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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Equinix, Inc. (REIT)    EQIX

EQUINIX, INC. (REIT)

(EQIX)
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Equinix : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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05/03/2019 | 01:42pm EDT
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. For example, the words "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions are
intended to identify forward-looking statements. Our actual results and the
timing of certain events may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a discrepancy
include, but are not limited to, those discussed in "Liquidity and Capital
Resources" below and "Risk Factors" in Item 1A of Part II of this Quarterly
Report on Form 10-Q. All forward-looking statements in this document are based
on information available to us as of the date of this Report and we assume no
obligation to update any such forward-looking statements.
Our management's discussion and analysis of financial condition and results of
operations is intended to assist readers in understanding our financial
information from our management's perspective and is presented as follows:

• Overview


• Results of Operations

• Non-GAAP Financial Measures

• Liquidity and Capital Resources

• Contractual Obligations and Off-Balance-Sheet Arrangements

• Critical Accounting Policies and Estimates

• Recent Accounting Pronouncements



In March 2019, as more fully described in Note 10 of the Notes to Condensed
Consolidated Financial Statements in Item 1 of this Quarterly Report on Form
10-Q, we issued and sold 2,985,575 shares of common stock in a public equity
offering. We received net proceeds of approximately $1,213.4 million, net of
underwriting discounts, commissions and offering expenses.
Overview
Equinix provides global data center offerings that protect and connect the
world's most valued information assets. Global enterprises, financial services
companies and content and network service providers rely upon Equinix's leading
insight and data centers around the world for the safehousing of their critical
IT equipment and the ability to directly connect to the networks that enable
today's information-driven economy. Recent IBX openings and acquisitions have
expanded our total global footprint to 202 IBX data centers across 52 markets
around the world. Equinix offers the following solutions: (i) premium data
center colocation, (ii) interconnection and exchange and (iii) outsourced IT
infrastructure solutions. As of March 31, 2019, we operated or had partner IBX
data centers in Brazil, Canada, Colombia and throughout the U.S. in the Americas
region; Bulgaria, Finland, France, Germany, Ireland, Italy, the Netherlands,
Poland, Portugal, Spain, Sweden, Switzerland, Turkey, the United Arab Emirates
and the United Kingdom in the EMEA region; and Australia, China, Hong Kong,
Indonesia, Japan and Singapore in the Asia-Pacific region.
Our data centers in 52 markets around the world are a global platform, which
allows our customers to increase information and application delivery
performance while significantly reducing costs. This global platform and the
quality of our IBX data centers have enabled us to establish a critical mass of
customers. As more customers choose our IBX data centers, it benefits their
suppliers and business partners to colocate with us as well, in order to gain
the full economic and performance benefits of our offerings. These partners, in
turn, pull in their business partners, creating a "marketplace" for their
services. Our global platform enables scalable, reliable and cost-effective
colocation, interconnection and traffic exchange that lowers overall cost and
increases flexibility. Our focused business model is built on our critical mass
of customers and the resulting "marketplace" effect. This global platform,
combined with our strong financial position, continues to drive new customer
growth and bookings.

Historically, our market has been served by large telecommunications carriers
who have bundled telecommunications products and services with their colocation
offerings. The data center market landscape has evolved to include cloud
computing/utility providers, application hosting providers and systems
integrators, managed infrastructure hosting providers and colocation providers.
More than 350 companies provide data center solutions in the U.S. alone. Each of
these data center solutions providers can bundle various colocation,
interconnection and network offerings and outsourced IT infrastructure
solutions. We are able to

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offer our customers a global platform that reaches 24 countries with proven operational reliability, improved application performance, network choice and a highly scalable set of offerings.


Our cabinet utilization rates were approximately 80%, as of March 31, 2019, and
80%, excluding data centers acquired from Itconic and Zenium, as of March 31,
2018. Excluding the impact of our IBX data center expansion projects that have
opened during the last 12 months, our cabinet utilization rate would have
increased to approximately 83% as of March 31, 2019. Our cabinet utilization
rate varies from market to market among our IBX data centers across the
Americas, EMEA and Asia-Pacific regions. We continue to monitor the available
capacity in each of our selected markets. To the extent we have limited capacity
available in a given market, it may limit our ability for growth in that market.
We perform demand studies on an ongoing basis to determine if future expansion
is warranted in a market. In addition, power and cooling requirements for most
customers are growing on a per unit basis. As a result, customers are consuming
an increasing amount of power per cabinet. Although we generally do not control
the amount of power our customers draw from installed circuits, we have
negotiated power consumption limitations with certain high power-demand
customers. This increased power consumption has driven us to build out our new
IBX data centers to support power and cooling needs twice that of previous IBX
data centers. We could face power limitations in our IBX data centers, even
though we may have additional physical cabinet capacity available within a
specific IBX data center. This could have a negative impact on the available
utilization capacity of a given IBX data center, which could have a negative
impact on our ability to grow revenues, affecting our financial performance,
operating results and cash flows.
Strategically, we will continue to look at attractive opportunities to grow our
market share and selectively improve our footprint and offerings. As was the
case with our recent expansions and acquisitions, our expansion criteria will be
dependent on a number of factors, including but not limited to demand from new
and existing customers, quality of the design, power capacity, access to
networks, capacity availability in the current market location, amount of
incremental investment required by us in the targeted property, lead-time to
break even on a free cash flow basis and in-place customers. Like our recent
expansions and acquisitions, the right combination of these factors may be
attractive to us. Depending on the circumstances, these transactions may require
additional capital expenditures funded by upfront cash payments or through
long-term financing arrangements in order to bring these properties up to
Equinix standards. Property expansion may be in the form of purchases of real
property, long-term leasing arrangements or acquisitions. Future purchases,
construction or acquisitions may be completed by us or with partners or
potential customers to minimize the outlay of cash, which can be significant.
Our business is based on a recurring revenue model comprised of colocation and
related interconnection and managed infrastructure offerings. We consider these
offerings recurring because our customers are generally billed on a fixed and
recurring basis each month for the duration of their contract, which is
generally one to three years in length. Our recurring revenues have comprised
more than 90% of our total revenues during the past three years. In addition,
during any given quarter of the past three years, more than half of our monthly
recurring revenue bookings came from existing customers, contributing to our
revenue growth. During both the three months ended March 31, 2019 and 2018, our
largest customer accounted for approximately 3% of our recurring revenues. Our
50 largest customers accounted for approximately 39% and 38%, respectively, of
our recurring revenues for the three months ended March 31, 2019 and 2018.
Our non-recurring revenues are primarily comprised of installation services
related to a customer's initial deployment and professional services we perform.
These services are considered to be non-recurring because they are billed
typically once, upon completion of the installation or the professional services
work performed. The majority of these non-recurring revenues are typically
billed on the first invoice distributed to the customer in connection with their
initial installation. However, revenues from installation services are deferred
and recognized ratably over the period of the contract term. Additionally,
revenue from contract settlements, when a customer wishes to terminate their
contract early, is generally treated as a contract modification and recognized
ratably over the remaining term of the contract, if any. As a percentage of
total revenues, we expect non-recurring revenues to represent less than 10% of
total revenues for the foreseeable future.
The largest components of our cost of revenues are depreciation, rental payments
related to our leased IBX data centers, utility costs, including electricity,
bandwidth access, IBX data center employees' salaries and benefits, including
stock-based compensation, repairs and maintenance, supplies and equipment and
security services. A majority of our cost of revenues is fixed in nature and
should not vary significantly from period to period, unless we expand our
existing IBX data centers or open or acquire new IBX data centers. However,
there are certain costs that are considered more variable in nature, including
utilities and supplies that are directly related to growth in our existing and
new customer base. We expect the cost of our utilities, specifically
electricity, will generally increase in the future on a per-unit or fixed basis,
in addition to the variable increase related to the growth in consumption by our
customers. In addition, the cost of electricity is generally higher in the
summer months, as compared to other times of the year. To the extent we incur
increased utility costs, such increased costs could materially impact our
financial condition, results of operations and cash flows. Furthermore, to the
extent we incur increased electricity costs as a result of either climate change
policies or the physical effects of climate change, such increased costs could
materially impact our financial condition, results of operations and cash
flows.

