Equinix, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Equinix operates a global data-center, colocation, interconnection and related-services platform. It reported 229 IBX data centers, including five xScale facilities and one MC1 facility held in unconsolidated joint ventures, across 63 markets.
Financial performance and position
Amounts are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $1,596.1 | $1,444.5 | +10% reported; +9% constant currency |
| Recurring revenue | $1,510.9 (95% of revenue) | $1,361.7 (95%) | +11% reported |
| Income from operations | $297.7 | $253.5 | +17% |
| Net income attributable to Equinix | $156.4 | $118.8 | +32% |
| Diluted EPS | $1.74 | $1.38 | +26% |
| Adjusted EBITDA (non-GAAP) | $773.2 | $684.2 | +13% reported; +11% constant currency |
| AFFO attributable to common shareholders (non-GAAP) | $626.8 | $534.7 | +17% |
| Net cash from operating activities | $391.2 | $516.8 | Down $125.7 |
| Capital expenditures | $563.6 | $400.9 | Up $162.7 |
Gross margin was approximately 49.2% versus 49.0%; operating margin was approximately 18.7% versus 17.5%, and net margin attributable to Equinix was approximately 9.8% versus 8.2%. Interest expense fell to $89.7 million from $107.3 million, while the effective tax rate was 17.3% versus 20.2%.
At March 31, cash and cash equivalents were $1,753.0 million and short-term investments were $4.2 million. Current assets were $2,849.7 million and current liabilities $1,833.6 million. Total liabilities were $16,740.3 million. Management reported total indebtedness and finance obligations of approximately $13.3 billion, including $9.9 billion of senior-note principal, $2.1 billion of finance leases and $1.3 billion of mortgage and loan principal. Approximately $1.9 billion was available under the revolving facility; $75.7 million of letters of credit were outstanding against it.
Cash flow from operations declined despite higher earnings, principally reflecting cash payments on foreign-currency forward contracts, operating costs and taxes. Investing cash outflow was $635.7 million, primarily for expansion-related capital spending. Financing cash inflow was $412.7 million, mainly from new Euro notes, partly offset by debt repayment and dividends.
Material changes and notable items
- Growth was broad-based: revenue increased 10% in the Americas, 8% in EMEA and 16% in Asia-Pacific on a reported basis. Acquisitions contributed to Americas growth; new capacity and customer orders supported growth across regions.
- Q1 2021 revenue included $48.5 million from the Bell, Packet and Axtel acquisitions. Bell’s Canadian data-center assets were acquired in late 2020; Packet and Axtel were acquired in 2020.
- Equinix issued approximately $1.3 billion of 0.250% 2027 and 1.000% 2033 Euro senior notes and used part of the proceeds to redeem approximately $590.7 million of 2.875% Euro notes due 2026. The refinancing generated a $13.1 million debt-extinguishment loss, including an $8.5 million cash redemption premium.
- Foreign-currency movements materially affected reported results. EMEA revenue growth included lower realized cash-flow hedge gains than in the prior-year quarter; foreign-exchange gains and losses also affected other income and comprehensive income.
- Cabinet utilization was approximately 78%, compared with 79% a year earlier; excluding expansions opened in the preceding 12 months, utilization would have been approximately 80%.
Outlook, risks and contingencies
- No specific consolidated revenue or earnings guidance is provided in this filing. Management expected data-center expansion construction activity to be similar to or greater than 2020 levels and indicated that operating expenses would rise with business growth. Further expansion, acquisitions or joint ventures may require additional capital.
- Management said cash, expected operating cash flow and financing access should be sufficient for operating needs, debt repayment, dividends and announced expansion and acquisition projects. It also noted possible COVID-19-related revenue reductions, delayed customer payments and construction or supply delays.
- As of March 31, Equinix had approximately $1.3 billion of unaccrued capital-expenditure commitments and approximately $1.3 billion of other purchase commitments. Separately, leases not yet commenced represented approximately $566.6 million of commitments. The company also had $168.3 million of accrued liabilities for uncertain tax positions; payment timing was unclear.
- Risks emphasized include COVID-19 impacts, data-center power and capacity constraints, construction delays and cost overruns, competition, foreign-exchange exposure, substantial debt and lease obligations, cybersecurity, and continued investment in back-office systems. The company reported a September 2020 ransomware incident on internal systems; it was contained and resolved without material disruption or cost, but future cyber risk remains.
- Equinix is a REIT and must satisfy tax and distribution requirements. It paid a $2.87-per-share quarterly dividend in March and declared another $2.87-per-share dividend for payment in June 2021. The filing warns that failure to maintain REIT qualification could result in substantial tax consequences.
- The company disclosed an ongoing tax audit and appeal in Brazil, whose outcome is uncertain. In Italy, Equinix was acquitted in an environmental case; the acquittal became final after no appeal. The related plea arrangement for a former director was confirmed by the court after quarter-end.
Most important facts for investors to verify
- Whether operating cash flow converts into funding for elevated expansion spending: Q1 operating cash flow was $391.2 million versus $563.6 million of capital expenditures.
- Debt, lease and refinancing exposure, including the $1.2 billion term-loan balance due at the 2022 facility maturity and the company’s capacity to refinance or repay it.
- Whether new capacity can be filled profitably, given utilization of 78% overall, rising power requirements and planned construction spending.
- Underlying growth excluding acquisitions, currency movements and cash-flow hedge effects; recurring revenue was 95% of total revenue.
- REIT compliance, dividend funding, uncertain tax positions and the outcome of the Brazil tax matter.
- Progress on cybersecurity and back-office system investments, and any material changes in operational, construction or customer-payment risks.