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Equinix Reports Third Quarter 2012 Results

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REDWOOD CITY, Calif.--(BUSINESS WIRE)--

Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company, today reported quarterly results for the quarter ended September 30, 2012. 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.

This quarter includes the quarterly results of ancotel GmbH, a data center provider headquartered in Frankfurt, Germany, and Asia Tone Limited, a data center provider formerly headquartered in Hong Kong, both of which were acquired by the Company in July 2012. In addition, due to the Company's decision to sell 16 International Business Exchange data centers located throughout the United States to an investment group consisting of 365 Main, Crosslink Capital and Housatonic Partners in a transaction valued at approximately $75 million, the financial results derived from these 16 data centers are now excluded from Equinix's continuing operations and are now reported as discontinued operations. As a result, Equinix has retroactively adjusted its financial results for all applicable prior periods beginning April 30, 2010, the date the Company acquired these assets, to reflect them as discontinued operations as required under accounting principles generally accepted in the United States of America. The financial results from these 16 data centers are presented on the last page of the attached financial statements associated with this earnings release.

Revenues from continuing operations were $488.7 million for the third quarter, a 7% increase over the previous quarter and a 20% increase over the same quarter last year. This result included $16.1 million in revenues from the Company's Asia Tone and ancotel acquisitions for the quarter and excluded $8.8 million of revenues from discontinued operations. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $462.8 million for the third quarter, a 7% increase over the previous quarter and a 19% increase over the same quarter last year. Non-recurring revenues were $25.9 million in the quarter.

“We delivered solid financial results in the third quarter, driven by continued demand for our services across all three regions,” said Steve Smith, president and CEO of Equinix. “We are executing with discipline and remain focused on profitable growth. We believe the value of our global interconnection platform and further development of our business ecosystems will underpin our competitive position in support of our long-term opportunity.”

Cost of revenues were $251.5 million for the third quarter, a 12% increase over the previous quarter and a 14% increase over the same quarter last year. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $93.5 million, which we refer to as cash cost of revenues, were $158.0 million for the third quarter, an 11% increase from the previous quarter and a 13% increase over the same quarter last year. Gross margins for the quarter were 49%, down from 51% for the previous quarter and up from 46% 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%, down from 69% for the previous quarter and up from 66% for the same quarter last year.

Selling, general and administrative expenses were $136.8 million for the third quarter, a 7% increase over the previous quarter and a 26% increase over the same quarter last year. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $34.4 million, which we refer to as cash selling, general and administrative expenses, were $102.4 million for the third quarter, a 5% increase over the previous quarter and a 26% increase over the same quarter last year.

Interest expense was $50.2 million for the third quarter, a 7% increase from the previous quarter and a 2% decrease over the same quarter last year. The Company recorded income tax expense of $13.5 million for the third quarter and income tax expense of $5.1 million in the same quarter last year.

Net income attributable to Equinix for the third quarter was $28.8 million. This represents a basic net income per share attributable to Equinix of $0.60 and a diluted net income per share attributable to Equinix of $0.58 based on a weighted average share count of 48.4 million and 52.7 million, respectively, for the third quarter of 2012.

Income from continuing operations was $95.9 million for the third quarter, a 6% decrease from the previous quarter and a 24% increase over the same quarter last year. Adjusted EBITDA, defined as income or loss from continuing operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges and acquisition costs, for the third quarter was $228.3 million, a 5% increase over the previous quarter and a 22% increase over the same quarter last year. This result included $6.7 million in adjusted EBITDA from the Company's Asia Tone and ancotel acquisitions for the quarter and excluded $4.3 million in adjusted EBITDA from discontinued operations.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the third quarter, were $212.1 million, of which $174.5 million was attributed to expansion capital expenditures and $37.6 million was attributed to ongoing capital expenditures.

The Company generated cash from operating activities of $102.2 million for the third quarter as compared to $194.8 million in the previous quarter and $141.9 million for the same quarter last year. Cash used in investing activities was $596.9 million in the third quarter as compared to cash provided by investing activities of $93.9 million in the previous quarter and cash used in investing activities of $808.7 million for the same quarter last year, primarily attributed to cash consideration paid for the acquisitions of Asia Tone and ancotel. Cash provided by financing activities was $73.7 million for the third quarter, primarily attributed to the net proceeds from drawdowns of loans payable during the quarter.

