Equinix Reports Fourth Quarter And Year-End 2014 Results

REDWOOD CITY, Calif., Feb. 19, 2015 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), a global interconnection and data center company, today reported quarterly and year-end results for the period ended December 31, 2014.  The Company uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

Revenues were $638.1 million for the fourth quarter, a 3% increase over the previous quarter and a 13% increase over the same quarter last year.  Revenues for the year ended December 31, 2014, were $2,443.8 million, a 14% increase over 2013. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $605.5 million for the fourth quarter, a 3% increase over the previous quarter, and $2,317.8 million for the year ended December 31, 2014, a 13% increase over 2013.  Non-recurring revenues were $32.6 million for the fourth quarter and $126.0 million for the year ended December 31, 2014.  MRR churn for the fourth quarter was 1.9%, unchanged from previous quarter and lower than prior guidance.

"In 2014, Equinix leveraged significant market momentum to deliver another year of strong financial results.  In the fourth quarter, we delivered record bookings, driven by strong performance across all three regions, new customer wins and continued expansion of our cloud ecosystem," said Steve Smith, president and CEO of Equinix.  "The rapid growth of interconnection reflects the importance of Equinix as the place where leading companies come to connect to their customers and partners to accelerate the growth of their business.  I am very pleased with our position going into this year." 

Cost of revenues were $313.4 million for the fourth quarter, a 3% increase from the previous quarter, and $1,197.9 million for the year ended December 31, 2014, a 13% increase over 2013.  Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $117.5 million for the quarter and $430.3 million for the year, which we refer to as cash cost of revenues, were $195.9 million for the quarter, a slight decrease from the previous quarter, and $767.6 million for the year ended December 31, 2014, a 13% increase over 2013.  Gross margins for the quarter were 51%, unchanged from the previous quarter and slightly decreased from 52% for the same quarter last year.  Gross margins were 51% for the year ended December 31, 2014, unchanged from the prior year.  Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 69%, up from 68% for the previous quarter and unchanged from the same quarter last year.  Cash gross margins were 69% for the year ended December 31, 2014, up from 68% for the year ended December 31, 2013.   

Selling, general and administrative expenses were $194.9 million for the fourth quarter, a 7% increase over the previous quarter, and $734.1 million for the year ended December 31, 2014, an 18% increase over 2013. Selling, general and administrative expenses, excluding depreciation, amortization, accretion and stock-based compensation of $47.1 million for the quarter and $171.8 million for the year, which we refer to as cash selling, general and administrative expenses, were $147.8 million for the quarter, a 5% increase from the previous quarter, and $562.3 million for the year ended December 31, 2014, a 19% increase over 2013.  

Interest expense was $71.1 million for the fourth quarter, a 12% increase from the previous quarter, and $270.6 million for the year ended December 31, 2014, a 9% increase over 2013, primarily attributed to debt financings during the fourth quarter and additional financings such as various capital lease and other financing obligations to support the Company's expansion projects. 

The Company recorded income tax expense of $303.3 million for the fourth quarter compared to income tax expense of $30.6 million in the prior quarter and income tax expense of $345.5 million for the year ended December 31, 2014 compared to income tax expense of $16.2 million in the prior year, mainly due to the de-recognition of deferred tax assets and liabilities of the Company's U.S operations in the fourth quarter, when it was determined that all significant actions to effect the REIT conversion had occurred.

The Company recognized a loss on debt extinguishment of $105.8 million for the fourth quarter ended December 31, 2014, comprised of $103.3 million related to the redemption of the $750.0 million 7.00% senior notes and $2.5 million from the termination of the $110.0 million term loan and the $550.0 million revolving credit facility. For the year ended December 31, 2014, the Company recorded a loss on debt extinguishment of $157.0 million, comprised of $103.3 million related to the redemption of the $750.0 million 7.00% senior notes, $51.2 million related to the exchanges of the 3.00% convertible subordinated notes and 4.75% convertible subordinated notes in the second quarter, and $2.5 million from the termination of the $110.0 million term loan and the $550.0 million revolving credit facility.

