Equinix Inc - Deutsche Bank 30th Annual Media, Internet & Telecom Conference Transcript 2022.pdf

FINAL TRANSCRIPT 2022-03-15
Equinix Inc (EQIX US Equity)
Page 1 of 16
, Investor Relations
, Chief Accounting Officer
, Deutsche Bank
Matthew Niknam
Simon Miller
Katie Morgan
Matthew Niknam
Simon Miller
Deutsche Bank 30th Annual Media, Internet & Telecom
Conference
Company Participants
Katie Morgan
Simon Miller
Other Participants
Matthew Niknam
Presentation
{BIO 21568441 <GO>}
Okay. All right. We're going to go ahead and get started with our next session. We're
very pleased to be joined by Equinix's Chief Accounting Officer, Simon Miller, as well
as Katie Morgan from Investor Relations. Simon, Katie welcome.
{BIO 1764376 <GO>}
Thank you.
{BIO 18486096 <GO>}
Thanks for having us.
{BIO 21568441 <GO>}
Thanks. So maybe just to start, if you can talk about some of the top priorities for
Equinix in 2022.
{BIO 1764376 <GO>}
Yes. Sure. So not much has changed since our Analyst Day. We're looking at getting
scale and leverage out of our go-to-market activities. We're looking to double and
triple down on xScale, continue to invest behind our digital services pursuit, and
then really investing in a healthy foundation, which is things like diversity and
inclusion training around the company, wellbeing programs for employee base as
well in a post-COVID world.
Questions And Answers

Page 2 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
{BIO 21568441 <GO>}
(Question And Answer)
Got it. Okay. I think 2021 was sort of a hallmark by really, really strong customer
demand, very strong record bookings. What are you seeing in terms of the demand
backdrop across your three operating regions?
{BIO 1764376 <GO>}
Yes. Yes. So hardly -- and we've had a lot of discussions today about similar things.
When there's been points of inclination in the market more macro trends going on,
Equinix seems to perform pretty well on the other side of that. So if you look back at,
like, 2001, 2008 -- 2007 and 2008, I think what we're seeing is maybe an unfair share
of advantage in light of some interesting things going on and it's showing up on the
demand side for us. Whether it's COVID, I would say, advancing the drive of the
enterprise to a digital service environment like they're getting pushed faster to
absorb cloud resources. And we end up getting some collateral benefit out of that,
because we're part of that dynamic solution for any CIO or any enterprise going on
their digital transformation journey.
{BIO 21568441 <GO>}
And so would you say -- I just want to follow-up on that, would you say, if we do sort
of head into more of a macro downturn, I don't want to open up the can of worms
with recession, I'm no macro economist. But in theory --
{BIO 1764376 <GO>}
Yes. Don't say the hard word.
{BIO 21568441 <GO>}
Exactly. In theory, would that maybe be a little bit of a silver lining or sort of net
benefit for you guys as enterprises think about maybe looking for more efficiencies
and maybe moving more to a hybrid cloud type environment?
{BIO 1764376 <GO>}
Yes. Not to say that we wouldn't have our bumps and bruises across the -- along the
way, but generally speaking, an enterprises response to something like that is to
optimize their footprint. And if they optimize their footprint that means that we're left
with sellable space -- more sellable space that we can sell in, I would just not to be
overly technical, but in a more dense environment. That's the way they make the
economics work for them.
If they're renting a, call it a 4 kVA rack from us in one month, if they're able to get
more servers into that single cab and all of a sudden it's now up to 10 kVA per
month, but on a lower per kVA dollar value. And I can take these other cabinets that
they've already been -- that they're giving back and I can resell them and sell it at a
higher density. It's going to cause us to push the envelope I think on power