As of September 30, 2012, the Company's cash, cash equivalents and investments were $519.8 million, as compared to $823.0 million as of June 30, 2012.

Business Outlook

For the full year of 2012, total revenues are expected to be in the range of $1,890.0 to $1,895.0 million, and reflect a decrease of approximately $36.0 million in annual revenues from the Company's decision to sell 16 of its International Business Exchange data centers and approximately $10.0 million in favorable currency rates, when compared to our prior foreign currency exchange rates. Total year cash gross margins are expected to range between 68.0% and 69.0%. Cash selling, general and administrative expenses are expected to range between $410.0 and $415.0 million. Adjusted EBITDA for the year is expected to range between $880.0 and $885.0 million, and reflect a decrease of approximately $18.0 million in adjusted EBITDA due to the assets that are now held for sale and reported as discontinued operations and absorbs an approximate $4.5 million foreign currency benefit, when compared to our prior foreign currency exchange guidance rates. Capital expenditures for 2012 are expected to be in the range of $770.0 to $790.0 million, comprised of approximately $145.0 million of ongoing capital expenditures and $625.0 to $645.0 million for expansion capital expenditures.

For the full year of 2013, total revenues are expected to be greater than $2,200.0 million. Adjusted EBITDA for the year is expected to be greater than $1,010.0 million, including approximately $20.0 million in REIT-related costs. Capital expenditures for 2013 are expected to be in the range of $550.0 to $650.0 million, including approximately $165.0 million of ongoing capital expenditures.

Company Metrics and Q3 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Thursday, November 1, 2012, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on the Equinix investors website located at www.equinix.com/investors. To hear the conference call live, please dial 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 Thursday, November 1, 2012, at 7:30 p.m. (ET) through December 1, 2012, by dialing 203-369-3804 (domestic and international) and reference the passcode (2012). In addition, the webcast will be available on the Investor Relations section of the Company's website over the same time period. No password is required for the replay or the webcast.

About Equinix

Equinix, Inc. (Nasdaq: EQIX), connects more than 4,000 companies directly to their customers and partners inside the world's most networked data centers. Today, businesses leverage the Equinix interconnection platform in 30 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 and adjusted 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 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 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 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 Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2012 2012 2011 2012 2011
 
Recurring revenues $ 462,829 $ 433,786 $ 388,214 $ 1,317,505 $ 1,090,649
Non-recurring revenues   25,901     23,463     19,994     71,719     57,019  
Revenues 488,730 457,249 408,208 1,389,224 1,147,668
 
Cost of revenues   251,487     225,289     219,724     693,874     612,580  
Gross profit   237,243     231,960     188,484     695,350     535,088  
 
Operating expenses:
Sales and marketing 53,211 47,603 42,884 147,224 113,211
General and administrative 83,621 80,595 65,873 242,532 193,986
Restructuring charges - - 1,587 - 2,186
Acquisition costs   4,542     1,666     699     6,883     2,729  
Total operating expenses   141,374     129,864     111,043     396,639     312,112  
 
Income from continuing operations   95,869     102,096     77,441     298,711     222,976  
 
Interest and other income (expense):
Interest income 1,054 963 679 2,708 1,526
Interest expense (50,207 ) (46,787 ) (51,114 ) (149,812 ) (126,152 )
Other income (expense) 507 (1,844 ) (1,694 ) (1,491 ) 1,438
Loss on debt extinguishment   (5,204 )   -     -     (5,204 )  
Total interest and other, net   (53,850 )   (47,668 )   (52,129 )   (153,799 )   (123,188 )
 
Income from continuing operations before income taxes 42,019 54,428 25,312 144,912 99,788
 
Income tax expense   (13,498 )   (17,138 )   (5,137 )   (44,489 )   (24,090 )
 
Net income from continuing operations 28,521 37,290 20,175 100,423 75,698
 
Net income from discontinued operations   679     350     464     1,228     819  
 
Net income 29,200 37,640 20,639 101,651 76,517
 
Net income attributable to redeemable non-controlling interests (362 ) (1,193 ) (320 ) (1,843 ) (323 )
         
Net income attributable to Equinix $ 28,838   $ 36,447   $ 20,319   $ 99,808   $ 76,194  
 
