Cyxtera Technologies (NASDAQ: CYXT), a retail colocation provider, today announced its Q4 and full-year 2021 earnings and provided updates on its outlook for 2022, EBITDA margin impact from energy inflation, data center portfolio, bookings, churn, occupancy, pricing, and capital expenditures – both expansion and maintenance.

Financial Performance in Q4 2021 – Cyxtera Technologies

In Q4 2021, Cyxtera Technologies reported total revenue of $178.4m, a 0.7% increase quarter-over-quarter, and transaction adjusted EBITDA of $48.0m, a 17% decrease quarter-over-quarter. Therefore, the company’s EBITDA margin was 26.9% in Q4 2021, a 5.9% decline quarter-over-quarter.

Degradation in Cyxtera’s EBITDA margin was driven in-part by higher utility costs in Q4 2021. Furthermore, Carlos Sagasta, Cyxtera’s CFO states that “energy remains the single source of focus of inflationary pressure for us in 2022”.

Per Sagasta, Cyxtera has the “contractual flexibility to pass through increases in power costs” onto its customers, which cover more than 85% of its contracts. However, in reality, Cyxtera is able or willing to pass through only a portion of these power / energy costs, hence its EBITDA margin degradation. Moreover, Cyxtera notes that there is a timing impact between the change in energy costs and its ability to pass those costs onto its customers.

Recurring Revenue

Cyxtera’s recurring revenue for Q4 2021 was $170.3m (95% of total), an increase of 0.6% quarter-over-quarter. Recall that the company’s non-recurring revenues comprise installation services related to a customer’s initial data center deployment, as well as professional services.

Interconnection Revenue

Of Cyxtera’s total revenue, interconnection revenue represented 11%, equivalent to ~$19.6m in Q4 2021. At the same time, quarterly interconnection revenues grew 5% year-over-year.

Full-Year 2021 and Outlook for 2022 – Cyxtera Technologies

Full-Year 2021

For full-year 2021, Cyxtera Technologies reported total revenue of $703.7m, a 1.9% increase year-over-year, and transaction adjusted EBITDA of $224.4m, a 4.1% increase year-over-year. Therefore, Cyxtera Technologies’ EBITDA margin was 31.9% in full-year 2021, a 67 bps improvement year-over-year.

Outlook for 2022

For full-year 2022, Cyxtera Technologies provides an outlook for revenue of $730m to $760m. Additionally, the company forecasts transaction adjusted EBITDA of $235m to $253m, implying a 32.8% EBITDA margin. Finally, the mid-point of Cyxtera Technologies’ 2022 outlook infers a year-over-year increase of 5.9% and 8.7% in revenue and transaction adjusted EBITDA, respectively.

Capital Expenditures – Outlook

In 2022, Cyxtera provides guidance for a significant increase in both its expansion and maintenance capital expenditures, relative to 2021. Together, these expansion and maintenance capital expenditures are projected to comprise 19% of Cyxtera’s revenue for 2022, at the mid-point of its guidance, as compared to only 12.6% in 2021. Below is a breakdown of both of these capital expenditure projections for 2022:

  • Expansion: $102m to $127m, implying a 70% increase year-over-year, at the mid-point
  • Maintenance: $26m to $28m, inferring a 27% increase year-over-year, at the mid-point

Regarding expansion capital expenditures, Cyxtera is growing its data center portfolio in markets like Silicon Valley (Santa Clara, California), London, and Chicago. Particularly, in the Santa Clara, California market, Cyxtera pre-leased a new 9-megawatt, 121k sqft facility from wholesale data center developer Prime Data Centers, which will be ready for customers in late 2022. Ultimately, these in-market expansions are a positive sign for Cyxtera, whereby the company is building-out capacity based on customer demand – particularly in notoriously tight supply markets such as Santa Clara.

In contrast, Cyxtera’s significant increase in its maintenance capital expenditures highlights a different, more negative issue – one of data center aging and potential obsolescence. As highlighted through recent data center portfolio disposals (Prudential, Digital Core REIT), in which Cyxtera was a major tenant, the company operates out of a number of older facilities, which were built 20+ years ago. Therefore, as power and cooling infrastructure within these old data centers reaches its useful life, Cyxtera must increase its repair and maintenance capital expenditures – or potentially refresh the facilities with entirely new equipment – in order to remain competitive operationally.

Operational Performance in Q4 2021 – Cyxtera Technologies

Portfolio

Cyxtera operates 61 data centers, comprising 245 megawatts of power capacity. Overall, these data centers involve 1.8 million sqft, in 28 markets throughout North America, Europe, and Asia, supporting 2.3k+ customers.

Bookings

Cyxtera’s annualized core bookings were $21.5m in Q4 2021, representing an increase of 3.7% quarter-over-quarter. During the quarter, the company added 40 new customers to the business, accounting for more than 25% of its bookings in Q4 2021.

Additionally, as a reference point, in Q4 2021, Cyxtera was below its average annualized core bookings rate for the prior four quarters of $25.0m.

Churn

Cyxtera reports “core churn” of only 0.6% of average core MRR, however, this figure excludes churn related to Lumen Technologies. On a sequential basis, Cyxtera’s core churn improved by 10 bps from Q3 2021.

In Q2 2022, Cyxtera’s broader churn dynamics will become clearer, as 7.6% of Lumen’s footprint with Cyxtera will be up for renewal in May 2022. Therefore, Cyxtera may face a possible non-renewal, downsizing, or lower renewal pricing for a portion of Lumen’s occupancy. Recall that Lumen is Cyxtera’s largest customer.

Occupancy

As of Q4 2021, Cyxtera Technologies’ total occupancy, based on sold sqft, was 70.9%, which improved 2.4% quarter-over-quarter. While the company’s stabilized occupancy, which excludes the Amsterdam (Netherlands) market, was 71.4%, improving 2.5% quarter-over-quarter.

During the quarter, notable net lease-up occurred in New Jersey (21.5k sqft), Silicon Valley (6.1k sqft), Toronto (4.6k sqft), Seattle (3.0k sqft), and Denver (2.4k sqft). In contrast, Cyxtera realized incremental net vacancy in Chicago (1.8k sqft) and Northern Virginia (1.7k sqft) – both markets showing similar trends to Q3 2021.

Pricing

During the quarter, Cyxtera produced monthly recurring revenue (MRR) per cabinet of $1,385, which represents a 3.8% decrease quarter-over-quarter.

Capital Expenditures

The company spent $33.4m (cash basis) or $40.0m (accrual basis) on capital expenditures in Q4 2021. Of the accrual basis capital expenditures, $32.1m went to expansion projects, $7.3m was for maintenance, and $0.6m was corporate.

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