Equinix, Inc. — FY 2015 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2015; this is not a standalone fourth-quarter filing. Equinix operates a global, network- and cloud-neutral data-center platform, reporting across the Americas, EMEA and Asia-Pacific. At year-end it had 112 IBX data centers in 33 markets. The company began operating as a REIT for U.S. federal tax purposes on January 1, 2015.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $2.726 billion | $2.444 billion |
| Recurring revenue | $2.569 billion; 94% of revenue | $2.318 billion; 95% of revenue |
| Gross profit and margin | $1.434 billion; 52.6% | $1.246 billion; 51.0% |
| Operating income and margin | $567.3 million; 20.8% | $509.3 million; 20.8% |
| Net income (loss) | $187.8 million | $(260.7) million |
| Diluted EPS | $3.21 | $(4.96) |
| Adjusted EBITDA (non-GAAP) | $1.272 billion; 46.7% of revenue | $1.114 billion; 45.6% of revenue |
| Cash from operations | $894.8 million | $689.4 million |
| Cash used in investing activities | $1.135 billion | $435.8 million |
Revenue increased 12% as reported and 19% at constant currency. Cash capital expenditures for property, plant and equipment were $868.1 million; operating cash flow less these expenditures was approximately $26.7 million, a simple calculation rather than a company-defined measure.
At December 31, cash, cash equivalents and investments totaled $2.246 billion. Total indebtedness, including financing obligations, was approximately $6.5 billion; stockholders’ equity was $2.745 billion. The company reported approximately $1.1 billion available on its $1.5 billion revolving facility and additional undrawn Term Loan B commitments. Debt and financing obligations increased during the year.
Material changes versus the prior comparable period
- Revenue grew 12% reported (19% constant currency); adjusted EBITDA rose 14% reported (22% constant currency). Utilization increased to approximately 81% from 78%, or approximately 85% excluding expansions opened during the prior 12 months.
- Net income returned to profit from the 2014 loss. The prior-year result included a $324.1 million deferred-tax-asset write-off related to the REIT conversion; 2015 income-tax expense was $23.2 million versus $345.5 million in 2014. The comparison also reflects a $157.0 million 2014 debt-extinguishment loss, versus $0.3 million in 2015.
- Interest expense rose to $299.1 million from $270.6 million. 2015 other expense was $60.6 million, principally foreign-exchange losses associated with funding the TelecityGroup acquisition.
- Operating cash flow increased, while investing cash outflow rose with expansion spending, acquisitions and restricted cash set aside for TelecityGroup. Financing cash flow included $1.1 billion of senior notes and $829.5 million net proceeds from a public share offering.
Outlook, management commentary and key risks
- Management expected revenue growth from organic demand, recently opened centers and planned expansions, and expected 2016 construction activity to exceed 2015 levels. It also anticipated higher interest expense from the 2026 notes, Bit-isle financing and Term Loan B borrowings. No specific consolidated revenue or earnings guidance is provided in the filing text.
- TelecityGroup, announced at approximately $3.8 billion, closed on January 15, 2016 for approximately $1.7 billion cash and 6.9 million Equinix shares valued at approximately $2.1 billion. Integration, regulatory-required asset divestitures, execution costs and realization of expected benefits are material uncertainties. London data center LD2 was classified as held for sale pending the agreed divestiture.
- REIT qualification depends on complex income, asset and distribution tests. Failure to qualify could result in corporate-level taxation; required distributions may also constrain cash available for investment and could require borrowing or equity issuance. Management expected roughly $10 million in annual REIT compliance costs.
- Key operating and financial risks include substantial debt and lease commitments, power availability and costs, foreign-exchange exposure, data-center outages or security breaches, competition, expansion returns, and customer collections. Management said DSO had increased following the billing-system implementation, though it began improving in the second half of 2015.
- Management and the auditor concluded internal control over financial reporting was effective at year-end; Bit-isle was excluded from the assessment because it was acquired in November 2015. The company reported no pending claims expected by management to have a material adverse effect.
Important facts for investors to verify
- Reconcile reported growth with constant-currency growth and assess the impact of currency translation on revenue, earnings and cash flows.
- Review the post-year-end TelecityGroup financing, integration costs, required divestitures and progress toward expected synergies.
- Check debt maturities and covenants, the refinancing of Bit-isle’s bridge loan, and the effect of distributions and expansion spending on liquidity.
- Monitor REIT qualification, distribution requirements and the treatment of acquired international operations in taxable REIT subsidiaries.
- Track billing-system improvements and DSO, as well as data-center capacity, power constraints and utilization at newly opened facilities.