Equinix Reports Second Quarter 2014 Results

-- Reported revenues of $605.2 million, a 4% increase over the previous quarter and a 14% increase over the same quarter last year

-- Raising 2014 annual guidance for revenues to range between $2,425.0 and $2,435.0 million and adjusted EBITDA to range between $1,105.0 and $1,115.0 million

Jul 30, 2014, 16:01 ET from Equinix

REDWOOD CITY, Calif., July 30, 2014 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), a global interconnection and data center company, today reported quarterly results for the quarter ended June 30, 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 $605.2 million for the second quarter, a 4% increase over the previous quarter and a 14% increase over the same quarter last year.  Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $574.2 million for the second quarter, a 4% increase over the previous quarter and a 14% increase over the same quarter last year.  Non-recurring revenues were $31.0 million for the quarter.  Due to a lengthening of the estimated period that non-recurring installation fees are recognized, non-recurring revenues were reduced by $1.8 million for the second quarter and a total estimated revenue reduction of approximately $5.3 million for the full year 2014, a change in accounting estimate that the Company applied on a prospective basis beginning in the second quarter.  MRR churn for the second quarter was 2.7%, an increase from the previous quarter but lower than prior guidance.

"We are very pleased to have delivered both revenue and adjusted EBITDA above the top end of our guidance ranges with record bookings," said Steve Smith, president and CEO of Equinix. "This quarter we passed a major milestone of having over 1,000 networks available around the globe.  Our network density – combined with over 1,200 cloud and IT services providers – is at the heart of value creation for Platform Equinix creating business ecosystems in the cloud, financial, and content and digital media markets." 

Cost of revenues were $292.9 million for the second quarter, a 2% increase over the previous quarter and a 10% increase from the same quarter last year.  Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $102.0 million for the quarter, which we refer to as cash cost of revenues, were $190.9 million for the quarter, a 4% increase over the previous quarter and a 13% increase over the same quarter last year.  Gross margins for the quarter were 52%, up from 50% for the previous quarter and 49% for the same quarter last year.  Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 68%, unchanged from the previous quarter and the same quarter last year.     

Selling, general and administrative expenses were $186.9 million for the second quarter, a 9% increase over the previous quarter and a 26% increase over the same quarter last year.  Selling, general and administrative expenses, excluding depreciation, amortization, accretion and stock-based compensation of $47.9 million for the quarter, which we refer to as cash selling, general and administrative expenses, were $139.0 million for the quarter, a 3% increase over the previous quarter and a 24% increase over the same quarter last year. 

Interest expense was $66.9 million for the second quarter, a 3% decrease from the previous quarter and a 10% increase over the same quarter last year, primarily attributed to additional financings such as various capital lease and other financing obligations to support the Company's expansion projects.  The Company recorded an income tax benefit of $2.0 million for the second quarter as compared to an income tax benefit of $9.7 million in the same quarter last year.

During the second quarter, the Company entered into agreements with certain note holders to exchange $215.8 million of the principal amount of its 4.75% convertible subordinated notes for approximately 2.4 million shares of the Company's common stock and cash payments of approximately $51.7 million.  The Company also entered into an agreement with a note holder to exchange $217.2 million of the principal amount of its 3.00% convertible subordinated notes for approximately 1.9 million shares of the Company's common stock and a cash payment of approximately $5.4 million. As a result, the Company recognized a loss on debt extinguishment of $51.2 million in the second quarter upon the exchange of the convertible subordinated notes.  

Net income attributable to Equinix for the second quarter was $11.3 million.  This represents a basic and diluted net income per share attributable to Equinix of $0.22 based on a weighted average share count of 51.3 million and 51.7 million, respectively, for the second quarter of 2014.  This includes a charge to the income statement of $51.2 million for the loss on debt extinguishment related to the exchanges of the convertible subordinated notes.  

