Equinix(EQIX) - 2023 Q4 - Annual Report

PART I Forward-Looking Statements All non-historical statements are forward-looking and subject to risks and uncertainties that could cause actual results to differ materially, with Equinix disclaiming any obligation to update them - All non-historical statements are forward-looking and subject to factors and uncertainties that could cause actual results to differ materially[18] - Equinix expressly disclaims any obligation to publicly release updates or revisions to forward-looking statements[18] Summary of Risk Factors Equinix's business faces numerous risks across macro environment, operations, offerings, financial results, expansion, capital, environmental, and regulatory categories, potentially impacting its financial condition - Equinix's business is subject to numerous risks and uncertainties that could materially adversely affect its results of operations, financial condition, or business[19] - Key risk categories include: Macro Environment, Operations, Offerings and Customers, Financial Results, Expansion Plans, Capital Needs and Capital Strategy, Environmental Laws and Climate Change Impacts, and Regulations and Laws (including Tax Laws and REIT Status)[20][22][23][24][26] ITEM 1. Business Equinix, a global digital infrastructure REIT founded in 1998, provides interconnected data centers and digital solutions, expanding its footprint to 260 facilities in 2023 driven by evolving industry trends - Equinix is the world's digital infrastructure company, founded in 1998, operating as a REIT for federal income tax purposes[27] - Platform Equinix combines a global footprint of IBX and xScale data centers, interconnection solutions, digital offerings, and business ecosystems[27] - In 2023, Equinix opened nine new data centers, increasing its total facilities to 260 (including five opened in January 2024)[31] - Key industry trends driving growth include digital presence, participation, proximity, sustainability, and technology adoption like AI[36] Equinix Global Footprint and Offerings (as of Dec 31, 2023) | Metric | Value | | :----- | :---- | | Total Data Centers | 250+ | | Global Footprint | 30+ countries | | Customer Base | Over 10,000 | | Operational Uptime (2023) | 99.999%+ | ITEM 1A. Risk Factors Equinix faces comprehensive risks including macroeconomic, operational, competitive, financial, expansion, capital, environmental, and REIT status challenges, alongside general risks like stock price volatility - Macroeconomic risks include inflation, increased interest rates, political dissension, and adverse global economic conditions, which could negatively affect business and financial condition[21] - Operational risks encompass increased power costs, outages, cybersecurity breaches, physical infrastructure failures, IT system disruptions, and challenges in recruiting and retaining key personnel[21][102][105][112][114] - Risks related to offerings and customers include long sales cycles, intense competition, inability to develop new offerings, and dependence on a balanced customer base[24][124][126][129][136] - Financial risks involve fluctuating results of operations, potential goodwill and asset impairment charges, and past/future substantial losses[24][139][141][145] - Expansion risks include significant challenges in constructing new data centers, risks associated with acquisitions and joint ventures, and managing international operations[24][146][152][159][161][165][170] - Capital risks highlight substantial debt, potential adverse effects of stock sales, and limitations on funding expansion if operating cash flows or external financing are insufficient[24][171][177][178] - Environmental risks include new or unexpected costs from regulations, adverse effects from climate change, and potential failure to achieve ESG goals[24][180][187][189] - REIT status risks involve the possibility of failing to maintain qualification, which could lead to substantial corporate income tax and reduced cash for distributions[26][213][214] ITEM 1B. Unresolved Staff Comments No unresolved staff comments are reported, indicating no outstanding issues with SEC staff regarding previous filings - No disclosure to report pursuant to Item 1B, indicating no unresolved staff comments[241] ITEM 1C. Cybersecurity Equinix implements a robust cybersecurity strategy, integrating risk management into its GRC and InfoSec programs, guided by NIST and ISO 27001, with Board oversight - Equinix's cybersecurity risk management is integrated into its Governance, Risk and Compliance Program (GRC Program) and Information Security (InfoSec) function, led by the CISO[243][244] - The cybersecurity program is guided by the NIST Cybersecurity Framework and certified globally against ISO 27001 standards[247] - Controls include third-party risk assessments, regular employee training, and cyber incident simulations[248][249] - The Nominating and Governance Committee oversees the GRC Program, receiving quarterly