EQUINIX, INC. 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 Overview [[Image Removed: eqix-20210930_g2.jpg]] We provide a global, vendor-neutral data center, interconnection and edge services platform with offerings that aim to enable our customers to reach everywhere, interconnect everyone and integrate everything. Global enterprises, service providers and business ecosystems of industry partners rely on our IBX data centers and expertise around the world for the safe housing of their critical IT equipment and to protect and connect the world's most valued information assets. They also look to Platform Equinix® for the ability to directly and securely interconnect to the networks, clouds and content that enable today's information-driven global digital economy. Our recent IBX data center openings and acquisitions, as well as xScaleTM data center investments, have expanded our total global footprint to 237 IBXs, including seven xScale data centers and the MC1 data center that are held in unconsolidated joint ventures, across 65 markets around the world. We offer the following solutions: 43 -------------------------------------------------------------------------------- Table of Contents •premium data center colocation; •interconnection and data exchange solutions; •edge services for deploying networking, security and hardware; and •remote expert support and professional services. Our interconnected data centers around the world allow our customers to increase information and application delivery performance to users, and quickly access distributed IT infrastructures and business and digital ecosystems, while significantly reducing costs. Our global platform and the quality of our IBX data centers, interconnection offerings and edge services have enabled us to establish a critical mass of customers. As more customers choose PlatformEquinix for bandwidth cost and performance reasons, it benefits their suppliers and business partners to colocate in the same data centers. This adjacency creates a "network effect" that enables our customers to capture 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 interconnection that increases data traffic exchange while lowering overall cost and increasing flexibility. Our focused business model is built on our critical mass of enterprise and service provider customers and the resulting "marketplace" effect. This global platform, combined with our strong financial position, has continued to drive new customer growth and bookings. Historically, our market was served by large telecommunications carriers who bundled their products and services with their colocation offerings. The data center market landscape has evolved to include private and vendor-neutral multitenant data center ("MTDC") providers, hyperscale cloud providers, managed infrastructure and application hosting providers, and systems integrators. It is estimated thatEquinix is one of more than 1,200 companies that provide MTDC offerings around the world. Each of these data center solutions providers can bundle various colocation, interconnection and network offerings and outsourced IT infrastructure solutions. We are able to offer our customers a global platform that reaches 27 countries with the industry's largest and most active ecosystem of partners in our sites, proven operational reliability, improved application performance and a highly scalable set of offerings. The cabinet utilization rate represents the percentage of cabinet space billed versus total cabinet capacity, which is used to measure how efficiently we are managing our cabinet capacity. Our cabinet utilization rate varies from market to market among our IBX data centers across ourAmericas , EMEA andAsia-Pacific regions. Our cabinet utilization rates were approximately 79% as ofSeptember 30, 2021 and 2020. 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 81% as ofSeptember 30, 2021 . 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, results of operations and cash flows. To serve the needs of the growing hyperscale data center market, including the world's largest cloud service providers, we have entered into joint ventures to develop and operate xScale data centers. In the past two years, we closed our EMEA 1 Joint Venture,Asia-Pacific 1 Joint Venture and EMEA 2 Joint Venture in the form of limited liability partnerships with GIC,Singapore's sovereign wealth fund ("GIC"). InOctober 2021 , we entered into an agreement to form an additional joint venture in the form of a limited liability partnership withPGIM Real Estate , to further expand our xScale data center portfolio inAsia-Pacific (the "Asia-Pacific 2 Joint Venture"). 44 -------------------------------------------------------------------------------- Table of Contents 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, clouds and software partners, capacity availability in the current market location, amount of incremental investment required by us in the targeted property, automation capabilities, developer talent pool, 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 toEquinix 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. Revenue: [[Image Removed: eqix-20210930_g3.jpg]] 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 and thereafter, automatically renew in one-year increments. Our recurring revenues have comprised more than 90% of our total revenues during the past three years. In addition, during the past three years, more than 80% of our monthly recurring revenue bookings came from existing customers, contributing to our revenue growth. Our largest customer accounted for approximately 3% of our recurring revenues for both the three and nine months endedSeptember 30, 2021 and 2020. Our 50 largest customers accounted for approximately 39% of our recurring revenues for the three and nine months endedSeptember 30, 2021 and 41% and 39%, respectively, of our recurring revenues for the three and nine months endedSeptember 30, 2020 . 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. 45 -------------------------------------------------------------------------------- Table of Contents Operating Expenses: Cost of Revenues. 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. 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. 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. Sales and Marketing. Our 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. Our 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 on back office systems. Taxation as a REIT We elected to be taxed as a real estate investment trust forU.S. federal income tax purposes ("REIT") beginning with our 2015 taxable year. As ofSeptember 30, 2021 , our REIT structure included all of our data center operations in theU.S. ,Canada (with the exception of two data centers),Mexico ,Japan ,Singapore and the majority of our data centers in EMEA. Our data center operations in other jurisdictions are operated as taxable REIT subsidiaries ("TRSs"). We included our share of the assets in theEMEA and Asia-Pacific Joint Ventures in our REIT structure. As a REIT, we generally are permitted to deduct from ourU.S. federal taxable income the dividends we pay to our stockholders. The income represented by such dividends is not subject toU.S. federal income taxes at the entity level but is taxed, if at all, at the stockholder level. Nevertheless, the income of our TRSs which hold ourU.S. operations that may not be REIT compliant is subject toU.S. federal and state corporate income taxes, as applicable. Likewise, our foreign subsidiaries continue to be subject to local 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 separateU.S. federal 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 an asset held by us or a QRS following the liquidation or other conversion of a former TRS). This built-in-gains 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 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 forU.S. federal income taxation as a REIT, we will be subject toU.S. federal income taxes at regular corporate income tax rates. In addition, should we realize any gains from "prohibited transactions," we will be subject to tax on this gain at a 100% rate. "Prohibited transactions," for this purpose, are defined as dispositions, at a gain, of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors. Even if we remain qualified forU.S. 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 theU.S. federal income tax regime for REITs, many states do not completely follow federal rules, and some may not follow them at all. We continue to monitor our REIT compliance in order to maintain our qualification forU.S. 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. 46 -------------------------------------------------------------------------------- Table of Contents On each ofMarch 17, 2021 ,June 16, 2021 andSeptember 22, 2021 we paid a quarterly cash dividend of$2.87 per share. OnNovember 3, 2021 , we declared a quarterly cash dividend of$2.87 per share, payable onDecember 15, 2021 , to our common stockholders of record as of the close of business onNovember 17, 2021 . We expect the amount of all of our 2021 quarterly distributions and other applicable distributions to equal or exceed our REIT taxable income to be recognized in 2021. The Impact of the Ongoing COVID-19 Pandemic on Our Results and Operations We have continued to closely monitor the impact of the COVID-19 pandemic on our people and business. We have announced a phased plan for return-to-office for non-IBX attached sites and have begun phased re-openings of most of our offices to non-IBX employees on a voluntary basis in accordance with guidance provided by government agencies. Non-essential business travel remains limited. While we continue to host virtual events, we have also resumed certain in-person events as local travel restrictions allow. For additional details regarding the impacts and risks to our results of operations from the ongoing COVID-19 pandemic, refer to "Results of Operations" section below and Part II, Item 1A. Risk Factors included elsewhere in this Quarterly Report on Form 10-Q. Please also refer to "The Impact of the Ongoing COVID-19 Pandemic on Our Results and Operations" included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Form 10-K as filed onFebruary 19, 2021 . 