Business context and reporting period
Equinix, Inc. filed this Form 10-K for the fiscal year ended December 31, 2018. The company operates a global colocation and interconnection platform, with 200 data centers in 52 markets and more than 9,800 customers. It reports three geographic segments: Americas, EMEA, and Asia-Pacific, and elected REIT tax treatment beginning in 2015.
2018 expansion included the acquisitions of Australia’s Metronode and the Infomart Dallas building, both completed in April. Charles Meyers became CEO in September.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $5.072 billion | $4.368 billion | +16% |
| Recurring revenue | $4.777 billion (94% of revenue) | $4.120 billion (94%) | +16% |
| Operating income | $977.4 million | $809.0 million | +21% |
| Net income | $365.4 million | $233.0 million | +57% |
| Diluted EPS | $4.56 | $3.00 | +52% |
| Adjusted EBITDA | $2.413 billion | $2.052 billion | +18% |
| Net cash from operations | $1.815 billion | $1.439 billion | +26% |
FY 2018 gross margin was approximately 48.6%, operating margin 19.3%, and net margin 7.2%. Adjusted EBITDA is a non-GAAP measure.
In Q4 2018, revenue was $1.310 billion versus $1.200 billion in Q4 2017; net income was $110.0 million versus $65.2 million; diluted EPS was $1.36 versus $0.82. Q4 gross profit was $639.1 million, or approximately 48.8% of revenue.
Cash, cash equivalents, and investments totaled $610.7 million at year-end, down from $1.450 billion. Operating cash flow was $1.815 billion; investing cash outflow was $3.076 billion and financing cash inflow was $470.9 million. Purchases of property, plant, and equipment were $2.096 billion. The company paid $738.6 million in dividends.
Gross debt and financing obligations were approximately $11.4 billion; stockholders’ equity was $7.219 billion. The company had approximately $1.9 billion of undrawn availability under its $2.0 billion revolving facility. Minimum operating lease commitments were approximately $1.969 billion, excluding potential renewals.
Material changes versus prior comparable period
- Revenue grew 16%, supported by organic demand, data-center expansions, acquisitions, and currency effects. Constant-currency revenue growth was 15%.
- Operating income rose 21% and adjusted EBITDA rose 18%; cost of revenue increased to 51% of revenue from 50%.
- Interest expense increased to $521.5 million from $478.7 million, principally reflecting new debt issued in 2018.
- Cash used in investing declined year over year, mainly because 2017 included the larger Verizon acquisition; 2018 still included $829.7 million of acquisition cash outflows and higher capital spending.
- Recurring revenue remained 94% of total revenue. The 50 largest customers represented 38% of recurring revenue, compared with 37% in 2017; the largest customer was approximately 3%.
Outlook, management commentary, risks and unusual items
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management anticipated higher data-center expansion construction activity in 2019 than in 2018 and expected operating expenses and interest expense to rise as the business grows.
- At year-end, construction projects under way represented approximately 31,265 sellable cabinets and estimated capital expenditure of $1.890 billion. Separately, $687.6 million of unaccrued capital expenditures was contractually committed, primarily for expansion work.
- Management cited recurring customer demand and a global platform as growth drivers, while noting that expansion requires substantial investment ahead of customer commitments. Power availability, rising electricity costs, construction delays, and capacity limitations may constrain growth or returns.
- Key risks include substantial debt and lease commitments, acquisition integration and execution, foreign-exchange movements, cybersecurity and service interruption, competition and pricing pressure, international regulation, and continued REIT qualification and required distributions. PG&E’s January 2019 bankruptcy was identified as a possible source of power-cost, availability, or reliability risk for some facilities.
- Equinix adopted Topic 606 on January 1, 2018, increasing opening retained earnings by $269.8 million. The company says the change affected installation revenue and contract-cost timing; FY 2018 net income would have been $30.7 million lower without adoption, according to its reconciliation.
- FY 2018 included a $51.4 million loss on debt extinguishment, $34.4 million of acquisition costs, and a $6.0 million gain on asset sales. Acquisition purchase-price allocations for Metronode and Infomart Dallas remained provisional at year-end.
- Operating and disclosure controls were reported effective as of December 31, 2018, and the auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of revenue and adjusted EBITDA growth was organic versus acquired, and how acquired facilities are performing after integration.
- Whether expansion spending, committed construction costs, and power availability support expected utilization and returns.
- Debt maturities, interest-rate exposure, lease obligations, and the company’s ability to fund growth and dividends while maintaining liquidity.
- The final purchase accounting for Metronode and Infomart Dallas, and the continuing financial effects of Topic 606 and the 2019 lease-standard adoption.
- REIT compliance, tax exposures and uncertain tax positions, customer concentration, and any material developments involving PG&E or service reliability.