Equinix Reports Second Quarter 2019 Results

REDWOOD CITY, Calif., July 31, 2019 /PRNewswire/ --

• Quarterly revenues increased 10% year-over-year, both on an as-reported and normalized and constant currency basis, to $1.385 billion
• Customer deployments across multiple regions increased to 73% of total recurring revenue, demonstrating the value of Equinix's global platform
• Interconnection revenue growth continues to outpace colocation revenue growth, as global ecosystems continue to scale
• The portfolio of interconnection services on Platform Equinix^® expanded with the launch of Network Edge, a new service enabling customers to deploy virtual network services at Equinix

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

Second Quarter 2019 Results Summary

• Revenues
• $1.385 billion, a 2% increase over the previous quarter
• Operating Income
• $292 million, a 4% increase over the previous quarter, an operating margin of 21%
• Adjusted EBITDA
• $677 million, a 49% adjusted EBITDA margin, a 3% increase over the previous quarter
• Includes $3 million of integration costs
• Net Income and Net Income per Share attributable to Equinix
• $144 million, a 22% increase over the previous quarter
• $1.69 per share, a 17% increase over the previous quarter
• AFFO and AFFO per Share
• $498 million, a 2% increase over the previous quarter
• $5.87 per share
• Includes $3 million of integration costs

2019 Annual Guidance Summary

• Revenues
• $5.565 - $5.595 billion, a normalized and constant currency increase of 9% over the previous year, and a $10 million increase compared to prior guidance at the mid-point
• Adjusted EBITDA
• $2.660 - $2.690 billion, a 48% adjusted EBITDA margin, and a $15 million increase compared to prior guidance at the mid-point
• Assumes $11 million of integration costs
• AFFO and AFFO per Share
• $1.910 - $1.930 billion, a normalized and constant currency increase of 13 - 14% over the previous year, and a $25 million increase compared to prior guidance at the mid-point
• $22.57 - 22.81 per share, a normalized and constant currency increase of 8 - 9% over the previous year, and a $0.14 increase compared to prior guidance at the mid-point, including the impact of the Q2 ATM equity program activity
• Assumes $11 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:

"Equinix had another strong quarter, as it continues to deliver distinctive and durable value for customers pursuing their digital transformation initiatives. As a variety of trends are making global businesses think differently about their infrastructure, Equinix is responding by both investing across its traditional strengths and layering in incremental capabilities that make it an easier-to-use, more accessible global platform. We see a large and expanding market opportunity, and we believe Equinix is uniquely positioned to capture this opportunity as customers prioritize digital transformation and adopt hybrid and multicloud as their architecture of choice."

Business Highlights

• Equinix further extended the portfolio of interconnection offerings on Platform Equinix with the launch of Network Edge services, a new service enabling companies to deploy virtualized services such as routers, firewalls and load balancers from industry-leading vendors including Cisco, Juniper Networks and Palo Alto Networks. Network Edge offers enterprises a new way to deploy network services and connect their digital supply chains on Equinix's global interconnection platform, without a physical data center deployment or hardware requirements. By combining Network Edge with Equinix Cloud Exchange Fabric™ (ECX Fabric^™), customers can deploy virtual edge devices and interconnect them to clouds and network providers located in new global markets, extending their reach to potentially thousands of new business partners around the world.
• As a part of the company's hyperscale initiative, Equinix signed a greater than $1.0 billion initial joint venture limited liability partnership with GIC, Singapore's sovereign wealth fund, to develop and operate xScale^™ data centers in Amsterdam, Frankfurt, London and Paris, which is expected to close in Q3 2019. xScale data centers will serve the unique core workload deployment needs of a targeted group of hyperscale companies, including the world's largest cloud service providers. The facilities, on or proximate to some of Equinix's existing International Business Exchange^™ (IBX^®) data center campuses, will allow these key enablers of digital transformation to streamline their continued growth, while strengthening Equinix's leadership position in the cloud ecosystem, as enterprises increasingly embrace hybrid multicloud as the IT architecture of choice.
• Fitch Ratings upgraded all of Equinix's ratings to investment grade, reflecting Equinix's leading market position in data center colocation and interconnection, geographic diversity, stable customer and revenue characteristics, and positive secular demand drivers. Equinix's lower leverage relative to its peer group, wide access to diverse sources of capital and substantial liquidity were all deemed consistent with an investment grade REIT profile. This is Equinix's second investment grade upgrade following S&P Global Ratings' upgrade to BBB- on February 27, 2019, making Equinix's notes index-eligible to further expand its potential global investor base while also triggering the automatic covenant fall-away provisions in certain senior note indentures issued by Equinix, and also providing the company a significant opportunity to lower its net borrowing costs on both existing and new debt facilities.
• Equinix continued to amplify its go-to-market reach through indirect selling initiatives, with channel sales delivering more than 25% of the bookings for the quarter. Additionally, channel bookings accounted for 60% of the new logos acquired in the quarter, as Equinix deepened its engagement with high-priority partners to drive increased productivity and joint offer creation across its reseller and alliance partners.
• As digital transformation is forcing companies to change how they interconnect users and clouds at the digital edge, Equinix now serves more than half of the Fortune 500 and has its highest number ever of Fortune 500 and Global 2000 prospects in the pipeline. As a part of this, in Q2, the enterprise vertical experienced diversified growth across travel, legal and healthcare sub-segments. New wins included a global builder and operator of toll roads enabling IoT smart transportation systems, and a leading fashion brand implementing a multicloud strategy.
• Equinix continued strong growth with the cloud and IT vertical with record bookings in Q2. The company now has 40% of all cloud on-ramps from the top cloud service providers. Customer wins in the quarter included a Fortune 75 technology company expanding a hosted unified communication service, and ServiceNow, expanding its footprint to support its growing customer base.

