Equinix, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Equinix operates a global data-center, colocation, interconnection and related services platform, with 211 IBX and xScale data centers across 55 markets.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $1,444.5 million | $1,363.2 million | +6% reported; +7% constant currency |
| Recurring revenue | $1,361.7 million; 95% of revenue | $1,274.8 million; 93% | +7% reported; +8% constant currency |
| Operating income | $253.5 million | $279.5 million | -9% |
| Operating margin | 17.6% | 20.5% | -2.9 percentage points |
| Net income attributable to Equinix | $118.8 million | $118.1 million | +1% |
| Diluted EPS | $1.38 | $1.44 | -4% |
| Adjusted EBITDA (non-GAAP) | $684.2 million | $660.2 million | +4%; margin 47.4% vs. 48.4% |
| AFFO attributable to common shareholders (non-GAAP) | $534.7 million | $488.1 million | +10% |
| Net cash from operating activities | $516.8 million | $421.1 million | +23% |
| Capital expenditures | $400.9 million | $364.0 million | +10% |
Operating cash flow less capital expenditures was approximately $115.9 million, before acquisitions and real-estate purchases. Investing activities used $954.5 million, including $478.3 million for acquisitions. Financing activities used $237.1 million; cash, cash equivalents and restricted cash fell by $700.1 million during the quarter.
At March 31, cash, cash equivalents and short-term investments totaled $1.197 billion. Current assets were $2.320 billion and current liabilities $1.838 billion. Total liabilities were $14.921 billion and stockholders’ equity $8.669 billion. Management reported total indebtedness, including finance leases, of approximately $11.8 billion; gross principal debt excluding finance leases was approximately $10.2 billion. Revolver availability was approximately $1.7 billion at quarter-end.
Material changes and notable items
- Revenue grew across all regions: Americas +3%, EMEA +10%, and Asia-Pacific +7% reported. EMEA growth reflected expansions, organic demand and realized cash-flow hedge gains.
- Operating income declined despite revenue growth, mainly as general and administrative expense rose 22% to $261.6 million. Americas operating income fell 47%, partly reflecting higher compensation, consulting and systems costs; EMEA operating income increased 20%.
- Interest expense declined to $107.3 million from $122.8 million, while Equinix recorded a $6.4 million loss on extinguishment of debt. The company redeemed $343.7 million principal of 5.375% notes due 2022.
- Foreign-currency translation contributed to a $272.1 million other comprehensive loss, including a $413.8 million currency translation loss, partly offset by $144.9 million of net-investment hedge gains.
- Equinix acquired Packet Host for approximately $290.3 million and three Axtel data centers in Mexico for approximately $189.0 million. The acquisitions contributed $8.1 million of revenue and $13.6 million of net loss in the quarter; the loss primarily reflected $16.1 million of accelerated employee equity compensation. Purchase-price allocations remained provisional.
- Recurring revenue remained the dominant source of sales; no customer represented 10% or more of revenue or accounts receivable. Cabinet utilization was approximately 79%, versus 80% a year earlier, or approximately 81% excluding recently opened expansion capacity.
Outlook, risks and contingencies
- The filing provides no numerical full-year 2020 earnings or revenue guidance. Management expected expansion-related capital spending to be similar to or higher than 2019 levels and anticipated operating costs to rise with growth and acquisitions.
- Management said COVID-19 had not materially affected Q1 results and that all IBX data centers remained operational at filing. It noted construction delays and incurred $8.6 million of one-time employee bonuses and compensation expense. The future effects on customers, collections, churn, construction, suppliers, financing and results remained uncertain; management warned results could differ materially from historical trends.
- Management believed cash, expected operating cash flow and financing sources were sufficient for operating needs, debt service, dividends and announced expansions, but identified possible customer payment delays, reduced commitments, financing constraints and the need to prioritize or curtail projects as risks.
- Subsequent financing: Equinix borrowed approximately $500.8 million under new 364-day term loan facilities in April, with up to $750 million available. It repaid the $250 million revolver borrowing on May 6, increasing revolver availability to approximately $1.9 billion.
- Quarter-end commitments included approximately $0.9 billion of unaccrued capital expenditures, $1.1 billion of other purchase commitments, $33.9 million of future EMEA joint-venture contributions and $680.8 million of leases not yet commenced. The filing also reports $129.4 million of accrued uncertain tax positions; timing of payment was unclear.
- Principal risks include COVID-19-related operating and construction disruption, power availability and rising power demand, substantial debt and lease obligations, foreign-exchange exposure, customer credit and churn, acquisition integration, REIT qualification and tax assessments. An Italian environmental proceeding remained pending; Equinix expected no material consolidated financial effect if decided adversely.
Important facts for investors to verify
- Whether recurring revenue, bookings, customer collections and churn remain resilient as pandemic effects develop.
- Whether construction delays, power constraints, supplier availability and committed expansion spending affect capacity openings, customer commitments, margins or returns.
- Liquidity and refinancing needs, including near-term maturities, the April term loans, revolver availability, lease obligations and ongoing dividends.
- Integration and eventual performance of Packet and Axtel, including final acquisition valuations and goodwill assumptions.
- Foreign-exchange effects and hedging results, plus exposure to variable interest rates and the LIBOR transition.
- Progress on tax audits and appeals, REIT compliance, and the status and outcome of the Italian proceeding.