Business context and reporting period
Equinix, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2023, compared with the same quarter of 2022. The company operates a global data-center, colocation and interconnection platform; at quarter-end it reported 248 IBXs, including joint-venture facilities, across 71 markets. Recurring services accounted for 95% of quarterly revenue.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,998.2M | $1,734.4M | +15% reported; +18% constant currency |
| Operating income | $384.1M | $267.3M | +44% |
| Operating margin | 19.2% | 15.4% | +3.8 percentage points |
| Net income attributable to Equinix | $258.8M | $147.5M | +75% |
| Diluted EPS | $2.77 | $1.62 | +71% |
| Adjusted EBITDA | $944.3M | $799.7M | +18% |
| AFFO attributable to common shareholders | $801.8M | $652.6M | +23% |
| Cash provided by operations | $691.4M | $581.1M | +$110.3M |
Adjusted EBITDA margin was 47.2%, versus 46.1% a year earlier. Capital expenditures were $529.6M, up from $412.5M; operating cash flow less those expenditures was approximately $161.8M. Cash and cash equivalents were $2.64B at March 31, 2023, and approximately $3.9B remained available under the revolving facility.
Gross debt instruments were approximately $13.5B, comprising senior notes and mortgage/loan borrowings; the filing separately reports approximately $15.8B of total indebtedness. Finance lease liabilities were $2.26B and operating lease liabilities were $1.38B. Current liabilities were $1.75B versus current assets of $3.99B. Quarterly dividends paid were $326.2M; a $3.41-per-share dividend was declared for payment in June 2023.
Material changes versus the prior comparable period
- Revenue growth reflected expansions, customer orders and acquisitions, including MainOne and Entel data centers. EMEA revenue increased 26% reported (32% constant currency); Americas grew 10% and Asia-Pacific 11% reported.
- Operating income and margins rose as revenue growth outpaced aggregate operating-cost growth. EMEA cost of revenue increased 25%, including $45.5M of higher utility costs, primarily from power prices and usage.
- Interest expense rose to $97.5M from $80.0M, reflecting debt issued in 2022 and Q1 2023 and a higher variable rate on the GBP term loan. Interest income increased to $19.4M from $2.1M.
- Investing cash outflow increased to $522.1M from $258.8M, mainly due to higher capital expenditures, fewer asset-sale proceeds and increased real estate acquisitions. Financing cash flow benefited from $565.2M of Japanese-yen notes and approximately $300.8M from ATM forward-sale settlements.
- The company issued approximately $565.2M of Japanese-yen notes due 2035 and 2043 and settled forward sales of 458,459 common shares for net proceeds of approximately $301.6M.
Outlook, commentary and risks
The filing provides no specific numerical revenue or earnings guidance. Management expects operating costs to rise with business growth and acquisitions, and expects continued investment in data-center expansion, technology systems, sales and marketing, and operations. Approximately $9.9B of remaining performance obligations was reported at quarter-end; about 70% is expected to be recognized over the next two years, subject to deployment timing, contract changes, renewals and terminations.
Management said available cash, expected operating cash flow and financing access should be sufficient for operating needs, debt service, dividends and planned expansion. It also noted that further growth opportunities could require additional capital spending or financing. Key risks include volatile power costs and constrained power availability, inflation and construction delays, supply-chain and permitting constraints, high debt and refinancing needs, currency movements, cyber and physical outages, customer demand uncertainty, joint-venture and acquisition execution, and maintaining REIT qualification. The company reported an ongoing Brazil tax audit and appeal with an uncertain outcome. It reported no legal proceedings in the filing’s legal-proceedings section and concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile reported debt measures, including the approximately $13.5B gross debt instruments and the filing’s approximately $15.8B total-indebtedness figure, and assess lease obligations and maturities.
- Track whether revenue and AFFO growth persist after accounting for acquisitions, foreign exchange, power-price pass-throughs and expansion costs.
- Monitor energy procurement costs, especially EMEA and Singapore, and the availability of power for existing and planned facilities.
- Assess returns on the $2.0B of unaccrued capital commitments and the company’s ability to fund expansion alongside dividends and debt service.
- Follow the Brazil tax assessment and appeal, REIT compliance, and the timing and conversion of remaining performance obligations into revenue.