Net income per share attributable to Equinix:
 
Basic net income per share from continuing operations $ 0.58 $ 0.75 $ 0.20 $ 2.06 $ 1.38
Basic net income per share from discontinued operations   0.02     0.01     0.01     0.03     0.02  
Basic net income per share (1) $ 0.60   $ 0.76   $ 0.21   $ 2.09   $ 1.40  
 
Diluted net income per share from continuing operations $ 0.57 $ 0.72 $ 0.19 $ 2.01 $ 1.36
Diluted net income per share from discontinued operations   0.01     0.01     0.01     0.02     0.01  
Diluted net income per share (2) $ 0.58   $ 0.73   $ 0.20   $ 2.03   $ 1.37  
 
Shares used in computing basic net income per share   48,361     48,016     47,202     47,779     46,861  
 
Shares used in computing diluted net income per share   52,655     52,351     47,943     51,724     47,694  
 
 
(1 ) The net income used in the computation of basic net income per share attributable to Equinix is presented below:
 
Net income from continuing operations $ 28,521 $ 37,290 $ 20,175 $ 100,423 $ 75,698
Net income attributable to non-controlling interests (362 ) (1,193 ) (320 ) (1,843 ) (323 )
Adjustments attributable to redemption value of non-controlling interests   -     -     (10,639 )   -     (10,639 )
Net income from continuing operations attributable to Equinix, basic 28,159 36,097 9,216 98,580 64,736
Net income from discontinued operations   679     350     464     1,228     819  
Net income attributable to Equinix, basic $ 28,838   $ 36,447   $ 9,680   $ 99,808   $ 65,555  
 
(2 ) The net income used in the computation of diluted net income per share attributable to Equinix is presented below:
 
Net income from continuing operations attributable to Equinix, basic $ 28,159 $ 36,097 $ 9,216 $ 98,580 $ 64,736
Interest on convertible debt   1,696     1,678     -     5,073     -  
Net income from continuing operations attributable to Equinix, diluted 29,855 37,775 9,216 103,653 64,736
Net income from discontinued operations   679     350     464     1,228     819  
Net income attributable to Equinix, diluted $ 30,534   $ 38,125   $ 9,680   $ 104,881   $ 65,555  
 
 

                     
EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
 
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2012 2012 2011 2012 2011
 
Net income $ 29,200   $ 37,640   $ 20,639   $ 101,651   $ 76,517  
 
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss) 41,782 (49,207 ) (88,659 ) 26,887 (17,227 )
Unrealized gain (loss) on available for sale securities   113     (177 )   (241 )   14     (267 )
Other comprehensive income (loss), net of tax:   41,895     (49,384 )   (88,900 )   26,901     (17,494 )
 
Comprehensive income (loss), net of tax   71,095     (11,744 )   (68,261 )   128,552     59,023  
 
Net income attributable to redeemable non-controlling interests (362 ) (1,193 ) (320 ) (1,843 ) (323 )
Other comprehensive income attributable to redeemable non-controlling interests   240     3,974     10,163     3,155     9,096  
 
Comprehensive income (loss) attributable to Equinix, net of tax $ 70,973   $ (8,963 ) $ (58,418 ) $ 129,864   $ 67,796  
 
 

                       
EQUINIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
   
Assets September 30, December 31,
2012 2011
 
Cash and cash equivalents $ 239,687 $ 278,823
Short-term investments 164,787 635,721
Accounts receivable, net 181,973 139,057
Assets held-for-sale 68,991 -
Other current assets   69,748     182,156  
Total current assets 725,186 1,235,757
Long-term investments 115,362 161,801
Property, plant and equipment, net 3,791,063 3,225,912
Goodwill 1,043,284 866,495
Intangible assets, net 200,648 148,635
Other assets   115,427     146,724  
Total assets $ 5,990,970   $ 5,785,324  
 
