EQUINIX INC Q1 2026 earnings call

Good afternoon, and welcome to our first quarter conference call. Before we get started, I want to remind you that some of the statements that we make today are forward-looking in nature and involve certain risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and in our filings with the SEC, including our most recent Form 10-K and 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 our policy to not comment on our financial guidance during the quarter unless it is 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 in today's press release on the Equinix Investor Relations page at www.equinix.com. We have made available on the IR page of our website a presentation to accompany this discussion, along with certain supplemental financial information and other data. With us here today are Adair Fox-Martin, CEO and President, Olivier Leonetti, CFO, and Phillip Konieczny, SVP of Finance. At this time, I'll turn the call over to Adair.

Thank you, Ryan. Hello, everyone, and a warm welcome to our Q1 2026 earnings call. This quarter's results reflect continued strength across the business as we capitalize on a large and growing set of opportunities. Demand is broad-based and durable. Execution is driving efficiency. AI continues to fuel infrastructure investments that play to our strengths. Before I get into our results, I'd like to start with some important market context. Over the course of the past year, my conversations with customers have changed. A year ago, they were about piloting AI. Now our conversations are focused on enterprise-wide adoption at scale. Two forces are driving this shift. Inference has grown from experimental workloads to an engine of real-time business decision-making. Agentic AI is moving from demos into distributed deployments, with agents acting autonomously to achieve business outcomes.

The reality is that most enterprise architectures are not optimized for these workflows. Agents need private, low-latency paths to data wherever it lives. They perform best at the edge, closest to where the decisions get made. They must be able to move freely across models and clouds while staying within jurisdictional boundaries. Performance, cost, and compliance all suffer when today's agents run on yesterday's networks. Simply put, this deployment gap is an architecture problem. Enterprises need infrastructure that's purpose-built for the way AI operates: distributed, interconnected, sovereign by design, and in close proximity to the data that matters most. This is a market that we are built to serve. Equinix is not simply the world's largest digital infrastructure company. We are the world's most deliberately curated digital ecosystem. Our Q1 results demonstrate the progress we are making to capture the market opportunity.

In Q1, our recurring revenue grew 10% on a normalized and constant currency basis, coming in at the high end of our expectations. This is our second straight quarter of double-digit MRR growth. At the same time, we are driving continuous margin improvement. Q1 was also the largest quarter of total sales activity in our history, inclusive of annualized growth bookings and pre-selling activity. Total sales activity was up more than 35% year-over-year. We drove significant interconnection and CapEx billing growth whilst reducing churn, reflecting ecosystem strength across our key operating metrics. We are expanding our capacity whilst bringing new products to market that extend our runway for growth. Our progress stems from the extraordinary efforts of our team, and I'm proud of the way our employees are stepping up to meet the moment.

Let me now provide some color on our overall results and what's driving our performance. As you saw in our press release, our Q1 results do not include the xScale Hampton lease. We are nearing execution on expanded mutual beneficial terms with our customer. Olivier will provide additional details on how you should model Hampton. Adjusting for the timing of Hampton, our Q1 revenue, AFFO, and AFFO per share results were all ahead of our expectations. Overall, our xScale pipeline is robust given that our remaining capacity is in major metros. Our momentum reinforces our confidence in the trajectory for the year. As such, we have raised our guidance across several key metrics. I am especially pleased with the strength of the position we are building across the AI inferencing ecosystem.

The expansion of our relationships with the world's leading hyperscalers, Neo-clouds, AI security vendors, and model providers serves as a magnet for agentic AI workloads. eight of the top 10 AI model providers and four of the top five Neo-clouds are actively expanding with Equinix. They have placed more than 110 separate network nodes with us to support mission-critical and latency-sensitive elements of their architectures. Consistent with the prior quarter, approximately 60% of our largest deals in Q1 were AI-related. Additionally, large capacity Equinix Fabric connections have tripled from just a year ago. We believe there is meaningful upside to come, given we are still in the early days of the agentic AI wave and inferencing adoption. This momentum is part of a broader uptick in customer demand spanning a wide range of AI cloud and networking workloads.

Now let me highlight some recent wins and associated use cases. Qubit Pharmaceuticals, a quantum AI-driven drug discovery company, relies on Equinix for the high-performance, low-latency infrastructure required to run millions of GPU-intensive molecular simulations. By deploying a dedicated GPU cluster in Equinix data centers with direct cloud interconnection, Qubit has reduced experimental cycles by 20x while lowering costs by a factor of five. Most importantly, our solutions are accelerating the path from discovery to potential therapies that can save lives. Gammon Construction, a leading construction and engineering services company in Asia, chose Equinix because of our neutral platform, presence across major metros, and connectivity solutions to enable their multi-cloud AI platform. They are using our Equinix Fabric interconnection portfolio to power their network infrastructure, which is the base for innovative solutions such as AI-powered robotics and drones for on-site risk assessments and smarter decision-making.

