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Equinix Earnings: Revenue Rises, but Currency Headwinds Decrease Funds From Operations

By Beth McKenna - Feb 22, 2016 at 11:05AM

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The global interconnection and data center company’s key funds from operation metric was negatively impacted by the purchase of European Telecity.

Image source: Equinix. Inside newly acquired Telecity's Dublin, Ireland, data center. 

Equinix ( EQIX -0.95% ) reported fourth-quarter and full-year 2015 results after the market closed on Thursday. Quarterly revenue increased on a year-over-year basis, however, funds from operations, a key metric for companies organized as real estate investment trusts, decreased from the year-ago period due to foreign exchange currency headwinds. 

Equinix's key quarterly numbers

Metric

Q4 2015

Q4 2014

Growth (YOY)

Revenue

$730.5

$638.1

14.5%

GAAP net income

$10.7 million

($355.1 million)

--

Earnings per share

$0.18

($6.42)

--

Adjusted funds from operations (FFO)

$178.3 million

$194.5 million

(8.3)%

Adjusted FFO per share

$2.85

$3.39

(15.9)%

Data source: Equinix.

For full-year 2015, Equinix generated adjusted funds from operations of $831.8 million on revenue of $2.7 billion, equating to year-over-year increases of 9% and 12%, respectively. 

Long-term investors shouldn't give too much weight to analysts' estimates, as Wall Street is notoriously short-term-focused. That said, market reactions can often be explained by analysts' expectations coupled with a company's forward guidance. So it's worth noting that analysts were expecting revenue of $715.59 million and adjusted funds from operations of $3.51 per share. Equinix surpassed revenue expectations, but fell short of the FFO consensus.

Quarterly revenue breakdown

  • Revenue included $21.6 million from Bit-isle, a European data center operator that the company acquired on Nov. 2.
  • Recurring revenue, consisting primarily of colocation, interconnection, and managed services, was $686.1 million, a 13% increase over the year-ago period. Non-recurring revenue was $44.4 million.

Telecity deal closes, but negatively affects funds from operations
Equinix closed on the Telecity acquisition, valued at approximately $3.8 billion, on Jan. 15. London-based Telecity is the operator of more than 40 data centers in Europe, which more than doubles Equinix's capacity in Europe. Equinix received clearance from the European Commission in November to acquire Telecity, contingent upon the divestiture of eight data centers in Europe, which the company plans to complete by mid-2016. (These data centers contributed approximately 4% of the combined Equinix and Telecity revenue for the first nine months of 2015.)

Equinix said that its funds from operations result was negatively affected in the quarter by a $49 million foreign currency exchange loss, primarily because of the Telecity purchase. This metric is a key measure for real estate investment trusts, as it's the primary driver of payouts to shareholders. FFO adds items such as depreciation and amortization back to net income.

Dividend increase
Equinix also announced that it's raising its quarterly cash dividend to $1.75 per share from $1.69, payable on March 23 to holders of record as of March 9. This equates to a dividend yield of 2.3% based on Friday's closing stock price of $299.37. 

What management had to say
Said Equinix CEO Steve Smith in the press release:

2015 was a transformational year for Equinix. We delivered accelerated growth, expanded our global platform with two strategic acquisitions, completed our first year operating as a REIT, and established ourselves as the foundation for the cloud ecosystem that continues to drive IT transformation. The strength of our business is translating into solid revenue growth, firm yield and healthy margins, all of which combine to give us the financial firepower to continue to invest in our global platform, develop innovative solutions, and continue to deliver significant value to our shareholders.

Looking ahead
Equinix provided guidance for the first-quarter and full-year 2016. For Q1, it expects revenue in the range of $838 million to $842 million, which equates to a year-over-year normalized and constant currency growth rate of 2.6%. Adjusted EBITDA is expected to be in the range of $368 million to $372 million.

For FY 2016, Equinix expects revenue to exceed $3.55 billion, which equates to a year-over-year normalized and constant currency growth rate of greater than 13%. Adjusted EBITDA is expected to be greater than $1.62 billion, equating to 6% year-over-year growth on a normalized and constant currency basis. Adjusted FFO is expected to exceed $970 million, which represents year-over-year growth of greater than 23% on a normalized and constant currency basis.

Going into earnings, analysts were projecting that Equinix's revenue for 2016 would be $3.24 billion and its adjusted FFO would be $16.23 per share. So, Equinix's revenue guidance exceeds the consensus estimate, while its adjusted FFO expectation falls short. (Equinix currently has 60.94 million shares outstanding, so the company's $970 million adjusted guidance equates to an adjusted FFO of $15.91 per share.)

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