Equinix's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Equinix (EQIX)

Q4 2011 Earnings Call

February 15, 2012 5:30 pm ET

Executives

Katrina Rymill -

Stephen M. Smith - Chief Executive Officer, President, Director and Member of Stock Award Committee

Keith D. Taylor - Chief Financial Officer and Principal Accounting Officer

Charles Meyers - President of North America

Jarrett Appleby - Chief Marketing Officer

Analysts

Gray Powell - Wells Fargo Securities, LLC, Research Division

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Michael Rollins - Citigroup Inc, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Timothy K. Horan - Oppenheimer & Co. Inc., Research Division

Colby Synesael - Cowen and Company, LLC, Research Division

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

Presentation

Operator

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Good afternoon, and welcome to Equinix Conference Call. [Operator Instructions] Also today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd like to turn the call over to Katrina Rymill, VP of IR. You may begin.

Katrina Rymill

Good afternoon, and welcome to today's conference call. Before we get started, I would like to remind everyone that some of the statements that we'll be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release and those identified in our filings with the SEC, including our most recent Form 10-K filed on February 25, 2011, and Form 10-Q filed on October 28, 2011. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix's policy not to comment on its financial guidance during the call, unless it is done through an exclusive public disclosure.

In addition, we will provide non-GAAP measures on today's conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today's press release on the Equinix Investor Relations page at www.equinix.com. We would also like to remind you that we post important information about Equinix on the Investor Relations page of our website. We encourage you to check our website regularly for the most current available information.

With us today are Steve Smith, Equinix's CEO and President; Keith Taylor, Chief Financial Officer; Jarrett Appleby, Chief Marketing Officer; and Charles Meyers, President of the Americas. Following our prepared remarks, we will be taking questions from sell-side analysts. In the interest of wrapping this call within 1 hour, we'd like to ask these analysts to limit any follow-on questions to one. At this time, I'd like to turn the call over to Steve.

Stephen M. Smith

Thank you, Katrina. Good afternoon, and welcome to our fourth quarter earnings call. I'm pleased to report that Equinix delivered strong business and financial results in the fourth quarter, and another year of solid revenue and adjusted EBITDA growth for 2011. As depicted on Slide 4, revenue grew 32% to $1.607 billion for the year, and adjusted EBITDA increased 36% to $738 million, consistently outperforming market growth rates. Our business is running in all cylinders, driven in large part by the strong demand we are experiencing for Platform Equinix across all verticals, and our market is healthy with favorable supply-demand dynamics and pricing remains firm.

We are executing on our goal of generating over $3 billion in annual revenues by 2015, while targeting positive adjusted free cash flow in 2013. We're also implementing shareholder-friendly actions. In November, we announced intentions to deploy up to $500 million for the direct benefit of shareholders, which includes a share repurchase program of up to $250 million through the end of 2012. I'm pleased to report in 2011, we repurchased 870,000 shares for a total of $87 million.

Turning to Slide 5. I'd like to highlight how we invested in the business in 2011. We generated $587 million in cash from operations for the year, and reinvested $557 million in 20 key global IBX expansions with the same level of targeted returns. Ongoing CapEx was $128 million for the year, which included success-based installations, maintenance and value-enhancing initiatives. We now have over 6.5 million gross square feet of space, which is the largest retail data center footprint in the world. Other successes for the year include achieving 99.9999% of availability across the global platform, increasing interconnection revenue by over 20% ending the year with over 97,000 cross-connects, and growing Internet exchange traffic over 30% to 1.4 terabits per second.

In 2011, we also launched the Marketplace, a global portal that makes it easier for customers to conduct business with each other and quickly establish interconnections in our centers. The more interconnections that are created among our customers, the more valuable our ecosystems and our IBX has become. At the heart of demand for data center services is the exponential growth in IP traffic, video and performance-sensitive applications including financial trading, e-commerce, cloud and WAN optimization. Over the next decade, market sources expect a number of servers worldwide to grow by a factor of 10, the amount of information managed by a factor of 50 and the number of files by 75x. As we enter this new age of hyper-connectivity and data growth, Equinix will benefit by providing the right infrastructure and the right locations to achieve the performance requirements of these mission-critical applications.

Networks are at the core of this infrastructure. The broad choice of networks and network services inside our data centers is a critical reason digital ecosystems are thriving at Equinix. Networks are rapidly introducing new products to support cloud infrastructure, CDN capabilities and managed services, taking advantage of the unique revenue opportunity to sell services inside of Equinix.

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