Business context and reporting period
Equinix, Inc. filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. It operates a global data-center, colocation, interconnection and edge-services platform. The company reported 237 IBX data centers, including facilities in unconsolidated joint ventures, across 65 markets.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1.675B | $1.520B | $4.929B | $4.434B |
| Operating income | $282.1M | $288.4M | $858.4M | $824.3M |
| Net income attributable to Equinix | $152.2M | $66.7M | $376.9M | $318.8M |
| Diluted EPS | $1.68 | $0.74 | $4.18 | $3.63 |
| Adjusted EBITDA | $786.3M | $737.2M | $2.357B | $2.141B |
| AFFO attributable to common shareholders | $628.3M | $579.7M | $1.887B | $1.672B |
- Revenue grew 10% in Q3 and 11% for the nine-month period. Recurring revenue was 93% of Q3 revenue and 94% of nine-month revenue.
- Calculated operating margin was approximately 16.8% in Q3 versus 19.0%; for nine months, approximately 17.4% versus 18.6%. Cost of revenue rose faster than revenue, and depreciation and other operating expenses increased.
- Nine-month operating cash flow was $1.655B, versus $1.624B. Capital expenditures were $1.934B, leaving operating cash flow less capital expenditures of approximately negative $279M. Cash and cash equivalents were $1.379B at September 30, 2021.
- Total indebtedness, including finance lease liabilities, was approximately $13.9B. Gross principal of senior notes and mortgage/loan debt was about $11.75B; finance lease liabilities were about $2.13B. The company had approximately $1.9B available under its revolving facility.
- Current assets were $2.899B and current liabilities $1.781B. Total assets were $27.774B and stockholders’ equity $10.569B.
Material changes versus the prior comparable period
- Q3 revenue rose $155.4M, supported by acquisitions, data-center expansions, organic customer demand and higher non-recurring sales. Q3 growth was 13% in the Americas, 5% in EMEA and 11% in Asia-Pacific. Nine-month regional growth was 12%, 8% and 14%, respectively.
- Despite revenue growth, Q3 operating income declined 2%; nine-month operating income increased 4%. Americas operating income fell 48% in Q3 and 13% for the nine months, reflecting higher costs, expansion-related depreciation and acquisition-related margin dilution. Asia-Pacific operating income increased 15% in Q3 and 25% year to date.
- Net income and EPS increased substantially in Q3 partly because the prior-year quarter included a $93.5M debt-extinguishment loss. Nine-month results also included a $115.3M debt-extinguishment loss in 2021, primarily from refinancing.
- Interest expense declined to $78.9M in Q3 from $99.7M, and to $255.9M for nine months from $315.6M, mainly due to refinancing. The company issued approximately $3.9B of senior notes during the nine months, repaid term loans and redeemed higher-coupon notes.
- Capital expenditures increased to $1.934B from $1.448B, while cash used in investing activities was $2.186B. Financing cash flow was $321M, compared with $1.237B, which included substantial prior-year equity-offering proceeds.
- The nine-month effective tax rate declined to 15.2% from 24.7%, primarily due to approximately $70M of favorable resolution of tax positions from audits in the UK, Germany and Australia. A $32.3M impairment of an indemnification asset related to a pre-acquisition tax position was recorded in other expense.
Outlook, commentary, risks and unusual items
- No specific consolidated revenue or earnings guidance is provided in the supplied filing text. Management expects data-center expansion construction activity to be similar to or above current levels, with capital spending potentially increasing if expansion opportunities and funding permit.
- Management expects cost of revenue, sales and marketing, and general and administrative expenses to increase with growth; travel and entertainment spending may rise as restrictions ease. About $8.5B of remaining performance obligations were reported, with approximately 70% expected to be recognized over the next two years, more in the first year.
- Cabinet utilization was approximately 79%, unchanged from a year earlier; excluding expansion projects opened in the prior 12 months, it would have been approximately 81%. Management cautioned that power availability and rising power density can constrain usable capacity.
- Expansion and growth initiatives include the September acquisition of two Mumbai data centers for approximately $170.5M; phased xScale joint ventures with GIC; and an October agreement for an Asia-Pacific xScale joint venture with PGIM. The latter was expected to close in Q4, subject to approvals and conditions. A data-center sale to the EMEA 1 joint venture generated a $15.8M Q3 gain.
- Key risks include COVID-19 effects, supply-chain and construction delays, power availability and costs, cybersecurity and physical infrastructure failures, foreign-exchange exposure, substantial debt and lease commitments, and maintaining REIT qualification. The company disclosed a September 2020 ransomware incident; it said the incident was resolved without material disruption or cost, but future breaches remain a risk.
- Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the nine months. Legal proceedings were reported as none.
Important facts for investors to verify
- Whether recurring-revenue growth and bookings continue to offset rising operating costs, depreciation and expansion-related margin pressure.
- Capital-spending needs, project timing, customer demand, and power capacity; compare expansion returns with the approximately $1.0B in unaccrued capital commitments and negative operating cash flow less capital expenditures.
- Debt maturities, refinancing costs, liquidity, lease obligations and the effect of dividends on funding flexibility.
- Progress, closing conditions, financing guarantees and expected returns for xScale joint ventures and the GPX India acquisition; the GPX purchase-price allocation remained provisional.
- Tax-audit outcomes, REIT compliance and the impact of foreign exchange, including the substantial translation loss recorded in other comprehensive income.