Welcome to our 7:55 A.M. session at Citi's 2023 Global Property CEO Conference. For those of you I haven't had an opportunity to meet, I'm Michael Rollins from Citi Research, we're pleased to have with us Equinix and CEO Charles Meyers. This session is for Citi clients only. Media or other individuals are on the line, please disconnect now. Disclosures are also available on the webcast and at the AV desk. For those of you in the room, or on the webcast, you can sign in to liveqa.com and enter code Citi 2023 to submit any questions if you don't wanna raise your hand. You do like to participate here live in the session, just click the button on your microphone. It'll turn up red, we'll get your questions incorporated into our discussion today. With all those details out of the way, Charles, great to see you. Welcome back. Thank you. I'm gonna turn it over to you to introduce your company, any members of the management team that are with you today, and provide any opening remarks. With that, we'll get into the questions. Sounds good, Mike. Thank you. Mike came down to say hello. Didn't realize he had a 5-minute walk back. It's great to be here. Charles Meyers, CEO and President of Equinix. I'm joined by my awesome IR colleague, Katie Morgan, excited to be here with you today. I will make sure that I don't get in hot water with Katie by saying that some of what I will talk about is forward-looking. If you're interested, check out our riveting disclosures on our website. Great. You know, maybe, to get us started, the first question we're asking the companies attending our conference is what are the top 3 reasons an investor should buy your stock today? Yeah, Mike, I think there is a few things. One, I think the secular story on digital infrastructure continues to be tremendous. A bunch of things driving, I think, continued demand and what I think is gonna be there for a very long term picture in terms of how people are thinking about digital transformation. I think the secular story is one. Second, I think relative to Equinix in particular, I think it's a very differentiated, very durable story in playing into that demand. I think, you know, we continue to be the best manifestation of the digital edge and how that's playing into how companies are thinking about their digital infrastructure and implementing hybrid and multicloud as the architecture of choice, I think gives us a really big opportunity to go after. Then third, I think, is just strong execution. I think the team has really delivered exceptionally well with a really a track record of delivering durable growth. I think we're delivering not only nice dividend yield and growing dividend yield, but also, you know, tremendous FFO per share growth. Very exciting times for the business and I think a real opportunity. How would you characterize the demand environment today, with respect to a few areas? You know, the first would be the customer verticals that are driving the bookings. The second area would be the pricing environment. The third area would be the visibility on how long this strength of bookings or revenue growth can continue. I think the overall demand environment continues to be quite robust, even in the face of, I think, a macro circumstance and conditions that is causing people to say, "Hey, we've gotta really think about what this all means for us," an environment of what I would consider belt-tightening more broadly. Yet I think in the face of that, they are still very committed to digital transformation as a driving force in their strategy. I think very committed to, you know, implementing that and investing in that. They're also making sure that they're doing that as, you know, as efficiently and effectively as they can. I think we actually play an important role in that. In terms of verticals, we have seen actually tremendous strength across a range of verticals. Service providers as a sort of broad segment continue to generate strong demand in pursuit of the enterprise dollar. The enterprise itself, you know, interestingly, if you know, look at and read our earnings or, you know, follow our calls, it seems like every quarter we're talking about strength in a different vertical. We're seeing everything ranging from, you know, retail, financial services, you know, travel and transportation, you know, all kinds of different use cases because we're seeing a very, I would say, horizontal use cases in terms of what is driving demand. Implementation of hybrid and multicloud as the architecture of choice, you know, cloud proximate, cloud adjacent data and how people are thinking about that and using AI, you know, wide area network transformation, network transformation broadly, all things that are very relevant across verticals. We're seeing real strength across a range of verticals. In the pricing environment, I think we are, you know, perhaps somewhat unique or certainly advantaged in this regard. I just think the depth of our value proposition, the ability or, you know, our differentiated position, people can't duplicate what we have. I think it also is a very important although interestingly, in terms of their total ticket on their digital transformation, we actually generally represent a relatively smaller portion of that ticket, and people are willing to pay, you know, sort of, appropriate, rates in line with the