Charles Meyers: I would still characterize it as quite early days because I do think there is a ton of interest in AI, but I think that the actual execution of implementing infrastructure, driving workloads, etc. is I think still relatively early in the cycle. Now, I do think there is a lot of attention on really large-scale training workloads, and I do think we’re seeing some of the demand in our xScale business being driven by demand from hyperscalers, which again are the largest customers of our xScale offering. And so I think that is probably ahead of the game, but I think what we’re now seeing is a really rich pipeline of enterprise training opportunities, as well as inference opportunities where inference is more distributed.
And we’ve been saying this all along, I think that’s where the unique different creation of Equinix is likely to be because of our highly distributed footprint, and because I think we bring that blend of capabilities to the table not only xScale. And we did see an uptick, I will say this quarter, in larger footprint opportunities, and I think some of that is really associated with AI-related workloads, both service provider and enterprise. And so we’re seeing a little bit of a different mix. I think still relatively early, but I think a lot of room for optimism in the AI opportunity overall for us.
Operator: The last question comes from Simon Flannery of Morgan Stanley.
Simon Flannery: Charles, best of luck with everything. I wanted to come back to the cabinets if I could. I think you mentioned, Charles, at one point that you are limited for capacity constraints in certain key markets. If we look at the overall utilization, we’re seeing 78%, 79%, and that’s down year-over-year. You’ve added a lot of capacity over the last few quarters here. So just help us unpack that a little bit because it looks like, at least, on an aggregate level, where are the pressure points here and what’s the opportunity to relieve those.
Charles Meyers: I mean, I think there’s a few markets around the world that we have recently added capacity or it is around the corner. A great example would be the New York Metro where we are already pre-selling capacity in that, but don’t yet have as much available to actually bill into as we would like. And so I think that’s a classic area of constraint. We’ve also seen, of course, Singapore is a more, I think, more protracted area of constraint in the business. And it’s one of the reasons why we talked about our sustainability efforts there, which were quite central in our ability to gain incremental capacity to sort of awards, if you will, from the Singaporean government. And so I think that one’s going to be a little bit of a longer slog for us.
And I think, unfortunately, it means that we’re going to have to continue to be opportunistic about churn and trying to rerate that and use that to continue to serve the capacity that is most critical there. But those are a couple of key examples. What might be some of the other ones, Keith, you already had some constraints there?
Keith Taylor: Overall, I mean, if you look at some of the Canadian markets, it’s not so much a constraint of generation, it’s a constraint of distribution, and so Northern Virginia is an example of that, some of the Canadian markets, the Irish market, the Dublin market is another place. And so overall, it’s sort of trying to optimize the environment as Charles alluded to, Singapore being that perfect example of deciding how you want to rerate the space and being very disciplined about what we sell, notwithstanding just a general thought about introducing a lot of new capacity into new markets, second tier, third tier markets for us. And they take longer to ramp, while at the same time, you have these major metros around the world where we’re in dire need of incremental capacity.
And so that’s what we’re investing in. And so it’s really trying to optimize as best as we can across the portfolio, recognizing each market has a little bit of uniqueness to it. And so working alongside what are we churning, where are we churning, and what does the inventory hold or engineering hold on some of the capacity as we augment with efficiency initiatives and the like, it’s a combination of all these things that are factoring into our decision. And it goes back to the sort of the net cabinet billing discussion. When you look at the — when you step back and say, well, that’s part of what’s causing that utilization level to be where it is, but you really have to step back and understand what is the revenue drivers of the business. You saw in our second quarter guide, we have a meaningful step up in revenues.
A good roughly 65% to 70% of that is coming from MRR. And so you know that we’ve got more revenue coming into the next quarter. We’ve got some MRR activity through xScale, but there’s momentum in the business, and it doesn’t necessarily appear the way that some of us would expect historically because it’s not necessarily going to a lot of new incremental cabinets. There’s more volume attached to the cabinets that we have. And so it’s a combination of those two things that I think are causing us to, I guess, be a little bit more cautious in what we talked about on a net billing cabinet basis, but we know that the revenue is there to support our growth.
Simon Flannery: So we shouldn’t be thinking of utilization getting back to the low to mid-80s, be more in this sort of 79, 80 level?
Keith Taylor: Charles alluded in his prepared remarks, we see the cabinet building number is going to increase and as a result, utilization will certainly continue to increase. I just don’t know if it will happen at the rate that we would expect given all the other things that are going on in the business. And the caution that Charles alluded to, we are being cautious in our guide. We left the revenue guide constant, absent currency. We have momentum. We did better than we anticipated in the first quarter. Obviously, we made a reference to the fact the pipeline is exceedingly deep. That’s a positive. But we’re just not at a point to say, well, what does that mean from a billing cabinet basis? Are we going to alter basically the trajectory of our revenues based on what we’ve already guided?
And there’s just a number of factors that we’re considering. But overall, I’d just say there’s strong momentum in the business. I think utilization will go up. I think net cabinet spilling will go up. I think based on the power utilization that we’re selling, it will cause the density of cabinets to — or a power sold per cabinet to continue to be elevated. And for all those reasons, that’s why we have, I would think, momentum on the revenue line. But we’re not yet prepared to change the trajectory of the revenue guide at this point.
Charles Meyers: But I do think that — I mean, look, the stabilized assets are 84% utilized overall. I think that — and I think we’ve got room in the class that just went in for additional utilization. And so I think that we absolutely are going to continue to see improving utilization, but we are continuing to add capacity for sure just given the level of demand that’s out there. So I think it’ll just depend on how that ebbs and flows into the utilization number.
Chip Newcom: This concludes our Q1 earnings call. Thank you for joining us.
Operator: Goodbye. Again, that does conclude today’s conference, you may disconnect at this time. Thank you and have a good day.
