Equinix Reports Second Quarter 2017 Results

REDWOOD CITY, Calif., Aug. 2, 2017 /PRNewswire/ --

• Quarterly revenues increased 18% year-over-year to $1,066 million; 11% year-over-year on a normalized and constant currency basis
• Key customer and partner wins and expansions included Alibaba, AWS, Microsoft Azure, Salesforce, Shire, and Weyerhaeuser
• Completed the acquisition of 29 Verizon data centers and opened three organic build facilities, expanding Equinix's global platform to 182 IBX data centers
• Interconnection revenue growth continued to significantly outpace colocation revenue growth

Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company, today reported quarterly results for the quarter ended June 30, 2017. Equinix uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

Second Quarter 2017 Results Summary

• Revenues from continuing operations
• $1,066 million, a 12% increase over the previous quarter
• Includes $86.7 million of revenues from the acquisition of 29 Verizon data centers
• Operating Income
• $185 million, an 11% increase over the previous quarter
• Adjusted EBITDA
• $509 million, a 48% adjusted EBITDA margin
• Includes $15 million of integration costs
• Net Income from Continuing Operations
• $46 million
• AFFO
• $360 million, an 18% increase over the previous quarter

2017 Annual Guidance Summary

• Revenues from continuing operations
• $4,317 - $4,327 million, a 20% increase over the previous year; a normalized and constant currency increase of greater than 11%
• Adjusted EBITDA
• $2,038 - $2,048 million or a 47% adjusted EBITDA margin
• Assumes $52 million of integration costs for acquisitions
• AFFO
• $1,382 - $1,392 million, a 29% increase over the previous year; a normalized and constant currency increase of 13%
• Assumes $52 million of integration costs for acquisitions

Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data without unreasonable effort. The impact of such adjustments could be significant.

Quote
Steve Smith, President and CEO, Equinix:
"Q2 was another strong quarter for Equinix, surpassing the milestone of $1 billion in quarterly revenues for the first time in the company's history. A key highlight in the quarter was the completion of the acquisition of Verizon's Americas data center portfolio, strengthening our global market leadership and providing additional capacity to meet customer demand. As the shift to digital impacts businesses across all segments, private, secure and distributed interconnection continues to grow as a core design principle of IT, resulting in key new customer wins, and healthy and growing market share for Equinix."

Business Highlights

• Equinix completed its acquisition of Verizon's 29 data centers in Q2, creating significant growth and scaling opportunities for the Americas business, and enhancing interconnection capabilities with core strategic hubs in 15 metro areas. The new data centers, and the 600 plus net new customers, strengthen Equinix's global market leadership, creating new opportunities to grow business ecosystems around the world with both existing and new customers. The acquisition opens three new markets (Bogotá, Culpeper and Houston), and the Miami NAP of the Americas ("NOTA") (MI 1) facility significantly expands Equinix's ability to serve interconnection needs between North and South America.
• Equinix also continued its organic expansion, opening new data centers in Amsterdam, Frankfurt and Silicon Valley, and extending the reach of Equinix's global platform to 182 IBX data centers across 44 markets and 22 countries. The Amsterdam 4 IBX, adjacent to Equinix's existing Amsterdam 3 facility in the Amsterdam Science Park, builds out one of the most cloud dense locations in Europe, helping Equinix meet the growing demand for interconnection and colocation in the Netherlands as a key launch pad for serving the continent. In Frankfurt, the Frankfurt 6 IBX, located on owned land next to Equinix's Frankfurt 4 IBX, and tethered to Equinix's Frankfurt 5 IBX, supports the scaling of Equinix's operations in one of Europe's leading financial centers and a hub for banking, commerce and manufacturing. The Silicon Valley 10 IBX adds capacity to Equinix's network dense San Jose campus, which serves as one of the largest concentrations of high-tech companies and peering hubs in the world.
• Enterprise remained the fastest growing vertical with a record number of new logos and Fortune 500 wins in Q2. Key wins in Q2 included Weyerhaeuser, a Fortune 350 manufacturer transforming its supply chain management to digital, and Shire, a leading pharmaceutical company connecting to multiple clouds to support distributed analytics and hybrid data storage.
• With the Verizon data center acquisition, Equinix now serves 42% of the Fortune 500 and 30% of the Global 2000, as the benefits of Equinix's globally consistent platform continue to grow. In Q2, over 58% of revenues came from customers deployed across all three regions, and 84% came from customers deployed across multiple metros, up from 83% last quarter.
• Interconnection revenues in Q2 grew 24% year-over-year and 17% year-over-year on a normalized and constant currency basis, significantly outpacing colocation revenues and reflecting the movement towards Interconnection Oriented Architectures^TM and the rapid adoption of hybrid, multi-cloud as the preferred IT deployment model. Cross-connects between customers increased to over 242,000, and traction with Equinix Cloud Exchange^TM continued with expansions from AWS, Microsoft Azure and Salesforce into new markets on Cloud Exchange in the second quarter.
• Equinix also announced its intention to enter into an "At-the-Market" equity offering program under which Equinix may offer and sell, from time to time, up to an aggregate of $750 million of its common stock (the "ATM Program"). Equinix expects to use the net proceeds, if any, from the ATM Program for working capital and general corporate purposes, which may include, among other things, repayment of indebtedness, capital expenditures and acquisitions of complementary businesses or assets.