Income from operations was $124.7 million for the second quarter, a 3% increase from the previous quarter and an 8% increase over the same quarter last year.  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 second quarter was $275.3 million, a 6% increase over the previous quarter and an 11% increase over the same quarter last year.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the second quarter, were $159.8 million

The Company has repurchased approximately 1.8 million shares of its common stock under the $500 million share repurchase program authorized in December 2013, at an average price of $191.95 per share, for total consideration of $346.8 million from December 5, 2013 through July 25, 2014. 

The Company generated cash from operating activities of $99.0 million for the second quarter as compared to $171.7 million in the previous quarter and $147.2 million for the same quarter last year. The decrease in cash from operating activities was primarily attributed to tax payments related to both REIT and non-REIT related obligations and cash interest payments during the second quarter.  Cash provided by investing activities was $91.5 million in the second quarter as compared to cash provided by investing activities of $98.9 million in the previous quarter and cash provided by investing activities of $537.5 million in the same quarter last year, primarily attributed to $836.4 million of restricted cash released for the redemption of the $750.0 million 8.125% senior notes.  Cash used in financing activities was $278.9 million for the second quarter, primarily attributed to repurchases of common stock under the share repurchase program and the exchanges of the 3.00% convertible subordinated notes and 4.75% convertible subordinated notes, as compared to cash used in financing activities of $37.3 million in the previous quarter and cash used in financing activities of $850.0 million in the same quarter last year, primarily attributed to the redemption of the $750.0 million 8.125% senior notes.    

As of June 30, 2014, the Company's cash, cash equivalents and investments were $704.3 million, as compared to $1,030.1 million as of December 31, 2013.   

In July 2014, the Company purchased Riverwood Capital L.P.'s interest in ALOG Data Centers do Brasil S.A. ("ALOG"), along with the approximate 10% of ALOG owned by ALOG management, for cash consideration of approximately $225.0 million.  As a result, the Company owns 100% of the outstanding shares of ALOG.  The Company has fully consolidated ALOG's results of operations in the Company's consolidated financial statements from the time the Company acquired a controlling equity interest in ALOG in April 2011.

Business Outlook

For the third quarter of 2014, the Company expects revenues to range between $614.0 and $618.0 million.  Cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to approximate $140.0 million.  Adjusted EBITDA is expected to range between $278.0 and $282.0 million, which includes $8.0 million in professional fees and costs primarily related to the REIT conversion.  Capital expenditures are expected to range between $175.0 and $185.0 million, comprised of approximately $25.0 million of recurring capital expenditures and $150.0 to $160.0 million of expansion capital expenditures.  

For the full year of 2014, total revenues are now expected to range between $2,425.0 and $2,435.0 million, or an as-reported 13% year over year growth rate, which includes a positive foreign currency benefit of approximately $6.5 million compared to the rates used from the Company's prior guidance.  Total year cash gross margins are expected to approximate 68% and 69%.  Cash selling, general and administrative expenses are expected to approximate $550.0 million.  Adjusted EBITDA for the year is expected to range between $1,105.0 and $1,115.0 million, which includes a positive foreign currency benefit of approximately $3.0 million compared to the rates used from our prior guidance, and includes $35.0 million in professional fees and costs primarily related to the REIT conversion.  Capital expenditures for 2014 are expected to range between $600.0 and $650.0 million, comprised of approximately $115.0 million of recurring capital expenditures and $485.0 to $535.0 million of expansion capital expenditures. 

The U.S. dollar exchange rates used for 2014 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.36 to the Euro, $1.67 to the Pound, S$1.24 to the U.S. dollar and R$2.22 to the U.S. dollar.  The 2014 global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 15%, 9%, 7% and 4%, respectively.

Company Metrics and Q2 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, July 30, 2014, at 5:30 p.m. ET (2:30 p.m. PT).  A simultaneous live webcast of the call will be available over the internet at Equinix.com under the Investor Relations heading. To hear the conference call live, please dial 1-210-234-8004 (domestic and international) and reference the passcode (EQIX).  A presentation to accompany the call, as well as the Company's Non-Financial Metrics tracking sheet, will also be available on the website. 

