Equinix Reports Third Quarter 2016 Results

REDWOOD CITY, Calif., Nov. 2, 2016 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company, today reported quarterly results for the quarter ended September 30, 2016. 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.

Third Quarter 2016 Results Summary

• Revenues from continuing operations
  • $924.7 million, a 3% increase over the previous quarter
  • Includes $39.7 million of revenues from Bit-isle
  • Includes $107.3 million of revenues from Telecity
• Operating Income
  • $169.9 million, a 12% increase over the previous quarter
• Adjusted EBITDA
  • $420.0 million, a 45% adjusted EBITDA margin
  • Includes $13.1 million of adjusted EBITDA from Bit-isle
  • Includes $44.1 million of adjusted EBITDA from Telecity
  • Includes $19.0 million of integration costs for acquisitions ($2.5 million incremental to prior guidance)
  • Absorbs an incremental $5 million of cash-neutral U.S. GAAP adjustments related to Telecity
• Net Income from Continuing Operations
  • $48.8 million
• AFFO
  • $284.2 million, a 2% decrease from the previous quarter
  • Includes $19.0 million of integration costs for acquisitions

2016 Annual Guidance Summary

• Revenues from continuing operations
  • $3,609 million - $3,615 million, a 32.5% increase over the previous year; an organic and constant currency growth rate of greater than 14%
  • Assumes $556 million in revenues from Bit-isle and Telecity
• Adjusted EBITDA
  • $1,650 million - $1,656 million or a 45.8% adjusted EBITDA margin
  • Includes approximately $250 million from Bit-isle and Telecity
  • Assumes $59 million of integration costs for acquisitions ($4.0 million incremental to prior guidance)
  • Absorbs incremental $10 million of primarily cash-neutral U.S. GAAP adjustments related to Telecity
• AFFO
  • $1,059 million - $1,065 million, a 27.6% increase over the previous year
  • Assumes a $64 million foreign currency loss related to the Telecity acquisition
  • Assumes $59 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.

Steve Smith, president and CEO, Equinix:

"We had a great third quarter, delivering record bookings with double-digit growth in the cloud, financial and enterprise segments," said Steve Smith, president and CEO of Equinix. "We continue to see growth in Fortune 500 new customers as multi-national enterprises re-architect to a cloud-delivered infrastructure to optimize performance. We remain focused on scaling and refining our go-to-market engine, directed at capturing this significant shift to the cloud, and delivering continued profitable growth." 

Business Highlights

• Equinix continues to expand the scale and reach of its global platform with 18 announced expansion projects underway, and today Equinix announced:
  • New expansions in Dallas, Dublin, Frankfurt, Helsinki and Zurich totaling more than $100 million of capital expenditures. 
  • The purchase of six acres of real estate adjacent to the Equinix Chicago area CH3 IBX which will be developed over time to expand Equinix's Elk Grove campus – a key location for cloud and financial customers.
• Equinix added 10 Fortune 500 customers in Q3 2016, including: Target, a leading retailer; J.B Hunt, a transportation company; and Aetna, a healthcare and insurance provider.  Equinix has now penetrated nearly one-third of the Fortune 500 and a quarter of Global 2000 companies.  Additional customer momentum from the quarter:
  • Equinix recorded its second highest bookings quarter in the enterprise segment in Q3, as enterprises continue to re-architect their IT delivery to better interconnect people, locations, clouds and data.  Wins included one of the top three auto manufacturers that has selected Equinix to optimize their network topology and connect to Microsoft Azure via Equinix Cloud Exchange.
  • The financial services vertical achieved record bookings, and key customer wins included: an expansion with PayPal, an important customer in the digital payments ecosystem that is interconnecting to business partners to improve performance and latency; and Lloyd's, which is deploying a cloud-based risk modeling platform for the insurance industry.
  • The cloud and IT services vertical recorded its second best bookings quarter in Q3, with expansions from Amazon.com, Cisco Systems, Dell EMC, Marketo and others.  Equinix continues to enhance its value as the home of the interconnected cloud by increasing cloud density, making it easy for enterprises to find and consume cloud services from leading SaaS and IaaS partners, including AWS, Azure, IBM Softlayer, Google and Oracle.
  • As companies seek to locate their infrastructure closer to the digital edge, Equinix customer deployments across all three regions (Americas, APAC, EMEA) represented 55% of total recurring revenue for the quarter.
• Additional business highlights announced in Q3 2016 included:
  • Momentum for Equinix continues as a strategic partner for the submarine cable industry with its selection as the US cable landing station for the Monet Submarine Cable System , which is owned by Algar Telecom, Angola Cables, Antel and Google.  The Monet project links North and South America from points in Miami and São Paulo.  In addition to this most recent win, Equinix has been selected as an interconnection partner in 12 of the current submarine cable projects that are experiencing high growth driven primarily by exponential increases in cloud services and innovation in optical equipment.
  • The ninth quarter in a row in which Equinix has added more than 5,000 cross-connects.  As more businesses adopt an IT architecture that enables direct interconnection with key partners and customers, Equinix now has more than 188,000 cross-connects between customers. 
  • The rollout of Equinix Internet Exchange in Helsinki, expanding coverage of this platform to 19 markets worldwide.
  • The rollout of the Equinix Media Cloud Ecosystem for Entertainment (EMCEE™), an ecosystem of interconnected media and content providers, along with content delivery networks (CDNs) and cloud service providers, that optimizes content creation, global distribution and services across the entire media and entertainment (M&E) industry.  As digital disruption changes the way that content is created, enhanced, transported, stored and distributed, more than 500 content and media companies use EMCEE to peer with the industry's largest concentration of CDNs, multiple system operators (MSOs) and social media platforms.

