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Equinix Reports Second Quarter 2018 Results

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Equinix Reports Second Quarter 2018 Results

Interconnection and Data Center Leader Delivers 62nd Consecutive Quarter of Revenue Growth

PR Newswire

REDWOOD CITY, Calif., Aug. 8, 2018 /PRNewswire/ --

  • Quarterly revenues increased 18% year-over-year to $1.262 billion; a 9% year-over-year increase on a normalized and constant currency basis
  • Key customer wins and expansions included China Mobile, Lithia Motors and Tencent
  • Customer deployments across multiple metros increased to 85% of total recurring revenue, demonstrating the value of the Equinix global platform

Equinix, Inc. (NASDAQ:EQIX), the global interconnection and data center company, today reported quarterly results for the quarter ended June 30, 2018. Equinix 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.

Second Quarter 2018 Results Summary

  • Revenues
    • $1.262 billion, a 4% increase over the previous quarter
  • Operating Income
    • $215 million
  • Adjusted EBITDA
    • $604 million, a 48% adjusted EBITDA margin
    • Includes $10 million of integration costs for acquisitions
  • Net Income
    • $68 million
    • Includes $30 million of acquisition costs and $19 million of loss on debt extinguishment costs primarily related to the Infomart acquisition
  • AFFO
    • $428 million, a 3% increase over the previous quarter
    • Includes $10 million of integration costs for acquisitions

2018 Annual Guidance Summary

  • Revenues
    • $5.037 - $5.077 billion, a 16% increase over the previous year; a normalized and constant currency increase of 9%, including $55 million of FX headwinds compared to prior guidance
  • Adjusted EBITDA
    • $2.379 - $2.419 billion or a 47% adjusted EBITDA margin, including $21 million of FX headwinds compared to prior guidance, or 48% excluding integration costs for acquisitions
    • Assumes $49 million of integration costs for acquisitions
  • AFFO
    • $1.596 - $1.636 billion, a 12% increase over the previous year, including $4 million of FX headwinds compared to prior guidance
    • Assumes $49 million of integration costs for acquisitions

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 without unreasonable effort. The impact of such adjustments could be significant.

Quote
Peter Van Camp, Executive Chairman and Interim CEO and President, Equinix:

"Equinix delivered another strong quarter with record bookings across all three regions and virtually all key operating metrics showing solid momentum in our go-to-market engine and interconnection strategy. Our unique global platform of 200 data centers, and the customer ecosystems within them, remain at the heart of our strategy, as evidenced by strong cross-regional sales and healthy interconnection activity in Q2. We are looking forward to the second half of the year as we focus on our strategic initiatives, deliver value from our acquisitions and work to convert a healthy customer pipeline."

Q2 Business Highlights

  • Equinix continued to expand its global platform in response to strong underlying demand. In addition to progress with the integration of acquired assets from Infomart, Metronode and Verizon, Equinix completed expansions in the Amsterdam, Denver and London metros. With a utilization rate of 82% across the platform, Equinix has an active pipeline of 32 expansion projects currently underway, including a partnership with Omantel to enter the new market of Muscat, Oman, with a new IBX data center opening next year that will serve as a regional interconnection hub between global business markets.
  • Equinix completed the integration of Terremark Federal Group (TFG) into Equinix Government Solutions, expanding the company's Federal industry expertise and adding key capabilities for Federal agencies and systems integrators. This integration included 33 new Equinix employees who bring a deep understanding of the Federal sector to act as trusted advisors for IT transformation initiatives. The diverse portfolio of Equinix assets, including former Verizon government campuses in Miami and Culpeper, enables support for sensitive government workloads in an optimal environment, based on security, cost and performance.
  • Interconnection revenue continued to outpace colocation revenue, reflecting the movement towards Interconnection Oriented Architecture® strategies and the rapid adoption of hybrid, multicloud as the preferred IT deployment model. Cross connects between customers increased to more than 288,000, and the Equinix Cloud Exchange FabricTM (ECX FabricTM) platform now serves more than 1,200 customers. This includes those deploying virtual connections through the new capabilities of ECX Fabric, which was extended in Q2 to Australia and Japan with full rollout in the Asia-Pacific region targeted for Q3, and full inter-regional connectivity slated for delivery by year end.
  • Equinix continued the growth of its indirect selling initiatives, with channel sales increasing to more than 20% of bookings for the quarter. This accounted for half of the new logos acquired in the quarter, driven by solid performance across all regions and channels, including alliance, reseller and referral partners.

