EQUINIX INC Q2 2025 earnings call

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, as well as those identified in our filings with the SEC, including our most recent Form 10-K, filed February 12, 2025, and our most recent 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. On today's conference call, we will provide non-GAAP measures.

We provide a reconciliation of those measures to the most directly comparable GAAP 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 from time to time and encourage you to check our website regularly for the most current available information. With us today are Adaire Fox-Martin, Equinix's CEO and President, and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we will be taking questions from sell-side analysts. At this time, I'll turn the call over to Adaire.

Thank you, Chip. Hello, everyone. Good afternoon and a warm welcome to our earnings call for the second quarter 2025. Our Q2 results demonstrate that our strategy is meeting the opportunity. This is evidenced not only by strong financial metrics but also by our continued customer momentum and strong delivery in key areas of our business. By way of highlights, first, from a financial perspective, the Equinix team delivered. In Q2, our revenues, adjusted EBITDA, and AFFO were all in line with or better than expectations. This performance was underpinned by strong recurring revenue growth and solid operating flow-through, resulting in adjusted EBITDA margins hitting 50%. Second, our relevance to existing and new customers continues to deepen. In Q2, we closed 4,100 deals across more than 3,300 customers, resulting in $345 million of annualized gross bookings for the quarter, a new metric that we disclosed at analyst day.

Our teams delivered this performance through strong small and medium-sized deal activity, with a notable uptick in inter and intra-region sales, all whilst maintaining favorable pricing across deal sizes. Third, our performance translated into solid non-financial results with substantial net interconnection additions, solid cabinets billing led by the Americas, and strong MRR per cabinet yields. Our diverse interconnected ecosystems continue to drive industry-leading returns, as seen in the performance of our stabilized asset portfolio. Now, before we take a closer look at Q2, I want to focus for a moment on our long-term vision. It was a pleasure to connect with many of you at our analyst day last month. At that time, we outlined the opportunities we see in the market across AI, hybrid and multi-cloud, and networking.

We presented the strategy we have defined to unlock these opportunities and against which we are already rapidly executing, and we shared important financial guidance for the next five years. Since analyst day, we have had a fruitful dialogue with many of our shareholders and analysts to listen to your feedback and to answer your questions. With those conversations in mind, I would like to offer some key points of clarity on the build-bolder component of our strategy, whilst Keith will provide additional commentary on the long-term financial outlook in his remarks. First, as outlined on slide six, our capital expenditure is about capacity expansion with the aim of accelerating revenue. The vast majority of our investments over the next five years are expected to be allocated to our future growth.

This includes the purchase of land, the construction of new IBX data centers, investment in our xScale joint ventures, and developing our digital product offerings. As I outlined in my presentation at analyst day, we see a significant addressable market opportunity in front of Equinix, and this opportunity is affirmed by the demand signals from our customers. Our customers rely on Equinix for the digital infrastructure necessary to support and scale their AI models. They look to us as they embrace hybrid and multi-cloud strategies for their application architecture. Our customers are the motivation for the expansion and scale of our capital investments. Second, only about 1% of our non-recurring capital expenditures will be allocated to the redevelopment of select high-value IBX assets.

The redevelopment of key ecosystem facilities like Washington, D.C., and Miami One will not only extend the economic lives of these assets, but at the conclusion of these projects, we believe we will be able to yield meaningful additional space and power capacity at attractive returns. Third, with regard to returns, we expect to underwrite our investments in assets that will yield approximately 25% at stabilization, in line with our current stabilized portfolio. Our growth investments are intended to skew towards our major markets, where we generate over $100 million in annual revenue. By prioritizing our large markets, we can leverage our diverse and deep customer relationships and our in-place operating capabilities to de-risk our investment plans and drive efficiencies at scale.

Finally, with regard to timing of revenue, whilst it takes approximately 18 to 24 months to build a core, shell, and first phase of an IBX asset, we are anticipating an accelerated path to stabilization relative to historical trends. Hence, whilst we guide it through 2029, our near to medium-term investments will support our durable growth beyond 2029. We see a path to drive the business to double-digit revenue growth as our build-bolder strategy becomes fully operational. Our capital expenditures and data center expansion are grounded in the demand signals we see from our customer base. Organizations are moving beyond the experimentation and pilot phase of AI adoption into the phase of agentic integration and automation. Many of our customers have deployed AI centers of excellence. These teams are working to establish standardized governance, policies, and TCO-based management of enterprise AI roadmaps.

