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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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
  
https://cdn.kscope.io/8f295ac089f8360a3d944ece5b7e3e4d-eqix-20210331_g1.jpg
 EQUINIX, INC.
(Exact name of registrant as specified in its charter)
  
Delaware 77-0487526
(State of incorporation) (I.R.S. Employer Identification No.)
One Lagoon Drive, Redwood City, California 94065
(Address of principal executive offices, including ZIP code)
(650) 598-6000
(Registrant's telephone number, including area code)
  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common Stock, $0.001EQIXThe Nasdaq Stock Market LLC
0.250% Senior Notes due 2027The Nasdaq Stock Market LLC
1.000% Senior Notes due 2033The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  
The number of shares outstanding of the registrant's Common Stock as of April 29, 2021 was 89,579,906.


Table of Contents
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

Table of Contents

Summary of Risk Factors
Our business is subject to numerous risks and uncertainties that make an investment in our securities speculative or risky, any one of which could materially adversely affect our results of operations, financial condition or business. These risks include, but are not limited to, those listed below. This list is not complete, and should be read together with the section titled “Risk Factors” in this Quarterly Report on Form 10-Q, as well as the other information in this Quarterly Report on Form 10-Q and the other filings that we make with the U.S. Securities and Exchange Commission (the “SEC”).
Risks Related to Our Business and Our Operations

The ongoing COVID-19 pandemic could have a negative effect on our business, results of operations and financial condition.
We experienced an information technology security breach in the past and may be vulnerable to future security breaches, which could disrupt our operations and have a material adverse effect on our business, results of operation and financial condition.
Terrorist activity, or other acts of violence, including violence stemming from the current climate of political and economic uncertainty, could adversely impact our business.
Our offerings have a long sales cycle that may harm our revenue and results of operations.
Any failure of our physical infrastructure or negative impact on our ability to meet our obligations to our customers or damage to customer infrastructure within our IBX data centers, could lead to significant costs and disruptions that could reduce our revenue and harm our business reputation and financial condition.
We are currently making significant investments in our back-office information technology systems and processes. Difficulties from or disruptions to these efforts may interrupt our normal operations and adversely affect our business and results of operations.
The level of insurance coverage that we purchase may prove to be inadequate.
The use of high power density equipment may limit our ability to fully utilize our older IBX data centers.
If we are unable to implement our evolving organizational structure or if we are unable to recruit or retain key executives and qualified personnel, our business could be harmed.
We may not be able to compete successfully against current and future competitors.
If we cannot continue to develop, acquire, market and provide new offerings or enhancements to existing offerings that meet customer requirements and differentiate us from our competitors, our results of operations could suffer.
Our results of operations may fluctuate.
Our days sales outstanding ("DSO") may be negatively impacted by process and system upgrades and acquisitions.
We may incur goodwill and other intangible asset impairment charges, or impairment charges to our property, plant and equipment, which could result in a significant reduction to our earnings.
We have incurred substantial losses in the past and may incur additional losses in the future.
The failure to obtain favorable terms when we renew our IBX data center leases, or the failure to renew such leases, could harm our business and results of operations.
We depend on a number of third parties to provide internet connectivity to our IBX data centers; if connectivity is interrupted or terminated, our results of operations and cash flow could be materially and adversely affected.
We have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.
Because we depend on the development and growth of a balanced customer base, including key magnet customers, failure to attract, grow and retain this base of customers could harm our business and results of operations.
Industry consolidation may have a negative impact on our business model.
Our business could be harmed by prolonged power outages, shortages or capacity constraints.
4



Risks Related to Our Expansion Plans

Our construction of additional new IBX data centers or IBX data center expansions could involve significant risks to our business.
Acquisitions present many risks, and we may not realize the financial or strategic goals that were contemplated at the time of any transaction.
The anticipated benefits of our joint ventures with GIC Private Limited, Singapore’s sovereign wealth fund (“GIC”), may not be fully realized or take longer to realize than expected.
Joint venture investments, such as our joint ventures with GIC, could expose us to risks and liabilities in connection with the formation of the new joint ventures, the operation of such joint ventures without sole decision-making authority, and our reliance on joint venture partners who may have economic and business interests that are inconsistent with our business interests.
If we cannot effectively manage our international operations, and successfully implement our international expansion plans, or comply with evolving laws and regulations, our revenues may not increase, and our business and results of operations would be harmed.
We are continuing to invest in our expansion efforts but may not have sufficient customer demand in the future to realize expected returns on these investments.

Risks Related to Our Capital Needs and Capital Strategy

Our substantial debt could adversely affect our cash flows and limit our flexibility to raise additional capital.
The phase-out of the London Interbank Offered Rate (“LIBOR”), and uncertainty as to its replacement, may adversely affect our business.
Sales or issuances of shares of our common stock may adversely affect the market price of our common stock.
If we are not able to generate sufficient operating cash flows or obtain external financing, our ability to fund incremental expansion plans may be limited.
Fluctuations in foreign currency exchange rates in the markets in which we operate internationally could harm our results of operations.
Our derivative transactions expose us to counterparty credit risk.

