Equinix Reports First Quarter 2020 Results

REDWOOD CITY, Calif., May 6, 2020 /PRNewswire/ --

• Quarterly revenues increased 6% over the same quarter last year to $1.445 billion, or 7% on a normalized and constant currency basis, representing the 69^th consecutive quarter of revenue growth
• Key customer expansions included Hurricane Electric, TikTok and Zoom
• Customer deployments across multiple metros comprised 87% of total recurring revenues, demonstrating the value of the Equinix global platform
• Interconnection revenues in the quarter increased 14% over the same quarter last year, or 15% on a normalized and constant currency basis, a sustainable and steady increase over the past few quarters
• Peak Equinix Internet Exchange™ traffic increased 44% over the same quarter last year, or over 20% compared to the prior quarter, reflecting the impact of the sudden global shift to remote and work-from-home practices

Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company, today reported results for the quarter ended March 31, 2020. 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.

First Quarter 2020 Results Summary

Revenues

• $1.445 billion, a 2% increase over the previous quarter
• Includes $15 million of negative foreign currency impact when compared to prior guidance rates

Operating Income

• $253 million, a 19% decrease from the previous quarter, largely due to the sale of certain assets in Q4 to the EMEA xScale™ joint venture, and an operating margin of 18%

Adjusted EBITDA

• $684 million, a 47% adjusted EBITDA margin, including higher seasonal costs
• Includes $7 million of negative foreign currency impact when compared to prior guidance rates
• Includes $3 million of integration costs

Net Income and Net Income per Share attributable to Equinix

• $119 million, a 5% decrease from the previous quarter
• $1.38 per share, a 5% decrease from the previous quarter

AFFO and AFFO per Share

• $535 million, a 13% increase over the previous quarter
• $6.21 per share, a 13% increase over the previous quarter
• Includes $3 million of integration costs

2020 Annual Guidance Summary

Revenues

• $5.877 - $5.985 billion, a 6 - 8% increase over the previous year, or a normalized and constant currency increase of 7 - 9%
• Includes a negative foreign currency impact of $105 million when compared to the prior guidance FX rates due to a strong U.S. dollar compared to our more significant other operating currencies, including the Euro, Pound and Brazilian Real

Adjusted EBITDA

• $2.765 - $2.845 billion, a 47% adjusted EBITDA margin
• Includes a negative foreign currency impact of $48 million when compared to the prior guidance FX rates
• Assumes $20 million of integration costs

AFFO and AFFO per Share

• $2.043 - $2.133 billion, an increase of 6 - 10% over the previous year, or a normalized and constant currency increase of 11 - 16%
• $23.62 - $24.66 per share, an increase of 4 - 8% over the previous year, or a normalized and constant currency increase of 8 - 12%
• Includes a negative foreign currency impact of $35 million when compared to the prior guidance FX rates
• Assumes $20 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.

Equinix Quote
Charles Meyers, President and CEO, Equinix:

"These are unprecedented times and our hearts go out to those who have been impacted by COVID-19. We extend our gratitude to all the front-line workers who are helping to keep us safe and healthy during this global pandemic. The Equinix business continues to perform well and show resiliency through these times of uncertainty, enabling us to remain focused on the clear set of priorities we laid out at the beginning of the year—investing in our people, evolving our platform and service portfolio to meet the changing needs of customers, expanding our go-to-market engine to fuel long-term growth, and simplifying our business to drive operating leverage and enhance our customer experience."

Business Highlights

• Interconnection revenues in Q1 grew 14% year-over-year, or 15% on a normalized and constant currency basis, steadily rising over the last few quarters, reflecting the demand across our portfolio of interconnection products. Today, Equinix has the most comprehensive global interconnection platform, comprising over 370,000 physical and virtual interconnections. In Q1, Equinix added an incremental 6,800 interconnections, fueled by content video streaming and unified communication services. Equinix Cloud Exchange Fabric™ (ECX Fabric™) demonstrated strong growth in average revenue per user, as higher bandwidth and inter-metro connections become a larger share of the total.
• Equinix continues the growth of its indirect selling initiatives, as the company pursues high-value strategic channel partnerships. In Q1, channel activity accounted for approximately 30% of bookings, including wins across a wide range of industry segments with projects focused on digital transformation efforts, as well as COVID-19 responses.
• Equinix delivered strong bookings in the quarter, the second-best Q1 bookings performance in the company's history, reflecting diverse customer demand and robust interconnection growth. The network vertical achieved its third-highest bookings, with strong network reseller activity driving a diverse funnel of enterprise deals and internet capacity upgrades to support increased bandwidth for work-from-home employees. The content and digital media vertical also saw strong bookings with strength in video and social media.
• As part of the company's hyperscale initiative, on April 21, 2020, Equinix signed a greater than $1.0 billion initial 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 Japan. The three initial facilities in the joint venture—one in Osaka and two in Tokyo—will serve the unique core workload deployment needs of a targeted group of hyperscale companies, including the world's largest cloud service providers. This is Equinix's second joint venture with GIC. In 2019, Equinix and GIC announced the formation of a joint venture to develop and operate xScale data centers in Europe.
• On March 3, 2020, Equinix announced the completion of the $335 million acquisition of Packet. Now operating as "Packet, an Equinix company," the Packet team is contributing to Equinix's strategy to help enterprises seamlessly deploy hybrid multicloud architectures by developing new solutions that combine Packet's leading bare metal automation technology with the rich ecosystems, global reach and interconnection fabric of Platform Equinix^®.
• Equinix continues to advance the company's sustainability agenda with meaningful progress across environmental, social and governance (ESG) initiatives. On May 5, 2020, Equinix launched its fifth annual sustainability report highlighting FY19 ESG metrics and progress, reinforcing the company's commitment toward 100% clean and renewable energy use, and its transparency around the impact of the company's global operations as it continues to grow a sustainable business.