value that we create there. I think we've seen, you know, very durable pricing. Over time, we have had a lot of history of demonstrating that our business is very durable, and then the demand is quite inelastic, you know, relative to pricing. In terms of the visibility, you know, how would you rate the visibility of that forward demand, given, you know, macro factors that you were referencing a little earlier? Yeah, you know, visibility looks good, and we talked about in our last earnings call, you know, overall pipeline. We've actually really improved our ability to generate multi-quarter pipeline, and to track it better has been a real priority from us from a sales execution standpoint. I think the team has done that very well. Again, we're now as we see people having nailed down 2023 budgets and even multi-year budgets, really very committed to digital transformation, and again, seeing us as a very relevant piece in that picture. I think they are, they're even looking at how they're spending in other areas from a digital perspective, public cloud, for example, and saying, "How can we, you know, further optimize what we're doing there, be even more effective in using it?" I think they continue to be very committed, by the way, to public cloud, as a primary home for workloads. I think they are, they're also saying, "How can we do that even more effectively than we have thus far?" I think we see, we see good visibility, but I do think, you know, I mentioned this on the call, I, we had heard another, you know, CEO reference it as customers who are sort of measure twice, cut once, and they're thinking about how they're buying and how they're optimizing what they do buy. We definitely see those types of behaviors as well in terms of people saying, you know, maybe they are not, before they were maybe, buying a little more than they needed, now trying to buy, you know, right, exactly what they need and trying to be as efficient and effective, as they can in their buying. Just back to the pricing point you're making. You're talking about the history of pricing that Equinix has been able to benefit from. Can you give us some examples or some quantifications about how that pricing environment today with the inflationary backdrop is different and affecting the results relative to maybe what it would have been, you know, a year or even a few years ago? Yeah. No doubt that it is a, it is a more acute environment from a pricing, you know, from a price change standpoint than people have seen. That's partially due to, I think people who watch the story closely know that on the power side, power is having a meaningful impact, particularly in Europe. It is a bit isolated, and we've actually, you know, we price that differently. We have a power price increase clause in our contracts that allows us to pass that through to our customers. We've been through a very long process over the last several quarters with customers in helping them understand, you know, where that is, how we have hedged into the current sort of utility cost environment, what that means for them, and what it will mean going forward. They are seeing an increase. It can be, you know, it can be more substantial depending on how concentrated their deployment might be in higher rate in markets where the rates have increased even more substantially. Then there are other elements, inflationary elements in the story in terms of or in the picture, where we have actually increased list pricing as well, both on interconnection as well as space and power. They're seeing some level of that. You know, we have seen people, you know, with, you know, again, depending on the range of their deployment and the scope of it, scale of it, et cetera, seeing sort of small, smaller single-digit increases, you know, even low single-digit increases in their overall price, you know, up to people that in certain areas, if they have, you know, a very concentrated deployment in Europe, in particular markets may see 20% or more. It ranges widely. Again, we've gone through this where we raised pricing on interconnection in Europe over the last several years in a very meaningful way and saw very little fallout. We got the exact same questions that I get in every one of these things, in which I'm sure I'll answer, you know, 150 times over the course of today, you know, that says, "Hey, what is, you know, how do people respond to that?" The same questions in terms of, are people gonna churn? We simply haven't seen that. You know, our interconnection business performance in Europe has been as strong as it's ever been, and that's driven more by our increasingly favorable mix of business to the sort of retail sweet spot, partially driven by our xScale decisions in how to you know, how to generate off-balance sheet capacity to handle the very large workloads. That's worked very well for us. We, we just haven't seen that. You know, people are, you know, they're not, as I said, they're generally not sending you a thank you note on the price increases, they understand them. They understand the rationale for them and why they're there. They also really appreciate the predictability that they get in terms of power pricing due to our hedging strategy. We feel, we said in the call that we feel very confident we're gonna recapture, you know, fully that increased cost. Again, we continue