Equinix, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Unless noted, financial figures are in U.S. dollars.
Business context
Equinix operates global colocation data centers and provides interconnection and edge services. Its business is supported primarily by recurring customer contracts: recurring revenue was 94% of 2021 revenue. The company reported more than 10,000 customers, with no customer accounting for 10% or more of annual revenue. It opened nine IBX data centers and six xScale facilities during 2021; its reported global footprint was 240 facilities across 66 markets, a total that included facilities opened in January 2022.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $6.636 billion | $5.999 billion | +10.6% |
| Operating income | $1.108 billion | $1.053 billion | +5.2% |
| Net income attributable to Equinix | $500.2 million | $369.8 million | +35.3% |
| Diluted EPS | $5.53 | $4.18 | +32.3% |
| Adjusted EBITDA | $3.144 billion | $2.853 billion | +10.2% |
| AFFO | $2.451 billion | $2.189 billion | +12.0% |
| Cash from operations | $2.547 billion | $2.310 billion | +$237 million |
| Capital expenditures | $2.752 billion | $2.283 billion | +$469 million |
| Cash, cash equivalents and short-term investments | $1.536 billion | $1.609 billion | -$73 million |
Margins: Operating margin was approximately 16.7% (15.7% in 2020); net margin was approximately 7.5% (6.2%); adjusted EBITDA margin was approximately 47.4% (47.6%). These ratios are calculated from reported figures. Operating cash flow less capital expenditures was approximately negative $204 million, versus positive approximately $27 million in 2020.
Debt and liquidity: Equinix disclosed approximately $13.9 billion of total indebtedness at year-end, gross of issuance costs, discounts and premiums. This includes approximately $11.7 billion of notes, term loans, mortgages and other loans, as well as finance lease obligations. It also reported $1.3 billion of operating lease liabilities. The company had approximately $1.9 billion available under its $2.0 billion revolving facility. In January 2022, it replaced that facility with a $4.0 billion revolving facility and entered a £500 million term loan.
Dividends: 2021 distributions totaled $11.48 per share, up from $10.64 in 2020. A $3.10-per-share quarterly dividend was declared in February 2022.
Material changes versus 2020
- Revenue grew 11% as reported (10% on a constant-currency basis), supported by data center expansions, higher customer orders and acquisitions. Americas revenue rose 12%, EMEA 8% (7% constant currency), and Asia-Pacific 13% (11% constant currency).
- Operating expenses rose faster than revenue: cost of revenue increased 13%, general and administrative expense 19%, and sales and marketing expense 3%. Higher depreciation, compensation, utilities and expansion-related costs contributed.
- Operating income grew 5%, slower than revenue; Americas operating income declined 7%, EMEA was broadly flat, and Asia-Pacific rose 20%.
- Interest expense fell to $336 million from $406 million, primarily due to refinancing. However, Equinix recorded a $115 million loss on debt extinguishment, compared with $146 million in 2020.
- Net income increased despite a $50.6 million net other expense, including an approximately $32 million impairment of an indemnification asset related to a settled pre-acquisition tax position. The effective tax rate fell to 17.9% from 28.3%, principally reflecting reversals of uncertain tax positions.
- Investing cash outflow narrowed to $3.007 billion from $3.427 billion, mainly because 2020 included more acquisition spending; capital expenditure nevertheless increased. Financing cash inflow declined to $414 million from $816 million.
Outlook, commentary and risks
- The filing does not provide a clear numerical 2022 revenue or earnings guidance figure. Management expects operating costs and investment to rise with business growth and noted that global power-price volatility, particularly in Singapore, affected elements of its 2022 financial projections.
- Management described ongoing construction delays, supply-chain constraints, labor and permitting challenges, and inflation in construction and energy costs. It said delays and additional costs had not materially affected results to date, but worsening conditions could delay projects, raise costs or impair customer commitments.
- Equinix planned to acquire MainOne for approximately $320 million in cash enterprise value, subject to customary conditions and regulatory approval, with expected closing in Q2 2022. It completed the $170.5 million GPX India acquisition in September 2021.
- The company continued expanding xScale through joint ventures. Equinix generally holds 20% interests and operates facilities; it has limited decision-making control in some ventures and disclosed a guarantee exposure of approximately $38 million for the EMEA 2 venture at year-end.
- Key risks include substantial debt and continuing capital needs; power availability, costs and outages; construction execution and insufficient demand for new capacity; foreign-currency movements; cybersecurity and physical infrastructure failures; customer and competitive risks; changing tax and regulatory requirements; and maintaining REIT qualification.
- Equinix reported that COVID-19 had not materially affected 2021 results and that its data centers remained operational, while cautioning that future effects remain uncertain. It disclosed a ransomware incident discovered in 2020; the investigation was closed, with no material disruption or costs reported.
- The company committed to climate neutrality across global operations by 2030 and set a science-based emissions-reduction target. Its 2021 sustainability energy metrics were not yet available in this filing; the reported portfolio energy figures cover 2020.
- Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2021. The auditor identified REIT asset-test valuation as a critical audit matter because of the judgment involved in estimating asset fair values.
Important facts for investors to verify
- Review the audited statements and notes for debt maturities, refinancing terms, lease obligations and the distinction between indebtedness and lease liabilities.
- Assess whether operating cash generation can support the elevated expansion program, dividends and other commitments; compare capital spending with operating cash flow and AFFO.
- Track electricity prices and power capacity, particularly in Singapore, and the effect on margins, forecasts and data center expansion returns.
- Monitor construction costs, permitting, customer demand and utilization. The filing reported approximately 79% cabinet utilization at year-end, or approximately 81% excluding expansions opened in the preceding 12 months.
- Verify MainOne’s closing and integration, xScale joint-venture commitments and guarantees, and the realization of expected acquisition and expansion benefits.
- Examine the quality and sustainability of non-GAAP adjusted EBITDA and AFFO, including their exclusions; compare them with GAAP income, cash flow and capital expenditures.
- Monitor REIT compliance, outstanding tax audits and uncertain tax positions, along with potential dilution from the at-the-market share program.