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
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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 244 IBXs, including eight xScale data centers and the MC1 data center that are held in unconsolidated joint ventures, across 69 markets around the world. Metrics also include four data centers which were acquired inApril 2022 through the MainOne Acquisition. We offer the following solutions: 40 -------------------------------------------------------------------------------- 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 multi-tenant 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 2,200 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 30 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 80% and 78% as ofMarch 31, 2022 and 2021, respectively. 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 ofMarch 31, 2022 . 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 multiple joint ventures in the form of limited liability partnerships withGIC Private Limited ,Singapore's sovereign wealth fund ("GIC") and an additional joint venture in the form of a limited liability partnership withPGIM Real Estate , ("PGIM"). 41
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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 to our 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:
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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
months ended March 31, 2022 and 2021. Our 50 largest customers accounted for
approximately 38% and 39% of our recurring revenues for the three months ended
March 31, 2022 and 2021, respectively.
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.
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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. 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 ofMarch 31, 2022 , our REIT structure included all of our data center operations in theU.S. ,Canada (with the exception of one data center inMontreal ),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. In addition, should we recognize any gain 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. 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. 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 for
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OnMarch 23, 2022 we paid a quarterly cash dividend of$3.10 per share. OnApril 27, 2022 , we declared a quarterly cash dividend of$3.10 per share, payable onJune 15, 2022 , to our common stockholders of record as of the close of business onMay 18, 2022 . We expect the amount of all of our 2022 quarterly distributions and other applicable distributions to equal or exceed our REIT taxable income to be recognized in 2022.
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. As of the time of this filing, our offices are open to employees on a voluntary basis in accordance with guidelines provided by government agencies. While non-essential business travel remains limited, we have resumed many 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 2021 Form 10-K as filed onFebruary 18, 2022 .
2022 Highlights:
•In February, we entered into an Equity Forward amendment to the 2020 ATM Program, under which we may, from time to time, offer and sell shares under the Equity Distribution Agreement pursuant to forward sale transactions. In March, we entered into two forward sale agreements with maturity dates inMarch 2023 . See Note 12 within the Condensed Consolidated Financial Statements. •In March, we entered into an agreement to acquire four data centers inChile from Empresa Nacional De Telecomunicaciones S.A. ("Entel"), a leading Chilean telecommunications provider, for a purchase price of UF16.7 million, or approximately$664.0 million at the exchange rate in effect onMarch 18, 2022 . See Note 4 within the Condensed Consolidated Financial Statements. •In March, we entered into a joint venture in the form of a limited liability partnership with PGIM to develop and operate additional xScale data centers inAsia-Pacific (the "Asia-Pacific 2 Joint Venture"). See Note 6 within the Condensed Consolidated Financial Statements.
•In March, we entered into an agreement to sell the
•In April, we completed the acquisition ofMainOne Cable Company Ltd. ("MainOne"), consisting of four data centers as well as a subsea cable and terrestrial fiber network. We acquired MainOne and its assets in an all-cash transaction for a purchase price of approximately$320.0 million . See Note 4 within the Condensed Consolidated Financial Statements. •In April, we issued$1.2 billion aggregate principal amount of 3.900% Senior Notes due 2032 (the "2032 Notes"). See Note 14 within the Condensed Consolidated Financial Statements. •In April, we closed on a joint venture in the form of a limited liability partnership with GIC, to develop and operate two xScale data centers inSeoul, Korea (the "Asia-Pacific 3 Joint Venture"). Upon closing, we contributed$17.0 million in exchange for a 20% partnership interest in the joint venture. See Note 14 within the Condensed Consolidated Financial Statements. •In April, we signed an agreement with Entel to acquire a data center inPeru for a purchase price of PEN270.8 million, or approximately$70.7 million at the exchange rate in effect onApril 27, 2022 . The acquisition of the data center inPeru is pending the achievement of certain closing conditions, for which the timing is uncertain. Refer to Note 4 for a discussion of this acquisition.