A replay of the call will be available beginning on Wednesday, July 30, 2014, at 7:30 p.m. ET through Thursday, October 30, 2014, by dialing 1-203-369-3450 and referencing the passcode (2014).  In addition, the webcast will be available on the Investors section of the Company's website over the same time period. No password is required for the webcast.

About Equinix

Equinix, Inc. (Nasdaq: EQIX), connects more than 4,500 companies directly to their customers and partners inside the world's most networked data centers. Today, businesses leverage the Equinix interconnection platform in 32 strategic markets across the Americas, EMEA and Asia-Pacific. 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, 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 and adjusted discretionary free cash flow to evaluate its operations.  In presenting these non-GAAP financial measures, 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. 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.  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 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 or severance charges related to the Switch and Data acquisition.  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.

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 does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data.  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.

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2014

2014

2013

2014

2013

Recurring revenues

$574,158

$549,703

$501,814

$1,123,861

$ 996,336

Non-recurring revenues

31,003

30,350

27,057

61,353

48,669

Revenues

605,161

580,053

528,871

1,185,214

1,045,005

Cost of revenues

292,859

287,525

267,109

580,384

525,700

Gross profit

312,302

292,528

261,762

604,830

519,305

Operating expenses:

Sales and marketing

75,254

67,428

59,478

142,682

117,754

General and administrative

111,675

103,303

88,632

214,978

179,450

Restructuring charges

-

-

(4,837)

-

(4,837)

Acquisition costs

676

185

2,526

861

6,188

Total operating expenses

187,605

170,916

145,799

358,521

298,555

Income from operations

124,697

121,612

115,963

246,309

220,750

Interest and other income (expense):

Interest income

744

1,434

917

2,178

1,664

Interest expense

(66,874)

(68,820)

(61,001)

(135,694)

(121,332)

Loss on debt extinguishment 

(51,183)

-

(93,602)

(51,183)

(93,602)

Other income (expense)

681

678

2,768

1,359

2,309

Total interest and other, net

(116,632)

(66,708)

(150,918)

(183,340)

(210,961)

Income (loss) before income taxes

8,065

54,904

(34,955)

62,969

9,789

Income tax benefit (expense)

2,014

(13,567)

9,668

(11,553)

(1,792)

Net income (loss)

10,079

41,337

(25,287)

51,416

7,997

Net (income) loss attributable to redeemable non-controlling interests

1,249

50

(529)

1,299

(970)

Net income (loss) attributable to Equinix

$  11,328

$  41,387

$ (25,816)

$     52,715

$     7,027

Net income (loss) per share attributable to Equinix:

Basic net income (loss) per share (1)

$     0.22

$     0.83

$    (0.52)

$        1.04

$      0.14

Diluted net income (loss) per share (1)

$     0.22

$     0.81

$    (0.52)

$        1.04

$      0.14

Shares used in computing basic net income (loss) per share

51,332

49,598

49,379

50,470

49,205

Shares used in computing diluted net income (loss) per share

51,652

53,386

49,379

50,884

49,976

(1)

The net income (loss) attributable to Equinix used in the computation of basic and diluted net income (loss) per share attributed to Equinix is presented below:

Net income (loss)

$  10,079

$  41,337

$ (25,287)

$     51,416

$     7,997

Net (income) loss attributable to non-controlling interests

1,249

50

(529)

1,299

(970)

Net income (loss) attributable to Equinix, basic 

11,328

41,387

(25,816)

52,715

7,027

Interest on convertible debt

-

1,984

-

-

-

Net income (loss) attributable to Equinix, diluted

$  11,328

$  43,371

$ (25,816)

$     52,715

$     7,027

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2014

2014

2013

2014

2013

Net income (loss)

$10,079

$  41,337

$(25,287)

$51,416

$   7,997

Other comprehensive income (loss), net of tax:

 Foreign currency translation gain (loss) 

23,081

14,970

(30,666)

38,051

(103,220)

 Unrealized gain (loss) on available for sale securities 

(73)

839

(458)

766

(360)

 Unrealized gain on cash flow hedges 

54

200

-

254

-

 Other comprehensive income (loss), net of tax: 

23,062

16,009

(31,124)