Risks Related to Environmental Laws and Climate Change Impacts

Environmental regulations may impose upon us new or unexpected costs.
Our business may be adversely affected by climate change and responses to it.

Risks Related to Certain Regulations and Laws, Including Tax Laws

Changes in U.S. or foreign tax laws, regulations, or interpretations thereof, including changes to tax rates, may adversely affect our financial statements and cash taxes.
Government regulation or failure to comply with laws and regulations may adversely affect our business.

Risks Related to Our Taxation as a REIT

We have a number of risks related to our taxation as a REIT, including the risk that we may not be able to maintain our qualification as a REIT which could expose us to substantial corporate income tax and have a materially adverse effect on our business, financial condition, and results of operations.
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Table of Contents
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,
2021
December 31,
2020
 (Unaudited)
Assets
Current assets:
Cash and cash equivalents$1,752,990 $1,604,869 
Short-term investments4,229 4,532 
Accounts receivable, net of allowance of $10,641 and $10,677
684,642 676,738 
Other current assets407,856 323,016 
Total current assets2,849,717 2,609,155 
Property, plant and equipment, net14,768,661 14,503,084 
Operating lease right-of-use assets1,405,835 1,475,057 
Goodwill5,387,601 5,472,553 
Intangible assets, net2,092,253 2,170,945 
Other assets812,923 776,047 
Total assets$27,316,990 $27,006,841 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses$742,300 $844,862 
Accrued property, plant and equipment351,634 301,155 
Current portion of operating lease liabilities147,164 154,207 
Current portion of finance lease liabilities149,388 137,683 
Current portion of mortgage and loans payable79,902 82,289 
Current portion of senior notes150,003 150,186 
Other current liabilities213,189 354,368 
Total current liabilities1,833,580 2,024,750 
Operating lease liabilities, less current portion1,252,566 1,308,627 
Finance lease liabilities, less current portion1,912,507 1,784,816 
Mortgage and loans payable, less current portion1,229,073 1,287,254 
Senior notes, less current portion9,685,361 9,018,277 
Other liabilities827,228 948,999 
Total liabilities16,740,315 16,372,723 
Commitments and contingencies (Note 10)
Equinix stockholders' equity
Common stock, $0.001 par value per share: 300,000,000 shares authorized; 89,890,922 issued and 89,574,510 outstanding in 2021 and 89,462,304 issued and 89,134,252 outstanding in 2020
90 89 
Additional paid-in capital15,166,407 15,028,357 
Treasury stock, at cost; 316,412 shares in 2021 and 328,052 shares in 2020
(117,786)(122,118)
Accumulated dividends(5,379,693)(5,119,274)
Accumulated other comprehensive loss(1,008,848)(913,368)
Retained earnings1,916,664 1,760,302 
Total Equinix stockholders' equity10,576,834 10,633,988 
Non-controlling interests
(159)130 
Total stockholders' equity 10,576,675 10,634,118 
Total liabilities and stockholders' equity$27,316,990 $27,006,841 
See accompanying notes to condensed consolidated financial statements.
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EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
Three Months Ended
March 31,
 20212020
 (Unaudited)
Revenues$1,596,064 $1,444,542 
Costs and operating expenses:
Cost of revenues811,217 736,282 
Sales and marketing182,827 180,450 
General and administrative301,456 261,597 
Transaction costs1,182 11,530 
Loss on asset sales1,720 1,199 
Total costs and operating expenses1,298,402 1,191,058 
Income from operations297,662 253,484 
Interest income729 4,273 
Interest expense(89,681)(107,338)
Other income (expense)(6,950)5,170 
Loss on debt extinguishment(13,058)(6,441)
Income before income taxes
188,702 149,148 
Income tax expense(32,628)(30,191)
Net income156,074 118,957 
Net (income) loss attributable to non-controlling interests
