Equinix's Q1 Revenue Rises, but AFFO Still Hurt by Currency Headwinds

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

Equinix (NASDAQ: EQIX) reported first-quarter 2016 results after the market closed on Wednesday. The global interconnection and data center company's revenue increased from the previous year's period. Adjusted funds from operations (AFFO) declined, however, as it continues to be negatively affected by foreign-exchange currency headwinds.

AFFO is a closely watched metric for companies organized as real estate investment trusts (REITs), as it's a driver of payouts to shareholders. It's calculated by taking net income, and adding back items such as depreciation and amortization.

The market's reaction was relatively muted, with shares falling 1.2% on Thursday. Equinix stock has returned 26% for the one-year period through May 4, crushing the S&P 500's nearly flat return.

Equinix's key quarterly numbers

Data source: Equinix.

AFFO includes a whopping $63.5 million foreign-currency exchange loss, primarily attributed to the Telecity acquisition, and $13.3 million of integration costs.

Equinix beat its revenue guidance of $838.0 million to $842.0 million, as well as its adjusted EBITDA outlook of $368.0 million to $372.0 million. Adjusted EBITDA came in at $380.7 million. The company doesn't provide quarterly AFFO guidance. 

Long-term investors shouldn't give too much power to analysts' estimates, as Wall Street is focused on the short term. That said, market reactions can often be explained by these expectations, so they can be worth knowing. Analysts were expecting AFFO of $3.23 per share on revenue of $835.18 million, so Equinix beat revenue expectations, but fell short of the AFFO consensus.

Revenue breakdown

• Of the total revenue, $34.2 million was generated from Bit-isle, a European data-center operator acquired on Nov. 2 and $84.4 million from Telecity, a European data-center operator acquired on Feb. 15.

• Recurring revenue, consisting primarily of colocation, interconnection, and managed services, was $797.1 million, a 31% increase over the year-ago period. Non-recurring revenue was $47.1 million.

Divestiture of select Telecity locations on tap
As a reminder, Equinix's clearance from the European Commission to acquire London-based TeleCity, which operates more than 40 data centers in Europe, was contingent upon the company divesting eight data centers in Europe. Equinix plans to complete the divestures by mid-2016. (These data centers contributed approximately 4% of the combined Equinix and Telecity revenue for the first nine months of 2015.) 

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

2016 is off to a strong start with both revenue and adjusted EBITDA above the top end of our guidance ranges for the first quarter. We continue to see strength in all three regions as the scale of our global platform addresses the growing demand for businesses as they move to distributed infrastructure environments and re-architect their IT delivery to better interconnect people, locations, clouds and data. With the integration of Telecity and Bit-isle, our reach now spans 21 countries, 40 metros, and 145 IBX centers, enabling customers to reach all of the world's top business markets. This global scale provides a critical source of differentiation for the company and a strong platform for continued growth.

Looking ahead 
Equinix provided guidance for Q2, and edged up its previously established full-year 2016 outlook. The company expects Q2 revenue in the range of $893 million to $899 million. At the midpoint, this represents year-over-year growth of 34.6%.

It doesn't provide quarterly AFFO guidance. Going into earnings, analysts were projecting that Equinix's Q2 revenue and AFFO would be $872.16 million and $3.55 per share, respectively. So, the low-end of Equinix's revenue guidance exceeded analysts' expectations. 

FY 2016 guidance

Image source: Equinix.

Investors shouldn't read much into the bump up in 2016 guidance, as it's largely due to Equinix expecting less of a currency impact than it did when it established its outlook last quarter.