39,071

(103,580)

 Comprehensive income (loss), net of tax 

33,141

57,346

(56,411)

90,487

(95,583)

 Net (income) loss attributable to redeemable non-controlling interests 

1,249

50

(529)

1,299

(970)

 Other comprehensive (income) loss attributable to redeemable non-controlling interests 

(750)

(2,067)

5,309

(2,817)

4,540

 Comprehensive income (loss) attributable to Equinix, net of tax 

$33,640

$  55,329

$(51,631)

$88,969

$(92,013)

EQUINIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

Assets

June 30,

December 31,

2014

2013

Cash and cash equivalents

$   408,334

$       261,894

Investments

296,015

768,198

Accounts receivable, net

237,831

184,840

Property, plant and equipment, net

4,922,380

4,591,650

Goodwill

1,058,363

1,042,153

Intangible assets, net

170,130

184,182

Other assets

508,764

459,442

Total assets

$7,601,817

$    7,492,359

Liabilities and Stockholders' Equity

Accounts payable and accrued expenses

$   224,109

$       263,223

Accrued property and equipment

82,014

64,601

Capital lease and other financing obligations

1,134,607

931,246

Mortgage and loans payable

230,654

253,208

Senior notes

2,250,000

2,250,000

Convertible debt

320,914

724,202

Other liabilities

449,304

422,913

Total liabilities

4,691,602

4,909,393

Redeemable non-controlling interests

227,156

123,902

Common stock

53

50

Additional paid-in capital

2,797,186

2,693,887

Treasury stock

(52,938)

(84,663)

Accumulated other comprehensive loss

(77,514)

(113,767)

Retained earnings (accumulated deficit)

16,272

(36,443)

Total stockholders' equity

2,683,059

2,459,064

Total liabilities, redeemable non-controlling interests and stockholders' equity

$7,601,817

$    7,492,359

Ending headcount by geographic region is as follows:

Americas headcount

2,059

1,984

EMEA headcount

945

899

Asia-Pacific headcount

655

617

Total headcount

3,659

3,500

EQUINIX, INC.

SUMMARY OF DEBT OUTSTANDING

(in thousands)

(unaudited)

June 30,

December 31,

2014

2013

Capital lease and other financing obligations

$  1,134,607

$       931,246

U.S. term loan

120,000

140,000

ALOG financings

65,972

67,882

Mortgage payable

42,634

43,497

Other loans payable

2,048

1,829

Total mortgage and loans payable

230,654

253,208

Senior notes

2,250,000

2,250,000

Convertible debt, net of debt discount

320,914

724,202

Plus: debt discount

15,762

45,508

Total convertible debt principal

336,676

769,710

Total debt outstanding

$  3,951,937

$    4,204,164

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2014

2014

2013

2014

2013

Cash flows from operating activities:

Net income (loss)

$  10,079

$  41,337

$ (25,287)

$  51,416

$     7,997

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Depreciation, amortization and accretion

116,074

113,610

110,189

229,684

218,792

Stock-based compensation

33,830

24,981

24,194

58,811

48,030

Debt issuance costs and debt discount

4,717

6,409

5,884

11,126

11,637

Loss on debt extinguishment 

51,183

-

93,602

51,183

93,602

Restructuring charges

-

-

(4,837)

-

(4,837)

Excess tax benefits from employee equity awards

(1,614)

(10,018)

(3,431)

(11,632)

(22,421)

Other reconciling items

7,455

5,292

3,949

12,747

7,034

Changes in operating assets and liabilities:

Accounts receivable

(24,510)

(28,995)

(19,098)

(53,505)

(43,761)

Income taxes, net

(76,764)

(15,749)

(73,209)

(92,513)

(75,556)

Accounts payable and accrued expenses

(16,498)

8,830

28,392

(7,668)

396

Other assets and liabilities

(4,988)

26,021

6,811

21,033

(9,573)

Net cash provided by operating activities

98,964

171,718

147,159

270,682

231,340

Cash flows from investing activities:

Purchases, sales and maturities of investments, net

250,737

221,654

(175,593)