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Sales and marketing expenses consist primarily of compensation and related costs
for sales and marketing personnel, including stock-based compensation,
amortization of contract costs, marketing programs, public relations,
promotional materials and travel, as well as bad debt expense and amortization
of customer relationship intangible assets.
General and administrative expenses consist primarily of salaries and related
expenses, including stock-based compensation, accounting, legal and other
professional service fees, and other general corporate expenses, such as our
corporate regional headquarters office leases and some depreciation expense.
We expect our cost of revenues, sales and marketing expenses and general and
administrative expenses to grow in absolute dollars in connection with our
business growth. We may periodically see a higher cost of revenues as a
percentage of revenue when a large expansion project opens or is acquired,
before it starts generating any meaningful revenue. Furthermore, in relation to
cost of revenues, we note that the Americas region has a lower cost of revenues
as a percentage of revenue than either EMEA or Asia-Pacific. This is due to both
the increased scale and maturity of the Americas region, compared to either the
EMEA or Asia-Pacific region, as well as a higher cost structure outside of the
Americas, particularly in EMEA. We expect the trend that sees the Americas
having the lowest cost of revenues as a percentage of revenues to continue. As a
result, to the extent that revenue growth outside the Americas grows in greater
proportion than revenue growth in the Americas, our overall cost of revenues as
a percentage of revenues may increase in future periods. Sales and marketing
expenses may periodically increase as a percentage of revenues as we continue to
scale our operations by investing in sales and marketing initiatives to further
increase our revenue, including the hiring of additional headcount and new
product innovations. General and administrative expenses may also periodically
increase as a percentage of revenues as we continue to grow our business.
Taxation as a REIT
We elected to be taxed as a real estate investment trust for federal income tax
purposes ("REIT") beginning with our 2015 taxable year. As of March 31, 2019,
our REIT structure included all of our data center operations in the U.S.,
Canada, Japan and the data center operations in EMEA with the exception of
Bulgaria, United Arab Emirates and a portion of Turkey. Our data center
operations in other jurisdictions are operated as taxable REIT subsidiaries
("TRSs").
As a REIT, we generally are permitted to deduct from our federal taxable income
the dividends we pay to our stockholders. The income represented by such
dividends is not subject to federal income tax at the entity level but is taxed,
if at all, at the stockholder level. Nevertheless, the income of our TRSs which
hold our U.S. operations that may not be REIT compliant is subject, as
applicable, to federal and state corporate income tax. Likewise, our foreign
subsidiaries continue to be subject to foreign income taxes in jurisdictions in
which they hold assets or conduct operations, regardless of whether held or
conducted through TRSs or through qualified REIT subsidiaries ("QRSs"). We are
also subject to a separate corporate income tax on any gain recognized from a
sale of a REIT asset where our basis in the asset is determined by reference to
the basis of the asset in the hands of a C corporation (such as (i) an asset
that we held as of the effective date of our REIT election, which was January 1,
2015, or (ii) an asset held by us or a QRS following the liquidation or other
conversion of a former TRS). This built-in-gain tax is generally applicable to
any disposition of such an asset during the five-year period after the date we
first owned the asset as a REIT asset (e.g., January 1, 2015 in the case of REIT
assets we held at the time of our REIT conversion), to the extent of the
built-in-gain based on the fair market value of such asset on the date we first
held the asset as a REIT asset. If we fail to remain qualified for federal
income taxation as a REIT, we will be subject to federal income tax at regular
corporate tax rates. Even if we remain qualified for federal income taxation as
a REIT, we may be subject to some federal, state, local and foreign taxes on our
income and property in addition to taxes owed with respect to our TRSs'
operations. In particular, while state income tax regimes often parallel the
federal income tax regime for REITs, many states do not completely follow
federal rules, and some may not follow them at all.
On March 20, 2019, we paid a quarterly cash dividend of $2.46 per share. We
expect the amount of all of our 2019 quarterly distributions and other
applicable distributions to equal or exceed the REIT's taxable income to be
recognized in 2019.
We continue to monitor our REIT compliance in order to maintain our
qualification for federal income taxation as a REIT. For this and other reasons,
as necessary, we may convert some of our data center operations in other
countries into the REIT structure in future periods.
Results of Operations
Our results of operations for the three months ended March 31, 2019 include the
results of operations from the Metronode Acquisition from April 18, 2018 and the
Infomart Dallas Acquisition from April 2, 2018.

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Three Months Ended March 31, 2019 and 2018
Revenues. Our revenues for the three months ended March 31, 2019 and 2018 were
generated from the following revenue classifications and geographic regions
(dollars in thousands):
                              Three Months Ended March 31,                  % Change
                                                                                 Constant
                           2019         %         2018         %     Actual    Currency (1)
Americas:
Recurring revenues     $   606,310     44 %   $   575,992     48 %       5 %          7 %
Non-recurring revenues      38,056      3 %        26,635      2 %      43 %         44 %
                           644,366     47 %       602,627     50 %       7 %          8 %
EMEA:
Recurring revenues         400,237     29 %       355,490     29 %      13 %         21 %
Non-recurring revenues      34,423      3 %        24,140      2 %      43 %         54 %
                           434,660     32 %       379,630     31 %      14 %         23 %
Asia-Pacific:
Recurring revenues         268,281     20 %       219,147     18 %      22 %         26 %
Non-recurring revenues      15,911      1 %        14,473      1 %      10 %         14 %
                           284,192     21 %       233,620     19 %      22 %         25 %
Total:
Recurring revenues       1,274,828     93 %     1,150,629     95 %      11 %         15 %
Non-recurring revenues      88,390      7 %        65,248      5 %      35 %         41 %
                       $ 1,363,218    100 %   $ 1,215,877    100 %      12 %         16 %





(1)   As defined in the "Non-GAAP Financial Measures" section in Item 2 of this
      Quarterly Report on Form 10-Q.