COVID-19 Update

Many of our IBX^® data centers have been identified as "essential businesses" or "critical infrastructure" by local governments for purposes of remaining open during the COVID-19 pandemic, and all IBX data centers remain operational at the time of filing of this press release. We have implemented precautionary measures to minimize the risk of operational impact and to protect the health and safety of our employees, customers, partners and communities. These include implementing tools such as an appointment-based system to control timing and frequency of visits while also encouraging our customers to leverage our IBX technicians via Smart Hands^® in order to restrict visits and minimize the number of people and the amount of time spent in our IBX facilities. For the health and safety of our employees, we have temporarily closed all of our corporate offices and instructed our non-IBX employees across the globe to work from home.

The full potential impact of the COVID-19 pandemic on our financial condition or results of operations remains uncertain and will depend on a number of factors, including its impact on our customers, partners and vendors, and the impact and functioning of the global financial markets. Additional information pertaining to the impact of COVID-19 on Equinix and our response thereto will be provided in our upcoming Form 10-Q for the quarter ended March 31, 2020.

Business Outlook

Equinix widened quarterly total revenues and adjusted EBITDA guidance ranges to account for the possible net financial impact associated with COVID-19. For the second quarter of 2020, the Company expects revenues to range between $1.446 and $1.466 billion, an increase of 0 - 2% quarter-over-quarter, or a normalized and constant currency increase of approximately 1 - 2%. This guidance includes a negative foreign currency impact of $17 million when compared to the average foreign currency ("FX") rates in Q1 2020 and an approximate $6 million impact from the COVID-19 reduction in revenues attributed to the waiver of certain Smart Hands fees. Adjusted EBITDA is expected to range between $679 and $699 million, including a negative foreign currency impact of $7 million when compared to the average FX rates in Q1 2020, $8 million of integration costs from acquisitions, and the flow-through impacts related to COVID-19. Recurring capital expenditures are expected to range between $26 and $36 million.

Equinix widened full-year total revenues, adjusted EBITDA and AFFO guidance ranges to account for the possible net financial impact associated with COVID-19. For the full year of 2020, total revenues are expected to range between $5.877 and $5.985 billion, a 6 - 8% increase over the previous year, or a normalized and constant currency increase of approximately 7 - 9%. Revenues attributed to the Packet acquisition are expected to range between $32 and $40 million. This guidance includes a negative foreign currency impact of $105 million when compared to the prior guidance FX rates. Adjusted EBITDA is expected to range between $2.765 and $2.845 billion, an adjusted EBITDA margin of 47% at the mid-point. This adjusted EBITDA includes a negative foreign currency impact of $48 million when compared to the prior guidance FX rates. For the year, the company expects to incur $20 million in integration costs related to acquisitions. AFFO is expected to range between $2.043 and $2.133 billion, an increase of 6 - 10% over the previous year, including a negative foreign currency impact of $35 million when compared to the prior guidance FX rates, or a normalized and constant currency increase of 11 - 16% and $20 million of integration costs related to our acquisitions. This updated AFFO guidance, on a constant currency basis, effectively reaffirms prior full-year underlying AFFO guidance at the mid-point. AFFO per share is expected to range between $23.62 and $24.66, an increase of 4 - 8% over the previous year, or a normalized and constant currency increase of 8 - 12%. This excludes any potential financing or refinancing the Company may undertake in the future. Non-recurring capital expenditures are expected to range between $1.900 and $2.090 billion, and recurring capital expenditures are expected to range between $150 and $160 million.

The U.S. dollar exchange rates used for 2020 guidance, taking into consideration the impact of our current foreign currency hedges, have been updated to $1.13 to the Euro, $1.28 to the Pound, S$1.42 to the U.S. dollar, ¥108 to the U.S. dollar, and R$5.21 to the U.S. dollar. The Q1 2020 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.

Q1 2020 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended March 31, 2020, along with its future outlook, in its quarterly conference call on Wednesday, May 6, 2020, 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, July 29, 2020, by dialing 1-203-369-0156 and referencing the passcode 2020. 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 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, risks to our business and operating results related to the COVID-19 pandemic; 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 and upcoming Equinix quarterly and annual reports filed with the Securities and Exchange Commission, copies of which are available upon request from Equinix. Equinix does not assume any obligation to update the forward-looking information contained in this press release.

SOURCE Equinix, Inc.

Related Links

http://www.equinix.com