472,391

(408,558)

Purchase of Asia Tone, less cash acquired

-

-

-

-

(107)

Purchase of real estate

-

(16,791)

(2,960)

(16,791)

(2,960)

Purchases of other property, plant and equipment

(159,816)

(105,907)

(122,863)

(265,723)

(198,530)

Other investing activities

582

(71)

838,963

511

5,162

Net cash provided by (used in) investing activities

91,503

98,885

537,547

190,388

(604,993)

Cash flows from financing activities:

Purchases of treasury stock

(208,263)

(47,120)

-

(255,383)

-

Proceeds from employee equity awards

1,434

14,387

1,512

15,821

15,880

Proceeds from senior notes

-

-

-

-

1,500,000

Repayment of capital lease and other financing obligations

(5,033)

(4,250)

(4,157)

(9,283)

(7,673)

Repayment of mortgage and loans payable

(16,777)

(10,317)

(18,139)

(27,094)

(32,191)

Repayment of senior notes

-

-

(750,000)

-

(750,000)

Repayment of convertible debt

(29,479)

-

-

(29,479)

-

Debt extinguishment costs

(22,552)

-

(80,925)

(22,552)

(80,925)

Excess tax benefits from employee equity awards

1,614

10,018

3,431

11,632

22,421

Other financing activities

128

-

(1,756)

128

(20,786)

Net cash provided by (used in) financing activities

(278,928)

(37,282)

(850,034)

(316,210)

646,726

Effect of foreign currency exchange rates on cash and cash equivalents

1,621

(41)

(2,195)

1,580

(7,790)

Net increase (decrease) in cash and cash equivalents

(86,840)

233,280

(167,523)

146,440

265,283

Cash and cash equivalents at beginning of period

495,174

261,894

685,019

261,894

252,213

Cash and cash equivalents at end of period

$408,334

$495,174

$517,496

$408,334

$ 517,496

Supplemental cash flow information:

Cash paid for taxes

$  75,371

$  29,913

$  62,818

$105,284

$   76,854

Cash paid for interest

$  79,517

$  42,385

$  29,440

$121,902

$   96,280

Free cash flow (1)

$ (60,270)

$  48,949

$860,299

$ (11,321)

$   34,905

Adjusted free cash flow (2)

$  12,119

$103,375

$923,876

$115,494

$ 123,370

Ongoing capital expenditures (3)

$  63,581

$  44,914

$  40,210

$108,495

$   74,207

Discretionary free cash flow (4)

$  35,383

$126,804

$106,949

$162,187

$ 157,133

Adjusted discretionary free cash flow (5)

$107,772

$164,439

$167,566

$272,211

$ 242,531

(1)

We define free cash flow as net cash provided by operating activities plus net cash provided by (used in) investing activities (excluding the net purchases, sales and maturities of investments) as presented below:

Net cash provided by operating activities as presented above

$  98,964

$171,718

$147,159

$270,682

$ 231,340

Net cash provided by (used in) investing activities as presented above

91,503

98,885

537,547

190,388

(604,993)

Purchases, sales and maturities of investments, net

(250,737)

(221,654)

175,593

(472,391)

408,558

Free cash flow (negative free cash flow)

$ (60,270)

$  48,949

$860,299

$ (11,321)

$   34,905

(2)

We define adjusted free cash flow as free cash flow (as defined above) excluding any purchases of real estate, acquisitions, any excess tax benefits from employee equity awards, cash paid for taxes associated with reclassifying our assets for tax purposes triggered by our planned conversion into a real estate investment trust ("REIT") and costs related to the planned REIT conversion, as presented below:

Free cash flow (as defined above)

$ (60,270)

$  48,949

$860,299

$ (11,321)

$   34,905

Less purchase of Asia Tone, less cash acquired

-

-

-

-

107

Less purchase of real estate

-

16,791

2,960

16,791

2,960

Less excess tax benefits from employee equity awards

1,614

10,018

3,431

11,632

22,421

Less cash paid for taxes resulting from the planned REIT conversion 

61,873

17,827

53,570

79,700

57,304

Less costs related to the planned REIT conversion

8,902

9,790

3,616

18,692

5,673

Adjusted free cash flow

$  12,119

$103,375

$923,876

$115,494

$ 123,370

We categorize our cash paid for taxes into cash paid for taxes resulting from the planned REIT conversion (as defined above) and other cash taxes paid.