Americas Revenues. As compared to the three months ended March 31, 2018,
revenues for our Americas region for the three months ended March 31, 2019
included approximately $10.6 million of incremental revenues from the Infomart
Dallas Acquisition, which closed in April 2018. Excluding revenues attributable
to the Infomart Dallas Acquisition, our Americas revenue growth was primarily
due to (i) approximately $18.8 million of revenues generated from our
recently-opened IBX data centers or IBX data center expansions in the Dallas,
Washington, D.C., Miami, São Paulo, Culpepper, Houston, Seattle and Silicon
Valley metro areas and (ii) an increase in orders from both our existing
customers and new customers during the period. During the three months ended
March 31, 2019, foreign currency fluctuations resulted in approximately $7.5
million of unfavorable foreign currency impact to our Americas revenues
primarily due to a generally stronger U.S. Dollar relative to the Brazilian Real
during the three months ended March 31, 2019 compared to the three months ended
March 31, 2018.
EMEA Revenues. Our EMEA revenue growth was primarily due to (i) approximately
$28.5 million of revenues from our recently-opened IBX data centers or IBX data
center expansions in the Amsterdam, Frankfurt, London and Paris metro areas and
(ii) an increase in orders from both our existing customers and new customers
during the period. During the three months ended March 31, 2019, foreign
currency fluctuations resulted in approximately $33.1 million of unfavorable
foreign currency impact to our EMEA revenues primarily due to a generally
stronger U.S. Dollar relative to the Euro and British Pound during the three
months ended March 31, 2019 compared to the three months ended March 31, 2018.
The foreign currency impact to EMEA revenues was partially offset by realized
cash flow hedge gains.
Asia-Pacific Revenues. Revenues for our Asia-Pacific region for the three months
ended March 31, 2019 included approximately $16.6 million of incremental
revenues attributable to the Metronode Acquisition, which closed in April 2018.
Excluding revenues attributable to the Metronode Acquisition, our Asia-Pacific
revenue growth was primarily due to (i) approximately $15.4 million of revenue
generated from our recently-opened IBX data center expansions in the Hong Kong,
Melbourne and Singapore metro areas and (ii) an increase in orders from both our
existing customers and new customers during the period. During the three months
ended March 31, 2019, foreign currency fluctuations resulted in approximately
$8.2 million of net unfavorable foreign currency impact to our Asia-Pacific
revenues primarily due to a generally stronger U.S. Dollar relative to the
Australian Dollar and Singapore Dollar during the three months ended March 31,
2019 compared to the three months ended March 31, 2018.

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Cost of Revenues. Our cost of revenues for the three months ended March 31, 2019
and 2018 were split among the following geographic regions (dollars in
thousands):
                   Three Months Ended March 31,               % Change
                                                                   Constant
                2019         %        2018        %     Actual     Currency
Americas     $  285,659     42 %   $ 265,141     43 %       8 %       10 %
EMEA            242,454     35 %     226,170     36 %       7 %       15 %
Asia-Pacific    153,917     23 %     131,119     21 %      17 %       20 %
Total        $  682,030    100 %   $ 622,430    100 %      10 %       14 %


                                                Three Months Ended
                                                     March 31,
                                                 2019          2018
Cost of revenues as a percentage of revenues:
Americas                                          44 %           44 %
EMEA                                              56 %           60 %
Asia-Pacific                                      54 %           56 %
Total                                             50 %           51 %


Americas Cost of Revenues. As compared to the three months ended March 31, 2018,
cost of revenues for our Americas region for the three months ended March 31,
2019 included approximately $9.9 million incremental cost of revenues from the
Infomart Dallas Acquisition. Excluding the impact from this acquisition, the
increase in our Americas cost of revenues for the three months ended March 31,
2019 compared to the three months ended March 31, 2018 was primarily due to i)
an increase in costs of custom service orders of $8.0 million and ii) an
increase in bandwidth costs of $3.3 million. During the three months ended March
31, 2019, foreign currency fluctuations resulted in approximately $5.1 million
of net favorable foreign currency impact to our Americas cost of revenues
primarily due to a generally stronger U.S. Dollar relative to the Brazilian Real
during the three months ended March 31, 2019 compared to the three months ended
March 31, 2018. We expect Americas cost of revenues to increase as we continue
to grow our business, including from the results of recent acquisitions.
EMEA Cost of Revenues. The increase in our EMEA cost of revenues was primarily
due to (i) $17.8 million of higher other cost of sales, primarily consisting of
costs of custom service orders and realized cash flow hedge losses and (ii)
$10.1 million of higher utilities costs driven by IBX expansions, increased
usage and price increases in London, the Netherlands and Frankfurt, partially
offset by i) a decrease of $5.9 million in depreciation expense and (ii) $3.9
million lower outside services consulting fees. During the three months ended
March 31, 2019, foreign currency fluctuations resulted in approximately $18.6
million of net favorable foreign currency impact to our EMEA cost of revenues
primarily due to a generally stronger U.S. Dollar relative to the Euro and
British Pound during the three months ended March 31, 2019 compared to the three
months ended March 31, 2018. We expect EMEA cost of revenues to increase as we
continue to grow our business.
Asia-Pacific Cost of Revenues. Cost of revenues for our Asia-Pacific region for
the three months ended March 31, 2019 included approximately $11.2 million
incremental cost of revenues from the Metronode Acquisition. Excluding the
impact from the Metronode Acquisition, the increase in our Asia-Pacific cost of
revenues for the three months ended March 31, 2019 as compared to the three
months ended March 31, 2018 was primarily due to $11.7 million of higher
utilities, rent and facility costs, primarily driven by expansions, higher rates
and increased usage in Hong Kong, Japan and Singapore. During the three months
ended March 31, 2019, foreign currency fluctuations resulted in approximately
$3.9 million of net favorable foreign currency impact to our Asia-Pacific cost
of revenues primarily due to a generally stronger U.S. Dollar relative to the
Australian Dollar during the three months ended March 31, 2019 compared to the
three months ended March 31, 2018. We expect our Asia-Pacific cost of revenues
to increase as we continue to grow our business, including from the impact of
the Metronode Acquisition.

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Sales and Marketing Expenses. Our sales and marketing expenses for the three
months ended March 31, 2019 and 2018 were split among the following geographic
regions (dollars in thousands):
                   Three Months Ended March 31,               % Change
                                                                   Constant
                2019         %        2018        %     Actual     Currency
Americas     $  105,038     62 %   $  97,963     61 %     7 %          8 %
EMEA             41,202     24 %      40,063     25 %     3 %         10 %
Asia-Pacific     23,475     14 %      21,750     14 %     8 %         11 %
Total        $  169,715    100 %   $ 159,776    100 %     6 %          9 %



                                                            Three Months Ended
                                                                 March 31,
                                                             2019          2018
Sales and marketing expenses as a percentage of revenues:
Americas                                                      16 %           16 %
EMEA                                                           9 %           11 %
Asia-Pacific                                                   8 %            9 %
Total                                                         12 %           13 %