2021 Highlights: •In March, we issued €1.1 billion in Senior Notes due 2027 and 2033, or approximately$1.3 billion inU.S. dollars, at the exchange rate in effect onMarch 10, 2021 . Using a portion of the proceeds, we redeemed all of the remaining outstanding 2.875% Euro Senior Notes due 2026 for approximately$590.7 million inU.S. dollars, at the exchange rate in effect onMarch 24, 2021 . See Note 10 within the Condensed Consolidated Financial Statements. •In May, we issued$2.6 billion in Senior Notes due 2026, 2028, 2031 and 2052. Using a portion of the proceeds, we repaid approximately$659.9 million of term loans and redeemed all of our outstanding$1.25 billion 5.375% Senior Notes due 2027. See Note 10 within the Condensed Consolidated Financial Statements. •In May, we sold 137,604 shares under our 2020 "at-the-market" stock offering program (the "2020 ATM Program") for approximately$99.6 million in proceeds, net of payment of commissions to sales agents and other offering expenses. See Note 12 within the Condensed Consolidated Financial Statements. •In June, we entered into an agreement to form another joint venture in the form of a limited liability partnership with GIC, to develop and operate additional xScaleTM data centers inEurope and theAmericas (the "EMEA 2 Joint Venture"). The transaction is structured to close in phases over the course of two years, pending regulatory approval and other closing conditions. Upon closing of the first phase of the transaction inSeptember 2021 , GIC contributed cash in exchange for an 80% partnership interest in the EMEA 2 Joint Venture and we sold certain data center sites and facilities located inFrankfurt ,Helsinki ,Madrid ,Milan andParis in exchange for a total consideration of$144.0 million . See Note 5 within the Condensed Consolidated Financial Statements. •In September, we completed the acquisition of two data centers inMumbai, India fromGPX Global Systems, Inc. ("GPX India") for a total purchase consideration of approximately$170.5 million . See Note 4 within the Condensed Consolidated Financial Statements. •InOctober 2021 , we entered into an agreement to form a joint venture in the form of a limited liability partnership withPGIM Real Estate ("PGIM"), to develop and operate xScale data centers inAsia-Pacific (the "Asia-Pacific 2 Joint Venture"). Upon closing, PGIM will contribute cash in exchange for an 80% partnership interest in theAsia-Pacific 2 Joint Venture. We agreed to sell theSydney 9 ("SY9") data center site in exchange for a 20% partnership interest in theAsia-Pacific 2 Joint Venture and cash proceeds. The assets and liabilities of the SY9 data center, which are currently included within ourAsia-Pacific region , were classified as held for sale as ofSeptember 30, 2021 . See Note 5 within the Condensed Consolidated Financial Statements. 47 -------------------------------------------------------------------------------- Table of Contents Results of Operations Our results of operations for the three and nine months endedSeptember 30, 2021 include the results of operations from two data centers acquired from GPX India fromSeptember 1, 2021 , 12 data center sites acquired from Bell acrossCanada fromOctober 1, 2020 and one additional data center acquired from Bell fromNovember 2, 2020 . Our results of operations for the three and nine months endedSeptember 30, 2020 include the results of operations from Packet acquired fromMarch 2, 2020 and three data centers inMexico acquired from Axtel fromJanuary 8, 2020 . In order to provide a framework for assessing our performance excluding the impact of foreign currency fluctuations, we supplement the year-over-year actual change in results of operations with comparative changes on a constant currency basis. Presenting constant currency results of operations is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below for further discussion. Three Months EndedSeptember 30, 2021 and 2020 Revenues. Our revenues for the three months endedSeptember 30, 2021 and 2020 were generated from the following revenue classifications and geographic regions (dollars in thousands): Three Months Ended September 30, $ Change % Change Constant 2021 % 2020 % Actual Actual Currency Americas: Recurring revenues$ 721,292 43 %$ 639,572 42 %$ 81,720 13 % 12 % Non-recurring revenues 41,761 2 % 32,760 2 % 9,001 27 % 27 % 763,053 45 % 672,332 44 % 90,721 13 % 13 % EMEA: Recurring revenues 503,288 30 % 483,744 32 % 19,544 4 % 4 % Non-recurring revenues 41,939 3 % 34,339 2 % 7,600 22 % 20 % 545,227 33 % 518,083 34 % 27,144 5 % 5 % Asia-Pacific: Recurring revenues 339,036 20 % 308,756 21 % 30,280 10 % 10 % Non-recurring revenues 27,860 2 % 20,596 1 % 7,264 35 % 36 % 366,896 22 % 329,352 22 % 37,544 11 % 11 % Total: Recurring revenues 1,563,616 93 % 1,432,072 95 % 131,544 9 % 9 % Non-recurring revenues 111,560 7 % 87,695 5 % 23,865 27 % 26 %$ 1,675,176 100 %$ 1,519,767 100 %$ 155,409 10 % 10 % 48
--------------------------------------------------------------------------------
Table of Contents
Revenues
(dollars in thousands)[[Image Removed: eqix-20210930_g4.jpg]][[Image Removed: eqix-20210930_g5.jpg]][[Image Removed: eqix-20210930_g6.jpg]]
[[Image Removed: eqix-20210930_g7.jpg]]
Americas Revenues. During the three months ended September 30, 2021 , Americas
revenue increased by $90.7 million or 13% (and also 13% on a constant currency
basis). Growth in Americas revenues was primarily due to:
•approximately $37.8 million of incremental revenues from the Bell acquisition;
•$13.1 million of incremental revenues generated from our IBX data center
expansions;
•higher non-recurring revenues, primarily due to increases in Equinix
Infrastructure Service ("EIS") product sales; and
•an increase in orders from both our existing customers and new customers during
the period.
EMEA Revenues. During the three months ended September 30, 2021 , EMEA revenue
increased by $27.1 million or 5% (and also 5% on a constant currency basis).
Growth in EMEA revenues was primarily due to:
•approximately $15.0 million of incremental revenues generated from our IBX data
center expansions;
•$6.5 million of incremental revenues from services provided to our joint
ventures; and
•an increase in orders from both our existing customers and new customers during
the period.
The increase was partially offset by a net decrease of $14.3 million of realized
cash flow hedge gains from foreign currency forward contracts.
Asia-Pacific Revenues. During the three months ended September 30, 2021 ,
Asia-Pacific revenue increased by $37.5 million or 11% (and also 11% on a
constant currency basis). Growth in Asia-Pacific revenue was primarily due to:
•approximately $26.0 million of incremental revenues generated from our IBX data
center expansions;
•$4.0 million of incremental revenues from services provided to the Asia-Pacific
1 Joint Venture; and
•higher non-recurring revenues, primarily due to increases in EIS product sales.
49
--------------------------------------------------------------------------------
Table of Contents
Cost of Revenues. Our cost of revenues for the three months ended September 30,
2021 and 2020 by geographic regions was as follows (dollars in thousands):
Three Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 376,145 42 % $ 307,594 40 % $ 68,551 22 % 21 %
EMEA 306,726 35 % 278,577 36 % 28,149 10 % 10 %
Asia-Pacific 202,779 23 % 181,808 24 % 20,971 12 % 12 %
Total $ 885,650 100 % $ 767,979 100 % $ 117,671 15 % 15 %
Cost of Revenues
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
[[Image Removed: eqix-20210930_g8.jpg]][[Image Removed: eqix-20210930_g9.jpg]][[Image Removed: eqix-20210930_g10.jpg]]
Americas Cost of Revenues. During the three months ended September 30, 2021 ,
Americas cost of revenues increased by $68.6 million or 22% (21% on a constant
currency basis). The increase in our Americas cost of revenues was primarily due
to:
•approximately $33.2 million of incremental cost of revenues from the Bell
Acquisition;
•$9.6 million of higher depreciation driven by IBX data center expansions;
•$7.0 million of higher utilities costs, primarily driven by increases in prices
and higher utility usage and IBX data center expansions;
•$4.8 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth;
•$4.6 million of higher costs related to increased EIS product revenues; and
•$4.3 million of higher repairs and maintenance expense primarily driven by IBX
data center expansions.
EMEA Cost of Revenues. During the three months ended September 30, 2021 , EMEA
cost of revenues increased by $28.1 million or 10% (and also 10% on a constant
currency basis). The increase in our EMEA cost of revenues was primarily due to:
•$11.8 million of higher depreciation expenses driven by IBX data center
expansions in the Netherlands , Switzerland , and the United Kingdom ("UK");
•$6.0 million of higher utilities costs, primarily driven by increases in prices
and higher utility usage in France and Finland and IBX data center expansions;
•$5.8 million of higher costs related to EIS product revenues; and
•$4.3 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth.
