Equinix Posts Strong Quarterly Results, but Pares Back 2018 AFFO Guidance

Equinix (EQIX -0.66%) reported robust first-quarter 2018 financial results after the market close on Wednesday. 

Shares closed down 6.1% on Thursday, which we can probably attribute to the company revising slightly downward its full-year 2018 adjusted funds from operations (AFFO) outlook, as we'll get to in a moment. (AFFO is a closely watched metric for companies organized as real estate investment trusts, or REITs. It's akin to "earnings" for REITs.) 

Here's how the quarter worked out for the data center operator and global interconnection specialist and its investors.

Equinix's results: The raw numbers

Data source: Equinix. 

Equinix slightly exceeded the upper end of its guidance for revenue, which was between $1.204 billion and $1.212 billion; the company doesn't provide quarterly AFFO guidance. Wall Street was looking for AFFO per share of $4.94 on revenue of $1.21 billion, so Equinix sailed by the AFFO expectation and slightly surpassed the revenue consensus.

Image source: Getty Images.

What happened with Equinix in the quarter?

• Recurring revenue, consisting primarily of colocation, interconnection, and managed services, rose 28% year over year to $1.150 billion. Nonrecurring revenue also increased 28%, to $65.2 million.
• Completed builds in the Chicago, Osaka, and Paris metropolitan areas, and has 30 organic expansion projects currently under way. 
• The enterprise vertical continued to be the fastest growing segment, with growth across the healthcare, legal, and travel sub-verticals.
• New Fortune 500 customer wins included a global beauty company and a large health insurance provider. Additional key wins and expansions included Alibaba, Dropbox, and InterContinental Hotels Group.
• New expansions announced in the Amsterdam, Tokyo, and Zurich metros totaling more than $160 million of additional capital expenditures.  
• Launched new products and services, including Equinix SmartKey, a global key management and encryption software-as-a-service (SaaS) offering.
• While not in the quarter, it's worth noting that last month, the company closed its acquisitions of the Infomart Building in Dallas, which is one of the most connected facilities in the United States, and Metronode in Australia to expand the reach of its platform to 200 International Business Exchange (IBX) data centers across 52 markets globally. These acquisitions increased Equinix's percentage of revenue from owned assets to more than 45%. 

What management had to say

Here's what Peter Van Camp, executive chairman and interim CEO, had to say: 

As Equinix approaches its 20th anniversary, we are excited to post our 61st quarter of consecutive revenue growth, which is reflective of the critical role we serve in helping businesses interconnect their IT infrastructure to succeed in the digital economy. Equinix currently serves nearly half of the Fortune 500 and our recent acquisitions, combined with our currently announced organic expansions, have positioned Equinix to capture an even greater share of the market opportunity. 

Van Camp was Equinix's CEO from 2000 to 2007. Equinix is seeking a new leader, as former CEO Steve Smith resigned from his position, along with his seat on the board of directors, in late January after "exercising poor judgment with respect to an employee matter," according to Equinix. 

Looking ahead

Equinix turned in a solid quarter. The company provided second-quarter guidance, revised upward its 2018 revenue outlook, and pared back its 2018 AFFO guidance, which it issued last quarter.

For the second quarter, it expects revenue in the range of $1.257 billion to $1.267 billion, an increase of 4% quarter-over-quarter, or a normalized and constant currency growth rate of approximately 2%. Equinix does not issue quarterly AFFO guidance.

Data source: Equinix.

Equinix's revised AFFO guidance includes an incremental $40 million from the Infomart and Metronode acquisitions and a $10 million boost from foreign currency when compared to its initial outlook. It also includes $50 million of additional debt service costs related to the recent acquisitions, and an expected $50 million in integration costs.