to maintain that position and feel very good about it. As you're a few months now into this, transition to passing through those energy costs? Are you seeing any changes in customer behavior where they're paying the bills, but maybe they're inquiring to Equinix or trying to think about how to optimize that footprint a little further and try to save money in a different way? Sure. Yeah, you know, I talked a little bit about it in the earnings call. We had seen a little lighter quarter from an interconnection add standpoint. A few factors going on there. One is that this ability to sort of aggregate up to higher port speeds is much easier on the virtualized platform that we currently have. You see some of that. You also just see that people, when things get tight, they go look for ways to turn down costs. We generally are a, you know, we're on a recurring revenue multiyear contract. It's not a usage-based service generally. There are a few very small exceptions to that in our business, but what they will look is say, you know, is are we using everything that we have? What's our utilization? If they have 100 kilowatts of power, what are they drawing? Whereas they might not have been as focused on that, they might go back and say, "Hey, looks like we're only using 70. Would, you know, can we turn down that 30?" The good news is that we can say, "Not yet, and we'll talk about that on renewal." We can say, "Yeah, we can probably sell that 30, at a meaningfully higher price than what you're currently having it in. Yes, we'll take it back." We're doing that kind of thing all the time. I think actually our ability to optimize our business and maximize sort of our earnings from the or both our revenue and profits from the from the capacity that we have deployed has really improved dramatically over the last decade. Oh, please. Charles, how are you approaching renewal pricing? How are we what? Approaching renewal pricing. Renewals are, you know, again, we're getting, we're making sure that the renewal pricing is in line with appropriately our new list pricing. We also are looking at escalators being higher. Typically an escalator wouldn't kick in until a second, you know, a second year of a renewal. It really depends a lot on how long that customer has been, you know, in place. I, you know, it's interesting 'cause the way I would answer that question, you know, 18 months ago, was typically on a renewal, particularly if it was a five or seven year deal, a customer that had a 3%-5% escalator may have you know, sort of, climbed above the market. They, they might sawtooth down to a market rate, and that's what you would see as a typical renewal pattern. Not so much the case anymore. In terms of them, they might, they might actually see increases at renewal. Depends on how long they've been there and what their prevailing rate is. We've, you know, It really, it really depends significantly on what their, you know, what their, what their overall... It does, it depends by market as well. If you were to quantify that over the next 3 years, are you talking like mid-single digit, high single digit renewal pricing increases? I mean, I think the way to think about that is we're I mean, renewal rates, again, it can vary dramatically, but if you look at our stabilized, you know, assets and how they're performing, you know, we're talking about, you know, 3%-5%. Actually, they've been a little higher than that, more like 6% on the recurring revenue side. I think that's a bit of a reflection of that. That's probably a range that you might see those in. Again, you could easily see, you know, higher than that, and you could easily see lower than that. One comment, you just made earlier was on the grooming of interconnection. Uh-huh. A question that we've been getting from some investors, is that temporary, and how should investors think about the growth of interconnection going forward? Yeah, great question. I think there are elements of it that are more temporary. For example, true grooming, which is, hey, I got a budget. Somebody gave me a new budget. It's not as it's tight, and I gotta go figure out where to save money. Say, going and saying, "Hey, if I have a portfolio of 1,000 interconnects with you, I'm gonna go look and make sure that every one of them is carrying traffic, and anything that's not, I'm gonna turn down." That is more of a non-recurring phenomenon, and it happens when things tighten up. I think we saw a little bit of that. I think that the... There is something that is probably more durable in terms of and it's impacting units, but not overall traffic, and that is disaggregation to higher port speeds. If you look at the demand that cloud providers have had, it's interesting 'cause we, as you might imagine, we get a lot of questions around, hey, what's the current environment in public cloud? Is sort of a slowing demand there? Which is, I would love to have their slowing demand in terms of% revenue growth. It's, they, you know, is that impacting you? I think that what we have seen, it's a little hard to distinguish between the two, you're seeing that they, you know, most of them have the capability. They're almost all aggregated up to 100 gig port speeds, right? You know, already. Their ability to add traffic can be done with fewer units. You're seeing a little bit of that dynamic. You