01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
Equinix (EQIX) closed fiscal 2011 with revenue of $1.607 billiona, up 32% year over year (29% in constant currency), driven by the Switch & Data acquisition (full-year contribution in 2011), the ALOG acquisition in Brazil, and organic growth in customers and utilization.
Operating income rose to $307.2 millionb from $194.7 million, and adjusted EBITDA reached $738.4 million, up from $544.8 million. Net income attributable to Equinix was $94.0 million, or $1.72 diluted EPS, compared with $36.9 million in 2010. Recurring revenues were 95% of the total, supporting the company's recurring-revenue model.
Customer count excluding ALOG rose 10% to 4,724, and cabinet utilization improved to about 80% from 74%. The balance sheet became more leveraged. Total indebtedness was about $3.1 billionc, against $2.0 billion of stockholders' equity and $1.1 billion of cash and investments.
The company issued $750 milliond of 7.00% senior notes due 2021 in July 2011, and interest expense rose to $181.3 million from $140.5 million. Management expects interest expense to increase by roughly $53.9 million annually from the new notes. Operating cash flow was $587.6 million, but capital expenditures of $685.7 million on property and equipment, plus acquisitions and real estate, kept free cash flow negative.
Management targets free cash flow positivity in 2013, which the filing itself flags as uncertain. Key risks include the high debt load and covenant restrictions, European sovereign debt exposure (about 15% of gross trade receivables sit in EMEA), foreign currency translation, power availability constraints in existing IBX data centers, and securities class action and derivative litigation. The company also disclosed $988.1 million of minimum operating lease commitments, $338.7 million of contracted capital expenditures, and an accumulated deficit of $255.1 million.
The board approved a $250 million share repurchase program, of which $86.7 million was used in Q4 2011. No dividends are paid.
02—Key points
Key Highlights
- Revenue grew 32% to $1,606.8 million in 2011 (29% in constant currency), with Americas at 64% of revenue and EMEA and Asia-Pacific contributing 22% and 14%.
- Adjusted EBITDA rose 35% to $738.4 million, and income from operations increased 58% to $307.2 million, showing operating leverage on a largely fixed cost base.
- Recurring revenues were $1,528.5 million, or 95% of total revenue, supported by contracts generally one to three years in length.
- Net income attributable to Equinix was $94.0 million ($1.72 diluted EPS), versus $36.9 million ($0.82 diluted EPS) in 2010.
- Total indebtedness was about $3.1 billion against $1.1 billion of cash and investments; the $750 million 7.00% senior notes issued in July 2011 raised annual interest expense by roughly $53.9 million.
- Cabinet utilization rose to about 80% from 74% (ex-ALOG), with customers up 10% to 4,724, and the company operates 99 IBX data centers across 38 markets.
- Board authorized a $250 million share repurchase program; $86.7 million was used in 2011, and the company does not pay dividends.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Equinix kept $0.06.
- Revenue$1.57B100.0%
- Cost of revenue−$829.0M53.0%
- Gross profit$736.6M47.0%
- Operating costs−$430.7M27.5%
- Operating income$305.9M19.5%
- Interest, other & tax−$211.1M13.5%
- Net income$94.8M6.1%
Where FY2011 revenue went
$1.57B- Cost of revenue: $829.0M, 53% of revenue
- Operating costs: $430.7M, 28% of revenue
- Interest, other & tax: $211.1M, 13% of revenue
- Net income: $94.8M, 6.1% of revenue
Kept 6.1% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $1.57B$1.20B | +30.9% |
| Cost of Revenue | $829.02M$652.16M | +27.1% |
| Gross Profit | $736.60M$544.06M | +35.4% |
| Operating Expenses | $1.26B$1.00B | +25.6% |
| Operating Income | $305.92M$193.60M | +58.0% |
| Interest Expense | $181.30M$140.47M | +29.1% |
| Net Income | $94.78M$36.88M | +157.0% |
| EPS (Basic) | $1.77$0.84 | +110.7% |
| EPS (Diluted) | $1.74$0.82 | +112.2% |
| Shares Outstanding (Basic) | 46.96M43.74M | +7.3% |
| Shares Outstanding (Diluted) | 47.90M44.81M | +6.9% |
05—Questions
Frequently Asked Questions
How fast is Equinix growing, and how much of that growth came from acquisitions?
Revenue grew 32% in 2011 to $1.61 billion. Acquisitions accounted for a large share: the full-year effect of Switch & Data added about $98 million of incremental Americas revenue, and ALOG added about $46.9 million. Excluding ALOG, customer count grew 10%, and EMEA and Asia-Pacific grew 27% and 33% as reported (21% and 25% in constant currency), indicating solid organic growth alongside acquisitions.
Is Equinix generating enough cash to fund its expansion?
Operating cash flow was $587.6 million in 2011, but capital expenditures on property and equipment were $685.7 million, and the company also spent on acquisitions and real estate. Equinix ended 2011 with $1.1 billion in cash and investments and a $125.3 million undrawn revolver. Management says it expects 2012 IBX construction spending to be similar to 2011 and aims to become free cash flow positive in 2013, though the filing notes this goal may not be achieved and additional debt may be needed.
What are the main balance sheet risks for investors?
Total indebtedness is about $3.1 billion, including $1.5 billion of senior notes and roughly $1.0 billion of convertible debt. Interest expense rose to $181.3 million. The company also has $988.1 million of minimum operating lease commitments off balance sheet. Some debt has covenants that limit operating flexibility, and variable-rate Asia-Pacific financing exposes the company to interest rate changes. Near-term maturities include $250 million of 2.50% convertible notes due April 2012, which management intends to repay in cash.
What legal and regulatory issues could affect Equinix?
Equinix faces a pending federal securities class action (filed March 2011, with a motion to dismiss hearing set for February 24, 2012), related shareholder derivative suits, and the Pihana shareholder litigation, which was moving toward a global settlement as of December 2011. The IPO allocation litigation was concluded in January 2012. The company also flags potential regulation of data centers serving financial markets by the SEC and CFTC, and rising electricity costs from California's cap-and-trade program starting in 2013.
How exposed is Equinix to currency and European economic conditions?
About 40% of revenues and operating costs are outside the U.S., and the company does not hedge revenue. A stronger U.S. dollar in late 2011 is expected to hurt 2012 results. About 15% of gross trade receivables are in EMEA, where sovereign debt concerns could slow collections. Equinix does use foreign currency forward contracts to hedge some balance sheet exposures, and it recorded a $2.8 million foreign exchange gain in other income for 2011.
06—Continue