cybersecurity updates, with the full Board briefed at least annually[252][253] ITEM 2. Properties Equinix operates 242 IBX data centers globally with 79% utilization, headquartered in Redwood City, and has significant expansion projects underway totaling $2.781 billion in capital expenditure - Equinix's executive offices are in Redwood City, California, with EMEA headquarters in Amsterdam and Asia-Pacific headquarters in Hong Kong[260] IBX Data Center Portfolio Overview (as of Dec 31, 2023) | Region | of IBXs | Total Cabinet Capacity | Cabinets Billed | Cabinet Utilization % | | :------- | :-------- | :--------------------- | :-------------- | :-------------------- | | Americas | 108 | 145,400 | 112,900 | 78 % | | EMEA | 84 | 136,200 | 109,100 | 80 % | | Asia-Pacific | 50 | 80,900 | 65,300 | 81 % | | Total | 242 | 362,500 | 287,300 | 79 % | Significant IBX Data Center Projects Under Construction (as of Dec 31, 2023) | Region | Sellable Cabinets | Total Capex (in Millions) | | :--------- | :---------------- | :------------------------ | | Americas | 13,025 | $1,435 | | EMEA | 11,175 | $805 | | Asia-Pacific | 10,550 | $541 | | Total | 34,750 | $2,781 | ITEM 3. Legal Proceedings No legal proceedings are reported for the company - No legal proceedings to report[269] ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to Equinix's business - Mine Safety Disclosures are not applicable[270] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Equinix common stock trades on NASDAQ under "EQIX", with 94.5 million shares outstanding as of January 31, 2024, and its performance is compared against major indices - Equinix common stock is quoted on the NASDAQ Global Select Market under the symbol "EQIX"[273] Common Stock Information (as of Jan 31, 2024) | Metric | Value | | :----- | :---- | | Shares Outstanding | 94,522,562 | | Registered Holders | ~239 | - A stock performance graph compares Equinix's cumulative total stockholder return against major indices (S&P 500, NASDAQ Composite, FTSE NAREIT All REITs Index) from December 31, 2018, to December 31, 2023[274][277] ITEM 6. Reserved This item is reserved and contains no information - Item 6 is reserved and contains no information[279] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Equinix's 2023 financial performance, highlighting a 13% revenue increase to $8.188 billion and 10% Adjusted EBITDA growth to $3.702 billion, driven by its recurring revenue model and global platform - Equinix operates a global, vendor-neutral data center, interconnection, and edge solutions platform, with a business model primarily based on recurring revenue (over 90% of total revenues)[284][292] Key Financial Highlights (Years Ended Dec 31, 2023 vs 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (Actual) | Change (Constant Currency) | | :--------------------- | :------------------ | :------------------ | :-------------- | :------------------------- | | Total Revenues | $8,188,136 | $7,263,105 | 13% | 15% | | Recurring Revenues | $7,744,731 | $6,871,287 | 13% | 15% | | Non-recurring Revenues | $443,405 | $391,818 | 13% | 13% | | Income from Operations | $1,443,274 | $1,200,528 | 20% | 27% | | Net Income | $968,980 | $704,577 | 37.5% | - | | Adjusted EBITDA | $3,701,841 | $3,369,700 | 10% | 12% | - Americas revenue increased by 8% (8% constant currency) to $3.617 billion, driven by IBX data center expansions, Entel acquisitions, and increased orders[307][309] - EMEA revenue increased by 21% (28% constant currency) to $2.838 billion, primarily due to power price increases, services to joint ventures, IBX expansions, and the MainOne acquisition[307][310] - Asia-Pacific revenue increased by 10% (12% constant currency) to $1.733 billion, driven by increased orders and IBX data center expansions[307][311] - Total indebtedness (gross) was approximately $16.1 billion as of December 31, 2023, with $2.1 billion in cash and cash equivalents and $3.9 billion available from the revolving credit facility[171][351] Cash Flow Summary (Years Ended Dec 31, 2023 vs 2022) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :----------------------- | :------------------ | :------------------ | :-------------------- | | Operating Activities | $3,216,595 | $2,963,182 | $253,413 | | Investing Activities | $(3,224,364) | $(3,362,953) | $138,589 | | Financing Activities | $211,446 | $856,766 | $(645,320) | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Equinix faces market risks from interest rates, foreign currency, and commodity prices, mitigated by hedging programs, though significant currency fluctuations could impact revenues and expenses - Equinix is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices (primarily electricity)[372] - The company employs foreign currency forward and option contracts, cross-currency interest rate swaps, and interest rate locks to hedge exposures, but these do not eliminate all risks[373] - A hypothetical 10% strengthening of the U.S. Dollar would reduce revenues