During the quarter, we expanded our partnership with Options Technology, the number one provider of infrastructure to global financial services firms. They selected Equinix because of our presence in the locations that matter most to their operations and ecosystems, including London, New York, Singapore, and Tokyo. We are enabling Options Technology to deliver private cloud and AI-managed infrastructure solutions to grow their business while meeting the data sovereignty requirements of their customers. We also grew our relationship with Maersk, a global leader in integrated logistics, as it digitizes critical supply chain infrastructure. Maersk recently selected Equinix as its primary data center partner to support high-performance and AI workloads, including its first liquid-cooled AI deployment in Frankfurt. Our global footprint, secure and resilient operations, and industry-leading interconnection capabilities are supporting Maersk's ongoing network transformation and long-term growth strategy.

I'm exceptionally grateful to all our customers and partners for trusting Equinix to help move their business forward. The outcomes we are enabling for them reflect rigorous execution against our strategic pillars. Starting with Serve Better, we delivered annualized growth bookings of $378 million in Q1, up 9% year-over-year, with approximately $140 million of pre-selling activity on top of that. As I mentioned earlier, that's 35% growth in total sales activity in the quarter, resulting in a record backlog. Transaction volumes continue to demonstrate a broad base of workload requirements, with over 3,800 transactions spanning more than 3,100 unique customers in the quarter. Importantly, we also saw increased customer adoption of our self-service portal. Our portal is a key area of focus as we work to create a better customer experience.

It also drives efficiencies within Equinix compared to a traditional quote-based ordering. This is one example of our broader focus on digitizing processes and workflows across the company. Customers placed 20,000 orders through our portal in Q1, up 12% year-over-year, and we intend to continue driving enhancements to this solution. Turning to Solve Smarter, our customers consistently raise two key challenges to us. The first is AI infrastructure fragmentation. Enterprises are spending too much time and budget navigating dozens of disconnected AI model providers, GPU clouds, data platforms, and security services.

The Equinix Distributed AI Hub, which we introduced at NVIDIA GTC, solves this by giving enterprises a single, private, low-latency connection to the entire AI ecosystem. Unlike AI marketplaces built by providers with their own services to sell, our distributed AI hub is completely neutral, providing access to all models and clouds so customers can select what's best for them. The second challenge facing customers is network complexity. Most enterprise networks are not designed to handle distributed AI workloads, and it's resulting in degraded AI performance, inflated costs, and compliance risk. Equinix Fabric Intelligence solves these problems by monitoring network performance in real time, automatically adjusting configurations, and flagging anomalies before they become outages, all without human intervention. Unlike other network management tools that sit on top of the network, Fabric Intelligence is built directly into our fabric interconnection platform.

This is a structural competitive advantage given the more than 500,000 live interconnections across our ecosystem. Our innovation is extending our market leadership and driving growth. Colossal interconnection revenue was up 9% year-over-year in Q1, boosted by Fabric revenue growth of 26% year-over-year. Fabric bookings were up 70% year-over-year as our attach rate continues to increase. These growth rates are all on a normalized and constant currency basis. On Build Bolder, we continue to expand our capacity to meet demand. We have 46 major projects underway across 32 markets, including six xScale projects. More than 70% of this retail expansion CapEx is in our major metros, with the remainder focused on critical expansion markets, particularly in our Asia region. Given the strength of our pre-sales motion, approximately 25% of our 2026 retail capacity expansion has already been sold.

We continue to meaningfully grow our pipeline for new powered lands and capacity expansion opportunities that can enhance our long-term growth prospects in key metros and deliver attractive returns. We're not just growing, we're doing it responsibly. Last week, we released our annual sustainability report. It shows how we are building essential infrastructure the world needs in ways that are affordable for our communities, sustainable for our planet, and reliable for our customers. These have long been core Equinix values, and they will continue to guide our future investment decisions. In Q1, we announced an important investment in one of the world's most sustainability-focused markets as we signed a joint agreement with Canada Pension Plan Investment Board to purchase atnNorth.

Thank you for the kind words, Adair. I'm delighted to be here. Nearly two months in, I'm excited about the strength of the markets we serve and very impressed by Equinix company culture, vision, and unique positioning to serve accelerating customer demand. I look forward to helping enable our vision by prudently allocating capital and thoughtfully utilizing our balance sheet to drive durable, profitable growth. As Adair summarized, we are executing well across our business. This was the largest quarter of total sales activity on record, up 35% year-over-year, reflecting broad demand and strong execution. Customer activity increased across all of our verticals, products, and channels. Turning to Q1 results on slide seven, and with all figures discussed on a normalized constant currency basis.

Recurring revenues were $2.3 billion, up 10% year-over-year, as our bookings performance from the second half of last year is converting into revenue. Total revenues were $2.4 billion, up 8% year-over-year. Adjusted EBITDA was $1.2 billion, up 13% year-over-year, resulting in a 51% Adjusted EBITDA margin, which is up 190 basis points quarter-over-quarter and 300 basis points year-over-year. This is a result of our continued cost discipline, forward cost benefits, and scaling our operating leverage. As we have discussed, driving additional efficiency would be a focus moving forward. Quarterly AFFO surpassed the $1 billion mark for the first time, increasing 11% year-over-year, and AFFO per share was $10.79, up 10% year-over-year.

