10-QPeriod: Q3 FY2010

EQUINIX INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 29, 2010For Securities:EQIX

Summary

Equinix Inc. (EQIX) reported its third-quarter 2010 financial results, highlighting significant revenue growth driven by the acquisition of Switch and Data. Total revenues increased by 45% year-over-year for the three months ended September 30, 2010. The company's strategic focus remains on expanding its global data center footprint, with substantial capital expenditures directed towards new IBX centers and expansions. Despite increased interest expenses due to new debt issuances to fund these growth initiatives, the company demonstrated a strong operational performance, with adjusted EBITDA showing a notable increase. Management remains optimistic about future growth, underpinned by a recurring revenue model and the strategic "marketplace" effect within its data centers. The balance sheet reflects a substantial increase in assets, largely due to the Switch and Data acquisition, which significantly boosted goodwill and property, plant, and equipment. The company also secured substantial financing, including a $750 million senior notes offering. While managing a growing debt load, Equinix maintains a strong liquidity position. The company is actively managing foreign currency translation risks and continues to invest in its global infrastructure to support increasing customer demand.

Financial Highlights

46 data points
Beta

Revenue

$330.35M

43.9% Gross Margin

Net Income

$11.20M

3.4% Net Margin

EPS (Diluted)

$0.24

Total Assets

$4.48B

Cash & Equivalents

$389.15M

Free Cash Flow

-$30.68M

Financial Statements
Beta
Revenue$330.35M
Cost of Revenue$185.48M
Gross Profit$144.87M
Operating Expenses$278.32M
Operating Income$52.03M
Interest Expense$38.36M
Net Income$11.20M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)45.74M
Shares Outstanding (Diluted)46.68M

Key Highlights

  • 1Revenues increased by 45% to $330.3 million for the three months ended September 30, 2010, compared to $227.6 million in the prior year period, primarily driven by the Switch and Data acquisition.
  • 2Net income for the three months ended September 30, 2010, was $11.2 million, a decrease from $18.8 million in the prior year period, impacted by higher interest expenses and acquisition-related costs.
  • 3Total assets grew significantly to $4.48 billion as of September 30, 2010, from $3.04 billion as of December 31, 2009, largely due to the Switch and Data acquisition which added $407.4 million in goodwill.
  • 4The company issued $750 million in 8.125% Senior Notes due 2018 in February 2010, significantly increasing its long-term debt.
  • 5Capital expenditures for the nine months ended September 30, 2010, were $436.0 million, reflecting continued investment in expanding data center capacity.
  • 6Adjusted EBITDA for the nine months ended September 30, 2010, increased to $395.9 million from $297.0 million in the prior year period, indicating strong operational performance excluding certain non-cash and acquisition-related items.
  • 7The company's customer count increased by 40% to 4,151 as of September 30, 2010, compared to the prior year, largely attributable to the Switch and Data acquisition.

Frequently Asked Questions

The acquisition of Switch and Data, completed on April 30, 2010, significantly impacted Equinix's financials. It led to a substantial increase in total assets, goodwill, and property, plant, and equipment. Revenues for the nine months ended September 30, 2010, included $95.1 million from Switch and Data, contributing to a 42% increase in North America revenues. The acquisition also resulted in increased operating expenses, including depreciation and amortization, and necessitated higher sales and marketing and general and administrative expenses.

Equinix has a significant debt load, with total indebtedness of approximately $2.1 billion as of September 30, 2010, including $750 million in senior notes issued in February 2010. The company believes it has sufficient cash and anticipated operating cash flow to meet its obligations. They also maintain liquidity through cash reserves and available credit lines, including the new Asia-Pacific financing and the Bank of America revolving credit line. Management expects to continue generating cash from operations and may pursue additional financing if needed for further expansion.

Equinix operates internationally and is exposed to foreign currency exchange rate fluctuations. While the majority of revenues and costs are in U.S. dollars, international operations have costs and revenues denominated in foreign currencies. The company utilizes foreign currency forward contracts to manage some of this risk, but does not hedge all foreign currency exposure. Fluctuations, particularly in the British pound and Euro, have had a significant impact on the consolidated balance sheet and results of operations, with a weakening U.S. dollar generally having a positive translation effect and a strengthening U.S. dollar having a negative effect.

Equinix's revenue growth is primarily driven by recurring revenues from colocation and interconnection services. The company benefits from a "marketplace" effect where the addition of new customers and services attracts more customers and partners. Expansion into new markets and the development of new IBX data centers and expansions also contribute significantly. The Switch and Data acquisition was a major driver of revenue growth in the current period, particularly in North America.