288 (165)
Net income attributable to Equinix$156,362 $118,792 
Earnings per share ("EPS") attributable to Equinix:
Basic EPS$1.75 $1.39 
Weighted-average shares for basic EPS89,330 85,551 
Diluted EPS$1.74 $1.38 
Weighted-average shares for diluted EPS89,842 86,144 
See accompanying notes to condensed consolidated financial statements.
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EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
Three Months Ended
March 31,
 20212020
 (Unaudited)
Net income$156,074 $118,957 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment ("CTA") loss, net of tax effects of $0 and $0
(295,146)(413,792)
Net investment hedge CTA gain, net of tax effect of $0 and $0
170,175 144,946 
Unrealized gain (loss) on cash flow hedges, net of tax effects of $(7,892) and $(6,367)
29,478 (3,256)
Net actuarial gain on defined benefit plans, net of tax effects of $(5) and $9
12 35 
Total other comprehensive loss, net of tax(95,481)(272,067)
Comprehensive income (loss), net of tax60,593 (153,110)
Net (income) loss attributable to non-controlling interests
288 (165)
Other comprehensive loss attributable to non-controlling interests1 11 
Comprehensive income (loss) attributable to Equinix$60,882 $(153,264)
See accompanying notes to condensed consolidated financial statements.
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EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended
March 31,
 20212020
 (Unaudited)
Cash flows from operating activities:
Net income$156,074 $118,957 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation341,622 287,378 
Stock-based compensation78,350 64,499 
Amortization of intangible assets53,395 48,491 
Amortization of debt issuance costs and debt discounts and premiums3,940 3,460 
Provision for credit loss allowance2,740 3,934 
Loss on asset sales1,720 1,199 
Loss on debt extinguishment13,058 6,441 
Other items7,743 4,484 
Changes in operating assets and liabilities:
Accounts receivable(17,620)15,306 
Income taxes, net(10,274)3,697 
Other assets(73,255)(101,882)
Operating lease right-of-use assets40,924 38,797 
Operating lease liabilities(36,563)(35,193)
Accounts payable and accrued expenses(76,362)(25,681)
Other liabilities(94,334)82,943 
Net cash provided by operating activities391,158 516,830 
Cash flows from investing activities:
Purchases of investments(22,406)(44,813)
Sales of investments4,057 5,873 
Business acquisitions, net of cash and restricted cash acquired (478,287)
Purchases of real estate(53,737)(36,373)
Purchases of other property, plant and equipment(563,598)(400,941)
Net cash used in investing activities(635,684)(954,541)
Cash flows from financing activities:
Proceeds from employee equity awards40,034 30,391 
Payment of dividends(263,039)(233,479)
Proceeds from public offering of common stock, net of issuance costs 101,792 
Proceeds from senior notes, net of debt discounts1,290,752  
Proceeds from mortgage and loans payable 250,000 
Repayments of finance lease liabilities(32,584)(18,977)
Repayments of mortgage and loans payable(20,186)(18,501)
Repayment of senior notes(590,650)(343,711)
Debt extinguishment costs(8,521)(4,619)
Debt issuance costs(3,152) 
Net cash provided by (used in) financing activities412,654 (237,104)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash
(22,019)(25,287)
Net increase in cash, cash equivalents and restricted cash146,109 (700,102)
Cash, cash equivalents and restricted cash at beginning of period 1,625,695 1,886,613 
Cash, cash equivalents and restricted cash at end of period$1,771,804 $1,186,511 
Cash and cash equivalents$1,752,990 $1,171,339 
Current portion of restricted cash included in other current assets9,702 6,483 
Non-current portion of restricted cash included in other assets9,112 8,689 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$1,771,804 $1,186,511 
See accompanying notes to condensed consolidated financial statements.


