Equinix Reports Second Quarter 2018 Results

REDWOOD CITY, Calif., Aug. 8, 2018 /PRNewswire/ --

• Quarterly revenues increased 18% year-over-year to $1.262 billion; a 9% year-over-year increase on a normalized and constant currency basis
• Key customer wins and expansions included China Mobile, Lithia Motors and Tencent
• Customer deployments across multiple metros increased to 85% of total recurring revenue, demonstrating the value of the Equinix global platform

Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company, today reported quarterly results for the quarter ended June 30, 2018. 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 2018 Results Summary

• Revenues
• $1.262 billion, a 4% increase over the previous quarter
• Operating Income
• $215 million
• Adjusted EBITDA
• $604 million, a 48% adjusted EBITDA margin
• Includes $10 million of integration costs for acquisitions
• Net Income
• $68 million
• Includes $30 million of acquisition costs and $19 million of loss on debt extinguishment costs primarily related to the Infomart acquisition
• AFFO
• $428 million, a 3% increase over the previous quarter
• Includes $10 million of integration costs for acquisitions

2018 Annual Guidance Summary

• Revenues
• $5.037 - $5.077 billion, a 16% increase over the previous year; a normalized and constant currency increase of 9%, including $55 million of FX headwinds compared to prior guidance
• Adjusted EBITDA
• $2.379 - $2.419 billion or a 47% adjusted EBITDA margin, including $21 million of FX headwinds compared to prior guidance, or 48% excluding integration costs for acquisitions
• Assumes $49 million of integration costs for acquisitions
• AFFO
• $1.596 - $1.636 billion, a 12% increase over the previous year, including $4 million of FX headwinds compared to prior guidance
• Assumes $49 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
Peter Van Camp, Executive Chairman and Interim CEO and President, Equinix:

"Equinix delivered another strong quarter with record bookings across all three regions and virtually all key operating metrics showing solid momentum in our go-to-market engine and interconnection strategy. Our unique global platform of 200 data centers, and the customer ecosystems within them, remain at the heart of our strategy, as evidenced by strong cross-regional sales and healthy interconnection activity in Q2. We are looking forward to the second half of the year as we focus on our strategic initiatives, deliver value from our acquisitions and work to convert a healthy customer pipeline."

Q2 Business Highlights

• Equinix continued to expand its global platform in response to strong underlying demand. In addition to progress with the integration of acquired assets from Infomart, Metronode and Verizon, Equinix completed expansions in the Amsterdam, Denver and London metros. With a utilization rate of 82% across the platform, Equinix has an active pipeline of 32 expansion projects currently underway, including a partnership with Omantel to enter the new market of Muscat, Oman, with a new IBX data center opening next year that will serve as a regional interconnection hub between global business markets.
• Equinix completed the integration of Terremark Federal Group (TFG) into Equinix Government Solutions, expanding the company's Federal industry expertise and adding key capabilities for Federal agencies and systems integrators. This integration included 33 new Equinix employees who bring a deep understanding of the Federal sector to act as trusted advisors for IT transformation initiatives. The diverse portfolio of Equinix assets, including former Verizon government campuses in Miami and Culpeper, enables support for sensitive government workloads in an optimal environment, based on security, cost and performance.
• Interconnection revenue continued to outpace colocation revenue, reflecting the movement towards Interconnection Oriented Architecture^® strategies and the rapid adoption of hybrid, multicloud as the preferred IT deployment model. Cross connects between customers increased to more than 288,000, and the Equinix Cloud Exchange Fabric^TM (ECX Fabric^TM) platform now serves more than 1,200 customers. This includes those deploying virtual connections through the new capabilities of ECX Fabric, which was extended in Q2 to Australia and Japan with full rollout in the Asia-Pacific region targeted for Q3, and full inter-regional connectivity slated for delivery by year end.
• Equinix continued the growth of its indirect selling initiatives, with channel sales increasing to more than 20% of bookings for the quarter. This accounted for half of the new logos acquired in the quarter, driven by solid performance across all regions and channels, including alliance, reseller and referral partners.