Results of Operations
Our results of operations for the three months ended
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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 Ended
Revenues. Our revenues for the three months endedMarch 31, 2022 and 2021 were generated from the following revenue classifications and geographic regions (dollars in thousands): Three Months Ended March 31, $ Change % Change Constant 2022 % 2021 % Actual Actual CurrencyAmericas : Recurring revenues$ 757,630 44 %$ 692,869 43 %$ 64,761 9 % 9 % Non-recurring revenues 42,791 2 % 33,071 2 % 9,720 29 % 29 % 800,421 46 % 725,940 45 % 74,481 10 % 10 % EMEA: Recurring revenues 520,113 30 % 487,082 31 % 33,031 7 % 9 % Non-recurring revenues 30,367 2 % 31,635 2 % (1,268) (4) % 2 % 550,480 32 % 518,717 33 % 31,763 6 % 9 % Asia-Pacific: Recurring revenues 364,581 21 % 330,982 21 % 33,599 10 % 15 % Non-recurring revenues 18,965 1 % 20,425 1 % (1,460) (7) % (2) % 383,546 22 % 351,407 22 % 32,139 9 % 14 % Total: Recurring revenues 1,642,324 95 % 1,510,933 95 % 131,391 9 % 10 % Non-recurring revenues 92,123 5 % 85,131 5 % 6,992 8 % 12 %$ 1,734,447 100 %$ 1,596,064 100 %$ 138,383 9 % 10 % 45
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Revenues
(dollars in thousands)
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Americas Revenues. During the three months ended
•$16.3 million of incremental revenues generated from our IBX data center expansions;
•a
•an increase in orders from both our existing customers and new customers during the period.
EMEA Revenues. During the three months ended
•net increase of
•incremental revenues generated from our IBX data center expansions and support provided to our joint ventures.
Asia-Pacific Revenues. During the three months ended
•approximately
•$5.2 million of incremental revenues from the GPX India Acquisition; and
•incremental revenues from support provided to our joint ventures.
Cost of Revenues. Our cost of revenues for the three months ended
Three Months Ended March 31, $ Change % Change
Constant
2022 % 2021 % Actual Actual Currency
Americas $ 380,520 42 % $ 319,942 39 % $ 60,578 19 % 19 %
EMEA 306,341 33 % 297,093 37 % 9,248 3 % 7 %
Asia-Pacific 229,014 25 % 194,182 24 % 34,832 18 % 23 %
Total $ 915,875 100 % $ 811,217 100 % $ 104,658 13 % 15 %
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Cost of Revenues
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
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Americas Cost of Revenues. During the three months ended
•$33.0 million of higher utilities costs, primarily driven by the gains from wind farm settlements inTexas andOklahoma that were received in the first quarter of 2021 during a period of unexpected weather conditions, increases in prices, higher utility usage and IBX data center expansions;
•$11.4 million of higher depreciation expenses driven by IBX data center expansions;
•$7.1 million of higher costs related to increased EIS product revenues; and
•$5.9 million of higher compensation costs, including salaries, bonuses and stock-based compensation, primarily due to headcount growth.
EMEA Cost of Revenues. During the three months endedMarch 31, 2022 , EMEA cost of revenues increased by$9.2 million or 3% (7% on a constant currency basis). The increase in our EMEA cost of revenues was primarily due to:
•$6.4 million net increase of realized cash flow hedge losses from foreign currency forward contracts;
•$6.3 million of higher depreciation expenses driven by IBX data center expansions; and
•$5.8 million of higher utilities costs driven by increased utility usage to support IBX data center expansions and utility price increases, primarily inFrance and theUnited Kingdom ("UK").