by approximately $281.9 million and operating expenses by $256.6 million[384] - A hypothetical 10% weakening of the U.S. Dollar would increase revenues by approximately $345.2 million and operating expenses by $320.3 million[385][386] - For every 100-basis point increase or decrease in interest rates, annual interest expense could change by approximately $6.4 million based on variable-rate term loan borrowings[376] Fair Value of Debt Instruments (as of Dec 31, 2023) | Debt Type | Carrying Value (in thousands) | Fair Value (in thousands) | | :----------------------- | :---------------------------- | :------------------------ | | Mortgage and loans payable | $671,694 | $684,222 | | Senior notes | $13,168,952 | $11,739,401 | ITEM 8. Financial Statements and Supplementary Data Audited consolidated financial statements and supplementary data are located starting on page F-1 of the Annual Report on Form 10-K - The financial statements and supplementary data are listed in Item 15(a)(1) and begin at page F-1 of this Annual Report on Form 10-K[390] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No disclosure is reported regarding changes in or disagreements with accountants on accounting and financial disclosure - No disclosure to report pursuant to Item 9, indicating no changes in or disagreements with accountants on accounting and financial disclosure[391] ITEM 9A. Controls and Procedures Equinix's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes identified - Equinix's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023[392] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[394][395] - No material changes in internal control over financial reporting occurred during the twelve months ended December 31, 2023[397] ITEM 9B. Other Information No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during Q4 2023 - None of Equinix's directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q4 2023[398] ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to Equinix - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[399] PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including codes of conduct, is incorporated by reference from the 2024 Annual Meeting Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Annual Meeting Proxy Statement[401] - Equinix has adopted a Code of Ethics for the CEO and Senior Financial Officers and a Code of Business Conduct, available on its website[402] ITEM 11. Executive Compensation Executive compensation information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Executive compensation information is incorporated by reference from the 2024 Annual Meeting Proxy Statement[403] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Security ownership information for beneficial owners and management is incorporated by reference from the 2024 Annual Meeting Proxy Statement[404] ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Annual Meeting Proxy Statement[405] ITEM 14. Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Principal accounting fees and services information is incorporated by reference from the 2024 Annual Meeting Proxy Statement[406] PART IV ITEM 15. Exhibits and Financial Statement Schedules This section lists financial statements, supplementary data, and a detailed index of exhibits, including various agreements, corporate documents, and certifications - Includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity, and Cash Flows[408] - A comprehensive list of exhibits is provided, detailing various agreements, corporate documents, and certifications, with information on their form, filing date, and whether they are incorporated by reference or filed herewith[409][410][411][412][413][414][418] ITEM 16. Form 10-K Summary A Form 10-K Summary is not applicable for this report - Form 10-K Summary is not applicable[420] Signatures This section contains the signatures of Equinix's principal executive, financial, and accounting officers, and directors, affirming responsibility for the Annual Report on Form 10-K - The Annual Report on Form 10-K is signed by the Chief Executive Officer and President, Chief Financial Officer, Chief Accounting Officer, and Directors[423][427] - Signatures confirm authorization and responsibility for the report as of February 16, 2024[423][427] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on Equinix's consolidated financial statements and internal control over financial reporting, highlighting REIT asset tests as a critical audit matter - PricewaterhouseCoopers LLP issued an unqualified opinion on Equinix's consolidated financial statements as of December 31, 2023 and 2022, and for the three years ended December 31, 2023[431][432] - The firm also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[432] - A critical audit matter identified was 'Income taxes - Real estate investment trust asset tests', due to significant management judgment in determining the fair market value of REIT and non-REIT assets[439][440]