CYXTERA TECHNOLOGIES, INC. You should read the following management's discussion and analysis together with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, together with the audited consolidated financial statements, the accompanying notes, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section of our Annual Report on Form 10-K and other factors set forth in other parts of this Quarterly Report on Form 10-Q and our filings with theSEC .
Overview of
Cyxtera is a global data center leader in retail colocation and interconnection services. Our data center platform consists of 65 highly interconnected data centers across 33 markets on three continents. We provide an innovative suite of deeply connected and intelligently automated infrastructure and interconnection solutions to more than 2,300 leading enterprises, service providers and government agencies around the world, enabling them to scale faster, meet rising consumer expectations and gain a competitive edge.
Recent Developments
In order to align its strategy with market conditions to support its long-term success,Cyxtera committed to a reduction in force (the "Reduction"), of approximately 80 employees and contractors (approximately 11% of our workforce). We commenced the Reduction onFebruary 24, 2023 upon notification to certain affected employees, and we substantially completed notification of all affected employees and contractors. The Reduction has now been substantially completed. In connection with the Reduction, we estimate that we will incur approximately$3.3 million of costs and expenses, primarily comprising of severance and termination-related costs, which we recognized in the first quarter of 2023.
Factors Affecting Cyxtera's Business
Impact of the Current Macroeconomic Environment
Uncertainty in the macroeconomic environment, including due to the effects of fluctuation in foreign exchange rates, the recent rise in global inflation and interest rates, supply chain disruptions, a rise in energy prices, geopolitical pressures, including the ongoingRussia -Ukraine conflict and associated global economic conditions have resulted in volatility in foreign currency, credit, equity and energy markets. If these uncertain macroeconomic conditions persist, they could have an adverse impact on our business.
Key Operational and Business Metrics
In addition to the Company's financial results determined in accordance with US
GAAP, our management uses the following key operational and business metrics to
manage its data center business and to assess the results of operations:
•recurring and non-recurring revenues;
•bookings; and
•churn.
These metrics are important indicators of the overall direction of our business,
including trends in sales and the effectiveness of our operations and growth
initiatives. The following table presents our recurring and nonrecurring
revenues from the Company's unaudited condensed consolidated financial
statements and certain
34
--------------------------------------------------------------------------------
operating metrics for each of the periods indicated, which have been derived
from the Company's internal records. These metrics may differ from those used by
other companies in our industry who may define these metrics differently.
Three Months Ended March 31,
2023 2022
Revenues
Recurring revenue $ 188.4 $ 173.7
Non-recurring revenues 8.3 8.7
Total $ 196.7 $ 182.4
Bookings $ 1.1 $ 2.1
Churn $ 1.4 $ 1.6 We define these metrics as follows:
Revenues: We disaggregate revenue from contracts with customers into recurring revenues and non-recurring revenues. We derive the majority of our revenues from recurring revenue streams, consisting primarily of colocation service fees, which include fees for the licensing of space and power and interconnection service fees. We consider our colocation service offerings recurring because customers are generally committed to such services under long term contracts, typically three years in length. Our interconnection services are typically on month-to-month contracts but are considered recurring because customers' use of interconnection services generally remains stable over time. This is because interconnection services facilitate a customer's full use of the colocation environment or support the business function housed within the customer's colocation environment by establishing connections between colocation customers within our data center facilities and their preferred network service providers, low latency public cloud on-ramps and a wide range of technology and network service providers and business partners. Our colocation and interconnection service offerings are generally billed monthly and recognized ratably over the term of the contract. Our management reviews monthly recurring revenue by reference to the metric of "MRR," which is calculated as of the last day of a given month and represents the sum of all service charges for recurring services provided during such month. Our MRR was$60.1 million and$54.6 million as ofMarch 31, 2023 and 2022, respectively. Our non-recurring revenues are primarily composed 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 in accordance with ASC Topic 606 as discussed in Note 4 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Bookings:
We define Bookings for a given period as the new monthly recurring service fees for colocation and interconnection services committed under service contracts during the relevant period. Bookings are measured for the respective reporting period and represent the monthly service fees - based on the service fees for one month of services - attributable to new service contracts entered into and additional services committed under existing service contracts during the relevant period. Bookings is a key performance measure that management uses to assess the productivity of our sales force and anticipate data center inventory requirements. In addition, our management considers Bookings together with Churn (described below) to anticipate future changes to MRR. Bookings was calculated for each period presented (i.e., the three months endedMarch 31, 2023 and 2022) and represents the new monthly recurring service fees - based on the service fees for one month of services - attributable to new service contracts and additional services committed under existing service contracts during the period presented. 35 --------------------------------------------------------------------------------
