01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Equinix (EQIX) closed fiscal 2010 with revenue of $1,220.3 milliona, up 38% from $882.5 million, driven largely by the April 2010 Switch and Data acquisition (which contributed $153.0 million of North America revenue) and organic growth in customers (3,916 at year-end, up 50%) and IBX data center openings.
Recurring revenues were 95% of the total. Income from operations rose 7% to $194.7 million, but net income fell to $36.9 millionb ($0.82 diluted EPS) from $69.4 million, as interest expense more than doubled to $140.5 million and the company recorded a $10.2 million loss on debt extinguishment and swap terminations. Adjusted EBITDA, the company's primary non-GAAP metric, grew 33% to $544.8 million.
The balance sheet expanded materially: total assets rose to $4.45 billionc and total debt (convertibles, the new $750 million 8.125% senior notes due 2018, the Asia-Pacific loan, and capital leases) reached roughly $2.0 billion, while cash and investments totaled $592.8 million. Capital expenditures were $579.4 million, and operating cash flow of $392.9 million did not fully fund investment, so the company relied on debt and equity issued for the acquisition. Management expects 2011 construction spending to be similar to 2010, with eight new IBX openings or expansions planned, plus a pending investment in ALOG Data Centers of Brazil.
For investors, the key tensions are strong demand and pricing (utilization 74-76%, supply-demand imbalance) and high operating leverage against rising leverage, a $250 milliond 2.50% convertible due April 2012 that management intends to repay in cash, and execution risk on new IBX builds. Concentration risk is modest, as no customer exceeded 10% of revenue.
02—Key points
Key Highlights
- Revenue grew 38% to $1.22 billion, with roughly $153 million contributed by the Switch and Data acquisition completed April 30, 2010.
- Recurring revenue was 95% of total revenue ($1.16 billion), supporting predictable cash flow under one-to-three-year contracts.
- Adjusted EBITDA rose 33% to $544.8 million, while GAAP net income declined to $36.9 million ($0.82 diluted EPS) from $69.4 million due to higher interest expense.
- Interest expense more than doubled to $140.5 million, reflecting the $750 million 8.125% senior notes issued in February 2010 and convertible debt.
- Total indebtedness is approximately $2.0 billion against stockholders' equity of $1.9 billion, with $592.8 million of cash and investments.
- Capital expenditures were $579.4 million; management expects 2011 IBX expansion spending at similar levels and eight new IBX openings or expansions.
- Customer count reached 3,916 (up 50%) across 92 IBX data centers in 35 markets, with a 2010 uptime claim of 99.9999%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Equinix kept $0.03.
- Revenue$1.20B100.0%
- Cost of revenue−$652.2M54.5%
- Gross profit$544.1M45.5%
- Operating costs−$350.5M29.3%
- Operating income$193.6M16.2%
- Interest, other & tax−$156.7M13.1%
- Net income$36.9M3.1%
Where FY2010 revenue went
$1.20B- Cost of revenue: $652.2M, 55% of revenue
- Operating costs: $350.5M, 29% of revenue
- Interest, other & tax: $156.7M, 13% of revenue
- Net income: $36.9M, 3.1% of revenue
Kept 3.1% as net incomeNet income $36.9M · 3.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $1.20B$882.51M | +35.5% |
| Cost of Revenue | $652.16M$483.42M | +34.9% |
| Gross Profit | $544.06M$399.09M | +36.3% |
| Operating Expenses | $1.00B$701.43M | +42.9% |
| Operating Income | $193.60M$181.08M | +6.9% |
| Interest Expense | $140.47M$74.23M | +89.2% |
| Net Income | $36.88M$69.43M | −46.9% |
| EPS (Basic) | $0.84$1.80 | −53.3% |
| EPS (Diluted) | $0.82$1.75 | −53.1% |
| Shares Outstanding (Basic) | 43.74M38.49M | +13.7% |
| Shares Outstanding (Diluted) | 44.81M39.68M | +12.9% |
05—Questions
Frequently Asked Questions
Why did net income decline even though revenue and EBITDA grew strongly?
Net income fell to $36.9 million from $69.4 million mainly because interest expense rose to $140.5 million from $74.2 million, reflecting new senior notes and convertible debt. The company also recorded a $10.2 million loss on debt extinguishment and interest rate swap terminations, higher depreciation and amortization, and $12.3 million of acquisition costs, partly offset by a $3.6 million impairment recovery.
How is Equinix funding its expansion and how much leverage does it carry?
Expansion is funded through operating cash flow ($392.9 million in 2010), existing cash and investments ($592.8 million), and debt. Total indebtedness is about $2.0 billion, including $750 million of 8.125% senior notes due 2018, roughly $1.0 billion of convertible notes, and $261.9 million of capital lease and financing obligations. The company stated it has sufficient liquidity for announced projects but may need additional debt or equity for further expansion.
What are the key risks to watch in the filing?
Key risks include the substantial debt load and refinancing needs (notably the $250 million 2.50% convertible notes due April 2012, which management intends to repay in cash), execution risk and cost overruns on new IBX builds, power availability and rising electricity costs, customer churn in a weaker economy, the integration of Switch and Data, and pending litigation including the Pihana appeal. Equinix also notes that stock price volatility and possible dilution from convertible securities are material considerations.
What drove revenue growth and is it likely to continue?
Growth came from the Switch and Data acquisition, a 16% organic increase in North America revenue excluding the acquisition, and strong growth in Europe (+23% in constant currency terms for the region) and Asia-Pacific (+27% constant currency). The company cites a supply-demand imbalance in the data center market, a network-neutral ecosystem effect, and new IBX capacity coming online in 2011 as continuing drivers, though utilization in mature markets decreased to 76% excluding acquisitions.
How concentrated is Equinix's customer base?
The customer base is diversified. No single customer accounted for 10% or more of revenue in 2008, 2009, or 2010. Customers span cloud and IT services, content providers, enterprises, financial companies, and network service providers, and typical contracts run one to three years and renew.
06—Continue