filings.toolsEquinix 10-Q 2024-09-30
Filed 2024-10-30. 8 sections, 461K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-40205
EQUINIX, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0487526 | |||||||
| (State of incorporation) | (I.R.S. Employer Identification No.) |
One Lagoon Drive, Redwood City, California 94065
(Address of principal executive offices, including ZIP code)
(650) 598-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||||||||||||
| Common Stock, $0.001 | EQIX | The Nasdaq Stock Market LLC | ||||||||||||
| 0.250% Senior Notes due 2027 | The Nasdaq Stock Market LLC | |||||||||||||
| 1.000% Senior Notes due 2033 | The Nasdaq Stock Market LLC | |||||||||||||
| 3.650% Senior Notes due 2033 | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant's Common Stock as of October 29, 2024 was 96,488,187.
EQUINIX, INC.
INDEX
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties that make an investment in our securities speculative or risky, any one of which could materially adversely affect our results of operations, financial condition or business. These risks include, but are not limited to, those listed below. This list is not complete, and should be read together with the section titled “Risk Factors” in this Quarterly Report on Form 10-Q, as well as the other information in this Quarterly Report on Form 10-Q and the other filings that we make with the U.S. Securities and Exchange Commission (the “SEC”).
Risks Related to the Macro Environment
-
Inflation in the global economy, increased interest rates, political dissension and adverse global economic conditions, like the ones we are currently experiencing, could negatively affect our business and financial condition.
-
Our business could be harmed by increased costs to procure power, prolonged power outages, shortages or capacity constraints as well as insufficient access to power.
-
The ongoing military conflicts between Russia and Ukraine and in the Middle East could negatively affect our business and financial condition.
Risks Related to our Operations
-
We experienced a cybersecurity incident in the past and may be vulnerable to future security breaches, which could disrupt our operations and have a material adverse effect on our business, results of operation and financial condition.
-
Any failure of our physical infrastructure or negative impact on our ability to meet our obligations to our customers, or damage to customer infrastructure within our IBX data centers, could lead to significant costs and disruptions that could reduce our revenue and harm our business reputation and financial condition.
-
We are currently making significant investments in our back-office information technology systems and processes. Difficulties from or disruptions to these efforts may interrupt our normal operations and adversely affect our business and results of operations.
-
The level of insurance coverage that we purchase may prove to be inadequate.
-
If we are unable to successfully implement our current leadership transition, or if we are unable to recruit or retain key qualified personnel, our business could be harmed.
-
The failure to obtain favorable terms when we renew our IBX data center leases, or the failure to renew such leases, could harm our business and results of operations.
-
We depend on a number of third parties to provide internet connectivity to our IBX data centers; if connectivity is interrupted or terminated, our results of operations and cash flow could be materially and adversely affected.
-
The use of high-power density equipment may limit our ability to fully utilize the space in our older IBX data centers.
-
The development and use of artificial intelligence in the workplace presents risks and challenges that may adversely impact our business and operating results.
-
We have been, and in the future may be, subject to securities class action and other litigation, which may harm our business and results of operations.
Risks Related to our Offerings and Customers
-
Our offerings have a long sales cycle that may harm our revenue and results of operations.
-
We may not be able to compete successfully against current and future competitors.
-
If we cannot continue to develop, acquire, market and provide new offerings or enhancements to existing offerings that meet customer requirements and differentiate us from our competitors, our results of operations could suffer.
-
We have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.
-
Because we depend on the development and growth of a balanced customer base, including key magnet customers, failure to attract, grow and retain this base of customers could harm our business and results of operations.
Risks Related to our Financial Results
- The market price of our stock may continue to be highly volatile, and the value of an investment in our common stock may decline.
-
Our results of operations may fluctuate.
-
We may incur goodwill and other intangible asset impairment charges, or impairment charges to our property, plant and equipment, which could result in a significant reduction to our earnings.
-
We have incurred substantial losses in the past and may incur additional losses in the future.
Risks Related to Our Expansion Plans
-
Our construction of new IBX data centers, IBX data center expansions or IBX data center redevelopment could involve significant risks to our business.
-
Acquisitions present many risks, and we may not realize the financial or strategic goals that were contemplated at the time of any transaction.
-
The anticipated benefits of our joint ventures may not be fully realized, or take longer to realize than expected.
