01—Abstract
Summary
Summary of the 10-K filed February 19, 2021. Cited figures are marked; the original filing is the authoritative source.
Equinix (EQIX) reported FY2020 revenue of $5.998 billiona, up 8% year over year (9% in constant currency), with recurring revenue at 94% of the total.
Income from operations declined 10% to $1.05 billionb, driven by sharply higher G&A (up 17%, largely acquisition-related compensation, consulting and depreciation) and $55.9 million of transaction costs tied to the Bell, Packet and Axtel deals. Adjusted EBITDA rose 6% to $2.85 billion, and AFFO grew 13% to $2.19 billion, a sign that the underlying operating base is performing better than GAAP operating income suggests. Net income attributable to Equinix fell to $370 million from $507 million, with diluted EPS of $4.18 versus $5.99, partly due to a $146 million loss on debt extinguishment from refinancing high-yield notes at lower coupons.
The balance sheet expanded materially. Total assets reached $27.0 billionc, and the company issued $4.4 billion of senior notes, redeemed $4.1 billion of legacy high-yield debt, and raised roughly $1.7 billion in common equity in May 2020. Gross debt and lease obligations were about $12.6 billion against $1.6 billion of cash and investments.
Capital expenditures were $2.3 billiond, and the company completed acquisitions of Bell's 13 Canadian data centers, Packet (Equinix Metal), and three Axtel sites in Mexico. Management also formed two GIC joint ventures (EMEA and Asia-Pacific) that recycle capital from xScale developments, and it agreed to acquire GPX India, expected to close in Q2 2021. The 2020 cyber incident (ransomware) was contained without material operational or financial impact.
Key watch items for investors include leverage and rising interest-rate sensitivity on floating-rate term loans, the quarterly dividend (raised to $2.66 per share for 2020 and declared at $2.87 for Q1 2021), power constraints in older IBX sites, construction and permitting delays linked to COVID-19, and the REIT compliance tests that make the company's tax position sensitive to asset valuations. Management expects continued expansion-driven capital spending at or above 2020 levels.
02—Key points
Key Highlights
- Revenue grew 8% to $5.998 billion, with recurring revenue at 94% of the total and Americas, EMEA and Asia-Pacific growing 5%, 11% and 11% respectively.
- Adjusted EBITDA rose 6% to $2.853 billion and AFFO rose 13% to $2.189 billion, while GAAP income from operations fell 10% to $1.053 billion due to acquisition-related G&A, transaction costs and depreciation.
- Diluted EPS fell to $4.18 from $5.99, primarily because of a $145.8 million loss on debt extinguishment tied to the refinancing of legacy high-yield notes.
- Acquisitions in 2020 included 13 Bell data centers in Canada (about $702 million), Packet/Equinix Metal (about $290 million) and three Axtel sites in Mexico (about $189 million), with the GPX India deal (about $161 million) pending.
- Total indebtedness was about $12.6 billion against $1.6 billion of cash and investments; the company raised $1.7 billion of equity and $4.4 billion of senior notes, and a new $1.5 billion ATM program remains unused.
- Two GIC joint ventures (EMEA and Asia-Pacific) provide capital recycling for xScale hyperscale builds, with Equinix holding 20% interests and operating the facilities.
- Dividends paid totaled $10.64 per share for 2020, and a $2.87 quarterly dividend was declared for Q1 2021; the company also reported a ransomware incident in September 2020 that was contained without material impact.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Equinix kept $0.06.
- Revenue$6.00B100.0%
- Cost of revenue−$3.07B51.3%
- Gross profit$2.92B48.7%
- Operating costs−$1.87B31.2%
- Operating income$1.05B17.6%
- Interest, other & tax−$682.9M11.4%
- Net income$370.1M6.2%
Where FY2020 revenue went
$6.00B- Cost of revenue: $3.07B, 51% of revenue
- Operating costs: $1.87B, 31% of revenue
- Net income: $370.1M, 6.2% of revenue
- Interest, other & tax: $682.9M, 11% of revenue
Kept 6.2% as net incomeNet income $370.1M · 6.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 19, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $6.00B$5.56B | +7.8% |
| Cost of Revenue | $3.07B$2.81B | +9.4% |
| Gross Profit | $2.92B$2.75B | +6.3% |
| Operating Expenses | $4.95B$4.39B | +12.6% |
| Operating Income | $1.05B$1.17B | −10.0% |
| Interest Expense | $406.47M$479.68M | −15.3% |
| Net Income | $370.07M$507.45M | −27.1% |
| EPS (Basic) | $4.22$6.03 | −30.0% |
| EPS (Diluted) | $4.18$5.99 | −30.2% |
| Shares Outstanding (Basic) | 87.70M84.14M | +4.2% |
| Shares Outstanding (Diluted) | 88.41M84.68M | +4.4% |
05—Questions
Frequently Asked Questions
Why did GAAP operating income and EPS decline in 2020 even though revenue and AFFO grew?
Operating income fell 10% to $1.05 billion because G&A rose 17%, driven by acquisition-related compensation, consulting, software and depreciation, and transaction costs rose to $55.9 million. Net income was further reduced by a $145.8 million loss on debt extinguishment from retiring higher-coupon notes early. Adjusted EBITDA and AFFO exclude many of these items, which is why they grew while GAAP earnings declined.
How leveraged is Equinix and how is it financing growth?
Gross debt and lease obligations were about $12.6 billion at year-end 2020 against $1.6 billion of cash and investments, plus $1.9 billion of available revolver capacity. The company term-extended its maturity profile by issuing $4.4 billion of senior notes at historically low coupons, and it raised about $1.7 billion of equity in May 2020. Interest expense fell to $406 million from $480 million, though interest-rate exposure remains on about $1.3 billion of variable-rate term loans.
What are the main risks to the business highlighted in the filing?
Key risks include the COVID-19 pandemic (construction delays, customer churn and payment-term requests), power availability and legacy power design in older IBX sites, dependence on acquisitions and integrations, expansion projects that are built 12 to 18 months ahead of customer contracts, currency exposure (59% of revenue is outside the U.S.), and REIT qualification, which depends on fair-value estimates of assets. The company also cites the September 2020 ransomware incident and ongoing ERP/back-office system upgrades as operational risks.
Is the dividend sustainable and what does the REIT structure imply for investors?
Equinix paid $10.64 per share in 2020 and declared $2.87 per share for Q1 2021, and it must distribute at least 90% of REIT taxable income. AFFO of $2.19 billion comfortably covered dividends of about $948 million paid in cash, but REIT distribution requirements mean the company relies on external capital to fund expansion. Distributions are generally taxed as ordinary income rather than qualified dividends, which can reduce their appeal relative to non-REIT dividend payers.
What growth drivers and capital commitments should investors expect in 2021?
Management expects capital expenditures at or above the 2020 level of $2.3 billion, with about $1.9 billion of expansion projects under construction across 32,000+ sellable cabinets. Key openings include São Paulo, Los Angeles, Silicon Valley and several EMEA and APAC sites in the first half of 2021. The GPX India acquisition is expected to close in Q2 2021, and roughly $1.1 billion of unaccrued capex commitments plus $1.3 billion of other purchase obligations sit on the balance sheet.
06—Continue