10-Q 1 eqix-33119x10q.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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 000-31293
  
 
 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)
  
 
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)    Yes  ý    No  ¨ and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    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  ý    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
ý
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  ý



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
The number of shares outstanding of the registrant's Common Stock as of May 2, 2019 was 84,070,037.
 



EQUINIX, INC.
INDEX
 
Page
No.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

3


PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
EQUINIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
March 31,
2019
 
December 31,
2018
 
(Unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,633,844

 
$
606,166

Short-term investments
13,833

 
4,540

Accounts receivable, net of allowance for doubtful accounts of $18,212 and $15,950
703,835

 
630,119

Other current assets
274,259

 
274,857

Total current assets
2,625,771

 
1,515,682

Property, plant and equipment, net
10,898,210

 
11,026,020

Operating lease right-of-use assets
1,457,822

 

Goodwill
4,808,085

 
4,836,388

Intangible assets, net
2,243,106

 
2,333,296

Other assets
458,097

 
533,252

Total assets
$
22,491,091

 
$
20,244,638

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
746,771

 
$
756,692

Accrued property, plant and equipment
263,141

 
179,412

Current portion of operating lease liabilities
132,162

 

Current portion of finance lease liabilities
56,024

 
77,844

Current portion of mortgage and loans payable
72,796

 
73,129

Current portion of senior notes
300,488

 
300,999

Other current liabilities
113,969

 
126,995

Total current liabilities
1,685,351

 
1,515,071

Operating lease liabilities, less current portion
1,316,522

 

Finance lease liabilities, less current portion
1,166,234

 
1,441,077

Mortgage and loans payable, less current portion
1,286,749

 
1,310,663

Senior notes, less current portion
8,067,385

 
8,128,785

Other liabilities
544,062

 
629,763

Total liabilities
14,066,303

 
13,025,359

Commitments and contingencies (Note 9)

 

Equinix stockholders' equity
 
 
 
Common stock, $0.001 par value per share: 300,000,000 shares authorized; 84,465,156 issued and 84,070,003 outstanding in 2019 and 81,119,117 issued and 80,722,258 outstanding in 2018
84

 
81

Additional paid-in capital
12,043,056

 
10,751,313

Treasury stock, at cost; 395,153 shares in 2019 and 396,859 shares in 2018
(144,801
)
 
(145,161
)
Accumulated dividends
(3,532,915
)
 
(3,331,200
)
Accumulated other comprehensive loss
(942,365
)
 
(945,702
)
Retained earnings
1,002,053

 
889,948

Total Equinix stockholders' equity
8,425,112

 
7,219,279

Non-controlling interests
(324
)
 

Total stockholders' equity
8,424,788

 
7,219,279

Total liabilities and stockholders' equity
$
22,491,091

 
$
20,244,638

See accompanying notes to condensed consolidated financial statements.

4


EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
(Unaudited)
Revenues
$
1,363,218

 
$
1,215,877

Costs and operating expenses:
 
 
 
Cost of revenues
682,030

 
622,430

Sales and marketing
169,715

 
159,776

General and administrative
215,046

 
203,157

Acquisition costs
2,471

 
4,639

Impairment charges
14,448

 

Total costs and operating expenses
1,083,710

 
990,002

Income from operations
279,508

 
225,875

Interest income
4,202

 
4,610

Interest expense
(122,846
)
 
(126,277
)
Other expense
(166
)
 
(3,064
)
Loss on debt extinguishment
(382
)
 
(21,491
)
Income before income taxes
160,316


79,653

Income tax expense
(42,569
)
 
(16,759
)
Net income
117,747

 
62,894

Net loss attributable to non-controlling interests
331

 

Net income attributable to Equinix
$
118,078

 
$
62,894

Earnings per share ("EPS") attributable to Equinix:
 
 
 
Basic EPS
$
1.44

 
$
0.79

Weighted-average shares for basic EPS
81,814

 
79,241

Diluted EPS
$
1.44

 
$
0.79

Weighted-average shares for diluted EPS
82,090

 
79,649

See accompanying notes to condensed consolidated financial statements.

5


EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
(Unaudited)
Net income
$
117,747

 
$
62,894

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustment ("CTA") gain (loss), net of tax effects of $(10) and $0
(81,719
)
 
145,851

Net investment hedge CTA gain (loss), net of tax effect of $10 and $1,637
76,850

 
(72,635
)
Unrealized gain (loss) on cash flow hedges, net of tax effects of $(2,741) and $1,360
8,224

 
(4,080
)
Net actuarial gain (loss) on defined benefit plans, net of tax effects of $(1) and $(6)
(11
)
 
8

Total other comprehensive income, net of tax
3,344

 
69,144

Comprehensive income, net of tax
121,091

 
132,038

Net loss attributable to non-controlling interests
331

 

Other comprehensive income attributable to non-controlling interests
(7
)
 

Comprehensive income attributable to Equinix
$
121,415

 
$
132,038

See accompanying notes to condensed consolidated financial statements.

6


EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended
March 31,
 
2019
 
2018
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
117,747

 
$
62,894

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
263,643

 
256,952

Stock-based compensation
49,023

 
42,536

Amortization of intangible assets
49,535

 
50,616

Amortization of debt issuance costs and debt discounts and premiums
2,995

 
4,099

Provision for allowance for doubtful accounts
4,594

 
3,281

Impairment charges
14,448

 

Loss on debt extinguishment
382

 
21,491

Other items
5,157

 
4,504

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(84,350
)
 
(71,275
)
Income taxes, net
15,825

 
(15,381
)
Other assets
(7,833
)
 
(6,694
)
Operating lease right-of-use assets
41,264

 

Operating lease liabilities
(38,886
)
 

Accounts payable and accrued expenses
(11,463
)
 
(35,143
)
Other liabilities
(940
)
 
(16,973
)
Net cash provided by operating activities
421,141

 
300,907

Cash flows from investing activities:
 
 
 
Purchases of investments
(9,297
)
 
(29,265
)
Sales of investments
518

 
28,768

Purchases of real estate
(5,721
)
 
(14,700
)
Purchases of other property, plant and equipment
(363,967
)
 
(349,729
)
Net cash used in investing activities
(378,467
)
 
(364,926
)
Cash flows from financing activities:
 
 
 
Proceeds from employee equity awards
27,593

 
25,847

Payment of dividends and special distribution
(204,603
)
 
(186,999
)
Proceeds from public offering of common stock, net of issuance costs
1,213,434

 

Proceeds from senior notes

 
929,850

Repayments of finance lease liabilities
(31,158
)
 
(55,787
)
Repayments of mortgage and loans payable
(18,334
)
 
(6,599
)
Debt extinguishment costs

 
(20,704
)
Debt issuance costs

 
(11,583
)
Net cash provided by financing activities
986,932

 
674,025

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash 
(1,695
)
 
7,903

Net increase in cash, cash equivalents and restricted cash
1,027,911

 
617,909

Cash, cash equivalents and restricted cash at beginning of period
627,604

 
1,450,701

Cash, cash equivalents and restricted cash at end of period
$
1,655,515

 
$
2,068,610

 
 
 
 
Cash and cash equivalents
$
1,633,844

 
$
2,023,808

Current portion of restricted cash included in other current assets
11,305

 
33,460

Non-current portion of restricted cash included in other assets
10,366

 
11,342

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
1,655,515

 
$
2,068,610

See accompanying notes to condensed consolidated financial statements.