Liabilities and Stockholders' Equity
 
Accounts payable and accrued expenses $ 244,712 $ 229,043
Accrued property and equipment 141,025 93,224
Current portion of capital lease and other financing obligations 14,853 11,542
Current portion of loans payable 49,332 87,440
Current portion of convertible debt - 246,315
Liabilities held-for-sale 22,745 -
Current portion of deferred tax liabilities 70,304 394
Other current liabilities   69,488     57,296  
Total current liabilities 612,459 725,254
Capital lease and other financing obligations, less current portion 487,868 390,269
Loans payable, less current portion 199,349 168,795
Senior notes 1,500,000 1,500,000
Convertible debt 705,127 694,769
Other liabilities   174,327     286,424  
Total liabilities   3,679,130     3,765,511  
 
Redeemable non-controlling interests   78,191     67,601  
 
Common stock 49 48
Additional paid-in capital 2,539,235 2,437,623
Treasury stock (36,706 ) (86,666 )
Accumulated other comprehensive loss (113,642 ) (143,698 )
Accumulated deficit   (155,287 )   (255,095 )
Total stockholders' equity   2,233,649     1,952,212  
 

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

$ 5,990,970   $ 5,785,324  
 
           
 
Ending headcount by geographic region is as follows:
 
Americas headcount 1,841 1,763
EMEA headcount 789 570
Asia-Pacific headcount   506     376  
Total headcount   3,136     2,709  
 
 

                     
EQUINIX, INC.
SUMMARY OF DEBT OUTSTANDING
(in thousands)
(unaudited)
 
September 30, December 31,
2012 2011
 
Capital lease and other financing obligations $ 502,721 $ 401,811
 
U.S. term loan 190,000 -
ALOG financing 49,349 -
Paris 4 IBX financing 6,132 52,104
ALOG loans payable - 10,288
Asia Tone loans payable 3,200 -
Asia-Pacific financing   -   193,843
Total loans payable   248,681   256,235
 
Senior notes   1,500,000   1,500,000
 
Convertible debt, net of debt discount 705,127 941,084
Plus debt discount   64,589   78,652
Total convertible debt principal   769,716   1,019,736
 
Total debt outstanding $ 3,021,118 $ 3,177,782
 
 

                       
EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
     
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2012 2012 2011 2012 2011
Cash flows from operating activities:
Net income $ 29,200 $ 37,640 $ 20,639 $ 101,651 $ 76,517

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion 107,623 96,944 92,019 298,489 257,970
Stock-based compensation 22,582 20,549 19,207 62,234 53,060
Debt issuance costs and debt discount 5,048 4,902 8,207 18,057 23,816
Loss on debt extinguishment and interest rate swaps 5,204 - - 5,204 -
Restructuring charges - - 1,587 - 2,186
Excess tax benefits from employee equity awards (53,174 ) - - (53,174 ) -
Other reconciling items 2,205 984 711 6,046 5,348
Changes in operating assets and liabilities:
Accounts receivable (12,359 ) (14,864 ) (9,989 ) (46,900 ) (26,299 )
Deferred tax assets, net (1,656 ) 9,531 1,760 13,245 4,893
Accounts payable and accrued expenses 17,500 35,544 32 19,307 (9,492 )
Other assets and liabilities   (20,021 )   3,552     7,697     (1,232 )   11,989  
Net cash provided by operating activities   102,152     194,782     141,870     422,927     399,988  
Cash flows from investing activities:
Purchases, sales and maturities of investments, net (111,574 ) 279,621 (677,229 ) 514,413 (648,435 )
Purchase of Asia Tone, less cash acquired (188,798 ) - - (188,798 ) -
Purchase of ancotel, less cash acquired (84,236 ) - - (84,236 ) -
Purchase of ALOG, less cash acquired - - - - (41,954 )
Purchases of real estate - - - - (23,993 )
Purchases of other property, plant and equipment (212,118 ) (196,484 ) (131,525 ) (554,092 ) (495,515 )
Other investing activities   (133 )   10,743     61     79,167     (94,922 )
Net cash provided by (used in) investing activities   (596,859 )   93,880     (808,693 )   (233,546 )   (1,304,819 )
Cash flows from financing activities:
Purchases of treasury stock - - - (13,364 ) -
Proceeds from employee equity awards 13,666 6,013 11,107 50,139 35,704
Proceeds from loans payable 249,633 - 12,718 258,542 90,635
Proceeds from senior notes - - 750,000 - 750,000
Repayment of capital lease and other financing obligations (3,049 ) (3,032 ) (3,081 ) (8,907 ) (7,404 )
Repayment of mortgage and loans payable (238,480 ) (10,170 ) (11,171 ) (315,779 ) (21,273 )
Repayment of convertible debt - (250,007 ) - (250,007 ) -
Excess tax benefits from employee equity awards 53,174 - - 53,174 -
Other financing activities   (1,247 )   (7,520 )   (15,426 )   (8,767 )   (15,551 )
Net cash provided by (used in) financing activities   73,697     (264,716 )   744,147     (234,969 )   832,111  
Effect of foreign currency exchange rates on cash and cash equivalents   6,601     (2,794 )   (4,673 )   6,452     402  
Net increase (decrease) in cash and cash equivalents (414,409 ) 21,152 72,651 (39,136 ) (72,318 )
Cash and cash equivalents at beginning of period   654,096     632,944     297,872     278,823     442,841  
Cash and cash equivalents at end of period $ 239,687   $ 654,096   $ 370,523   $ 239,687   $ 370,523  
 
