, where to build, community sentiment, the backyard sort of dynamic that we see playing out definitely putting some stresses and strains on the whole ecosystem of building data centers these days. Nothing I'm sure most of the crowd doesn't already fully experience or appreciate if you're out building data centers.

That's right. One of the things that I think building on your point about complexity, right? We had the second quarter earnings call. come out with new CapEx kind of guidance, multiyear plan for building. So all -- at a time where things are already complex and challenging to build, the rate at which you're going to build is going to increase further also, right? As we think about you delivering on this plan, a few things. One is, can you just help translate for us? Like what does this mean in terms of $5 billion to $7 billion? What does that mean in terms of number of projects that you got to manage megawatts that or gigawatts that you're going to bring online as part of that, how the supply chain itself really needs to expand in order to accommodate Equinix delivering on that plan.

Yes. As you can imagine, Michael, we didn't sort of from a standing start plan to increase the CapEx. We've been for a couple of years now of sort of gliding into a very different throughput in terms of the amount of capacity and the volume of projects that we were going to manage. And we did -- I know we talked about this last year. We've also increased the size of every single project. But as you know and maybe some in the crowd do, we've announced 52-some-odd projects that are in flight that had been publicly announced across 33 markets across the globe. But behind those is another 50 that are in planning, development stage, securing either the land or the power or the supply chain that's required in order to hit these kinds of numbers. So we've been planning this for a couple of years, and so the output is a result of those years of planning and Back to your earlier question, the duration to plan is actually extending now. So we're planning today where we're going to deliver '28. That's the way to think about it, right, '28 and '29. And so all of our land banking power banking, prebuy on the manufacturing side is all for future delivery, right? And what we're delivering this year, we sort of put on a path 2, 3 years ago?

One thing that I'm curious about is, I think you've talked about a 3 gigawatt land bank, I believe, is that the right number?

Maybe a little overstated, but were in the multi-gigawatt sort of land bank.

The reason I bring this up is you have a [indiscernible] on an earlier session from QTS. And he made the point that about what the historical motion for delivering a data center look like, right? You buy the land, you sit on it for a few years and then you go to the utility and say, "Hey, can I have the power, there's a ramp and then from there, right, then I see you shaking your head already. What I want to get a sense of is, I appreciate the data centers that you're building now are bigger. I think 60 megawatts, somewhere around there is going to be is the standard block size. But when you think about the land parcels that you have in your bank, is -- what's the right way to think about securing power? Is it that, hey, when we bought the land, we had an ESA with a long-term ramp that gives us visibility into the power, like or because 60 megawatts isn't like hundreds of megawatt scale, you can still go to the utility and be able to get the power that you need in a reasonable time frame. Just help me understand how much visibility and certainty you have into the power that sits within your land bank, if you will?

Yes. So one of the changes, again, that we made two-plus years ago is the sort of flipping of the -- you don't go buy land and then secure power. You go look for where there's land and then you look for power -- or excuse me, land to support that power. And so we won't take down land if there isn't some line of sight to that power because what -- you can't sort of just tell the utility bring me 200, 300 megawatts of power to this location anymore. You have to be much more thoughtful and planful around -- okay, we see there's an opportunity to connect at a pie transmission line over here to build a substation, you have spare capacity. You're having the utility conversation as the first step before you're thinking about the land. And we do that in combination now. It used to be, you're absolutely right. As mentioned earlier, it used to be you could take down land and just put a request in the utility and they would show up at some point. If you apply that methodology now, it could be 8 years before you get that power because it requires upgrades, it requires infrastructure that requires a connection. We're trying to pick locations that simplified to the extent possible, none of it's easy, but to the extent possible, where that transmission connection happens where we can build a substation. For the most part, generation is the tertiary issue, it's really distribution and transmission. That's the bottlenecks. And so trying to simplify those 2 dimensions with where you pick land has been our strategy.

When you think about it here's something that I think about. I think you said that, what, 80% of the CapEx is going to go into the top 25 markets that fact.

That's correct.

When I think of the top 25 markets, right, their big data center market is kind of 4 reasons there's critical mass and density, but there are also a bunch of operators. There also tends to be a correlation between the largest markets and the biggest amounts of power constraints, right? Northern Virginia, a huge market, very constrained in terms of power. You can see the same thing for Silicon Valley and so on, right? So that's kind of the direction I'm taking this. It's like I want to understand, since you -- so much of this is going into the newer market or say these established markets where you have a deep ecosystem, you feel confident that, hey, power is not the thing that is going to gate our ability to deliver this capacity and as such, the constraints it somewhere else or power is something that we need to keep in the back of our heads. Then after that, we can kind of take it away.

Yes. I mean, absolutely, there's not a day I'm going to lose sight of the power complexities and the fact that we have to manage around it. And you're right, those are some of the most constrained markets. But again, remember, this is a multiyear planning horizon for us. One of the differences maybe from an Equinix versus others is some of our growth and expansion is phases and add-ons to properties and sites where we had a power bank or a power plan that was in motion, where we're adding the third building or the fourth building, take Ashburn as an example. We're building an Ashburn today because those are projects that have been on the docket for years. But look, power complexity, power challenge is not going away for anybody that's in the data center space anytime soon. And you have to think about all dimensions. And I would say, honestly, the key is planning. You got to have a long-term horizon. One of the things that is going to enable us to continue to deliver capacities, our ability to move projects in and out and pick which ones are on a trajectory to actually deliver because the energy is going to arrive. And so we -- 100 projects in the portfolio to work with. I talked about the 50 that we're very confident in delivering the 50 behind them, which ones we pick is going to be a function of which ones are going to get energy.

That's a fair point. That's a fair point. I want to build on this. When we were on stage last year, you said something -- or we're talking about this like it's how it's hard to accelerate the build cycle for capacity, right? Then I get on the earnings call and I hear what did I hear 7,000 cabinets got pulled forward? And the first thing I thought is how did he pull that off, right? So when I think about like the mechanics of accelerating that kind of capacity. How does one pull it off? I'm looking at you for this.

Like the short answer is really hard work and maniacal focus. But peeling that back a little bit, so it doesn't sound patronizing, it's -- one of the things we really learned is that because of our dependency on capacity, right? It's a much tighter linkage now between capacity delivery and bookings. In fact, I'm sure you noted on the earnings report, our presales are higher than they've ever been. And so not only once we have it built, do we sell it quickly before we even have it completed, we're preselling it, right? So that relationship between when we build and develop and when we sell it is tightening and demand in many markets is insatiable. So we got less latitude for slippage. And so there's just a higher focus there. And one of the things that we've really learned is that traditional project management would be a little bit more relaxed about managing float in the early part of the project. And you would sort of let it build up to the back end. And if you run into a problem late in the project, then they're going to be late. And so what we've really tried to do is make sure that the project doesn't consume float in the early part of the project. And if you do that and you don't run into issues late in the project, then you deliver early. If that sort of linkage makes sense.

No, it does.

Yes. And so again, we didn't deliver every project early, but because of the portfolio we have of 50-plus projects and then some some percentage we were able to deliver early because of tighter management of risk and float and supply chain management, every risk dimension of project management.