Business Outlook

The business outlook includes the expected impact of the EMEA hyperscale joint venture expected to close in the third quarter; including the reduction in revenue, adjusted EBITDA and AFFO due to the sale of both LD10 and PA8 to the joint venture, net of the fees earned, lease payments incurred by Equinix and AFFO contribution from Equinix's 20% non-controlling interest in the joint venture.

For the third quarter of 2019, the Company expects revenues to range between $1.399 and $1.409 billion, an increase of 1% quarter-over-quarter, at the mid-point of guidance on both an as-reported and a normalized and constant currency basis, taking into consideration the net impact of the EMEA hyperscale joint venture. This guidance includes a positive foreign currency benefit of $8 million when compared to the average FX rates in Q2 2019. Adjusted EBITDA is expected to range between $665 and $675 million, including the higher seasonal cost of revenues, and includes a $4 million positive foreign currency benefit when compared to the average FX rates in Q2 2019 and $4 million of integration costs from acquisitions. Recurring capital expenditures are expected to range between $52 and $62 million, a meaningful and as-expected step up over the prior two quarters.

For the full year of 2019, total revenues are expected to range between $5.565 and $5.595 billion, a 10% increase over the previous year or a normalized and constant currency increase of 9% at the mid-point. This $10 million increase from previously issued guidance is due to $12 million of better than expected operating business performance and a $5 million positive foreign currency benefit when compared to prior guidance rates, offset in part by a $7 million reduction from the net impact of the EMEA hyperscale joint venture. Adjusted EBITDA is expected to range between $2.660 and $2.690 billion, an adjusted EBITDA margin of 48%. This $15 million increase from previously issued guidance is due to $19 million of better than expected operating business performance, a $2 million reduction of integration costs and a $1 million positive foreign currency benefit when compared to prior guidance rates, offset in part by a $7 million reduction from the net impact of the EMEA hyperscale joint venture. AFFO is expected to range between $1.910 and $1.930 billion, a 15 - 16% increase over the previous year or a normalized and constant currency increase of 13 - 14%. This $25 million increase from previously issued guidance is due to $17 million of better than expected operating business performance, a $2 million reduction of integration costs and an $11 million positive foreign currency benefit when compared to prior guidance rates, offset in part by a $5 million reduction from the net impact of the EMEA hyperscale joint venture. AFFO per share is expected to range between $22.57 - 22.81, a 9 - 10% increase over the previous year or a normalized and constant currency increase of 8 - 9%, after taking into consideration the equity financing activity over the first half of the year. 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 $1.17 to the Euro, $1.34 to the Pound, ¥108 to the U.S. dollar, S$1.35 to the U.S. dollar, and R$3.84 to the U.S. dollar. The Q2 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.

Q2 2019 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended June 30, 2019, along with its future outlook, in its quarterly conference call on Wednesday, July 31, 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, October 30, 2019, by dialing 1-203-369-0227 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, 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"), 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, 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 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.