Page 3 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
utilization, but overall at the end of that process, we'll be better off. Equinix will be
better off. That's kind of what I was referring to as at the end of those cycles, we end
up with more than our fair share, even though, throughout that process, we might
have taken backspace a little bit faster than what we anticipated or before a contract
insisted that we take it back. We get to take it back and then monetize it in a different
way.
{BIO 21568441 <GO>}
Got it. Got it. As we think about the outlook for 2022, I think the midpoint of
guidance calls for roughly 9% top line growth for the year. It's actually at the upper
end of the multi-year guidance given at the Analyst Day of 7% to 9%. Can you talk
about some of the key factors driving the optimism there on top line growth?
{BIO 1764376 <GO>}
Yes. I think it's a lot of the same stuff that we're seeing right now that I was just
referring to, which is that I think enterprises are pushing their digital transformation
strategies a little bit faster. Because of that, we're getting more inbound requests
from enterprises. On the flipside of that, the service providers are trying to catch up
to all of those needs, whether it's an Oracle or a Zoom or an AWS or a Microsoft.
They're setting themselves up to deliver those services that are being consumed by
the enterprise. And so we're getting a little bit of both on that end.
{BIO 21568441 <GO>}
Digital transformation is a term I think we hear very often particularly from Charles,
Keith on the calls. How is this sort of -- has it evolved at all? Are you seeing any sort
of taper ringer moderation, I guess, coming out of the pandemic?
{BIO 1764376 <GO>}
No. I'm not seeing it's speed up quite honestly. I would have said before the
pandemic, we were still at the very early parts of that journey. There are definitely
some bleeding edge companies that are further along, but the vast majority of
enterprises are not where they would need or expect to be on that transformation
journey. There are still a lot of applications that they're hosting in their basement, in
their own data center facilities that are not -- I mean, they're just not getting most out
of that and they fully -- well, I wouldn't say fully, but a hybrid cloud environment.
{BIO 21568441 <GO>}
Yes. Okay. Just in terms of demand, I know Europe has been an area of strength. I'm
just wondering in light of the conflict that's going on overseas between Russia and
Ukraine, has there been any sort of noticeable impact on demand or bookings just in
light of what's been going on?
{BIO 1764376 <GO>}
Yes. No, probably too soon to tell on that front. The initial reads is, no, we're not
seeing any immediate downturn. I mean most of what we're focused on internally
actually in response to everything is actually just making sure that our employees

Page 4 of 16
Q - Matthew Niknam
A - Simon Miller
A - Katie Morgan
Q - Matthew Niknam
A - Simon Miller
and our customers that are in bordering countries, because we don't have
operations in either the Ukraine or in Russia, but that they feel supported by Equinix
during all of this kind of crazy time. But nothing specific coming out of our major flap
countries like coming out of France, coming out of the U.K., coming out of Germany.
No major repercussions thus far. But I'm sure that we will be analyzing and thinking a
lot about that over the next coming weeks as we prepare our guide for the rest of
the year and as we look to plan for next year as well.
{BIO 21568441 <GO>}
Imagine sort of broad demand strength. I'm wondering are there sort of specific
verticals or industries where you tend to see outsized increases in demand? Then I
guess maybe conversely are there sort of a laggard verticals where they may be a
little bit behind and catching up?
{BIO 1764376 <GO>}
Yes. No, a really good question. No real laggards. I'd say the verticals that you would
expect content, financial, a lot of the things going on in the world aren't really
impacting them or have already been baked into their run rate based on other fact
like more COVID related factors than anything going on in the world right now. I
would say probably cloud service providers and enterprises are kicking up.
And it's really that double edged that I was referring to a moment ago, where I think
there is more of a thirst and hunger by enterprises to complete their digital
transformation a little bit faster, so that they can meet that they can meet the needs
of a diverse employee and customer work base and have a lot more optionality
about where folks are doing business and how they're doing business in support of
them. And then on the flip side, it's the cloud service providers trying to catch up
and meet that demand as well and take advantage of really in what they're going to
believe is a constrained world, taking down enough capacity to meet their needs for
growth over the next, call it, two to three years.
Got it. On the topic of I don't want to call it current events, but power and energy
costs have obviously been very, very topical of late and let's see. I'm sure you had a
lot of questions on that so far.
{BIO 18486096 <GO>}
None.
{BIO 21568441 <GO>}
And obviously some of the impacts are weighing on sort of the margin trajectory for
this year. So can you talk about the headwinds that are baked in on a margin
perspective into your '22 outlook? And then what gives the company confidence
that there could be an inflection margin wise in the second half of the year?
{BIO 1764376 <GO>}

