Equinix Earnings Rise on Multi-Cloud Interconnection

Cyberfuture

By: Mary Jander

Equinix Inc. (Nasdaq: EQIX) delivered an upbeat 2Q 2020 earnings report this week, which executives credited to burgeoning demand for interconnection and data center services for hybrid cloud environments.

“The secular drivers of demand for digital infrastructure have never been stronger,” said CEO Charles J. Meyers on a conference call with analysts last night. "In Q2, we had an incremental 8,000 interconnects driven by streaming, video conferencing, enterprise cloud connectivity and investments in local ... aggregation to support work from home.”

Equinix reported quarterly revenues of $1.470 billion, up 6% year-over-year and 2% sequentially. EPS was $1.52 (up 10% sequentially, down 10% year-over-year) on net income of $133 million (up 12% sequentially, down 7% year-over-year).

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Any reductions from last year’s second quarter didn’t seem to blunt the relatively good news for this one. Equinix claimed a 49% adjusted EBITDA margin for this quarter, compared to 47% last quarter. And development of new facilities remained robust. This quarter, total capital expenditures were $482 million, up 20% sequentially and 9% from last year’s quarter.

What's Helping Equinix

Equinix execs say a focus on small or mid-sized interconnerction deals led to this quarter's successes. Customers are intent on linking enterprise clouds with high-performing edge services to support hybrid architectures. CEO Meyers cited 4,200 deals over 3,000 customers in 56 metros and 26 countries as evidence that many enterprises are looking to outside services for ready-made help.

The factors boosting Equinix are shared by others in its market space. Rival Digital Realty Trust (NYSE: DLR) reported increased revenue last quarter and is expected to do well again this quarter. Another competitor, Rackspace Technology, is preparing an IPO.

Equinix Looks to Hyperscale

A key focus for Equinix in the coming months will be building out what it calls its xScale project, a series of data center and interconnection facilities aimed at hyperscale providers, such as AWS, Microsoft Azure, Alibaba, and Google.

With help from a $1 billion-plus joint venture with GIC, a sovereign wealth fund based in Singapore, Equinix is planning centers in Tokyo and Osaka, Japan. Another project funded with GIC’s help is a data center in Paris called Paris 9, which Equinix says is already pre-leased to a hyperscale customer and will open early in 2021.

Expect More Leverage for EQIX

Equinix relies on debt and equity to fund its projects — a strategy it seems to have mastered over time. In a statement during the company’s Q4 earnings call in December 2019, CEO Meyers said, “[We} believe it is a combination of debt and equity that’s got us to where we need to be.”

In that vein, Equinix in June refinanced $2.6 billion of its high-yield debt at a reduced interest rate of 2.07%. Saving money on that deal helped offset dilution from a $1.27 billion in equity offering in May.

More M&A On the Way

Equinix’s wheeling and dealing extends to its approach to acquisitions. The company spent $335 million this year to buy Packet, in part to add bare-metal dedicated server options for enterprise customers.And in June, Equinix spent $750 million to buy 13 data centers from Bell Canada. Execs said they’ll continue to follow this path. “We have used M&A for market entry, for market scaling, for sort of capturing strategic interconnection assets,” said CEO Meyers yesterday.

From small interconnection deals to hyperscale leases, Equinix seems intent on focusing its efforts aggressively wherever it sees demand. Right now, that demand centers on interconnecting service providers, cloud vendors, and enterprises. So far, Equinix seems to be succeeding — as are other players in this segment. It's a safe bet this company is a good gauge of where the market’s heading.