Business Outlook

For the third quarter of 2017, the Company expects revenues to range between $1,133 and $1,141 million, an increase of 7% quarter over quarter at the midpoint, or a normalized and constant currency increase of 3%. This guidance includes a foreign currency benefit of $2 million when compared to the average FX rates in Q2 2017. Cash gross margins are expected to approximate 67%. Cash selling, general and administrative expenses are expected to range between $218 and $226 million. Adjusted EBITDA is expected to range between $535 and $543 million, which includes a $2 million foreign currency benefit when compared to the average FX rates in Q2 2017, and $16 million of integration costs for the Verizon data center, Telecity and Bit-isle acquisitions. Capital expenditures are expected to range between $313 and $333 million, which includes approximately $53 million of recurring capital expenditures.

For the full year of 2017, total revenues are expected to range between $4,317 and $4,327 million, an increase of 20% year over year, or a normalized and constant currency increase of greater than 11%. This $19 million guidance raise is due to better than expected combined operating business performance of $8 million and a foreign currency benefit of $11 million when compared to prior Equinix guidance rates. This guidance is comprised of full year organic revenues of greater than $3,987 million, and the Verizon data center acquisition revenues ranging between $330 and $340 million. Total year cash gross margins are expected to approximate 67 - 68%. Cash selling, general and administrative expenses are expected to range between $868 and $878 million. Adjusted EBITDA is expected to range between $2,038 and $2,048 million, an increase of 23% year over year, or a normalized and constant currency increase of 11%. This $17 million adjusted EBITDA raise is due to better than expected combined operating performance of $14 million and a foreign currency benefit of $3 million when compared to prior Equinix guidance rates. This guidance includes an expected $52 million in integration costs for the Verizon data center, Telecity and Bit-isle acquisitions. AFFO is expected to range between $1,382 and $1,392 million, an increase of 29% year over year, or a normalized and constant currency increase of 13%. Capital expenditures are expected to range between $1,250 and $1,300 million, including approximately $175 million of recurring capital expenditures and $1,075 and $1,125 million of non-recurring capital expenditures.

The U.S. dollar exchange rates used for 2017 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.12 to the Euro, $1.39 to the Pound, S$1.38 to the U.S. dollar,  ¥112.36 to the U.S. dollar and R$3.31 to the U.S. dollar. The Q2 2017 global revenue breakdown by currency for the Euro, Pound, Singapore Dollar, Japanese Yen and Brazilian Real is 18%, 9%, 6%, 7% and 4%, respectively.

The adjusted EBITDA guidance is based on the revenue guidance less our expectations of cash cost of revenues and cash operating expenses. The AFFO guidance is based on the adjusted EBITDA guidance less our expectations of net interest expense, an installation revenue adjustment, a straight-line rent expense adjustment, amortization of deferred financing costs, gains (losses) on debt extinguishment, an income tax expense adjustment, recurring capital expenditures and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items.

Q2 2017 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended June 30, 2017, along with its future outlook, in its quarterly conference call on Wednesday, August 2, 2017, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on the Company's Investor Relations website at www.equinix.com/investors. To hear the conference call live, please dial 1-210-234-8004 (domestic and international) and reference the passcode EQIX.