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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. (collectively with its consolidated subsidiaries referred to as "Equinix," the "Company," "we," "our," or "us") 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. In the preparation of our condensed consolidated financial statements, we have considered potential impacts of the COVID-19 pandemic on our critical and significant accounting estimates. There was no significant impact to our condensed consolidated financial statements. We will continue to evaluate the nature and extent of the potential impacts to our business and our condensed consolidated financial statements.
Our condensed consolidated balance sheet data as of December 31, 2020 has been derived from audited consolidated financial statements as of that date. Our 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 our Form 10-K as filed with the SEC on February 19, 2021. 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 our acquisitions of 12 data center sites across Canada from BCE Inc. ("Bell") from October 1, 2020 and one additional data center site from November 2, 2020, Packet Host, Inc. (“Packet”) from March 2, 2020, and three data centers in Mexico acquired from Axtel S.A.B. de C.V ("Axtel") from January 8, 2020. All intercompany accounts and transactions have been eliminated in consolidation.
Income Taxes
We elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with our 2015 taxable year. As a result, we may deduct the distributions made to our stockholders from taxable income generated by our REIT and qualified REIT subsidiaries ("QRSs"). Our dividends paid deduction generally eliminates the U.S. federal taxable income of our REIT and QRSs, resulting in no U.S. federal income tax due. However, our domestic taxable REIT subsidiaries ("TRSs") are subject to U.S. corporate income taxes on any taxable income generated by them. In addition, our foreign operations are subject to local income taxes regardless of whether the foreign operations are operated as QRSs or TRSs.
We provide 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 our operating performance, tax law changes and future business acquisitions.
Our effective tax rates were 17.3% and 20.2% for the three months ended March 31, 2021 and 2020, respectively.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06: Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock and modifies the disclosure requirement for the convertible instruments. Additionally, this ASU improves the consistency of EPS calculations by eliminating the use of the treasury stock method to calculate diluted EPS for convertible instruments and clarifies certain areas under the current EPS guidance. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted at the beginning of the fiscal year after December 15, 2020. We are currently evaluating the extent of the impact of this ASU, but do not expect the adoption of this standard to have a significant impact on our condensed consolidated financial statements.
Accounting Standards Adopted
In December 2019, FASB issued ASU 2019-12, Income Taxes ("Topic 740"): Simplifying the Accounting for Income Taxes. The ASU simplifies accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also improves consistent application of and simplifies generally accepted accounting principles ("GAAP") for other areas of Topic 740 by clarifying and amending existing guidance. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted including adoption in any interim period for periods for which financial statements have not yet been issued. On January 1, 2021, we adopted this ASU on a prospective basis and the adoption of this standard did not have an impact on our condensed consolidated financial statements.
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform ("Topic 848"): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In addition, FASB issued ASU 2021-01, Reference Rate Reform ("Topic 848"), which clarifies the scope of Topic 848. Collectively, the guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 was effective for all entities as of March 12, 2020 through December 31, 2022 and ASU 2021-01 is effective upon issuance. We adopted these ASUs upon their respective issuances and there was no impact on our condensed consolidated financial statements as a result of adopting the guidance. We will evaluate our debt, derivative and lease contracts that may become eligible for modification relief and may apply the elections prospectively as needed.
2. Revenue
Contract Balances
The following table summarizes the opening and closing balances of our accounts receivable, net; contract asset, current; contract asset, non-current; deferred revenue, current; and deferred revenue, non-current (in thousands):
Accounts receivable, net (1)
Contract assets, currentContract assets, non-currentDeferred revenue, currentDeferred revenue, non-current
Beginning balances as of January 1, 2021
$676,738 $13,534 $54,050 $101,258 $71,242 
Closing balances as of March 31, 2021
684,642 29,671 50,546 105,283 64,648 
Increase (Decrease)$7,904 $16,137 $(3,504)$4,025 $(6,594)
(1) The net change in our allowance for credit losses was insignificant during the three months ended March 31, 2021.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The difference between the opening and closing balances of our accounts receivable, net, contract assets and deferred revenues primarily results from revenue growth and the timing difference between the satisfaction of our performance obligation and the customer's payment. The amount of revenue recognized during the three months ended March 31, 2021 from the opening deferred revenue balance as of January 1, 2021 was $36.4 million.
Remaining performance obligations
As of March 31, 2021, approximately $8.2 billion of total revenues, including 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, service fees from xScaleTM data centers, which are calculated based on future events or actual costs incurred in the future, 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 we are considered the lessor.
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,
 20212020
Net income$156,074 $118,957 
Net (income) loss attributable to non-controlling interests
288 (165)
Net income attributable to Equinix$156,362 $118,792 
Weighted-average shares used to calculate basic EPS89,330 85,551 
Effect of dilutive securities:
Employee equity awards512 593 