Americas Sales and Marketing Expenses. The increase in our Americas sales and
marketing expenses was primarily due to $5.2 million of higher compensation
costs, including general salaries, bonuses, stock-based compensation, and
headcount growth (720 Americas sales and marketing employees as of March 31,
2019 versus 631 as of March 31, 2018). For the three months ended March 31,
2019, the impact of foreign currency fluctuations on our Americas sales and
marketing expenses was not significant when compared to average exchange rates
of the three months ended March 31, 2018. We anticipate that we will continue to
invest in Americas sales and marketing initiatives and expect our Americas sales
and marketing expenses to increase as we continue to grow our business,
including from the impact of recent acquisitions.
EMEA Sales and Marketing Expenses. Our EMEA sales and marketing expenses did not
materially change during the three months ended March 31, 2019 compared to the
three months ended March 31, 2018. For the three months ended March 31, 2019,
the impact of foreign currency fluctuations on our EMEA sales and marketing
expenses was not significant when compared to average exchange rates of the
three months ended March 31, 2018. Over the past several years, we have been
investing in our EMEA sales and marketing initiatives to further increase our
revenues and expect our EMEA sales and marketing expenses to continue to
increase as we continue to grow our business.
Asia-Pacific Sales and Marketing Expenses. Our Asia-Pacific sales and marketing
expenses did not materially change during the three months ended March 31, 2019
compared to the three months ended March 31, 2018. For the three months ended
March 31, 2019, the impact of foreign currency fluctuations on our Asia-Pacific
sales and marketing expenses was not significant when compared to average
exchange rates of the three months ended March 31, 2018. Over the past several
years, we have been investing in our Asia-Pacific sales and marketing
initiatives and expect our Asia-Pacific sales and marketing expenses to continue
to increase as we continue to grow our business, including from the impact of
the Metronode Acquisition.
General and Administrative Expenses. Our general and administrative expenses for
the three months ended March 31, 2019 and 2018 were split among the following
geographic regions (dollars in thousands):
                   Three Months Ended March 31,               % Change
                                                                   Constant
                2019         %        2018        %     Actual     Currency
Americas     $  147,138     69 %   $ 135,877     67 %     8  %         9 %
EMEA             45,342     21 %      46,850     23 %    (3 )%         2 %
Asia-Pacific     22,566     10 %      20,430     10 %    10  %        13 %
Total        $  215,046    100 %   $ 203,157    100 %     6  %         8 %




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                                                                Three Months Ended
                                                                     March 31,
                                                               2019             2018
General and administrative expenses as a percentage of
revenues:
Americas                                                          23 %              23 %
EMEA                                                              10 %              12 %
Asia-Pacific                                                       8 %               9 %
Total                                                             16 %              17 %


Americas General and Administrative Expenses. The increase in our Americas
general and administrative expenses was primarily due to (i) $4.4 million of
higher compensation costs, including general salaries, bonuses, stock-based
compensation, and headcount growth (1,371 Americas general and administrative
employees as of March 31, 2019 versus 1,252 as of March 31, 2018); (ii) $3.6
million of higher office, outside service consulting, and rent and facilities
costs in support of our business growth and (iii) $4.4 million of higher
depreciation expense associated with the implementation of certain systems,
including data management and cloud exchange systems, to improve our billing
processes and to support the integration and growth of our business. During the
three months ended March 31, 2019, the impact of foreign currency fluctuations
on our Americas general and administrative expenses was not significant when
compared to average exchange rates for the three months ended March 31, 2018. We
have been investing in our Americas general and administrative functions to
scale our business effectively for growth, which has included additional
investments in improving our back office systems. We expect our current efforts
to improve our back office systems will continue over the next several years.
Going forward, although we are carefully monitoring our spending, we expect our
Americas general and administrative expenses to increase as we continue to
further scale our operations to support our growth, including these investments
in our back office systems, investments to maintain our REIT qualification and
recent acquisitions.
EMEA General and Administrative Expenses. Our EMEA general and administrative
expenses did not materially change during the three months ended March 31, 2019
compared to the three months ended March 31, 2018. The impact of foreign
currency fluctuations on our EMEA general and administrative expenses for the
three months ended March 31, 2019 was not significant when compared to average
exchange rates of the three months ended March 31, 2018. We have been investing
in our EMEA general and administrative functions as a result of our ongoing
efforts to scale this region effectively for growth. Going forward, although we
are carefully monitoring our spending, we expect our EMEA general and
administrative expenses to increase in future periods as we continue to scale
our operations to support our growth.
Asia-Pacific General and Administrative Expenses. Our Asia-Pacific general and
administrative expenses did not materially change during the three months ended
March 31, 2019 compared to the three months ended March 31, 2018. The impact of
foreign currency fluctuations on our Asia-Pacific general and administrative
expenses for the three months ended March 31, 2019 was not significant when
compared to average exchange rates of the three months ended March 31, 2018.
Going forward, although we are carefully monitoring our spending, we expect our
Asia-Pacific general and administrative expenses to increase as we continue to
support our growth, including the from impact of the Metronode Acquisition.
Acquisition Costs. During the three months ended March 31, 2019, we did not
record a significant amount of acquisition costs. During the three months ended
March 31, 2018, we recorded acquisition costs totaling $4.6 million, primarily
in the EMEA and Americas regions.
Impairment Charge. During the three months ended March 31, 2019, we recorded an
impairment charge of $14.4 million in the Americas region as a result of the
fair value adjustment for the New York 12 ("NY12") data center, which was
classified as a held for sale asset as of March 31, 2019. We did not have any
impairment charges during the three months ended March 31, 2018.
Income from Operations. Our income from operations for the three months ended
March 31, 2019 and 2018 was split among the following geographic regions
(dollars in thousands):
                   Three Months Ended March 31,               % Change
                                                                   Constant
                2019         %        2018        %     Actual     Currency
Americas     $   90,011     32 %   $ 101,736     45 %    (12 )%     (11 )%
EMEA            105,007     38 %      64,103     28 %     64  %      78  %
Asia-Pacific     84,490     30 %      60,036     27 %     41  %      46  %
Total        $  279,508    100 %   $ 225,875    100 %     24  %      29  %



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Americas Income from Operations. The decrease in our Americas income from
operations was primarily due to the $14.4 million impairment charge on the NY12
data center. The impact of foreign currency fluctuations on our Americas income
from operations for the three months ended March 31, 2019 was not significant
when compared to average exchange rates of the three months ended March 31,
2018.
EMEA Income from Operations. The increase in our EMEA income from operations was
primarily due to higher revenues as a result of our IBX data center expansion
activity and acquisitions as well as lower cost of revenues, sales and marketing
and general and administrative expenses as a percentage of revenues. During the
three months ended March 31, 2019, foreign currency fluctuations resulted in
approximately $9.0 million of net unfavorable foreign currency impact to our
EMEA income from operations primarily due to a generally stronger U.S. Dollar
relative to the Euro and British Pound during the three months ended March 31,
2019 compared to the three months ended March 31, 2018.
Asia-Pacific Income from Operations. The increase in our Asia-Pacific income
from operations was primarily due to higher revenues as a result of our IBX data
center expansion activity and the Metronode Acquisition, as described above, as
well as lower cost of revenues, sales and marketing and general and
administrative expenses as a percentage of revenues. During the three months
ended March 31, 2019, foreign currency fluctuations resulted in approximately
$3.1 million of net unfavorable foreign currency impact to our Asia-Pacific
income from operations primarily due to a generally stronger U.S. Dollar
relative to the Australian Dollar during the three months ended March 31, 2019
compared to the three months ended March 31, 2018.
Interest Income. Interest income was $4.2 million and $4.6 million,
respectively, for the three months ended March 31, 2019 and 2018. The average
annualized yield for the three months ended March 31, 2019 was 1.49% versus
0.90% for the three months ended March 31, 2018.
Interest Expense. Interest expense decreased to $122.8 million for the three
months ended March 31, 2019 from $126.3 million for the three months ended March
31, 2018, primarily attributable to (i) the reduction in lease interest expense
due to the conversion of certain build-to-suit leases to operating leases upon
the adoption of ASC 842 and (ii) the utilization of cross-currency interest rate
swaps beginning in the first quarter of 2019. During the three months ended
March 31, 2019 and 2018, we capitalized $9.9 million and $3.3 million,
respectively, of interest expense to construction in progress.
Other Income (Expense). We did not record a significant amount of net other
expense during the three months ended March 31, 2019. We recorded net other
expense of $3.1 million for the three months ended March 31, 2018, which was
primarily due to foreign currency exchange gains and losses.
Gain (Loss) on debt extinguishment. We did not record a significant loss on debt
extinguishment during the three months ended March 31, 2019. We recorded a $21.5
million loss on debt extinguishment during the three months ended March 31, 2018
primarily due to settlement of financing obligations as a result of our SK2 land
and building purchase.
Income Taxes. We operate as a REIT for federal income tax purposes. As a REIT,
we are generally not subject to federal income taxes on our taxable income
distributed to stockholders. We intend to distribute or have distributed the
entire taxable income generated by the operations of our REIT and QRSs for the
tax years ended December 31, 2019 and 2018, respectively. As such, other than
built-in-gains recognized and withholding taxes, no provision for U.S. income
taxes for the REIT and QRSs has been included in the accompanying condensed
consolidated financial statements for the three months ended March 31, 2019 and
2018.
We have made TRS elections for some of our subsidiaries in and outside the U.S.
In general, a TRS may provide services that may otherwise be considered
impermissible for REITs to provide and may hold assets that may not be REIT
compliant. U.S. income taxes for the TRS entities located in the U.S. and
foreign income taxes for our foreign operations regardless of whether the
foreign operations are operated as QRSs or TRSs have been accrued, as necessary,
for the three months ended March 31, 2019 and 2018.
For the three months ended March 31, 2019 and 2018, we recorded $42.6 million
and $16.8 million of income tax expense, respectively. Our effective tax rates
were 26.6% and 21.0%, respectively, for the three months ended March 31, 2019
and 2018.