During the three months ended
Churn: We define Churn for a given period as the decrease in MRR during the relevant period attributable to service terminations and reductions. Churn is calculated for the respective reporting period and represents the sum of the total amount of MRR for which a service contract was terminated or reduced during the relevant period, based on the last month's service charges. Churn is a key performance measure that management uses to assess our customer satisfaction and performance against competition. In addition, our management considers Churn together with Bookings to anticipate future changes to MRR. As presented in the table above, Churn was calculated for each period presented (i.e., the three months endedMarch 31, 2023 and 2022) and represents the sum of the total amount of MRR for which a service contract was terminated or reduced during the period presented. During the three months endedMarch 31, 2023 and 2022, the total amount of MRR for which a service contract was terminated or reduced (i.e., Churn) during such three month period totaled$1.4 million and$1.6 million , respectively.
Key Components of Results of Operations
Revenues:
We derive the majority of our revenues from recurring revenue streams, consisting primarily of colocation service fees, which include fees for the licensing of space and power, as well as interconnection service fees. Our colocation and interconnection service offerings are generally billed monthly and recognized ratably over the term of the contract. Our recurring revenues have made up more than 95% of total revenues for each of the past three years. In addition, during 2022, 2021 and 2020, 90%, 84% and 77%, respectively, of our Bookings came from existing customers. For purposes of calculating Bookings attributable to existing customers, an existing customer is a customer with an active service contract that executes an order for additional services. Our largest customer accounted for approximately 9% of recurring revenue for the year endedDecember 31, 2022 , 11% of recurring revenues for the years endedDecember 31, 2021 and 15% of recurring revenues for the year endedDecember 31, 2020 . Our 50 largest customers accounted for approximately 56%, 55% and 57%, respectively, of recurring revenues for the years endedDecember 31, 2022 , 2021 and 2020, respectively. Our interconnection revenues represented approximately 12% of total revenues for the year endedDecember 31, 2022 and approximately 11% of total revenues for the years endedDecember 31, 2021 and 2020. Our non-recurring revenues are primarily composed of installation services related to a customer's initial deployment and professional services we perform. Non-recurring installation fees, although generally invoiced in a lump sum upon installation, are deferred and recognized ratably over the contract term. Professional service fees are also generally invoiced in a lump sum upon service delivery and are recognized in the period when the services are provided. As a percentage of total revenues, we expect non-recurring revenues to represent less than 5% of total revenues for the foreseeable future.
Operating Costs and Expenses:
Cost of Revenue, excluding Depreciation and Amortization. The largest components
of our cost of revenue are rental payments related to our leased data centers;
utility costs, including electricity and bandwidth access; data center
employees' salaries and benefits, including stock-based compensation, repairs
and maintenance; supplies and equipment; and security. A majority of our cost of
revenues is fixed in nature and are not expected to vary significantly from
period to period unless we expand our existing data centers or open or acquire
new 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. Recently, the cost of
electricity has generally risen due to macroeconomic natural gas supply and
demand constraints, initially beginning with inadequate natural gas
36
--------------------------------------------------------------------------------
reserves in Europe to meet European demand in light of sanctions on Russian
natural gas supply as a result of the conflict in the Ukraine . In addition, we
expect the cost of utilities, specifically electricity, will generally continue
to increase in the future on a cost-per-unit or fixed basis and for growth in
consumption of electricity by our customers. Furthermore, the cost of
electricity is generally higher in the summer months, as compared to other times
of the year. Our costs of electricity may also increase as a result of the
physical effects of climate change, increased regulations driving alternative
electricity generation due to environmental considerations or as a result of our
election to use renewable energy sources. To the extent we incur increased
utility costs, such increased costs could materially impact our financial
condition, results of operations and cash flows.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses consist primarily of personnel-related expenses,
including salaries, benefits and stock-based compensation for our sales and
marketing, executive, finance, human resources, legal and IT functions and
administrative personnel, third-party professional services fees, insurance
premiums and administrative-related rent expense. We also incur additional
expenses as a result of operating as a public company, including expenses
necessary to comply with the rules and regulations applicable to companies
listed on a national securities exchange and related to compliance and reporting
obligations pursuant to the rules and regulations of the SEC , as well as
expenses for general and director and officer insurance, investor relations and
professional services.