Page 5 of 16
Q - Matthew Niknam
Yes. So most -- and I think anybody that would have listened to our earnings call and
read our earnings release knows that most of our power concerns this year center
around Singapore. And a lot of that has to do with the fact that we have certain
hedges that are in place that guarantee a return to -- a portion of our power portfolio
in Singapore returning to what I would call more realistic rates in Q3 and Q4. So
there's a piece of what we're forecasting that is in the bank that we know about.
Based on what we locked in on those hedges in Q4 and very early in Q1, that is what
gives us confidence that, overall, the -- because we were able to lock in those
hedges at a much lower rate than the current spot rate, that gives us comfort that this
-- the intervening period between, call it like, half Q2 and part of Q3 that we will be
able to manage the cost down to the level that we've got in the forecast, so.
I mean there's still things that need to happen around that, and certainly, if the
hedging market doesn't open up as we anticipate for Q3 and Q4. By the way, we'll
know a lot about this I think in the next three to four weeks and come back and
guide with a lot more information we're doing a lot of work internally right now and
with service providers externally to nail this down and get a little bit more clarity for
the remainder of the year. But right now, all of those indicators lead us to believe
that we're in a solid position at least as it relates to Singapore, which is where a
majority of our risk is coming from this year.
When you look at Europe, we start to look at 2023 and beyond. We've got hedges in
place in markets where -- deregulated markets where we're allowed to hedge. We
feel like we maximize our position there. Well, that's going to start rolling off in '23.
We don't look any different than anyone else in our space. Though people hedge
where they can and they don't where they can't. And so we're all going to kind of be
in the same boat and the way that we acquire those hedges is we do it in sort of a
waterfall cascading, so that we never have any one big thing rolling off in one
quarter or period. We try to feather them through over like an eight quarter period.
So there's definitely risk out there for '23. However, we've got the remainder of this
year to really sus that out and see how things transpire in Ukraine and Russia and see
how the market responds to that, and set up our customers for whatever we do in
response. The reality is, if power prices continue to escalate the way they look like
they are based on spot rates well into 2023, we're going to start signaling to the
market, bringing the signal to our customers that price increases are coming. And I
would expect them to look at that and nod their head based on reading everything
that's going on in the world.
{BIO 21568441 <GO>}
Yes. I mean I was going to ask like what's the receptivity been, because we are
obviously in an inflationary environment. I am getting -- I got a text from the
landscaper today, this is one anecdote, just saying, rates are going up 25%. I'm not
going to get rid of it. But my point there is, when you think about passing on some of
these rising input costs to customers, what's the sort of receptivity been? How does
those discussions typically go?

Page 6 of 16
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
{BIO 1764376 <GO>}
Well, as Katie likes to say, no one ever sends you a thank you note for a price
increase. I think that relative to other -- so I've been with Equinix for 10 years and
there's been a few other situations where we've intentionally and very mechanically
gone in within given metros and lifted rates. And in some of those cases or most of
those cases, customers don't like it and they're very, very vocal about it, right? I think
in this unique time period, some of those biggest customers that would be saber
rattling around that, they're experiencing the exact same thing themselves for their
own data centers, where they have power commitments from local utilities on their
own to measure us against, right? The most -- so it's not going to be pretty and we're
going to work with our customers on it and not try to gouge them.
But we all have shareholders. We all have responsibilities to deliver returns to our
shareholders. And as long as we're communicative, intentional and transparent with
our customers, while it'll probably be a painful discussion, they'll understand and
then what will end up happening after that is most likely, again, people optimizing
their footprints to the extent that they possibly can, because those that are with
Equinix, they knowingly pay a premium right now to be there. And so they're with us
because they need to be with us.
And they'll need to be with us on the other end of that unless they dramatically alter
how they're going to market with their applications, and how they're servicing them.
But even if they dramatically alter that, the reality is that they're going to need us in
some capacity, and it's just a discussion about how do we optimize their footprint
with us in a way that they feel comfortable, that they feel like they have control that
meets the expectation of competition and the market, but also doesn't leave Equinix
hanging.
{BIO 21568441 <GO>}
How about on the supply chain. I mean that's been an area where it's sounded like a
lot of the larger companies in the comm infrastructure space maybe hung it a little
bit better more immune I'd say given some of the forward-looking work they had
done. But it sounds like at least from some other peers at the conference, there is a
little bit more concern around supply chain impact hitting deployment schedules, I
guess, at least for 2022. So any color you can share in terms of impacts from supply
chain? How those have trended following some of the recent events in 1Q?
{BIO 1764376 <GO>}
For sure. There's nothing incremental that we didn't already take into account, quite
honestly, over the last 18 months. And when supplies constraints around the world
really started to kick in, we leaned in on our commitment schedule with our key
suppliers quite honestly. And what we started to do was share longer-term forecasts
and purchase commitments with them to make them comfortable that one way or
the other we're going to show up and we're going to buy these materials and you
can feel confident, so that you can deliver against this delivery schedule.