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Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the operating
performance of our segments and develop regional growth strategies such as IBX
data center expansion decisions. We define adjusted EBITDA as income or loss
from operations excluding depreciation, amortization, accretion, stock-based
compensation expense, restructuring charges, impairment charges, acquisition
costs and gain on asset sales. See "Non-GAAP Financial Measures" below for more
information about adjusted EBITDA and a reconciliation of adjusted EBITDA to
income or loss from operations. Our adjusted EBITDA for the three months ended
March 31, 2019 and 2018 was split among the following geographic regions
(dollars in thousands):
                   Three Months Ended March 31,               % Change
                                                                   Constant
                2019         %        2018        %     Actual     Currency
Americas     $  307,838     47 %   $ 291,549     50 %       6 %        7 %
EMEA            199,072     30 %     166,178     29 %      20 %       29 %
Asia-Pacific    153,245     23 %     121,788     21 %      26 %       30 %
Total        $  660,155    100 %   $ 579,515    100 %      14 %       18 %


Americas Adjusted EBITDA. The increase in our Americas adjusted EBITDA was
primarily due to the Infomart Dallas Acquisition, higher revenues as a result of
our IBX data center expansion activity and organic growth as described above.
The impact of foreign currency fluctuations on our Americas adjusted EBITDA for
the three months ended March 31, 2019 was not significant when compared to
average exchange rates of the three months ended March 31, 2018.
EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due
to higher revenues as a result of our IBX data center expansion activity, as
described above, as well as lower cost of revenues, sales and marketing and
general and administrative expenses as a percentage of revenues. During the
three months ended March 31, 2019, foreign currency fluctuations resulted in
approximately $16.1 million of net unfavorable foreign currency impact to our
EMEA adjusted EBITDA primarily due to a generally stronger U.S. Dollar relative
to the Euro and British Pound during the three months ended March 31, 2019
compared to the three months ended March 31, 2018.
Asia-Pacific Adjusted EBITDA. The increase in our Asia-Pacific adjusted EBITDA
was primarily due to the Metronode Acquisition, higher revenues as a result of
our IBX data center expansion activity and organic growth as described above,
and lower cost of revenues, sales and marketing and general and administrative
expenses as a percentage of revenues. During the three months ended March 31,
2019, foreign currency fluctuations resulted in approximately $4.8 million of
net unfavorable foreign currency impact to our Asia-Pacific adjusted EBITDA
primarily due to a generally stronger U.S. Dollar relative to the Australian
Dollar during the three months ended March 31, 2019 compared to the three months
ended March 31, 2018.
Non-GAAP Financial Measures
We provide all information required in accordance with GAAP, but we believe that
evaluating our ongoing operating results may be difficult if limited to
reviewing only GAAP financial measures. Accordingly, we use non-GAAP financial
measures to evaluate our operations.
Non-GAAP financial measures are not a substitute for financial information
prepared in accordance with GAAP. Non-GAAP financial measures should not be
considered in isolation but should be considered together with the most directly
comparable GAAP financial measures and the reconciliation of the non-GAAP
financial measures to the most directly comparable GAAP financial measures. We
have presented such non-GAAP financial measures to provide investors with an
additional tool to evaluate our operating results in a manner that focuses on
what management believes to be our core, ongoing business operations. We believe
that the inclusion of these non-GAAP financial measures provides consistency and
comparability with past reports and provides a better understanding of the
overall performance of the business and ability to perform in subsequent
periods. We believe that if we did not provide such non-GAAP financial
information, investors would not have all the necessary data to analyze Equinix
effectively.
Investors should note that the non-GAAP financial measures used by us may not be
the same non-GAAP financial measures, and may not be calculated in the same
manner, as those of other companies. Investors should therefore exercise caution
when comparing non-GAAP financial measures used by us to similarly titled
non-GAAP financial measures of other companies.
Our primary non-GAAP financial measures, adjusted EBITDA and adjusted funds from
operations ("AFFO"), exclude depreciation expense as these charges primarily
relate to the initial construction costs of our IBX data centers and do not
reflect our current or future cash spending levels to support our business. Our
IBX data centers are long-lived assets and have an economic life greater than 10
years. The construction costs of an IBX data center do not recur with respect to
such a data center, although we may incur initial construction costs in future
periods with respect to additional IBX data centers, and future capital
expenditures

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remain minor relative to our initial investment. This is a trend we expect to
continue. In addition, depreciation is also based on the estimated useful lives
of our IBX data centers. These estimates could vary from actual performance of
the asset, are based on historical costs incurred to build out our IBX data
centers and are not indicative of current or expected future capital
expenditures. Therefore, we exclude depreciation from our operating results when
evaluating our operations.
In addition, in presenting adjusted EBITDA and AFFO, we exclude amortization
expense related to acquired intangible assets. Amortization expense is
significantly affected by the timing and magnitude of our acquisitions and these
charges may vary in amount from period to period. We exclude amortization
expense to facilitate a more meaningful evaluation of our current operating
performance and comparisons to our prior periods. We exclude accretion expense,
both as it relates to asset retirement obligations as well as accrued
restructuring charge liabilities, as these expenses represent costs which we
believe are not meaningful in evaluating our current operations. We exclude
stock-based compensation expense, as it can vary significantly from period to
period based on share price, the timing, size and nature of equity awards. As
such, we, and many investors and analysts, exclude stock-based compensation
expense to compare our operating results with those of other companies. We also
exclude restructuring charges. The restructuring charges relate to our decisions
to exit leases for excess space adjacent to several of our IBX data centers,
which we did not intend to build out, or our decision to reverse such
restructuring charges. We also exclude impairment charges related to certain
long-lived assets. The impairment charges are related to expense recognized
whenever events or changes in circumstances indicate that the carrying amount of
long-lived assets are not recoverable. We also exclude gain or loss on asset
sales as it represents profit or loss that is not meaningful in evaluating the
current or future operating performance. Finally, we exclude acquisition costs
from AFFO and adjusted EBITDA to allow more comparable comparisons of our
financial results to our historical operations. The acquisition costs relate to
costs we incur in connection with business combinations. Such charges generally
are not relevant to assessing the long-term performance of the company. In
addition, the frequency and amount of such charges vary significantly based on
the size and timing of the acquisitions. Management believes items such as
restructuring charges, impairment charges, gain or loss on asset sales and
acquisition costs are non-core transactions; however, these types of costs may
occur in future periods.
Adjusted EBITDA
We define adjusted EBITDA as income or loss from operations excluding
depreciation, amortization, accretion, stock-based compensation expense,
restructuring charges, impairment charges, acquisition costs, and gain on asset
sales as presented below (in thousands):
                                                     Three Months Ended
                                                         March 31,
                                                     2019          2018
Income from operations                            $  279,508$ 225,875