This increase was partially offset by
Asia-Pacific Cost of Revenues. During the three months endedMarch 31, 2022 ,Asia-Pacific cost of revenues increased by$34.8 million or 18% (23% on a constant currency basis). The increase in ourAsia-Pacific cost of revenues was primarily due to:
•$32.8 million of higher utilities costs, primarily driven by increases in
prices and higher utility usage in
•$8.2 million of higher depreciation expense, primarily from IBX data center
expansions in
This increase was partially offset by
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.
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Sales and Marketing Expenses. Our sales and marketing expenses for the three months endedMarch 31, 2022 and 2021 by geographic regions were as follows (dollars in thousands): Three Months Ended March 31, $ Change % Change Constant 2022 % 2021 % Actual Actual Currency Americas$ 122,231 64 %$ 116,279 64 %$ 5,952 5 % 5 % EMEA 44,898 23 % 42,423 23 % 2,475 6 % 9 % Asia-Pacific 25,382 13 % 24,125 13 % 1,257 5 % 10 % Total$ 192,511 100 %$ 182,827 100 %$ 9,684 5 % 7 % Sales and Marketing Expenses
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
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Americas Sales and Marketing Expenses. During the three months ended March 31,
2022 , Americas sales and marketing expenses increased by $6.0 million or 5% (and
also 5% on a constant currency basis). The increase was primarily due to $6.2
million higher compensation costs, including salaries, bonuses and stock-based
compensation, primarily due to additional compensation expenses incurred related
to headcount growth.
EMEA Sales and Marketing Expenses. Our EMEA sales and marketing expense did not
materially change during the three months ended March 31, 2022 as compared to
the three months ended March 31, 2021 .
Asia-Pacific Sales and Marketing Expenses. Our Asia-Pacific sales and marketing
expense did not materially change during the three months ended March 31, 2022
as compared to the three months ended March 31, 2021 .
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 March 31, 2022 and 2021 by geographic regions were as
follows (dollars in thousands):
Three Months Ended March 31, $ Change % Change
Constant
2022 % 2021 % Actual Actual Currency
Americas $ 235,118 67 % $ 206,195 68 % $ 28,923 14 % 14 %
EMEA 69,874 20 % 58,981 20 % 10,893 18 % 21 %
Asia-Pacific 47,695 13 % 36,280 12 % 11,415 31 % 36 %
Total $ 352,687 100 % $ 301,456 100 % $ 51,231 17 % 18 %
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General and Administrative Expenses
(dollars in thousands; percentages indicate expenses as a percentage of
revenues)
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Americas General and Administrative Expenses. During the three months ended
•$19.1 million of higher compensation costs, including salaries, bonuses and stock-based compensation, primarily due to additional compensation expenses incurred related to headcount growth, including the conversion of contingent workers to full time employees;
•$17.0 million of higher depreciation expenses associated with systems to support the growth of our business; and
•$5.9 million of higher office expenses primarily due to additional software and support services.
The increase was partially offset by
EMEA General and Administrative Expenses. During the three months endedMarch 31, 2022 , EMEA general and administrative expenses increased by$10.9 million or 18% (21% on a constant currency basis). The increase in our EMEA general and administrative expenses was primarily due to$8.4 million of higher compensation costs, including salaries, bonuses and stock-based compensation, primarily due to headcount growth. Asia-Pacific General and Administrative Expenses. During the three months endedMarch 31, 2022 ,Asia-Pacific general and administrative expenses increased by$11.4 million or 31% (36% on a constant currency basis). The increase in ourAsia-Pacific general and administrative expenses was primarily due to$8.7 million of higher consulting costs primarily due to lower intercompany cross-charge activity between theAmericas andAsia-Pacific regions. 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 theU.S. , we expect theAmericas general and administrative expenses as a percentage of revenues to continue to be higher than other regions.