-
Joint venture investments could expose us to risks and liabilities in connection with the formation of the new joint ventures, the operation of such joint ventures without sole decision-making authority, and our reliance on joint venture partners who may have economic and business interests that are inconsistent with our business interests.
-
If we cannot effectively manage our international operations and successfully implement our international expansion plans, our business and results of operations would be adversely impacted.
-
We continue to invest in our expansion efforts, but may not have sufficient customer demand in the future to realize expected returns on these investments.
Risks Related to Our Capital Needs and Capital Strategy
-
Our substantial debt could adversely affect our cash flows and limit our flexibility to raise additional capital.
-
Sales or issuances of shares of our common stock may adversely affect the market price of our common stock.
-
If we are not able to generate sufficient operating cash flows or obtain external financing, our ability to fund incremental expansion plans may be limited.
-
Our derivative transactions expose us to counterparty credit risk.
Risks Related to Environmental Laws and Climate Change Impact
-
Environmental regulations may impose upon us new or unexpected costs.
-
Our business may be adversely affected by physical risks related to climate change and our response to it.
-
We may fail to achieve our Environmental, Social and Governance ("ESG") and sustainability goals, or may encounter objections to them, either of which may adversely affect public perception of our business and affect our relationship with our customers, our stockholders and/or other stakeholders.
Risks Related to Certain Regulations and Laws, Including Tax Laws
-
Geopolitical events contribute to an already complex and evolving regulatory landscape. If we cannot comply with the evolving laws and regulations in the countries in which we operate, we may be subject to litigation and/or sanctions, adverse revenue impacts, increased costs and our business and results of operations could be negatively impacted.
-
Government regulation related to our business or failure to comply with laws and regulations may adversely affect our business.
-
Changes in U.S. or foreign tax laws, regulations, or interpretations thereof, including changes to tax rates, may adversely affect our financial statements and cash taxes.
-
Our business could be adversely affected if we are unable to maintain our complex global legal entity structure.
Risks Related to Our REIT Status in the U.S.
- We have a number of risks related to our qualification as a real estate investment trust for federal income tax purposes ("REIT"), including the risk that we may not be able to maintain our qualification for taxation as a REIT which could expose us to substantial corporate income tax and have a materially adverse effect on our business, financial condition, and results of operations.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
EQUINIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,776 | $ | 2,096 | |||||||
| Short-term investments | 451 | — | |||||||||
| Accounts receivable, net of allowance of $32 and $17 | 1,123 | 1,004 | |||||||||
| Other current assets | 705 | 468 | |||||||||
| Total current assets | 5,055 | 3,568 | |||||||||
| Property, plant and equipment, net | 19,665 | 18,601 | |||||||||
| Operating lease right-of-use assets | 1,487 | 1,449 | |||||||||
| Goodwill | 5,768 | 5,737 | |||||||||
| Intangible assets, net | 1,544 | 1,705 | |||||||||
| Other assets | 1,919 | 1,591 | |||||||||
| Total assets | $ | 35,438 | $ | 32,651 | |||||||
| Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | 1,125 | $ | 1,187 | |||||||
| Accrued property, plant and equipment | 394 | 398 | |||||||||
| Current portion of operating lease liabilities | 149 | 131 | |||||||||
| Current portion of finance lease liabilities | 202 | 138 | |||||||||
| Current portion of mortgage and loans payable | 5 | 8 | |||||||||
| Current portion of senior notes | 2,198 | 998 | |||||||||
| Other current liabilities | 297 | 302 | |||||||||
| Total current liabilities | 4,370 | 3,162 | |||||||||
| Operating lease liabilities, less current portion | 1,366 | 1,331 | |||||||||
| Finance lease liabilities, less current portion | 2,193 | 2,123 | |||||||||
| Mortgage and loans payable, less current portion | 688 | 663 | |||||||||
| Senior notes, less current portion | 12,387 | 12,062 | |||||||||
| Other liabilities | 822 | 796 | |||||||||
| Total liabilities | 21,826 | 20,137 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Redeemable non-controlling interest | 25 | 25 | |||||||||
| Common stockholders’ equity (shares in thousands): | |||||||||||
| Common stock, $0.001 par value per share: 300,000 shares authorized; 96,594 issued and 96,488 outstanding in 2024 and 94,630 issued and 94,479 outstanding in 2023 | — | — | |||||||||
| Additional paid-in capital | 20,069 | 18,596 | |||||||||
| Treasury stock, at cost; 106 shares in 2024 and 151 shares in 2023 | (40) | (56) | |||||||||
| Accumulated dividends | (9,921) | (8,695) | |||||||||
| Accumulated other comprehensive loss | (1,283) | (1,290) | |||||||||
| Retained earnings | 4,763 | 3,934 | |||||||||
| Total common stockholders' equity | 13,588 | 12,489 | |||||||||
| Non-controlling interests | (1) | — | |||||||||
| Total stockholders’ equity | 13,587 | 12,489 | |||||||||
| Total liabilities, redeemable non-controlling interest and stockholders’ equity | $ | 35,438 | $ | 32,651 |
See accompanying notes to condensed consolidated financial statements.
EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Revenues | $ | 2,201 | $ | 2,061 | $ | 6,487 | $ | 6,078 | |||||||||||||||
| Costs and operating expenses: | |||||||||||||||||||||||
| Cost of revenues | 1,098 | 1,069 | 3,271 | 3,136 | |||||||||||||||||||
| Sales and marketing | 237 | 212 | 682 | 638 | |||||||||||||||||||
| General and administrative | 434 | 404 | 1,315 | 1,205 | |||||||||||||||||||
| Transaction costs | 7 | (1) | 12 | 7 | |||||||||||||||||||
| Gain on asset sales | — | (4) | (18) | (5) | |||||||||||||||||||
| Total costs and operating expenses | 1,776 | 1,680 | 5,262 | 4,981 | |||||||||||||||||||
| Income from operations | 425 | 381 | 1,225 | 1,097 | |||||||||||||||||||
| Interest income | 35 | 23 | 88 | 66 | |||||||||||||||||||
| Interest expense | (117) | (102) | (331) | (299) | |||||||||||||||||||
| Other income (expense) | 7 | (6) | (6) | (10) | |||||||||||||||||||
| Loss on debt extinguishment | — | — | (1) | — | |||||||||||||||||||
| Income before income taxes | 350 | 296 | 975 | 854 | |||||||||||||||||||
| Income tax expense | (54) | (20) | (147) | (112) | |||||||||||||||||||
| Net income | 296 | 276 | 828 | 742 | |||||||||||||||||||
| Net loss attributable to non-controlling interests | 1 | — | 1 | — | |||||||||||||||||||
| Net income attributable to common stockholders | $ | 297 | $ | 276 | $ | 829 | $ | 742 | |||||||||||||||
| Earnings per share (“EPS”) attributable to common stockholders: | |||||||||||||||||||||||
| Basic EPS | $ | 3.11 | $ | 2.94 | $ | 8.73 | $ | 7.94 | |||||||||||||||
| Weighted-average shares for basic EPS (in thousands) | 95,394 | 93,683 | 94,992 | 93,396 | |||||||||||||||||||
| Diluted EPS | $ | 3.10 | $ | 2.93 | $ | 8.69 | $ | 7.91 | |||||||||||||||
| Weighted-average shares for diluted EPS (in thousands) | 95,731 | 94,168 | 95,350 | 93,788 |
See accompanying notes to condensed consolidated financial statements.
EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | **202 |
Showing the first 8K of 147K characters. Open the full section
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in "Liquidity and Capital Resources" below and "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q. All forward-looking statements in this document are based on information available to us as of the date of this Report and we assume no obligation to update any such forward-looking statements.
Our management's discussion and analysis of financial condition and results of operations is intended to assist readers in understanding our financial information from our management's perspective and is presented as follows:
-
Overview
-
Results of Operations
-
Non-GAAP Financial Measures
-
Liquidity and Capital Resources
-
Contractual Obligations and Off-Balance-Sheet Arrangements
-
Critical Accounting Policies and Estimates
-
Recent Accounting Pronouncements
Overview
We provide a global, vendor-neutral data center, interconnection and edge solutions platform with offerings that aim to enable our customers to reach everywhere, interconnect everyone and integrate everything. Global enterprises, service providers and business ecosystems of industry partners rely on our IBX data centers and expertise around the world for the safe housing of their critical IT equipment and to protect and connect the world's most valued information assets. They also look to Platform Equinix® for the ability to directly and securely interconnect to the networks, clouds and content that enable today's information-driven global digital economy. Our recent IBX data center openings and acquisitions, as well as xScaleTM data center investments, have expanded our total global footprint to 268 IBXs, including 20 xScale data centers and the MC1 data center that are held in unconsolidated joint ventures, across 73 markets around the world. We offer the following solutions:
- premium data center colocation;
-
interconnection and data exchange solutions;
-
edge solutions for deploying networking, security and hardware; and
-
remote expert support and professional services.