Page 7 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
So we're using our reputation. We're using our brand. We're using our balance sheet
and leverage there to be able to give our -- the supply chain partners like comfort.
We saw an initial push back certainly and delays in some scheduling. But quite
honestly, it's -- I mean there are issues around the supply chain and we're going to
manage that effectively, but we think that we've seen the biggest brunt of that. It's
way more about managing inflation associated with those supply chain issues and
managing pricing on a proactive basis with our customers around that as well.
{BIO 21568441 <GO>}
You referenced inflation, one other area where this hits and I know, obviously, you've
been investing in people and adding new heads, particularly, in the back half of last
year. Wage inflation that topic. How do we think about that in terms of another sort
of incremental potential headwind to cost structure?
{BIO 1764376 <GO>}
Sure. We're keeping an eye on it, but nothing that we've done in, say, this focal or
budget cycle would suggest that what we have in the plan and have communicated
to our employees this year isn't sustainable. We do have the added benefit of a
bigger group of -- bigger population of our employees gets to share in the RSE
world as well. And so that's an added benefit of compensation that maybe a lot of
our competition doesn't get and we get to use that to our advantage. I mean it's a
great motivator by the way to get employees to help solve problems around
profitability, too.
The inflationary side of things that we're seeing, though, more on the labor side, isn't
so much on our employees, but much more on the cost to build them through
contracting. There's just so much more competition for those resources as well as
supply constraints on the material side. That's probably where we're seeing the labor
hit us and maybe that's a canary in the coal mine in 2023 will be a bigger issue for us
on that end. But this year, it's mostly about the cost to build.
{BIO 21568441 <GO>}
And is that I guess having any, let's say, early impact on the yields on new builds?
{BIO 1764376 <GO>}
From a modeling perspective, yes. We're sensitizing things a little bit more and we're
digging into what we think could impact our returns maybe a couple layers deeper
as we're going through project level reviews. But the general response to that and
the thing that will always keep us right as to get ahead of it on pricing with our
customers and to pre-communicate that. So if in a given market labor and materials
to build are going up, call it, like 7% or 8%, we're going to get ahead of that and any
new deals that we price into that metro are going to get an uplift on that. And then
as customers that are currently in term of a three to five-year term of an agreement
when those renewals come up, we're going to start lifting them up as well. And then
during that whole period of time, we have annual increases, price increases, that
range from 3% to 5% that are always part of the contract.

Page 8 of 16
A - Katie Morgan
Q - Matthew Niknam
A - Simon Miller
We really kind of use -- look at those price increases as the last place to go, though,
because they are not met by the customer very easily. It's just -- it's not a great
conversation to have. So we'll always try to optimize our build first. We'll do design
cost reductions into the plan. We'll combine phases a lot of times, which saves us
some cost. We'll sweat the power infrastructure a little bit harder transparently and
talking about that with our customers, so that they understand the risk, but the
reward for them financially, if we manage it good or better than we are right now.
Those are the types of things that we'll undertake.
It's not going to be something that hits us immediately. It's going to -- the cost will hit
us and show up on the balance sheet immediately. But we'll mitigate it over a period
of time with new deals and renewal deals. And as that entire footprint cycles out
over, call it, a three-year period, we'll all get lifted up to the newer vein.
{BIO 18486096 <GO>}
And I was just going to add on to Simon's point. While we're sensitizing our analysis,
we're still underwriting to target yields of 30% on IRR.
{BIO 21568441 <GO>}
Okay. Okay. So as we think about all these moving parts, obviously, at the Analyst
Day, there was a target for 50% margin, EBITDA margins that was laid out by 2025.
What sort of the visibility -- with everything going on, how strong would you say the
visibility is into achieving that target?
{BIO 1764376 <GO>}
Yes. We're -- I mean, we're still on track. We have a path to get there. It's certainly a
little bit more strain with all the dynamics going on in the world now, but we still
keep a very close eye on our path to get there. And we continue to believe that the
investments that we're making in projects like Horizon or Jarvis, which are very much
about getting transactional scale out of the front side and the delivery side of the
business.
Making investments in systems and processes that allow us to sell our digital services
suite of products, which are slightly tangential to the data center services in terms of
how the customers want to transact, the actual order, the legal entities and how we
support it. They want that delivered to them slightly different than we do data center
services. So we're making an investments in those areas to streamline those
business. We'll continue to do that. We've been doing it for the last couple of years.
We think that that's putting us in a path not just with our digital services customers
and data center, but also our channel customers to really, really help (inaudible) and
create leverage there.
On the digital services side, we've been making headcount investments over the last
couple of years, hiring engineer product teams. I would call those like foundational
investments that are just what it takes to get a business of that size and scale off the
ground. But it's not like once we get into the power curve of selling those services
like every marginal dollar of revenue is going to carry the marginal cost that got us

