Summary: TelecityGroup reported its 1H15 results, which showed signs of steady growth coming from gross order wins. The key storyline here is the pending US$3.6b acquisition by Equinix, effectively nullifying the initial move to merge with Interxion. Management expects the acquisition to close by 2Q16. We’ve covered the implications of Telecity being acquired by Equinix more extensively here and here.
Financials: Telecity top-line revenue for 1H15 came in at £173.5m (US$273m), roughly flat both y/y and sequentially due primarily to the impact of FX rate movements. From an organic currency-neutral (OCN) basis, revenue growth would have came in at a respectable 6.6% y/y with is roughly in-line with 1Q15’s OCN growth of 6.5%. Underlying revenue growth was 9.3%. The underlying growth rate is the key metric here as it adjusts for negative FX rate impact and prior y/y non-recurring items, which gives a more accurate reflection of y/y revenue performance. Comparing revenue numbers on a half-yearly basis, both the UK and Rest of Europe (RoE) segment’s revenue growth came in flat sequentially. Revenue per sold kW decreased 13% y/y to £4,082 (FY14: £4,531) which was due to a number of factors – FX shifts, geographic mix of new business and previously disclosed non-recurring items. Churn dropped to 6.3% and continues to trend downward after a 1H14 spike to 11.4% due to some high value churn in the UK.
Footprint: The company sold 6 MW of customer power in the period, 3.4 MW of that was sold during 1Q15 and 2.6 MW sold during 2Q15. Management noted it expects an uptick in sold power during 2H15 as more capacity begins to be absorbed in key markets. This brings the sold power percentage up to 75.1% (2H14: 73.3%). Occupancy in the UK and RoE are 68.3% and 78.6% respectively, both rates up h/h despite the addition of 5.4 MW of capacity. The connectivity and content vertical continues to be the strongest for Telecity, representing over half of its customer base. Looking at the group’s customer profile, the average customer contract size remains small (between £100-250k), reflecting relatively small high-value deployments even from large organizations. Total announced customer power increased to 170.1 MW, up from 164.5 MW in 2H14.
Customer takeaways:
- Current colocation customer count of 2,500
- Top 10 customers representing roughly 15% of recurring revenue base
- Over 95% of revenues are recurring in nature
- Typical contract length trending towards 36 months
- Telecity revenue split: 80% colocation, 20% services
- Amsterdam, Stockholm, Dublin and Frankfurt are the largest revenue contributing markets outside of UK
- Pricing appears to be stable in both the UK and RoE regions
1H15 expansion activity:
- Added 5.4 MW of data centre capacity in 1H15 – 3.1 MW in UK and 2.3 MW in RoE
- Added the 1.7 MW in Manchester and 1.3 MW in London Powergate – 3.1 MW added in UK total
- Added 1.3 MW in Helsinki
- Added 0.3 MW each in Milan, Istanbul and Warsaw and 0.1 MW in Paris
Angle: This reporting period for Telecity was a relatively confusing one due to negative FX rate impacts and non-recurring items that occurred during 2014 which affected its overall growth numbers. Management guided OCN growth for 2015 to fall between 8-10% y/y, and with 1H15’s OCN growth coming in at 6.6%, it shows some level optimism that growth in 2H15 is expected to surpass double digits in order to meet guidance. Management expects OCN growth to continue to trend upward in the medium-term between 9-12%. Not a whole lot of details were disclosed regarding the pending acquisition with Equinix, other than management noting it would essentially continue to operate as if it were not going to be acquired until the transaction closes in 2Q16 (estimated). Telecity launched its new cloud interconnection platform, Cloud-IX, though no real metrics were given regarding customer uptake. It is unlikely that this matches the level of maturity and sophistication of Equinix’s Cloud Exchange, which we fully expect to be take-over Cloud-IX and be deployed throughout Telecity’s data centre facilities once the transaction closes.
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