Business Outlook

For the third quarter of 2018, the Company expects revenues to range between $1.272 and $1.282 billion, an increase of 1% quarter-over-quarter, or a normalized and constant currency growth rate of approximately 2%. This guidance includes a negative foreign currency impact of $14 million when compared to the average FX rates in Q2 2018. Adjusted EBITDA is expected to range between $591 and $601 million, which includes a $9 million negative foreign currency impact when compared to the average FX rates in Q2 2018, higher seasonal utilities costs and $15 million of integration costs from acquisitions. Recurring capital expenditures are expected to range between $56 and $66 million.

For the full year of 2018, total revenues are expected to range between $5.037 and $5.077 billion, an increase of 16% year-over-year, or a normalized and constant currency growth rate of approximately 9%. This updated guidance includes a raise of full year revenues guidance of $10 million, offset by a negative foreign currency impact of $55 million when compared to prior Equinix guidance rates. Adjusted EBITDA is expected to range between $2.379 and $2.419 billion, an increase of 17% year-over-year. This updated guidance includes a raise of full year adjusted EBITDA guidance of $5 million, offset by a negative foreign currency impact of $21 million when compared to prior Equinix guidance rates, and an expected $49 million in integration costs. AFFO is expected to range between $1.596 and $1.636 billion, an increase of 12% year-over-year. This updated guidance includes a raise of full year AFFO guidance of $5 million, offset by a negative foreign currency impact of $4 million when compared to prior Equinix guidance rates. Also, AFFO includes an expected $49 million in integration costs. Non-recurring capital expenditures are expected to range between $1.8 and $1.9 billion, and recurring capital expenditures are expected to range between approximately $200 and $210 million.

The U.S. dollar exchange rates used for 2018 guidance, taking into consideration the impact of our current foreign currency hedges, have been updated to $1.14 to the Euro, $1.31 to the Pound, ¥111 to the U.S. dollar, S$1.36 to the U.S. dollar, and R$3.87 to the U.S. dollar. The Q2 2018 global revenue breakdown by currency for the Euro, British Pound, Japanese Yen, Singapore Dollar and Brazilian Real is 19%, 9%, 6%, 6% and 3%, respectively.

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

Q2 2018 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended June 30, 2018, along with its future outlook, in its quarterly conference call on Wednesday, August 8, 2018, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on the Company's Investor Relations website at www.equinix.com/investors. To hear the conference call live, please dial 1-517-308-9482 (domestic and international) and reference the passcode EQIX.

A replay of the call will be available one hour after the call, through Thursday, November 1, 2018, by dialing 1-203-369-0283 and referencing the passcode 2018. In addition, the webcast will be available at www.equinix.com/investors (no password required).

Investor Presentation and Supplemental Financial Information

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

Additional Resources

About Equinix

Equinix, Inc. (NASDAQ:EQIX) connects the world's leading businesses to their customers, employees and partners inside the most-interconnected data centers. In 52 markets across five continents, Equinix is where companies come together to realize new opportunities and accelerate their business, IT and cloud strategies.

Non-GAAP Financial Measures

Equinix provides all information required in accordance with generally accepted accounting principles ("GAAP"), but it believes that evaluating its ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, Equinix uses non-GAAP financial measures to evaluate its operations.

Equinix provides normalized and constant currency growth rates, which are calculated to adjust for acquisitions, dispositions, integration costs, changes in accounting principles and foreign currency.

Equinix presents adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA represents income or loss from operations excluding depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gain or loss on asset sales.