Please note that adjusted for the AmpthonXL lease signing, which I will provide details on in a moment, we came in above the midpoint of our Q1 revenue and Adjusted EBITDA guidance ranges. As Adair mentioned, we are near execution on the Ampthon/XL leases. These types of negotiations are fluid, and we have adjusted the expected timing while discussing expanded mutually beneficial terms with our customers. Here are the moving pieces as they relate to guidance over the past two quarters. Our guidance for Q4 2025 assumed $54 million of non-recurring revenue from the deal based on the original terms being considered. Our guidance for Q1 2026 included the expanded terms with an expected contribution of approximately $80 million of revenue, $65 million of AFFO, and $0.65 of AFFO per share. The expanded economics are now included in our guidance for Q2.

This timing shift does not impact our full-year outlook because the economics were already incorporated. Now to our non-financial metrics, which also demonstrate strong momentum. We increased physical and virtual net interconnections by 5,800 with particular strength in Fabric additions. We added 4,100 net cabinet billing and our backlog of cabinets sold but not yet installed is at a record level. Churn came at 1.7%, primarily due to the benefit of some delayed churn and through focus and execution during our renewal process. For the full year, we are tracking towards the low end of our 2%-2.5% guidance range. MRR per cabinet increased to $2,524, up 7% year-over-year, reflecting the firm pricing environment and continued increase in density.

On slide 12, our capital investments continue to deliver very strong returns. Consistent with prior years, this quarter we completed the annual refresh of our stabilized pool, which increased by 5 IBX data centers. Our 192 stabilized assets increased recurring revenue by 6% year-over-year, are collectively 82% utilized, and generated a 26% cash-on-cash return on growth PP&E. Turning to our capital structure on slide 10. At quarter end, we approximately had $3.1 billion of cash and short-term investments on the balance sheet, and our net leverage was 3.8x annualized Adjusted EBITDA. During the quarter, we issued $1.5 billion of senior notes at a blended effective rate of 3.1%, reflecting proactive execution in the market and our ability to take advantage of lower cost debt around the world.

Our balance sheet and diversified capital program are competitive advantages in all macro environments, particularly so in the kind we see today. In combination with significant retained cash flow, we continue to access lower cost sources of capital to fund our robust growth opportunity. Looking at CapEx on slide 11. Total CapEx for the quarter were about $1.3 billion, approximately 90% of which was growth and value accretive capacity expansion. We continue to expect mid-20% unlevered cash-on-cash returns on investment. Since the last earnings call, we opened six projects, adding critical capacity to meet demand across six metros. Before we get into guidance, I'll briefly address the energy environment given developments in the Middle East.

We systematically hedge energy costs to provide predictability to our customers and broader stakeholders, particularly in volatile periods. Globally, we are more than 90% hedged for 2026, and as usual, we are progressively edging into the future. As a result, we expect minimum impact for 2026, even if energy prices were to remain elevated. Finally, please refer to slides 13-17 for an update of 2026 guidance with all growth rates discussed on a normalized and constant currency basis. Based on the robust environment and the team's execution, we are raising guidance across key financial metrics. For the second quarter, we anticipate continuing strength across the business, including MRR growth of 10%-11% year-over-year. For total revenue, the largest piece to consider is that it includes the expanded economics from the atNorth xScale lease signing that I provided a moment ago.

Again, please know that these economics were already included in our guidance for the full year. They simply shifted from Q1 into Q2. For the full year, we're raising total revenue guidance by $21 million based on our Q1 outperformance, improving expected total revenue growth range by 100 basis points to 10%-11%. We're raising Adjusted EBITDA guidance by $24 million, resulting in Adjusted EBITDA margins of approximately 51%, a 200 basis point improvement over last year. Additionally, we are raising AFFO guidance by approximately $40 million, improving our expected AFFO growth range by 100 basis points to 10%-12%. This corresponds to a similar 100 basis point improvement in our expected AFFO per share growth range to 9%-11%. We continue to execute on our capacity expansion to meet robust customer demand.

Excluding xScale and land acquisitions, we now expect total capital expenditures to approximate the top end of our prior range at $4.1 billion, including $280 million-$300 million of recurring spend and approximately $3.8 billion of non-recurring spend. Given our confidence in the growth opportunity in front of us, the team continues to evaluate opportunities to accelerate our capacity to deliver growth and value to our shareholders. Overall, we are pleased with our progress and confident in our plan. We will continue executing with discipline to deliver on our goals and create shareholder value. I now turn the call back over to Adair.

Thank you, Olivier. Our Q1 results demonstrate strong performance. Our outlook reflects underlying strength across the business. We see immense opportunity ahead to drive revenue, enhance margins, and deliver attractive AFFO per share growth. We take nothing for granted. Our continued success demands focused execution against our strategic priorities and disciplined investment to unlock structurally higher returns. Above all, it calls on every member of our Equinix team to deliver exceptional value for our customers each and every day. This is the mindset guiding us forward. I'm confident in our direction. We are well-positioned across our markets. We are building momentum in key growth areas. We remain focused on delivering against the goals we have set. With that, let's open the line for questions.