Weighted-average shares used to calculate diluted EPS89,842 86,144 
EPS attributable to Equinix:
Basic EPS$1.75 $1.39 
Diluted EPS$1.74 $1.38 
We have excluded common stock related to employee equity awards in the diluted EPS calculation above of approximately 148,000 shares and 45,000 shares for the three months ended March 31, 2021 and 2020, respectively, because their effect would be anti-dilutive.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
4.    Acquisitions
2020 Acquisitions
Acquisition of Bell Data Centers (the "Bell Acquisition")
On October 1, 2020, we completed the acquisition of 12 data center sites across Canada from Bell, with one additional data center in Ottawa Canada acquired on November 2, 2020, for a total combined purchase consideration of approximately C$934.3 million, or $704.0 million at the exchange rates in effect on those dates. The acquisition supports our ongoing expansion to meet customer demand in Canada.
Acquisition of Packet (the "Packet Acquisition")
On March 2, 2020, we acquired all outstanding shares and equity awards of Packet Host, Inc. (“Packet”), a leading bare metal automation platform for a total purchase consideration of approximately $290.3 million in cash. In addition, we paid $16.1 million in cash to accelerate the vesting of unvested Packet equity awards for certain Packet employees, which was recorded as stock-based compensation expense during the three months ended March 31, 2020. In connection with the acquisition, we also issued restricted stock awards with an aggregated fair value of $30.2 million and a three-year vesting period, which will be recognized as stock-based compensation costs over the vesting period. The acquisition, combined with Equinix MetalTM, is expected to accelerate our strategy to help enterprises deploy hybrid multicloud architectures on our data center platform.
Acquisition of data centers from Axtel (the "Axtel Acquisition")
On January 8, 2020, we completed the acquisition of three data centers in Mexico from Axtel S.A.B. de C.V. (“Axtel”) for a total purchase consideration of approximately $189.0 million, including $175.0 million in cash and $14.0 million we paid to the seller for recoverable value-added taxes ("VAT") incurred prior to the acquisition, which related to a corresponding VAT receivable acquired upon acquisition. The acquisition supports our ongoing expansion to meet customer demand in our Americas region.
Purchase price allocation
Each of these acquisitions constitute a business under the accounting standard for business combinations and, therefore, were accounted for as business combinations using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed measured at fair value on the date of acquisition.
As of March 31, 2021, we continued to review the detailed valuation analysis to derive the fair value of assets acquired and liabilities assumed from the Bell Acquisition, including property, plant and equipment, intangible assets and the related tax impacts; therefore, the purchase price allocation is based on provisional estimates and subject to continuing management analysis.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
A summary of the allocation of total purchase consideration is presented as follows (in thousands):
Bell (1)
PacketAxtel
ProvisionalFinal
Cash and cash equivalents$ $1,068 $ 
Accounts receivable 5,098  
Other current assets 696 299 14,048 
Property, plant and equipment538,717 27,945 76,407 
Operating lease right-of-use assets14,359 1,519 1,646 
Intangible assets75,857 58,500 22,750 
Goodwill172,387 230,620 78,902 
Deferred tax and other assets722 138  
Total assets acquired
802,738 325,187 193,753 
Accounts payable and accrued liabilities(895)(1,275)(238)
Other current liabilities (860) 
Operating lease liabilities(13,340)(1,519)(1,586)
Finance lease liabilities(80,026)(27,945) 
Deferred tax and other liabilities(4,495)(3,290)(2,911)
Net assets acquired
$703,982 $290,298 $189,018 
(1)For the Bell Acquisition, the purchase price allocation adjustments since the provisional amounts reported as of December 31, 2020 were not significant.
Property, plant and equipment - The fair values of property, plant and equipment acquired from these three acquisitions were estimated by applying the cost approach, with the exception of land, which we estimated by applying the market approach. 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.
Intangible assets - The following table presents certain information on the acquired intangible assets (in thousands):
Intangible AssetsFair ValueEstimated Useful Lives (Years)Weighted-average Estimated Useful Lives (Years)
Bell:
Customer relationships$75,857 15.015.0
Packet:
Trade names1,300 3.03.0
Existing technology5,100 3.03.0
Customer relationships 52,100 10.010.0
Axtel:
Customer relationships 22,750 15.015.0
The fair values of customer relationships acquired from these acquisitions were estimated from 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. We applied a discount rate of 8.0% for Bell, 8.0% for Packet and 13.3% for Axtel, which reflects the nature of the assets as they relate to the risk and uncertainty of the estimated future operating cash flows, as well as the risk of the country within which the acquired business operates.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The fair value of the Packet trade name was estimated using the relief from royalty method under the income approach. We applied a relief from royalty rate of 1.0% and a discount rate of 8.0%. The fair value of existing technology was estimated under the cost approach by projecting the cost to recreate a new asset with an equivalent utility of the existing technology. The key assumptions of the cost approach include total cost, time to recreate and functional obsolescence.
Goodwill
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 these acquisitions. Goodwill from these acquisitions is attributable to our Americas region. Goodwill from the Bell Acquisition is expected to be deductible for local tax purposes while goodwill from the Packet and Axtel Acquisitions are not amortizable for local tax purposes.
Revenues and net income and loss from operations
The operating results of these three acquisitions are reported in our Americas region following the date of acquisition. During the three months ended March 31, 2021, our results of operations include $48.5 million of revenues and $9.0 million of net loss from operations from the Bell, Packet and Axtel Acquisitions.
Pending Acquisition of GPX India