50
--------------------------------------------------------------------------------
Table of Contents
This increase was partially offset by a net increase of $5.8 million of realized
cash flow hedge gains from foreign currency forward contracts.
Asia-Pacific Cost of Revenues. During the three months ended September 30, 2021 ,
Asia-Pacific cost of revenues increased by $21.0 million or 12% (and also 12% on
a constant currency basis). The increase in our Asia-Pacific cost of revenues
was primarily due to:
•$8.1 million of higher depreciation expense, primarily from IBX data center
expansions in Japan and Hong Kong ;
•$3.7 million of higher costs related to increased EIS product revenues; and
•higher compensation costs, including salaries, bonuses and stock-based
compensation, primarily due to headcount growth.
We expect cost of revenues to increase across all three regions in line with the
growth of our business, including from the impact of acquisitions.
Sales and Marketing Expenses. Our sales and marketing expenses for the three
months ended September 30, 2021 and 2020 by geographic regions were as follows
(dollars in thousands):
Three Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 118,023 65 % $ 111,727 65 % $ 6,296 6 % 5 %
EMEA 40,612 22 % 37,175 22 % 3,437 9 % 9 %
Asia-Pacific 24,362 13 % 23,825 13 % 537 2 % 2 %
Total $ 182,997 100 % $ 172,727 100 % $ 10,270 6 % 6 %
Sales and Marketing Expenses
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
[[Image Removed: eqix-20210930_g11.jpg]][[Image Removed: eqix-20210930_g12.jpg]][[Image Removed: eqix-20210930_g13.jpg]]
Americas Sales and Marketing Expenses. During the three months ended September
30, 2021 , Americas sales and marketing expenses increased by $6.3 million or 6%
(5% on a constant currency basis). The increase was primarily due to higher
compensation costs attributable to headcount growth, including sales
compensation, salaries and stock-based compensation.
EMEA Sales and Marketing Expenses. Our EMEA sales and marketing expense did not
materially change during the three months ended September 30, 2021 as compared
to the three months ended September 30, 2020 .
Asia-Pacific Sales and Marketing Expenses. Our Asia-Pacific sales and marketing
expense did not materially change during the three months ended September 30,
2021 as compared to the three months ended September 30, 2020 .
51
--------------------------------------------------------------------------------
Table of Contents
We anticipate that we will continue to invest in sales and marketing initiatives
across our three regions in line with the growth of our business. We also expect
travel and entertainment expenses to increase as travel restrictions that were
imposed in response to the COVID-19 pandemic are eased. We expect our Americas
sales and marketing expenses as a percentage of revenues to continue to be
higher than those of our other regions since certain global sales and marketing
functions are located within the U.S.
General and Administrative Expenses. Our general and administrative expenses for
the three months ended September 30, 2021 and 2020 by geographic regions were as
follows (dollars in thousands):
Three Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 236,718 71 % $ 200,404 72 % $ 36,314 18 % 18 %
EMEA 60,384 18 % 53,150 19 % 7,234 14 % 12 %
Asia-Pacific 37,523 11 % 25,796 9 % 11,727 45 % 44 %
Total $ 334,625 100 % $ 279,350 100 % $ 55,275 20 % 19 %
General and Administrative Expenses
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
[[Image Removed: eqix-20210930_g14.jpg]][[Image Removed: eqix-20210930_g15.jpg]][[Image Removed: eqix-20210930_g16.jpg]]
Americas General and Administrative Expenses. During the three months ended
September 30, 2021 , Americas general and administrative expenses increased by
$36.3 million or 18% (and also 18% on a constant currency basis). The increase
in our Americas general and administrative expenses was primarily due to:
•$24.3 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to additional compensation expenses
incurred related to headcount growth including that from our recent
acquisitions; and
•$11.6 million of higher depreciation expenses associated with systems to
support the integration of recent acquisitions and the growth of our business.
EMEA General and Administrative Expenses. During the three months ended
September 30, 2021 , EMEA general and administrative expenses increased by
$7.2 million or 14% (12% on a constant currency basis). The increase in our EMEA
general and administrative expenses was primarily due to $9.8 million of higher
compensation costs, including salaries, bonuses and stock-based compensation,
primarily due to headcount growth.
This increase was partially offset by lower consulting costs and a net increase
of realized cash flow hedge gains from foreign currency forward contracts.
52
--------------------------------------------------------------------------------
Table of Contents
Asia-Pacific General and Administrative Expenses. During the three months ended
September 30, 2021 , Asia-Pacific general and administrative expenses increased
by $11.7 million or 45% (44% on a constant currency basis). The increase in our
Asia-Pacific general and administrative expenses was primarily due to:
•$7.7 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth; and
•higher overall general and administrative expenses to support our business
growth, including higher rent and facility costs for our offices in Japan .
Going forward, although we are carefully monitoring our spending, we expect our
general and administrative expenses to increase across all three regions as we
continue to invest in our operations to support our growth, including
investments to enhance our technology platform, to maintain our qualification
for taxation as a REIT and to integrate recent acquisitions. We also expect
travel and entertainment expenses to increase as travel restrictions that were
imposed in response to the COVID-19 pandemic are eased. Additionally, since our
corporate headquarters is located in the U.S. , we expect the Americas general
and administrative expenses as a percentage of revenues to continue to be higher
than other regions.
Transaction Costs. During the three months ended September 30, 2021 , we recorded
transaction costs of $5.2 million , primarily related to costs incurred in
connection with the formation of new joint ventures, see Notes 5 and 6 within
the Condensed Consolidated Financial Statements. During the three months ended
September 30, 2020 , we recorded transaction costs of $5.8 million , primarily
related to costs incurred in connection with the acquisition of Bell data
centers in the Americas region and the acquisition of GPX India in the
Asia-Pacific region .
Impairment Charge. During the three months ended September 30, 2021 , we did not
record any impairment charges. During the three months ended September 30, 2020 ,
we recorded an impairment charge of $7.3 million in the Asia-Pacific region as a
result of the fair value adjustment of the Asia-Pacific 1 Joint Venture xScale
data center assets, which were classified as a held for sale asset as of
September 30, 2020 .
Gain or Loss on Asset Sales. During the three months ended September 30, 2021 ,
we recorded a gain of $15.4 million primarily related to the sale of the Dublin
5 ("DB5") data center. During the three months ended September 30, 2020 , we did
not record a significant amount of gain on asset sales.
Income from Operations. Our income from operations for the three months ended
September 30, 2021 and 2020 by geographic regions was as follows (dollars in
thousands):
Three Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 26,520 9 % $ 50,657 18 % $ (24,137) (48) % (48) %
EMEA 153,424 55 % 148,992 51 % 4,432 3 % 5 %
Asia-Pacific 102,177 36 % 88,701 31 % 13,476 15 % 15 %
Total $ 282,121 100 % $ 288,350 100 % $ (6,229) (2) % (1) %
Americas Income from Operations. During the three months ended September 30,
2021 , Americas income from operations decreased by $24.1 million or 48% (and
also 48% on a constant currency basis), primarily due to higher operating
expenses as a percentage of revenues, including higher depreciation expenses,
and an increase in general and administrative expenses primarily driven by
higher compensation costs, as well as margin dilution from recent acquisitions
and increases in EIS product sales.
EMEA Income from Operations. During the three months ended September 30, 2021 ,
EMEA income from operations increased by $4.4 million or 3% (5% on a constant
currency basis), primarily due to higher revenues as a result of our IBX data
center expansion activity and organic growth, as described above.
Asia-Pacific Income from Operations. During the three months ended September 30,
2021 , Asia-Pacific income from operations increased by $13.5 million or 15% (and
also 15% on a constant currency basis), primarily due to higher revenues as a
result of our IBX data center expansion activity and organic growth, as
described above.
Interest Income. During the three months ended September 30, 2021 and 2020, we
did not record a significant amount of interest income.