Page 9 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
here. So there's a certain amount of fixed investment that we feel like that coming
out of this year will get us over the next couple of years. And so at the same time that
we've been absorbing increasing power costs in Singapore this year, we're also
making investments in our digital services and those will start to yield the fruits in the
2024 and 2025 time frame.
{BIO 21568441 <GO>}
And so to think about the trajectory and I'm not -- I'm going to steer clear of asking
for '23 guidance or '24 guidance, but thinking about the cadence of this
improvement, if you're taking, let's call it, one step back this year going from 47%
margins to 46%, how do we think about that path to 50%? Is it linear? Is it backend
weighted? Any sort of color you can give us in terms of how does?
{BIO 1764376 <GO>}
Yes. Well, without going into specifics, because I think a lot of this is going to rest on
the timing with which a lot of these programs that I'm talking about go live, and in
some cases they're in the middle of feature development, in other cases, we're just
putting pen to paper right now on what the requirements are going to need to be. I
would just remind folks that this year, there's at least 100 basis points of margin in
there related to the Singapore power item for us uniquely that is transitory. That one
way or another will get cleared out by 2023, which puts us really back in that 47-ish
starting spot that we were originally in when we started giving the long-term guide
in support of Analyst Day. So we're looking at, okay, by 2025, we've got to improve
from, call it, 47 margin points up to 50.
As we layer in these processing system solutions and I think -- and start to see the
benefits of the investments that we've made in digital services, that's how we see it's
going to happen. I think some quarters you are going to have puts and takes. One
year might be a year of investment. How that explicitly pans out and times itself out,
not really comfortable sharing, because I think we got to go figure that out. But it'll --
we're still set on the 50%. It's going to be some give-and-take along the way. But
most of it's going to come out of operational efficiency and getting value out of the
investments that we've made in the digital services space right now.
{BIO 21568441 <GO>}
Okay. Let's talk a little bit about competition. What does the competitive landscape
look like right now for Equinix across your three regions and have you seen any sort
of fluctuation or change in competitive intensity off late?
{BIO 1764376 <GO>}
Yes. It's hard to say that anything is different. I mean I love our balance sheet and I
love our strength and I would say, it's not so much that we're seeing people react
differently to what's going on. I think what we're seeing is a series of facts unfold in
the marketplace that highlight our competitive advantage and highlight really our
balance sheet strength. So ask me that question like 12 months from now when we're
looking in the rearview mirror at what all of the interest rate rising, all the power
inflation, cost to build inflation is doing to our competition and how they're reacting

