Equinix Reports Third Quarter 2017 Results

REDWOOD CITY, Calif., Nov. 1, 2017 /PRNewswire/ --

• Quarterly revenues increased 25% year-over-year to $1,152 million; 10% year-over-year on a normalized and constant currency basis
• Record number of new wins closed across every vertical in Q3, with notable outperformance from enterprise and financial services
• Key customer wins and expansions included Alibaba.com, Baidu, Blade, Charter Communications, Netflix, Priceline.com, Oracle, Salesforce.com, SAP, Tencent and Walmart
• 13 new expansion projects announced across all three regions totaling $615 million

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

Third Quarter 2017 Results Summary

• Revenues from continuing operations
• $1,152 million, an 8% increase over the previous quarter
• Includes $137 million of revenues from the acquisition of 29 Verizon data centers
• Operating Income
• $225 million, a 22% increase over the previous quarter
• Adjusted EBITDA
• $550 million, a 48% adjusted EBITDA margin
• Includes $14 million of integration costs
• Net Income from Continuing Operations
• $80 million
• AFFO
• $391 million, a 9% increase over the previous quarter

2017 Annual Guidance Summary

• Revenues from continuing operations
• $4,355 - $4,363 million, a 21% increase over the previous year; a normalized and constant currency increase of 11%
• Adjusted EBITDA
• $2,049 - $2,057 million or a 47% adjusted EBITDA margin
• Assumes $54 million of integration costs for acquisitions
• AFFO
• $1,411 - $1,419 million, a 31% increase over the previous year; a normalized and constant currency increase of 14%
• Assumes $54 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 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.

Quote
Steve Smith, President and CEO, Equinix:
"Equinix had a strong third quarter as customers continue to adopt interconnection oriented architectures as the preferred platform for their shift to digital.  Robust demand is driving higher utilization levels, and we are investing in support of this momentum with expansions, both organically and through strategic acquisitions, to deliver even greater value to customers through our global platform.  As customers embrace hybrid and multicloud as the IT architecture of choice, our interconnection strength is resonating, and Equinix continues to outpace market growth and gain market share."

Business Highlights

• In Q3, Equinix continued, through both organic builds and acquisitions, to expand the industry-leading global reach of Platform Equinix^TM, which now spans 190 International Business Exchange™ (IBX^®) data centers across 48 markets and 24 countries.
• The purchase of Itconic, which closed in early Q4, added 400 customers across five new data centers in Spain and Portugal, further expanding Equinix's presence in EMEA and extending the company's footprint into two new countries and four new markets.
• Equinix also expanded in Turkey, completing the acquisition in early Q4 of its second IBX data center in Istanbul, a strategic gateway between Europe and Asia with critical economic and geopolitical importance.
• Organic expansion included the opening of the HK5 IBX in the TKO data center area of Hong Kong and the DC12 IBX at the Equinix Ashburn campus in the Washington, D.C. area. These openings add capacity in two of the company's most interconnection-rich markets.
• Continuing its investment in organic expansion, Equinix today announced 13 new expansion projects in the Americas (Denver, Miami and São Paulo), EMEA (Amsterdam, London, Stockholm and three new projects in Frankfurt) and APAC (Hong Kong, Melbourne, Shanghai and Singapore) regions totaling $615 million in capital expenditures. These new projects bring the total number of announced expansion projects underway to 22.
• These expansions come as customers continue to leverage the global scope of Platform Equinix to achieve a distributed digital edge. In Q3, more than 59% of revenues came from customers deployed across all three regions, up from 58% in Q2, and 84% came from customers deployed across multiple metros.
• Equinix achieved a record number of new wins across every vertical in Q3, a notable outperformance that included 10 new Fortune 500 wins from the enterprise and financial services verticals as these businesses re-architect their infrastructure to directly and securely interconnect their people, locations, clouds and data. The network vertical achieved record bookings with expansions from Charter Communications, and with continued momentum within the subsea space from Seaborn Networks and Aqua Comms.
• In Q3, Equinix continued growing the penetration of its indirect channel, with 19% of bookings originating from the channel, up from 17% last quarter. As a part of this strategy, partners such as Datalink, Datapipe and NetApp are beginning to build their value-added services around core Equinix offerings, including Equinix Cloud Exchange^TM and Equinix Performance Hub^TM.
• Interconnection revenues in Q3 grew 31% year-over-year and 17% year-over-year on a normalized and constant currency basis, significantly outpacing colocation revenues and reflecting the movement towards Interconnection Oriented Architecture^TM strategies and the rapid adoption of hybrid, multicloud as the preferred IT deployment model. Cross-connects between customers increased to more than 248,000, and the Equinix Cloud Exchange^TM platform now serves more than 950 customers.