Our interconnected data centers around the world can allow our customers to increase information and application delivery performance to users, and quickly access distributed IT infrastructures and business and digital ecosystems, while significantly reducing costs. Our global platform and the quality of our IBX data centers, interconnection offerings and edge solutions have enabled us to establish a critical mass of customers. As more customers choose Platform Equinix for bandwidth cost and performance reasons, it benefits their suppliers and business partners to colocate in the same data centers. This adjacency creates a “network effect” that enables our customers to capture the full economic and performance benefits of our offerings. These partners, in turn, pull in their business partners, creating a "marketplace" for their services. Our global platform enables scalable, reliable and cost-effective interconnection that increases data traffic exchange while lowering overall cost and increasing flexibility. Our focused business model is built on our critical mass of enterprise and service provider customers and the resulting "marketplace" effect. This global platform, combined with our strong financial position, has continued to drive new customer growth and bookings.
While a large number of enterprises and service providers, such as hyperscale cloud service providers, own their own data centers, we believe the industry is shifting away from single-tenant solutions to customers outsourcing some or all of their IT housing and interconnection requirements to third-party facilities, such as those operated by Equinix. This shift is being accelerated by the increasing adoption of hybrid multi-cloud architectures and the adoption of artificial intelligence (“AI”).
Historically, our market was served by large telecommunications carriers who bundled their products and services with their colocation offerings. The data center market landscape has evolved to include private and vendor-neutral multi-tenant data center ("MTDC") providers, public and private cloud providers, managed infrastructure and application hosting providers, and systems integrators. It is estimated that Equinix is one of more than 2,200 companies that provide MTDC offerings around the world. The global MTDC market is highly fragmented. Each of these data center solutions providers can bundle various colocation, interconnection and network offerings, outsourced IT infrastructure solutions and managed services. We believe that this outsourcing trend has accelerated and is likely to continue to accelerate in the coming years, especially in light of the movement to digital business, the use of multiple cloud service providers, and the adoption of AI. We are able to offer our customers a global platform that reaches 34 countries with the industry’s largest and most active ecosystem of partners in our sites, proven operational reliability, improved application performance and a highly scalable set of offerings.
Our cabinet utilization rate represents the percentage of cabinet space billed versus total cabinet capacity, which is used to measure how efficiently we are managing our cabinet capacity. Our cabinet utilization rate varies from market to market among our IBX data centers across our Americas, EMEA and Asia-Pacific regions. Our cabinet utilization rates were approximately 78% and 80%, as of September 30, 2024 and 2023, respectively. We continue to monitor the available capacity in each of our selected markets. To the extent we have limited capacity available in a given market, it may limit our ability for growth in that market. We perform demand studies on an ongoing basis to determine if future expansion is warranted in a market. In addition, power and cooling requirements for most customers are growing on a per unit basis. As a result, customers are consuming an increasing amount of power per cabinet. Although we generally do not control the amount of power our customers draw from installed circuits, we have negotiated power consumption limitations with certain high power-demand customers. This increased power consumption, which we expect to accelerate with the adoption of AI, has driven us to build out our new IBX data centers to support power and cooling needs twice that of previous IBX data centers. We could face power limitations in our existing IBX data centers, even though we may have additional physical cabinet capacity available within a specific IBX data center, and in our ability to expand our footprint in existing and new markets. This could have a negative impact on our ability to grow revenues, affecting our financial performance, results of operations and cash flows and the growth opportunities presented by the adoption of new technologies, including AI.
To serve the needs of the growing hyperscale data center market, including the world's largest cloud service providers and increased demand driven in part by
Showing the first 8K of 99K characters. Open the full section
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
There have been no significant changes to our risk exposure management or procedures in relation to our market risk, investment portfolio risk, interest rate risk, foreign currency risk or commodity price risk during the nine months ended September 30, 2024 as compared to the respective risk exposures and procedures disclosed in Quantitative and Qualitative Disclosures About Market Risk, set forth in Part II Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2023, other than factors discussed below.