know, we're still seeing strong revenue growth. You know, we were 13% year-over-year on the interconnection side, you know, continuing to grow meaningfully faster than the overall base of business. I think there's a combination of factors maybe that are occurring, some of those being much more temporal than others. You know, you mentioned just the slowdown of cloud, and then there's some of the data points that come from the semi supply chain in terms of chips that are in semi material that's heading for the data center vertical. Can you share, you know, how that may or may not affect your business, the bookings, the growth that you're experiencing, and how investors should take those data points in stride for the Equinix outlook? Sure. Well, you know, let me take them a little bit separately. You know, as it relates to supply chain, I think the key question has been twofold, which is one is, are we going to be able to deliver capacity on time relative to supply chain constraints, that kind of thing. Secondly, at what cost? Candidly, I think we feel very good on both of those dimensions. I think our, because of our scale, our scope, and some of the investments we've made in our procurement capabilities, I think we have been able to very effectively manage. We've seen very, limited, you know, demands in terms of customer-ready dates for our, for our data center capacity. So, you know, we've seen some hiccups. Candidly, more of them related to labor on the and sort of COVID-related labor issues, and now just tighter labor markets in terms of GCs and those kind of things, but less issues on the supply chain side. Although costs are rising, no doubt about it. The, that is, that rolls through in the form of, you know, raising our list prices, because we're still underwriting to the same general return profile that we have and still feel very good about that, and our fill rates continue to support that. That's, you know, that's sort of the supply chain in terms of our ability to deliver capacity. en, you know, in terms of demand, you know, the broader demand picture, and what others are seeing, again, we play a very unique role in terms of how people think about hybrid and multicloud as the architecture of choice and how they're thinking about implementing things like cloud-adjacent data for AI. I think that our, you know, there are some linkages between other demand profiles in adjacent sectors, but I don't think they work, you know, sort of in a one-for-one kinda way Honestly, our business with, you know, with cloud providers, with other technology providers continues to grow very, very well, and the enterprise buyer continues to see what we do as quite relevant to how they're going to, you know, sort of do more with less, and drive long-term advantage. With respect to the hyperscale opportunity, are there any observations there that are different in terms of what you're seeing in demand and pricing for the hyperscale business? Yeah. Well, I would say a couple things. One, we have a very multifaceted relationship with the hyperscale customers, you know, ranging from really the provider of choice, I think, for the most part, Al, as it relates to network nodes and key capabilities in terms of how they architect. Still the market share leader in private cloud on-ramps with over 40%. We talked about in our earnings call, and this is one I always love to talk about and feature. You know, we have, I believe it's 12 markets around the world with private, native private cloud on-ramps to the top five cloud players. No single provider has more than Has the most that anybody else has is one. Your ability to sort of be get geographically distributed native private cloud on-ramp is, you know, Equinix is really the place. We have those dimensions. We, you know, we serve them also in their large footprint needs through the xScale joint venture with GIC and PGIM. That business continues. We continue to see strong demand actually across that full portfolio because I think when you look at hyperscalers, you know, people are sort of saying, "Oh, you know, that's, you know, are we in..." You know, I've heard people say things that seem really crazy to me, like now we're in the later innings kind of thing, and you're like, I don't think that's even remotely close to true. They're adding, you know, $15 billion annually of incremental, recurring revenue, you know, this year. You know, something on that order. It is still, I think, a tsunami of demand, bringing workloads from the current sort of enterprise data center IT 1.0 model to a hybrid and multicloud, you know, future. I think that demand is gonna continue to be. They're acting like that demand is gonna continue to be there because they're, you know, we have a very, very robust pipeline, you know, across the hyperscale. The last element of our relationship with hyperscalers is really as go-to-market partners. This is a really interesting one because they, of course, would like to convince everybody that every workload should go on the public cloud and in their, you know. The reality is, and I just came off of a really nice week with customers, and I will tell you that is not what customers are telling me. You know, I think that they see hybrid and multicloud very much as the architecture of choice. As these hyperscalers are in these large-scale sales cycles, they