Net loss attributable to Equinix was $355.1 million for the fourth quarter. This represents a basic and diluted net loss per share attributable to Equinix of $6.42 for the fourth quarter based on a weighted average share count of 55.3 million. Excluding the de-recognition of the deferred tax assets and liabilities relating to the REIT conversion of $324.1 million and the loss on debt extinguishment, pro forma net income attributable to Equinix was $31.1 million for the fourth quarter. This resulted in a pro forma basic and diluted net income per share attributed to Equinix of $0.56 for the fourth quarter.  Net loss attributable to Equinix was $259.5 million for the year ended December 31, 2014. This represents a basic and diluted net loss per share attributed to Equinix of $4.96 for the year ended December 31, 2014 based on a weighted average share count of 52.4 million. Excluding the de-recognition of the deferred tax assets and liabilities relating to the REIT conversion and the loss on debt extinguishment, pro forma net income attributable to Equinix was $161.1 million for the year ended December 31, 2014, which resulted in a pro forma basic and diluted net income per share attributed to Equinix of $3.08 and $3.04, respectively, for the year ended December 31, 2014.

Income from operations was $127.8 million for the fourth quarter, a 5% decrease from the previous quarter, and $509.3 million for the year ended December 31, 2014, a 10% increase over 2013.  Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges, impairment charges and acquisition costs, for the fourth quarter was $294.4 million, a 4% increase over the previous quarter, and $1,113.9 million for the year ended December 31, 2014, an 11% increase over 2013.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the fourth quarter, were $238.5 million.  Capital expenditures for the fourth quarter increased 53% from the previous quarter, primarily due to increased spending on expansion projects in the Frankfurt 4, London 6, New York 6, Silicon Valley 5 and Singapore 3 IBX data centers.  Capital expenditures for the year ended December 31, 2014 were $660.2 million. 

The Company generated cash from operating activities of $202.3 million for the fourth quarter, a slight decrease from $216.4 million in the previous quarter. Cash generated from operating activities for the year ended December 31, 2014 was $689.4 million as compared to $604.6 million in the previous year.  Cash used in investing activities was $619.9 million in the fourth quarter as compared to cash used in investing activities of $6.3 million in the previous quarter, primarily attributed to the net purchases of investments in marketable securities and higher capital expenditures in the fourth quarter. Cash used in investing activities for the year ended December 31, 2014 was $435.8 million as compared to cash used in investing activities of $1.2 billion in the previous year, primarily attributed to the net purchases of investments in marketable securities during 2013.  Cash provided by financing activities was $679.9 million for the fourth quarter as compared to cash used in financing activities of $256.2 million in the previous quarter, primarily due to the net impact of the issuance of the $1.25 billion senior notes and $500.0 million term loan offset by the redemption of the $750.0 million 7.00% senior notes and repayment of the $110.0 million term loan in the fourth quarter.  Cash provided by financing activities was $107.4 million for the year ended December 31, 2014, as compared to cash provided by financing activities of $574.9 million for the year ended December 31, 2013, primarily due to purchases of treasury stock, purchase of the remaining non-controlling interest in ALOG and the debt activities in 2014 discussed above.

As of December 31, 2014, the Company's cash, cash equivalents and investments were $1,140.8 million, as compared to $1,030.1 million as of December 31, 2013. 

Business Outlook

For the first quarter of 2015, the Company expects revenues to range between $634.0 and $638.0 million, which absorbs $19.0 million of negative foreign currency impact compared to Q4 2014 average FX rates, a normalized and constant currency growth of 3% quarter over quarter.  Cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to range between $146.0 and $150.0 million.  Adjusted EBITDA is expected to range between $287.0 and $291.0 million, which absorbs $12.0 million of negative foreign currency impact compared to Q4 2014 average FX rates, a normalized and constant currency growth of 3% quarter over quarter.  Capital expenditures are expected to range between $195.0 and $205.0 million, comprised of approximately $25.0 million of recurring capital expenditures and $170.0 to $180.0 million of non-recurring capital expenditures.  

For the full year of 2015, total revenues are expected to be greater than $2,630.0 million, which absorbs $100.0 million of negative foreign currency impact compared to 2014 average FX rates, reflecting a normalized and constant currency growth rate of 12%.  Total year cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to range between $580.0 and $600.0 million.  Adjusted EBITDA for the year is expected to be greater than $1,220.0 million, which absorbs $47.0 million of negative foreign currency impact compared to 2014 average FX rates, a normalized and constant currency growth rate of 15%.  Adjusted funds from operations ("AFFO") is expected to be greater than $810.0 million, or a normalized and constant currency growth rate of 12%.  Capital expenditures for 2015 are expected to range between $700.0 and $800.0 million, comprised of approximately $115.0 million of recurring capital expenditures and $585.0 to $685.0 million for non-recurring capital expenditures. 