The uncertainty that exists with respect to the economic impact of geopolitical instability and generally adverse economic conditions has introduced significant volatility in the financial markets. See Part II, Item 1A. Risk Factors for additional information regarding potential risks to our business, financial condition and results of operations related to the macro environment.
Foreign Currency Risk
To help manage the exposure to foreign currency exchange rate fluctuations, we have implemented a number of hedging programs, in particular (i) a cash flow hedging program to hedge the forecasted revenues and expenses in our EMEA region as well as our debt denominated in foreign-currencies, (ii) a balance sheet hedging program to hedge the re-measurement of monetary assets and liabilities denominated in foreign currencies, and (iii) a net investment hedging program to hedge the long term investments in our foreign subsidiaries. Our hedging programs reduce, but do not entirely eliminate, the impact of currency exchange rate movements and their impact on the condensed consolidated statements of operations.
We have entered into various foreign currency debt obligations. As of September 30, 2024, the total principal amount of foreign currency debt obligations was $3.6 billion, including $1.9 billion denominated in Euro, $668 million denominated in British Pound, $537 million denominated in Japanese Yen, $472 million denominated in Swiss Franc, $24 million denominated in Canadian Dollar and $2 million denominated in Nigerian Naira. Fluctuations in the exchange rates between these foreign currencies and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the foreign currency debt obligations at maturity. If the U.S. Dollar would have been weaker or stronger by 10% in comparison to these foreign currencies as of September 30, 2024, we estimate our obligation to cash settle the principal of these foreign currency debt obligations in U.S. Dollars would have increased or decreased by approximately $399 million and $327 million, respectively. As of September 30, 2024, we have designated $1.1 billion of the total principal amount of foreign currency debt obligations as net investment hedges against our net investments in foreign subsidiaries. Changes in the fair value of hedging instruments designated as net investment hedges are recorded as a component of accumulated other comprehensive income (loss) in the condensed consolidated balance sheets.
We are also party to cross-currency interest rate swaps. As of September 30, 2024, the total notional amount of cross-currency interest rate swap contracts was $5.4 billion. As of September 30, 2024, we have designated $2.2 billion of the total notional amount of cross-currency swaps as net investment hedges against our investment in foreign subsidiaries and $1.0 billion as cash flow hedges against a portion of our foreign currency denominated debt and our U.S. dollar-denominated fixed-rate debt issued by our foreign subsidiaries. The remaining $2.2 billion of cross-currency interest rate swaps were not designated as hedging instruments, but were used to offset remeasurement gains and losses from foreign currency monetary assets and liabilities. If the U.S. dollar weakened or strengthened by 10% in comparison to foreign currencies, we estimate our obligation to cash settle these hedges would have increased or decreased by approximately $383 million and $313 million, respectively.
The U.S. Dollar was generally stronger relative to certain of the currencies of the foreign countries in which we operate during the nine months ended September 30, 2024. This has impacted our condensed consolidated financial position and results of operations during this period, including the amount of revenues that we reported. Continued strengthening or weakening of the U.S. Dollar will continue to impact us in future periods.
With the existing cash flow hedges in place, a hypothetical additional 10% strengthening of the U.S. Dollar for the nine months ended September 30, 2024 would have resulted in a reduction of our revenues and a reduction of our operating expenses including depreciation and amortization expense by approximately $212 million and $185 million, respectively.
With the existing cash flow hedges in place, a hypothetical additional 10% weakening of the U.S. Dollar for the nine months ended September 30, 2024 would have resulted in an increase of our revenues and an increase of our operating expenses including depreciation and amortization expense by approximately $257 million and $231 million, respectively.
Interest Rate Risk
We are exposed to interest rate risk related to our outstanding debt. An immediate increase or decrease in current interest rates from their position as of September 30, 2024 would not have a material impact on our interest expense due to the fixed coupon rate on the majority of our debt obligations. However, the interest expense associated with our senior credit facility and term loans that bear interest at variable rates could be affected. For every 100-basis point increase or decrease in interest rates, our annual interest expense could increase by approximately $7 million or decrease by approximately $7 million based on the total balance of our term loan borrowings as of September 30, 2024.