These are the necessary prerequisites to enable the scaling of agentic use cases and their integration into core systems, resulting in always-on AI that is compliant to policy. The use cases that we see are far-ranging, from those that are grounded in privacy and sovereignty requirements to use cases requiring distributed delivery and secure interconnection, to those that have at their core predictable performance coupled with neutrality and control. Customers' priorities are unique, but Equinix is uniquely positioned to address these priorities. Alembic, Block, Bristol-Myers Squibb, Continental, Harrison AI, and ServiceNow, amongst many others, are working with us to support their AI ambitions and their growth objectives. As I noted at our analyst day, we firmly believe that Equinix has been built for this moment. We are investing in our future, in service to our customers, and in service to the opportunity ahead.

Through these efforts, we believe we will continue to deliver attractive revenue growth, expanded margins, and accretive value to our shareholders over the long term. Now, I would like to take a closer look at our financial results for the quarter and our customer momentum. As a reminder, the growth rates shared are all on a normalized and constant currency basis. In Q2, we delivered revenues of $2.26 billion, up 5% year over year. This was driven by strong recurring revenue growth, up 7% year over year, the result of our continued strong bookings performance. As previously stated, our second-half outlook implies underlying recurring revenue step-ups, a reflection of our strong first-half bookings and conversion of backlog. For non-recurring revenues in Q2, we had lower xScale fees, which was as expected and planned for.

Based on our current pipeline for xScale and consistent with our initial full-year guidance, we are anticipating a meaningful step-up in NRR in the second half, more specifically in Q4. Adjusted EBITDA margins increased to 50% of revenues for the first time in our history. AFFO per share increased 8% year over year. In both instances, results were above our expectations due to strong operating performance and lower-than-expected SG&A expenses, in part due to the timing of spend. Keith will provide additional insight into these numbers shortly. Turning to our customer momentum, we continue to cultivate and win opportunities across our product set and in service to the enduring demand for AI, hybrid and multi-cloud deployments, and networking requirements. Lyceum Technologies, a German GPU-as-a-service provider, recently added a liquid-cooled AI deployment in EMEA to bring automated cloud experiences to their customers.

Schneider Electric chose Equinix to lower the overall carbon footprint of their digital infrastructure as they build out a multi-cloud solution leveraging Equinix Fabric Cloud Router. Woolworths, the largest retailer of food and everyday essentials in Australia and New Zealand, has developed a payments platform called WPay, utilizing HPE GreenLake and Equinix IBX data centers. This end-to-end solution features a robust architecture that not only offers scalability but also enhances cost efficiency for both WPay and its merchant partners. eBay leverages Equinix to ensure low-latency connectivity and high performance for its global marketplace with distributed network hubs. This infrastructure enables eBay to deliver a seamless user experience, reducing delays and optimizing interactions for buyers and sellers worldwide. Finally, SLR Lux Optica, a global leader in advanced vision care products, eyewear, and medtech solutions, chose Equinix to enhance operational efficiency and support seamless global expansion with high-performance connectivity.

This breadth of customer use cases across geography, segment, industry, and product set underscores the distinct value of Equinix and the diversity of the opportunity ahead. We intend to build on this momentum through the remaining quarters of 2025 and beyond. We continue to execute against our three strategic moves in pursuit of our long-term accretive growth ambitions. Our Serve Better strategic move is focused on our customers, who are at the heart of everything we do. The differentiating force behind Serving Better is our Customer and Revenue Organization. I would like to take a moment to welcome Shane Paladin as our new Chief Customer and Revenue Officer and a member of our executive team. Shane brings with him over two decades of global expertise in go-to-market strategies, close collaboration with product organizations, and the delivery of transformative results.

I'm also pleased to share that we are already off to a strong start in Q3. Through pre-sales from prior quarters and continued momentum from our sales team, as of yesterday, we have closed more than 40% of our bookings plan for Q3. We have a strong pipeline to support our remaining bookings ambitions for the quarter. Looking forward to Q4, our pipeline is the most robust we have seen and speaks to the demand in the market for the products and services offered by Equinix. As we work to solve smarter, we are focused on simplifying the consumption of our digital infrastructure and interconnection solutions for our customers. Our industry-leading interconnection franchise continues to perform well. Interconnection revenues grew a healthy 8% year over year on a normalized and constant currency basis, crossing $400 million of quarterly revenues for the first time.