Depreciation and Amortization. Depreciation and amortization expenses are primarily composed of depreciation and amortization on our property, plant and equipment and amortization related to intangible assets.
Restructuring, Impairment, Site Closures and Related Cost. Should we commit to a plan to dispose a long-lived asset before the end of its previously estimated useful life or change its use of assets, estimated cash flows are revised accordingly. Restructuring, impairment, site closures and related costs are primarily composed of costs incurred to dispose of a long-lived asset and include an impairment charge of the leased asset, related liabilities that may arise as a result of the underlying action (such as severance), contractual obligations and other accruals associated with the site closures.Goodwill impairment.Goodwill impairment consists of non-cash impairment charges related to goodwill. We review goodwill for impairment annually onOctober 1 and more frequently if events or changes in circumstances indicate an impairment may exist. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the Company's goodwill is calculated and an impairment charge equal to the excess is recorded.
Interest Expense, Net. Interest expense, net is primarily composed of interest incurred under our credit facilities and on finance leases.
Other Income (Expenses), Net. Other income (expenses), net primarily includes the impact of foreign currency gains and losses.
Change in Fair Value of the Warrant Liabilities. Warrants that were assumed in connection with the consummation of the Business Combination were initially measured at fair value at the Closing Date of the Business Combination and were subsequently remeasured at estimated fair value on a recurring basis at the end of each reporting period, with changes in estimated fair value of the respective warrant liability recognized as change of fair value of warrant liabilities in the unaudited condensed consolidated statements of operations. InDecember 2021 , the Company announced that it would redeem all Public Warrants and Private Placement Warrants that remained outstanding at5:00 p.m. ,New York City time, onJanuary 19, 2022 . InJanuary 2022 , the remaining Public Warrants and Private Placement Warrants were either exercised by the holders, or were redeemed by the Company (see Note 12 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). 37 --------------------------------------------------------------------------------
Results of Operations
The following table presents our unaudited condensed consolidated results of
operations for the three months ended
Three Months Ended March 31,
(in millions) 2023 2022 $ Change % Change
Revenues $ 196.7 $ 182.4 $ 14.3 8 %
Operating costs and expenses:
Cost of revenue, excluding depreciation and
amortization 103.8 98.0 5.8 6 %
Selling, general and administrative expenses 42.1 31.3 10.8 35 %
Depreciation and amortization 60.0 62.3 (2.3) (4) %
Goodwill impairment 278.2 - 278.2 100 %
Restructuring, impairment, site closures and
related costs 4.5 1.3 3.2 246 %
Total operating costs and expenses 488.6 192.9 295.7 153 %
Loss from operations (291.9) (10.5) (281.4) 2680 %
Interest expense, net (46.1) (38.6) (7.5) 19 %
Other (expense) income, net (0.5) 0.5 (1.0) (200) %
Change of fair value of warrant liabilities - 11.8 (11.8) (100) %
Loss from continuing operations before income
taxes (338.5) (36.8) (301.7) 820 %
Income tax (expense) benefit 13.1 (4.1) 17.2 (420) %
Net loss $ (325.4) $ (40.9) $ (284.5) 696 %
Revenues
Revenues increased by $14.3 million , or 8%, for the three months ended March 31,
2023 compared to the same period in the prior year. The increase in revenue is
due to a net increase in customer activation of service of approximately
$14.8 million compared to the same period in the prior year.