Supplemental cash flow information:
Cash paid for taxes $ 12,813   $ 5,031   $ 347   $ 19,578   $ 7,172  
Cash paid for interest $ 65,616   $ 28,965   $ 39,821   $ 157,917   $ 100,283  
 
Free cash flow (1) $ (383,133 ) $ 9,041   $ 10,406   $ (325,032 ) $ (256,396 )
 
Adjusted free cash flow (2) $ (56,925 ) $ 9,041   $ 10,406   $ 1,176   $ (190,449 )
 
Ongoing capital expenditures (3) $ 37,593   $ 37,537   $ 26,556   $ 113,592   $ 83,451  
 
Discretionary free cash flow (4) $ 64,559   $ 157,245   $ 115,314   $ 309,335   $ 316,537  
 
Adjusted discretionary free cash flow (5) $ 117,733   $ 157,245   $ 115,314   $ 362,509   $ 316,537  
 
 
(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 $ 102,152 $ 194,782 $ 141,870 $ 422,927 $ 399,988
Net cash provided by (used in) investing activities as presented above (596,859 ) 93,880 (808,693 ) (233,546 ) (1,304,819 )
Purchases, sales and maturities of investments, net   111,574     (279,621 )   677,229     (514,413 )   648,435  
Free cash flow (negative free cash flow) $ (383,133 ) $ 9,041   $ 10,406   $ (325,032 ) $ (256,396 )
 
(2 )

We define adjusted free cash flow as free cash flow (as defined above) excluding any purchases or sales of real estate and acquisitions, as well as any excess tax benefits from employee equity awards, as presented below:

 
Free cash flow (as defined above) $ (383,133 ) $ 9,041 $ 10,406 $ (325,032 ) $ (256,396 )
Less purchase of Asia Tone, less cash acquired 188,798 - - 188,798 -
Less purchase of ancotel, less cash acquired 84,236 - - 84,236 -
Less purchase of ALOG, less cash acquired - - - - 41,954
Less purchases of real estate - - - - 23,993
Less excess tax benefits from employee equity awards   53,174     -     -     53,174     -  
Adjusted free cash flow (negative adjusted free cash flow) $ (56,925 ) $ 9,041   $ 10,406   $ 1,176   $ (190,449 )
 
(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 $ 37,593 $ 37,537 $ 26,556 $ 113,592 $ 83,451
Expansion capital expenditures   174,525     158,947     104,969     440,500     412,064  
Total capital expenditures $ 212,118   $ 196,484   $ 131,525   $ 554,092   $ 495,515  
 
(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 $ 102,152 $ 194,782 $ 141,870 $ 422,927 $ 399,988
Less ongoing capital expenditures   (37,593 )   (37,537 )   (26,556 )   (113,592 )   (83,451 )
Discretionary free cash flow $ 64,559   $ 157,245   $ 115,314   $ 309,335   $ 316,537  
 
(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 as presented below:

 
Discretionary free cash flow $ 64,559 $ 157,245 $ 115,314 $ 309,335 $ 316,537
Excess tax benefits from employee equity awards   53,174     -     -     53,174     -  
Adjusted discretionary free cash flow $ 117,733   $ 157,245   $ 115,314   $ 362,509   $ 316,537  
 
 

                       
EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FROM CONTINUING OPERATIONS- NON-GAAP PRESENTATION

(in thousands)
(unaudited)
   
