If any CFO is well prepared for the challenge thrown up by coronavirus it is Keith Taylor, the finance leader of data centre and interconnection provider Equinix.
In the dotcom boom and then bust 20 years ago, Taylor experienced at the firm an almost total collapse of the business soon after it went public in August 2000. He had joined Equinix the previous year, keen to participate in the “exceedingly exciting” gold rush of the early days of the internet.
The firm’s offer, that it has continued to this day, was to provide centres for housing the growing amount of data required by the burgeoning dotcom businesses in California, where Equinix is headquartered. But Taylor, who became CFO of the firm in 2005, says the firm IPO’d in August of 2000 when it was delivering revenues of only $800,000.
Although sales grew to $13m the following year, Equinix soon found itself in financial jeopardy. “We did some really stupid things. We raised high yield debt before we had any revenues, and then raised secured debt, with little revenue and many debt restrictions.”
The result was that the firm was soon fighting for its life. “Nobody wanted to give us any money and we only had enough for one more payroll,” he says.
Potential backers would only come to the rescue if Equinix filed for bankruptcy and effectively wiped out equity holders, recounts Taylor. “We chose not to go that route. We said no, we’ll take the pain and find a solution,” he says.
Fortunately, support came in 2002 in the form of Singaporean investor Singapore Technologies Telemedia, and its internet infrastructure service subsidiary, i-STT and Pihana Pacific. The Asian partner, which helped develop a presence across the Far East, took 40 percent of the business but didn’t demand the extreme measures others were calling for.
Taylor says the experience taught him huge amounts, particularly what to do when it required keeping a level headed approach. “I run the business as if it’s my home. We don’t over leverage ourselves. And, we keep more cash on the balance sheet than others do,” he says.
The process of recovery was instructive about what can be achieved in terms of perseverance and belief. “All the team that was on the ground at that time believed that we could do what we needed to do,” he says.
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In 2010 Equinix faced another challenge when the after effects of the global financial crisis (GFC) saw hedge funds short $3bn of the firm’s stock. “We lost a third of our value in about 20 minutes,” recalls Taylor.
In the end, Equinix succeeded in being able to grow the business as the demand for data centres has intensified, in response to the massive increase in data requirements in recent years.
The group has undertaken 26 acquisitions over the last two decades, including the 2015 acquisition of UK group Telecity for $3.8bn, extending its European presence. Annual revenues have passed $6bn, and Taylor says Equinix has ran enterprise value of $80bn. “We’ve gone from a nearly bankrupt company to a thriving and globalised enterprise,” he says.
That was exacerbated in 2020 when the coronavirus pandemic forced global lockdowns, resulting in even greater demand for data volume. The result has been that Equinix’s annual revenues now exceed $6bn and the group’s market value has grown to reach $61bn by the start of 2021.
Building the model
Taylor says many in their situation would have quite reasonably thrown in the towel when faced with that much adversity. But he and the rest of the team “just persevered, we had the grit and the energy that allowed us to get to the other end,” he says.
It’s a journey that the Glasgow, Scotland born Taylor who studied accounting in Canada’s Bishop’s University before becoming VP finance and controller at International Wireless Communications before joining Equinix, says that he and the team learned from in order to build the business.
That prospect has been growing in recent years as the digital revolution has taken off and the group set its sights on new horizons. “The appetite for consumption is exponential. When we first started out, a megabyte cost $1,000. Today it is a fraction of a dollar. So there’s been a dramatic move in the amount of data that can be consumed,” he says.
In 2015 Equinix converted to REIT (real estate investment trust) to become more tax efficient and also joined the S&P 500, an elite group of the world’s largest listed companies. “It was a recognition that we’ve come a long way as an organisation and we are here to stay,” he declares.
Now the group has global aspirations- to keep developing sites to meet the expectations of major metros such as London, California, Washington, Phoenix, Tokyo, Hong Kong, and Singapore. “Over the next five years, we’d expect to spend $2bn a year in investments or greater, putting in more infrastructure,” says Taylor.
But he insists that despite the need to continually build scale, financial discipline is key to success. “You’ve got to make sure you have a balance sheet and an operating model that makes sense, as we can’t just go spending money recklessly. It is really about looking at investment decisions and optimising return on invested capital.
“Any time you make an investment, you’re diluting. If you’re 100 percent sold out in a building and you add a second building, which is not yet operational, you’ve just diluted your operating metric by 50 percent.
“We’ve been able to thrive because we’ve been very capital efficient. The gearing of our investment decisions has been very strong, while at the same time, we’ve also driven our ROI (return on investment).”
In a year like no other, those previous experiences have paid off as Taylor and the rest of the leadership team have been able to tap the resilience built up through experiencing earlier challenges.
“Once the global pandemic was upon us, we got our act together really quickly, and started talking as a team, recognising the number one concern was ensuring liquidity, as the experience of the GFC showed that access to capital was vital,” says Taylor.
As a critical infrastructure asset, Equinix staff were allowed to enter and operate data centres through national lockdowns, which instilled confidence in the group’s business continuity plan.
But there was still an onus on taking care of staff. “One of the first things we said is, don’t panic, we’ve been here before, we know what to do. In this environment, this is when we thrive. And we also want all of you to know that nobody will be laid off,” he adds.
Equinix put in place a $750m bank facility to ride out the storm. “We had plenty of cash on our balance sheet, but we had no idea whether customers were going to be able to pay their bills. We then drew down on our line of credit $250m, so we put an incremental $1bn onto our balance sheet in addition to the $1bn we already had,” he says.
Although the share price dipped in March a recovery began to take shape as “the market started to recognise those companies that could be the beneficiary of a stay at home environment,” says Taylor.
Equinix had strong second and third quarters, and was back in deal-making mode, with the $335m purchase of bare metal provider Packet in March. “We always said we thrive in periods of difficulty where others are retreating to their cave. Now let’s focus on how to grow the business and focus on taking advantage of the opportunities that are in front of us,” says Taylor.
He says the Equinix leadership team have been focused on carefully building long term value for shareholders. “If you screw that up, you’re really going to find yourself in a bind.”
Forward planning involves setting a number of different scenarios for the months ahead, reflecting the complex macroeconomic environment. “When we give guidance in February, for 2021, we’ll give the next quarter and the annual year. And then I think it’s appropriate to provide a broader range and say here’s the range we’re going to play in,” he adds.
There’s still plenty of tough times ahead, Taylor reflects. “There’s a couple more valleys to go through unfortunately in the dark days of winter, particularly in the Northern Hemisphere. That is an area of high concern for us,” he says.
But as someone who has experienced plenty of challenges, Taylor knows there is light at the end of the tunnel.