Operating Costs and Expenses
Cost of Revenue, excluding Depreciation and Amortization
Cost of revenues, excluding depreciation and amortization increased by$5.8 million for the three months endedMarch 31, 2023 compared to the same period in the prior year. This increase in cost of revenues was primarily attributable to increase in the cost of power, causing utilities expenses to increase by$3.7 million and increase in personal property taxes of our data centers$1.7 million , during three months endedMarch 31, 2022 compared to the same period in the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by$10.8 million , or 35%, for the three months endedMarch 31, 2023 compared to the same period in the prior year. Personnel and related expenses increased by$1.0 million due to additional commissions paid to our employees. Professional services expenses increased by$9.0 million as a result of the additional costs associated with the attempting to refinance of our long-term debt and being a public company compared to the same period in the prior year.
Depreciation and Amortization
Depreciation and amortization decreased by$2.3 million , or 4%, for the three months endedMarch 31, 2023 compared to the same period in the prior year. The decrease was primarily attributable to closure of aSingapore data center in 2022, which resulted in accelerated depreciation in the same period in the prior year. 38
--------------------------------------------------------------------------------
Goodwill Impairment
We incurred$278.2 million of goodwill impairment of the Company in the first quarter of 2023. For additional details, see Note 6-Goodwill and intangible assets in the notes to the consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q.
Restructuring, Impairment, Site Closures and Related Costs
Restructuring, impairment, site closures and related costs increase by
Interest Expense, Net
Interest expense, increased by$7.5 million , or 19%, for the three months endedMarch 31, 2023 compared to the same period in the prior year. We incurred more interest expense period over period as a result increases in the benchmark rate used to calculate our interest payments on Senior Credit Facilities.
Other (Expenses) Income, Net
Other (expenses) income net increased by$1 million , for the three months endedMarch 31, 2023 compared to the same period in the prior year. The increase in other (expenses) income was driven by the change of foreign currency translation for the three months endedMarch 31, 2023 and 2022.
Change in Fair Value of the Warrant Liabilities
For the quarter endedMarch 31, 2022 , we recorded a gain of$11.8 million on our unaudited condensed consolidated statement of operations in connection with the change of the fair value of the warrant liabilities. InDecember 2021 , the Company announced that it would redeem all of the Public Warrants and Private Placement Warrants that remained outstanding as of the Redemption Time. Pursuant to the terms of the Warrant Agreement, prior to the Redemption Time, the warrant holders were permitted to exercise their warrants either (a) on a cash basis by paying the exercise price of$11.50 per warrant in cash or (b) on a "cashless basis," in which case the holder would receive 0.265 shares of the Company's Class A common stock per warrant. OnJanuary 26, 2022 , the Company announced the completion of the redemption. Of the 11,620,383 Public Warrants that were outstanding as of the time of the Business Combination, 134,443 were exercised for cash at an exercise price of$11.50 per share of Class A common stock and 10,115,180 were exercised on a cashless basis in exchange for an aggregate of 2,680,285 shares of Class A common stock, in each case in accordance with the terms of the Warrant Agreement, representing approximately 88% of the Public Warrants. In addition, of the 8,576,940 Private Placement Warrants that were outstanding as of the date of the Business Combination, 8,576,940 were exercised on a cashless basis in exchange for an aggregate of 2,272,884 shares of Class A common stock, in accordance with the terms of the Warrant Agreement, representing 100% of the Private Placement Warrants. Total cash proceeds generated from exercises of the warrants were$1.5 million , As ofJanuary 25, 2022 , the Company had no warrants outstanding. The Company recorded a decrease in the warrant liability of$64.7 million and increase to additional paid in capital of$54.2 million in connection with the warrants that were exercised. 39 --------------------------------------------------------------------------------
Income Tax Expense (Benefit)