On August 7, 2020, we entered into an agreement to purchase the India operations of GPX Global Systems, Inc. ("GPX India"), representing two data centers in Mumbai, India for approximately $161.0 million in an all-cash transaction (the “GPX India Acquisition”). The GPX India Acquisition is expected to close in the second quarter of 2021, subject to customary closing conditions including regulatory approval. Upon the close of the acquisition, the operating results of the acquired business will be reported in our Asia-Pacific region.
5.    Equity Method Investments
The following table summarizes the equity method investments (in thousands):
InvesteeOwnership PercentageMarch 31, 2021December 31, 2020
EMEA Joint Venture with GIC20 %$105,532 $101,892 
Asia-Pacific Joint Venture with GIC20 %50,347 43,432 
OtherVarious16,517 17,747 
Total $172,396 $163,071 
EMEA Joint Venture
In 2019, we entered into a joint venture in the form of a limited liability partnership with GIC Private Limited, Singapore's sovereign wealth fund ("GIC") (the "EMEA Joint Venture"), to develop and operate xScale™ data centers in Europe. The EMEA Joint Venture is not a variable interest entity ("VIE") because its equity investors have the characteristics of a controlling financial interest and it is sufficiently capitalized to sustain its operations, requiring additional funding from its partners only when expanding operations. During the three months ended March 31, 2021, we made additional equity contributions of $7.1 million to the EMEA Joint Venture. Our share of income and losses of equity method investments from this joint venture, which is attributable to our EMEA region, was insignificant for the three months ended March 31, 2021 and 2020 and was included in other income on the condensed consolidated statement of operations.
We committed to make future equity contributions to the EMEA Joint Venture for funding its future development. As of March 31, 2021, we had future equity contribution commitments of $24.9 million.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Variable Interest Entity
Asia-Pacific Joint Venture
On December 17, 2020, we entered into a second joint venture with GIC (the "Asia-Pacific Joint Venture") to develop and operate xScale™ data centers in Asia-Pacific. We provide certain management services to the Asia-Pacific Joint Venture operations and earn fees based on those services and performance. The Asia-Pacific Joint Venture requires additional funding from its partners in order to sustain its current operations. As a result, it was determined to be a VIE. The power to direct the activities of the Asia-Pacific Joint Venture that most significantly impact economic performance is shared equally by both partners. These activities include data center construction and operations, sales and marketing, financing, and real estate purchases or sales. Decisions about these activities require the consent of both GIC and us. We concluded that neither party is deemed to have predominant control over the Asia-Pacific Joint Venture and neither party is its primary beneficiary. Upon closing the Asia-Pacific Joint Venture, we recorded our initial 20% partnership interest at fair value of $42.6 million in total at the exchange rate in effect on December 17, 2020. During the three months ended March 31, 2021, we made additional equity contributions of $11.2 million to the Asia-Pacific Joint Venture. For the three months ended March 31, 2021, our share of income and losses of equity method investments from this joint venture, which was attributable to our Asia-Pacific region, was not significant and was included in other income on the condensed consolidated statement of operations.
In addition to the investment in the Asia-Pacific Joint Venture, we also had $14.2 million of receivables from the Asia-Pacific Joint Venture relating to purchase price adjustments on the sale of data center assets as well as amounts due under commercial service agreements, which were presented within accounts receivable, net on the condensed consolidated balance sheet as of March 31, 2021. During the three months ended March 31, 2021, the total revenue recorded from these services was insignificant.
Concurrent with the closing of the Asia-Pacific Joint Venture, the Asia-Pacific Joint Venture entered into a credit facility agreement and a bond agreement with a group of lenders for secured debt facilities of $305.2 million in total at the exchange rate in effect on December 31, 2020. The Asia-Pacific Joint Venture’s debt is secured by net assets of the Asia-Pacific Joint Venture and is without recourse to the partners. Under the Asia-Pacific Joint Venture agreement and pursuant to the credit facility and bond agreements, both our joint venture partner GIC and us are also required to make additional equity contributions proportionately upon occurrences such as an interest shortfall, cost-overrun or a capital shortfall needed to complete certain construction phases.
We committed to make future equity contributions to the Asia-Pacific Joint Venture for funding its future development. As of March 31, 2021, we had future equity contribution commitments of $7.8 million.
Our maximum exposure to loss related to this unconsolidated VIE is limited to our equity investments in the VIE, outstanding receivables including any unpaid service and performance fees earned, and future funding commitments including those that may be required pursuant to the credit facility and bond agreements. As of March 31, 2021, our maximum exposure to loss related to the Asia-Pacific Joint Venture was approximately $72.3 million.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Related Party Transactions
In connection with the sale of the PA9 data center to the EMEA Joint Venture, we also have a commitment to the EMEA Joint Venture to complete a residual portion of the PA9 center for an estimated cost of $22.4 million in total, which is reimbursable in full upon completion. As March 31, 2021, we had contract assets, current of $17.1 million, in relation to the progress in completing this commitment.