We periodically enter into interest rate locks to hedge the interest rate exposure created by anticipated fixed rate debt issuances, which are designated as cash flow hedges. When interest rate locks are settled, any
accumulated gain or loss included as a component of accumulated other comprehensive income (loss) will be amortized to interest expense over the term of the forecasted hedged transaction which is equivalent to the term of the interest rate locks. We also use cross-currency swaps to hedge our interest rate risk in a portion of our foreign currency-denominated variable-rate debt and our U.S. dollar-denominated fixed-rate debt issued by our foreign subsidiaries. As of September 30, 2024, the total notional amount of such cross-currency interest rate swaps was $1.0 billion.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of the effectiveness of our "disclosure controls and procedures" as of the end of the period covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
(b) Changes in Internal Control over Financial Reporting. In the second quarter of 2024, as part of our multi-year project to move the backbone of our finance systems to the Cloud, we completed deployment of certain modules in our new cloud enterprise resource planning (“ERP”) system to support financial close and reporting. As a result of the ERP system implementation, in the second quarter of 2024 certain internal controls over financial reporting have been automated, modified, or implemented to address the new control environment and processes associated with the ERP system.
There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c) Limitations on the Effectiveness of Controls. Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed and operated to be effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
| Item 1. Legal Proceedings |
On March 20, 2024, the Company received a subpoena from the U.S. Attorney’s Office for the Northern District of California. On April 30, 2024, the Company received a subpoena from the Securities and Exchange Commission. The Company is cooperating fully with both government agencies.
On May 2, 2024, a putative stockholder class action was filed against the Company and certain of our officers in the United States District Court for the Northern District of California. The named plaintiff alleges violations of Section 10(b) of the Exchange Act and Securities and Exchange Commission Rule 10b-5, and Section 20(a) of the Exchange Act, on the basis that the defendants allegedly made false and misleading statements about our business, results, internal controls, and accounting practices between May 3, 2019 and March 24, 2024. The lawsuit seeks, among other relief, a determination that the alleged claims may be asserted on a class-wide basis, unspecified damages, attorneys' fees, other expenses and costs. We intend to defend the lawsuit and filed a motion to dismiss the lawsuit on October 10, 2024.
These matters are subject to uncertainties, and we cannot predict the outcome, nor reasonably estimate a range of loss or penalties, if any, relating to these matters.
Item 1A. Risk Factors
In addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating our business:
Risk Factors
Risks Related to the Macro Environment
Inflation in the global economy, increased interest rates, political dissension and adverse global economic conditions, like the ones we are currently experiencing, could negatively affect our business and financial condition.
Inflation is impacting various aspects of our business. We are also experiencing an increase in our costs to procure power and supply chain issues globally. Rising prices for materials related to our IBX data center construction and our data center offerings, energy and gas prices, as well as rising wages and benefits costs negatively impact our business by increasing our operating costs. Further, disagreement in the U.S. Congress on government spending levels could increase the possibility of a government shutdown, further adversely affecting global economic conditions. The adverse economic conditions we are currently experiencing may cause a decrease in sales as some customers may need to take cost cutting measures or scale back their operations. This could result in churn in our customer base, reductions in revenues from our offerings, adverse effects to our days of sales outstanding in accounts receivable ("DSO"), longer sales cycles, slower adoption of new technologies and increased price competition, which could adversely affect our liquidity. Customers, vendors and/or partners filing for bankruptcy could also lead to costly and time-intensive actions with adverse effects, including greater difficulty or delay in accounts receivable collection. The uncertain economic environment could also have an impact on our foreign exchange forward contracts if our counterparties' credit deteriorates or if they are otherwise unable to perform their obligations. Further, volatility in the financial markets and rising interest rates like we are currently experiencing could affect our ability to access the capital markets at a time when we desire, or need, to do so which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.
Our efforts to mitigate the risks associated with these adverse conditions may not be successful and our business and growth could be adversely affected.
Our business could be harmed by increased costs to procure power, prolonged power outages, shortages or capacity constraints as well as insufficient access to power.
Any power outages, shortages, capacity constraints, limits on access or significant increases in the cost of power may have an adverse effect on our business and our results of operations.
In each of our markets, we contract with and rely on third parties, third party infrastructure, governments, and global suppliers to provide a sufficient amount of power to maintain our IBX data centers and meet the needs of our current and future customers. In certain instances, we have experienced difficulties in securing the energy supply we have contracted for or that we need for our expansion plans. Any such limitations may have a negative impact on a given IBX data center and may limit our ability to grow our business which could negatively affect our financial performance and results of operations. Furthermore, the inability to supply customers with their contracted power for any reason could harm customer and/or joint venture relationships as well as cause reputational harm.
