01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Equinix (EQIX) closed fiscal 2007 with revenues of $419.4 milliona, up 46% from $286.9 million in 2006, and reported its first annual operating income in the period shown at $10.1 million, compared with $1.9 million in 2006 and an operating loss of $36.8 million in 2005.
Net loss narrowed to $5.2 millionb ($0.16 per share) from $6.4 million in 2006. Growth was driven by the September 2007 acquisition of IXEurope, which contributed $37.5 million of revenue for 109 days, and by organic expansion in the U.S. and Asia-Pacific, where recurring revenue represented 95% of total revenue. Customer count rose to 1,881 from 1,290, and IBM remained the largest customer at about 6% of revenue.
The balance sheet expanded sharply to $2.18 billionc in total assets from $772 million, largely from the IXEurope purchase (roughly $549 million), property additions and new IBX centers. Total debt, including convertible notes, reached roughly $1.1 billion, and stockholders' equity rose to $814.4 million after a $340 million common stock offering. Operating cash flow of $120.0 million was far below investing outflows of $1.05 billion, so the company remains dependent on external financing to fund its build-out.
Management expects capital spending of $150 to $200 milliond beyond the $100.1 million already contractually committed for 2008, and utilization of 58% excluding IXEurope signals meaningful capacity to fill. Key risks for investors include integration of IXEurope (where internal controls were excluded from the 2007 audit), high leverage with variable-rate exposure, power constraints limiting utilization, a full valuation allowance on U.S. deferred tax assets, and ongoing securities class action and stock-option derivative litigation. The company stated it has never paid cash dividends and does not expect to.
02—Key points
Key Highlights
- Revenue grew 46% to $419.4 million in 2007, with recurring revenue at 95% of the total, supported by IXEurope's first 109 days of contribution ($37.5 million).
- Operating income turned positive at $10.1 million (vs. $1.9 million in 2006), while net loss narrowed to $5.2 million, or $0.16 per share, from $6.4 million.
- Customer count rose 46% to 1,881 at year-end, though IBM still accounted for about 6% of 2007 revenue and the top 10 customers accounted for 23%.
- Total assets nearly tripled to $2.18 billion, driven by the IXEurope acquisition (about $549 million) and expansion capex; total indebtedness was roughly $1.1 billion, including $678 million of convertible notes.
- Operating cash flow of $120.0 million covered only a small part of $1.05 billion of investing outflows, so continued access to debt and equity markets is essential to the expansion plan.
- Utilization of 58% excluding IXEurope (73% on a net sellable capacity basis) indicates unused capacity, but power limitations cap practical utilization at roughly 75-80% in older centers.
- Management reported 99.999% uptime, and the company has never paid cash dividends and expects to retain earnings for growth.
03—Questions
Frequently Asked Questions
How did Equinix's financial performance change in 2007?
Revenue increased 46% to $419.4 million, operating income moved to $10.1 million from $1.9 million, and the net loss narrowed to $5.2 million from $6.4 million. Much of the growth came from the IXEurope acquisition and from new IBX centers in Chicago, New York, Washington D.C., Singapore and Tokyo.
What is the impact of the IXEurope acquisition on Equinix?
The September 2007 acquisition for about $549 million added European operations in the U.K., France, Germany and Switzerland, contributing $37.5 million of revenue and a $4.0 million operating loss in the 109 days owned. It also added $433 million of goodwill and $70 million of intangibles, and management excluded IXEurope's internal controls from its 2007 assessment.
How leveraged is Equinix and how is it funding expansion?
Total indebtedness was about $1.1 billion at December 31, 2007, against stockholders' equity of $814.4 million. Funding came from $250 million of 2.50% convertible notes, $396 million of 3.00% convertible notes, a $339.9 million common stock offering, and floating-rate loans tied to Chicago, Asia-Pacific and European projects, which increase interest-rate exposure.
What are the main risks highlighted in the filing?
Key risks include integrating IXEurope, substantial debt and the refinancing needs it creates, power limitations that could cap utilization, carrier dependence, a full valuation allowance on U.S. deferred tax assets, possible Section 382 limits on NOL use, customer concentration with IBM, and securities class action and stock-option derivative litigation.
Does Equinix pay dividends, and what are the 2008 capital plans?
Equinix has never paid cash dividends and does not expect to in the foreseeable future. For 2008, it has $100.1 million of contractually committed capex and expects an additional $150 to $200 million of non-contractual spending on IBX openings, including Chicago, Washington D.C., Los Angeles, Silicon Valley, Paris, Hong Kong, Sydney and Amsterdam (via Virtu, acquired in February 2008).
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