In presenting non-GAAP financial measures, such as adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), adjusted EBITDA margins, free cash flow and adjusted free cash flow, Equinix excludes certain items that it believes are not good indicators of Equinix'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, acquisition costs and gain or loss on asset sales.  Equinix excludes these items in order for its lenders, investors and the industry analysts who review and report on Equinix to better evaluate Equinix'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 an IBX data center, and do not reflect its current or future cash spending levels to support its business. Its IBX data centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of an IBX data center do not recur with respect to such data center, although Equinix may incur initial construction costs in future periods with respect to additional IBX data centers, and future capital expenditures remain minor relative to the initial investment. This is a trend it expects to continue. In addition, depreciation is also based on the estimated useful lives of the IBX data centers. These estimates could vary from actual performance of the asset, are based on historic costs incurred to build out our IBX data centers and are not indicative of current or expected future capital expenditures. Therefore, Equinix excludes depreciation from its operating results when evaluating its operations.

In addition, in presenting the non-GAAP financial measures, Equinix also excludes amortization expense related to acquired intangible assets. Amortization expense is significantly affected by the timing and magnitude of acquisitions and these charges may vary in amount from period to period. We exclude amortization expense to facilitate a more meaningful evaluation of our current operating performance and comparisons to our prior periods. 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 also believes are not meaningful in evaluating Equinix's current operations. Equinix excludes stock-based compensation expense, as it can vary significantly from period to period based on share price and the timing, size and nature of equity awards. As such, Equinix and many investors and analysts exclude stock-based compensation expense to compare its operating results with those of other companies. Equinix excludes restructuring charges from its non-GAAP financial measures. The restructuring charges relate to Equinix's decision to exit leases for excess space adjacent to several of its IBX data centers, which it did not intend to build out, or its decision to reverse such restructuring charges. Equinix also excludes impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Equinix also excludes gain or loss on asset sales as it represents profit or loss that is not meaningful in evaluating the current or future operating performance. Finally, Equinix excludes acquisition costs from its non-GAAP financial measures to allow more comparable comparisons of the financial results to the historical operations. The acquisition costs relate to costs Equinix incurs in connection with business combinations. Such charges generally are not relevant to assessing the long-term performance of Equinix. In addition, the frequency and amount of such charges vary significantly based on the size and timing of the acquisitions. Management believes items such as restructuring charges, impairment charges, acquisition costs and gain or loss on asset sales are non-core transactions; however, these types of costs may occur in future periods.

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

Equinix includes an adjustment for revenues from installation fees, since installation fees are deferred and recognized ratably over the period of contract term, although the fees are generally paid in a lump sum upon installation. Equinix includes an adjustment for straight-line rent expense on its operating leases, since the total minimum lease payments are recognized ratably over the lease term, although the lease payments generally increase over the lease term. Equinix also includes an adjustment to contract costs incurred to obtain contracts, since contract costs are capitalized and amortized over the estimated period of benefit on a straight-line basis, although costs of obtaining contracts are generally incurred and paid during the period of obtaining the contracts. The adjustments for installation revenues, straight-line rent expense and contract costs are intended to isolate the cash activity included within the straight-lined or amortized results in the consolidated statement of operations. Equinix excludes the amortization of deferred financing costs and debt discounts and premiums as these expenses relate to the initial costs incurred in connection with its debt financings that have no current or future cash obligations. Equinix excludes gain or loss on debt extinguishment since it represents a cost that is not a good indicator of Equinix's current or future operating performance. Equinix includes an income tax expense adjustment, which represents the non-cash tax impact due to changes in valuation allowances and uncertain tax positions that do not relate to the current period's operations. Equinix excludes recurring capital expenditures, which represent expenditures to extend the useful life of its IBX data centers or other assets that are required to support current revenues. Equinix also excludes net income or loss from discontinued operations, net of tax, which represents results that are not a good indicator of our current or future operating performance.

Equinix presents constant currency results of operations, which is a non-GAAP financial measure and is not meant to be considered in isolation or as an alternative to GAAP results of operations. However, Equinix has presented this non-GAAP financial measure to provide investors with an additional tool to evaluate its operating results without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of Equinix's business performance. To present this information, Equinix's current and comparative prior period revenues and certain operating expenses from entities with functional currencies other than the U.S. dollar are converted into U.S. dollars at a consistent exchange rate for purposes of each result being compared.