Cash paid for taxes resulting from the planned REIT conversion

$  61,873

$  17,827

$  53,570

$  79,700

$   57,304

Other cash taxes paid

13,498

12,086

9,248

25,584

19,550

Total cash paid for taxes

$  75,371

$  29,913

$  62,818

$105,284

$   76,854

(3)

We refer to our purchases of other property, plant and equipment as our capital expenditures (or capex).  We categorize our capital expenditures into expansion and ongoing capex. Expansion capex is capex spent to build out our new data centers and data center expansions. Our ongoing capex represents all of our other capex spending.

Ongoing capital expenditures

$  63,581

$  44,914

$  40,210

$108,495

$   74,207

Expansion capital expenditures

96,235

60,993

82,653

157,228

124,323

Total capital expenditures

$159,816

$105,907

$122,863

$265,723

$ 198,530

(4)

We define discretionary free cash flow as net cash provided by operating activities less ongoing capital expenditures (as described above), as presented below:

Net cash provided by operating activities, as presented above

$  98,964

$171,718

$147,159

$270,682

$ 231,340

Less ongoing capital expenditures

(63,581)

(44,914)

(40,210)

(108,495)

(74,207)

Discretionary free cash flow

$  35,383

$126,804

$106,949

$162,187

$ 157,133

(5)

We define adjusted discretionary free cash flow as discretionary free cash flow (as defined above), excluding any excess tax benefits from employee equity awards, cash paid for taxes associated with reclassifying our assets for tax purposes triggered by our planned REIT conversion and costs related to the planned REIT conversion, as presented below:

Discretionary free cash flow (as defined above)

$  35,383

$126,804

$106,949

$162,187

$ 157,133

Excess tax benefits from employee equity awards

1,614

10,018

3,431

11,632

22,421

Cash paid for taxes resulting from the planned REIT conversion 

61,873

17,827

53,570

79,700

57,304

Costs related to the planned REIT conversion

8,902

9,790

3,616

18,692

5,673

Adjusted discretionary free cash flow

$107,772

$164,439

$167,566

$272,211

$ 242,531

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP PRESENTATION

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2014

2014

2013

2014

2013

Recurring revenues

$574,158

$549,703

$501,814

$1,123,861

$   996,336

Non-recurring revenues

31,003

30,350

27,057

61,353

48,669

Revenues (1)

605,161

580,053

528,871

1,185,214

1,045,005

Cash cost of revenues (2)

190,901

184,248

168,421

375,149

330,431

Cash gross profit (3)

414,260

395,805

360,450

810,065

714,574

Cash operating expenses (4):

Cash sales and marketing expenses (5)

58,785

55,799

46,430

114,584

92,710

Cash general and administrative expenses (6)

80,198

79,618

65,985

159,816

132,941

Total cash operating expenses (7)

138,983

135,417

112,415

274,400

225,651

Adjusted EBITDA (8)

$275,277

$260,388

$248,035

$   535,665

$   488,923

Cash gross margins (9)

68%

68%

68%

68%

68%

Adjusted EBITDA margins (10)

45%

45%

47%

45%

47%

Adjusted EBITDA flow-through rate (11)

59%

(20%)

56%

31%

45%

(1)

The geographic split of our revenues on a services basis is presented below:

Americas Revenues:

Colocation

$242,873

$236,614

$226,290

$   479,487

$   449,575

Interconnection

66,451

64,302

59,800

130,753

118,006

Managed infrastructure

14,885

13,112

13,567

27,997

26,714

Rental

943

952

445

1,895

905

Recurring revenues

325,152

314,980

300,102

640,132

595,200

Non-recurring revenues

17,104

15,053

13,366

32,157

24,060

Revenues

342,256

330,033

313,468

672,289

619,260

EMEA Revenues:

Colocation

127,132

122,176

103,916

249,308

204,448

Interconnection

12,329

11,366

8,854

23,695

17,235

Managed infrastructure

7,434

6,865

5,734

14,299

9,983

Rental

1,730

1,718

138

3,448

258

Recurring revenues

148,625

142,125

118,642

290,750

231,924

Non-recurring revenues

8,537

9,305

8,367

17,842

15,054

Revenues

157,162

151,430

127,009

308,592

246,978

Asia-Pacific Revenues:

Colocation

82,655

75,833

67,881

158,488

138,895

Interconnection

12,189

11,358

9,699

23,547

19,103

Managed infrastructure

5,537

5,407

5,490

10,944

11,214

Recurring revenues

100,381

92,598

83,070

192,979

169,212

Non-recurring revenues

5,362

5,992

5,324

11,354

9,555

Revenues

105,743

98,590

88,394

204,333

178,767

Worldwide Revenues:

Colocation

452,660

434,623

398,087

887,283

792,918

Interconnection

90,969

87,026

78,353

177,995

154,344

Managed infrastructure

27,856

25,384

24,791

53,240

47,911

Rental

2,673

2,670

583

5,343

1,163

Recurring revenues

574,158

549,703

501,814

1,123,861

996,336

Non-recurring revenues

31,003

30,350

27,057

61,353

48,669

Revenues

$605,161

$580,053

$528,871

$1,185,214

$1,045,005

(2)

We define cash cost of revenues as cost of revenues less depreciation, amortization, accretion and stock-based compensation as presented below:

Cost of revenues

$292,859

$287,525

$267,109

$   580,384

$   525,700

Depreciation, amortization and accretion expense

(99,730)

(101,407)

(96,894)

(201,137)

(191,873)

Stock-based compensation expense

(2,228)

(1,870)

(1,794)

(4,098)

(3,396)

Cash cost of revenues

$190,901

$184,248

$168,421

$   375,149

$   330,431

The geographic split of our cash cost of revenues is presented below:

Americas cash cost of revenues

$  94,684

$  91,037

$  89,890

$   185,721

$   177,614

EMEA cash cost of revenues

58,727

58,116

47,304

116,843

90,933

Asia-Pacific cash cost of revenues

37,490

35,095

31,227

72,585

61,884

Cash cost of revenues

$190,901

$184,248

$168,421

$   375,149

$   330,431

(3)

We define cash gross profit as revenues less cash cost of revenues (as defined above).

(4)

We define cash operating expenses as operating expenses less depreciation, amortization, stock-based compensation and acquisition costs. We also refer to cash operating expenses as cash selling, general and administrative expenses or "cash SG&A".

(5)

We define cash sales and marketing expenses as sales and marketing expenses less depreciation, amortization and stock-based compensation as presented below:

Sales and marketing expenses

$  75,254

$  67,428

$  59,478

$   142,682

$   117,754

Depreciation and amortization expense

(8,526)

(4,629)

(6,223)

(13,155)

(12,498)

Stock-based compensation expense

(7,943)

(7,000)

(6,825)

(14,943)

(12,546)

Cash sales and marketing expenses

$  58,785

$  55,799

$  46,430

$   114,584

$     92,710

(6)

We define cash general and administrative expenses as general and administrative expenses less depreciation, amortization and stock-based compensation as presented below:

General and administrative expenses

$111,675

$103,303

$  88,632

$   214,978

$   179,450

Depreciation and amortization expense

(7,818)

(7,574)

(7,072)

(15,392)

(14,421)

Stock-based compensation expense

(23,659)

(16,111)

(15,575)

(39,770)

(32,088)

Cash general and administrative expenses

$  80,198

$  79,618

$  65,985

$   159,816

$   132,941

(7)

Our cash operating expenses, or cash SG&A, as defined above, is presented below:

