Equinix Reports Third Quarter 2019 Results

REDWOOD CITY, Calif., Oct. 30, 2019 /PRNewswire/ --

• Quarterly revenues increased 9% year-over-year to $1.397 billion, which includes $8 million of negative foreign currency impact when compared to prior guidance rates. This reflects an 8% year-over-year increase on a normalized and constant currency basis
• Delivered one of the strongest interconnection quarters in the company's history
• Recognized by the U.S. Environmental Protection Agency (EPA) for leading green power use, ranking number four on the EPA's National Top 100 Partners list
• Delivered record channel bookings, accounting for more than 30% of total bookings

Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company, today reported results for the quarter ended September 30, 2019. 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. All per share results are presented on a fully diluted basis.

Third Quarter 2019 Results Summary

• Revenues
• $1.397 billion, a 1% increase over the previous quarter
• Includes $8 million of negative foreign currency impact when compared to prior guidance rates
• Operating Income
• $285 million, a 2% decrease from the previous quarter, and an operating margin of 20%
• Adjusted EBITDA
• $675 million, a 48% adjusted EBITDA margin
• Includes $4 million of negative foreign currency impact when compared to prior guidance rates
• Includes $2 million of integration costs
• Net Income and Net Income per Share attributable to Equinix
• $121 million, a 16% decrease from the previous quarter including a $16 million increased income tax expense attributable to FX hedge gains
• $1.41 per share, a 17% decrease from the previous quarter including a per share reduction of $0.19 related to increased income tax expense attributable to FX hedge gains, a significant portion of which is expected to reverse in Q4
• AFFO and AFFO per Share
• $473 million, a 5% decrease from the previous quarter
• $5.52 per share including a per share reduction of $0.19 related to increased income tax expense attributable to FX hedge gains, a significant portion of which is expected to reverse in Q4
• Includes $2 million of integration costs

2019 Annual Guidance Summary

• Revenues
• $5.554 - $5.564 billion, a normalized and constant currency increase of approximately 9% over the previous year
• Includes a $21 million negative foreign currency impact when compared to prior guidance rates
• Adjusted EBITDA
• $2.666 - $2.676 billion, a 48% adjusted EBITDA margin
• Includes a $10 million negative foreign currency impact when compared to prior guidance rates
• Assumes $9 million of integration costs
• AFFO and AFFO per Share
• $1.913 - $1.923 billion, a normalized and constant currency increase of 13 - 14% over the previous year
• $22.56 - $22.68 per share, a normalized and constant currency increase of approximately 8% over the previous year
• Includes $10 million of increased income tax expense attributable to FX hedge gains, a per share impact of $0.12
• Assumes $9 million of integration costs

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

Charles Meyers, President and CEO, Equinix:

"We had another great quarter, building on our market leadership and unlocking the power of Platform Equinix by expanding our geographic reach, enhancing our market-leading interconnection portfolio and launching new offerings that respond to the evolving needs of our customers. We have a clear view of our strategy and are actively building new capabilities that will enable us to achieve our vision for the future of Platform Equinix, allowing customers to reach everywhere, interconnect everyone and integrate everything on their digital transformation journey."

Business Highlights

• Equinix continued to invest in building out its global platform in response to strong customer demand and a high level of inventory utilization:
• On October 4, Equinix announced a US$175 million definitive agreement to acquire three Axtel data centers that serve two new strategic technology metros in Mexico. This acquisition, when combined with the previous acquisitions of key traffic hubs in Dallas (Infomart) and Miami (NAP of the Americas), will further strengthen Equinix's global platform by increasing interconnection between North, Central and South America.
• On October 9, Equinix announced the completion of the formation of the greater than US$1.0 billion joint venture in the form of a limited liability partnership with GIC, Singapore's sovereign wealth fund, to develop and operate xScale™ data centers in Europe. This was a strategic milestone for Equinix, enhancing its ability to respond to the rapidly expanding needs of the world's largest cloud and hyperscale companies while strengthening leadership in the cloud ecosystem.
• Equinix continues its investment in organic growth and expansion activities with 28 major expansion projects underway across 21 markets and 16 countries. Among them are four xScale data centers and four newly announced projects, including phased expansions in Chicago and Toronto, and two new builds in Washington, D.C.
• Additionally, Equinix completed six new phased expansions or openings this quarter, including two new International Business Exchange^™ (IBX^®) data centers in Helsinki and Seoul.
• Equinix achieved its best-ever third quarter bookings with strong performance across all three regions (Americas, EMEA and Asia-Pacific) with notable momentum in EMEA. Bookings this quarter spanned across more than 3,100 customers, with the majority of bookings composed of small to mid-sized multi-metro deals. Equinix continues to lead in cloud connectivity, with over three times as many metros with multicloud on-ramps as its nearest competitor.
• Equinix continues the growth of its indirect selling initiatives, as the company pursues high-value strategic channel partnerships. In Q3, Equinix delivered record channel bookings, accounting for more than 30% of total bookings, with 60% of this activity going into the enterprise vertical. New channel wins this quarter spanned across all end-user types including insurance, federal government, banking, public utilities and pharmaceutical, with network optimization and hybrid multicloud as key use cases.
• Interconnection growth again outpaced colocation revenues, growing 13% year-over-year on a normalized and constant currency basis, driven by solid traction across all interconnection products. Today, Equinix has the most comprehensive global interconnection platform, comprising over 356,000 physical and virtual interconnections. In Q3, Equinix added 8,500 interconnections, more per quarter than our top 10 competitors combined. In the quarter, Equinix surpassed 20,000 virtual connections enabled by Equinix Cloud Exchange Fabric^™ (ECX Fabric^™), which accounted for more than 5% of total interconnections and serves more than 1,800 customers.
• Equinix is advancing the company's sustainability agenda with meaningful progress across environmental, social and governance initiatives. Equinix is progressing on its commitment to 100% sustainable energy, and over 90% of its energy consumption is now covered by clean and renewable energy sources. In Q3, the U.S. EPA recognized Equinix for leading in green power use, ranking the company number four on the EPA's National Top 100 Partners list, and Equinix received the EPA's Green Power Leadership Award for the 3^rd consecutive year, recognizing the company's contribution to advancing the development of the nation's voluntary green power market.
• Equinix added key leadership positions with the appointments of Sandra Rivera to its Board of Directors and Justin Dustzadeh as its Chief Technology Officer.

