3/29/2010 TONIGHT'S AGENDA
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Transcript of 3/29/2010 TONIGHT'S AGENDA
TONIGHT'S AGENDA
Portfolio Update Market Movers: Obama & Greece Buy Equinix Incorporated Sell USG Corporation
LARGEST HOLDINGS USG Corporation:
5.24% Winn Dixie Stores:
5.23% jetBlue Corporation:
4.91% Waters Corporation
4.65% KBR Inc.
4.64%
BCIC RELATIVE HOLDINGS
Sector BCIC S&P 500 Relative Weight
Business Services 16.34% 3.85% 12.4900%
Consumer Goods 15.23% 10.89% 4.3400%
Healthcare 13.68% 11.88% 1.8000%
Industrial Materials 11.57% 10.73% 0.8400%
Consumer Services 9.09% 8.66% 0.4300%
Information 4.95% 4.78% 0.1700%
Telecommunication 4.45% 5.82% -1.3700%
Energy 9.37% 11.55% -2.1800%
Media 0.00% 2.58% -2.5800%
Utilities 0.00% 3.63% -3.6300%
Financial Services 10.37% 14.37% -4.0000%
Hardware 4.93% 11.25% -6.3200%
AgendaAgenda1. Growth
• Revenues and Margins
• Acquisitions
2. International Growth
• Current Strengths
• New Initiative
3. Cash Flows
• Capital Expenditures
4. Sustainability
5. Plan of Action 10
13
2005 - Los Angeles data center originally built for Exodus Communications
$34.5 million2007 – IXEurope- Dusseldorf, Frankfurt, Geneva, London, Munich, Paris and
Zurich $550 million plus debt assumption2008 – Virtu
- Enschede, Zwolle, and Amsterdam $48 million plus debt assumption2010 – Switch and Data
- Various Tier I & II North American locations $689 million plus debt assumption2010 - Shanghai Data Solution partnership
Acquisitions and PartnershipsAcquisitions and Partnerships
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International GrowthInternational GrowthEmerging Markets• Bring brand, customers, and expertise to
existing datacenter and colocation providers• Adjust demand forecasts and plan for
enhanced partnership or data center construction
• Maintain similar margins as through existing operations in the region
Leverage International Footprint• Continue trend of increasing cross-border
deals (more than 50 in Q4 2009 alone, up from 35-45)
15
Intensified Global Marketing Intensified Global Marketing ApproachApproachExpand Size of Marketing Department
• Currently nearly $1 billion revenues managed by less than 75 marketing agents
• Hiring throughout 2010 will begin new marketers’ six to nine month training window
Refined Focus on Verticals• Hires will be experts in Networking, Financial
Services, and Enterprise Technology• Focus on verticals and targeting of momentous
customer deals rather than limiting marketing staff by geographic scope
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2004 2005 2006 2007 2008 2009Net Income (68.6) (42.6) (6.4) (5.2) 131.5 69.4D & A 66.1 75.0 72.8 103.3 158.9 173.5Other 39.4 35.3 9.0 21.9 (22.9) 112.5
Net Cash 36.9 67.6 75.4 120.0 267.6 355.5
Cash Flows From OperationsCash Flows From Operations
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2004 2005 2006 2007 2008 2009Cap Ex (22.9) (45.4)(162.3)(537.3)(471.1)(369.5)Purchase of Other Businesses
-- -- -- -- (23.2) (28.2)
Other (33.9) (63.3) 3.8(517.4) 16.3(160.5)
Net Cash Flow (56.9)(108.7)(158.5) (1054.7)(478.0)(558.2)
Cash Flows From InvestmentsCash Flows From Investments
18
Elaboration on Cash & Cap ExElaboration on Cash & Cap Ex2010 Guidance (in millions)
Long Term Ongoing Cap Ex⇒ Expected to be 5% of revenues
Revenues (24% Growth) $1,050,000 to $1,075,000Cash Gross Margin 64%Cash SG&A $200 to $220Adjusted EBITDA $460 to $480Cap Ex $400 to $500 Expansion Portion $300 to $400 Ongoing Portion $100 Maintenance $15 Customer Installations $40 Corporate IT Systems,
New Product$45
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Estimated Useful Life
Computer equipment and software 2 to 5
Furniture and fixtures 2 to 10
IBX equipment 2 to 15
IBX plant and machinery 2 to 25
Leasehold improvements 10 to 20
Site improvements 10 to 15
Buildings 30 to 50
Accounting Depreciable LivesAccounting Depreciable Lives
20
Sustainable MarginsSustainable MarginsPricing Pressure from Competition• Pricing has remained firm across products and
cost drivers in the U.S.• Willing to negotiate lower margins for longer
contract durations with high-gravity customers
• Q4 2009 = 10 year contract with Fortune 100 customer
Existing Customer Base and Global Footprint• Interconnection services are still unmatched,
and any successful competitor will need time to build network effects
• Targeted marketing effort should make interconnection ecosystem even more attractive
Competitive LandscapeCompetitive Landscape
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Internet Data Centers•AT&T, Level 3, NTT
Network Access Points•Switch and Data, TelecityGroup
Vertically Integrated Web Hosting•Verizon Business, Vericenter
Real Estate Investment Trusts•Digital Realty Trust
Private data centers•Google and Microsoft, Rackspace
22
Potential HazardsPotential Hazards• Dilution (Convertible debt and employee options)• New Competition and Pricing Pressure• DoJ proceedings for SDXC acquisition• Financial regulations and High Frequency Trading
limitations
• Market and sector risk exposure• Cash flows must improve as expected• Will bond issue pay off?
Proposed Plan of ActionProposed Plan of Action
23
1. Purchase 135 shares of EQIX for around $13,000
2. Keep an eye on trends in the market, competitors, and the performance of EQIX
3. Be prepared to exit within a one year window if vital signs are troubled or new concerns arise
4. Expected investment horizon is longer term, perhaps 3 to 5 years
As Jim Cramer would say:
“It’s not Buy and Hold, It’s Buy and Homework.”
BACKGROUND Second Largest BCIC Position
$15,400 (5.28% of Portfolio)
Building Materials Company Wallboard & Related Products Ceilings for Commercial Construction Distribution Yards
SELL THESIS Macro Headwinds Remain in Housing
Interest Rate, Unemployment Uncertainty Industry Supply Overhang
Low Utilization, Pricing Below Cash Costs Stock is +50% Since February Lows
Levered Bet on Recovery
HOUSING HEADWINDS Housing Has Been Supported by Fiscal and
Monetary Policy These are Currently Winding Down Only Supported, Not Strengthened, Market
USG Makes Money from New Home Construction Yet Problems with Existing Housing Stocks are Numerous
INDUSTRY PROBLEMS USG and Competitors (Mostly Private) Greatly
Expanded During Boom Phase Overhang of Capacity Reduces Pricing Power
Currently Below Avg. Cash Cost
Plants Have Been Mothballed, Not Closed No Bankruptcies
ATTRACTIVE EXIT POINT Stock is Up 50% from Market Lows in Feb.
“Sell the Rips” Valuation Not Compelling Wallboard Price Increases Not Sticking Deteriorating Balance Sheet & Dilution