EQUINIX INC quarterly report, Q2 FY2016

Vollständiges Dokument

Business context and reporting period

Equinix, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. It operates data centers globally, providing colocation, interconnection and related infrastructure services. The company reports Americas, EMEA and Asia-Pacific segments and had operated as a REIT for U.S. federal tax purposes since January 1, 2015. Amounts below are in U.S. dollars unless noted.

Financial performance and position

  • Second-quarter revenue: $900.5 million, up 35% year over year (36% at constant currency). Recurring revenue was $851.8 million, or 95% of total revenue. Colocation contributed $662.7 million and interconnection $135.7 million.
  • Second-quarter earnings: Operating income was $151.7 million, up 9%; net income was $44.7 million versus $59.5 million. Continuing-operations net income was $39.3 million versus $59.5 million; discontinued operations contributed $5.4 million. Diluted EPS was $0.64 versus $1.03, including $0.08 from discontinued operations.
  • Second-quarter margins: Cost of revenue was 50.7% of revenue versus 47.4% a year earlier; operating margin was 16.8% versus 20.9%. Adjusted EBITDA was $420.3 million, up 35%, with a 46.7% margin versus 46.8%. AFFO was $290.5 million versus $221.4 million, up 31%. Adjusted EBITDA and AFFO are non-GAAP measures.
  • First-half results: Revenue was $1.745 billion, up 33%. Operating income was $264.3 million versus $290.6 million; net income was $13.6 million versus $135.9 million, and diluted EPS was $0.20 versus $2.37. Adjusted EBITDA rose 30% to $800.9 million; AFFO rose 13% to $500.4 million. The sharp GAAP earnings decline reflected, among other items, higher interest expense, acquisition costs and $59.2 million of other expense, primarily foreign-exchange losses.
  • Cash flow and investment: First-half operating cash flow was $383.1 million versus $445.3 million. Investing activities used $1.576 billion, including $1.602 billion for acquisitions and $447.6 million of capital expenditures. Financing activities used $546.3 million, including $246.7 million of dividends and $973.1 million of loan repayments.
  • Liquidity: Cash and cash equivalents were $483.2 million at June 30, down from $2.229 billion at December 31, 2015; cash, cash equivalents and investments totaled $494.2 million. Approximately $1.5 billion remained available under the revolving facility, after letters of credit.
  • Debt and obligations: Total indebtedness, including financing obligations, was approximately $7.1 billion. This included $3.9 billion principal of senior notes, $1.6 billion of mortgage and loans payable, and $1.6 billion of capital lease and other financing obligations. The company also reported about $1.6 billion in minimum operating-lease commitments.
  • Dividends: Equinix paid $1.75 per share in each of the first two quarters and declared another $1.75 quarterly dividend, payable September 14, 2016.

Material changes versus the prior comparable period

  • Revenue growth reflected organic demand and expansions, plus the acquisitions of TelecityGroup (closed January 15, 2016) and Bit-isle (acquired in 2015). TelecityGroup contributed $107.2 million of second-quarter revenue; Bit-isle contributed $37.3 million.
  • Revenue grew across all regions in the quarter: Americas 11%, EMEA 73% and Asia-Pacific 55% as reported. Acquisitions contributed materially to EMEA and Asia-Pacific growth.
  • Second-quarter net income declined despite higher revenue and operating income, while weighted-average diluted shares increased to 70.4 million from 57.5 million. First-half interest expense rose to $201.2 million from $143.3 million.
  • Utilization was approximately 82% at June 30, 2016 versus 79% a year earlier; excluding recently opened expansion capacity, management estimated utilization at 84%.

Outlook, management commentary, risks and unusual items

  • Management expected revenue to grow with customer bookings, recently opened capacity, planned expansions and acquired businesses. It described recurring revenue as the core of the business but provided no specific company-wide numeric revenue or earnings guidance in the filing.
  • Management expected operating costs and interest expense to rise as the business expands and integrates acquisitions, while expecting certain expenses to decline as a percentage of revenue over time. Power availability and rising power consumption per cabinet may constrain usable capacity and growth.
  • TelecityGroup’s acquisition created significant integration, transaction and divestment costs. In July 2016, Equinix completed the sale of eight European data centers and related assets to Digital Realty for approximately $827.2 million. On August 1, it acquired Digital Realty’s St. Denis, Paris business for approximately $211.7 million. The filing does not provide the final gain or loss on the divestiture.
  • The company identified REIT qualification and distribution requirements, substantial debt and refinancing needs, foreign-exchange volatility, Brexit-related uncertainty, acquisition integration, energy costs and availability, customer demand, and data-center reliability and security as important risks. A 10% exchange-rate appreciation/depreciation was estimated to change first-half revenue by +$96.2 million/−$97.9 million, excluding hedges.
  • First-half foreign-currency translation losses reduced other comprehensive income; second-quarter comprehensive loss was $182.5 million. Management said disclosure controls were effective at quarter end and reported no material change in internal control over financial reporting, while noting that TelecityGroup control integration was ongoing.
  • The filing reported no legal proceedings. It disclosed $44.1 million of accrued liabilities for uncertain tax positions and $441.9 million of unaccrued committed capital expenditures, in addition to $507.5 million of other purchase commitments.

Important facts for investors to verify

  • How much of reported revenue, EBITDA and AFFO growth is organic versus attributable to TelecityGroup, Bit-isle and newly opened capacity.
  • The continuing cost of TelecityGroup integration and divestiture, the ultimate proceeds and accounting outcome of the European sale, and the expected benefits and timing of integration.
  • Debt maturities, refinancing plans and interest costs, alongside the ability to fund dividends, committed expansion spending and future growth from cash flow and available liquidity.
  • REIT compliance, taxable income and distribution requirements, including whether acquired operations can be integrated into the REIT structure as planned.
  • Foreign-exchange exposure, Brexit-related developments, power capacity constraints, utilization trends and customer demand in key markets.