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Equinix (EQIX) AFFO Tops Estimates in Q2, Revenues Rise Y/Y

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Equinix Inc. (EQIX - Free Report) posted better-than-expected results for second-quarter 2018, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved from the year-ago quarter as well.

The company’s adjusted funds from operations (AFFO) advanced from $4.59 per share reported in the year-earlier quarter to $5.37 per share. The Zacks Consensus Estimate was pegged at $5.06. The uptick primarily stemmed from robust top-line growth and strong operating performance, partially offset by an elevated cost of revenues.

Quarter in Detail

Total revenues came in at $1.26 billion, up 18% from the prior-year quarter, beating the Zacks Consensus Estimate of $1.2 billion. Encouragingly, this also marks the 62nd quarter of consecutive revenue growth.

Equinix continues to witness solid demand for cloud services from corporations interested in enhancing firms’ networks. The company witnessed revenue growth across all three geographic regions and verticals. Stellar growth in the global Colocation and Interconnection platforms bolstered the top line.

Recurring revenues came in at $1.19 billion (94.2% of total revenues), up approximately 17.5% from the year-ago tally. Non-recurring revenues climbed 31.6% to $74.1 million (5.8% of total revenues).

Revenues from the three geographic regions increased on a year-over-year basis as well. Revenues from the Americas, EMEA and the Asia Pacific were up 15.9%, 18.6% and 11.5% to $618.3 million, $383.2 million and $260.5 million, respectively.

Gross margin was 48.3%, marginally down from 51% reported in the comparable period last year, primarily due to elevated cost of revenues as a percentage of sales. Total operating expenses flared up around 10% to $395.1 million. Nonetheless, operating expenses contracted 300 basis points (bps) as a percentage of revenues to 31%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $604 million, up 18.6%. Adjusted EBITDA margins came in at 48% flat year over year. AFFO increased 18.9% to $428 million during the June-end quarter.

Balance Sheet & Cash Flow

Equinix exited the second quarter with cash, cash equivalents and short-term investments of $984.5 million. The company’s total debt principal outstanding was $11.5 billion as of Jun 30, 2018. It generated cash of $538.7 million from operating activities in the quarter under review.

Dividend Update

Concurrent with its Q2 earnings release, Equinix’s board of directors approved a quarterly cash dividend of $2.28 per share. The dividend will be paid on Sep 19 to shareholders of record on Aug 22, 2018.

Guidance

Equinix provided an outlook for the third quarter and revised a few full-year 2018 projections.

For 2018, the company now anticipates revenues of $5.037-$5.077 billion (prior guidance was $5.082-$5.122 billion), reflecting an increase of 16% year over year. The Zacks Consensus Estimate is pegged at $5.1 billion.

The company now predicts adjusted EBITDA to be in the range of $2.379-$2.419 billion (prior guidance was $2.395-$2.435 billion).

Equinix anticipates full-year 2018 AFFO to be in the $1.596-$1.636 billion band, reflecting year-over-year growth of 12%. Earlier, the AFO figure was estimated between $1.595 billion and $1.635 billion.

Coming to the third quarter, Equinix expects revenues in the range of $1.27-$1.28 billion. The Zacks Consensus Estimate is pegged at $1.3 billion. Adjusted EBITDA is likely to lie between $591 million and $601 million.

Our Take

We are impressed with Equinix’s stellar performance in the April-June quarter. It witnessed higher bookings across all geographies. The top-line growth mainly stemmed from solid demand for cloud services from corporations and benefits from the company’s global platform.

Additionally, during the quarter, Eqinix announced that it has formed a joint venture (JV) with Oman Telecommunications Company — also known as Omantel — to work on a new network-dense data center in Barka, located near Muscat, the capital of Oman.

The new Equinix International Business Exchange (IBX) data center will provide better access to the growing global subsea cable network to the company’s Middle East customers and create a regional interconnection hub.

Nevertheless, we are concerned about the company’s rising debt burden, which may affect its operating results as interest expenses are likely to flare up. Furthermore, intensifying competition from established Internet data-center operators such as AT&T (T - Free Report) might impact product pricing while consequently denting margins. A highly leveraged balance sheet and industry consolidation add to its woes.

Equinix, Inc. Price and EPS Surprise
 

Equinix, Inc. Price and EPS Surprise | Equinix, Inc. Quote

Equinix carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Kimco Realty Corp.’s (KIM - Free Report) second-quarter 2018 FFO came in at 37 cents per share, surpassing the Zacks Consensus Estimate by a whisker. However, the reported tally came in lower than the year-ago figure of 38 cents.

Simon Property Group, Inc. (SPG - Free Report) reported Q2 FFO of $2.98 per share, which beat the Zacks Consensus Estimate of $2.91. The FFO per share figure also came in 20.6% higher than the year-ago tally of $2.47.

Note:Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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