Equinix Reports Solid Q1, Says Exposure to Pandemic’s Fallout Minimal

Like three other data center REITs, Equinix is cautiously forecasting a strong rest of 2020.

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New data hall being commissioned inside Equinix's PA8 data center in Pantin (outside Paris) in February 2019
New data hall being commissioned inside Equinix's PA8 data center in Pantin (outside Paris) in February 2019JACQUES DEMARTHON/AFP via Getty Images

While its first-quarter revenue took a relatively small hit from the COVID-19 pandemic, Equinix reported strong results for the period overall.

The world’s largest data center provider has been providing free remote-hands services to some of its customers struggling to get to their equipment in its facilities amid global lockdowns, company executives said on an earnings call Wednesday. It also paid one-time bonuses to employees working at the facilities and a stipend to employees sent to work from home to help deal with whatever difficulties the crisis had created for them. Together, these costs amounted to a $3 million hit to Equinix’s total revenue for the quarter.

While acknowledging that he and his colleagues “continue to navigate an uncertain environment,” Equinix CEO Charles Meyers said he was optimistic about the Redwood City, California-based data center REIT’s prospects for the second quarter and the rest of the year, given its limited “exposure” to industries hard hit by the lockdowns and the momentum behind digital-transformation initiatives the pandemic is expected to fuel.

“We’re feeling good about the early start to Q2,” Meyers said on the Equinix earnings call Wednesday. “We’re feeling good about where we’re headed.”

Similar themes ran across three other large US-based data center providers’ earnings reports for the first quarter, only the tail end of which saw the lockdowns ramp up globally. CoreSite, CyrusOne, and QTS all reported earnings last week, all reporting strong sales and revenue growth and describing minor exposure to the most pandemic-struck industries, while warning that the environment continues shifting.

Related:Three Data Center REITs Report Solid Q1, Minimal Pandemic Impact

All said they’ve already started seeing growth in demand the crisis has spurred directly, with companies expanding their digital capabilities to support remote workers or increase their capacity to serve customers who now rely on digital tools more than ever before. In many cases, data center customers have “pulled forward” infrastructure upgrades that were already in place but were scheduled for implementation over longer periods of time.

Meyers highlighted expansions by Zoom, to extend “coverage and scale to support their explosive market demand,” and by TikTok, which is “deploying edge nodes to support coverage and scale of its content delivery platform.” Both were “good examples of COVID-related demand on platform Equinix,” he said.

Equinix reported $1.44 billion in revenue for the quarter – up 6 percent year over year – and pointed out that this was its “69th consecutive quarter of revenue growth.” AFFO per share (the REIT equivalent of earnings per share) was $6.21 – up from $5.95 per share for the same quarter last year.

Related:Data Center Providers Adjust to Doing Business Remotely

The company adjusted its previous revenue guidance for the full year to account for COVID-19 risk, for weakened foreign currencies (particularly the Euro, the British pound, and the Brazilian real), and for revenue generated by Packet, the bare-metal cloud and edge computing company it acquired earlier this year (chart by Equinix):

equinix 2020 revenue guidance chart may.png

equinix 2020 revenue guidance chart may

The $50 million downward adjustment of the guidance due to COVID-19 risk is a rough estimate of what Equinix executives currently expect the pandemic’s total impact will be to its business this year.

“There's a lot going on with the global pandemic, and there has been some uncertainty that's created,” the company’s CFO, Keith Taylor, said on the call this week.

While the company’s sales pipeline is “very, very healthy,” the adjustment is a result of an exercise in “scenario planning,” he said. “And of course, we've thought about different things. Could there be an extension of the book-to-bill cycle? Could there be a weakening of the pipeline?”

Equinix’s exposure to industries currently most impacted by the pandemic, which it identified as travel, energy, and retail, is 3 percent of total revenue, the company said.

Some customers have asked for bill payment concessions as a result of the pandemic, Taylor said, but not to an extent that would be worrisome. “Absolutely there are customers out there that have asked for concessions,” he said. “It hasn’t amounted to anything significant at this point in time, but we are assuming that there will eventually be [more] customers who will ask for concessions.”

According to Meyers, the company had “healthy bookings” from the enterprise vertical during the first quarter, although not without any “COVID-related friction.”

Equinix saw “lighter” bookings from new customers toward the end of the quarter, he said, attributing it to the company’s sales team adjusting to doing their job remotely, without face-to-face customer meetings.

The team is having to learn a new set of skills, he said, in order to be able to “get an account over the line fully without physical interaction.”

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