Depreciation, amortization, and accretion expense 314,705 306,465 Stock-based compensation expense

                      49,023       42,536
Acquisition costs                                      2,471        4,639
Impairment charges                                    14,448            -
Adjusted EBITDA                                   $  660,155$ 579,515


Our adjusted EBITDA results have improved each year and in each region in total
dollars due to the improved operating results discussed earlier in "Results of
Operations", as well as the nature of our business model consisting of a
recurring revenue stream and a cost structure which has a large base that is
fixed in nature also discussed earlier in "Overview".
Funds from Operations ("FFO") and AFFO
We use FFO and AFFO, which are non-GAAP financial measures commonly used in the
REIT industry. FFO is calculated in accordance with the standards established by
the National Association of Real Estate Investment Trusts. FFO represents net
income (loss), excluding gain (loss) from the disposition of real estate assets,
depreciation and amortization on real estate assets and adjustments for
unconsolidated joint ventures' and non-controlling interests' share of these
items.
In presenting AFFO, we exclude certain items that we believe are not good
indicators of our current or future operating performance. AFFO represents FFO
excluding depreciation and amortization expense on non-real estate assets,
accretion, stock-based compensation, restructuring charges, impairment charges,
acquisition costs, an installation revenue adjustment, a straight-line rent
expense adjustment, a contract cost adjustment, amortization of deferred
financing costs and debt discounts and premiums, gain (loss) on debt
extinguishment, an income tax expense adjustment, recurring capital expenditures
and adjustments for unconsolidated joint ventures' and noncontrolling interests'
share of these items and net income (loss) from discontinued operations, net of
tax. The adjustments for installation revenue, straight-line rent expense and
contract costs are intended to isolate the cash activity included within the
straight-lined or amortized results in the condensed consolidated statement of
operations. We exclude

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the amortization of deferred financing costs and debt discounts and premiums as
these expenses relate to the initial costs incurred in connection with debt
financings that have no current or future cash obligations. We exclude gain
(loss) on debt extinguishment since it generally represents the write-off of
initial costs incurred in connection with debt financings or a cost that is
incurred to reduce future interest costs and is not a good indicator of our
current or future operating performance. We include an income tax expense
adjustment, which represents the non-cash tax impact due to changes in valuation
allowances, uncertain tax positions and deferred taxes that do not relate to
current period's operations. We deduct recurring capital expenditures, which
represent expenditures to extend the useful life of its IBX data centers or
other assets that are required to support current revenues. We also exclude net
income (loss) from discontinued operations, net of tax, which represents results
that may not recur and are not a good indicator of our current future operating
performance.
Our FFO and AFFO for the three months ended March 31, 2019, and 2018 were as
follows (in thousands):
                                                               Three Months Ended
                                                                    March 31,
                                                               2019           2018
Net income                                                 $  117,747$   62,894
Net loss attributable to non-controlling interests                331       

-

Net income attributable to Equinix                            118,078       

62,894

Adjustments:

Real estate depreciation                                      205,649       

222,855

Loss on disposition of real estate property                     2,346       

5,006

FFO attributable to common shareholders                    $  326,073$  290,755

                                                               Three Months Ended
                                                                    March 31,
                                                               2019           2018
FFO attributable to common shareholders                    $  326,073     $ 

290,755

Adjustments:

Installation revenue adjustment                                 1,029       

2,159

Straight-line rent expense adjustment                           2,378       

2,301

Contract cost adjustment                                       (6,778 )       (3,355 )
Amortization of deferred financing costs and debt
discounts and premiums                                          2,995       

4,099

Stock-based compensation expense                               49,023       

42,536

Non-real estate depreciation expense                           57,994       

34,097

Amortization expense                                           49,535       

50,616

Accretion expense (adjustment)                                  1,527         (1,103 )
Recurring capital expenditures                                (20,947 )      (35,231 )
Loss on debt extinguishment                                       382         21,491
Acquisition costs                                               2,471          4,639
Impairment charges                                             14,448              -
Income tax expense adjustment                                   7,990       

1,572

AFFO attributable to common shareholders                   $  488,120     $ 

414,576



Our AFFO results have improved due to the improved operating results discussed
earlier in "Results of Operations," as well as due to the nature of our business
model which consists of a recurring revenue stream and a cost structure which
has a large base that is fixed in nature as discussed earlier in "Overview."
Constant Currency Presentation
Our revenues and certain operating expenses (cost of revenues, sales and
marketing and general and administrative expenses) from our international
operations have represented and will continue to represent a significant portion
of our total revenues and certain operating expenses. As a result, our revenues
and certain operating expenses have been and will continue to be affected by
changes in the U.S. Dollar against major international currencies such as the
Euro, British Pound, Japanese Yen, Singapore Dollar, Australian Dollar and
Brazilian Real. In order to provide a framework for assessing how each of our
business segments