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2012 2012 2011 2012 2011
 
Recurring revenues $ 462,829 $ 433,786 $ 388,214 $ 1,317,505 $ 1,090,649
Non-recurring revenues   25,901     23,463     19,994     71,719     57,019  
Revenues (1)   488,730     457,249     408,208     1,389,224     1,147,668  
 
Cash cost of revenues (2)   158,038     142,011     139,968     436,410     390,561  
Cash gross profit (3)   330,692     315,238     268,240     952,814     757,107  
 
Cash operating expenses (4):
Cash sales and marketing expenses (5) 42,120 38,689 34,412 118,928 90,593
Cash general and administrative expenses (6)   60,274     59,069     46,806     177,512     139,408  
Total cash operating expenses (7)   102,394     97,758     81,218     296,440     230,001  
 
Adjusted EBITDA (8) $ 228,298   $ 217,480   $ 187,022   $ 656,374   $ 527,106  
 
Cash gross margins (9)   68 %   69 %   66 %   69 %   66 %
 
Adjusted EBITDA margins (10)   47 %   48 %   46 %   47 %   46 %
 
Adjusted EBITDA flow-through rate (11)   34 %   49 %   42 %   57 %   56 %
 
 
(1 ) The geographic split of our revenues on a services basis is presented below:
 
Americas Revenues:
 
Colocation $ 213,011 $ 209,756 $ 186,438 $ 626,685 $ 536,403
Interconnection 54,943 53,048 47,208 159,730 137,440
Managed infrastructure 12,424 12,564 15,932 38,924 25,328
Rental   469     445     550     1,353     1,543  
Recurring revenues 280,847 275,813 250,128 826,692 700,714
Non-recurring revenues   13,034     12,308     9,333     34,439     26,694  
Revenues   293,881     288,121     259,461     861,131     727,408  
 
EMEA Revenues:
 
Colocation 91,512 87,820 77,709 263,283 220,554
Interconnection 7,188 4,192 3,446 15,204 9,461
Managed infrastructure 5,112 3,262 3,691 11,788 10,370
Rental   314     336     262     994     557  
Recurring revenues 104,126 95,610 85,108 291,269 240,942
Non-recurring revenues   7,832     7,087     7,216     24,722     22,032  
Revenues   111,958     102,697     92,324     315,991     262,974  
 
Asia-Pacific Revenues:
 
Colocation 63,204 49,651 41,874 159,972 117,314
Interconnection 8,550 7,794 6,378 23,664 17,537
Managed infrastructure   6,102     4,918     4,726     15,908     14,142  
Recurring revenues 77,856 62,363 52,978 199,544 148,993
Non-recurring revenues   5,035     4,068     3,445     12,558     8,293  
Revenues   82,891     66,431     56,423     212,102     157,286  
 
Worldwide Revenues:
 
Colocation 367,727 347,227 306,021 1,049,940 874,271
Interconnection 70,681 65,034 57,032 198,598 164,438
Managed infrastructure 23,638 20,744 24,349 66,620 49,840
Rental   783     781     812     2,347     2,100  
Recurring revenues 462,829 433,786 388,214 1,317,505 1,090,649
Non-recurring revenues   25,901     23,463     19,994     71,719     57,019  
Revenues $ 488,730   $ 457,249   $ 408,208   $ 1,389,224   $ 1,147,668  
 
(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 $ 251,487 $ 225,289 $ 219,724 $ 693,874 $ 612,580
Depreciation, amortization and accretion expense (91,723 ) (81,744 ) (78,288 ) (252,887 ) (217,900 )
Stock-based compensation expense   (1,726 )   (1,534 )   (1,468 )   (4,577 )   (4,119 )
Cash cost of revenues $ 158,038   $ 142,011   $ 139,968   $ 436,410   $ 390,561  
 
The geographic split of our cash cost of revenues is presented below:
 
Americas cash cost of revenues $ 85,384 $ 81,465 $ 81,911 $ 245,931 $ 224,411
EMEA cash cost of revenues 42,615 37,392 36,930 115,360 107,638
Asia-Pacific cash cost of revenues   30,039     23,154     21,127     75,119     58,512  
Cash cost of revenues $ 158,038   $ 142,011   $ 139,968   $ 436,410   $ 390,561  
 