Page 10 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
and what we're capable of doing, given I would say the capacity on our balance
sheet and the fact that we deliver a pretty unique service to people, especially when
you layer in all the digital services like Network Edge, Fabric and Metal on top of
that.
{BIO 21568441 <GO>}
Yes. The balance sheet I know is something that we've heard a lot about, 4x levered
relative to some of peers and smaller guys. So international markets, obviously, you
have announced an acquisition of MainOne that I believe is going to close shortly.
You've also done GPX in India.
{BIO 1764376 <GO>}
Yes.
{BIO 21568441 <GO>}
How do you think about just broadening the platform? We like to think about it
typically is Americas, EMEA, Asia Pac, but obviously with some of these newer
markets in the mix, how big of a role does expansion in these newer regions play
into like the multi-year outlook?
{BIO 1764376 <GO>}
Yes. I mean, those plays were about planting seeds for five years down the road type
of growth. I mean, the size of the businesses that we're buying, they don't
individually move the needle. What they become is a beachhead for us to expand
them. We -- when you look at, I mean, one along with that acquisition, we're getting a
very talented management team. The way that we're going to integrate that, one is
sort of akin to what we did when we entered Brazil, which is utilize a very talented
management team to teach us how to do business in a place that we don't have a lot
of experience. And it's a very different place to do business in Nigeria versus doing
business in Ashburn. We experienced the same thing when we acquired our way
into Brazil. I expect us to do that a lot more just to gain momentum in places like
India, in places like Africa.
I think we're going to look at more places in Asia as Hong Kong sort of slows down,
as power continues to be an issue in Singapore, looking for ways to expand the
footprint in Asia, that's going to meet the customers' needs, because they're going
to look for a more distributed way to support their customers as well. I think
everybody is a little bit concerned with there being so much focus on Hong Kong
and Singapore. There was hope that maybe people would go into Tokyo, but Tokyo
has a lot of constraint -- capacity constraints as well both on the real estate and on
the power side.
So looking at other places in Asia, I think is going to help out. We'll probably do it in
a similar fashion,, where we look for people to partner with or acquire a
management team that gives us local expertise and allows us a beachhead upon
which to expand. All of our business cases when we do that are all about the
expansion there we get. That's where it really makes sense and that's where the

Page 11 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
promise to our customers allows us to deliver those returns because we can show to
them that we're doing this initial acquisition.
Let's just say it's a $200 million acquisition, $300 million acquisition in the case of
MainOne. It's not so much about, hey, we're just buying this to operate it today. It's
about we're buying it today and we're getting with it the -- a considerable amount of
land bank and we're committing to you the ability to expand in that market and
that's where the value comes in for them.
I do think consolidation overall is probably I mean with -- obviously, with interest
rates doing what they're doing, there's been a lot of, say, private money getting into
our space relative to maybe like four years ago, five years ago. I think the public
companies are going to need to slow down because some of the valuations you've
seen floated out there in the last round of acquisitions are really expensive relative to
what's going on with rates right now and certainly power cost. I expect it's going to
take a little bit of time for the private firms to slow down, but eventually they'll slow
down, too, because they're using these more as financial vehicles. They're still
levering them up quite a bit. And in their case, they're not getting synergies when
they roll up these companies from combining operations. They're not really
operators. They're more trading and buying assets. So it's a little bit of a different
world.
{BIO 21568441 <GO>}
And so I assume in such a dynamic rising rate environment, you've got the flexibility
on the balance sheet. It sounds like you're not necessarily seeing the opportunities
materialize yet, but maybe six months from now, 6 to 12 months typically?
{BIO 1764376 <GO>}
Yes. We'll see. I mean that's -- I think there needs to be a market correction for sure.
Valuations are sky high. Sky high in our space still. But I mean there's deals that we're
happy. Like even though we're about to close MainOne, we've got to go fund that.
The reality is, we're super happy with the deal that we did there, because even
though we feel that valuations are somewhat inflated, we still got that at an EBITDA
multiple that looks like a discount to our current operations, which means that when
we get in there, we integrate the company and we start, more importantly, sending
in our customers to take down data center space there. We're going to create value
just simply out of executing and we're going to look like we got it at a discount.
Some other assets in other geographies aren't quite looking that way yet. But we do
think over a period of time, they might find some more attractive opportunities to go
take down. And I think separate from anyone in our space, we have a lot of capacity
to go do that when those opportunities avail themselves.
{BIO 21568441 <GO>}
Well, let's say, actually it's a good segue to a discussion around balance sheet and
capital allocation. So maybe just to start, can you just sort of walk us through the top
priorities in terms of the uses of cash, maybe we'll dig into different areas.

