Q4 2016 Real-Time Call Brief

Highlights

We've invested over $17 billion in capital in our platforms since our founding with over $10 billion in acquisitions, including the Verizon assets, and the degree of difficulty to replicate what we've built is extremely high.

With our Telecity acquisition, we now have over 230,000 cross-connects and the leading position in the Internet exchange market, further demonstrating the strength and power of our interconnection platform.

We generated over $3.6 billion of revenue in 2016, up 14% year-over-year on an organic and constant-currency basis.

We delivered over $1.65 billion of adjusted EBITDA, continuing to strengthen our margins while investing significantly in the business and expanding our addressable market. This drove AFFO growth of over 35% year-over-year on a normalized and constant-currency basis, exceeding our prior guidance.

We added seven Fortune 500 customers this quarter, including a global clothing and accessories retailer and multi-national food manufacturing company and an American oil and gas operator.

We've now captured over one-third of the Fortune 500 and a quarter of the Forbes Global 2000 companies and are seeing significant land and expand behavior with these critical lighthouse customers.

This quarter, over 56% of our revenue came from customers deployed globally across all three regions and over 82% from customers deployed across multiple metros.

Interconnection revenues grew 21% year-over-year on an organic and constant-currency basis, significantly outpacing colocation revenues.

The Telecity acquisition brought us a number of interconnection rich sites and we're now including in our count approximately 35,000 cross-connects from Telecity.

The transformative acquisition in 2017 will be our $3.6 billion acquisition of Verizon's U.S. and Latin America data center portfolio, which we expect to close midyear.

With the expected completion of the Verizon asset acquisition and including our recently-owned open data centers, Platform Equinix will stand across now 179 data centers, 44 metros in 22 countries.

Our development activity, we continue to invest and expand globally, putting to work over $1.1 billion in CapEx in 2016.

This quarter, we are moving forward with five additional expansions in Amsterdam, Chicago, Dubai, Rio de Janeiro, and Toronto, totaling $175 million of capital expenditures.

Through expansion on owned land and selected purchase of assets, we continue to increase our asset ownership, advancing toward our target of over 50% of revenues from owned assets.

This quarter, we bought our Rio de Janeiro 2 facility in Brazil, as well as our Amsterdam 7 facility in the Netherlands.

With the Verizon asset acquisition, where the majority of the data centers are owned, revenues from owned assets will move up to 40% by midyear.

Revenues from our 70 stabilized IBXs grew 5% year-over-year, largely driven by increasing cross-connect and power density. These stabilized assets are generating 32% cash-on-cash return on the gross PP&E invested and utilization remained at 87%.

We now have over 8,500 customers and expect growth in enterprise wins to significantly expand this number over the coming years.

Our channel program now accounts for roughly 15% of total bookings with two-thirds of this activity from resellers.

Starting with revenues, we reported revenues of over $3.6 billion for 2016, a greater than 14% year-over-year organic and constant-currency growth rate, as we benefited from our global reach and scale and our healthy interconnected ecosystems.

For 2017, we expect to deliver normalizing constant-currency growth of greater than 11%, which now includes the slower growing, yet highly-accretive acquisitions in our run rate.

FX remains volatile and the U.S. dollar has continued to strengthen against many of our operating currencies, resulting in a net $86 million headwind to our as-reported growth in 2017.

For 2017, we've already hedged over 55% of our EMEA revenues and cash flows, and we expect our hedge position to increase over the year, as we continue to integrate Telecity entities into our EMEA business.

In 2016, we improved our normalized and adjusted EBITDA margin to 47.5%, an 80 basis point improvement over the prior year, making progress towards our long-term 50% adjusted EBITDA margin target.

For 2017, we expect our consolidated adjusted EBITDA margins to be 47.6%, excluding integration costs or 46.8% on an as-reported basis, which includes $16 million of higher utilities and property taxes in the EMEA region.

For 2016, our normalized AFFO, which excludes the impact of the Telecity FX loss and the integration costs was $1.196 billion, significantly higher than expected for the year.

Looking-forward on a normalized and constant-currency basis, 2017 AFFO is expected to grow 13% over the prior year, reflecting strong flow through from adjusted EBITDA to AFFO.

On an AFFO per share basis for 2017, we expect to deliver $18.07 per share on a normalized basis, or $17.19 per share on an as-reported basis, which includes the negative carry from our December financing, the FX headwinds, our integration costs, but that does not yet include the benefit expected from the Verizon asset acquisition.

