10-QPeriod: Q3 FY2014

EQUINIX INC Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 7, 2014For Securities:EQIX

Summary

Equinix Inc. (EQIX) reported its third-quarter and nine-month results for the period ending September 30, 2014. The company demonstrated revenue growth across all geographic segments (Americas, EMEA, and Asia-Pacific) for both the quarter and year-to-date periods. Total revenues increased by 14% year-over-year for the nine months ended September 30, 2014, reaching $1.81 billion. Despite revenue growth, the company incurred a significant loss on debt extinguishment totaling $51.2 million in the second quarter of 2014, primarily related to the exchange of convertible notes. Looking ahead, Equinix is actively pursuing a conversion to a Real Estate Investment Trust (REIT), which is planned to be effective January 1, 2015. This conversion is a significant strategic initiative with substantial implications for the company's financial structure and tax obligations, including anticipated costs and potential tax liabilities related to depreciation recapture.

Financial Highlights

52 data points
Beta

Revenue

$620.44M

51.0% Gross Margin

Net Income

$42.84M

6.9% Net Margin

EPS (Diluted)

$0.79

Total Assets

$7.46B

Cash & Equivalents

$354.18M

Free Cash Flow

$60.44M

Financial Statements
Beta
Revenue$620.44M
Cost of Revenue$304.05M
Gross Profit$316.39M
Operating Expenses$485.31M
Operating Income$135.13M
Interest Expense$63.76M
Net Income$42.84M
EPS (Basic)$0.81
EPS (Diluted)$0.79
Shares Outstanding (Basic)53.14M
Shares Outstanding (Diluted)55.24M

Key Highlights

  • 1Total revenues increased by 14% year-over-year to $1.81 billion for the nine months ended September 30, 2014, driven by growth across all geographic segments.
  • 2The company incurred a $51.2 million loss on debt extinguishment in the second quarter of 2014 due to exchanges of convertible notes.
  • 3Equinix is in the process of converting to a Real Estate Investment Trust (REIT), with a planned effective date of January 1, 2015.
  • 4The company is anticipating significant costs and potential tax liabilities related to the REIT conversion, estimated between $75.0-$85.0 million for conversion costs and $360.0-$380.0 million for depreciation recapture.
  • 5Adjusted EBITDA showed improvement, growing to $819.5 million for the nine months ended September 30, 2014, up from $737.4 million in the prior year.
  • 6Total debt remained substantial, approximately $4.0 billion as of September 30, 2014, including convertible and senior notes, and financing obligations.
  • 7The company repurchased $298.0 million of its common stock under its share repurchase program during the nine months ended September 30, 2014.

Frequently Asked Questions

For the nine months ended September 30, 2014, Equinix reported total revenues of $1.81 billion, a 14% increase compared to the same period in 2013. Net income attributable to Equinix was $95.6 million, a significant increase from $49.5 million in the prior year. The company's Adjusted EBITDA also improved, reaching $819.5 million.

The planned conversion to a REIT is a major strategic initiative. It is expected to impact the company's tax structure, potentially leading to tax savings at the corporate level through dividend distributions. However, it also involves significant conversion costs (estimated $75-$85 million) and potential tax liabilities related to depreciation recapture (estimated $360-$380 million). The conversion will also impose strict distribution requirements on the company.

Equinix's total debt was approximately $4.0 billion as of September 30, 2014. During the first nine months of 2014, the company actively managed its convertible debt by exchanging a substantial portion of its 3.00% and 4.75% convertible subordinated notes. This resulted in a significant loss on debt extinguishment ($51.2 million) but reduced future interest obligations. The company also continued to invest in its business through capital expenditures and share repurchases.

Key risks highlighted include the uncertainty of successfully converting to a REIT, potential adverse effects from legislative or tax law changes affecting REITs, and the possibility of failing to qualify or remain qualified as a REIT. The company also faces risks associated with its substantial debt, integration of acquisitions, fluctuations in foreign currency exchange rates, and potential disruptions to its operations or infrastructure.