Page 12 of 16
A - Simon Miller
A - Katie Morgan
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
{BIO 1764376 <GO>}
Yes. Well, number one is to fund our expansion. We've got about a two -- I mean
given time this year, we're a little over $2 billion in organic expansion. I think in
Analyst Day, we gave a range of $2.3 billion, $2.5 billion.
{BIO 18486096 <GO>}
$2.5 billion to $3 billion.
{BIO 1764376 <GO>}
$2.5 billion to $3 billion. So most of our cash generation will go to fund that. Another
piece will obviously go to fund our dividends as well. When it comes to the organic
expansion, it's very hard for me to sit here today and tell you like in three years
where we're going to focus that activity. This year is a very big year in Europe. We
had a really good couple of years there. We've kind of sold out most of the capacity
in some of our key markets. And so this is a catch up year where we're creating
additional capacity in critical markets. They're a little bit slower for the Americas, but
we're also doing -- we're doing better-than-anticipated on our internal plans in terms
of the Americas as well. So next year might end up being a catch up in the Americas.
{BIO 21568441 <GO>}
Yes. On leverage, so you are at 4 turns right now. I know there have been a couple of
rating agency upgrades in recent years. So you do have flexibility to flex up, if you
can go higher if you wanted to. What's sort of optimal leverage? I mean, the sense I
get from the commentary is, you're comfortable being where you are and having
that additional flexibility should opportunities materialize. Do you sense the need or
just given what's available to you, do you sense an opportunity to take things higher?
{BIO 1764376 <GO>}
I think we would like to, quite honestly. It's always that balance between pushing up
our investment-grade rating and doing a bit of a dance with the rating agencies and
making them feel comfortable in our business model. I'm not sure if a lot of people
know this, but we're not looked at or viewed like a traditional REIT. They look at us
much more like a technology company and they put us in the category of carriers
and folks like that.
So just getting an S&P or a Moody's to get comfortable with a 5x leverage ratio is
already a challenge. We're going to do our best to move them to the 6x, to the 7x
over the next several years, because honestly we view our ability to unleash our
balance sheet power relative to our competitors as a very, very immense source of
power here. And -- but it's a fine line, right, because we can't do it at the cost of
inflated interest rates -- or excuse me, an interest expense as well.
And so we're doing that dance. We're doing that walk. We're continuing to put a ton
of pressure on the rating agencies to put us into the mix that looks a little bit more
like our traditional competitors. We're getting there. I wish -- I think we're doing a

Page 13 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
great job. I wish it this would happen faster. But I'm actually looking forward to that
day where we can pump up a few turns on debt, because I know what it means for
our shareholders. It's a ton of value rather than going out and using our ATM or
doing equity offerings to support our growth, especially when you're talking about
just going beyond our organic expansion, but M&A, which is one of the big areas
that we would be a consumer of our cash going forward.
{BIO 21568441 <GO>}
How do you think about just in terms of funding expansion, people -- we typically
rely on like traditional debt or equity. But in terms of JVs or divestitures, is that
something that usually in the discussion in terms of other tools?
{BIO 1764376 <GO>}
From time-to-time, we look at it. JV's for sure, but that's more about a product
strategy like something like xScale, you look at it. There can be JVs when we're
entering a market for the first time. We did that in Brazil. We thought about doing it
in Africa. We couldn't find the right partner at the right time. And so we ended up
investing in leadership at MainOne. There are benefits to doing a JV partner
situation, where people have boots on the ground and they know how operations.
We're going into a new geography and new country where we don't have legal
entity set up, we're more likely to do a JV. But it's not something that we lead with.
We do lead with it certainly on the xScale side of things, because it's a really, really
good way to develop our brand to utilize what is a great customer Rolodex and our
operational expertise to deliver for those customers, but without bringing down our
balance sheet and profitability profile. So we'll continue to do JVs on the xScale side
for sure.
{BIO 21568441 <GO>}
May be on the topic of xScale. Maybe if you can share any updates in terms of the
latest there? And I guess more specifically for Equinix, how does this structure
benefited the company in terms of maintaining and enhancing your relationships
with some of the larger cloud partners?
{BIO 1764376 <GO>}
Yes. I mean that program is ahead of schedule and continues to outperform. And we
continue to double down and triple down where we can. Last year was a really big
year for us. The customer response has been what we expected, which is can we get
more? Can we get more? And can you guys go here? Can you go here? Can you go
here?
I'd certainly like to believe the vast majority of that is that, hey, we are a trusted
partner of theirs and they want to utilize our service delivery capabilities in risky or
critical areas for themselves. The reality is, there's very few global providers that can
deliver for them. And we're -- they now have supply alternatives in these markets as
well, which gives them the ability to diversify their own supply chain and they're not
just looking at one or two players now and Equinix gets to show up.