Business Outlook

Equinix's guidance includes forecasted results for Telecity from January 15, 2016, Bit-isle for the full year of 2016 and incremental operating results relating to Equinix's purchase of its Paris campus from Digital Realty on August 1, 2016 for approximately $215.9 million. As previously announced, Equinix divested eight assets, seven from Telecity along with its London 2 asset ("LD2"), to obtain regulatory clearance for the Telecity transaction. Equinix completed these divestitures on July 5, 2016 for approximately $827.3 million. Equinix's guidance does not include the seven Telecity assets, which were treated as discontinued operations, but does assume six months, or $6.0 million in revenues, from LD2, which was under a different accounting treatment that required results to be reported as continuing operations until the sales were completed.

For the fourth quarter of 2016 -- Equinix expects revenues to range between $940 and $946 million, or a normalized and constant currency growth rate of 2.4% quarter over quarter.  This guidance includes a negative foreign currency impact of $4 million when compared to the average FX rates in Q3 2016. Cash gross margins are expected to approximate 67%. Cash selling, general and administrative expenses are expected to range between $199 and $205 million.  Adjusted EBITDA is expected to range between $429 and $435 million, which includes a $2 million negative foreign currency impact when compared to the average FX rates used in Q3 2016 and approximately $17 million in integration costs from the two acquisitions. Capital expenditures are expected to be approximately $273 million, which includes approximately $42 million of recurring capital expenditures and approximately $231 million of non-recurring capital expenditures.

For the full year of 2016 -- Total revenues are expected to range between $3,609 and $3,615 million, an organic and constant currency growth rate of 14.1% year over year.  This guidance includes a negative foreign currency impact of $1 million when compared to prior guidance rates, and includes an expected $553 to $559 million in revenues from the Bit-isle and Telecity acquisitions. Net of FX, revenues are stepping up $10 million, the result of strong Q3 operating performance. Total year cash gross margins are expected to approximate 67%. Cash selling, general and administrative expenses are expected to range between $779 and $785 million. Adjusted EBITDA is expected to range between $1,650 and $1,656 million, an organic and constant currency growth rate of 17% year over year.  This absorbs an incremental $4 million of integration costs, or approximately $59 million in integration costs for the full year, an incremental $10 million of primarily cash-neutral U.S. GAAP adjustments related to Telecity and minimal FX impact. This guidance also includes approximately $250 million in adjusted EBITDA from the Bit-isle and Telecity acquisitions. AFFO is expected to range between $1,059 and $1,065 million, including approximately $59 million of integration costs and the $64 million Q1 2016 foreign currency loss attributed to the Telecity acquisition. This $17 million AFFO increase has negligible foreign currency benefit when compared to prior guidance, and is the result of strong business performance and lower interest expense. Capital expenditures are expected to be approximately $1,000 million, including approximately $147 million of recurring capital expenditures and approximately $853 million of non-recurring capital expenditures.  

The U.S. dollar exchange rates used for 2016 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.12 to the Euro, $1.42 to the Pound, S$1.37 to the U.S. dollar, ¥103.01 to the U.S. dollar and R3.23 to the U.S. dollar. The 2016 global revenue breakdown by currency for the Euro, Pound, Singapore Dollar, Japanese Yen and Brazilian Real is 19%, 10%, 8%, 7% and 3%, respectively.

Q3 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended September 30, 2016, along with its future outlook, in its quarterly conference call on Wednesday, November 2, 2016, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on Equinix'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 Friday, February 3, 2017, by dialing 1-203-369-1392 and referencing the passcode 2016. 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

• Q3 2016 financial earnings press release (PDF)
• Q3 2016 financial tables (PDF)

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 40 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 presents adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA represents income or loss from operations plus depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gains 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 gains 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 intangible assets, as it is not meaningful in evaluating Equinix's current or future operating performance; however, like depreciation, is an expense expected to recur in future 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 represents expense attributed to equity awards that have no current or future cash obligations. As such, Equinix, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations. 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 gains 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.  The acquisition costs relate to costs Equinix incurs in connection with business combinations.  Management believes items such as restructuring charges, impairment charges, acquisition costs and gains 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 gains (losses) 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, gains (losses) 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 revenue 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 revenue 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 gains (losses) 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 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 revenue 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.