Equinix, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Equinix operates a global data-center, colocation, interconnection and related services platform. The unaudited interim results include acquisitions completed during 2022 and are not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.841bn | $1.675bn | $5.392bn | $4.929bn |
| Operating income | $333.2m | $282.1m | $918.3m | $858.4m |
| Net income attributable to Equinix | $211.8m | $152.2m | $575.6m | $376.9m |
| Diluted EPS | $2.30 | $1.68 | $6.29 | $4.18 |
| Adjusted EBITDA | $870.9m | $786.3m | $2.531bn | $2.357bn |
- Q3 revenue rose 10% as reported and 13% on a constant-currency basis. Recurring revenue was 95% of total, up 12% year over year as reported. Q3 operating margin was approximately 18.1%, versus 16.8% a year earlier; adjusted EBITDA margin was approximately 47.3%, versus 46.9%.
- For the first nine months, revenue increased 9% as reported and 12% at constant currency; operating income rose 7%, net income attributable to Equinix rose 53%, and adjusted EBITDA rose 7%. Nine-month adjusted EBITDA margin was approximately 46.9%, versus 47.8%.
- Nine-month operating cash flow was $2.203bn, compared with $1.655bn. Capital expenditures were $1.450bn, down from $1.934bn; operating cash flow less capital expenditures was approximately $753m, versus negative $279m.
- Cash and cash equivalents were $2.501bn at September 30, 2022. Current assets were $4.017bn and current liabilities $1.696bn. The company reported approximately $3.9bn available under its $4.0bn revolving facility.
- Gross debt instruments, excluding lease liabilities, totaled approximately $12.7bn; the filing describes total indebtedness of approximately $14.8bn when lease liabilities are included. Senior notes, net, were $12.0bn; mortgage and loans payable, net, were $608.9m. Operating and finance lease liabilities totaled approximately $3.4bn.
- Cash dividends paid during the first nine months were $864m. The company issued $1.2bn of 3.9% senior notes due 2032 and received approximately $797m net from common-stock sales under its ATM program and forward sales.
Material changes and operating developments
- Q3 revenue growth reflected organic customer orders and data-center expansions, plus contributions from acquisitions. Acquisitions contributed $30.2m of revenue in Q3 and $57.2m for the nine-month period.
- Equinix acquired MainOne in West Africa for $278.4m, four data centers in Chile for $638.3m, and one data center in Peru for $80.3m. Purchase-price allocations remained provisional at September 30.
- Revenue increased across all three regions in Q3. Asia-Pacific revenue rose 10% as reported, but operating income declined 7%, mainly due to higher power and other operating costs. For the nine-month period, Asia-Pacific operating income fell 17% as reported.
- Foreign-currency translation losses contributed to a $670m nine-month comprehensive loss despite positive net income. The U.S. dollar’s strength also reduced reported international revenue; constant-currency comparisons are non-GAAP measures.
- Cabinet utilization was approximately 81%, versus 79% a year earlier; excluding recent expansions, it would have been approximately 82%. Management noted that power availability and rising power density can constrain usable capacity.
Outlook, risks and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management expects operating costs to rise with business growth, acquisitions and investment in technology, operations and REIT compliance. It expects power costs to remain volatile and unpredictable and identifies elevated Singapore power prices as a factor affecting its 2022 projections and long-term models.
- As of September 30, remaining performance obligations were approximately $9.5bn; Equinix expected to recognize about 70% over the next two years. Timing may vary with deployments, contract changes, renewals and cancellations.
- Key risks include energy price increases or supply constraints, inflation, interest rates, supply-chain and construction delays, foreign-exchange movements, customer demand and utilization, leverage and access to capital, cyber and physical outages, and maintaining REIT qualification. The company also cited geopolitical uncertainty, including the Russia-Ukraine conflict.
- Unusual or notable items included a favorable approximately $40m resolution of EMEA tax audits in 2022; a $14m stock-based charitable contribution in the nine-month period; and increased Q3 interest expense, primarily associated with the 2032 notes. The prior-year comparison included a $115m debt-extinguishment loss.
- Equinix reported no significant legal proceedings. Management concluded disclosure controls were effective; it also implemented certain cloud ERP modules and modified or automated related financial controls during Q3.
Important facts for investors to verify
- Whether recurring-revenue growth, bookings and performance obligations convert into revenue as expected, and how much growth reflects acquisitions versus organic demand.
- Whether higher electricity costs—particularly in Singapore—and energy availability affect margins, capacity, forecasts or customer pricing.
- Debt and lease obligations, upcoming maturities, variable-rate exposure, covenant compliance and continued access to the revolving facility and capital markets.
- The cash requirements of expansion commitments: approximately $1.7bn of unaccrued capital expenditures and $1.7bn of other purchase commitments were reported, alongside dividends and joint-venture commitments.
- Effects of foreign exchange on reported results and comprehensive income, and the assumptions behind constant-currency and adjusted EBITDA measures.
- Final purchase-price allocations and integration outcomes for the MainOne and Entel acquisitions, plus continued compliance with REIT requirements.