The U.S. dollar exchange rates used for 2015 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.20 to the Euro, $1.55 to the Pound, S$1.32 to the U.S. dollar and R$2.68 to the U.S. dollar. The 2015 global revenue breakdown by currency for the Euro, Pound, Singapore Dollar and Brazilian Real is 14%, 9%, 7% and 4%, respectively.

The guidance provided above is forward-looking.  The adjusted EBITDA guidance is based on the revenue guidance, less our expectations of cash cost of revenue and cash operating expenses.  The AFFO guidance is based on the adjusted EBITDA guidance, excluding our expectations of interest income and interest expense, installation revenue adjustment, straight-line rent expense, amortization of deferred financing costs, gains (losses) on debt extinguishment, cash portion of income tax expense, recurring capital expenditures and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items.

Q4 Results Conference Call and Replay Information

The Company will discuss its quarterly and year-end results for the period ended December 31, 2014, along with its future outlook, on its quarterly conference call on Thursday, February 19, 2015, at 5:30 p.m. ET (2:30 p.m. PT).  A simultaneous live webcast of the call will be available on the Company's Investor Relations website at www.equinix.com/investors. To hear the conference call live, please dial 1-210-234-8004 (domestic and international) and reference the passcode EQIX.   

A replay of the call will be available one hour after the call through Friday, May 15, 2015, by dialing 1-203-369-3829 and referencing the passcode 2015.  In addition, the webcast will be available at www.equinix.com/investors over the same time period.  No password is required for the webcast.

Investor Presentation and Supplemental Financial Information

The Company has made available on its website a presentation designed to accompany the discussion of the Company's results and future outlook, along with certain supplemental financial information and other data. Interested parties may access this information through the Company's Investor Relations website at www.equinix.com/investors.

About Equinix

Equinix, Inc. (Nasdaq: EQIX) connects the world's leading businesses to their customers, employees and partners inside the most interconnected data centers. In 33 markets across five continents, Equinix is where companies come together to realize new opportunities and accelerate their business, IT and cloud strategies. www.equinix.com

Non-GAAP Financial Measures

Equinix provides all information required in accordance with generally accepted accounting principles (GAAP), but it believes that evaluating its ongoing operating results may be difficult if limited to reviewing only GAAP financial measures.  Accordingly, Equinix uses non-GAAP financial measures to evaluate its operations.  Legislative and regulatory requirements encourage use of and emphasis on GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. 

In presenting non-GAAP financial measures, such as adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), adjusted EBITDA margins, free cash flow, adjusted free cash flow, discretionary free cash flow, adjusted discretionary free cash flow and AFFO, Equinix excludes certain items that it believes are not good indicators of the Company's current or future operating performance.  These items are depreciation, amortization, accretion of asset retirement obligations and accrued restructuring charges, stock-based compensation, restructuring charges, impairment charges and acquisition costs.  Equinix excludes these items in order for Equinix's lenders, investors, and industry analysts who review and report on the Company, to better evaluate the Company's operating performance and cash spending levels relative to its industry sector and competitors.

Equinix excludes depreciation expense as these charges primarily relate to the initial construction costs of our IBX centers and do not reflect our current or future cash spending levels to support our business.  Our IBX centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of our IBX centers do not recur and future capital expenditures remain minor relative to our initial investment.  This is a trend we expect to continue.  In addition, depreciation is also based on the estimated useful lives of our IBX centers.  These estimates could vary from actual performance of the asset, are based on historic costs incurred to build out our IBX centers, and are not indicative of current or expected future capital expenditures.  Therefore, Equinix excludes depreciation from its operating results when evaluating its operations.