53
--------------------------------------------------------------------------------
Table of Contents
Interest Expense. Interest expense decreased to $78.9 million for the three
months ended September 30, 2021 from $99.7 million for the three months ended
September 30, 2020 , primarily due to interest savings as a result of our recent
refinancing activities. During the three months ended September 30, 2021 and
2020, we capitalized $6.4 million and $7.1 million , respectively, of interest
expense to construction in progress. See Note 10 within the Condensed
Consolidated Financial Statements.
Other Income. During the three months ended September 30, 2021 and 2020, we did
not record a significant amount of other income.
Gain or Loss on Debt Extinguishment. We recorded an insignificant amount of gain
on debt extinguishment during the three months ended September 30, 2021 . We
recorded a loss on debt extinguishment of $93.5 million during the three months
ended September 30, 2020 due to the redemption of 2.875% Euro Senior Notes due
2024 and 5.875% Senior Notes due 2026.
Income Taxes. We operate as a REIT for U.S. federal income tax purposes. As a
REIT, we are generally not subject to U.S. 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 ending December 31, 2021 and 2020, respectively. As such, other
than state income taxes and foreign income and withholding taxes, as applicable,
no provision for income taxes has been included for our REIT and QRSs in the
accompanying condensed consolidated financial statements for the three months
ended September 30, 2021 and 2020.
We have made TRS elections for some of our subsidiaries in and outside the U.S.
In general, a TRS may provide services that would 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 September 30, 2021 and 2020.
For the three months ended September 30, 2021 and 2020, we recorded $53.2
million and $29.9 million of income tax expense, respectively. Our effective tax
rates were 25.9% and 30.9% for the three months ended September 30, 2021 and
2020, respectively. The decrease in the effective tax rate for the three months
ended September 30, 2021 as compared to the same period in 2020 is mainly driven
by higher estimated U.S. QRS income that is not subject to U.S. corporate income
taxes.
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, transaction
costs and gain or loss 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 September 30, 2021 and 2020 by geographic regions was as follows
(dollars in thousands):
Three Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 321,768 41 % $ 290,550 39 % $ 31,218 11 % 10 %
EMEA 267,553 34 % 263,216 36 % 4,337 2 % 2 %
Asia-Pacific 196,977 25 % 183,479 25 % 13,498 7 % 7 %
Total $ 786,298 100 % $ 737,245 100 % $ 49,053 7 % 6 %
Americas Adjusted EBITDA. During the three months ended September 30, 2021 ,
Americas adjusted EBITDA increased by $31.2 million or 11% (10% on a constant
currency basis). The increase in our Americas adjusted EBITDA was primarily due
to higher revenues as a result of our IBX data center expansion activity and
organic growth as described above.
EMEA Adjusted EBITDA. During the three months ended September 30, 2021 , EMEA
adjusted EBITDA increased by $4.3 million or 2% (and also 2% on a constant
currency basis). The increase in our EMEA adjusted EBITDA was primarily due to
higher revenues as a result of our IBX data center expansion activity and
organic growth as described above.
54
--------------------------------------------------------------------------------
Table of Contents
Asia-Pacific Adjusted EBITDA. During the three months ended September 30, 2021 ,
Asia-Pacific adjusted EBITDA increased by $13.5 million or 7% (and also 7% on a
constant currency basis). The increase in our Asia-Pacific adjusted EBITDA was
primarily due to higher revenues as a result of our IBX data center expansion
activity and organic growth as described above.
Nine Months Ended September 30, 2021 and 2020
Revenues. Our revenues for the nine months ended September 30, 2021 and 2020
were generated from the following revenue classifications and geographic regions
(dollars in thousands):
Nine Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency (1)
Americas:
Recurring revenues $ 2,120,623 44 % $ 1,907,059 43 % $ 213,564 11 % 11 %
Non-recurring revenues 119,013 2 % 88,597 3 % 30,416 34 % 34 %
2,239,636 46 % 1,995,656 46 % 243,980 12 % 12 %
EMEA:
Recurring revenues 1,489,189 30 % 1,394,408 31 % 94,781 7 % 6 %
Non-recurring revenues 112,684 2 % 90,674 2 % 22,010 24 % 17 %
1,601,873 32 % 1,485,082 33 % 116,791 8 % 7 %
Asia-Pacific:
Recurring revenues 1,007,199 20 % 890,437 20 % 116,762 13 % 9 %
Non-recurring revenues 80,451 2 % 63,255 1 % 17,196 27 % 25 %
1,087,650 22 % 953,692 21 % 133,958 14 % 10 %
Total:
Recurring revenues 4,617,011 94 % 4,191,904 94 % 425,107 10 % 9 %
Non-recurring revenues 312,148 6 % 242,526 6 % 69,622 29 % 25 %
$ 4,929,159 100 % $ 4,434,430 100 % $ 494,729 11 % 10 %
(1)As defined in the "Non-GAAP Financial Measures" section in Item 2 of this Quarterly Report on Form 10-Q.
55--------------------------------------------------------------------------------
Table of Contents
Revenues
(dollars in thousands)[[Image Removed: eqix-20210930_g17.jpg]][[Image Removed: eqix-20210930_g18.jpg]][[Image Removed: eqix-20210930_g19.jpg]]
[[Image Removed: eqix-20210930_g7.jpg]]
Americas Revenues. During the nine months ended September 30, 2021 , Americas
revenue increased by $244.0 million or 12% (and also 12% on a constant currency
basis). Growth in Americas revenues was primarily due to:
•approximately $112.7 million of incremental revenues from the Packet and Bell
acquisitions;
•$28.2 million of incremental revenues generated from our IBX data center
expansions;
•higher non-recurring revenues, primarily due to increases in EIS product sales;
and
•an increase in orders from both our existing customers and new customers during
the period.
EMEA Revenues. During the nine months ended September 30, 2021 , EMEA revenue
increased by $116.8 million or 8% (7% on a constant currency basis). Growth in
EMEA revenues was primarily due to:
•approximately $49.2 million of incremental revenues generated from our IBX data
center expansions;
•$16.8 million of incremental revenues from services provided to our joint
ventures; and
•an increase in orders from both our existing customers and new customers during
the period.
The increase was partially offset by a net decrease of $84.9 million of realized
cash flow hedge gains from foreign currency forward contracts.
Asia-Pacific Revenues. During the nine months ended September 30, 2021 ,
Asia-Pacific revenue increased by $134.0 million or 14% (10% on a constant
currency basis). Growth in Asia-Pacific revenue was primarily due to:
•approximately $57.5 million of incremental revenues generated from our IBX data
center expansions;
•$18.5 million of incremental revenues from services provided to the
Asia-Pacific 1 Joint Venture; and
•an increase in orders from both our existing customers and new customers during
the period.
56
--------------------------------------------------------------------------------
Table of Contents
Cost of Revenues. Our cost of revenues for the nine months ended September 30,
2021 and 2020 by geographic regions was as follows (dollars in thousands):
Nine Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 1,073,049 42 % $ 905,580 40 % $ 167,469 18 % 18 %
EMEA 903,558 35 % 804,791 36 % 98,767 12 % 9 %
Asia-Pacific 585,380 23 % 533,234 24 % 52,146 10 % 7 %
Total $ 2,561,987 100 % $ 2,243,605 100 % $ 318,382 14 % 12 %
Cost of Revenues
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
[[Image Removed: eqix-20210930_g20.jpg]][[Image Removed: eqix-20210930_g21.jpg]][[Image Removed: eqix-20210930_g22.jpg]]
Americas Cost of Revenues. During the nine months ended September 30, 2021 ,
Americas cost of revenues increased by $167.5 million or 18% (and also 18% on a
constant currency basis). The increase in our Americas cost of revenues was
primarily due to:
•approximately $115.2 million of incremental cost of revenues from the Packet
and Bell acquisitions;
•$16.9 million of higher depreciation driven by IBX data center expansions;
•$16.3 million of higher costs related to increased EIS product revenues;
•$8.6 million of higher other cost of sales related to an increase in bandwidth
for new vendors and an increase in equipment;
•$7.9 million of higher repairs and maintenance expense driven by IBX data
center expansions; and
•$4.5 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth.
