Numbers were, once more, very solid, and the Company also introduced revenue guidance for 2009, forecasted between $870 and $892 million, an approximately 25% increase, at midpoint, on 2008 (giving for granted the Company will achieve its 2008 target).
Going through some of Equinix 3Q metrics:
Net cabinet increase (in the USA and Asia) in the quarter was 1,250, compared with 1,600 and 1,500 in the 2Q and 1Q 2008, respectively;
Cash gross margins remained at 62%, ahead of expectations. Examining the numbers by geographic region, cash gross margins improved in Europe (49%) and Asia (59%), while the USA number decreased to a still very healthy 67%;
Churn (excluding the European region, whose metrics are still not included in many data used by the Company) remained at 2%, in line with expectations;
10 Gigabytes per second Ethernet ports jumped to 155, a 41 unit increase, compared with 12 and 15 ports added in the 2Q and 1Q, respectively (more comments later, on this interesting datum);
MMR per salable cabinet increased to $ 1,654, compared with 1,650 and $ 1,603 in the 2Q and 1Q 2008, respectively (also these numbers exclude the European operations, and are impacted by the exchange rate as to the Asian contribution);
178 new customers in the quarter, compared with 144 and 160 in the 2Q and 1Q 2008, respectively (bringing total customers to 2,228, excluding some smaller accounts inherited with the Virtu acquisition in Holland);
Completed on-schedule the forecasted expansions in Amsterdam (new presence in that key European market), Frankfurt and Hong Kong;
Announced new expansions in London and Singapore, that add up to the previously announced expansion in Paris (see Equinix press release dated October 6)
The first comments to the conference call were mostly positive. For example, Tier 1 Research, in their daily newsletter, reported: “ Equinix's earnings call this week was a breath of fresh air for those of us who know that the Internet infrastructure sector is fundamentally strong”, and Rob Powel, in his Telecom Rumblings blog post added: “the results were as muscular as past quarters”.
Other analysts, like Oppenheimer's Srinivas Anantha, called the Company “a Safe Port in the Storm”.
In his opening remarks, Stephen M. Smith talked about the reasons for this outstanding result and the positive 2009 outlook (from the Seeking Alpha 3Q 2008 conference call transcript):
- “Other leading indicators such as pricing, churn, receivables and customer satisfaction continue to point in the right direction. As we talk to customers about their own planning for 2009, responses range from a strong view that they will need to continue to grow with us to some level of uncertainty in their budget process as next year unfolds. In all cases it is very clear that our services are not considered to be discretionary spending but are actually essential to their operations.”
Just a few notes as further comment to Equinix results:
the strong increase in 10 Gigabytes per second Ethernet ports confirms that Equinix has become THE hub, especially in the USA, for content providers and networks exchanging a strong flow of data (and the recent increase in video usage on the Internet is a strong driver for these numbers). Several new customers do join the Equinix GigE Exchange for their peering needs and often choose a 10 Giga port as a start (I may mention The Planet as an interesting customer added recently, and remind that this interconnection business is a high margin operation for the Company, with up to 90% margins);
during the call, the Company has further clarified its position related to the interconnection business in Europe (that accounts for a thin 3,8% of its revenues, right now, while the same service represents 9,5% and 18,9% in Asia and USA, respectively):
Stephen M. Smith
I think as we develop and position the total interconnection offering and bring Equinix in to full fold in Europe, we’re going to see the opportunity – we’re charging for cross connect now, we’ve got ourselves set up with our arrangements with LINX and AMS-IX and DE-CIX.
...
We are now starting to charge, I think we’re charging the equivalent of I want to say $100 for cross connects kind of US dollar kind of range, when that market wasn’t even doing that before. We’ve got activity in the pipeline today across all the regions in Europe so we’re starting to see it show up in the pipeline. We’ve got a couple markets as I mentioned in London where we’re actually harnessing off space just to aim at getting the interconnection business going.
Rodney Ratliff - Stanford Group Company
Well, you yourself said that that was a paradigm shift for Europe.
Stephen M. Smith
Yes. [IXEurope] didn’t spend a lot of time and didn’t focus. They were selling medium and large side suites. Now most of the centers in Europe have that and shared colo space set ups. So the model’s in place. We’ve got a leader in region now that’s very familiar with the model. The team is very excited about it and it’s starting to take hold. It’s going to take a while to get meaningful margin improvement but we are going to start seeing it. Eric Schwartz is held accountable to go figure that out.
Equinix forecasted expansion for 2009 and 2010 has been fine-tuned for most markets, and it is important to underline that it is fully funded, so that, while the Company might benefit from picking up distressed assets from other competitors who might find it hard, in this economic climate, to finance their activity, Equinix will not necessarily need to tap the capital markets for its growth initiatives (and the forecasted 2009 expansion Capex includes a $ 50 million allowance for further investments).
Here is a short summary of the next openings:
- 4Q 2008: + 1,100 cabinets (450 in Singapore and 650 in Sydney)
- 1Q 2009 + 900 cabinets (300 in New York and 600 in Amsterdam)
- 2Q 2009 + 2,900 cabinets (800 in L.A., 800 in New York and 1,300 in Paris)
- 3Q 2009 + 700 cabinets in Singapore
- 4Q 2009
- 1Q 2010 + 1,400 cabinets in London
(the new L.A. Data center has shifted the availability of 900 cabinets for future needs).
While every new opening will impact Equinix results in the short term (the costs of staffing and running the new centers do come ahead of the benefits from their revenues), Equinix has always been careful in shifting any possible cost as close to the opening as possible, as shown by this recent agreement with Digital Realty for the Paris data center:
In a few words, another solid quarter and a positive outlook for 2009, while the Company is continuing in its consistent execution.
As a curiousity, if you visit the Equinix site you'll notice the new logo and corporate image.
- A NEW EQUINIX EXPERIENCE
- Equinix launches new brand identity.
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