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performed excluding the impact of foreign currency fluctuations, we present
period-over-period percentage changes in our revenues and certain operating
expenses on a constant currency basis in addition to the historical amounts as
reported. Our constant currency calculation does not take into consideration our
existing hedging activities. Presenting constant currency results of operations
is a non-GAAP financial measure and is not meant to be considered in isolation
or as an alternative to GAAP results of operations. However, we have presented
this non-GAAP financial measure to provide investors with an additional tool to
evaluate our operating results. To present this information, our current and
comparative prior period revenues and certain operating expenses from entities
reporting in currencies other than the U.S. Dollar are converted into U.S.
Dollars at constant exchange rates rather than the actual exchange rates in
effect during the respective periods (i.e. average rates in effect for the three
months ended March 31, 2018 are used as exchange rates for the three months
ended March 31, 2019 when comparing the three months ended March 31, 2019 with
the three months ended March 31, 2018).
Liquidity and Capital Resources
As of March 31, 2019, our total indebtedness was comprised of debt and financing
obligations totaling $11.0 billion consisting of (a) $8,435.5 million of
principal from our senior notes, (b) approximately $1,222.3 million from our
finance lease liabilities, and (c) $1,365.7 million of principal from our
mortgage and loans payable (gross of debt issuance cost, debt discount, plus
debt premium).
We believe we have sufficient cash, coupled with anticipated cash generated from
operating activities, to meet our operating requirements, including repayment of
the current portion of our debt as it becomes due, payment of expenses related
to our REIT integration activities, payment of regular dividends and completion
of our publicly-announced expansion projects.
In March 2019, we issued and sold 2,985,575 shares of common stock in a public
equity offering and received net proceeds of approximately $1,213.4 million, net
of underwriting discounts, commissions and offering expenses. As of March 31,
2019, we had $1,647.7 million of cash, cash equivalents and short-term
investments. In addition to our cash and investment portfolio, we have
additional liquidity available to us from our $2.0 billion revolving facility
and the 2018 ATM Program as described below.
As of March 31, 2019, we had 43 irrevocable letters of credit totaling $69.4
million issued and outstanding under the revolving facility. As a result, we had
a total of approximately $1.9 billion of additional liquidity available to us
under the revolving facility.
In December 2018, we launched the 2018 ATM Program to sell up to $750.0 million
of common stock in at the market offerings. As of March 31, 2019, no shares had
been sold under the 2018 ATM Program.
Besides any further financing activity we may pursue, customer collections are
our primary source of cash. While we believe we have a strong customer base, and
have continued to experience relatively strong collections, if the current
market conditions were to deteriorate, some of our customers may have difficulty
paying us and we may experience increased churn in our customer base, including
reductions in their commitments to us, all of which could have a material
adverse effect on our liquidity. Additionally, we may pursue additional
expansion opportunities, primarily the build out of new IBX data centers, in
certain of our existing markets which are at or near capacity within the next
year, as well as potential acquisitions and joint ventures. While we expect to
fund these plans with our existing resources, additional financing, either debt
or equity, may be required, and if current market conditions were to
deteriorate, we may be unable to secure additional financing or any such
additional financing may only be available to us on unfavorable terms. An
inability to pursue additional expansion opportunities will have a material
adverse effect on our ability to maintain our desired level of revenue growth in
future periods.
Sources and Uses of Cash
                                              Three Months Ended March 31,
                                                2019                 2018
                                                 (dollars in thousands)

Net cash provided by operating activities $ 421,141$ 300,907 Net cash used in investing activities

           (378,467 )           (364,926 )
Net cash provided by financing activities        986,932              

674,025



Operating Activities. Cash provided by our operations is generated by
colocation, interconnection, managed infrastructure and other revenues. Our
primary use of cash from our operating activities includes compensation and
related costs, interest payments, other general corporate expenditures and
taxes. Net cash provided by operating activities increased from the three months
ended March 31, 2018 to the three months ended March 31, 2019 primarily due to
improved operating results offset by increases in cash paid for cost of
revenues, operating expenses and income taxes.

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Investing Activities. The net cash used in investing activities for the three
months ended March 31, 2019 was primarily due to capital expenditures of $364.0
million as a result of our expansion activity, purchase of certificates of
deposit of $9.3 million, and purchases of real estate of $5.7 million, partially
offset by proceeds from sales of investments of $0.5 million. The net cash used
in investing activities for the three months ended March 31, 2018 was primarily
due to capital expenditures of $349.7 million as a result of our expansion
activity, purchase of certificates of deposit of $29.3 million, and purchases of
real estate of $14.7 million, partially offset by proceeds from sales and
maturities of investments of $28.8 million.
We anticipate our IBX expansion construction activity will increase from our
2018 levels. If the opportunity to expand is greater than planned and we have
sufficient funding to pursue such expansion opportunities, we may further
increase the level of capital expenditure to support this growth as well as
pursue additional business and real estate acquisitions or joint ventures.
Financing Activities. The net cash provided by financing activities for the
three months ended March 31, 2019 was primarily due to sale of 2,985,575 shares
of common stock in a public equity offering for net proceeds of approximately
$1,213.4 million and proceeds from employee stock purchase plan of $27.6
million. The proceeds were partially offset by (i) dividend distributions of
$204.6 million; (ii) repayments of finance lease liabilities of $31.2 million
and (iii) repayments of mortgage and loans payable of $18.3 million. The net
cash provided by financing activities for the three months ended March 31, 2018
was primarily due to the issuance of €750.0 million 2.875% Euro Senior Notes due
2024, or approximately $929.9 million in U.S. Dollars, at the exchange rate in
effect on March 14, 2018 and proceeds from employee awards of $25.8 million. The
proceeds were partially offset by (i) dividend distributions of $187.0 million;
(ii) repayments of capital lease and other financing obligations of $55.8
million; (iii) payment of debt extinguishment costs of $20.7 million; (iv)
payment of debt issuance costs of $11.6 million and (v) repayments of mortgage
and loans payable of $6.6 million.
Going forward, we expect that our financing activities will include repayment
and refinancing of our existing debt and incremental financings needed to
support expansion opportunities, additional acquisitions or joint ventures, and
the payment of our regular cash dividends.
Contractual Obligations and Off-Balance-Sheet Arrangements
We lease a majority of our IBX data centers and certain equipment under lease
agreements expiring through 2065. The following represents our debt maturities,
financings, leases and other contractual commitments as of March 31, 2019 (in
thousands):
               2019 (9 months
                 remaining)          2020           2021           2022            2023         Thereafter         Total
Term loans and
other loans
payable (1)    $      54,653$    73,127$  72,777$ 1,160,324$     2,462$     2,307$  1,365,650
Senior notes
(1)                  300,000         300,000       150,000         750,000       1,000,000       5,935,500        8,435,500
Interest (2)         287,366         389,373       373,073         346,615         276,356         597,351        2,270,134
Finance
leases (3)           113,850         158,582       157,629         158,349         159,578       1,601,646        2,349,634
Operating
leases (3)           136,590         192,859       179,696         172,042         156,559       1,162,046        1,999,792
Other
contractual
commitments
(4)                1,291,952         159,091        42,002          27,790          19,779         150,394        1,691,008
Asset
retirement
obligations
(5)                    6,721           3,875         4,019          11,791           5,588          67,503           99,497
               $   2,191,132$ 1,276,907$ 979,196$ 2,626,911$ 1,620,322$ 9,516,747$ 18,211,215

(1) Represents principal and unamortized mortgage premium only.

(2) Represents interest on mortgage payable, loans payable, senior notes and

term loans based on their respective interest rates as of March 31, 2019,

      as well as the credit facility fee for the revolving credit facility.

(3) Represents lease payments under finance and operating lease arrangements,

including renewal options that are certain to be exercised.

(4) Represents off-balance sheet arrangements. Other contractual commitments

      are described below.


(5)  Represents liability, net of future accretion expense.


In connection with certain of our leases and other contracts requiring deposits,
we entered into 43 irrevocable letters of credit totaling $69.4 million under
the revolving credit facility. These letters of credit were provided in lieu of
cash deposits. If beneficiaries of the letters of credit were to draw down on
these letters of credit triggered by an event of default under the lease, we
will be required to fund these letters of credit either through cash collateral
or borrowing under the revolving credit facility. These contingent commitments
are not reflected in the table above.