The contingent consideration from the sales of xScaleTM data centers to the EMEA Joint Venture are considered derivatives and are remeasured at fair value each reporting period using inputs such as probabilities of payment, discount rates, foreign currency forward rates and projected payment dates. The fair value measurements were based on significant inputs that are not observable in the market and thus represent Level 3 measurements. As of March 31, 2021 and December 31, 2020, the total fair value of the contingent consideration was $42.4 million and $44.2 million, respectively, which was included in other current assets on the condensed consolidated balance sheets. Changes in the fair value of the contingent consideration were recorded in gain (loss) on asset sales on the condensed consolidated statement of operations.
We also have a sub-lease agreement with the EMEA Joint Venture to sub-lease a portion of London ("LD") 10-2 data center or former LD10 data center, for a total of 15 years. For the three months ended March 31, 2021 and 2020, we recorded approximately $4.5 million and $3.4 million, respectively, of rent expense for the LD10-2 data center. As of March 31, 2021 and December 31, 2020, we had a finance lease ROU assets of $128.2 million and $127.2 million, respectively and a finance lease ROU liability of $ 132.5 million and $130.8 million, respectively.
We provide various services to the EMEA Joint Venture through multiple agreements, including sales and marketing, development management, facilities management, and asset management services. As of March 31, 2021 and December 31, 2020, we had $7.7 million and $6.5 million, respectively, of total receivables from the EMEA Joint Ventures. For the three months ended March 31, 2021 and 2020, total revenues from these contracts were $7.2 million and $4.6 million, respectively. The transactions with the EMEA Joint Venture are generally considered to have been negotiated arm's length.
Additionally, we have an agreement to lease to the EMEA Joint Venture a portion of land for the Frankfurt 9 xScaleTM data center and a new building that is under construction on the land. As of March 31, 2021, the lease has not commenced yet and we recorded approximately $17.2 million of other liabilities in connection with the construction of the Frankfurt 9 xScaleTM data center.
As previously described above, we provide various services to the Asia-Pacific Joint Venture, including portfolio management, sales and marketing, development, and facilities management services, which give rise receivables. The transactions with the Asia-Pacific Joint Venture are generally considered to have been negotiated arm's length.
6.    Derivatives and Hedging Activities
Derivatives Designated as Hedging Instruments
Net Investment Hedges. We are exposed to the impact of foreign exchange rate fluctuations on the value of investments in our foreign subsidiaries whose functional currencies are other than the U.S. Dollar. In order to mitigate the impact of foreign currency exchange rates, we have entered into various foreign currency debt obligations, which are designated as hedges against our net investments in foreign subsidiaries. As of March 31, 2021 and December 31, 2020, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $2.2 billion and $1.9 billion, respectively.
We also use cross-currency interest rate swaps to hedge a portion of our net investment in our European operations. As of both March 31, 2021 and December 31, 2020, U.S. Dollar to Euro cross-currency interest rate swap contracts with a total notional amount of $3.3 billion were outstanding, with maturity dates from April 2022 to November 2026. At maturity of each outstanding contract, we will receive U.S. Dollars from and pay Euros to the contract counterparty. During the term of each contract, we receive interest payments in U.S. Dollars and make interest payments in Euros based on a notional amount and fixed interest rates determined at contract inception.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
From time to time, we use foreign currency forward contracts to hedge against the effect of foreign exchange rate fluctuations on a portion of our net investment in our foreign subsidiaries. As of both March 31, 2021 and December 31, 2020, the total notional amount of foreign currency forward contracts designated as net investment hedges was $355.6 million.
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, 2021 and 2020 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
Three Months Ended
March 31,
20212020
Foreign currency debt$68,740 $99,102 
Cross-currency interest rate swaps (included component) (1)
141,228 14,140 
Cross-currency interest rate swaps (excluded component) (2)
(40,529)31,704 
Foreign currency forward contracts (included component) (1)
708  
Foreign currency forward contracts (excluded component) (3)
28  
Total
$170,175 $144,946 
Amount of gain or (loss) recognized in earnings:
Location of gain or (loss)Three Months Ended
March 31,
20212020
Cross-currency interest rate swaps (excluded component) (2)
Interest expense
$10,049 $5,089 
Foreign currency forward contracts (excluded component) (3)
Interest expense
164  
Total
$10,213 $5,089 
(1)Included component represents foreign exchange spot rates.
(2)Excluded component represents cross-currency basis spread and interest rates.
(3)Excluded component represents foreign currency forward points.
Cash Flow Hedges. We hedge our foreign currency translation exposure for forecasted revenues and expenses in our EMEA region between the U.S. Dollar and the British Pound, Euro, Swedish Krona and Swiss Franc. The foreign currency forward and option contracts that we use to hedge this exposure are designated as cash flow hedges. As of March 31, 2021 and December 31, 2020, the total notional amounts of these foreign exchange contracts were $989.0 million and $912.9 million, respectively.
As of March 31, 2021, our foreign currency cash flow hedge instruments had maturity dates ranging from April 2021 to December 2022 and we recorded a net loss of $18.9 million within accumulated other comprehensive income (loss) relating to these foreign exchange contracts that will be reclassified to revenues and expenses as they mature in the next 12 months. As of December 31, 2020, our foreign currency cash flow hedge instruments had maturity dates ranging from January 2021 to December 2022 and we recorded a net loss of $35.4 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.
We enter into intercompany hedging instruments ("intercompany derivatives") with our wholly-owned subsidiaries in order to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. Dollar. Simultaneously, we enter into derivative contracts with unrelated third parties to externally hedge the net exposure created by such intercompany derivatives.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