Non-GAAP financial measures are not a substitute for financial information prepared in accordance with GAAP. Non-GAAP financial measures should not be considered in isolation, but should be considered together with the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures. Equinix presents such non-GAAP financial measures to provide investors with an additional tool to evaluate its operating results in a manner that focuses on what management believes to be its 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 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 those of other companies. Investors should, therefore, exercise caution when comparing non-GAAP financial measures used by us to similarly titled non-GAAP financial measures of other companies. Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income or 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 without unreasonable effort. The impact of such adjustments could be significant. 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 data 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 including the Infomart, Metronode and Verizon; a failure to receive significant revenues 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 filings with the Securities and Exchange Commission. In particular, see recent Equinix 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, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)



Three Months Ended


Six Months Ended


June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017

Recurring revenues

$

1,187,749



$

1,150,629



$

1,010,048



$

2,338,378



$

1,908,488


Non-recurring revenues

74,194



65,248



56,373



139,442



107,458


Revenues

1,261,943



1,215,877



1,066,421



2,477,820



2,015,946


Cost of revenues

651,801



622,430



522,203



1,274,231



991,164


Gross profit

610,142



593,447



544,218



1,203,589



1,024,782


Operating expenses:










Sales and marketing

154,202



159,776



141,566



313,978



270,493


General and administrative

210,489



203,157



191,355



413,646



372,754


Acquisition costs

30,413



4,639



26,402



35,052



29,427


Total operating expenses

395,104



367,572



359,323



762,676



672,674


Income from operations

215,038



225,875



184,895



440,913



352,108


Interest and other income (expense):










Interest income

3,958



4,610



4,437



8,568



7,529


Interest expense

(134,673)



(126,277)



(119,042)



(260,950)



(230,726)


Other income (expense)

8,866



(3,064)



1,284



5,802



1,621


Loss on debt extinguishment

(19,215)



(21,491)



(16,444)



(40,706)



(19,947)


Total interest and other, net

(141,064)



(146,222)



(129,765)



(287,286)



(241,523)


Income before income taxes

73,974



79,653



55,130



153,627



110,585


Income tax expense

(6,356)



(16,759)



(9,325)



(23,115)



(22,718)


Net income

$

67,618



$

62,894



$

45,805



$

130,512



$

87,867


Net income per share:










Basic net income per share

$

0.85



$

0.79



$

0.59



$

1.64



$

1.17


Diluted net income per share

$

0.85



$

0.79



$

0.58



$

1.64



$

1.16


Shares used in computing basic net income per share

79,479



79,241



77,923



79,361



75,383


Shares used in computing diluted net income per share

79,752



79,649



78,508



79,746



76,008












 

EQUINIX, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)



Three Months Ended


Six Months Ended


June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017

Net income

$

67,618



$

62,894



$

45,805



$

130,512



$

87,867


Other comprehensive income (loss), net of tax:










Foreign currency translation adjustment ("CTA") gain (loss)

(421,233)



145,851



200,983



(275,382)



307,921


Net investment hedge CTA gain (loss)

226,115



(72,635)



(101,847)



153,480



(130,398)


Unrealized loss on available-for-sale securities





(65)





(330)


Unrealized gain (loss) on cash flow hedges

35,280



(4,080)



(27,671)



31,200



(39,398)


Net actuarial gain on defined benefit plans

13



8



15



21



26


Total other comprehensive income (loss), net of tax

(159,825)



69,144



71,415



(90,681)



137,821


Comprehensive income (loss), net of tax

$

(92,207)



$

132,038



$

117,220



$

39,831



$

225,688


 

EQUINIX, INC.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)



