EQUINIX INC quarterly report, Q3 FY2013

Vollständiges Dokument

Equinix, Inc. — Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2013. The filing was signed November 12, 2013. Equinix operates colocation data centers and provides interconnection and managed infrastructure services across the Americas, EMEA and Asia-Pacific. Financial figures below are in U.S. dollars; amounts are shown in millions unless noted.

Financial performance and condition

  • Third-quarter revenue: $543.1 million, up 12% from revised third-quarter 2012 revenue of $484.8 million. Recurring revenue was $515.6 million, or 95% of total; colocation revenue was $408.6 million and interconnection revenue was $81.7 million.
  • Third-quarter earnings: Operating income was $115.2 million, versus $92.8 million; operating margin was approximately 21.2%, versus 19.2%. Net income attributable to Equinix was $42.5 million, or $0.83 diluted EPS, compared with $27.0 million, or $0.54 diluted EPS.
  • Third-quarter adjusted EBITDA: $248.4 million, up 10% year over year; approximately 45.7% of revenue. Adjusted EBITDA is a non-GAAP measure and excludes items including depreciation, amortization and stock compensation.
  • Nine-month results: Revenue was $1,588.1 million, up 15%; operating income was $335.9 million, up 16%; adjusted EBITDA was $737.4 million, up 14%. Net income attributable to Equinix was $49.5 million, or $0.99 diluted EPS, versus $94.7 million, or $1.93, in the prior-year period. The comparison was heavily affected by a $93.6 million debt-extinguishment loss in 2013.
  • Cash flow: Operating cash flow for the nine months was $437.9 million, compared with $428.3 million. Purchases of property, plant and equipment were $369.6 million; operating cash flow less those purchases was approximately $68.3 million. Investing cash flow was negative $936.0 million and financing cash flow positive $645.5 million. Cash and cash equivalents increased $147.5 million to $399.7 million.
  • Liquidity: Cash, cash equivalents and short- and long-term investments totaled $1,188.0 million at September 30. The company reported approximately $521 million of additional availability under its U.S. and ALOG facilities. Current assets were $1,004.8 million and current liabilities $582.2 million.
  • Debt and obligations: Balance-sheet senior notes were $2,250.0 million, convertible debt carrying value $720.2 million, loans payable $197.0 million, and capital lease and other financing obligations $879.4 million. Management described total indebtedness as approximately $4.0 billion, including principal amounts and financing obligations. Operating lease commitments were $874.5 million, excluding potential renewals.
  • Margins and cost trends: Cost of revenue was 49.5% of revenue in Q3, versus 51.8% a year earlier. Sales and marketing was 11.3% and general and administrative expense 17.8% of revenue, compared with 11.0% and 17.2%. The company attributed growth to organic demand, data-center expansion and acquisitions; depreciation, utilities, staffing and professional fees also increased.

Material changes versus the prior comparable period

  • Q3 revenue grew across all regions: Americas $319.4 million, EMEA $133.3 million and Asia-Pacific $90.4 million. Management cited customer growth and recently opened expansions; foreign exchange affected regional comparisons.
  • Customer count, excluding the Dubai data-center acquisition, increased 11% to approximately 5,851. Utilization was approximately 77%, or approximately 80% excluding expansions opened in the preceding 12 months.
  • In March 2013, Equinix issued $1.5 billion of senior notes: $500 million at 4.875% due 2020 and $1.0 billion at 5.375% due 2023. It redeemed $750 million of 8.125% notes in April for $836.5 million cash, recording a $93.6 million loss. Nine-month interest expense rose to $183.3 million from $149.8 million.
  • PP&E, net, increased to $4,381.0 million from $3,915.7 million at year-end 2012. The company completed the $73.4 million New York 2 data-center property purchase in July and completed a Frankfurt property acquisition for approximately $90.7 million in October.
  • Comparative financial statements were revised for errors, including the estimated recognition period for non-recurring installation fees. The company said prior-period errors were not material individually to previously issued statements, but the cumulative $27.2 million installation-fee correction at year-end 2012 would be material if recorded in 2013; it therefore plans to revise previously issued statements when those periods are next presented. Revised Q3 2012 revenue was $3.9 million lower and net income $1.9 million lower than previously reported. The revisions did not affect reported total operating cash flow.

Outlook, commentary and risks

  • Management expected revenue growth from customer bookings and expansions under way in multiple markets, while noting that forecasts depend on customer bookings, churn and contract changes. It expected 2013 expansion construction activity to be below 2012 levels, but said spending could rise if opportunities and funding warranted.
  • Management expected interest expense to remain higher as the new notes take full effect, partly offset by the retired 8.125% notes; the filing estimated an approximately $17.7 million annual incremental interest impact. It also anticipated low interest income in the continuing low-rate environment.
  • Equinix was pursuing REIT conversion for a planned January 1, 2015 effective date, subject to conditions including a favorable IRS private letter ruling, internal steps and required approvals. The IRS had convened a working group on the definition of real estate for REIT purposes, creating timing and qualification uncertainty.
  • For the REIT plan, management estimated $50–$80 million of conversion costs, $360–$380 million of federal and state tax liability from depreciation and amortization recapture (payable over four years beginning in 2012, even if conversion is abandoned), and $5–$10 million of annual compliance costs if successful. It expected 2013 cash taxes of $150–$180 million. A potential accumulated earnings-and-profits distribution was estimated at $700 million–$1.1 billion, expected to be at least 80% stock and up to 20% cash; timing and amount remain uncertain.
  • Principal operating and financial risks include REIT eligibility and execution, substantial debt and lease commitments, access to future financing, foreign exchange exposure, power availability and cost, customer demand and utilization, expansion execution, competition, and data-center reliability and security. Management highlighted that power constraints can limit usable capacity even where cabinet space remains available.
  • The filing reported the company was in compliance with financial covenants at September 30. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. Identified securities and shareholder derivative actions described in the filing had been dismissed with prejudice.

Most important facts for investors to verify

  • Track the REIT process: IRS ruling, conversion timing, qualification requirements, distribution amount and mix, and associated tax and compliance cash costs.
  • Reconcile the revised installation-fee accounting and other corrections, including the planned restatement of previously issued periods and any effect on reported trends or non-GAAP measures.
  • Assess debt service and refinancing exposure against cash generation, expansion spending, lease commitments and any distributions or additional financing.
  • Monitor expansion openings, customer growth, utilization and power capacity, particularly whether newly added capacity converts into recurring revenue.
  • Separate underlying regional performance from acquisition contributions and currency movements; consider the company’s non-GAAP adjusted EBITDA definition and lease-accounting effects.