Business Outlook

For the fourth quarter of 2019, the Company expects revenues to range between $1.409 and $1.419 billion, an increase of 1% quarter-over-quarter, or a normalized and constant currency increase of approximately 2%. This guidance includes a negative foreign currency impact of $7 million when compared to the average FX rates in Q3 2019. Adjusted EBITDA is expected to range between $654 and $664 million, including the impact of timing of spend, a $3 million negative foreign currency impact when compared to the average FX rates in Q3 2019 and $3 million of integration costs from acquisitions. Recurring capital expenditures are expected to range between $65 and $75 million.

For the full year of 2019, total revenues are expected to range between $5.554 and $5.564 billion, a 10% increase over the previous year, or a normalized and constant currency increase of 9% at the mid-point. This updated guidance maintains prior full year revenue guidance, offset by a negative foreign currency impact of $21 million when compared to prior guidance rates. Adjusted EBITDA is expected to range between $2.666 and $2.676 billion, an adjusted EBITDA margin of 48%. This updated guidance raises full year adjusted EBITDA by $6 million, offset by a negative foreign currency impact of $10 million when compared to prior guidance rates, and includes an expected $9 million of integration costs. AFFO is expected to range between $1.913 and $1.923 billion, an approximate 16% increase over the previous year, or a normalized and constant currency increase of 13 - 14%. This updated guidance raises full year underlying AFFO by $8 million due to strong business performance, offset by $10 million of increased income tax expense attributed to FX hedge gains and a negative foreign currency impact. AFFO per share is expected to range between $22.56 - $22.68, an increase of approximately 8% over the previous year, on a normalized and constant currency basis. Non-recurring capital expenditures are expected to range between $1.730 and $1.920 billion, and recurring capital expenditures are expected to range between $170 and $180 million.

The U.S. dollar exchange rates used for 2019 guidance, taking into consideration the impact of our current foreign currency hedges, have been updated to $1.15 to the Euro, $1.31 to the Pound, S$1.38 to the U.S. dollar, ¥108 to the U.S. dollar, and R$4.14 to the U.S. dollar. The Q3 2019 global revenue breakdown by currency for the Euro, British Pound, Singapore Dollar, Japanese Yen and Brazilian Real is 20%, 9%, 7%, 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, income tax expense, an income tax expense adjustment, recurring capital expenditures, other income (expense), (gains) losses on disposition of real estate property and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items.

Q3 2019 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended September 30, 2019, along with its future outlook, in its quarterly conference call on Wednesday, October 30, 2019, 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 Wednesday, February 12, 2020, by dialing 1-203-369-2048 and referencing the passcode 2019. 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's 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. On this global platform for digital business, companies come together across more than 50 markets on five continents to reach everywhere, interconnect everyone and integrate everything they need to create their digital futures.

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, transaction 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, transaction 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 transaction costs from its non-GAAP financial measures to allow more comparable comparisons of the financial results to the historical operations. The transaction costs relate to costs Equinix incurs in connection with business combinations and formation of joint ventures, including advisory, legal, accounting, valuation and other professional or consulting fees. 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 transactions. Management believes items such as restructuring charges, impairment charges, transaction 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"), both commonly used in the REIT industry, as supplemental performance measures. 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, transaction 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 transaction 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 products and solutions; 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; risks related to our taxation as a REIT; 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.