In addition, in presenting the non-GAAP financial measures, Equinix also excludes amortization expense related to certain intangible assets, as it represents a cost that may not recur and is not a good indicator of the Company's current or future operating performance.  Equinix excludes accretion expense, both as it relates to its asset retirement obligations as well as its accrued restructuring charges, as these expenses represent costs which Equinix believes are not meaningful in evaluating the Company's current operations.  Equinix excludes stock-based compensation expense as it primarily represents expense attributed to equity awards that have no current or future cash obligations.  As such, we, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations.  Equinix excludes restructuring charges from its non-GAAP financial measures.  The restructuring charges relate to the Company's decision to exit leases for excess space adjacent to several of our IBX centers, which we did not intend to build out, or our decision to reverse such restructuring charges.  Equinix also excludes impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Finally, Equinix excludes acquisition costs from its non-GAAP financial measures.  The acquisition costs relate to costs the Company incurs in connection with business combinations.  Management believes such items as restructuring charges, impairment charges and acquisition costs are non-core transactions; however, these types of costs will or may occur in future periods.

Equinix will also present funds from operations ("FFO") and adjusted funds from operations ("AFFO"), which are non-GAAP financial measures commonly used in the REIT industry.  FFO is calculated in accordance with the definition established by the National Association of Real Estate Investment Trusts ("NAREIT").  FFO represents net income (loss), excluding gains (losses) from the disposition of real estate assets, depreciation and amortization on real estate assets and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items.  AFFO represents FFO, excluding depreciation and amortization expense on non-real estate assets, accretion, stock-based compensation, restructuring charges, impairment charges, acquisition costs, an installation revenue adjustment, straight-line rent expense, amortization of deferred financing costs, gains (losses) on debt extinguishment, non- cash portion of income tax expense, recurring capital expenditures and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items.  Equinix excludes depreciation expense, amortization expense, accretion, stock-based compensation, restructuring charges, impairment charges and acquisition charges for the same reasons that they are excluded from the non-GAAP financial measures mentioned above. 

Equinix includes an adjustment for revenue from installation fees, since installation fees are deferred and recognized ratably over the expected life of the installation, although the fees are generally paid in a lump sum upon installation.  Equinix includes an adjustment for straight-line rent expense on its operating leases, since the total minimum lease payments are recognized ratably over the lease term, although the lease payments generally increase over the lease term.  Equinix excludes the amortization of deferred financing costs as these expenses relate to the initial costs incurred in connection with our debt financings that have no current or future cash obligations.  Equinix excludes gains (losses) on debt extinguishment since it represents a cost that may not recur and is not a good indicator of the Company's current or future operating performance.  Equinix excludes the non-cash portion of income tax expense, as it represents a cost that has no current or future cash obligation.  Equinix also excludes recurring capital expenditures, which represent non-incremental building improvements required to maintain current revenues.

Our management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.  However, we have presented such non-GAAP financial measures to provide investors with an additional tool to evaluate our operating results in a manner that focuses on what management believes to be our core, ongoing business operations.  Management believes that the inclusion of these non-GAAP financial measures provides consistency and comparability with past reports and provides a better understanding of the overall performance of the business and its ability to perform in subsequent periods. Equinix believes that if it did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze Equinix effectively.

Investors should note, however, that the non-GAAP financial measures used by Equinix may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies.  In addition, whenever Equinix uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure.  Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.  Equinix intends to calculate the various non-GAAP financial measures in future periods consistent with how they were calculated for the periods presented within this press release.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from expectations discussed in such forward-looking statements. Factors that might cause such differences include, but are not limited to, the challenges of acquiring, operating and constructing IBX centers and developing, deploying and delivering Equinix services; unanticipated costs or difficulties relating to the integration of companies we have acquired or will acquire into Equinix; a failure to receive significant revenue from customers in recently built out or acquired data centers; failure to complete any financing arrangements contemplated from time to time; competition from existing and new competitors; the ability to generate sufficient cash flow or otherwise obtain funds to repay new or outstanding indebtedness; the loss or decline in business from our key customers; and other risks described from time to time in Equinix's filings with the Securities and Exchange Commission. In particular, see Equinix's recent quarterly and annual reports filed with the Securities and Exchange Commission, copies of which are available upon request from Equinix. Equinix does not assume any obligation to update the forward-looking information contained in this press release.

Equinix and IBX are registered trademarks of Equinix, Inc. International Business Exchange is a trademark of Equinix, Inc.

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