Last week Equinix (NASDAQ:EQIX) held its fifth Investor Analyst Day at the Times Center in New York City, followed by a visit to the NY4 and NY5 data centers, the following day.
Almost 300 investors and financial analysts participated at the event, which included several guests, such as Geoffrey Moore, high tech consultant and author of "Crossing the Chasm" and "Escape Velocity," and a member of the Akamai (NASDAQ:AKAM) board of directors, and a few customers, such as Tricia San Cristobal from Bloomberg, Richard Estes from BNY Mellon (NYSE:BK), Peder Ulander from Citrix (NASDAQ:CTXS) and John Wick, Global Network Solutions at Syniverse, who highlighted their experience with the company and the value of the Equinix's partnership to their business.
Unlike similar events, Equinix structured the day to allow a lot of interaction with participants, and several sections, like Geoffrey Moore's speech, were more about getting a glimpse into the future than the traditional presentations of company's data made by management.
While several presentations would deserve an article on their own, we'll keep this article to reporting some of the highlights related to Equinix's financial targets for the future. The complete video replay of the event, and the slides used during the presentations are available at these links (I, II), while a summary of all sessions is available on the Equinix's blog.
Steve Smith highlighted the secular trends driving Equinix's business, including the consumerization of technology, the proliferation of mobile devices, and the advent of social media.
(slides from the 2012 analyst meeting, click to enlarge)
During his presentation, he also discussed "four crown jewels" that differentiate Equinix from its competition, which include Equinix's networked data centers (with 700+ networks, soon to become 900+), global footprint, powerful customer ecosystems, and business reputation in terms of reliability and service.
It was impressive to hear that, up to 2003, the world had only collected 5 exabytes of traffic: in 2015, it is expected that global IP traffic will reach 81 exabytes per month.
"The traffic is coming", Equinix's CEO concluded, and the company intends to maintain its strong growth trajectory, with the ambitious target of reaching $3 billion in sales by 2015 (roughly a double compared to 2011 revenues).
Steve Smith also offered a great insight into some of Equinix's strong numbers so far, as resumed in this slide:
It should also be remembered that throughout these years the company has made a few strategic acquisitions of companies with lower margins than Equinix, which explains some hiccups in adjusted EBITDA margins (as well as it should be remembered that the continuous opening of new data centers, whose costs starts impacting the balance sheet well in advance to generating revenues, puts a shadow to the company's full potential in terms of margins).
Keith Taylor, Equinix's CFO, stepped in at the end of the meeting to add further color to Equinix's targets. Right now, excluding the most recent acquisitions, the company has unsold and announced capacity to reach $2.5 billion in revenues:
Given the strong investments needed to open new data centers, it is expected that roughly $1 billion will be necessary to be invested as expansion CapEx to add another $500 million in sales, assuming the facilities can reach near full capacity. Given Equinix's deep knowledge of customers needs, and the fact that most expansion are made in markets where the company already enjoys a leadership position, it seems wise to assume that the company is in the right position to reach this target, as more than 80% of additional orders usually come from the installed base. The company is also not factoring price increases in this forecast, while new facilities may carry higher unit (cabinet) prices and the increase in interconnections in the installed base can also positively contribute to the company's revenues.
In 2015 the company is expected to become a more balanced entity between North America and the rest of the world, whose revenue share should approach almost 50%:
Keith Taylor also reiterated that Equinix expects to become free cash flow positive in 2013, as the company forecasts to improve on most cash flow metrics, while targeting the ambitious revenue growth of almost doubling revenues in 4 years:
Same IBX review (i.e. the analysis of performance obtained in facilities that have been opened for more than 1 year) is always a great way to get a good insight into the company's potential. As shown in this chart, the company has reached a 77% cash gross profit margin, on average (with outstanding performances in facilities like NY4), and a more than 30% annual cash generation on gross PP&E investment. ROCE, now at roughly 6%, is expected to keep trending up in the following few years:
As a summary, the meeting gave investors and analysts a great insight into Equinix's potential, while the company shared several additional metrics on both its financial and operational performance.
The data center industry remains a great growth story in a generally weak economic environment (think of Europe at the moment, where it is one of the few sectors achieving strong double-digit growth), and Equinix remains on track to take advantage of the sector's potential, while probably expanding its market share and creating a "hard to replicate" advantage in several key ecosystems, like the financial vertical, cloud computing and mobility.
A picture of the Equinix's executive leadership team during the Q&A session: from left to right, Samuel Lee (Asia-Pacific), Charles Meyers (Americas), Steve Smith (CEO), Keith Taylor (NASDAQ:CFO), Eric Schwartz (EMEA) and Equinix's Executive Chairman and former CEO, Peter Van Camp
Disclosure: I am long EQIX.