A replay of the call will be available one hour after the call, through Wednesday, November 1, 2017, by dialing 1-402-998-0968 and referencing the passcode 2017. In addition, the webcast will be available at www.equinix.com/investors. No password is required for the webcast.

Investor Presentation and Supplemental Financial Information

Equinix has made available on its website a presentation designed to accompany the discussion of Equinix's results and future outlook, along with certain supplemental financial information and other data. Interested parties may access this information through Equinix's Investor Relations website at www.equinix.com/investors.

Additional Resources

• Equinix Investor Relations Resources

About Equinix

Equinix, Inc. (Nasdaq: EQIX) connects the world's leading businesses to their customers, employees and partners inside the most interconnected data centers. In 44 markets across five continents, Equinix is where companies come together to realize new opportunities and accelerate their business, IT and cloud strategies.

Non-GAAP Financial Measures

Equinix provides all information required in accordance with generally accepted accounting principles ("GAAP"), but it believes that evaluating its ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, Equinix uses non-GAAP financial measures to evaluate its operations.

Equinix provides normalized and constant currency growth rates, which are calculated to adjust for acquisitions, dispositions, integration costs and foreign currency.

Equinix presents adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA represents income or loss from continuing operations excluding depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gain or loss on asset sales.

In presenting non-GAAP financial measures, such as adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), adjusted EBITDA margins, free cash flow and adjusted free cash flow, Equinix excludes certain items that it believes are not good indicators of Equinix's current or future operating performance. These items are depreciation, amortization, accretion of asset retirement obligations and accrued restructuring charges, stock-based compensation, restructuring charges, impairment charges, acquisition costs and gain or loss on asset sales.  Equinix excludes these items in order for its lenders, investors and the industry analysts who review and report on Equinix to better evaluate Equinix's operating performance and cash spending levels relative to its industry sector and competitors.

Equinix excludes depreciation expense as these charges primarily relate to the initial construction costs of an IBX center, and do not reflect its current or future cash spending levels to support its business. Its IBX centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of an IBX center do not recur with respect to such data center, although Equinix may incur initial construction costs in future periods with respect to additional IBX centers, and future capital expenditures remain minor relative to the initial investment. This is a trend it expects to continue. In addition, depreciation is also based on the estimated useful lives of the IBX centers. These estimates could vary from actual performance of the asset, are based on historic costs incurred to build out our IBX centers and are not indicative of current or expected future capital expenditures. Therefore, Equinix excludes depreciation from its operating results when evaluating its operations.

In addition, in presenting the non-GAAP financial measures, Equinix also excludes amortization expense related to acquired intangible assets. Amortization expense is significantly affected by the timing and magnitude of acquisitions and these charges may vary in amount from period to period. We exclude amortization expense to facilitate a more meaningful evaluation of our current operating performance and comparisons to our prior periods. Equinix excludes accretion expense, both as it relates to its asset retirement obligations as well as its accrued restructuring charges, as these expenses represent costs which Equinix also believes are not meaningful in evaluating Equinix's current operations. Equinix excludes stock-based compensation expense, as it can vary significantly from period to period based on share price, the timing, size and nature of equity awards. As such, Equinix and many investors and analysts, exclude this stock-based compensation expense to compare its operating results with those of other companies. Equinix excludes restructuring charges from its non-GAAP financial measures. The restructuring charges relate to Equinix's decision to exit leases for excess space adjacent to several of its IBX centers, which it did not intend to build out, or its decision to reverse such restructuring charges. Equinix also excludes impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Equinix also excludes gain or loss on asset sales as it represents profit that is not meaningful in evaluating the current or future operating performance. Finally, Equinix excludes acquisition costs from its non-GAAP financial measures to allow more comparable comparisons of the financial results to the historical operations. The acquisition costs relate to costs Equinix incurs in connection with business combinations. Such charges generally are not relevant to assessing the long-term performance of Equinix. In addition, the frequency and amount of such charges vary significantly based on the size and timing of the acquisitions. Management believes items such as restructuring charges, impairment charges, acquisition costs and gain or loss on asset sales are non-core transactions; however, these types of costs may occur in future periods.