are often, you know, faced with the reality of, well, look, I want to do a big deal with you. How am I gonna deal with my private infrastructure, my cloud-adjacent data, et cetera? We're often drawn into those sales cycles. They're amongst our largest and most effective channel partners. On the ESG front, what's the number one priority for 2023? Well, the way I'd characterize it, there's a lot going on there, we're making meaningful investments and our, I think our priority has to be continue to be the number one partner that can help our other stakeholders meet their sustainability objectives. That means us continuing to lean into a leadership position. I think we've got a pretty bold sustainability agenda, you know, and that is true both on environmental, where obviously really important to our customers and our investors, candidly. Our customers see us as central to them achieving their objectives 'cause so much of the sort of Scope 2 emissions, you know, come from us. Being out in front of that, I think is gonna be critical to our long-term success. We've, we've got a lot going on in the environmental front. But I also, I think on the, you know, social sustainability, we announced the Equinix Foundation with a commitment to really, tackling the digital divide globally and in the markets that we operate in. We continue to invest in making Equinix a place culturally where that is diverse and inclusive and where every person every day can say, "I'm safe, I belong, and I matter." I will tell you that those things have really mattered in our pursuit of great talent. They want a workplace as, one, where they believe in the mission, and two, where a culture that energizes them every day. Question that we've gotten, from our group is what is the opportunity with AI, you mentioned that a little earlier, given the significant level of compute necessary, and is Equinix a way to play ChatGPT? Yeah. I would say that. Look, I actually think there's a much broader range of things going on in AI. I know ChatGPT is sort of the rage relative to a media frenzy standpoint. There is a, you know, people have been investing in AI aggressively for the last several years to generate business insights and business value and differentiate their business vis-a-vis the competition. That's been going on for some time. We've had a multi-year relationship with NVIDIA that, you know, sort of, and, you know, Jensen talks about, you know, democratizing AI and Equinix being an ideal sort of venue to do that. You know, cloud adjacent data, people really are realizing that they want their data, you know, at the intersection of the cloud. We're, you know, we're investing heavily in that area. We continue to see that as a really strong demand. It's both storage and compute. If you really dig into AI in terms of how models are trained and then subsequently used, you know, there's a big range of opportunities, some of which really fit our sweet spot and some do not. Like, training of models can often be not as much of a sweet spot because It's done more kinda offline. The using models and generating insights from them is very much in our sweet spot. That's, you know... Typically what you find is that people are taking data from endpoints, whatever those endpoints might be, point-of-sale terminals, mobile phones, you know, actual end, customer, either customers or employees that they have. They need to ingress that data over networks. They need to intersect that data with other third-party data 'cause they want their own, and they want to intersect with others. I'll give you a really cool example, right? Which is, you know, a customer that was in the sort of home improvement area, and they were trying to figure out how to optimize the profits they get from flowers. They needed to intersect their data with weather data to figure out where to actually ship flowers to maximize you know, sort of profits. It's just a really cool example of somebody says, "Okay, I need to actually now use third-party data, intersect it with my data, ingress it, generate the insight, and then egress it back out to the people that can act on it." Equinix tends to be, you know, just very well positioned to sort of act on and support those kinds of use cases. Equinix has been building financial flexibility on the balance sheet. you and the team have talked about that on the earnings call. Beyond the development goals that have already been guided to for 2023, how does Equinix plan to use this flexibility going forward? Yeah. I mean, I'm super proud of the team and they've done exceptional work in terms of, you know, we had an objective to build a fortress balance sheet and to prepare for, you know, whatever circumstances might come our way. I think over the last several years, I think we've learned the importance of being ready for anything. So I do think that, you know, we find ourselves in an incredibly enviable position in terms of both our cash position now, the additional leverage available to us. We're still, you know, we're really low on the leverage side, and have additional firepower there should we need it. I think our first priority in that is gonna be continue to invest in our organic development. you know, we have 49 projects in 35 markets around the world, selling into or, you know, building into markets with very predictable fill