This increase was partially offset by $6.4 million of lower utilities, primarily
due to gains from wind farm settlements in Texas and Oklahoma during a period of
unexpected weather conditions.
EMEA Cost of Revenues. During the nine months ended September 30, 2021 , EMEA
cost of revenues increased by $98.8 million or 12% (9% on a constant currency
basis). The increase in our EMEA cost of revenues was primarily due to:
•$47.1 million of higher depreciation expenses driven by IBX data center
expansions in the Netherlands , Switzerland , Germany and the UK ;
•$28.1 million of higher utilities costs driven by increased utility usage to
support IBX data center expansions and utility price increases, primarily in
Germany , France and the UK ;
•$19.0 million of higher costs related to increased EIS product revenues;
57
--------------------------------------------------------------------------------
Table of Contents
•$16.7 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth; and
•$16.4 million of higher rent and facilities costs and repairs and maintenance
expense, primarily in the UK , the Netherlands and France .
This increase was partially offset by a net increase of $33.6 million of
realized cash flow hedge gains from foreign currency forward contracts and $7.2
million decrease of other third party cost of sales, primarily in the
Netherlands and the UK .
Asia-Pacific Cost of Revenues. During the nine months ended September 30, 2021 ,
Asia-Pacific cost of revenues increased by $52.1 million or 10% (7% on a
constant currency basis). The increase in our Asia-Pacific cost of revenues was
primarily due to:
•$19.9 million of higher depreciation expense, primarily from IBX data center
expansions in Hong Kong and Australia ;
•$12.1 million of higher costs incurred to support the growth in EIS revenues;
•$6.7 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth;
•$5.7 million of higher utilities primarily driven by increases in prices and
higher utility usage in Singapore ; and
•$5.4 million of higher repairs and maintenance expense, primarily driven by
data center expansions in Australia and Singapore .
We expect cost of revenues to increase across all three regions in line with the
growth of our business, including from the impact of acquisitions.
58
--------------------------------------------------------------------------------
Table of Contents
Sales and Marketing Expenses. Our sales and marketing expenses for the nine
months ended September 30, 2021 and 2020 by geographic regions were as follows
(dollars in thousands):
Nine Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 349,860 63 % $ 335,797 63 % $ 14,063 4 % 4 %
EMEA 129,355 23 % 121,836 23 % 7,519 6 % 4 %
Asia-Pacific 72,219 14 % 73,668 14 % (1,449) (2) % (5) %
Total $ 551,434 100 % $ 531,301 100 % $ 20,133 4 % 3 %
Sales and Marketing Expenses
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
[[Image Removed: eqix-20210930_g23.jpg]][[Image Removed: eqix-20210930_g24.jpg]][[Image Removed: eqix-20210930_g25.jpg]]
Americas Sales and Marketing Expenses. During the nine months ended September
30, 2021 , Americas sales and marketing expenses increased by $14.1 million or 4%
(and also 4% on a constant currency basis). The increase in our Americas sales
and marketing expenses was primarily due to $12.7 million of higher compensation
costs, including sales compensation, salaries and stock-based compensation,
partially due to additional compensation expenses incurred related to our recent
acquisitions and headcount growth.
This increase was partially offset by lower travel and entertainment expenses
resulting from travel restrictions imposed in response to the ongoing COVID-19
pandemic.
EMEA Sales and Marketing Expenses. During the nine months ended September 30,
2021 , EMEA sales and marketing expenses increased by $7.5 million or 6% (4% on a
constant currency basis). The increase in our EMEA sales and marketing expenses
was primarily due to $9.5 million of higher compensation costs attributable to
headcount growth, including salaries, bonuses and stock-based compensation.
This increase was partially offset by a net increase of $5.1 million of realized
cash flow hedge gains from foreign currency forward contracts.
Asia-Pacific Sales and Marketing Expenses. Our Asia-Pacific sales and marketing
expense did not materially change during the nine months ended September 30,
2021 as compared to the nine months ended September 30, 2020 .
We anticipate that we will continue to invest in sales and marketing initiatives
across our three regions in line with the growth of our business. We also expect
travel and entertainment expenses to increase as travel restrictions that were
imposed in response to the COVID-19 pandemic are eased. We expect our Americas
sales and marketing expenses as a percentage of revenues to be higher than those
of our other regions since certain global sales and marketing functions are
located within the U.S.
59
--------------------------------------------------------------------------------
Table of Contents
General and Administrative Expenses. Our general and administrative expenses for
the nine months ended September 30, 2021 and 2020 by geographic regions were as
follows (dollars in thousands):
Nine Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 667,507 70 % $ 578,610 73 % $ 88,897 15 % 15 %
EMEA 179,525 19 % 144,454 18 % 35,071 24 % 22 %
Asia-Pacific 111,054 11 % 74,773 9 % 36,281 49 % 44 %
Total $ 958,086 100 % $ 797,837 100 % $ 160,249 20 % 19 %
General and Administrative Expenses
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
[[Image Removed: eqix-20210930_g26.jpg]][[Image Removed: eqix-20210930_g27.jpg]][[Image Removed: eqix-20210930_g28.jpg]]
Americas General and Administrative Expenses. During the nine months ended
September 30, 2021 , Americas general and administrative expenses increased by
$88.9 million or 15% (and also 15% on a constant currency basis). The increase
in our Americas general and administrative expenses was primarily due to:
•$52.1 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to additional compensation expenses
incurred related to headcount growth, including that from our recent
acquisitions;
•$28.3 million of higher depreciation expense associated with systems to support
the integration of recent acquisitions and the growth of our business; and
•$12.4 million of higher office expenses primarily due to additional software
and support services.
This increase was partially offset by lower travel and entertainment expenses
resulting from travel restrictions imposed in response to the ongoing COVID-19
pandemic.
EMEA General and Administrative Expenses. During the nine months ended September
30, 2021 , EMEA general and administrative expenses increased by $35.1 million or
24% (22% on a constant currency basis). The increase in our EMEA general and
administrative expenses was primarily due to:
•$33.0 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth; and
•$5.7 million of higher other operating expenses, primarily due to the prior
year having lower costs attributable to a favorable legal settlement in the
first quarter of 2020.
This increase was partially offset by a net increase of $6.4 million of realized
cash flow hedge gains from foreign currency forward contracts.
60
--------------------------------------------------------------------------------
Table of Contents
Asia-Pacific General and Administrative Expenses. During the nine months ended
September 30, 2021 , Asia-Pacific general and administrative expenses increased
by $36.3 million or 49% (44% on a constant currency basis). The increase in our
Asia-Pacific general and administrative expense was primarily due to:
•$21.1 million of higher compensation costs, including salaries, bonuses and
stock-based compensation, primarily due to headcount growth;
•$8.9 million higher rent and facility costs, primarily related to our offices
in Singapore ; and
•$5.0 million higher consulting costs in support of our business growth.
Going forward, although we are carefully monitoring our spending, we expect our
general and administrative expenses to increase across all three regions as we
continue to invest in our operations to support our growth, including
investments to enhance our technology platform, to maintain our qualification
for taxation as a REIT and to integrate recent acquisitions. We also expect
travel and entertainment expenses to increase as travel restrictions that were
imposed in response to the COVID-19 pandemic are eased. Additionally, given that
our corporate headquarters is located in the U.S. , we expect the Americas
general and administrative expenses as a percentage of revenues to be higher
than those of other regions.
Transaction costs. During the nine months ended September 30, 2021 , we recorded
transaction costs totaling $13.4 million , primarily related to costs incurred in
connection with the formation of the new joint ventures, see Notes 5 and 6
within the Condensed Consolidated Financial Statements. During the nine months
ended September 30, 2020 , we recorded transaction costs totaling $31.0 million ,
primarily related to costs incurred in connection with the recent acquisitions
and the formation of the Asia-Pacific 1 Joint Venture.
Impairment Charge. During the nine months ended September 30, 2021 , we did not
record any impairment charge. During the nine months ended September 30, 2020 ,
we recorded impairment charges of $7.3 million in the Asia-Pacific region as a
result of the fair value adjustment of the Asia-Pacific 1 Joint venture xScale
data centers, which were classified as a held for sale asset as of September 30,
2020 .