(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, restructuring charges 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 $ 53,211 $ 47,603 $ 42,884 $ 147,224 $ 113,211
Depreciation and amortization expense (6,296 ) (4,239 ) (4,319 ) (14,791 ) (11,989 )
Stock-based compensation expense   (4,795 )   (4,675 )   (4,153 )   (13,505 )   (10,629 )
Cash sales and marketing expenses $ 42,120   $ 38,689   $ 34,412   $ 118,928   $ 90,593  
 
(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 $ 83,621 $ 80,595 $ 65,873 $ 242,532 $ 193,986
Depreciation and amortization expense (7,431 ) (7,291 ) (5,586 ) (21,196 ) (16,564 )
Stock-based compensation expense   (15,916 )   (14,235 )   (13,481 )   (43,824 )   (38,014 )
Cash general and administrative expenses $ 60,274   $ 59,069   $ 46,806   $ 177,512   $ 139,408  
 
(7) Our cash operating expenses, or cash SG&A, as defined above, is presented below:
 
Cash sales and marketing expenses $ 42,120 $ 38,689 $ 34,412 $ 118,928 $ 90,593
Cash general and administrative expenses   60,274     59,069     46,806     177,512     139,408  
Cash SG&A $ 102,394   $ 97,758   $ 81,218   $ 296,440   $ 230,001  
 
The geographic split of our cash operating expenses, or cash SG&A, is presented below:
 
Americas cash SG&A $ 67,136 $ 65,774 $ 54,643 $ 199,759 $ 152,601
EMEA cash SG&A 22,818 20,100 17,427 62,017 51,908
Asia-Pacific cash SG&A   12,440     11,884     9,148     34,664     25,492  
Cash SG&A $ 102,394   $ 97,758   $ 81,218   $ 296,440   $ 230,001  
 
(8 )

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

 
Income from continuing operations $ 95,869 $ 102,096 $ 77,441 $ 298,711 $ 222,976
Depreciation, amortization and accretion expense 105,450 93,274 88,193 288,874 246,453
Stock-based compensation expense 22,437 20,444 19,102 61,906 52,762
Restructuring charges - - 1,587 - 2,186
Acquisition costs   4,542     1,666     699     6,883     2,729  
Adjusted EBITDA $ 228,298   $ 217,480   $ 187,022   $ 656,374   $ 527,106  
 
The geographic split of our adjusted EBITDA is presented below:
 
Americas income from continuing operations $ 63,740 $ 66,672 $ 50,984 $ 191,978 $ 146,739
Americas depreciation, amortization and accretion expense 60,322 58,659 54,588 175,630 157,625
Americas stock-based compensation expense 17,299 15,552 15,071 47,924 41,247
Americas restructuring charges - - 1,587 - 2,186
Americas acquisition costs   -     (1 )   677     (91 )   2,599  
Americas adjusted EBITDA   141,361     140,882     122,907     415,441     350,396  
 
EMEA income from continuing operations 20,565 22,962 16,305 70,806 41,954
EMEA depreciation, amortization and accretion expense 22,054 18,329 19,354 57,695 54,710
EMEA stock-based compensation expense 2,900 2,673 2,308 7,737 6,750
EMEA acquisition costs   1,006     1,241     -     2,376     14  
EMEA adjusted EBITDA   46,525     45,205     37,967     138,614     103,428  
 
Asia-Pacific income from continuing operations 11,564 12,462 10,152 35,927 34,283
Asia-Pacific depreciation, amortization and accretion expense 23,074 16,286 14,251 55,549 34,118
Asia-Pacific stock-based compensation expense 2,238 2,219 1,723 6,245 4,765
Asia-Pacific acquisition costs   3,536     426     22     4,598     116  
Asia-Pacific adjusted EBITDA   40,412     31,393     26,148     102,319     73,282  
 
Adjusted EBITDA $ 228,298   $ 217,480   $ 187,022   $ 656,374   $ 527,106  
 
(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   71 %   72 %   68 %   71 %   69 %
 
EMEA cash gross margins   62 %   64 %   60 %   63 %   59 %
 
Asia-Pacific cash gross margins   64 %   65 %   63 %   65 %   63 %
 
(10) We define adjusted EBITDA margins as adjusted EBITDA divided by revenues.
 
