Equinix, Inc. — FY 2011 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2011; quarterly figures below refer to Q4 2011. Equinix operates network-neutral data centers across the Americas, EMEA and Asia-Pacific, providing colocation, interconnection and managed infrastructure services. More than 90% of revenue was recurring. The year included the April acquisition of a controlling interest in Brazil’s ALOG; results include ALOG from April 25, 2011. The filing was signed February 24, 2012.
Financial performance and position
| Metric | FY 2011 | FY 2010 | Change / context |
|---|---|---|---|
| Revenue | $1.607 billion | $1.220 billion | +32% reported; +29% constant currency |
| Gross profit / margin | $739.2 million / 46.0% | $545.7 million / 44.7% | Margin improved about 1.3 percentage points |
| Operating income / margin | $307.2 million / 19.1% | $194.7 million / 16.0% | Operating income +58% |
| Net income attributable to Equinix | $94.0 million | $36.9 million | Diluted EPS: $1.72 vs. $0.82 |
| Adjusted EBITDA | $738.4 million | $544.8 million | Non-GAAP measure; +36% |
| Cash from operations | $587.6 million | $392.9 million | Up $194.7 million |
| Cash used in investing | $1.499 billion | $601.0 million | Included $1.269 billion of investment purchases and $685.7 million of PP&E purchases |
| Cash and investments at year-end | $1.076 billion | $592.8 million | About $960 million held in the U.S.; includes cash equivalents and short- and long-term investments |
Q4 revenue was $431.3 million versus $345.2 million in Q4 2010. Gross profit was $202.0 million versus $151.7 million; net income attributable to Equinix was $17.8 million versus $13.8 million. Q4 diluted EPS was $0.35 versus $0.29.
- Revenue growth reflected acquisitions, new data-center capacity and customer demand. Excluding acquisitions, Americas revenue grew 18%; customer count excluding ALOG increased 10% to 4,724, and utilization rose to about 80% from 74% (about 85% excluding newer expansions).
- FY 2011 revenue was 64% Americas, 22% EMEA and 14% Asia-Pacific. Reported growth included favorable currency translation, especially in EMEA and Asia-Pacific.
- Management reported total indebtedness of about $3.1 billion, stockholders’ equity of $2.0 billion and cash and investments of $1.1 billion. Debt included $1.5 billion of senior notes, approximately $1.0 billion of convertible notes at principal value, loans and financing obligations.
- Current assets were $1.236 billion and current liabilities $725.3 million at year-end. The $150 million revolving facility had $125.3 million available after letters of credit; the company was in compliance with its stated debt covenants.
- Interest expense rose to $181.3 million from $140.5 million, including the effect of the new $750 million 7.00% senior notes due 2021. Management expected the notes to add about $53.9 million of annual interest expense.
Material changes, outlook and risks
- In April 2011, Equinix acquired an indirect controlling interest of approximately 53% in ALOG. ALOG contributed $46.9 million revenue and a $4.6 million net loss from acquisition through year-end. Non-controlling interests and contingent purchase terms apply.
- Equinix issued $750 million of 7.00% senior notes in July 2011 and authorized a $250 million share repurchase program through December 31, 2012. It repurchased 870,421 shares for $86.7 million during 2011. No cash dividends were anticipated in the foreseeable future.
- Management expected continued revenue and adjusted EBITDA growth, with further data-center expansions and openings planned in 2012–2013. It expected 2012 expansion construction activity to be similar to 2011 and stated an intention to become free-cash-flow positive in 2013; these are expectations, not guarantees.
- Expansion spending is substantial: $338.7 million of unaccrued capital expenditures was contractually committed at year-end, with an additional estimated $150–$200 million of non-contractual project spending expected. The Paris 4 project required restricted cash, and $48.3 million was drawn from that account in January–February 2012.
- Key risks include significant debt and lease commitments, refinancing and liquidity needs, power availability and rising electricity costs, construction and utilization risk, service outages or security breaches, competition and pricing pressure, foreign-exchange exposure, economic uncertainty, and acquisition integration. Power constraints may limit usable capacity even where physical space remains.
- Operating lease commitments were $988.1 million, excluding potential renewals; contractual obligations also included $1.059 billion of estimated future interest and $477.0 million of other purchase commitments. The company disclosed $22.2 million of accrued liabilities for uncertain tax positions.
- The Pihana litigation had a December 2011 agreement in principle for a global settlement, not yet described as finalized in the filing. Securities class and derivative actions remained pending; Equinix said loss ranges could not be determined and had not accrued amounts because an unfavorable outcome was not considered probable. The IPO litigation was concluded in January 2012.
- Management reported effective disclosure controls and internal control over financial reporting, but the ALOG operation was excluded from the internal-control assessment and audit while integration proceeded. The independent auditor issued an unqualified opinion.
Important facts for investors to verify
- How much of reported growth reflects organic bookings and utilization versus acquisitions, currency effects and newly opened capacity.
- Whether expansion projects meet opening schedules, achieve planned utilization and generate returns sufficient to offset depreciation, lease and interest costs.
- The schedule and funding plan for the $250 million convertible notes due April 2012, as well as subsequent debt maturities and refinancing needs.
- Cash-flow conversion after capital expenditures, restricted-cash requirements, share repurchases and other commitments; the filing does not provide a single company-defined free-cash-flow figure here.
- Developments in the ALOG purchase options and contingent consideration, and the status and potential exposure of pending litigation and tax matters.