Gain or Loss on Asset Sales. During the nine months ended September 30, 2021 , we
recorded a gain of $14.1 million primarily related to the sale of the Dublin 5
("DB5") data center. During the nine months ended September 30, 2020 , we did not
record a significant amount of gain on asset sales.
Income from Operations. Our income from operations for the nine months ended
September 30, 2021 and 2020 by geographic regions was as follows (dollars in
thousands):
Nine Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 135,830 16 % $ 156,388 19 % $ (20,558) (13) % (11) %
EMEA 404,367 47 % 413,150 50 % (8,783) (2) % - %
Asia-Pacific 318,240 37 % 254,784 31 % 63,456 25 % 20 %
Total $ 858,437 100 % $ 824,322 100 % $ 34,115 4 % 4 %
Americas Income from Operations. During the nine months ended September 30,
2021 , Americas income from operations decreased by $20.6 million or 13% (11% on
a constant currency basis), primarily due to higher operating expenses as a
percentage of revenues, which included higher depreciation expenses driven by
expansion activity and an increase in compensation costs, as well as margin
dilution from recent acquisitions and increases in EIS product sales.
EMEA Income from Operations. During the nine months ended September 30, 2021 ,
EMEA income from operations decreased by $8.8 million or 2% (unchanged on a
constant currency basis), primarily due to higher operating expenses as a
percentage of revenues, which included higher depreciation expense driven by
expansion activity and an increase in general and administrative expenses
primarily driven by higher compensation costs.
Asia-Pacific Income from Operations. During the nine months ended September 30,
2021 , Asia-Pacific income from operations increased by $63.5 million or 25% (20%
on a constant currency basis), primarily due to higher revenues as a result of
our IBX data center expansion activity and organic growth, as described above,
as well as lower cost of revenues and sales and marketing expense as a
percentage of revenues.
61
--------------------------------------------------------------------------------
Table of Contents
Interest Income. Interest income was not significant for the nine months ended
September 30, 2021 . Interest income was $7.4 million for the nine months ended
September 30, 2020 . The average annualized yield for the nine months ended
September 30, 2021 was 0.13% versus 0.49% for the nine months ended September
30, 2020 .
Interest Expense. Interest expense decreased to $255.9 million for the nine
months ended September 30, 2021 from $315.6 million for the nine months ended
September 30, 2020 , primarily due to interest savings as a result of our recent
refinancing activities. During the nine months ended September 30, 2021 and
2020, we capitalized $19.2 million and $20.0 million , respectively, of interest
expense to construction in progress. See Note 10 within the Condensed
Consolidated Financial Statements.
Other Income or Expense. We recorded net other expense of $44.8 million for the
nine months ended September 30, 2021 , primarily due to a $32.3 million
impairment charge resulting from the settlement of a pre-acquisition uncertain
tax position, as well as foreign currency exchange gains and losses. For the
nine months ended September 30, 2020 , we recorded net other income of $9.6
million , which was primarily due to foreign currency exchange gains and losses,
net of the impact from derivative instruments used to manage foreign exchange
risks.
Gain or Loss on debt extinguishment. We recorded a loss on debt extinguishment
of $115.3 million during the nine months ended September 30, 2021 , primarily due
to the redemption of 2.875% Euro Senior Notes due 2026 and the 5.375% Senior
Notes due 2027. During the nine months ended September 30, 2020 , we recorded a
loss on debt extinguishment of $101.8 million due to the redemption of 2.875%
Euro Senior Notes due 2024, 5.875% Senior Notes due 2026 and the remaining
balance of the 5.375% Senior Notes due 2022, as well as the termination of
364-day term loan facilities.
Income Taxes. We operate as a REIT for U.S. federal income tax purposes. As a
REIT, we are generally not subject to U.S. 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 ending December 31, 2021 and 2020, respectively. As such, other
than tax on built-in-gains recognized, state income taxes and foreign income and
withholding taxes, as applicable, no provision for income taxes has been
included for the REIT and QRSs in the accompanying condensed consolidated
financial statements for the nine months ended September 30, 2021 and 2020.
We have made TRS elections for some of our subsidiaries in and outside the U.S.
In general, a TRS may provide services that would 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 nine
months ended September 30, 2021 and 2020.
For the nine months ended September 30, 2021 and 2020, we recorded $67.3 million
and $104.8 million of income tax expense, respectively. Our effective tax rates
were 15.2% and 24.7%, for the nine months ended September 30, 2021 and 2020,
respectively. The decrease in the effective tax rate for the nine months ended
September 30, 2021 as compared to the same period in 2020 is primarily due to
the favorable resolution of uncertain tax positions of approximately
$70.0 million resulting from the settlement of various tax audits in the UK ,
Germany , and Australia , partially offset by $10.9 million resulting from the
revaluation of our deferred tax liabilities due to the UK corporate tax rate
increase from 19% to 25% enacted in the current period.
Of the unrecognized tax benefits being realized in the current period,
$32.3 million is related to the uncertain tax position inherited from the
Metronode acquisition closed in 2018. The uncertain tax position was covered by
an indemnification agreement with the Seller. The realization of the
unrecognized tax benefits resulted in an impairment of the indemnification asset
for the same amount, which has been included in Other Income (Expense) on the
Condensed Consolidated Statements of Operations.
62
--------------------------------------------------------------------------------
Table of Contents
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, transaction
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 nine months ended
September 30, 2021 and 2020 by geographic regions was as follows (dollars in
thousands):
Nine Months Ended September 30, $ Change % Change
Constant
2021 % 2020 % Actual Actual Currency
Americas $ 992,184 42 % $ 886,270 41 % $ 105,914 12 % 12 %
EMEA 773,642 33 % 736,971 34 % 36,671 5 % 3 %
Asia-Pacific 590,981 25 % 518,255 25 % 72,726 14 % 10 %
Total $ 2,356,807 100 % $ 2,141,496 100 % $ 215,311 10 % 8 %
Americas Adjusted EBITDA. During the nine months ended September 30, 2021 ,
Americas adjusted EBITDA increased by $105.9 million or 12% (and also 12% on a
constant currency basis). The increase in our Americas adjusted EBITDA was
primarily due to higher revenues as a result of our IBX data center expansion
activity and organic growth as described above.
EMEA Adjusted EBITDA. During the nine months ended September 30, 2021 , EMEA
adjusted EBITDA increased by $36.7 million or 5% (3% on a constant currency
basis). The increase in our EMEA adjusted EBITDA was primarily due to higher
revenues as a result of our IBX data center expansion activity and organic
growth as described above.
Asia-Pacific Adjusted EBITDA. During the nine months ended September 30, 2021 ,
Asia-Pacific adjusted EBITDA increased by $72.7 million or 14% (10% on a
constant currency basis). The increase in our Asia-Pacific adjusted EBITDA was
primarily due to higher revenues as a result of our IBX data center expansion
activity and organic growth as described above.
Non-GAAP Financial Measures
We provide all information required in accordance with GAAP, but we believe that
evaluating our ongoing results of operations 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 results of operations 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.
63
--------------------------------------------------------------------------------
Table of Contents
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 data center, although we may incur initial construction costs in future
periods with respect to additional IBX data centers, and future capital
expenditures 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 results of
operations 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 results of operations 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 generally 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 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 transaction
costs from AFFO and adjusted EBITDA to allow more comparable comparisons of our
financial results to our historical operations. The transaction costs relate to
costs we incur in connection with business combinations and the formation of
joint ventures, including advisory, legal, accounting, valuation, and other
professional or consulting fees. Such charges generally are not relevant to
assessing our long-term performance. In addition, the frequency and amount of
such charges vary significantly based on the size and timing of the
transactions. Management believes items such as restructuring charges,
impairment charges, gain or loss on asset sales and transaction costs are
non-core transactions; however, these types of costs may occur in future
periods.