7


EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Equinix, Inc. ("Equinix" or the "Company") and reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position and the results of operations for the interim periods presented. The condensed consolidated balance sheet data as of December 31, 2018 has been derived from audited consolidated financial statements as of that date. The condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission ("SEC"), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). For further information, refer to the Consolidated Financial Statements and Notes thereto included in Equinix's Form 10-K as filed with the SEC on February 22, 2019. Results for the interim periods are not necessarily indicative of results for the entire fiscal year.
Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Equinix and its subsidiaries, including the acquisitions of Metronode from April 18, 2018 and Infomart Dallas from April 2, 2018. All intercompany accounts and transactions have been eliminated in consolidation.
Derivatives and Hedging Activities
The Company uses derivative instruments, including foreign currency forwards and options and cross-currency interest rate swaps, to manage certain foreign currency exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for speculative purposes. The Company recognizes all derivatives on the Company's condensed consolidated balance sheets at fair value. The accounting for changes in the value of a derivative depends on whether the contract qualifies and has been designated for hedge accounting. In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged and there must be documentation of the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, and the effectiveness assessment methodology. For cash flow hedges, the Company uses regression analysis at the time they are designated to assess their effectiveness. Hedge designations are reviewed on a quarterly basis to assess whether circumstances have changed that would disrupt the hedge instrument’s relationship to the forecasted transactions or net investment.
The Company uses the forward method to assess effectiveness of qualifying foreign currency forwards that are designated as cash flow hedges, whereby, the change in the fair value of the derivative is recorded in other comprehensive income (loss) and reclassified to the same line item in the condensed consolidated statement of operations that is used to present the earnings effect of the hedged item when the hedged item affects earnings. The Company uses the spot method to assess effectiveness of qualifying foreign currency exchange options that are designated as cash flow hedges, whereby, the change in fair value due to foreign currency exchange spot rates is recorded in other comprehensive income (loss) and reclassified to the same line item in the condensed consolidated statement of operations that is used to present the earnings effect of the hedged item when the hedged item affects earnings, and the change in fair value of the excluded component is recorded in other comprehensive income (loss) and amortized on a straight-line basis to the same line item in the condensed consolidated statement of operations that is used to present the earnings effect of the hedged item. When two or more derivative instruments in combination are jointly designated as a cash flow hedging instrument, as with foreign currency exchange option collars, they are treated as a single instrument. If the hedge relationship is terminated for any derivatives designated as cash flow hedges, then the change in fair value of the derivative recorded in other comprehensive income (loss) is recognized in earnings when the previously hedged item affects earnings, consistent with the original hedge strategy. For hedge relationships discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related derivative amounts recorded in other comprehensive income (loss) are immediately recognized in earnings.
The Company uses the spot method to assess effectiveness of cross-currency interest rate swaps that are designated as net investment hedges, whereby, the change in fair value due to foreign currency exchange spot rates is recorded in other comprehensive income (loss) and the change in fair value of the excluded component is recorded in other comprehensive income (loss) and amortized to interest expense on a straight-line basis.

8

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

From time to time, the Company also uses foreign exchange forward contracts to hedge against the effect of foreign exchange rate fluctuations on a portion of its net investment in the foreign subsidiaries. The Company uses the spot method to assess effectiveness of qualifying foreign currency forwards that are designated as net investment hedges, whereby, the change in fair value due to foreign currency exchange spot rates is recorded in other comprehensive income (loss) and the change in fair value of the excluded component is recorded in other comprehensive income (loss) and amortized to interest expense on a straight-line basis.
Foreign currency gains or losses associated with derivatives that are not designated as hedging instruments for accounting purposes are recorded within other income (expense) in the Company’s condensed consolidated statements of operations, with the exception of (i) foreign currency embedded derivatives contained in certain of the Company’s customer contracts and (ii) foreign exchange forward contracts that are entered into to hedge the accounting impact of the foreign currency embedded derivatives, which are recorded within revenues in the Company’s condensed consolidated statements of operations.
For further information on derivatives and hedging activities, see Note 5 below.
Income Taxes
The Company elected to be taxed as a real estate investment trust for federal income tax purposes ("REIT") beginning with its 2015 taxable year. As a result, the Company may deduct the distributions made to its stockholders from taxable income generated by the Company and its qualified REIT subsidiaries ("QRSs"). The Company's dividends paid deduction generally eliminates the U.S. taxable income of the Company and its QRSs, resulting in no U.S. income tax due. However, the Company's taxable REIT subsidiaries ("TRSs") continue to be subject to income taxes on any taxable income generated by them. In addition, the foreign operations of the Company will continue to be subject to local income taxes regardless of whether the foreign operations are operated as QRSs or TRSs.
The Company provides for income taxes during interim periods based on the estimated effective tax rate for the year. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the Company, tax law changes and future business acquisitions.
The Company's effective tax rates were 26.6% and 21.0% for the three months ended March 31, 2019 and 2018, respectively.
Assets Held for Sale
Assets and liabilities to be disposed of that meet all of the criteria to be classified as held for sale as set forth in the accounting standard for impairment or disposal of long-lived assets are reported at the lower of their carrying amounts or fair values less costs to sell. Assets are not depreciated or amortized while they are classified as held for sale.
In January 2019, the Company entered into an agreement to sell its New York 12 ("NY12") data center. The assets of NY12 data center to be divested were classified as held for sale and were included within other current assets in the condensed consolidated balance sheet as of March 31, 2019. When an asset is classified as held for sale, the asset's book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. Based on the analysis, the Company concluded that it would not recover the carrying value of certain of the NY12 assets. Accordingly, the Company recorded an impairment charge of $14.4 million during the three months ended March 31, 2019, reducing the carrying value of such assets to the estimated fair value less cost to sell.
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In June 2016, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted

9

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will adopt this new ASU on January 1, 2020. The Company expects this ASU to impact its accounting for allowances for doubtful accounts and is currently evaluating the extent of the impact that the adoption of this standard will have on its condensed consolidated financial statements.
Accounting Standards Adopted
In August 2017, FASB issued ASU 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to simplify the application of the hedge accounting guidance in current GAAP. This ASU permits hedge accounting for risk components involving nonfinancial risk and interest rate risk, requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the hedged item is reported, no longer requires separate measurement and reporting of hedge ineffectiveness, eases the requirement for hedge effectiveness assessment, and requires a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges. This ASU is effective for annual or any interim reporting periods beginning after December 15, 2018 with early adoption permitted.
The Company adopted ASU 2017-12 on January 1, 2019 using the modified retrospective approach. For cash flow hedges existing on the date of adoption, the Company recognized the cumulative effect of the change on the opening balance of accumulated other comprehensive income (loss) with a corresponding adjustment to the opening balance of retained earnings for amounts previously recognized in earnings related to ineffectiveness. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
In February 2016, FASB issued ASU 2016-02, Leases and issued subsequent amendments to the initial guidance, collectively referred to as "Topic 842." Topic 842 replaces the guidance in former ASC Topic 840, Leases. The new lease guidance increases transparency and comparability among organizations by requiring the recognition of the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee's future obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use ("ROU") asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Topic 842 allows entities to adopt with one of two methods: the modified retrospective transition method or the alternative transition method.
On January 1, 2019, the Company adopted Topic 842 using the alternative transition method. Therefore, results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The Company recognized the cumulative effects of initially applying the standard as an adjustment to the opening balance of retained earnings in the period of adoption.
In adopting the new guidance, the Company elected to apply the package of practical expedients permitted under the transition guidance which allows the Company not to reassess (1) whether any expired or existing contracts contain leases under the new definition of a lease; (2) lease classification for any expired or existing leases; and (3) whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. The Company also elected to apply the land easements practical expedient which permits the Company not to assess at transition whether any expired or existing land easements are, or contain, leases if they were not previously accounted for as leases under Topic 840.
Upon adoption of Topic 842, the Company also elected to adopt the practical expedient which allows the Company to combine qualified non-lease and lease components by underlying class of asset based, on predominance, as a lessor.  Occasionally, the Company enters into revenue contracts with customers for data center and office spaces, which contain both lease and non-lease components. In general, lease and non-lease components related to the use of space and services provided in a data center, which share the same pattern of transfer, will be combined and accounted for under ASC 606, Revenue from Contracts with Customers.  Lease and non-lease components related to the use of office space, which share the same pattern of transfer, will be combined and accounted for under Topic 842. Lease components which are not classified as operating leases do not qualify for the practical expedient. Non-lease components, which do not have similar patterns of transfers, such as professional services and goods for resale, are also excluded from combination.
Adoption of the standard had a significant impact on the Company's financial results, including the (1) recognition of new ROU assets and liabilities on its balance sheet for all operating leases; and (2) de-recognition of existing build-to-suit assets and liabilities with cumulative effects of initially applying the standard as an adjustment to the retained earnings. The cumulative effect of the changes made to its consolidated January 1, 2019 balance sheet from the adoption of Topic 842 was as follows (in thousands):