Each new facility requires access to significant quantities of electricity. Limitations on generation, transmission and distribution may limit our ability to obtain sufficient power capacity for potential expansion sites in new or existing markets. Utility companies and other third-party power providers may impose onerous operating conditions to any approval or provision of power or we may experience significant delays, unfavorable contractual terms, and substantial increased costs to provide the level of electrical service required by our current or future IBX data center designs. Our ability to find appropriate sites for expansion may also be limited by access to power, especially as we design our data centers to the specifications of new and evolving technologies, such as artificial intelligence, which are more power-intensive, and further prepare to serve the power demands in the future that are expected from the electrification of the economy.
Our IBX data centers are affected by problems accessing electricity sources, such as planned or unplanned power outages and limitations on transmission or distribution of power. Unplanned power outages, including, but not limited to those relating to large storms, earthquakes, fires, tsunamis, cyber-attacks, physical attacks on utility infrastructure, war, and any failures of electrical power grids or internal systems more generally, and planned power outages by public utilities, such as Pacific Gas and Electric Company's practice of planned outages in California to minimize fire risks, could harm our customers and our business. Employees working from home could be subjected to power outages at home which could be difficult to track and could affect the day-to-day operations of our non-IBX data center employees. Our international operations are sometimes located outside of developed, reliable electricity markets, where we are exposed to some insecurity in supply associated with technical and regulatory problems, as well as transmission constraints. Some of our IBX data centers are located in leased buildings where, depending upon the lease requirements and number of tenants involved, we may or may not control some or all of the infrastructure including generators and fuel tanks. As a result, in the event of a power outage, we could be dependent upon the landlord, as well as the utility company, to restore the power. We attempt to limit our exposure to system downtime by using backup generators, which are in turn supported by onsite fuel storage and through contracts with fuel suppliers, but these measures may not always prevent downtime or solve for long-term or large-scale outages. Any outage or supply disruption could adversely affect our business, customer experience and revenues.
We are currently experiencing inflation and volatility pressures in the energy market globally. Various macroeconomic factors are contributing to the instability and global power shortage including severe weather events, governmental regulations, government relations and inflation. While we have aimed to minimize our risk, via hedging, conservation, and other efficiencies, we expect the cost for power to continue to be volatile and unpredictable and subject to inflationary pressures. We believe we have made appropriate estimates for these costs in our forecasting, but the current unpredictable energy market could materially affect our financial forecasting, results of operations and financial condition.
The ongoing military conflicts between Russia and Ukraine and in the Middle East could negatively affect our business and financial condition.
The war in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit and capital markets, an increase in cybersecurity incidents as well as supply chain disruptions.
Additionally, various of Russia’s actions have led to sanctions and other penalties being levied by the U.S., the European Union, the United Kingdom, and other countries, as well as other public and private actors and companies, against Russia and certain other geographic areas, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment sy
Showing the first 8K of 131K characters. Open the full section
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, each of the following directors and/or officers adopted a “Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K. All trading plans were entered into during an open insider trading window and are intended to satisfy the affirmative defense of Rule 10b5- (c) under the Securities Exchange Act of 1934, as amended, and our policies regarding transactions in our securities.
| Adoption Date | Start Date | End Date | Total Shares to be Sold | |||||||||||
| Christopher Paisley, Director | 08/13/2024 | 11/18/2024 | 08/29/2025 | See footnote (1) | ||||||||||
| Adaire Fox-Martin, Director, Chief Executive Officer and President | 08/15/2024 | 12/03/2024 | 06/30/2025 | See footnote (2) |
(1)Mr. Paisley’s plan includes the potential sale of 600 shares, previously acquired via Restricted Stock Unit(s), for diversification purposes.
(2)Ms. Fox-Martin’s plan includes, subject to the achievement of performance conditions, the potential sale of shares for tax withholding purposes relating to awards totaling up to 25,159 shares on a grant-by-grant basis. This plan also includes any shares to be granted under the 2024 Annual Incentive Plan, as determined based on final company performance, to be sold for tax withholding purposes.
Item 6. Exhibits
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X |
** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
EQUINIX, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| EQUINIX, INC. | ||||||||
| Date: October 30, 2024 | ||||||||
| By: | /s/ KEITH D. TAYLOR | |||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) |