Cash sales and marketing expenses

$  58,785

$  55,799

$  46,430

$   114,584

$     92,710

Cash general and administrative expenses

80,198

79,618

65,985

159,816

132,941

Cash SG&A

$138,983

$135,417

$112,415

$   274,400

$   225,651

The geographic split of our cash operating expenses, or cash SG&A, is presented below:

Americas cash SG&A

$  89,447

$  89,433

$  69,287

$   178,880

$   142,838

EMEA cash SG&A

33,084

30,109

29,016

63,193

56,627

Asia-Pacific cash SG&A

16,452

15,875

14,112

32,327

26,186

Cash SG&A

$138,983

$135,417

$112,415

$   274,400

$   225,651

(8)

We define adjusted EBITDA as income from operations plus depreciation, amortization, accretion, stock-based compensation expense and acquisition costs as presented below:

Income from operations

$124,697

$121,612

$115,963

$   246,309

$   220,750

Depreciation, amortization and accretion expense

116,074

113,610

110,189

229,684

218,792

Stock-based compensation expense

33,830

24,981

24,194

58,811

48,030

Acquisition costs

676

185

2,526

861

6,188

Adjusted EBITDA

$275,277

$260,388

$248,035

$   535,665

$   488,923

The geographic split of our adjusted EBITDA is presented below:

Americas income from operations

$  67,739

$  71,735

$  73,673

$   139,474

$   133,052

Americas depreciation, amortization and accretion expense

62,481

58,933

65,149

121,414

128,445

Americas stock-based compensation expense

27,177

18,793

18,168

45,970

36,612

Americas acquisition costs

728

102

2,138

830

5,536

Americas adjusted EBITDA

158,125

149,563

154,291

307,688

298,808

EMEA income from operations

34,067

29,903

23,811

63,970

46,349

EMEA depreciation, amortization and accretion expense

27,901

29,902

23,424

57,803

46,495

EMEA stock-based compensation expense

3,385

3,317

3,065

6,702

6,103

EMEA acquisition costs

(2)

83

389

81

471

EMEA adjusted EBITDA

65,351

63,205

50,689

128,556

99,418

Asia-Pacific income from operations

22,891

19,974

18,479

42,865

41,349

Asia-Pacific depreciation, amortization and accretion expense

25,692

24,775

21,616

50,467

43,852

Asia-Pacific stock-based compensation expense

3,268

2,871

2,961

6,139

5,315

Asia-Pacific acquisition costs

(50)

-

(1)

(50)

181

Asia-Pacific adjusted EBITDA

51,801

47,620

43,055

99,421

90,697

Adjusted EBITDA

$275,277

$260,388

$248,035

$   535,665

$   488,923

(9)

We define cash gross margins as cash gross profit divided by revenues.

Our cash gross margins by geographic region is presented below:

Americas cash gross margins

72%

72%

71%

72%

71%

EMEA cash gross margins

63%

62%

63%

62%

63%

Asia-Pacific cash gross margins

65%

64%

65%

64%

65%

(10)

We define adjusted EBITDA margins as adjusted EBITDA divided by revenues.

Americas adjusted EBITDA margins

46%

45%

49%

46%

48%

EMEA adjusted EBITDA margins

42%

42%

40%

42%

40%

Asia-Pacific adjusted EBITDA margins

49%

48%

49%

49%

51%

(11)

We define adjusted EBITDA flow-through rate as incremental adjusted EBITDA growth divided by incremental revenue growth as follows:

Adjusted EBITDA - current period

$275,277

$260,388

$248,035

$   535,665

$   488,923

Less adjusted EBITDA - prior period

(260,388)

(263,530)

(240,888)

(511,975)

(464,702)

Adjusted EBITDA growth

$  14,889

$   (3,142)

$    7,147

$     23,690

$     24,221

Revenues - current period

$605,161

$580,053

$528,871

$1,185,214

$1,045,005

Less revenues - prior period

(580,053)

(564,677)

(516,134)

(1,107,761)

(990,894)

Revenue growth

$  25,108

$  15,376

$  12,737

$     77,453

$     54,111

Adjusted EBITDA flow-through rate

59%

(20%)

56%

31%

45%

 

 

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SOURCE Equinix



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