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Equinix (EQIX) Tops Q4 AFFO & Revenue Estimates, Guides Well


Equinix Inc. EQIX posted better-than-expected fourth-quarter 2017 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and increased from the year-ago quarter as well.

The company’s adjusted funds from operations (AFFO) advanced from $4.08 per share reported in the year-ago quarter to $4.82 per share. The Zacks Consensus Estimate was pegged at $4.80. The uptick primarily stemmed from robust top-line growth and strong operating performance, partially offset by elevated 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 revenues came in at $1.2 billion, up 27.3% from the year-ago quarter, beating the Zacks Consensus Estimate of $1.193 billion. This marked the 60th quarter of consecutive revenue growth. The year-over-year improvement was primarily driven by strong booking activity, global expansion, continued enterprise momentum and synergies from acquisition.

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

Moreover, solid performance in MRR (monthly recurring revenues) per cabinet, MRR churn rate (2.2%) and cross connect additions drove the top line. Recurring revenues came in at $1.123 billion (94% of total revenues), up approximately 25.8% from the year-ago quarter. Non-recurring revenues climbed 54.6% to $77.6 million (6% of total revenues).

Revenues from the three geographic regions increased on a year-over-year basis as well. Revenues from the Americas, EMEA and Asia Pacific were up 38.9%, 22.4% and 9.8% to $606.2 million, $369.6 million, and $224.4 million, respectively.

Gross margin was 48.4%, down from 50.6% reported in the year-ago quarter, primarily due to elevated cost of revenues as a percentage of sales. Total operating expenses flared up 19.3% to $348.6 million. Further, operating expenses contracted 200 basis points (bps) as a percentage of revenues to 29%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $564.8 million, up 29.4%. Adjusted EBITDA margins came in at 47.1% as compared with 46.3% reported in the year-ago quarter. AFFO increased 29.9% to $381.5 million during the reported quarter.

Equinix, Inc. Price, Consensus and EPS Surprise

Balance Sheet & Cash Flow

Equinix exited the fourth quarter with cash, cash equivalents and short-term investments of $1.441 billion. The company’s total debt principal outstanding was $10.17 billion as on Dec 31, 2017. It generated cash of $1.439 billion from operating activities in 2017.


Equinix provided outlook for the first quarter and full-year 2018. For 2018, the company anticipates revenues to come above $5.010 billion, reflecting an increase of 15% year over year. The Zacks Consensus Estimate is pegged at $5.05 billion. The company predicts adjusted EBITDA to exceed $2.385 billion.

The company anticipates full-year 2018 AFFO to be more than $1.635 billion, reflecting growth of 14% year over year.

The company expects cash gross margin for the full year to be approximately 67%. Cash selling, general and administrative (SG&A) expenses are projected in the range of 19-20% of revenues.

Coming to the first quarter, Equinix expects revenues in the range of $1.204-$1.212 billion (mid-point $1.208 billion). The Zacks Consensus Estimate is pegged at $1.21 billion. Adjusted EBITDA is likely to lie between $549 million and $557 million.

Cash gross margin for the first quarter is anticipated to be approximately 67%. Cash selling, general and administrative (SG&A) expenses are projected be approximately 21% of revenues.

Our Take

Equinix reported stellar fourth-quarter results. Revenues were mainly driven by strong demand for cloud services from corporations and benefits of Equinix's global platform. The company witnessed revenue growth across all three geographic regions and verticals. Further, the company provided encouraging revenue guidance for the first quarter and full-year 2018.

The company is currently focusing on improving customer experience through the Equinix Customer One program. We are also optimistic on its recurring revenue model and expansion plans announced in March last year.

Further, it operates across various geographical regions and is becoming increasingly popular among major players in the tech industry for data management, which should drive revenues in the near term.

Notably, acquisitions have been a major growth driver for Equinix. We expect the company’s buyouts of Telecity Group, Bit-isle and Nimbo to prove conducive to growth.

Expansion in important markets and consolidation of facilities in existing ones are important components of Equinix's core strategy. We believe the company’s focus on offering upgraded technology to attract clients will bolster revenues and profitability, going forward.

However, intensifying competition from established Internet data-center operators, such as AT&T T and CenturyLink Inc. CTL, might impact product pricing, consequently denting the margins.

A highly leveraged balance sheet and industry consolidation add to its woes.

Equinix carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Micron Technology MU which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock has a long-term expected EPS growth rate of 10%.

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