01—Abstract
Summary
Summary of the 10-K filed February 28, 2014. Cited figures are marked; the original filing is the authoritative source.
Equinix's FY2013 10-K reports revenue of $2.15 billiona, up 14% year over year (15% in constant currency), with adjusted EBITDA of $1.00 billion, up 13%.
Recurring revenues were 95% of the total, and the company operates 95+ IBX data centers across 32 markets. Income from operations rose to $461 millionb, but net income attributable to Equinix fell to $94.7 million from $140.0 million in 2012, mainly because of a $108.5 million loss on debt extinguishment and higher interest expense of $248.8 million. Diluted EPS was $1.89, down from $2.83 (restated 2012), which also reflects the 2012 divestiture gain that did not recur.
The balance sheet shows total assets of $7.49 billionc, total debt of roughly $4.2 billion, and $1.03 billion in cash and investments. Equinix refinanced its 8.125% notes with $1.5 billion of new 4.875% and 5.375% senior notes. Operating cash flow was $605 million, and capital expenditures were about $697 million.
The company also restated 2012 and 2011 results for errors in installation revenue recognition and other items. The dominant forward-looking item is the planned REIT conversion, targeted for January 1, 2015. Management estimates $360 to $380 milliond in depreciation recapture tax, payable over four years, and $700 million to $1.1 billion in E&P distributions, of which up to 20% would be cash.
Cash taxes are expected to rise to $145 to $200 million in 2014, and a significant one-time tax provision is expected in 2014. Investors should weigh these near-term cash and tax costs against the long-term benefit of lower corporate tax and a 10-15% long-run cash tax rate. The conversion is also subject to a favorable IRS private letter ruling that is not yet granted.
02—Key points
Key Highlights
- Revenue grew 14% to $2.15B in 2013 (15% constant currency), with recurring revenue at 95% of the total and colocation at $1.63B.
- Adjusted EBITDA rose 13% to $1.00B, and income from operations increased to $461M from $393M.
- Net income attributable to Equinix fell to $94.7M (diluted EPS $1.89) from $140.0M, driven by a $108.5M loss on debt extinguishment and higher interest expense of $248.8M.
- Planned REIT conversion effective January 1, 2015 brings an estimated $360-380M depreciation recapture tax, $75-85M conversion costs, and $700M-$1.1B E&P distributions (up to 20% cash).
- Total debt is about $4.2B against $2.5B of stockholders' equity and $1.03B of cash and investments; the company issued $1.5B of senior notes in March 2013 to redeem its 8.125% notes.
- Operating cash flow was $605M, down from $632M, with lower cash flow due to higher income tax and interest payments; capex was about $697M.
- The company restated 2012 and 2011 financials for installation revenue timing and other errors, and it repurchased $49M of stock under a new $500M program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Equinix kept $0.04.
- Revenue$2.15B100.0%
- Cost of revenue−$1.06B49.4%
- Gross profit$1.09B50.6%
- Operating costs−$627.4M29.1%
- Operating income$460.9M21.4%
- Interest, other & tax−$366.2M17.0%
- Net income$94.7M4.4%
Where FY2013 revenue went
$2.15B- Cost of revenue: $1.06B, 49% of revenue
- Operating costs: $627.4M, 29% of revenue
- Interest, other & tax: $366.2M, 17% of revenue
- Net income: $94.7M, 4.4% of revenue
Kept 4.4% as net incomeNet income $94.7M · 4.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 28, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $2.15B$1.89B | +14.1% |
| Cost of Revenue | $1.06B$944.62M | +12.7% |
| Gross Profit | $1.09B$942.76M | +15.4% |
| Operating Expenses | $1.69B$1.49B | +13.2% |
| Operating Income | $460.93M$392.90M | +17.3% |
| Interest Expense | $248.79M$200.33M | +24.2% |
| Net Income | $94.69M$140.03M | −32.4% |
| EPS (Basic) | $1.92$2.92 | −34.2% |
| EPS (Diluted) | $1.89$2.83 | −33.2% |
| Shares Outstanding (Basic) | 49.44M48.00M | +3.0% |
| Shares Outstanding (Diluted) | 50.12M51.82M | −3.3% |
05—Questions
Frequently Asked Questions
Will the REIT conversion be completed on schedule, and what happens if it is not?
Equinix targets REIT status for January 1, 2015, but the timeline depends on a favorable IRS private letter ruling, which the IRS has not yet issued. The IRS resumed work on it in November 2013 and the company expects a ruling during 2014. If the conversion fails or is delayed to 2016, the company must still pay the roughly $360-380M depreciation recapture tax and absorb conversion costs, and it could face corporate tax at regular rates.
Why did net income decline even though revenue and EBITDA grew?
Net income attributable to Equinix dropped to $94.7M from $140.0M. The main drivers were a $108.5M loss on debt extinguishment, mostly the $93.6M premium and write-off tied to redeeming the $750M 8.125% senior notes, and interest expense that rose to $248.8M from $200.3M. Income tax expense also fell, partly because the domestic loss reduced taxes, and 2012 included an $11.9M gain on the sale of discontinued operations that did not recur.
How strong is Equinix's liquidity and debt position?
The company had $1.03B in cash, cash equivalents, and investments at year-end 2013, plus $516.8M of available revolver capacity under its $750M U.S. facility. Total debt was about $4.2B, including $2.25B of senior notes, $724M of convertible debt, $914M of capital lease and financing obligations, and $253M of mortgages and loans. Operating lease commitments of $954M are off balance sheet. Management says current resources cover operations, announced expansions, and REIT-related payments, but additional financing may be needed for unannounced projects.
What is driving growth and where is the risk concentrated?
Growth came mainly from the Americas (+10%), EMEA (+21%, including $18.5M from acquisitions), and Asia-Pacific (+20%, including the Asia Tone acquisition). Utilization was about 76%, and excluding recently opened expansions it would have been about 82%. Risks include power constraints in older IBX centers, rising power costs, currency exposure (46% of revenue is outside the U.S.), customer concentration in key vertical segments, and the ability to fill new data centers built 12 to 18 months ahead of contracted demand.
How have the restatements affected reported results?
Equinix revised its 2012 and 2011 financials because installation fee revenue had been recognized over too short a period, plus errors in Brazilian taxes, foreign currency embedded derivatives, depreciation, and stock compensation. Installation revenue was overstated by $6.2M in 2012 and $3.5M in 2011. The company concluded the errors were not individually material to prior periods but revised them because the cumulative effect of $27.2M would be material to 2013. Restated 2012 net income attributable to Equinix was $140.0M versus $144.7M as originally reported.
06—Continue