Income tax expense (benefit) for the three months endedMarch 31, 2023 and 2022 was$(13.1) million and$4.1 million , respectively. The income tax benefit for the three months endedMarch 31, 2023 was primarily attributable to the pre-tax loss of$338.6 million offset by an incremental valuation allowance recorded due to continued losses in theU.S. and other loss jurisdictions. The effective tax rate was different than the amount expected at the statutory federal income tax rate as a result of additional state income tax benefits, an increase in the valuation allowance recorded on certain deferred tax assets, including additional deferred taxes assets generated by the goodwill impairment, that management believes are not more likely than not to be fully realized in future periods, certain nondeductible remuneration to covered employees under Internal Revenue Code section 162(m), nondeductible equity-based compensation, and non-deductible goodwill impairment. The income tax expense on the pre-tax loss for the three months endedMarch 31, 2022 was primarily attributable to incremental valuation allowance recorded due to continued losses in theU.S. and other loss jurisdictions as well as tax expense recorded in foreign jurisdictions where income is generated. The effective tax rate was different than the amount expected at the statutory federal income tax rate as a result of additional state income tax benefits, an increase in the valuation allowance recorded on certain deferred tax assets that management believes are not more likely than not to be fully realized in future periods, certain nondeductible remuneration to covered employees under Internal Revenue Code section 162(m), nondeductible equity-based compensation, and the change in fair value of the warrant liabilities
Liquidity and Capital Resources and Going Concern
As ofMarch 31, 2023 andDecember 31, 2022 , we had cash of$61.9 million and$65.1 million , respectively, and had$15.2 million and$73.1 million of borrowing capacity under our$102.1 million (formerly$120.1 million in 2022) 2021 Revolving Facility, respectively. The 2021 Revolving Facility, ($82.0 million drawn as ofMarch 31, 2023 ), matures onApril 2, 2024 . We also have$864.5 million of term loan indebtedness under our 2017 First Lien Term Facility and our 2019 First Lien Term Facility, which mature onMay 1, 2024 . For additional information concerning these facilities, see below under "-Debt". We have historically financed operations and capital expenditures through a combination of internally generated cash from operations, available cash on hand, the ability to draw on our revolving credit facility, incremental equity and debt financings, as well as the proceeds from our reverse recapitalization with SVAC onJuly 29, 2021 and the sale of the Optional Shares (as defined in Note 11). OnMarch 14, 2023 , we entered into an amendment to our 2021 Revolving Facility (the "Revolving Facility Amendment") which, among other things, provided for an extension of the maturity date fromNovember 1, 2023 toApril 2, 2024 , an approximately$18 million reduction to the borrowing capacity under such facility, a transition of the benchmark rate for such facility from LIBOR to SOFR, increases to the applicable interest rates for borrowings under such facility and certain other covenant modifications, including additional limitations on our ability to make investments and incur indebtedness. At this time, the Company does not have sufficient resources to repay the amounts under the revolving facility and long term indebtedness and the Company is actively considering all strategic alternatives, including restructuring its debt under the United States Code (the "Bankruptcy Code"). As part of those efforts, onMay 2, 2023 , the Borrower, Holdings and certain of the Borrower's subsidiaries entered into an amendment to the Senior Secured Credit Facilities ("Amendment No. 7") with the majority lenders from time to time party thereto and administrative agent and collateral agent for such lenders (collectively, the "Forbearing Lenders"). Pursuant to Amendment No. 7, the Forbearing Lenders agreed to forbear from exercising their rights and remedies during the Forbearance Period (as described below) as a result of the failure by the Borrower to make the interest payment due onApril 25, 2023 to lenders under the First Lien Credit Agreement. The Forbearance Period terminated onMay 4, 2023 , when the Borrower paid the interest due. OnMay 4, 2023 , we entered into a Restructuring Support Agreement (the "Restructuring Support Agreement") with certain of our lenders representing over two-thirds of the term loan lenders under our 2017 First Lien Term Facility and our 2019 First Lien Term Facility (the "Lenders"). The Restructuring Support Agreement contemplates certain agreed-upon terms for a sale process or a financial restructuring plan to be filed in a case to be commenced under chapter 11 of title 11 of the Bankruptcy Code. See below under "-Restructuring Support Agreement" for more detail on the Restructuring Support Agreement. Concurrently with our entry into the Restructuring Support Agreement, we entered into (a) an amendment to the Senior