Business Outlook

For the third quarter of 2018, the Company expects revenues to range between $1.272 and $1.282 billion, an increase of 1% quarter-over-quarter, or a normalized and constant currency growth rate of approximately 2%. This guidance includes a negative foreign currency impact of $14 million when compared to the average FX rates in Q2 2018. Adjusted EBITDA is expected to range between $591 and $601 million, which includes a $9 million negative foreign currency impact when compared to the average FX rates in Q2 2018, higher seasonal utilities costs and $15 million of integration costs from acquisitions. Recurring capital expenditures are expected to range between $56 and $66 million.

For the full year of 2018, total revenues are expected to range between $5.037 and $5.077 billion, an increase of 16% year-over-year, or a normalized and constant currency growth rate of approximately 9%. This updated guidance includes a raise of full year revenues guidance of $10 million, offset by a negative foreign currency impact of $55 million when compared to prior Equinix guidance rates. Adjusted EBITDA is expected to range between $2.379 and $2.419 billion, an increase of 17% year-over-year. This updated guidance includes a raise of full year adjusted EBITDA guidance of $5 million, offset by a negative foreign currency impact of $21 million when compared to prior Equinix guidance rates, and an expected $49 million in integration costs. AFFO is expected to range between $1.596 and $1.636 billion, an increase of 12% year-over-year. This updated guidance includes a raise of full year AFFO guidance of $5 million, offset by a negative foreign currency impact of $4 million when compared to prior Equinix guidance rates. Also, AFFO includes an expected $49 million in integration costs. Non-recurring capital expenditures are expected to range between $1.8 and $1.9 billion, and recurring capital expenditures are expected to range between approximately $200 and $210 million.

The U.S. dollar exchange rates used for 2018 guidance, taking into consideration the impact of our current foreign currency hedges, have been updated to $1.14 to the Euro, $1.31 to the Pound, ¥111 to the U.S. dollar, S$1.36 to the U.S. dollar, and R$3.87 to the U.S. dollar. The Q2 2018 global revenue breakdown by currency for the Euro, British Pound, Japanese Yen, Singapore Dollar and Brazilian Real is 19%, 9%, 6%, 6% and 3%, 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, a contract cost adjustment, amortization of deferred financing costs and debt discounts and premiums, 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 2018 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended June 30, 2018, along with its future outlook, in its quarterly conference call on Wednesday, August 8, 2018, 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 1-517-308-9482 (domestic and international) and reference the passcode EQIX.

A replay of the call will be available one hour after the call, through Thursday, November 1, 2018, by dialing 1-203-369-0283 and referencing the passcode 2018. In addition, the webcast will be available at www.equinix.com/investors (no password required).

Investor Presentation and Supplemental Financial Information

Equinix has made available on its website a presentation designed to accompany the discussion of Equinix results and future outlook, along with certain supplemental financial information and other data. Interested parties may access this information through the Equinix 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 52 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, changes in accounting principles and foreign currency.

Equinix presents adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA represents income or loss from 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 data center, and do not reflect its current or future cash spending levels to support its business. Its IBX data centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of an IBX data 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 data 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 data centers. These estimates could vary from actual performance of the asset, are based on historic costs incurred to build out our IBX data 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 and the timing, size and nature of equity awards. As such, Equinix and many investors and analysts exclude 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 data 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 or loss 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 or loss, excluding gain or 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, a contract cost adjustment, amortization of deferred financing costs and debt discounts and premiums, gain or loss on debt extinguishment, an income tax expense adjustment, recurring capital expenditures, net income or 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 period of contract term, 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. Equinix also includes an adjustment to contract costs incurred to obtain contracts, since contract costs are capitalized and amortized over the estimated period of benefit on a straight-line basis, although costs of obtaining contracts are generally incurred and paid during the period of obtaining the contracts. The adjustments for installation revenues, straight-line rent expense and contract costs 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 and debt discounts and premiums 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 or 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 data centers or other assets that are required to support current revenues. Equinix also excludes net income or 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 financial 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 or 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 including the Infomart, Metronode and Verizon; 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 filings with the Securities and Exchange Commission. In particular, see recent Equinix 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.

SOURCE Equinix, Inc.