10

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Balance Sheet
 
Balances at December 31, 2018
 
Adjustments due to adoption of Topic 842
 
Balances at January 1, 2019
Assets
 
 
 
 
 
 
Other current assets
 
$
274,857

 
$
(15,949
)
 
$
258,908

Property, plant and equipment, net
 
11,026,020

 
(293,111
)
 
10,732,909

Operating lease right-of-use assets
 

 
1,468,762

 
1,468,762

Intangible assets, net
 
2,333,296

 
(23,205
)
 
2,310,091

Other assets
 
533,252

 
(63,468
)
 
469,784

Liabilities
 
 
 
 
 
 
Current portion of operating lease liabilities
 

 
144,405

 
144,405

Current portion of finance lease liabilities
 

 
70,795

 
70,795

Current portion of capital lease and other financing obligations
 
77,844

 
(77,844
)
 

Other current liabilities
 
126,995

 
(6,455
)
 
120,540

Operating lease liabilities, less current portion
 

 
1,312,262

 
1,312,262

Finance lease liabilities, less current portion
 

 
1,165,188

 
1,165,188

Capital lease and other financing obligations, less current portion
 
1,441,077

 
(1,441,077
)
 

Other liabilities
 
629,763

 
(88,272
)
 
541,491

Equity
 
 
 
 
 
 
Retained Earnings
 
889,948

 
(5,973
)
 
883,975

2.
Revenue
Contract Balances
The following table summarizes the opening and closing balances of the Company's accounts receivable, net; contract asset, current; contract asset, non-current; deferred revenue, current; and deferred revenue, non-current (in thousands):
 
Accounts receivable, net
 
Contract asset, current
 
Contract asset, non-current
 
Deferred revenue, current
 
Deferred revenue, non-current
Beginning balances as of January 1, 2019
$
630,119

 
$
9,778

 
$
16,396

 
$
73,142

 
$
46,641

Closing balances as of March 31, 2019
703,835

 
9,753

 
16,543

 
76,240

 
45,401

Increase/(decrease)
$
73,716

 
$
(25
)
 
$
147

 
$
3,098

 
$
(1,240
)
The difference between the opening and closing balances of the Company's accounts receivable, net, contract assets and deferred revenues primarily results from revenue growth and the timing difference between the satisfaction of the Company's performance obligation and the customer's payment. The amounts of revenue recognized during the three months ended March 31, 2019 from the opening deferred revenue balance was $44.1 million.
Remaining performance obligations
As of March 31, 2019, approximately $7.2 billion of total revenues and deferred installation revenues are expected to be recognized in future periods, the majority of which will be recognized over the next 24 months. While initial contract terms vary in length, substantially all contracts thereafter automatically renew in one-year increments. Included in the remaining performance obligations is either 1) remaining performance obligations under the initial contract terms or 2) remaining performance obligations related to contracts in the renewal period once the initial terms have lapsed. The remaining performance obligations do not include variable consideration related to unsatisfied performance obligations such as the usage of metered power or any contracts that could be terminated without any significant penalties such as the majority of interconnection revenues. The remaining performance obligations above include revenues to be recognized in the future related to arrangements where the Company is the lessor.

11

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

3.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share ("EPS") for the periods presented (in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2019
 
2018
Net income
$
117,747

 
$
62,894

Net loss attributable to non-controlling interests
331

 

Net income attributable to Equinix
$
118,078

 
$
62,894

 
 
 
 
Weighted-average shares used to calculate basic EPS
81,814

 
79,241

Effect of dilutive securities:
 
 
 
Employee equity awards
276

 
408

Weighted-average shares used to calculate diluted EPS
82,090

 
79,649

 
 
 
 
EPS attributable to Equinix:
 
 
 
Basic EPS
$
1.44

 
$
0.79

Diluted EPS
$
1.44

 
$
0.79

The Company has excluded common stock related to employee equity awards in the diluted EPS calculation above of 469,000 shares and 238,000 shares for the three months ended March 31, 2019 and 2018, respectively, because their effect would be anti-dilutive.
4.
Acquisitions
2018 Acquisitions
On April 18, 2018, the Company acquired all of the equity interests in Metronode from the Ontario Teachers' Pension Plan Board for a cash purchase price of A$1.034 billion or approximately $804.6 million at the exchange rate in effect on April 18, 2018 (the "Metronode Acquisition"). Metronode operated 10 data centers in six metro areas in Australia. The acquisition supports the Company's ongoing global expansion to meet customer demand in the Asia-Pacific region.
On April 2, 2018, the Company completed the acquisition of Infomart Dallas, including its operations and tenants, from ASB Real Estate Investments (the "Infomart Dallas Acquisition"), for total consideration of approximately $804.0 million. The consideration was comprised of approximately $45.8 million in cash, subject to customary adjustments, and $758.2 million aggregate fair value of 5.000% senior unsecured notes (see Note 8). Prior to the acquisition, a portion of the building was leased to the Company and was being used as its Dallas 1, 2, 3 and 6 data centers, which were all accounted for as build-to-suit leases. Upon acquisition, the Company effectively terminated the leases and settled the related financing obligations and other liabilities related to the leases for approximately $170.3 million and $1.9 million, respectively, and recognized a loss on debt extinguishment of $19.5 million. The acquisition of this highly interconnected facility and tenants adds to the Company's global platform and secures the ability to further expand in the Americas market in the future.
Both acquisitions constitute a business under the accounting standard for business combinations and, therefore, were accounted for as business combinations using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed measured at fair value on the date of acquisition. During the three months ended March 31, 2019, the Company completed the detailed valuation analysis of Metronode and Infomart Dallas to derive the fair value of assets acquired and liabilities assumed and finalized the allocation of purchase price for Metronode and Infomart Dallas. For the Metronode Acquisition, the adjustments made during the three months ended March 31, 2019 primarily resulted in a decrease in deferred tax liability and goodwill of $4.2 million and $3.7 million, respectively. No purchase price allocation adjustments were made during the three months ended March 31, 2019 for the Infomart Dallas Acquisition.