Americas adjusted EBITDA margins   48 %   49 %   47 %   48 %   48 %
 
EMEA adjusted EBITDA margins   42 %   44 %   41 %   44 %   39 %
 
Asia-Pacific adjusted EBITDA margins   49 %   47 %   46 %   48 %   47 %
 
(11 )

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

 
Adjusted EBITDA - current period $ 228,298 $ 217,480 $ 187,022 $ 656,374 $ 527,106
Less adjusted EBITDA - prior period   (217,480 )   (210,596 )   (177,581 )   (558,044 )   (415,998 )
Adjusted EBITDA growth $ 10,818   $ 6,884   $ 9,441   $ 98,330   $ 111,108  
 
Revenues - current period $ 488,730 $ 457,249 $ 408,208 $ 1,389,224 $ 1,147,668
Less revenues - prior period   (457,249 )   (443,245 )   (385,511 )   (1,215,835 )   (947,565 )
Revenue growth $ 31,481   $ 14,004   $ 22,697   $ 173,389   $ 200,103  
 
Adjusted EBITDA flow-through rate   34 %   49 %   42 %   57 %   56 %
 
 

                       
EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - DISCONTINUED OPERATIONS (1)
(in thousands, except per share data)
(unaudited)
   
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2012 2012 2011 2012 2011
 
Recurring revenues $ 8,618 $ 8,790 $ 9,137 $ 26,139 $ 27,139
Non-recurring revenues   208     225     256     657     723  
Revenues 8,826 9,015 9,393 26,796 27,862
 
Cost of revenues   6,585     7,903     8,429     22,469     25,721  
Gross profit   2,241     1,112     964     4,327     2,141  
 
Operating expenses:
Sales and marketing 197 161 186 519 558
General and administrative 61 128 103 298 272
Acquisition costs   655     253     -     1,260     -  
Total operating expenses   913     542     289     2,077     830  
 
Income from discontinued operations before income taxes 1,328 570 675 2,250 1,311
 
Income tax expense (649 ) (220 ) (211 ) (1,022 ) (492 )
         
Net income from discontinued operations $ 679   $ 350   $ 464   $ 1,228   $ 819  
 
Adjusted EBITDA (2) $ 4,301   $ 4,598   $ 4,606   $ 13,453   $ 13,126  
 
Gross margins   25 %   12 %   10 %   16 %   8 %
 
Cash gross margins (3)   51 %   53 %   51 %   52 %   49 %
 
 
(1 )

The condensed consolidated statements of operations and non-GAAP financial information includes the financial results of the 16 IBX data centers located throughout the United States that the Company entered into in agreement to sell during the three months ended September 30, 2012.

 
(2 )

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

 
Income from discontinued operations $ 1,328 $ 570 $ 675 $ 2,250 $ 1,311
Depreciation, amortization and accretion expense 2,173 3,670 3,826 9,615 11,517
Stock-based compensation expense 145 105 105 328 298
Acquisition costs   655     253     -     1,260     -  
Adjusted EBITDA $ 4,301   $ 4,598   $ 4,606   $ 13,453   $ 13,126  
 
(3 ) We define cash gross margins as cash gross profit divided by revenues.
 
Revenues $ 8,826   $ 9,015   $ 9,393   $ 26,796   $ 27,862  
 
Cost of revenues 6,585 7,903 8,429 22,469 25,721
Depreciation, amortization and accretion expense (2,110 ) (3,576 ) (3,732 ) (9,364 ) (11,235 )
Stock-based compensation expense   (145 )   (105 )   (105 )   (328 )   (298 )
Cash cost of revenues   4,330     4,222     4,592     12,777     14,188  
Cash gross profit $ 4,496   $ 4,793   $ 4,801   $ 14,019   $ 13,674  

Equinix Investor Relations Contacts:
Equinix, Inc.
Katrina Rymill, (650) 598-6583
krymill@equinix.com
or
Samir Patodia, (650) 598-6587
spatodia@equinix.com
or
Equinix Media Contacts:
Equinix, Inc.
Melissa Neumann, (650) 598-6098
mneumann@equinix.com
or
GolinHarris for Equinix, Inc.
Liam Rose, (415) 318-4380
lrose@golinharris.com














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