We hedge the interest rate exposure created by anticipated fixed rate debt issuances through the use of treasury locks and swap locks (collectively, interest rate locks), which are designated as cash flow hedges. As of March 31, 2021, the total notional amount of interest rate locks outstanding was $725.0 million. As of December 31, 2020, we had no interest rate locks outstanding. During the three months ended March 31, 2021, we had no settled interest rate locks. When interest rate locks are settled, any gain or loss from the transactions is deferred and included as a component of other comprehensive income (loss) and is amortized to interest expense over the term of the forecasted hedged transaction which is equivalent to the term of the interest rate locks. As of March 31, 2021 and December 31, 2020, we recorded a net loss of $3.6 million and $4.1 million, respectively, within accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for interest rate locks.
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, 2021 and 2020 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
Three Months Ended
March 31,
20212020
Foreign currency forward and option contracts (included component) (1)
$31,374 $28,025 
Foreign currency option contracts (excluded component) (2)
196 1,318 
Interest rate locks
5,801 (26,232)
Total
$37,371 $3,111 
Amount of gain or (loss) reclassified from accumulated other comprehensive income to income:
Three Months Ended
March 31,
Location of gain or (loss)20212020
Foreign currency forward contracts
Revenues
$(12,969)$21,219 
Foreign currency forward contracts
Costs and operating expenses
7,204 (11,000)
Interest rate locks
Interest Expense
(805)168 
Total
$(6,570)$10,387 
Amount of gain or (loss) excluded from effectiveness testing included in income:
Three Months Ended
March 31,
Location of gain or (loss)20212020
Foreign currency option contracts (excluded component) (2)
Revenues
$(181)$(521)
Total
$(181)$(521)
(1)Included component represents foreign exchange spot rates.
(2)Excluded component represents option's time value.
Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. We are deemed to have foreign currency forward contracts embedded in certain of our 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 our balance sheet at their fair value. The majority of these embedded derivatives arise as a result of our foreign subsidiaries pricing their customer contracts in U.S. Dollars.
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Economic Hedges of Embedded Derivatives. We use foreign currency forward contracts to manage the foreign exchange risk associated with our 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. We also use 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 our 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, 2021 and December 31, 2020, the total notional amounts of these foreign currency contracts were $5.9 billion and $3.4 billion, respectively.
The following table presents the effect of derivatives not designated as hedging instruments in our 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)20212020
Embedded derivatives
Revenues
$4,495 $7,451 
Economic hedge of embedded derivatives
Revenues
(4,213)(7,902)
Foreign currency forward contracts
Other income (expense)
56,800 133,824 
    Total
$57,082 $133,373 
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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 our condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021December 31, 2020
Assets (1)
Liabilities (2)
Assets (1)
Liabilities (2)
Designated as hedging instruments:
Cash flow hedges
Foreign currency forward and option contracts
$7,832 $28,869 $351 $52,804 
Interest rate locks
4,996    
Net investment hedges
Cross-currency interest rate swaps
8,259 100,499  192,939 
Foreign currency forward contracts 22,011  17,041 
Total designated as hedging
21,087 151,379 351 262,784 
Not designated as hedging instruments:
Embedded derivatives5,324 1,604 3,255 3,858 
Economic hedges of embedded derivatives
 2,223 4,372 12 
Foreign currency forward contracts
50,919 9,644 3,721 133,805 
Total not designated as hedging
56,243 13,471 11,348 137,675 
Total Derivatives$77,330 $164,850 $11,699 $400,459 
(1)As presented in our condensed consolidated balance sheets within other current assets and other assets.
(2)As presented in our condensed consolidated balance sheets within other current liabilities and other liabilities.
Offsetting Derivative Assets and Liabilities
We present our derivative instruments and the accrued interest related to cross-currency interest rate swaps at gross fair values in the condensed consolidated balance sheets. We enter into master netting agreements with our 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, we do 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, 2021 and December 31, 2020 (in thousands):
Gross Amounts Offset in
Consolidated Balance Sheet
Gross AmountsGross Amounts Offset in the Balance SheetNet AmountsGross Amounts not Offset in the Balance SheetNet
March 31, 2021
Derivative assets
$105,185 $ $105,185 $(86,858)$18,327 
Derivative liabilities181,461  181,461 (86,858)94,603 
December 31, 2020
Derivative assets
$38,447 $ $38,447 $(35,100)$3,347 
Derivative liabilities415,628  415,628 (35,100)380,528 
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
7.    Fair Value Measurements
We perform fair value measurements in accordance with ASC 820, Fair Value Measurement, which establishes three levels of inputs that we use to measure fair value:
Level 1: quoted prices in active markets for identical assets or liabilities.
Level 2: observable inputs (e.g. spot rates and other data from the third-party pricing vendors for our derivative instruments) other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the assets or liabilities.
Level 3: unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.
Our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 were as follows (in thousands):
As of March 31, 2021
As of December 31, 2020
 Fair ValueFair Value
Measurement Using
Fair ValueFair Value
Measurement Using
 Level 1Level 2Level 1Level 2
Assets:
Money market and deposit accounts$587,615 $587,615 $ $611,071 $611,071 $ 
Publicly traded equity securities153 153  159 159  
Certificates of deposit4,076  4,076 4,373  4,373 
Derivative instruments (1)
77,330  77,330 11,699  11,699 
Total
$669,174 $587,768 $81,406 $627,302 $611,230 $16,072 
Liabilities:
Derivative instruments (1)
$164,850 $ $164,850 $400,459 $ $400,459