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Equinix (EQIX) Tops on Q3 AFFO & Revenues, Raises View
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Equinix Inc. (EQIX - Free Report) posted strong third-quarter 2016 results, wherein both the top and the bottom line not only came ahead of the Zacks Consensus Estimate but also increased significantly from the year-ago quarter.
The company’s adjusted funds from operations (AFFO) increased 8.2% year over year to $3.95 per share and surpassed the Zacks Consensus Estimate $3.39. The increase is mainly attributable to strong top-line growth, partially offset by higher cost of revenues and share count.
AFFO is a non-GAAP financial measure generally used in the Real Estate Investment Trust (REIT) industry.
Quarter in Detail
Total revenue was $924.7 million, up 34.7% from the year-ago quarter, and beat the Zacks Consensus Estimate of $686.6 million. The year-over-year improvement was mainly driven by strong booking activity, net positive pricing actions, and the acquisitions of Telecity and Bit-isle.
In the third quarter, total revenue included contributions from newly acquired businesses, Telecity and Bit-isle, which accounted for $107.3 million and $39.7 million, respectively.
Equinix continues to witness strong demand for its cloud services from corporations interested in enhancing their networks. The company witnessed revenue growth across all three geographic regions and verticals. Robust growth in the global Colocation and Interconnection platforms boosted the top line.
Moreover, solid performance in MRR (monthly recurring revenues) per cabinet, MRR churn rate (2%) and cross connect additions drove the top line. Recurring revenues came in at $877.5 million (95% of total revenue), up about 35.7% from the year-ago quarter. Non-recurring revenues surged 18.2% to $47.2 million (5% of the total revenue).
Revenues from the three geographic regions increased on a year-over-year basis too. Revenues from the Americas, EMEA and Asia-Pacific were up 11.1%, 69.7% and 56.8% to $425.1 million, $301.3 million and $198.3 million, respectively.
Gross margin was 67% compared with 69.2% last year, primarily due to increased cost of revenues as a percentage of sales. Total operating expenses increased 30.1% to $199.8 million. However, as a percentage of revenues, operating expenses went down 80 basis points (bps) to 21.6%.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $420 million, up 30.7%. AFFO increased 35.1% to $284.2 million. On a per-share basis, AFFO was $3.95, compared with $3.65 in the year-ago quarter.
Balance Sheet & Cash Flow
Equinix exited the quarter with cash, cash equivalents and short-term investments of $988.4 million. The company’s total debt principal outstanding was $6.98 billion as on Sep 30, 2016. It generated cash of $334.2 million from operating activities in the third quarter and $717.3 million in the first nine months of 2016.
Guidance
Buoyed by the strong top-line performance in the third quarter, Equinix raised its full-year revenue and AFFO expectations. Anticipating contributions from the acquisitions of Telecity and Bit-isle, the company now projects revenues to come between $3.609 billion and $3.615 billion (mid-point $3.612 billion), which exceeds its previous guidance range of $3.598 billion and $3.608 billion (mid-point $3.603 billion). The Zacks Consensus Estimate is pegged at $3.610 billion. Telecity and Bit-isle are anticipated to contribute $553 million to $559 million to the company’s total revenue.
Cash gross margin is anticipated be approximately 67%. Cash selling, general and administrative (SG&A) expenses are now projected in the range of $779 million to $785 million (mid-point $782 million), down from its earlier guidance of $782–$792 million (mid-point $787 million).
The company predicts adjusted EBITDA to be in the range of $1.650 billion to $1.656 billion (mid-point $1.653 billion), lower than the earlier expectation of $1.658 billion to $1.668 billion (mid-point $1.663 billion). Capital expenditure is expected to be approximately $1 billion compared with its previous guidance range of $950 million to $1 billion (mid-point $975 million).
AFFO is anticipated to be $1.059–$1.065 billion (mid-point $1.062 billion), higher than the previous projection of $1.04–$1.05 billion (mid-point $1.045 billion).
For the fourth quarter, Equinix expects revenues in the range of $940 million to $946 million (mid-point $943 million). The midpoint is slightly lower than the Zacks Consensus Estimate of $944 million. Cash gross margin is expected to be approximately 67%, while SG&A expenses are expected in the $199–$205 million band.
Adjusted EBITDA is likely to be $429 million to $435 million. Capital expenditure is projected to be approximately $273 million.
Our Take
Equinix reported better-than-expected third-quarter results. The company’s top and bottom line results also improved on a year-over-year basis. Revenues were mainly driven by strong demand for cloud services from corporations and benefits of the recently acquired Telecity and Bit-isle businesses. Equinix witnessed revenue growth across all three geographic regions and verticals.
Moreover, the upbeat guidance for full-year 2016 was encouraging. Equinix is presently focusing on improving customer experience through the Equinix Customer One program. We are also optimistic on the company’s recurring revenue model and expansion plans announced in March this year.
Equinix operates across various geographical regions and is becoming increasingly popular among major players in the tech industry for data management, which should drive its revenues going ahead.
However, intensifying competition from established Internet data center operators such as AT&T (T - Free Report) and CenturyLink Inc. may affect product pricing, thereby denting Equinix’s margins.
A highly leveraged balance sheet and industry consolidation add to its woes.
Another stock worth considering in the broader technology sector is Amkor Technology Inc. (AMKR - Free Report) , sporting a Zacks Rank #1. The company has surpassed the Zacks Consensus Estimate thrice while matching the same once in the trailing four quarters with an average positive earnings surprise of 62.50%. Moreover, the stock has a positive Earnings ESP of 17.39% for fourth-quarter 2016.