Adjusted EBITDA
We define adjusted EBITDA as income from operations excluding depreciation,
amortization, accretion, stock-based compensation expense, restructuring
charges, impairment charges, transaction costs, and gain or loss on asset sales
as presented below (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Income from operations $ 282,121 $ 288,350 $ 858,437 $ 824,322
Depreciation, amortization, and accretion
expense 419,684 362,286 1,231,760 1,048,151
Stock-based compensation expense 94,710 75,248 267,395 231,658
Transaction costs 5,197 5,840 13,364 30,987
Impairment charges - 7,306 - 7,306
Gain on asset sales (15,414) (1,785) (14,149) (928)
Adjusted EBITDA $ 786,298 $ 737,245 $ 2,356,807 $ 2,141,496
Our adjusted EBITDA results have increased each year in total dollars due to the
increase in our operating results, as discussed 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, as
also discussed in "Overview".
64
--------------------------------------------------------------------------------
Table of Contents
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,
transaction 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, net income (loss) from discontinued operations, net of tax, and
adjustments from FFO to AFFO for unconsolidated joint ventures' and
noncontrolling interests' share of these items. 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
consolidated statement of operations. We exclude 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.
65
--------------------------------------------------------------------------------
Table of Contents
Our FFO and AFFO were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net income $ 152,026 $ 66,831 $ 376,587 $ 319,138
Net (income) loss attributable to non-controlling
interests 190 (144) 330 (355)
Net income attributable to Equinix 152,216 66,687 376,917 318,783
Adjustments:
Real estate depreciation 267,973 232,110 796,117 676,510 (Gain) loss on disposition of real estate property (13,744) (1,313) (11,132) 1,569 Adjustments for FFO from unconsolidated joint ventures 1,536 699 4,215 2,021 FFO attributable to common shareholders$ 407,981 $ 298,183 $ 1,166,117 $ 998,883 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 FFO attributable to common shareholders$ 407,981 $ 298,183 $ 1,166,117 $ 998,883 Adjustments: Installation revenue adjustment 13,710 (3,797) 22,161 (3,629) Straight-line rent expense adjustment 3,855 3,019 11,597 7,220 Contract cost adjustment (15,919) (7,111) (43,311) (22,852) Amortization of deferred financing costs and debt discounts and premiums 4,390 3,884 12,760 11,788 Stock-based compensation expense 94,710 75,248 267,395 231,658 Non-real estate depreciation expense 100,604 78,356 278,644 220,565 Amortization expense 50,354 50,222 155,428 148,075 Accretion expense 753 1,598 1,571 3,001 Recurring capital expenditures (47,735) (38,327) (113,396) (86,191) (Gain) loss on debt extinguishment (179) 93,494 115,339 101,803 Transaction costs 5,197 5,840 13,364 30,987 Impairment charges (1) (1,240) 7,306 32,312 7,306 Income tax expense adjustment (1) 11,256 11,480 (35,419) 22,383 Adjustments for AFFO from unconsolidated joint ventures 533 287 2,473 1,183 AFFO attributable to common shareholders$ 628,270 $ 579,682 $ 1,887,035 $ 1,672,180 (1)Impairment charges for 2021 relate to the impairment of an indemnification asset in Q2 2021 resulting from the settlement of a pre-acquisition uncertain tax position, which was recorded as Other Income (Expense) on the Condensed Consolidated Statements of Operations. This impairment charge was offset by the recognition of tax benefits in the same amount, which was included within the Income tax expense adjustment line on the table above. See Note 1 within the Condensed Consolidated Financial Statements. 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." 66 -------------------------------------------------------------------------------- Table of Contents 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 theU.S. dollar against major international currencies. During the three and nine months endedSeptember 30, 2021 as compared to the same period in 2020 theU.S. dollar was weaker relative to the Australian dollar, British Pound, Euro andSingapore dollar, which resulted in a favorable foreign currency impact on revenue, operating income and adjusted EBITDA, and an unfavorable foreign currency impact on operating expenses. In order to provide a framework for assessing how each of our business segments 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 presentation excludes the impact of our foreign currency cash flow 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 results of operations. To present this information, our current period revenues and certain operating expenses from entities reporting in currencies other than theU.S. dollar are converted intoU.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 nine months endedSeptember 30, 2020 are used as exchange rates for the nine months endedSeptember 30, 2021 when comparing the nine months endedSeptember 30, 2021 with the nine months endedSeptember 30, 2020 ). Liquidity and Capital Resources As ofSeptember 30, 2021 , our total indebtedness was comprised of debt and financing obligations totaling$13.9 billion consisting of: •$11.1 billion of principal from our senior notes; •$2.1 billion from our finance lease liabilities; and •$0.6 billion of principal from our mortgage and loans payable (gross of debt issuance cost, debt discount, plus mortgage premium). During the nine months endedSeptember 30, 2021 , we completed the following significant financing activities: •Issued$1.3 billion of 2027 and 2033 Euro Senior Notes, and repaid$0.6 billion of legacy 2.875% Euro Senior Notes; and •Issued$2.6 billion of Senior Notes due 2026, 2028, 2031 and 2052, repaid approximately$659.9 million outstanding under our Term Loan Facility and redeemed all of our outstanding$1.25 billion 5.375% Senior Notes due 2027. As ofSeptember 30, 2021 , we had$1.4 billion of cash and cash equivalents. In addition to our cash, we had approximately$1.9 billion of additional liquidity available to us from our$2.0 billion revolving facility and general access to both public and private debt and the equity capital markets. We also have additional liquidity available to us from our 2020 ATM Program, under which we may offer and sell from time to time our common stock in "at the market" transactions. As ofSeptember 30, 2021 , we had$1.4 billion available for sale under the 2020 ATM Program. Besides any further financing activity we may pursue, customer collections are our primary source of cash. We believe we have a strong customer base, and have continued to experience relatively strong collections. We believe we have sufficient cash, coupled with anticipated cash generated from operating activities and external financing sources, to meet our operating requirements, including repayment of the current portion of our debt as it becomes due, distribution of dividends and completion of our publicly-announced acquisition and expansion projects. We also believe that our financial resources will allow us to manage future possible impact of the ongoing COVID-19 pandemic on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. 67 -------------------------------------------------------------------------------- Table of Contents As we continue to grow, we may pursue additional expansion opportunities, primarily the build out of new IBX data centers, in certain of our existing markets which are at or near capacity within the next year, as well as potential acquisitions and joint ventures. We may elect to access the equity or debt markets from time to time opportunistically, particularly if financing is available on attractive terms. We will continue to evaluate our operating requirements and financial resources in light of future developments, including those relating to the ongoing COVID-19 pandemic. Sources and Uses of Cash Nine Months Ended September 30, 2021 2020 (dollars in thousands) Net cash provided by operating activities$ 1,655,101 $ 1,623,678 Net cash used in investing activities (2,186,042)
(2,087,196)
Net cash provided by financing activities 320,943
1,237,356
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, utility costs, interest payments, other general corporate expenditures and taxes. Net cash provided by operating activities increased from the nine months endedSeptember 30, 2020 to the nine months endedSeptember 30, 2021 primarily due to improved results of operations offset by increases in cash paid for costs and operating expenses. Investing Activities The net cash used in investing activities for the nine months endedSeptember 30, 2021 was primarily due to: •capital expenditures of$1.9 billion as a result of our expansion activity; •real estate acquisitions of$194.8 million ; •the business acquisition of GPX India for$158.5 million ; and •purchases of investments of$77.1 million . The cash used in investing activities was partially offset by: •proceeds from the sale of xScale assets to the EMEA 1 and EMEA 2 Joint Ventures of$174.5 million ; and •proceeds from sales of investments of$4.1 million . The net cash used in investing activities for the nine months endedSeptember 30, 2020 was primarily due to: •capital expenditures of$1.4 billion as a result of our expansion activity; •real estate acquisitions of$124.5 million ; •business acquisitions of Packet and Axtel for$478.2 million ; and •purchases of investments of$56.0 million . The cash used in investing activities was partially offset by: •proceeds from sales of investments of$19.7 million . We anticipate our IBX data center expansion construction activity will be similar or increase from our current 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 nine months endedSeptember 30, 2021 was primarily due to: •the issuance of$3.9 billion in senior notes; 68 -------------------------------------------------------------------------------- Table of Contents •the sale of 137,604 shares of common stock under the 2020 ATM Program, for net proceeds of$99.6 million ; and •proceeds from the employee stock purchase plan of$77.6 million . The proceeds were partially offset by: •the repayment of senior notes of$2.0 billion ; •dividend distributions of$783.5 million ; •repayments of mortgage and loans payable of$706.4 million ; •repayments of finance lease liabilities of$130.1 million ; •debt extinguishment costs of$99.2 million ; and •debt issuance costs paid of$25.1 million . The net cash used in financing activities for the nine months endedSeptember 30, 2020 was primarily due to: •the issuance of$2.6 billion in Senior Notes due 2025, 2027, 2030, and 2050; •the sale and issuance of 2,587,500 shares of common stock in a public offering for net proceeds of approximately$1,683.1 million ; •borrowings under the revolving credit facility of$250.0 million and the 364-Day term loan facilities of$500.8 million ; •the sale of 415,512 shares of common stock under our prior ATM program, for net proceeds of$298.3 million ; and •proceeds from the employee stock purchase plan of$62.1 million . The proceeds were partially offset by: •the repayment of senior notes of$2,440.8 million ; •repayments of mortgage and loans payable of$808.6 million ; •dividend distributions of$710.2 million ; •debt extinguishment costs of$82.4 million ; •repayments of finance lease liabilities of$74.4 million ; and •debt issuance costs paid of$26.3 million . 