Transaction Costs. During the three months ended
Loss on Asset Sales. During the three months ended
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Income from Operations. Our income from operations for the three months endedMarch 31, 2022 and 2021 by geographic regions was as follows (dollars in thousands): Three Months Ended March 31, $ Change % Change Constant 2022 % 2021 % Actual Actual Currency
Americas$ 58,523 22 %$ 81,565 27 %$ (23,042) (28) % (29) % EMEA 128,208 49 % 119,785 41 % 8,423 7 % 7 % Asia-Pacific 80,585 29 % 96,312 32 % (15,727) (16) % (12) % Total$ 267,316 100 %$ 297,662 100 %$ (30,346) (10) % (9) %
Americas Income from Operations. During the three months ended
EMEA Income from Operations. During the three months endedMarch 31, 2022 , EMEA income from operations increased by$8.4 million or 7% (and also 7% 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 endedMarch 31, 2022 ,Asia-Pacific income from operations decreased by$15.7 million or 16% (12% on a constant currency basis), primarily due to higher operating expenses as a percentage of revenues, which included higher utility costs, primarily driven by increases in prices and higher utility usage, as described above.
Interest Income. During the three months ended
Interest Expense. Interest expense decreased to$80.0 million for the three months endedMarch 31, 2022 from$89.7 million for the three months endedMarch 31, 2021 , primarily due to interest savings as a result of our recent refinancing activities. During the three months endedMarch 31, 2022 and 2021, we capitalized$4.4 million and$6.1 million , respectively, of interest expense to construction in progress. See Note 10 within the Condensed Consolidated Financial Statements. Other Expense. During the three months endedMarch 31, 2022 and 2021, we recorded$9.5 million and$7.0 million , respectively, of other expense. Other income and expense is primarily comprised of foreign currency exchange gains and losses during the periods. Gain or Loss on Debt Extinguishment. We did not record a significant amount of gain on debt extinguishment during the three months endedMarch 31, 2022 . We recorded a loss on debt extinguishment of$13.1 million during the three months endedMarch 31, 2021 due to the redemption of 2.875% Euro Senior Notes due 2026. Income Taxes. We operate as a REIT forU.S. federal income tax purposes. As a REIT, we are generally not subject toU.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 endingDecember 31, 2022 and 2021, respectively. As such, other than state income taxes and foreign income and withholding taxes, no provision for income taxes has been included for our REIT and QRSs in the accompanying condensed consolidated financial statements for the three months endedMarch 31, 2022 and 2021.
We have made TRS elections for some of our subsidiaries in and outside the
U.S. income taxes for the TRS entities located in theU.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 endedMarch 31, 2022 and 2021. For the three months endedMarch 31, 2022 and 2021, we recorded$32.7 million and$32.6 million of income tax expense, respectively. Our effective tax rates were 18.2% and 17.3% for the three months endedMarch 31, 2022 and 2021, respectively. 50
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Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the operating performance of our segments and develop regional growth strategies such as IBX data center expansion decisions. We define adjusted EBITDA as income or loss from operations excluding depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, 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 endedMarch 31, 2022 and 2021 by geographic regions was as follows (dollars in thousands): Three Months Ended March 31, $ Change % Change Constant 2022 % 2021 % Actual Actual Currency Americas$ 356,555 45 %$ 344,492 45 %$ 12,063 4 % 3 % EMEA 260,345 33 % 243,563 31 % 16,782 7 % 10 % Asia-Pacific 182,812 22 % 185,177 24 % (2,365) (1) % 5 % Total$ 799,712 100 %$ 773,232 100 %$ 26,480 3 % 6 %
Americas Adjusted EBITDA. During the three months ended
EMEA Adjusted EBITDA. During the three months ended
Asia-Pacific Adjusted EBITDA. Our
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 analyzeEquinix effectively. Investors should note that the non-GAAP financial measures used by us may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as those of other companies. Investors should therefore exercise caution when comparing non-GAAP financial measures used by us to similarly titled non-GAAP financial measures of other companies. Our primary non-GAAP financial measures, adjusted EBITDA and adjusted funds from operations ("AFFO"), exclude depreciation expense as these charges primarily relate to the initial construction costs of our IBX data centers and do not reflect our current or future cash spending levels to support our business. Our IBX data centers are long-lived assets and have an economic life greater than 10 years. The construction costs of an IBX data center do not recur with respect to such 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. 51
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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
March 31,
2022 2021
Income from operations $ 267,316 $ 297,662 Depreciation, amortization, and accretion expense 436,386 394,318 Stock-based compensation expense
89,952 78,350
Transaction costs 4,240 1,182
Loss on asset sales 1,818 1,720
Adjusted EBITDA $ 799,712 $ 773,232
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".