Equinix also presents funds from operations ("FFO") and adjusted funds from operations ("AFFO"), which are non-GAAP financial measures commonly used in the REIT industry. FFO is calculated in accordance with the definition established by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income (loss), excluding gain (loss) from the disposition of real estate assets, depreciation and amortization on real estate assets and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items. AFFO represents FFO, excluding depreciation and amortization expense on non-real estate assets, accretion, stock-based compensation, restructuring charges, impairment charges, acquisition costs, an installation revenue adjustment, a straight-line rent expense adjustment, amortization of deferred financing costs, gain (loss) on debt extinguishment, an income tax expense adjustment, recurring capital expenditures, net income (loss) from discontinued operations, net of tax and adjustments from FFO to AFFO for unconsolidated joint ventures' and non-controlling interests' share of these items. Equinix excludes depreciation expense, amortization expense, accretion, stock-based compensation, restructuring charges, impairment charges and acquisition costs for the same reasons that they are excluded from the other non-GAAP financial measures mentioned above.

Equinix includes an adjustment for revenues from installation fees, since installation fees are deferred and recognized ratably over the expected life of the installation, although the fees are generally paid in a lump sum upon installation. Equinix includes an adjustment for straight-line rent expense on its operating leases, since the total minimum lease payments are recognized ratably over the lease term, although the lease payments generally increase over the lease term. The adjustments for both installation revenues and straight-line rent expense are intended to isolate the cash activity included within the straight-lined or amortized results in the consolidated statement of operations. Equinix excludes the amortization of deferred financing costs as these expenses relate to the initial costs incurred in connection with its debt financings that have no current or future cash obligations. Equinix excludes gain (loss) on debt extinguishment since it represents a cost that is not a good indicator of Equinix's current or future operating performance. Equinix includes an income tax expense adjustment, which represents the non-cash tax impact due to changes in valuation allowances and uncertain tax positions that do not relate to the current period's operations. Equinix excludes recurring capital expenditures, which represent expenditures to extend the useful life of its IBX centers or other assets that are required to support current revenues. Equinix also excludes net income (loss) from discontinued operations, net of tax, which represents results that are not a good indicator of our current or future operating performance.

Equinix presents constant currency results of operations, which is a non-GAAP financial measure and is not meant to be considered in isolation or as an alternative to GAAP results of operations. However, Equinix has presented this non-GAAP financial measure to provide investors with an additional tool to evaluate its operating results without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of Equinix's business performance. To present this information, Equinix's current and comparative prior period revenues and certain operating expenses from entities with functional currencies other than the U.S. dollar are converted into U.S. dollars at a consistent exchange rate for purposes of each result being compared.

Non-GAAP financial measures are not a substitute for financial information prepared in accordance with GAAP. Non-GAAP financial measures should not be considered in isolation, but should be considered together with the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financials measures. Equinix presents such non-GAAP financial measures to provide investors with an additional tool to evaluate its operating results in a manner that focuses on what management believes to be its core, ongoing business operations.  Management believes that the inclusion of these non-GAAP financial measures provides consistency and comparability with past reports and provides a better understanding of the overall performance of the business and its ability to perform in subsequent periods. Equinix believes that if it did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze Equinix effectively.

Investors should note that the non-GAAP financial measures used by Equinix may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as those of other companies. Investors should, therefore, exercise caution when comparing non-GAAP financial measures used by us to similarly titled non-GAAP financial measures of other companies. Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data without unreasonable effort. The impact of such adjustments could be significant. Equinix intends to calculate the various non-GAAP financial measures in future periods consistent with how they were calculated for the periods presented within this press release.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from expectations discussed in such forward-looking statements. Factors that might cause such differences include, but are not limited to, the challenges of acquiring, operating and constructing IBX data centers and developing, deploying and delivering Equinix services; unanticipated costs or difficulties relating to the integration of companies we have acquired or will acquire into Equinix; a failure to receive significant revenues from customers in recently built out or acquired data centers; failure to complete any financing arrangements contemplated from time to time; competition from existing and new competitors; the ability to generate sufficient cash flow or otherwise obtain funds to repay new or outstanding indebtedness; the loss or decline in business from our key customers; and other risks described from time to time in Equinix's filings with the Securities and Exchange Commission. In particular, see Equinix's recent quarterly and annual reports filed with the Securities and Exchange Commission, copies of which are available upon request from Equinix. Equinix does not assume any obligation to update the forward-looking information contained in this press release.

Equinix and IBX are registered trademarks of Equinix, Inc. International Business Exchange is a trademark of Equinix, Inc.

SOURCE Equinix, Inc.