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Equinix (EQIX) Tops on Q3 AFFO & Revenues, Raises View
Equinix Inc. (EQIX - Free Report) posted strong third-quarter 2016 results, wherein both the top and the bottom line not only came ahead of the Zacks Consensus Estimate but also increased significantly from the year-ago quarter.
The company’s adjusted funds from operations (AFFO) increased 8.2% year over year to $3.95 per share and surpassed the Zacks Consensus Estimate $3.39. The increase is mainly attributable to strong top-line growth, partially offset by higher cost of revenues and share count.
AFFO is a non-GAAP financial measure generally used in the Real Estate Investment Trust (REIT) industry.
Quarter in Detail
Total revenue was $924.7 million, up 34.7% from the year-ago quarter, and beat the Zacks Consensus Estimate of $686.6 million. The year-over-year improvement was mainly driven by strong booking activity, net positive pricing actions, and the acquisitions of Telecity and Bit-isle.
In the third quarter, total revenue included contributions from newly acquired businesses, Telecity and Bit-isle, which accounted for $107.3 million and $39.7 million, respectively.
Equinix continues to witness strong demand for its cloud services from corporations interested in enhancing their networks. The company witnessed revenue growth across all three geographic regions and verticals. Robust growth in the global Colocation and Interconnection platforms boosted the top line.
Moreover, solid performance in MRR (monthly recurring revenues) per cabinet, MRR churn rate (2%) and cross connect additions drove the top line. Recurring revenues came in at $877.5 million (95% of total revenue), up about 35.7% from the year-ago quarter. Non-recurring revenues surged 18.2% to $47.2 million (5% of the total revenue).
Revenues from the three geographic regions increased on a year-over-year basis too. Revenues from the Americas, EMEA and Asia-Pacific were up 11.1%, 69.7% and 56.8% to $425.1 million, $301.3 million and $198.3 million, respectively.
Gross margin was 67% compared with 69.2% last year, primarily due to increased cost of revenues as a percentage of sales. Total operating expenses increased 30.1% to $199.8 million. However, as a percentage of revenues, operating expenses went down 80 basis points (bps) to 21.6%.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $420 million, up 30.7%. AFFO increased 35.1% to $284.2 million. On a per-share basis, AFFO was $3.95, compared with $3.65 in the year-ago quarter.
Balance Sheet & Cash Flow
Equinix exited the quarter with cash, cash equivalents and short-term investments of $988.4 million. The company’s total debt principal outstanding was $6.98 billion as on Sep 30, 2016. It generated cash of $334.2 million from operating activities in the third quarter and $717.3 million in the first nine months of 2016.
Guidance
Buoyed by the strong top-line performance in the third quarter, Equinix raised its full-year revenue and AFFO expectations. Anticipating contributions from the acquisitions of Telecity and Bit-isle, the company now projects revenues to come between $3.609 billion and $3.615 billion (mid-point $3.612 billion), which exceeds its previous guidance range of $3.598 billion and $3.608 billion (mid-point $3.603 billion). The Zacks Consensus Estimate is pegged at $3.610 billion. Telecity and Bit-isle are anticipated to contribute $553 million to $559 million to the company’s total revenue.
Cash gross margin is anticipated be approximately 67%. Cash selling, general and administrative (SG&A) expenses are now projected in the range of $779 million to $785 million (mid-point $782 million), down from its earlier guidance of $782–$792 million (mid-point $787 million).
The company predicts adjusted EBITDA to be in the range of $1.650 billion to $1.656 billion (mid-point $1.653 billion), lower than the earlier expectation of $1.658 billion to $1.668 billion (mid-point $1.663 billion). Capital expenditure is expected to be approximately $1 billion compared with its previous guidance range of $950 million to $1 billion (mid-point $975 million).
AFFO is anticipated to be $1.059–$1.065 billion (mid-point $1.062 billion), higher than the previous projection of $1.04–$1.05 billion (mid-point $1.045 billion).
For the fourth quarter, Equinix expects revenues in the range of $940 million to $946 million (mid-point $943 million). The midpoint is slightly lower than the Zacks Consensus Estimate of $944 million. Cash gross margin is expected to be approximately 67%, while SG&A expenses are expected in the $199–$205 million band.
Adjusted EBITDA is likely to be $429 million to $435 million. Capital expenditure is projected to be approximately $273 million.
Our Take
Equinix reported better-than-expected third-quarter results. The company’s top and bottom line results also improved on a year-over-year basis. Revenues were mainly driven by strong demand for cloud services from corporations and benefits of the recently acquired Telecity and Bit-isle businesses. Equinix witnessed revenue growth across all three geographic regions and verticals.
EQUINIX INC Price, Consensus and EPS Surprise
EQUINIX INC Price, Consensus and EPS Surprise | EQUINIX INC Quote
Moreover, the upbeat guidance for full-year 2016 was encouraging. Equinix is presently focusing on improving customer experience through the Equinix Customer One program. We are also optimistic on the company’s recurring revenue model and expansion plans announced in March this year.
Equinix operates across various geographical regions and is becoming increasingly popular among major players in the tech industry for data management, which should drive its revenues going ahead.
However, intensifying competition from established Internet data center operators such as AT&T (T - Free Report) and CenturyLink Inc. may affect product pricing, thereby denting Equinix’s margins.
A highly leveraged balance sheet and industry consolidation add to its woes.
Equinix has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Another stock worth considering in the broader technology sector is Amkor Technology Inc. (AMKR - Free Report) , sporting a Zacks Rank #1. The company has surpassed the Zacks Consensus Estimate thrice while matching the same once in the trailing four quarters with an average positive earnings surprise of 62.50%. Moreover, the stock has a positive Earnings ESP of 17.39% for fourth-quarter 2016.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>