June 30,
2018


December 31,
2017

Assets




Cash and cash equivalents

$

966,308



$

1,412,517


Short-term investments

18,199



28,271


Accounts receivable, net

616,472



576,313


Other current assets

249,846



232,027


          Total current assets

1,850,825



2,249,128


Long-term investments

4,200



9,243


Property, plant and equipment, net

10,378,915



9,394,602


Goodwill

4,870,300



4,411,762


Intangible assets, net

2,440,087



2,384,972


Other assets

525,961



241,750


          Total assets

$

20,070,288



$

18,691,457


Liabilities and Stockholders' Equity




Accounts payable and accrued expenses

$

710,584



$

719,257


Accrued property, plant and equipment

269,409



220,367


Current portion of capital lease and other financing obligations

85,263



78,705


Current portion of mortgage and loans payable

75,224



64,491


Current portion of senior notes

150,828




Other current liabilities

142,312



159,914


          Total current liabilities

1,433,620



1,242,734


Capital lease and other financing obligations, less current portion

1,426,368



1,620,256


Mortgage and loans payable, less current portion

1,317,940



1,393,118


Senior notes, less current portion

8,334,383



6,923,849


Other liabilities

633,450



661,710


          Total liabilities

13,145,761



11,841,667


Common stock

80



79


Additional paid-in capital

10,253,155



10,121,323


Treasury stock

(145,632)



(146,320)


Accumulated dividends

(2,960,183)



(2,592,792)


Accumulated other comprehensive loss

(877,994)



(785,189)


Retained earnings

655,101



252,689


          Total stockholders' equity

6,924,527



6,849,790


          Total liabilities and stockholders' equity

$

20,070,288



$

18,691,457










Ending headcount by geographic region is as follows:








          Americas headcount

3,375



3,154


          EMEA headcount

2,661



2,560


          Asia-Pacific headcount

1,574



1,559


                    Total headcount

7,610



7,273


 

EQUINIX, INC.

Summary of Debt Principal Outstanding

(in thousands)

(unaudited)



June 30, 2018


December 31, 2017





Capital lease and other financing obligations

$

1,511,631



$

1,698,961






Term loans

1,345,349



1,406,686


Mortgage payable and other loans payable

47,815



50,923


Plus: debt discount and issuance costs, net

7,265



8,615


           Total mortgage and loans payable principal

1,400,429



1,466,224






Senior notes

8,485,211



6,923,849


Plus: debt issuance costs

82,297



78,151


Less: debt premium

(7,158)




          Total senior notes principal

8,560,350



7,002,000






Total debt principal outstanding

$

11,472,410



$

10,167,185


 

EQUINIX, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)




Three Months Ended


Six Months Ended



June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017












Cash flows from operating activities:











Net income

$

67,618



$

62,894



$

45,805



$

130,512



$

87,867



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


Depreciation, amortization and accretion

308,828



306,465



252,386



615,293



471,399



Stock-based compensation

49,725



42,536



45,625



92,261



83,948



Amortization of debt issuance costs and debt discounts and premiums

3,362



4,099



4,130



7,461



15,710



Loss on debt extinguishment

19,215



21,491



16,444



40,706



19,947



Other items

2,322



8,888



3,775



11,210



12,155



Changes in operating assets and liabilities:


Accounts receivable

32,834



(71,275)



(112,236)



(38,441)



(151,900)



Income taxes, net

(7,485)



(15,381)



(13,290)



(22,866)



(33,927)



Accounts payable and accrued expenses

10,818



(35,143)



81,585



(24,325)



16,171



Other assets and liabilities

51,491



(23,667)



(17,751)



27,824



32,474


Net cash provided by operating activities

538,728



300,907



306,473



839,635



553,844


Cash flows from investing activities:











Purchases, sales and maturities of investments, net

13,240



(497)



10,303



12,743



3,199



Business acquisitions, net of cash and restricted cash acquired

(830,993)





(3,593,613)



(830,993)



(3,629,654)



Purchases of real estate

(27,082)



(14,700)



(6,841)



(41,782)



(48,580)



Purchases of other property, plant and equipment

(520,239)



(349,729)



(348,572)



(869,968)



(625,814)



Proceeds from asset sales









47,767


Net cash used in investing activities

(1,365,074)



(364,926)



(3,938,723)



(1,730,000)



(4,253,082)


Cash flows from financing activities:











Proceeds from employee equity awards

13



25,847



45



25,860



20,119



Payment of dividend distributions

(181,760)



(186,999)



(156,290)



(368,759)



(304,373)