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 theNational 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. 52
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The adjustments for installation revenue, straight-line rent expense and contract costs are intended to isolate the cash activity included within the straight-lined or amortized results in the condensed consolidated statement of operations. We exclude the amortization of deferred financing costs and debt discounts and premiums as these expenses relate to the initial costs incurred in connection with debt financings that have no current or future cash obligations. We exclude gain (loss) on debt extinguishment since it generally represents the write-off of initial costs incurred in connection with debt financings or a cost that is incurred to reduce future interest costs and is not a good indicator of our current or future operating performance. We include an income tax expense adjustment, which represents the non-cash tax impact due to changes in valuation allowances, uncertain tax positions and deferred taxes that do not relate to current period's operations. We deduct recurring capital expenditures, which represent expenditures to extend the useful life of its IBX data centers or other assets that are required to support current revenues. We also exclude net income (loss) from discontinued operations, net of tax, which represents results that may not recur and are not a good indicator of our current future operating performance.
Our FFO and AFFO were as follows (in thousands):
Three Months Ended
March 31,
2022 2021
Net income $ 147,693 $ 156,074
Net (income) loss attributable to non-controlling interests (240) 288
Net income attributable to Equinix 147,453 156,362
Adjustments:
Real estate depreciation 280,196 256,644 Loss on disposition of real estate property 2,845 3,130 Adjustments for FFO from unconsolidated joint ventures 2,150 1,127 FFO attributable to common shareholders$ 432,644 $ 417,263 Three Months Ended March 31, 2022 2021 FFO attributable to common shareholders$ 432,644 $ 417,263 Adjustments: Installation revenue adjustment 845 3,912 Straight-line rent expense adjustment 3,660 4,361 Contract cost adjustment (14,939) (14,011)
Amortization of deferred financing costs and debt discounts and premiums
4,204 3,923
Stock-based compensation expense 89,952 78,350
Non-real estate depreciation expense 105,575 84,978
Amortization expense 49,569 53,395
Accretion expense adjustment 1,046 (699)
Recurring capital expenditures (23,881) (20,330)
(Gain) loss on debt extinguishment (529) 13,058
Transaction costs 4,240 1,182
Income tax expense adjustment (323) 765
Adjustments for AFFO from unconsolidated joint ventures 569 681
AFFO attributable to common shareholders
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."
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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 months endedMarch 31, 2022 as compared to the same period in 2021 theU.S. dollar was stronger relative to the Australian dollar, Euro, Japanese yen and British Pound, which resulted in an unfavorable foreign currency impact on revenue, operating income and adjusted EBITDA, and a favorable 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 three months endedMarch 31, 2021 are used as exchange rates for the three months endedMarch 31, 2022 when comparing the three months endedMarch 31, 2022 with the three months endedMarch 31, 2021 ).
