Equinix, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Equinix operates a global data-center, colocation, interconnection and edge-services platform. Results include the MainOne acquisition from April 1 and Entel Chile from May 2, as well as GPX India from September 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,817m | $1,658m | $3,552m | $3,254m |
| Operating income | $318m | $279m | $585m | $576m |
| Net income attributable to Equinix | $216m | $68m | $364m | $225m |
| Diluted EPS | $2.37 | $0.76 | $3.99 | $2.50 |
| Adjusted EBITDA | $860m | $797m | $1,660m | $1,571m |
| Cash from operations | Not presented quarterly | Not presented quarterly | $1,383m | $990m |
| Capital expenditures | Not presented quarterly | Not presented quarterly | $897m | $1,256m |
Q2 revenue grew 10% year over year as reported and 12% on a constant-currency basis; recurring revenue was 94% of total. First-half revenue grew 9% reported and 11% constant currency. Approximate Q2 operating margin was 17.5% versus 16.8%; net margin was 11.9% versus 4.1%. First-half operating margin was 16.5% versus 17.7%, while net margin was 10.2% versus 6.9%. Adjusted EBITDA, a non-GAAP measure, increased 8% in Q2 and 6% for the half.
First-half operating cash flow rose $392m year over year, primarily reflecting improved operating results. Cash flow less reported capital expenditures was approximately $485m, compared with approximately negative $265m in the prior-year half; this simple calculation does not adjust for acquisitions or other investing activity.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.89bn at June 30, up from $1.54bn at December 31, 2021. The company also reported $3.9bn available under its $4.0bn revolving facility.
- Gross mortgage, loan and senior-note debt was approximately $12.9bn; balance-sheet senior notes were $12.08bn net of issuance costs. Operating and finance lease liabilities totaled approximately $3.56bn. The filing separately describes total indebtedness of approximately $15bn.
- In April, Equinix issued $1.2bn of 3.9% senior notes due 2032. It also borrowed approximately $677m under a new sterling term loan and repaid the prior term loan. Approximately $6.1m of annual interest expense sensitivity was disclosed for a 100-basis-point rate change on term-loan borrowings.
- Dividends paid in the first half totaled $573m. A $3.10-per-share quarterly dividend was declared July 27, payable September 21, 2022.
- First-half investing cash outflow was $1.63bn, including $884m for business acquisitions. The company had about $1.5bn of unaccrued committed capital expenditures and $1.6bn of other purchase commitments at June 30.
Material changes and notable items
- Q2 growth reflected expansion projects, organic customer demand and acquired operations. Regional Q2 revenue increased 11% in the Americas, 11% in EMEA and 5% in Asia-Pacific as reported; Asia-Pacific growth was 13% constant currency.
- Asia-Pacific operating income fell 25% in Q2, primarily due to higher utility costs and other expense pressure. Singapore power costs and usage were key drivers; management also cited elevated power-market volatility.
- Cost of revenue increased 8% in Q2 and 10% for the first half. Management linked increases to power and utility costs, expansion-related depreciation and acquisitions. General and administrative expense rose 15% in Q2 and 16% for the half, including higher compensation and technology-related costs.
- Net income comparisons benefited from the absence of large prior-year debt-extinguishment losses: $102m in Q2 2021 and $116m in the first half of 2021. Q2 2022 also included a $14m stock-based charitable contribution in other expense. First-half 2022 included a favorable tax-audit resolution and a $41m income-tax benefit.
- Foreign-currency translation losses were $863m for the first half, contributing to a $333m total comprehensive loss for the period despite positive net income. Currency hedges partly offset exposures; reported EMEA revenue also included substantial realized cash-flow hedge gains.
- Equinix acquired four Entel data centers in Chile for approximately $638m and MainOne in West Africa for approximately $278m. Purchase-price allocations for both were provisional. An Entel Peru data-center acquisition, valued at approximately $71m, was expected to close in Q3 2022 subject to conditions.
Outlook, risks and contingencies
The filing provides no specific numerical revenue, earnings or cash-flow guidance. Management expects operating costs, including cost of revenue and general and administrative expense, to rise with business growth, acquisitions and investment; it also anticipates increased travel and entertainment expense as restrictions ease. The company reported cabinet utilization of approximately 80% at June 30, or approximately 81% excluding recently opened expansions, and noted that power availability—not physical cabinet space—can constrain capacity.
Management said available cash, operating cash flows and financing access should be sufficient for foreseeable operating needs, dividends, announced acquisitions and expansion plans. Key risks include inflation and supply-chain constraints, sharply elevated and volatile power costs (particularly in Singapore), construction delays and cost overruns, foreign-exchange movements, substantial debt and capital commitments, cyber and physical infrastructure incidents, and maintaining REIT tax qualification. The company disclosed an ongoing Brazil tax audit and appeal with uncertain outcomes. It reported no legal proceedings and concluded disclosure controls were effective.
Investor facts to verify
- Underlying recurring revenue and customer bookings growth, separating organic growth, acquisitions, currency translation and hedge effects.
- Whether higher power costs—especially in Singapore—and inflation can be passed through or offset without weakening margins or customer demand.
- Capacity, utilization and power availability by market, alongside the timing, costs and customer ramp of expansion projects.
- Debt maturities, variable-rate exposure, lease obligations, committed spending and the funding needs of acquisitions and joint ventures.
- Final purchase-price allocations and integration performance for MainOne and Entel Chile, and closing of the proposed Entel Peru acquisition.
- REIT compliance, tax-audit outcomes and the sustainability of dividends relative to taxable income and available cash.