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We had accrued liabilities related to uncertain tax positions totaling
approximately $114.9 million as of March 31, 2019. These liabilities, which are
reflected on our balance sheet, are not reflected in the table above since it is
unclear when these liabilities will be paid.
As of March 31, 2019, we were contractually committed for $801.3 million of
unaccrued capital expenditures, primarily for IBX equipment not yet delivered
and labor not yet provided in connection with the work necessary to complete
construction and open these IBX data centers prior to making them available to
customers for installation. This amount, which is expected to be paid during the
remainder of 2019 and thereafter, is reflected in the table above as "other
contractual commitments."
We had other non-capital purchase commitments in place as of March 31, 2019,
such as commitments to purchase power in select locations and other open
purchase orders, which contractually bind us for goods or services to be
delivered or provided during 2019 and beyond. Such other purchase commitments as
of March 31, 2019, which total $889.7 million, are also reflected in the table
above as "other contractual commitments."
Additionally, we entered into lease agreements in various locations for a total
lease commitment of approximately $273.7 million, excluding potential lease
renewals. These lease agreements will commence between fiscal years 2019 and
2020 with lease terms of 5 to 29 years, which are not reflected in the table
above.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and accompanying notes are
prepared in accordance with U.S. GAAP. The preparation of our financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. On an ongoing basis,
management evaluates the accounting policies, assumptions, estimates and
judgments to ensure that our condensed consolidated financial statements are
presented fairly and in accordance with U.S. GAAP. Management bases its
assumptions, estimates and judgments on historical experience, current trends
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. However, because future events and their effects cannot be
determined with certainty, actual results may differ from these assumptions and
estimates, and such differences could be material. Critical accounting policies
for Equinix that affect our more significant judgment and estimates used in the
preparation of our condensed consolidated financial statements include
accounting for income taxes, accounting for business combinations, accounting
for impairment of goodwill and accounting for property, plant and equipment,
which are discussed in more detail under the caption "Critical Accounting
Policies and Estimates" in Management's Discussion and Analysis of Financial
Condition and Results of Operations, set forth in Part II Item 7, of our Annual
Report on Form 10-K for the year ended December 31, 2018.
Recent Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial Statements in Part I
Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk


Market Risk
There have been no significant changes in our market risk, investment portfolio
risk, interest rate risk, foreign currency risk and commodity price risk
exposures and procedures during the three months ended March 31, 2019 as
compared to the respective risk exposures and procedures disclosed in
Quantitative and Qualitative Disclosures About Market Risk, set forth in Part II
Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2018,
other than factors discussed below.
Foreign Currency Risk
To help manage the exposure to foreign currency exchange rate fluctuations, we
have implemented a number of hedging programs, in particular (i) a cash flow
hedging program to hedge the forecasted revenues and expenses in our EMEA
region, (ii) a balance sheet hedging program to hedge the re-measurement of
monetary assets and liabilities denominated in foreign currencies, and (iii) a
net investment hedging program to hedge the long term investments in our foreign
subsidiaries. Our hedging programs reduce, but do not entirely eliminate, the
impact of currency exchange rate movements and its impact on the consolidated
statements of operations.

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We have entered into various foreign currency debt obligations. As of March 31,
2019, the total principal amount of foreign currency debt obligations was $4.4
billion, including $3.1 billion denominated in Euro, $617.3 million denominated
in British Pound, $417.7 million denominated in Japanese Yen and $286.3 million
denominated in Swedish Krona. As of March 31, 2019, we have designated $4.1
billion of the total principal amount of foreign currency debt obligations as
net investment hedges against our net investments in foreign subsidiaries. For a
net investment hedge, changes in the fair value of the hedging instrument
designated as a net investment hedge, except forward points, are recorded as a
component of other comprehensive income (loss) in the consolidated balance
sheets. Fluctuations in the exchange rates between these foreign currencies
(i.e. Euro, British Pound, Swedish Krona and Japanese Yen) and the U.S. Dollar
will impact the amount of U.S. Dollars that we will require to settle the
foreign currency debt obligations at maturity. If the U.S. Dollar would have
been weaker or stronger by 10% in comparison to these foreign currencies as of
March 31, 2019, we estimate our obligation to cash settle the principal of these
foreign currency debt obligations in U.S. Dollars would have increased or
decreased by approximately $489.7 million and $400.6 million, respectively.
In 2019, we also entered into cross-currency interest rate swaps where we
receive a fixed amount of U.S. Dollars and pay a fixed amount of Euros, with a
total notional amount of $750.0 million. The cross-currency interest rate swaps
are designated as hedges of our net investment in its European operations and
changes in the fair value of these swaps are recorded as a component of
accumulated other comprehensive income (loss) in the condensed consolidated
balance sheet. If the U.S. Dollar weakened or strengthened by 10% in comparison
to Euro, the amount recorded in accumulated other comprehensive income (loss)
related to the cross-currency interest rate swaps would have been approximately
$94.6 million lower or $77.4 million higher as of March 31, 2019.
The U.S. Dollar strengthened relative to certain of the currencies of the
foreign countries in which we operate during the three months ended March 31,
2019. This has impacted our condensed consolidated financial position and
results of operations during this period, including the amount of revenues that
we reported. Continued strengthening or weakening of the U.S. Dollar will
continue to impact us in future periods.
With the existing cash flow hedges in place, a hypothetical additional 10%
strengthening of the U.S. Dollar for the three months ended March 31, 2019 would
have resulted in a reduction of our revenues and operating expenses including
depreciation and amortization expense by approximately $39.4 million and $37.5
million, respectively.
With the existing cash flow hedges in place, a hypothetical additional 10%
weakening of the U.S. Dollar for the three months ended March 31, 2019 would
have resulted in an increase of our revenues and operating expenses including
depreciation and amortization expense by approximately $47.2 million and $46.1
million, respectively.
Interest Rate Risk
We are exposed to interest rate risk related to our outstanding debt. An
immediate 10% increase or decrease in current interest rates from their position
as of March 31, 2019 would not have a material impact on our interest expense
due to the fixed coupon rate on the majority of our debt obligations. However,
the interest expense associated with our senior credit facility and term loans,
that bear interest at variable rates, could be affected. For every 100 basis
point increase or decrease in interest rates, our annual interest expense could
increase by a total of approximately $12.9 million or decrease by a total of
approximately $5.3 million based on the total balance of our primary borrowings
under the Term Loan Facility as of March 31, 2019. As of March 31, 2019, we had
not employed any interest rate derivative products against our debt obligations.
However, we may enter into interest rate hedging agreements in the future to
mitigate our exposure to interest rate risk.
Item 4. Controls and Procedures


(a) Evaluation of Disclosure Controls and Procedures. Our management, with the
participation of our Chief Executive Officer and our Chief Financial Officer,
conducted an evaluation, pursuant to Rule 13a-15 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of the
effectiveness of our "disclosure controls and procedures" as of the end of the
period covered by this quarterly report. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective as of the end of the period covered by
this quarterly report.
(b) Changes in Internal Control over Financial Reporting.  There were no changes
in our internal control over financial reporting identified in connection with
the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act
that occurred during the three months ended March 31, 2019 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. While we implemented certain internal controls related
to the adoption of ASC 842, Leases, to ensure we adequately evaluated our
contracts and properly assessed the impact of the new lease accounting standard

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on our financial statements to facilitate the adoption effective January 1,
2019, we do not believe these have had a material effect on our internal control
over financial reporting.
(c) Limitations on the Effectiveness of Controls. Our management, including our
Chief Executive Officer and Chief Financial Officer, believes that our
disclosure controls and procedures and internal control over financial reporting
are designed and operated to be effective at the reasonable assurance level.
However, our management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people or by
management override of the controls. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with policies or procedures may deteriorate. Because of the inherent limitations
in a cost effective control system, misstatements due to error or fraud may
occur and not be detected.

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