Page 14 of 16
Q - Matthew Niknam
A - Simon Miller
Q - Matthew Niknam
A - Simon Miller
How we've shown up, by the way, allows us to be a little bit more picky and choosy,
and that's kind of -- as I sit back and reflect on how we've done the XScale joint
venture here or series of joint ventures, it's that we kind of get to go in and dictate
the terms a little bit more to our customers in this case. Like they can come and ask
us. But everything is somewhat incremental to what we've already planned. And I
wouldn't say it's a favor, nothing is really a favor. These are all commercial
transactions.
But we did -- we set an expectation that's a little bit less than what we initially --
excuse me, we set an expectation that's less than what we delivered on. And so
we're just -- we're kind of leveraging that and taking projects where we think it
makes sense, where it enhances our platform, a lot of this is we wouldn't do it if we
did -- I mean obviously it's to delight our customers, but overall it's got to be close
and a type of deployment that takes into account and leverages our platform. So we
got to have a really highly interconnected data center somewhere close that we
know that they're offloading traffic to because that's what makes sense and makes
the whole things sticky for us as well.
{BIO 21568441 <GO>}
In terms of making a platform sticky. So interesting follow-up I want to ask is, when
you think about newer opportunities for inorganic growth, we talked about the
geographical dynamic, but are there opportunities to add more capabilities of
functionality to the existing platform, so things like Equinix Metal and the like?
{BIO 1764376 <GO>}
Yes.
{BIO 21568441 <GO>}
Or are you may be more interested in adding scale and footprint within the core
data center business?
{BIO 1764376 <GO>}
Yes. So I'm the accountant in the room, so I'm going to -- if you had a product or
something out there, they would say something totally different. My personal belief
is, and this is part of our goal towards getting to 50% is, we've got to operationalize
a lot of these new investments and new things that we've done.
Keep in mind, Fabric was always sort of part of the wheelhouse of Equinix, but when
you're talking about things like Edge Metal, Network Edge, xScale, these are all very
different and new products than what the company had delivered for 25 years of its
existence. And so figuring out a way to operationalize these things and do so in a
way that provides scale and leverage is super important and we got to go figure that
out. So I am sure that the product teams will think of other products and solutions
that we can stack on and pack in here. I think the prudent thing would be to evaluate
our ability to actually develop and then deliver it relative to what we've already got
on our play.

Page 15 of 16
A - Katie Morgan
A - Simon Miller
A - Katie Morgan
Q - Matthew Niknam
A - Simon Miller
A - Katie Morgan
A - Simon Miller
But those seem like the right ones. I mean when you're talking about something like
a Metal, it really gives our customers a lot of flexibility to be in a market like within a
week and not have any operations there. And so that's a very powerful tool. We've
got servers deployed across so many metros globally, I think what's the number?
{BIO 18486096 <GO>}
18 metros.
{BIO 1764376 <GO>}
18 metros now globally, where a customer can call us up and it's like it's basically a
data center on demand for them. And as long as they sign a long enough term with
us on those servers, it's going to be a really rewarding relationship for them, but for
us financially as well. That's a very powerful tool. So if folks are going through their
own digital transformation and they want to light up services and take advantage of
something that's going on in a given market where they don't have operations, we
can step in and deliver that for them, and literally turn it on overnight. That's really
powerful and other people can't do that without very extensive partnerships that
require a series of contractual arrangements that are back-to-back and very often
don't include the customer priming with one person. And that's a lot harder to
negotiate and set up and deliver against.
{BIO 18486096 <GO>}
And I was just going to add on. When we think about our M&A strategy, we will
continue to look to expand our geographic scale and reach. But from a product side,
we're really focusing on staying below the app level, because there's many great
companies that operate higher up in the stack. And so we're really focusing on their
digital infrastructure needs.
{BIO 21568441 <GO>}
I think we're just about out of time, so I have to end it there. Simon, Katie, thank you
so much.
{BIO 1764376 <GO>}
Great. You bet. Thank you. Appreciate it.
{BIO 18486096 <GO>}
Thank you for having us.
{BIO 1764376 <GO>}
Thanks, Matt.
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Page 16 of 16
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