rates. I think that's gonna continue to be, you know, our, probably our first priority. but also, you know, I think people can see that we've been active about using M&A, you know, to continue to extend our leadership position in the, in the digital edge. and there are definitely markets that we see real opportunities to continue to extend that reach or expand our scale. I think it'll be a combination of those things. and, you know, but I think we feel really good about what's out in front of us there. Could I ask a question on margins? We've got our rapid fires, but in between the margin question, we'll take a question up there, then we'll hit margins and rapid fire, please. Thank you. When you compare owned versus leased real estate, well, I trust you love your children equally. In environment of increased constraints on supply, power, et cetera, what's your predilection going forward? What looks better, owned versus leased, and what are some of those constraints you see in terms of new development, please? Sure. Great question. Undoubtedly, owned is better for us, right? We prefer that. In fact, we've made huge progress now. We're well up to 60% of our revenues through owned. By the way, that's gonna sort of naturally trend that direction because our development is biased towards the owned side of things. That's just because in many cases, that's what's available. That's where the demand is, right? Lastly, I think our balance sheet will also. Actually, that's a third area that I didn't mention, using our balance sheet, both for strategic land banks and for, where appropriate, buying our leased assets and converting them to owned. Those are things that we'll continue to use the balance sheet for as well. I think that's gonna be the bias. I think it's gonna continue to rise. It will rise slowly, but that's certainly our preference and that'll be a priority for us. In your bailiwick of M&A, it might include an entity that owns a lot of the real estate? Yeah. If we, you know, if we have. Look, sometimes you just can't buy it. There's just. It's in the hands of people who have absolutely zero interest in selling it. As long as we have long-term strategic control, then we're good with that. You know, if we can buy, properties that we lease today, at a price that we feel like is, you know, fair, then we will, we absolutely will look at that. Thank you. On the margin front, and then we'll leave a minute for the rapid fires. Sure. You know, if you can share with us how investors should think about the margin progression for your business. You've had long-term margin goals outlined in the past. Yep. What's the right way, given the growth and opportunities for investment that you see, that investors should think about that margin progression over time? Yeah. I'll start with the same statement that I've made sort of many times, and that is that, you know, we view our lighthouse metric for us as AFFO per share. That combined with dividend yield is what we think is the value creation engine for investors. That's what we're really focused on. Margin is an important metric and one over time that we believe will be central to achieving sustained AFFO per share growth. I think we, as a management team, believe that long-term value creation is really what we have to be focused on. Sometimes that means that investing in the business, and reinvesting some of the scale benefits that we're seeing or the leverage, the operating leverage, is an appropriate call. This year we actually would have seen probably progression to about 48-5, absent the power sort of hit that we're taking, which it takes you to an as reported of about 45. But normalized would be 48. It would've been 48-5, but we've kinda reinvested part of that back into really back into the go-to-market engine for the most part, given the strength that we're seeing. We were on track to add probably more than 100 quota-bearing heads. Again, that's all a result of looking at the pipeline, the conversion rates, the, you know, our quota achievement, all those kind of things, and saying, "Hey, we can be effective, and generate a pretty quick return, with more feet on the street." That's what we've done. We will continue to focus very much on operating leverage. We have a number of projects that are generating that, and then we will decide, you know, how much of that to drop through, and how much of that to reinvest. You'll hear more on that, when we come to Analyst Day in June. Okay, we're gonna have rapid fire in true style here. Okay. What will same-store NOI growth be for your property sector, not your company, in 2024? Yeah, I would say 3%-5%. We'll probably be at the high end of that ourselves. What is the best real estate decision for you today: buy, sell, build, redevelop, or hold? Build and hold. Will your property sector have more, fewer, or the same number of public companies a year from now? Well, there's not many left, so it's hard to get a lot fewer. I think same is probably your best bet at this point. Charles, anything that we didn't discuss today that you just wanna share in our final few moments? No, I think we hit the highlights. We're, you know, continue to be excited about the prospects for the business going forward and always enjoy coming and getting our congressional testimony in. Thanks for being here. All right. Thanks. Thank you.