12

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

For the Metronode Acquisition, the adjustments made from the provisional amounts reported as of June 30, 2018 primarily resulted in a decrease in property, plant and equipment, other assets, other liabilities and deferred tax assets of $10.1 million, $10.0 million, $9.7 million and $4.1 million, respectively, and an increase in goodwill, intangible assets and deferred tax liabilities of $41.6 million, $4.8 million and $31.3 million, respectively. The adjustments for the Infomart Dallas Acquisition made from the provisional amounts reported as of June 30, 2018 primarily resulted in a decrease in goodwill of $6.2 million and an increase in intangible assets of $4.6 million. The changes in fair value of acquired assets and liabilities assumed did not have a significant impact on the Company's results of operations for any reporting periods prior to March 31, 2019.
A summary of the final allocation of total purchase consideration is presented as follows (in thousands):
 
Metronode
 
Infomart Dallas
Cash and cash equivalents
$
3,206

 
$
17,432

Accounts receivable
8,318

 
637

Other current assets
9,421

 
395

Property, plant, and equipment
297,092

 
362,023

Intangible assets
128,229

 
65,847

Goodwill
410,188

 
197,378

Other assets (1)
44,373

 

Total assets acquired
900,827

 
643,712

Accounts payable and accrued liabilities
(17,104
)
 
(5,056
)
Other current liabilities
(2,038
)
 
(2,141
)
Deferred tax liabilities
(31,281
)
 

Other liabilities (1)
(45,851
)
 
(4,723
)
Net assets acquired
$
804,553

 
$
631,792

 
(1) 
In connection with the Metronode Acquisition, the Company recorded indemnification assets of $44.4 million, which represented the seller's obligation under the purchase agreement to reimburse pre-acquisition tax liabilities settled after the acquisition.
The following table presents certain information on the acquired intangible assets (in thousands):
Intangible Assets
 
Fair Value
 
Estimated Useful Lives (Years)
 
Weighted-average Estimated Useful Lives (Years)
Customer relationships (Metronode)
 
$
128,229

 
20.0
 
20.0
Customer relationships (Infomart Dallas)
 
35,860

 
20.0
 
20.0
In-place leases (Infomart Dallas)
 
19,960

 
3.6 - 7.5
 
6.8
Trade names (Infomart Dallas)
 
9,552

 
20.0
 
20.0
Favorable leases (Infomart Dallas)
 
475

 
3.6 - 7.5
 
7.0
The fair value of customer relationships was estimated by applying an income approach, by calculating the present value of estimated future operating cash flows generated from existing customers less costs to realize the revenue. The Company applied discount rates of 7.3% for Metronode and 8.2% for Infomart Dallas, which reflected the nature of the assets as they relate to the risk and uncertainty of the estimated future operating cash flows. Other assumptions used to estimate the fair value of customer relationships included projected revenue growth, probability of renewal, customer attrition rates and operating margins. The fair value of Infomart Dallas' trade name was estimated using the relief from royalty approach. The Company applied a relief from royalty rate of 1.5% and a discount rate of 8.2%. The fair value of in-place leases was estimated by projecting the avoided costs, such as the cost of originating the acquired in-place leases, during a typical lease up period. The fair value measurements were based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in the accounting standard for fair value measurements.

13

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The fair value of property, plant and equipment was estimated by applying the cost approach, with the exception of land which was estimated by applying the market approach, for the Metronode Acquisition. For the Infomart Dallas Acquisition, the fair values of land, building and personal property were estimated by applying the market approach, residual income method and cost approach, respectively. The cost approach uses the replacement or reproduction cost as an indicator of fair value. The premise of the cost approach is that a market participant would pay no more for an asset than the amount for which the asset could be replaced or reproduced. The key assumptions of the cost approach include replacement cost new, physical deterioration, functional and economic obsolescence, economic useful life, remaining useful life, age and effective age. The residual income method estimates the fair value of the Infomart Dallas building using an income approach less the fair values attributed to land, personal property, in-place leases and favorable and unfavorable leases.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill is attributable to the workforce of the acquired business and the projected revenue increase expected to arise from future customers after the Metronode and Infomart Dallas acquisitions. Goodwill from the acquisition of Metronode is not amortizable for local tax purposes and is attributable to the Company's Asia-Pacific region. Goodwill from the acquisition of Infomart Dallas is deductible for local tax purposes and is attributable to the Company's Americas region. Operating results of Metronode and Infomart Dallas have been reported in the Asia-Pacific and Americas regions, respectively.
For the three months ended March 31, 2019, the Company's results of operations include $27.2 million of revenues and insignificant net income from operations from the combined operations of Metronode and Infomart Dallas.
5.
Derivatives and Hedging Activities
Derivatives Designated as Hedging Instruments
Net Investment Hedges. The Company is exposed to the impact of foreign exchange rate fluctuations on the value of investments in its foreign subsidiaries whose functional currencies are other than the U.S. Dollar. In order to mitigate the impact of foreign currency exchange rates, the Company has entered into various foreign currency debt obligations, which are designated as hedges against the Company's net investments in foreign subsidiaries. As of March 31, 2019 and December 31, 2018, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $4,113.0 million and $4,139.8 million, respectively.
The Company also uses cross-currency interest rate swaps to hedge a portion of its net investment in its European operations. As of March 31, 2019, U.S. Dollar to Euro cross-currency interest rate swap contracts with a total notional amount of $750.0 million were outstanding, with maturity dates in April 2022, January 2024 and January 2025. At maturity of each outstanding contract, the Company will receive U.S. Dollars from and pay Euros to the contract counterparty. During the term of each contract, the Company receives interest payments in U.S. Dollars and makes interest payments in Euros based on a notional amount and fixed interest rates determined at contract inception. The Company did not have any cross-currency interest rate swaps outstanding as of December 31, 2018.

14

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The effect of net investment hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
 
 
 
Three Months Ended
March 31,
 
 
 
2019
 
2018
Foreign currency debt
 
$
63,914

 
$
(74,272
)
Cross-currency interest rate swaps (included component) (1)
 
15,515

 

Cross-currency interest rate swaps (excluded component) (2)
 
(2,590
)
 

Total
 
$
76,839

 
$
(74,272
)
 
 
 
 
 
 
Amount of gain or (loss) recognized in earnings:
 
 
 
Three Months Ended
March 31,
 
Location of gain or (loss)
 
2019
 
2018
Cross-currency interest rate swaps (excluded component) (2)
Interest expense
 
$
4,163

 
$

Total
 
 
$
4,163

 
$


(1) 
Included component represents foreign exchange spot rates.
(2) 
Excluded component represents cross-currency basis spread and interest rates.
Cash Flow Hedges. The Company hedges its foreign currency translation exposure for forecasted revenues and expenses in its EMEA region between the U.S. Dollar and the British Pound, Euro, Swedish Krona and Swiss Franc. The foreign currency forward contracts that the Company uses to hedge this exposure are designated as cash flow hedges. As of March 31, 2019 and December 31, 2018, the total notional amounts of these foreign exchange contracts were $874.4 million and $760.9 million, respectively.
The Company enters into intercompany hedging instruments ("intercompany derivatives") with wholly-owned subsidiaries of the Company in order to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. Dollar. Simultaneously, the Company enters into derivative contracts with unrelated third parties to externally hedge the net exposure created by such intercompany derivatives.
The effect of cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
 
 
 
Three Months Ended
March 31,
 
 
 
2019
 
2018
Foreign currency forward contracts
 
$
10,965

 
$
(5,441
)
 
 
 
 
 
 
Amount of gain or (loss) reclassified from accumulated other comprehensive income to income:
 
 
 
Three Months Ended
March 31,
 
Location of gain or (loss)
 
2019
 
2018
Foreign currency forward contracts
Revenues
 
$
9,861

 
$
(18,415
)
Foreign currency forward contracts
Cost of revenues
 
(5,329
)
 