Liquidity and Capital Resources
Sources and Uses of Cash
Customer collections are our primary source of cash. We believe we have a stable customer base, and have continued to experience relatively strong collections. As ofMarch 31, 2022 , our principle sources of liquidity were$1.7 billion of cash and cash equivalents. In addition, we had$3.9 billion of additional liquidity available to us from our$4.0 billion revolving facility and have 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 ofMarch 31, 2022 , we had$1.0 billion in common stock available for sale under the 2020 ATM Program. 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 acquisitions, ordinary costs to operate the business, and expansion projects. We also believe that our financial resources will allow us to manage future possible impacts 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. 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. If the opportunity to expand is greater than planned 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 provided that we have or can access sufficient funding to pursue such expansion opportunities. 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. 54
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Cash Flow
Three Months Ended March 31,
2022 2021 Change
(dollars in thousands)
Net cash provided by operating activities $ 581,123 $ 391,158 $ 189,965
Net cash used in investing activities (258,759) (635,684) 376,925
Net cash (used in) provided by financing activities (168,915)
412,654 (581,569)
Operating Activities
Our cash provided by our operations is generated by colocation, interconnection,
managed infrastructure and other revenues. Our primary use of cash from our
operating activities includes compensation and related costs, interest payments,
other general corporate expenditures and taxes. Net cash provided by operating
activities increased by $190.0 million during the three months ended March 31,
2022 as compared to the three months ended March 31, 2021 , primarily driven by
improved results of operations offset by increases in cash paid for costs and
operating expenses.
Investing Activities
Net cash used in investing activities decreased by $376.9 million for the three
months ended March 31, 2022 as compared to three months ended March 31, 2021 ,
primarily due to a $195.4 million increase in the proceeds from the sale of
assets to our Joint Ventures, a $151.1 million decrease in capital expenditures
and a $50.7 million decrease in real estate acquisitions. This decrease is
partially offset by a $16.2 million increase in purchases of investments and a
$4.1 million decrease in proceeds from the sale of investments.
Financing Activities
Net cash used in financing activities increased by$581.6 million for the three months endedMarch 31, 2022 as compared to three months endedMarch 31, 2021 , primarily driven by$1.3 billion decrease in proceeds from senior notes, a$531.6 million increase in the repayment of term loan facilities, a$26.6 million increase in dividend distributions, a$8.2 million increase in repayments of finance lease liabilities and a$4.2 million increase in debt issuance costs. This increase is partially offset by a$676.9 million increase in proceeds from term loan facilities, a$590.7 million decrease in repayment of senior notes, a$8.5 million decrease in debt extinguishment costs and a$3.8 million increase in proceeds from employee awards.
Material Cash Commitments
As of
•approximately
•approximately$2.7 billion of interest on mortgage payable, loans payable, senior notes and term loans, based on their respective interest rates and recognized over the life of these instruments, and the credit facility fee for the revolving credit facility;
•$724.6 million of principal from our term loans, mortgage and loans payable (gross of debt issuance cost, debt discount, plus mortgage premium);
•approximately 4.8 billion of total lease payments, which represents lease payments under finance and operating lease arrangements, including renewal options that are reasonably certain to be exercised;
•approximately$1.1 billion of unaccrued capital expenditure contractual commitments, primarily for IBX equipment not yet delivered and labor not yet provided in connection with the work necessary to complete construction and open IBX data center expansion projects prior to making them available to customers for installation, the majority of which is payable within the next 12 months; and •approximately$1.4 billion of other non-capital purchase commitments, such as commitments to purchase power in select locations and other open purchase orders, which contractually bind us for goods, services or arrangements to be delivered or provided during 2023 and beyond, the majority of which is payable within the next two years. 55
-------------------------------------------------------------------------------- Table of Contents We believe that our sources of liquidity, including our expected future operating cash flows, are sized to adequately meet both the near and long term material cash commitments for the foreseeable future. For further information on maturities of lease liabilities and debt instruments, see Notes 9 and 10, respectively, within the Condensed Consolidated Financial Statements.
Other Contractual Obligations
We have additional future equity contributions and commitments to the Joint Ventures with GIC and PGIM. For additional information, see the "Equity Method Investments" footnote within the Condensed Consolidated Financial Statements.
Additionally, we entered into lease agreements with various landlords primarily
for data center spaces and ground leases which have not yet commenced as of
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, 2021 .
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.
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