Secured Credit Facilities ("Amendment No. 7") with the majority lenders wherein, among other changes, the majority lenders agreed to amend the First Lien Priority Credit Agreement to permit us and certain lenders to enter into the 2023 First Lien 40 -------------------------------------------------------------------------------- Term Facility (as defined below), to add certain foreign guarantees and collateral to secure the Senior Secured Credit Facilities and to provide for certain intercreditor arrangements between the lenders under the Senior Secured Credit Facilities and the 2023 First Lien Term Facility and (b) the First Lien Priority Credit Agreement (the "2023 First Lien Term Facility") providing for up to$50.0 million in new first lien term loan financing from the Lenders to support our ongoing business operations as we seek to implement the transactions pursuant to the Restructuring Support Agreement. The 2023 First Lien Term Facility matures on the earliest of (i)May 1, 2024 , (ii) the date on which the obligations under such facility become due and payable pursuant to the terms of the 2023 First Lien Term Facility, whether by acceleration or otherwise, (iii) the effective date of a Chapter 11 Plan (as defined under the 2023 First Lien Term Facility) and (iv) the date of consummation of a sale of all or substantially all of our assets under Section 363 of title 11 of the Bankruptcy Code. The Company is undertaking, and has recently undertaken, a number of actions in order to improve its financial position and stabilize its results of operations, including a freeze on hiring, a reduction in force and cuts in non-essential spending. In addition, the Company may seek reductions in rental obligations with landlords, seek additional debt or equity capital, reduce or delay the Company's business activities and strategic initiatives, and/or sell assets. These measures may not be successful. See "Risk Factors-Risks Related to Our Indebtedness-If we are unable to refinance our material indebtedness with near term maturities, we could be forced to liquidate and/or file for bankruptcy, and the holders of our Class A common stock could suffer a total loss on their investment" from our Annual Report on Form 10-K and "Risk Factors-Because there is substantial doubt about our ability to continue as a going concern for a reasonable period of time, an investment in our Class A common stock is highly speculative and holders of our Class A common stock could suffer a total loss of their investment" in Item 1A from Part II of this Quarterly Report for additional information. Since the Company has not successfully further extended its Revolving Facility Amendment and term loan indebtedness, or refinanced or repaid the Revolving Facility Amendment and term loan indebtedness with proceeds from other sources, such as new debt, equity capital, or sales of assets, the Company will not be able to meet its financial obligations due within twelve months from the date of issuance of theseMarch 31, 2023 unaudited condensed consolidated financial statements with its internally generated cash from operations and available cash on hand, which raises substantial doubt about our ability to continue as a going concern. Pursuant to the terms of the Restructuring Support Agreement described below under "-Restructuring Support Agreement", our ability to continue as a going concern is dependent upon our ability to restructure and to generate sufficient liquidity from the restructuring to meet our obligations and operating needs. The unaudited condensed consolidated financial statements included herein have been prepared assuming that we will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. If we are unable to raise the requisite funds, we will need to curtail or cease operations. See Note 1-Organization and description of the business under "Going Concern" to the financial statements for details regarding our going concern considerations. Our inability to repay the Revolving Facility and long term debt indebtedness raise substantial doubt about our ability to continue as a going concern for the period of the twelve months from the date of the issuance of these financial statements.
Restructuring Support Agreement
OnMay 4, 2023 , the Company and certain of its direct and indirect subsidiaries (collectively, the "Company Parties") entered into a Restructuring Support Agreement with the Consenting Stakeholders. The Restructuring Support Agreement contemplates certain agreed-upon terms for a sale process and/or financial restructuring plan (the "Plan"). The Consenting Stakeholders as of the Agreement Effective Date (as defined in the Restructuring Support Agreement) represent over two-thirds of outstanding principal amount of term loans under the 2017 First Lien Term Facility and 2019 First Lien Term Facility and 38% of the Company's outstanding equity interests.