9,323

Total
 
 
$
4,532

 
$
(9,092
)

15

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

During the three months ended March 31, 2019 and 2018, the amounts of net gain or loss attributable to excluded components of cash flow hedges recognized in other comprehensive income and net income were not significant.
As of March 31, 2019, the Company's cash flow hedge instruments had maturity dates ranging from April 2019 to March 2021 and the Company recorded a net gain of $30.3 million within accumulated other comprehensive income (loss) relating to cash flow hedges that will be reclassified to revenues and expenses as they mature in the next 12 months. As of December 31, 2018, the Company's cash flow hedge instruments had maturity dates ranging from January 2019 to December 2020 and the Company recorded a net gain of $21.4 million within accumulated other comprehensive income (loss) relating to cash flow hedges that will be reclassified to revenues and expenses as they mature in the next 12 months.
Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. The Company is deemed to have foreign currency forward contracts embedded in certain of the Company's customer agreements that are priced in currencies different from the functional or local currencies of the parties involved. These embedded derivatives are separated from their host contracts and carried on the Company's balance sheet at their fair value. The majority of these embedded derivatives arise as a result of the Company's foreign subsidiaries pricing their customer contracts in U.S. Dollar.
Economic Hedges of Embedded Derivatives. The Company uses foreign currency forward contracts to manage the foreign exchange risk associated with the Company's customer agreements that are priced in currencies different from the functional or local currencies of the parties involved ("economic hedges of embedded derivatives"). Foreign currency forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date.
Foreign Currency Forward Contracts. The Company also uses foreign currency forward contracts to manage the foreign exchange risk associated with certain foreign currency-denominated monetary assets and liabilities. As a result of foreign currency fluctuations, the U.S. Dollar equivalent values of its foreign currency-denominated monetary assets and liabilities change. Gains and losses on these contracts are included in other income (expense), on a net basis, along with the foreign currency gains and losses of the related foreign currency-denominated monetary assets and liabilities associated with these foreign currency forward contracts. As of March 31, 2019 and December 31, 2018, the total notional amounts of these foreign currency contracts were $1,686.4 million and $1,500.4 million, respectively.
The following table presents the effect of derivatives not designated as hedging instruments in the Company's condensed consolidated statements of operations (in thousands):
Amount of gain or (loss) recognized in earnings:
 
 
 
 
 
 
 
Three Months Ended
March 31,
 
Location of gain or (loss)
 
2019
 
2018
Embedded derivatives
Revenues
 
$
907

 
$
(2,445
)
Economic hedge of embedded derivatives
Revenues
 
(57
)
 
530

Foreign currency forward contracts
Other income (expense)
 
8,351

 
(4,120
)
    Total
 
 
$
9,201

 
$
(6,035
)

16

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Fair Value of Derivative Instruments
The following table presents the fair value of derivative instruments recognized in the Company's condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Assets (1)
 
Liabilities (2)
 
Assets (1)
 
Liabilities (2)
Designated as hedging instruments:
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
Foreign currency forward contracts
$
46,383

 
$
373

 
$
38,606

 
$
865

Net investment hedges
 
 
 
 
 
 
 
Cross-currency interest rate swaps
12,925

 

 

 

Total designated as hedging
59,308

 
373

 
38,606

 
865

 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
Embedded derivatives
4,998

 
1,890

 
4,656

 
2,426

Economic hedges of embedded derivatives

 
557

 
525

 
180

Foreign currency forward contracts
13,047

 
244

 
29,287

 
6,269

Total not designated as hedging
18,045

 
2,691

 
34,468

 
8,875

Total Derivatives
$
77,353

 
$
3,064

 
$
73,074

 
$
9,740


(1) 
As presented in the Company's condensed consolidated balance sheets within other current assets and other assets.
(2) 
As presented in the Company's condensed consolidated balance sheets within other current liabilities and other liabilities.
Offsetting Derivative Assets and Liabilities
The Company presents its derivative instruments and the accrued interest related to cross-currency interest rate swaps at gross fair values in the condensed consolidated balance sheets. The Company enters into master netting agreements with its counterparties for transactions other than embedded derivatives to mitigate credit risk exposure to any single counterparty. Master netting agreements allow for individual derivative contracts with a single counterparty to offset in the event of default. For presentation on the condensed consolidated balance sheets, the Company does not offset fair value amounts recognized for derivative instruments or the accrued interest related to cross-currency interest rate swaps under master netting arrangements. The following table presents information related to these offsetting arrangements as of March 31, 2019 and December 31, 2018 (in thousands):
 
Gross Amounts Offset in
Consolidated Balance Sheet
 
 
 
 
 
Gross Amounts
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts
 
Gross Amounts not Offset in the Balance Sheet
 
Net
March 31, 2019
 
 
 
 
 
 
 
 
 
Derivative assets
$
86,391

 
$

 
$
86,391

 
$
(6,001
)
 
$
80,390

Derivative liabilities
7,891

 

 
7,891

 
(6,001
)
 
1,890

 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
Derivative assets
$
73,074

 
$

 
$
73,074

 
$
(6,517
)
 
$
66,557

Derivative liabilities
9,740

 

 
9,740

 
(6,517
)
 
3,223



17

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

6.
Fair Value Measurements
Fair value estimates are made as of a specific point in time based on methods using the market approach valuation method which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities or other valuation techniques. These techniques involve uncertainties and are affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors.
Cash, Cash Equivalents and Investments. The fair value of the Company's investments in money market funds approximates their face value. Such instruments are included in cash equivalents. The Company's money market funds and publicly traded equity securities are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices for identical instruments in active markets. The fair value of the Company's other investments, including certificates of deposit, approximates their face value. The fair value of these investments is priced based on the quoted market price for similar instruments or nonbinding market prices that are corroborated by observable market data. Such instruments are classified within Level 2 of the fair value hierarchy. The Company determines the fair values of its Level 2 investments by using inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, custody bank, third-party pricing vendors, or other sources. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. The Company is responsible for its condensed consolidated financial statements and underlying estimates.
The Company uses the specific identification method in computing realized gains and losses. Realized gains and losses on the investments are included within other income (expense) in the Company's condensed consolidated statements of operations. Publicly traded equity securities are measured at fair value with changes in the fair values recognized within other income (expense) in the Company's condensed consolidated statements of operations.
Derivative Assets and Liabilities. For derivatives, the Company uses forward contract and option models employing market observable inputs, such as spot currency rates and forward points with adjustments made to these values utilizing published credit default swap rates of its foreign exchange trading counterparties and other comparable companies. The Company has determined that the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, therefore the derivatives are categorized as Level 2.
The Company did not have any nonfinancial assets or liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
The Company's financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 were as follows (in thousands):
 
Fair Value at
March 31,
2019
 
Fair Value
Measurement Using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
830,918

 
$
830,918

 
$

Money market and deposit accounts
602,927

 
602,927

 

Publicly traded equity securities
2,231

 
2,231

 

Certificates of deposit
211,601

 

 
211,601

Derivative instruments (1)
77,353

 

 
77,353

Total
$
1,725,030

 
$
1,436,076

 
$
288,954

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
3,064

 
$

 
$
3,064

 
(1) 
Amounts are included within other current assets, other assets, others current liabilities and other liabilities in the Company's accompanying condensed consolidated balance sheet.