We have assumed a weighted average 72.7 million in common shares outstanding on a fully-diluted basis.

From a financial perspective, we expect these assets to generate an estimated $450 million in revenues for the first 12 months post close, driving adjusted EBITDA margins of 60% accretive to our current operating levels.

As we enter into another busy year on the integration front, we expect to incur approximately $30 million in integration costs in 2017, which includes work to finalize the Telecity and Bit-isle acquisitions, as well as $2 million of Verizon asset integration costs for Q1 only.

Global Q4 revenues were $942.6 million, up 3% over the prior quarter and 13% over the same quarter last year.

On an organic and constant-currency basis, Q4 revenues net of our FX hedges included a $6.6 million negative currency impact when compared to the average FX rates used in Q4 — last quarter and a $2.5 million negative currency impact when compared to our FX guidance rate due to the stronger U.S. dollar.

Our global platform continues to expand with Asia-Pacific and EMEA showing organic and constant-currency growth over the same quarter last year of 17% and 14% respectively, while the Americas region produced steady growth of 10%.

Our as-reported revenues include $138.4 million from our acquisitions, consistent with our expectations.

We added 2,800 net billable cabinets and 5,500 net cross-connect additions in the quarter.

Telecity adds 38,500 cabinets to the cabinet inventory at a utilization rate of 78%, with a slightly lower MRR per cabinet, while Bit-isle adds 6,300 cabinets at a 52% utilization rate.

Global adjusted EBITDA was $436.5 million, up 3% over the prior quarter and 16% over the same quarter last year on an organic and constant-currency basis, despite the higher-than-planned commission expenses related to our record bookings this quarter.

Adjusted EBITDA includes approximately $15 million of integration costs.

Our adjusted EBITDA margin was 46.3%, a step-up over the prior quarter, largely due to the acquisition-related entries that lowered the EMEA's adjusted EBITDA in Q3.

Our Q4 adjusted EBITDA performance net of our FX hedges had a $2.1 million positive benefit compared to the average FX rates used last quarter, and a $3.7 million positive benefit when compared to our FX guidance rates.

Global AFFO was $294 million, up 3% over the prior quarter, largely the result of improving adjusted EBITDA.

AFFO on a normalized and constant-currency basis increased 24% over the prior year.

Q4 global MRR churn was 2.4%, consistent with our targeted churn range.

Looking at 2017, we continue to expect MRR churn to average 2% to 2.5% per quarter, which includes the elevated churn of approximately 3% in Q1 related to the final phase of LinkedIn's bifurcation strategy.

As expected, LinkedIn churned 1,300 cabinets out of the Americas region at the beginning of the quarter, while retaining their interconnect-rich footprint at Equinix.

The Americas, Asia-Pacific and EMEA interconnection revenues all moved up to 24%, 12% and 8%, respectively of recurring revenues or 16% on a global basis.

We continue to strengthen our balance sheet raising EUR1 billion in the fourth quarter. This debt raise not only partially funded the Verizon asset acquisition, but also allowed us to place a natural euro-based hedge into our capital structure. This euro denominated debt in combination with the $2 billion bridge financing, our unused revolving line of credit and the cash on the balance sheet provide us great flexibility to fund the Verizon deal.

Unrestricted cash and investments increased to approximately $1.82 billion, after taking into consideration the euro-based financing funded in early January 2017.

Our net debt leverage ratio net of our unrestricted cash was about 3.5 times our Q4 annualized adjusted EBITDA.

For 2017, we expect our as-reported FFO to be greater than $1.249 billion, a 16% year-over-year increase.

On a normalized basis, AFFO would be greater than $1.313 billion, demonstrating the continued strength of our operating model.

In 2016 we returned approximately $500 million back to our shareholders.

Today, we announced our Q1 dividend of $2 a share, a 14% step-up over the prior quarterly cash dividend per share.

For 2017, our projected total cash dividends will increase to approximately $575 million, a 17% increase over the prior year.

For the quarter, capital expenditures were $386 million, including recurring CapEx of $36 million, above our guidance expectations largely due to timing of payments to our contractors, as well as an acceleration of spend in the EMEA region.

Given our strong pipeline, our firm yield, and the healthy returns, we continue to invest in new capacity with expected 2017 capital expenditures to range between $1.1 billion and $1.2 billion for the year.

With over 6,000 Equinix employees, we continue to scale our organization and people.