Under the Restructuring Support Agreement, the Consenting Stakeholders have agreed, subject to certain terms and conditions, to support a sale process or financial restructuring of the existing debt of, existing equity
41
--------------------------------------------------------------------------------
interests in and certain other obligations of the Company Parties, pursuant to
the Plan to be filed in a case to be commenced under chapter 11 (the "Chapter 11
Cases") of title 11 of the Bankruptcy Code. The Restructuring Support Agreement
contains a number of termination events, which give certain of the consenting
stakeholders the right to terminate such Restructuring Support Agreement.
Debt
As ofMarch 31, 2023 , we had$1,111.4 million and$943.2 million in finance lease obligations and long-term debt outstanding under our Senior Secured Credit Facilities, respectively. As ofDecember 31, 2022 , we had$976.3 million and$908.3 million in finance lease obligations and long-term debt outstanding under our Senior Secured Credit Facilities, respectively. Following receipt of$75.0 million in connection with the exercise of the optional shares purchase options, we repaid the entire balance owed under the Revolving Facility and the 2021 Revolving Facility of$40.0 million . The Revolving Facility matured inMay 2022 and was not renewed. Subsequent to paying down of the Revolving Facility and the 2021 Revolving Facility, the Borrower drew down$42.0 million from the 2021 Revolving Facility. OnMarch 14, 2023 , we entered into the Revolving Facility Amendment which, among other things, provided for an extension of the maturity date fromNovember 1, 2023 toApril 2, 2024 , an approximately$18 million reduction to the borrowing capacity under such facility, a transition of the benchmark rate for such facility from LIBOR to SOFR, increases to the applicable interest rates for borrowings under such facility and certain other covenant modifications, including additional limitations on our ability to make investments and incur indebtedness. During the three months endedMarch 31, 2023 , the Borrower drew down$40.0 million from the 2021 Revolving Facility. The 2021 Revolving Facility, the 2017 First Lien Term Facility and the 2019 First Lien Term Facility have a 23-month, seven- and five-year term, respectively, and are set to mature onApril 2, 2024 ,May 1, 2024 andMay 1, 2024 , respectively. As described above, we entered into two amendments to the Senior Secured Credit Facilities. OnMay 2, 2023 we entered into Amendment No. 7, whereby the Forbearing Lenders agreed to forbear from exercising their rights and remedies under the First Lien Credit Agreement during the Forbearance Period. OnMay 4, 2023 we entered into Amendment No. 8, wherein, among other changes, the majority lenders agreed to amend the Senior Secured Credit Facilities to permit the Borrower and certain lenders to enter into the 2023 First Lien Term Facility, to add certain foreign guarantees and collateral to secure the Senior Secured Credit Facilities and to provide for certain intercreditor arrangements between the lenders under the Senior Secured Credit Facilities and the 2023 First Lien Term Facility. As described above, onMay 4, 2023 , we entered in the 2023 First Lien Term Facility providing for up to$50.0 million in new first lien term loan financing to support our ongoing business operations. The 2023 First Lien Term Facility matures on the earliest of (i)May 1, 2024 , (ii) the date on which the obligations under such facility become due and payable pursuant to the terms of the 2023 First Lien Term Facility, whether by acceleration or otherwise, (iii) the effective date of a Chapter 11 Plan (as defined under the 2023 First Lien Term Facility) and (iv) the date of consummation of a sale of all or substantially all of our assets under Section 363 of the Bankruptcy Code. 42 --------------------------------------------------------------------------------
Cash Flow
Three Months Ended March 31,
2023 2022
Net cash provided by operating activities $ 13.2 $ 12.2
Net cash used in investing activities (33.5) (32.4)
Net cash provided by (used in) financing activities 22.2 32.3
Operating Activities
Cash provided by our operations is generated by colocation service fees, which includes fees for the licensing of space, power and interconnection services.
During the three months endedMarch 31, 2023 , operating activities provided$13.2 million of net cash as compared to$12.2 million during the same period in the prior year. The increase in net cash provided by investing activities during the three months endedMarch 31, 2023 , is due to the Company selling$14.0 million in receivables under the A/R Sales Program, compared the same period in the prior year, where we factored$10.9 million of receivables and received$10.7 million , net of fees of$0.2 million . The remaining change was to other changes in working capital.