18

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 were as follows (in thousands):
 
Fair Value at
December 31,
2018
 
Fair Value
Measurement Using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
486,648

 
$
486,648

 
$

Money market and deposit accounts
119,518

 
119,518

 

Publicly traded equity securities
1,717

 
1,717

 

Certificates of deposit
2,823

 

 
2,823

Derivative instruments (1)
73,074

 

 
73,074

Total
$
683,780

 
$
607,883

 
$
75,897

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
9,740

 
$

 
$
9,740


(1) 
Amounts are included within other current assets, other assets, other current liabilities and other liabilities in the Company's accompanying condensed consolidated balance sheet.
The Company did not have any Level 3 financial assets or financial liabilities as of March 31, 2019 and December 31, 2018.
7.
Leases
The Company determines if an arrangement is or contains a lease at inception. The Company enters into lease arrangements primarily for data center spaces, office spaces and equipment. The Company recognizes a ROU asset and lease liability on the condensed consolidated balance sheet for all leases with a term longer than 12 months. The leases have remaining lease terms of 1 year to 47 years. As of March 31, 2019, the Company recorded finance lease assets of $996.9 million, net of accumulated amortization of $430.9 million, within the property, plant and equipment, net.
ROU assets represent the Company's right to use an underlying asset for the lease term. Lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are classified and recognized at the commencement date. ROU liabilities are measured based on the present value of fixed lease payments over the lease term. ROU assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company. Lease payments may vary because of changes in facts or circumstances occurring after the commencement, including changes in inflation indices. Variable lease payments are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Since most of the Company's leases do not provide an implicit rate, the Company uses its own incremental borrowing rate ("IBR") on a collateralized basis in determining the present value of lease payments. The Company utilizes a market-based approach to estimate the IBR for each individual lease. The approach requires significant judgment. Therefore, the Company utilizes different data sets to estimate IBRs via an analysis of (i) yields on our outstanding public debt; (ii) yields on comparable credit rating composite curves; (iii) sovereign curve rates; and (iv) historical difference in yields on the curves of our secured and unsecured rated debt. The Company also applies adjustments to account for considerations related to (i) tenor and (ii) country credit rating that may not be fully incorporated by the aforementioned data sets.
The majority of the Company's lease arrangements include options to extend the lease. If the Company is reasonably certain to exercise such options, the periods covered by the options are included in the lease term. The depreciable lives of certain fixed assets and leasehold improvements are limited by the expected lease term. The Company has certain leases with an initial term of 12 months or less. For such leases, the Company elects not to recognize any ROU asset or lease liability on the condensed consolidated balance sheet. The Company has lease agreements with lease and non-lease components. The Company elects to account for the lease and non-lease components as a single lease component for all classes of underlying assets for which the Company has identified lease arrangements.

19

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Lease Expenses
The components of lease expenses are as follows (in thousands):
 
Three Months Ended
March 31, 2019
Finance lease cost
 
Amortization of right-of-use assets (1)
$
20,086

Interest on lease liabilities
27,523

Total finance lease cost
47,609

 
 
Operating lease cost
51,639

Total lease cost
$
99,248

 
 
(1) Amortization of right-of-use assets is included with depreciation expense, and is recorded within cost of revenues, sales and marketing and general and administrative expenses in the condensed consolidated statements of operations.
Other Information
Other information related to leases is as follows (in thousands):
 
Three Months Ended
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:


Operating cash flows from finance leases
$
26,604

Operating cash flows from operating leases
49,262

Financing cash flows from finance leases
31,158

 
 
Right-of-use assets obtained in exchange for lease obligations:

Finance leases
$
16,307

Operating leases
28,987

 
 
Weighted-average remaining lease term - finance leases (1)
14 years

Weighted-average remaining lease term - operating leases (1)
13 years

Weighted-average discount rate - finance leases
10
%
Weighted-average discount rate - operating leases
4
%
 
(1) Includes lease renewal options that are reasonably certain to be exercised.

20

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Maturities of Lease Liabilities
Maturities of lease liabilities under Topic 842 as of March 31, 2019 are as follows (in thousands):
 
Operating leases
 
Finance leases
 
Total
2019 (9 months remaining)
$
136,590

 
$
113,850

 
$
250,440

2020
192,859

 
158,582

 
351,441

2021
179,696

 
157,629

 
337,325

2022
172,042

 
158,349

 
330,391

2023
156,559

 
159,578

 
316,137

Thereafter
1,162,046

 
1,601,646

 
2,763,692

Total lease payments
1,999,792

 
2,349,634

 
4,349,426

Plus amount representing residual property value

 
18,654

 
18,654

Less amount representing interest
(551,108
)
 
(1,146,030
)
 
(1,697,138
)
Total
$
1,448,684

 
$
1,222,258

 
$
2,670,942

For the year ended December 31, 2018, the Company's operating lease, capital lease and other financing obligations under ASC Topic 840 are summarized as follows (in thousands):
 
Capital Lease
Obligations
 
Other
Financing
Obligations (1)
 
Total Capital Lease and Other Financing Obligations
 
Operating Leases
2019
$
103,859

 
$
80,292

 
$
184,151

 
$
187,280

2020
97,326

 
73,266

 
170,592

 
179,515

2021
95,414

 
73,672

 
169,086

 
166,159

2022
94,954

 
73,856

 
168,810

 
158,115

2023
95,463

 
69,423

 
164,886

 
147,677

Thereafter
878,755

 
722,496

 
1,601,251

 
1,130,494

Total minimum lease payments
1,365,771

 
1,093,005

 
2,458,776

 
1,969,240

Plus amount representing residual property value

 
389,643

 
389,643

 

Less amount representing interest
(602,026
)
 
(727,472
)
 
(1,329,498
)
 

Present value of net minimum lease payments
763,745

 
755,176

 
1,518,921

 
1,969,240

Less current portion
(43,498
)
 
(34,346
)
 
(77,844
)
 

Total
$
720,247

 
$
720,830

 
$
1,441,077

 
$
1,969,240

 
(1)     Other financing obligations are primarily related to build-to-suit arrangements. 
The Company entered into agreements with various landlords primarily to lease data center spaces which have not yet commenced as of March 31, 2019. These leases will commence between fiscal years 2019 and 2020, with lease terms of 5 to 29 years and a total lease commitment of approximately $273.7 million.

21

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

8.
Debt Facilities
Mortgage and Loans Payable
As of March 31, 2019 and December 31, 2018, the Company's mortgage and loans payable consisted of the following (in thousands):
 
March 31,
2019
 
December 31, 2018
Term loans
$
1,321,371

 
$
1,344,482

Mortgage payable and loans payable
42,454

 
44,042

 
1,363,825

 
1,388,524

Less amount representing unamortized debt discount and debt issuance cost
(6,105
)
 
(6,614
)
Add amount representing unamortized mortgage premium
1,825

 
1,882

 
1,359,545

 
1,383,792

Less current portion
(72,796
)
 
(73,129
)
Total
$
1,286,749

 
$
1,310,663

Senior Notes
As of March 31, 2019 and December 31, 2018, the Company's senior notes consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Amount
 
Effective Rate
 
Amount
 
Effective Rate
5.000% Infomart Senior Notes
$
750,000

 
4.40
%
 
$
750,000

 
4.40
%
5.375% Senior Notes due 2022
750,000

 
5.56
%
 
750,000

 
5.56
%
5.375% Senior Notes due 2023
1,000,000

 
5.51
%
 
1,000,000

 
5.51
%
2.875% Euro Senior Notes due 2024
841,500

 
3.08
%
 
859,125

 
3.08
%
5.750% Senior Notes due 2025
500,000

 
5.88
%
 
500,000

 
5.88
%
2.875% Euro Senior Notes due 2025
1,122,000

 
3.04
%
 
1,145,500

 
3.04
%
5.875% Senior Notes due 2026
1,100,000

 
6.03
%
 
1,100,000

 
6.03
%
2.875% Euro Senior Notes due 2026
1,122,000

 
3.04
%
 
1,145,500

 
3.04
%
5.375% Senior Notes due 2027
1,250,000

 
5.51
%
 
1,250,000

 
5.51
%
 
8,435,500

 
 