Business Outlook

For the fourth quarter of 2017, the Company expects revenues to range between $1,187 and $1,195 million, an increase of 3% quarter over quarter at the midpoint, on both an as-reported and a normalized and constant currency basis. This guidance includes a negative foreign currency impact of $1 million when compared to the average FX rates in Q3 2017. Cash gross margins are expected to approximate 67%. Cash selling, general and administrative expenses are expected to range between $228 and $236 million. Adjusted EBITDA is expected to range between $562 and $570 million, which includes a $2 million negative foreign currency impact when compared to the average FX rates in Q3 2017, and $13 million of integration costs related to acquisitions. Capital expenditures are expected to range between $355 and $375 million, which includes approximately $65 million of recurring capital expenditures.

For the full year of 2017, total revenues are expected to range between $4,355 and $4,363 million, an increase of 21% year over year, or a normalized and constant currency increase of 11%. This $37 million guidance raise is due to better than expected combined operating business performance of $8 million, foreign currency benefit of $16 million when compared to prior Equinix guidance rates and $13 million in revenues from the Itconic and Istanbul 2 ("IS2") acquisitions. Total year cash gross margins are expected to approximate 67 - 68%. Cash selling, general and administrative expenses are expected to range between $883 and $891 million. Adjusted EBITDA is expected to range between $2,049 and $2,057 million, an increase of 24% year over year, or a normalized and constant currency increase of approximately 11%. This $10 million adjusted EBITDA raise is due to better than expected combined operating performance of $2 million, a foreign currency benefit of $7 million when compared to prior Equinix guidance rates and net $1 million in adjusted EBITDA from the Itconic and IS2 acquisitions. This guidance includes an expected $54 million in integration costs from acquisitions, and includes an incremental $2 million from IS2 and Itconic. AFFO is expected to range between $1,411 and $1,419 million, an increase of 31% year over year, or a normalized and constant currency increase of approximately 14%. This $28 million AFFO guidance raise is due to better than expected combined business performance of $20 million, foreign currency benefit of $7 million when compared to prior Equinix guidance rates and net $1 million in adjusted EBITDA from the Itconic and IS2 acquisitions. Capital expenditures are expected to range between $1,300 and $1,320 million, including approximately $170 million of recurring capital expenditure.

The U.S. dollar exchange rates used for 2017 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.13 to the Euro, $1.38 to the Pound, S$1.36 to the U.S. dollar,  ¥112 to the U.S. dollar and R$3.16 to the U.S. dollar. The Q3 2017 global revenue breakdown by currency for the Euro, Pound, Singapore Dollar, Japanese Yen and Brazilian Real is 18%, 9%, 6%, 6% and 4%, respectively.

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

Q3 2017 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended September 30, 2017, along with its future outlook, in its quarterly conference call on Wednesday, November 1, 2017, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on the Company's Investor Relations website at www.equinix.com/investors. To hear the conference call live, please dial 1-517-308-9482 (domestic and international) and reference the passcode EQIX.

A replay of the call will be available one hour after the call, through Wednesday, February 14, 2018, by dialing 1-203-369-1512 and referencing the passcode 2017. In addition, the webcast will be available at www.equinix.com/investors. No password is required for the webcast.

Investor Presentation and Supplemental Financial Information

Equinix has made available on its website a presentation designed to accompany the discussion of Equinix 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 48 markets across five continents, Equinix is where companies come together to realize new opportunities and accelerate their business, IT and cloud strategies.

Non-GAAP Financial Measures

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

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

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

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

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

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

Equinix also presents funds from operations ("FFO") and adjusted funds from operations ("AFFO"), which are non-GAAP financial measures commonly used in the REIT industry. FFO is calculated in accordance with the definition established by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income 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, amortization of deferred financing costs, 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 expected life of the installation, although the fees are generally paid in a lump sum upon installation. Equinix includes an adjustment for straight-line rent expense on its operating leases, since the total minimum lease payments are recognized ratably over the lease term, although the lease payments generally increase over the lease term. The adjustments for both installation revenues and straight-line rent expense are intended to isolate the cash activity included within the straight-lined or amortized results in the consolidated statement of operations. Equinix excludes the amortization of deferred financing costs as these expenses relate to the initial costs incurred in connection with its debt financings that have no current or future cash obligations. Equinix excludes gain 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 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 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 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; a failure to receive significant revenues from customers in recently built out or acquired data centers; failure to complete any financing arrangements contemplated from time to time; competition from existing and new competitors; the ability to generate sufficient cash flow or otherwise obtain funds to repay new or outstanding indebtedness; the loss or decline in business from our key customers; and other risks described from time to time in Equinix's filings with the Securities and Exchange Commission. In particular, see Equinix's recent quarterly and annual reports filed with the Securities and Exchange Commission, copies of which are available upon request from Equinix. Equinix does not assume any obligation to update the forward-looking information contained in this press release.

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