69 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations and Off-Balance-Sheet Arrangements We lease a majority of our IBX data centers and certain equipment under long-term lease agreements. The following represents our debt maturities, financings, leases and other contractual commitments as ofSeptember 30, 2021 (in thousands): 2021 (3 months remaining) 2022 2023 2024 2025 Thereafter Total Term loans and other loans payable (1)$ 10,563 $ 580,889 $ 6,730 $ 6,278 $ 4,632 $ 19,664 $ 628,756 Senior notes (1) - - - 1,000,000 1,200,000 8,922,700 11,122,700 Interest (2) 65,671 252,203 237,490 237,309 210,843 1,763,898 2,767,414 Finance leases (3) 66,721 236,967 235,093 233,592 230,231 2,177,517 3,180,121 Operating leases (3) 41,573 196,671 181,865 166,317 156,285 995,474 1,738,185 Other contractual commitments (4) 1,013,587 545,182 188,689 70,299 43,517 345,635 2,206,909 Asset retirement obligations (5) 644 9,621 8,162 9,470 1,873 85,769 115,539$ 1,198,759 $ 1,821,533 $ 858,029 $ 1,723,265 $ 1,847,381 $ 14,310,657 $ 21,759,624 (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 ofSeptember 30, 2021 , 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 capital expenditures commitments and non-capital purchase commitments as further described below. (5)Represents liability, net of future accretion expense. As ofSeptember 30, 2021 , we were contractually committed for$1.0 billion of unaccrued capital expenditures, primarily for IBX data center 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 2021 and thereafter, is reflected in the table above as "other contractual commitments." We had other non-capital purchase commitments in place as ofSeptember 30, 2021 , 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 2021 and beyond. Such other purchase commitments as ofSeptember 30, 2021 , which total$1.2 billion , are also reflected in the table above as "other contractual commitments." Other commitments We entered into lease agreements in various locations, primarily for data center spaces and ground leases, which have not yet commenced as ofSeptember 30, 2021 . These lease agreements will commence between 2021 and 2023 with lease terms of 8 to 30 years and a total lease commitment of approximately$387.1 million , which are not reflected in the table above. In connection with certain of our leases and other contracts requiring deposits, we entered into 38 irrevocable letters of credit totaling$69.6 million under the revolving credit facility. These letters of credit were provided in lieu of cash deposits under certain lease obligations. 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 would 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. We had accrued liabilities related to uncertain tax positions totaling approximately$113.8 million as ofSeptember 30, 2021 . 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. 70 -------------------------------------------------------------------------------- Table of Contents We also committed to make future equity contributions to our joint ventures. As ofSeptember 30, 2021 , we had future equity contribution commitments of$1.1 million to theAsia-Pacific 1 Joint Venture,$43.6 million to the EMEA 1 Joint Venture and$57.7 million to the EMEA 2 Joint Venture, 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 withU.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 withU.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 forEquinix 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, accounting for property, plant and equipment and accounting for leases, 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 endedDecember 31, 2020 . 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 to our exposure management and procedures in relation to our market risk, investment portfolio risk, interest rate risk, foreign currency risk and commodity price risk exposures and procedures during the nine months endedSeptember 30, 2021 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 endedDecember 31, 2020 , other than factors discussed below. The uncertainty that exists with respect to the economic impact of the ongoing COVID-19 pandemic introduced significant volatility in the financial markets. See Part II, Item 1A. Risk Factors for additional information regarding potential risks to our business, financial condition and results of operations related to the ongoing COVID-19 pandemic. 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. We have entered into various foreign currency debt obligations. As ofSeptember 30, 2021 , the total principal amount of foreign currency debt obligations was$1.8 billion , including$1.3 billion denominated in Euro and$555.7 million denominated in British Pound. As ofSeptember 30, 2021 , we have designated$1.5 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 are recorded as a component of other comprehensive income (loss) in the consolidated balance sheets. Fluctuations in the exchange rates between these foreign currencies and theU.S. Dollar will impact 71 -------------------------------------------------------------------------------- Table of Contents the amount ofU.S. Dollars that we will require to settle the foreign currency debt obligations at maturity. If theU.S. Dollar would have been weaker or stronger by 10% in comparison to these foreign currencies as ofSeptember 30, 2021 , we estimate our obligation to cash settle the principal of these foreign currency debt obligations inU.S. Dollars would have increased or decreased by approximately$203.2 million and$166.2 million , respectively. We are also party to cross-currency interest rate swaps. As ofSeptember 30, 2021 , the total notional amount of cross-currency interest rate swap contracts outstanding was$4.0 billion . The cross-currency interest rate swaps are designated as hedges of our net investment in foreign subsidiaries 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 sheets. If theU.S. dollar weakened or strengthened by 10% in comparison to foreign currencies, we estimate our obligation to cash settle these hedges would have increased or decreased by approximately$468.7 million and$384.5 million , respectively. TheU.S. Dollar strengthened relative to certain of the currencies of the foreign countries in which we operate during the nine months endedSeptember 30, 2021 . 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 theU.S. Dollar will continue to impact us in future periods. With the existing cash flow hedges in place, a hypothetical additional 10% strengthening of theU.S. Dollar for the nine months endedSeptember 30, 2021 would have resulted in a reduction of our revenues and a reduction of our operating expenses including depreciation and amortization expense by approximately$153.9 million and$150.4 million , respectively. With the existing cash flow hedges in place, a hypothetical additional 10% weakening of theU.S. Dollar for the nine months endedSeptember 30, 2021 would have resulted in an increase of our revenues and an increase of our operating expenses including depreciation and amortization expense by approximately$189.7 million and$186.7 million , respectively. Interest Rate Risk We are exposed to interest rate risk related to our outstanding debt. An immediate increase or decrease in current interest rates from their position as ofSeptember 30, 2021 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 approximately$5.6 million or decrease by approximately$0.5 million based on the total balance of our term loan borrowings as ofSeptember 30, 2021 . As ofSeptember 30, 2021 , we had not employed any interest rate derivative products to hedge our variable rate debt obligations. However, we may enter into interest rate hedging agreements in the future to mitigate our exposure to interest rate risk. We periodically enter into interest rate locks to hedge the interest rate exposure created by anticipated fixed rate debt issuances, which are designated as cash flow hedges. When interest rate locks are settled, any accumulated gain or loss included as a component of other comprehensive income (loss) will be amortized to interest expense over the term of the forecasted hedged transaction which is equivalent to the term of the interest rate locks. 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 nine months endedSeptember 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 72 -------------------------------------------------------------------------------- Table of Contents (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. 73
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