 
8,500,125

 
 
Less amount representing unamortized debt issuance cost
(71,578
)
 
 
 
(75,372
)
 
 
Add amount representing unamortized debt premium
3,951

 
 
 
5,031

 
 
 
8,367,873

 
 
 
8,429,784

 
 
Less current portion
(300,488
)
 
 
 
(300,999
)
 
 
Total
$
8,067,385

 
 
 
$
8,128,785

 
 

22

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Maturities of Debt Instruments
The following table sets forth maturities of the Company's debt, including mortgage and loans payable, and senior notes, gross of debt issuance costs, debt discounts and debt premiums, as of March 31, 2019 (in thousands):
Years ending:
 
2019 (9 months remaining)
$
354,653

2020
373,127

2021
222,777

2022
1,910,324

2023
1,002,462

Thereafter
5,937,807

Total
$
9,801,150

Fair Value of Debt Instruments
The following table sets forth the estimated fair values of the Company's mortgage and loans payable and senior notes, including current maturities, as of (in thousands):
 
March 31,
2019
 
December 31,
2018
Mortgage and loans payable
$
1,369,241

 
$
1,389,632

Senior notes
8,721,018

 
8,422,211

The fair values of the mortgage and loans payable and 5.000% Infomart Senior Notes, which were not publicly traded, were estimated by considering the Company's credit rating, current rates available to the Company for debt of the same remaining maturities and terms of the debt (Level 2). The fair value of the senior notes, which were traded in the public debt market, was based on quoted market prices (Level 1).
Interest Charges
The following table sets forth total interest costs incurred and total interest costs capitalized for the periods presented (in thousands):
 
Three Months Ended
March 31,
 
2019
 
2018
Interest expense
$
122,846

 
$
126,277

Interest capitalized
9,854

 
3,314

Interest charges incurred
$
132,700

 
$
129,591

Total interest paid, net of capitalized interest, during the three months ended March 31, 2019 and 2018 was $136.3 million and $103.7 million, respectively.
9.
Commitments and Contingencies
Commitments
As a result of the Company's various IBX data center expansion projects, as of March 31, 2019, the Company was contractually committed for approximately $0.8 billion of unaccrued capital expenditures, primarily for IBX infrastructure equipment not yet delivered and labor not yet provided, in connection with the work necessary to open these IBX data centers and make them available to customers for installation. The Company also had numerous other, non-capital purchase commitments in place as of March 31, 2019, such as commitments to purchase power in select locations through the remainder of 2019 and thereafter, and other open purchase orders for goods or services to be delivered or provided during the remainder of 2019 and thereafter. Such other miscellaneous purchase commitments totaled approximately $0.9 billion as of March 31, 2019. In addition, the Company entered

23

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

into lease agreements in various locations that have not yet commenced as of March 31, 2019. For further information on lease commitments, see Note 7 above.
Contingent Liabilities
The Company estimates exposure on certain liabilities, such as indirect and property taxes, based on the best information available at the time of determination. With respect to real and personal property taxes, the Company records what it can reasonably estimate based on prior payment history, assessed value by the assessor's office, current landlord estimates or estimates based on current or changing fixed asset values in each specific municipality, as applicable. However, there are circumstances beyond the Company's control whereby the underlying value of the property or basis for which the tax is calculated on the property may change, such as a landlord selling the underlying property of one of the Company's IBX data center leases or a municipality changing the assessment value in a jurisdiction and, as a result, the Company's property tax obligations may vary from period to period. Based upon the most current facts and circumstances, the Company makes the necessary property tax accruals for each of its reporting periods. However, revisions in the Company's estimates of the potential or actual liability could materially impact the financial position, results of operations or cash flows of the Company.
The Company's indirect and property tax filings in various jurisdictions are subject to examination by local tax authorities. The outcome of any examinations cannot be predicted with certainty. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations that would affect the adequacy of its tax accruals for each of the reporting periods. If any issues arising from the tax examinations are resolved in a manner inconsistent with the Company's expectations, the revision of the estimates of the potential or actual liabilities could materially impact the financial position, results of operations, or cash flows of the Company.

24

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

10.
Stockholders' Equity
Stockholders' Equity Rollforward
The following tables provide a rollforward of stockholders' equity for the three months ended March 31, 2019 and 2018 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
AOCI (Loss)
 
Retained
Earnings
 
Equinix
Stockholders'
Equity
 
Non-controlling Interests
 
Total Stockholders' Equity
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated
Dividends
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Balance as of December 31, 2018
81,119,117

 
$
81

 
(396,859
)
 
$
(145,161
)
 
$
10,751,313

 
$
(3,331,200
)
 
$
(945,702
)
 
$
889,948

 
$
7,219,279

 
$

 
$
7,219,279

Adjustment from adoption of new accounting standard update

 

 

 

 

 

 

 
(5,973
)
 
(5,973
)
 

 
(5,973
)
Net income (loss)

 

 

 

 

 

 

 
118,078

 
118,078

 
(331
)
 
117,747

Other comprehensive income

 

 

 

 

 

 
3,337

 

 
3,337

 
7

 
3,344

Issuance of common stock and release of treasury stock for employee equity awards
360,464

 

 
1,706

 
360

 
27,233

 

 

 

 
27,593

 

 
27,593

Issuance of common stock for equity offering
2,985,575

 
3

 

 

 
1,213,431

 

 

 

 
1,213,434

 

 
1,213,434

Dividend distribution on common stock, $2.46 per share

 

 

 

 

 
(198,933
)
 

 

 
(198,933
)
 

 
(198,933
)
Settlement of accrued dividends on vested equity awards

 

 

 

 
284

 
(387
)
 

 

 
(103
)
 

 
(103
)
Accrued dividends on unvested equity awards

 

 

 

 

 
(2,395
)
 

 

 
(2,395
)
 

 
(2,395
)
Stock-based compensation, net of estimated forfeitures

 

 

 

 
50,795

 

 

 

 
50,795

 

 
50,795

Balance as of March 31, 2019
84,465,156

 
$
84

 
(395,153
)
 
$
(144,801
)
 
$
12,043,056

 
$
(3,532,915
)
 
$
(942,365
)
 
$
1,002,053

 
$
8,425,112

 
$
(324
)
 
$
8,424,788


25

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
 
 
 
 
 
 
 
Additional
Paid-in Capital
 
Accumulated
Dividends
 
AOCI (Loss)
 
Retained
Earnings
 
Equinix
Stockholders'
Equity
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance as of December 31, 2017
79,440,404

 
$
79

 
(402,342
)
 
$
(146,320
)
 
$
10,121,323

 
$
(2,592,792
)
 
$
(785,189
)
 
$
252,689

 
$
6,849,790

Adjustment from adoption of new accounting standard update

 

 

 

 

 

 
(2,124
)
 
271,900

 
269,776

Net income

 

 

 

 

 

 

 
62,894

 
62,894

Other comprehensive income

 

 

 

 

 

 
69,144

 

 
69,144

Issuance of common stock and release of treasury stock for employee equity awards
416,512

 
1

 
2,957

 
625

 
25,221

 

 

 

 
25,847

Dividend distribution on common stock, $2.28 per share

 

 

 

 

 
(180,640
)
 

 