Investing Activities
Our investing activities are primarily focused on capital expenditures due to expansion activities and overall modernization of our data centers.
During the three months endedMarch 31, 2023 , investing activities used$33.5 million of net cash as compared to net cash by$32.4 million during the same period in the prior year. The increase in net cash used in investing activities during the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 , was an additional$1.1 million cash outflows for purchases from property and equipment. Financing Activities Our cash flow from financing activities is centered around the use of our Senior Secured Credit Facilities. During the three months endedMarch 31, 2023 , financing activities provided for use of$22.2 million of net cash as compared to net cash used of$32.3 million for the same period in the prior year. The decrease in net cash from financing activities during the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 , was due to drawing down$40.0 million under the 2021 Revolving Facility, which was offset by the paydown of$4.6 million in principal of the First Lien Term Facility. Repayments on finance leases were higher in the three months endedMarch 31, 2023 , compared to the same period in the prior year by$1.3 million , which was a result of finance leases entered into latter part of 2022. In the current period, we did not enter into any equipment sale-leaseback transactions, compared to the same period of the prior year, where we received$10.0 million in proceeds from an equipment sale-leaseback transaction. For the three months endedMarch 31, 2022 , was primarily due to the receipt of$75.0 million in proceeds during the period from the exercise of purchase options under the Optional Share Purchase Agreement. In addition, during the three months endedMarch 31, 2022 , cash inflows were offset by the paydown of$40.0 million on the Revolving Facility and the 2021 Revolving Facility and a paydown of$2.3 million in principal of the First Lien Term Facility. 43 --------------------------------------------------------------------------------
Contractual Obligations and Commitments
Material Cash Commitments
As of
•approximately$943.2 million of principal from the 2017 and 2019 First Lien Term Facility and the balance on the 2021 Revolving Facility (net of debt issuance cost and debt discount); •approximately$1,411.7 million of total lease payments, net of interest expense, which represents lease payments under finance and operating lease arrangements, including renewal options that are reasonably certain to be exercised; and •approximately$5.3 million of other non-capital purchase commitments related to IT licenses, utilities and our colocation operations. These commitments to purchase IT contractually bind us for goods, services or arrangements to be delivered or provided during 2023 and beyond.
For further information on maturities of lease liabilities and long-term debt, see Notes 8 and 9, respectively, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Other Contractual Obligations
Additionally, we entered into lease agreements with various landlords primarily for data center spaces which have not yet commenced as ofMarch 31, 2023 . For additional information, see "Maturities of Lease Liabilities" in Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We entered into an agreement for power redundancy supply at a facility inMassachusetts , which has not yet commenced as ofMarch 31, 2023 . For additional information, see "Lease Commitments" in Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance-Sheet Arrangements
We did not have any off-balance sheet arrangements as of
Critical Accounting Policies and Estimates
Discussion and analysis of our financial condition and results of operations are
based on our unaudited condensed consolidated financial statements, which have
been prepared in accordance with US GAAP. The preparation of these unaudited
condensed consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities and related
disclosure of contingent assets and liabilities, revenue and expenses at the
date of the financial statements. Generally, we base our estimates on historical
experience and on various other assumptions in accordance with US GAAP that we
believe to be reasonable under the circumstances. Because of the uncertainty
inherent in these matters, actual results may differ from these estimates under
different assumptions or conditions.
We believe that there have been no material changes to our critical accounting
policies and estimates as compared to the critical accounting policies and
estimates described in our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K.
44
--------------------------------------------------------------------------------Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS
Act, emerging growth companies can delay adopting new or revised accounting
standards issued subsequent to the enactment of the JOBS Act until such time as
those standards apply to private companies. We have elected to use this extended
transition period for complying with new or revised accounting standards that
have different effective dates for public and private companies until the
earlier of the date we (i) are no longer an emerging growth company or (ii)
affirmatively and irrevocably opt out of the extended transition period provided
in the JOBS Act. As a result, our financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.
45--------------------------------------------------------------------------------
© Edgar Online, source
