01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Equinix (EQIX) closed 2017 with revenue of $4.37 billiona, up 21% year over year, and income from operations of $809.0 million, up 31%.
Growth was driven largely by the $3.6 billionb Verizon colocation acquisition (29 data centers, closed May 2017), which contributed $359.1 million of revenue in the period, alongside smaller acquisitions (IO UK, Itconic, Zenium) and organic IBX expansion. Recurring revenue was 94% of the total, and adjusted EBITDA rose 24% to $2.05 billion. Net income was $233.0 million, or $3.00 diluted EPS, versus $1.79 in 2016.
Adjusted funds from operations (AFFO), a key REIT metric, reached $1.44 billionc, up 33%. The balance sheet grew substantially and carries more leverage. Total indebtedness was roughly $10.2 billion at year-end, against $6.8 billion of stockholders' equity and $1.5 billion of cash and investments.
Interest expense rose to $478.7 milliond, and the company funded its acquisitions with a mix of senior notes, term loans, a $750 million at-the-market equity program, and a $2.1 billion public equity offering. Quarterly dividends were raised to $2.00 per share during 2017, and management has indicated a further increase to $2.28 per share for the first quarter of 2018. Equinix's REIT status (effective 2015) means it distributes most taxable income, which limits internal funding of growth and makes external capital access central to the investment case.
Looking forward, the company has pending acquisitions of Metronode (Australia, about $791 million) and Infomart Dallas ($31 million cash plus $750 million of new notes), both expected to close in 2018, and a construction pipeline of roughly 28,855 sellable cabinets with $1.36 billion of capital expenditure. Key risks flagged include the CEO's resignation in January 2018 with an interim CEO in place, the potential effect of the Tax Cuts and Jobs Act on REIT and international structures, Brexit uncertainty for European operations, power constraints in older data centers, and integration of the Verizon assets. Investors should weigh strong growth and recurring revenue quality against rising leverage, heavy ongoing capital spending, and leadership transition.
02—Key points
Key Highlights
- Revenue grew 21% to $4.37 billion in 2017, with recurring revenue at 94% of the total and the Verizon acquisition contributing $359.1 million from May to December.
- Adjusted EBITDA rose 24% to $2.05 billion, and AFFO increased 33% to $1.44 billion, supporting the REIT dividend.
- Diluted EPS was $3.00 in 2017, up from $1.79 in 2016, and net income reached $233.0 million.
- Total debt was about $10.2 billion against $6.8 billion of equity, with interest expense up 22% to $478.7 million, making leverage a central investor concern.
- Quarterly dividend was $2.00 per share throughout 2017, with a $2.28 per share increase declared for Q1 2018 (subsequent event).
- Pending acquisitions of Metronode (Australia, ~$791 million) and Infomart Dallas ($31 million cash plus $750 million of notes) are expected to close in 2018.
- CEO Steve Smith resigned in January 2018; Executive Chairman Peter Van Camp is interim CEO, creating near-term leadership transition risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Equinix kept $0.05.
- Revenue$4.37B100.0%
- Cost of revenue−$2.19B50.2%
- Gross profit$2.18B49.8%
- Operating costs−$1.37B31.3%
- Operating income$809.0M18.5%
- Interest, other & tax−$576.0M13.2%
- Net income$233.0M5.3%
Where FY2017 revenue went
$4.37B- Cost of revenue: $2.19B, 50% of revenue
- Operating costs: $1.37B, 31% of revenue
- Interest, other & tax: $576.0M, 13% of revenue
- Net income: $233.0M, 5.3% of revenue
Kept 5.3% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.37B$3.61B | +20.9% |
| Cost of Revenue | $2.19B$1.82B | +20.4% |
| Gross Profit | $2.18B$1.79B | +21.4% |
| Operating Expenses | $3.56B$2.99B | +18.9% |
| Operating Income | $809.01M$618.74M | +30.8% |
| Interest Expense | $478.70M$392.16M | +22.1% |
| Net Income | $232.98M$126.80M | +83.7% |
| EPS (Basic) | $3.03$1.81 | +67.4% |
| EPS (Diluted) | $3.00$1.79 | +67.6% |
| Shares Outstanding (Basic) | 76.85M70.12M | +9.6% |
| Shares Outstanding (Diluted) | 77.53M70.82M | +9.5% |
05—Questions
Frequently Asked Questions
What drove Equinix's revenue growth in 2017?
Revenue rose $756 million, or 21%, to $4.37 billion. The largest driver was the Verizon Data Center Acquisition, which added $359.1 million from May 1 to year-end. Organic growth from new IBX data centers and higher orders from existing and new customers also contributed, along with acquisitions in EMEA such as Itconic and IO UK. Constant-currency growth was also 21%, so currency effects were small at the total level.
How much debt does Equinix carry, and how is it being financed?
Total indebtedness was approximately $10.2 billion at December 31, 2017, including about $7.0 billion of senior notes, $1.5 billion of mortgage and loan principal, and $1.7 billion of capital lease and financing obligations. In 2017 the company issued $1.25 billion of 5.375% notes due 2027, two €1.0 billion euro notes (2025 and 2026), and a $3.0 billion senior credit facility, and it raised about $2.1 billion from a March equity offering plus $355 million under its at-the-market program. Investors should monitor the debt load, since interest expense is expected to keep rising.
Is the dividend sustainable given Equinix's REIT status?
As a REIT, Equinix must distribute at least 90% of REIT taxable income, and it has paid $8.00 per share in 2017 (quarterly $2.00). AFFO of $1.44 billion comfortably covered the $621.5 million of cash dividends paid in 2017, and management declared a $2.28 quarterly dividend for Q1 2018. However, the filing warns that large capital expenditures, debt service, and REIT distribution requirements can limit flexibility and may require borrowing or equity issuance to meet distribution requirements.
What are the most significant risks to the investment case?
Key risks include a leadership transition after the CEO's January 2018 resignation, heavy leverage and covenant restrictions, and dependence on successful integration of the Verizon assets and other acquisitions. The filing also cites power availability and cost constraints in older IBX centers, the risk of building new centers ahead of customer demand, competition from carriers and cloud-provider in-sourcing, Brexit-related uncertainty in Europe, and the effects of the 2017 tax reform on REIT and foreign-subsidiary structures. Foreign-currency exposure is significant, with about 55% of 2017 revenue generated outside the U.S.
What growth is expected in 2018?
Equinix expects to close the Metronode and Infomart Dallas acquisitions in 2018, which would bring its footprint to roughly 200 data centers in 52 markets. It also has about 28,855 sellable cabinets under construction across Americas, EMEA, and Asia-Pacific, with roughly $1.36 billion of total capital cost and target open dates mostly in 2018 and 2019. Management indicated that capital expenditures will rise from 2017 levels, which means free cash flow will stay constrained near term.
06—Continue