 
(180,640
)
Settlement of accrued dividends on vested equity awards

 

 

 

 
1,795

 
(530
)
 

 

 
1,265

Accrued dividends on unvested equity awards

 

 

 

 

 
(2,216
)
 

 

 
(2,216
)
Stock-based compensation, net of estimated forfeitures

 

 

 

 
44,691

 

 

 

 
44,691

Balance as of March 31, 2018
79,856,916

 
$
80

 
(399,385
)
 
$
(145,695
)
 
$
10,193,030

 
$
(2,776,178
)
 
$
(718,169
)
 
$
587,483

 
$
7,140,551


26

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss, net of tax, by components are as follows (in thousands):
 
Balance as of
December 31,
2018
 
Net
Change
 
Balance as of
March 31,
2019
Foreign currency translation adjustment ("CTA") loss
$
(998,603
)
 
$
(81,726
)
 
$
(1,080,329
)
Unrealized gain on cash flow hedges (1)
19,480

 
8,224

 
27,704

Net investment hedge CTA gain (1)
34,325

 
76,850

 
111,175

Net actuarial loss on defined benefit plans (2)
(904
)
 
(11
)
 
(915
)
Accumulated other comprehensive loss attributable to Equinix
$
(945,702
)
 
$
3,337

 
$
(942,365
)
 
 
(1) 
Refer to Note 5 for a discussion of the amounts reclassified from accumulated other comprehensive loss to net income.
(2) 
The Company has a defined benefit pension plan covering all employees in one country where such plan is mandated by law. The Company does not have any defined benefit plans in any other countries. The unamortized gain (loss) on defined benefit plans includes gains or losses resulting from a change in the value of either the projected benefit obligation or the plan assets resulting from a change in an actuarial assumption, net of amortization.
Changes in foreign currencies can have a significant impact to the Company's consolidated balance sheets (as evidenced above in the Company's foreign currency translation loss), as well as its consolidated results of operations, as amounts in foreign currencies are generally translated into more U.S. Dollars when the U.S. Dollar weakens or less U.S. Dollars when the U.S. Dollar strengthens. As of March 31, 2019, the U.S. Dollar was generally stronger relative to certain of the currencies of the foreign countries in which the Company operates as compared to December 31, 2018. This overall strengthening of the U.S. Dollar had an overall unfavorable impact on the Company's condensed consolidated financial position because the foreign denominations translated into less U.S. Dollars as evidenced by an increase in foreign currency translation loss for the three months ended March 31, 2019 as reflected in the above table. In future periods, the volatility of the U.S. Dollar as compared to the other currencies in which the Company operates could have a significant impact on its condensed consolidated financial position and results of operations including the amount of revenue that the Company reports in future periods.
Common Stock
In March 2019, the Company issued and sold 2,985,575 shares of common stock in a public offering pursuant to a registration statement and a related prospectus and prospectus supplement. The shares issued and sold included the full exercise of the underwriters' option to purchase 389,422 additional shares. The Company received net proceeds of approximately $1,213.4 million, net of underwriting discounts, commissions and offering expenses.
In August 2017, the Company established an "at-the-market" equity offering program (the "2017 ATM Program") under which the Company may, from time to time, issue and sell shares of its common stock to or through sales agents up to an aggregate of $750.0 million. For the three months ended March 31, 2018, no sales occurred through the 2017 ATM program. As of December 31, 2018, no shares remained available for sale under the 2017 ATM Program. In December 2018, the Company launched another ATM program, under which it may offer and sell from time to time up to an aggregate of $750.0 million of its common stock in "at the market" transactions (the "2018 ATM Program"). As of March 31, 2019, no sales have been made under the 2018 ATM Program.
Stock-Based Compensation
For the three months ended March 31, 2019, the Compensation Committee and/or the Stock Award Committee of the Company's Board of Directors, as the case may be, approved the issuance of an aggregate of 647,243 shares of restricted stock units to certain employees, including executive officers, pursuant to the 2000 Equity Incentive Plan. These equity awards are subject to vesting provisions and have a weighted-average grant date fair value of $429.03 and a weighted-average requisite service period of 3.67 years. The valuation of restricted stock units with only a service condition or a service and performance condition require no significant assumptions as the fair value for these types of equity awards is based solely on the fair value of the Company's stock price on the date of grant. The Company used revenues and adjusted funds from operations ("AFFO") per share as the performance measurements in the restricted stock units with both service and performance conditions that were granted in the three months ended March 31, 2019.

27

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The Company uses a Monte Carlo simulation option-pricing model to determine the fair value of restricted stock units with a service and market condition. The Company used total shareholder return ("TSR") as the performance measurement in the restricted stock units with a service and market condition that were granted in the three months ended March 31, 2019. There were no significant changes in the assumptions used to determine the fair value of restricted stock units with a service and market condition that were granted in 2019 compared to the prior year.
The following table presents, by operating expense category, the Company's stock-based compensation expense recognized in the Company's condensed consolidated statements of operations (in thousands):
 
Three Months Ended
March 31,
 
2019
 
2018
Cost of revenues
$
5,012

 
$
3,899

Sales and marketing
13,301

 
11,706

General and administrative
30,710

 
26,931

Total
$
49,023

 
$
42,536


28

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

11.
Segment Information
While the Company has a single line of business, which is the design, build-out and operation of IBX data centers, it has determined that it has three reportable segments comprised of its Americas, EMEA and Asia-Pacific geographic regions. The Company's chief operating decision-maker evaluates performance, makes operating decisions and allocates resources based on the Company's revenues and adjusted EBITDA performance both on a consolidated basis and based on these three reportable segments.
The following tables present revenue information disaggregated by product lines and geographic areas (in thousands):
 
Three Months Ended March 31, 2019
 
Americas
 
EMEA
 
Asia-Pacific
 
Total
Colocation (1)
$
439,981

 
$
331,125

 
$
209,665

 
$
980,771

Interconnection
138,563

 
37,525

 
36,696

 
212,784

Managed infrastructure
21,787

 
29,088

 
21,920

 
72,795

Other (1)
5,979

 
2,499

 

 
8,478

Recurring revenues
606,310

 
400,237

 
268,281

 
1,274,828

Non-recurring revenues
38,056

 
34,423

 
15,911

 
88,390

Total
$
644,366

 
$
434,660

 
$
284,192

 
$
1,363,218

 
(1) Includes some leasing and hedging activities.
 
Three Months Ended March 31, 2018
 
Americas
 
EMEA
 
Asia-Pacific
 
Total
Colocation (1)
$
427,125

 
$
288,061

 
$
166,198

 
$
881,384

Interconnection
129,253

 
34,977

 
30,769

 
194,999

Managed infrastructure
18,535

 
30,686

 
22,180

 
71,401

Other (1)
1,079

 
1,766

 

 
2,845

Recurring revenues
575,992

 
355,490

 
219,147

 
1,150,629

Non-recurring revenues
26,635

 
24,140

 
14,473

 
65,248

Total
$
602,627

 
$
379,630

 
$
233,620

 
$
1,215,877

 
(1) Includes some leasing and hedging activities.
No single customer accounted for 10% or greater of the Company's accounts receivable or revenues for the three months ended March 31, 2019 and 2018.

29

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The Company defines adjusted EBITDA as income from operations excluding depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gain on asset sales as presented below (in thousands):
 
Three Months Ended
March 31,
 
2019
 
2018
Adjusted EBITDA:
 
 
 
Americas
$
307,838

 
$
291,549

EMEA
199,072

 
166,178

Asia-Pacific
153,245

 
121,788

Total adjusted EBITDA