Proceeds from public offering of common stock, net of offering costs

7,622





83



7,622



2,126,341



Proceeds from loans payable









1,059,800



Proceeds from senior notes



929,850





929,850



1,250,000



Repayment of capital lease and other financing obligations

(14,069)



(55,787)



(27,864)



(69,856)



(44,460)



Repayment of mortgage and loans payable

(18,816)



(6,599)



(20,795)



(25,415)



(42,305)



Debt extinguishment costs

148



(20,704)



(8,122)



(20,556)



(11,254)



Debt issuance costs



(11,583)



46



(11,583)



(40,619)



Other financing activities

580







580



(900)


Net cash provided by (used in) financing activities

(206,282)



674,025



(212,897)



467,743



4,012,349


Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

(33,743)



7,903



5,327



(25,840)



16,868


Net increase (decrease) in cash, cash equivalents and restricted cash

(1,066,371)



617,909



(3,839,820)



(448,462)



329,979


Cash, cash equivalents and restricted cash at beginning of period

2,068,610



1,450,701



4,943,046



1,450,701



773,247


Cash, cash equivalents and restricted cash at end of period

$

1,002,239



$

2,068,610



$

1,103,226



$

1,002,239



$

1,103,226


Supplemental cash flow information:










Cash paid for taxes

$

17,681



$

31,761



$

16,269



$

49,442



$

45,821


Cash paid for interest

$

115,071



$

107,057



$

97,960



$

222,128



$

213,394













Free cash flow (negative free cash flow) (1)

$

(839,586)



$

(63,522)



$

(3,642,553)



$

(903,108)



$

(3,702,437)













Adjusted free cash flow (adjusted negative free cash flow) (2)

$

18,489



$

(48,822)



$

(42,099)



$

(30,333)



$

(24,203)



































(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

$

538,728



$

300,907



$

306,473



$

839,635



$

553,844



Net cash used in investing activities as presented above

(1,365,074)



(364,926)



(3,938,723)



(1,730,000)



(4,253,082)



Purchases, sales and maturities of investments, net

(13,240)



497



(10,303)



(12,743)



(3,199)



Negative free cash flow

$

(839,586)



$

(63,522)



$

(3,642,553)



$

(903,108)



$

(3,702,437)













(2)

We define adjusted free cash flow as free cash flow (as defined above) excluding any purchases of real estate and business acquisitions, net of cash and restricted cash acquired as presented below:


Free cash flow (as defined above)

$

(839,586)



$

(63,522)



$

(3,642,553)



$

(903,108)



$

(3,702,437)



Less business acquisitions, net of cash and restricted cash acquired

830,993





3,593,613



830,993



3,629,654



Less purchases of real estate

27,082



14,700



6,841



41,782



48,580



Adjusted free cash flow (adjusted negative free cash flow)

$

18,489



$

(48,822)



$

(42,099)



$

(30,333)



$

(24,203)













 

EQUINIX, INC.

Non-GAAP Measures and Other Supplemental Data

(in thousands)

(unaudited)




Three Months Ended


Six Months Ended



June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017


Recurring revenues

$

1,187,749



$

1,150,629



$

1,010,048



$

2,338,378



$

1,908,488



Non-recurring revenues

74,194



65,248



56,373



139,442



107,458



Revenues (1)

1,261,943



1,215,877



1,066,421



2,477,820



2,015,946














Cash cost of revenues (2)

421,733



395,522



344,469



817,255



648,009



Cash gross profit (3)

840,210



820,355



721,952



1,660,565



1,367,937














Cash operating expenses (4) (7):











Cash sales and marketing expenses (5)

91,468



98,069



89,616



189,537



189,477



Cash general and administrative expenses (6)

144,738



142,771



123,028



287,509



241,578



Total cash operating expenses (4) (7)

236,206



240,840



212,644



477,046



431,055














Adjusted EBITDA (8)

$

604,004



$

579,515



$

509,308



$

1,183,519



$

936,882














Cash gross margins (9)

67

%


67

%


68

%


67

%


68

%













Adjusted EBITDA margins (10)

48

%


48

%


48

%


48

%


46

%













Adjusted EBITDA flow-through rate (11)

53

%


94

%


70

%


55

%


54

%













FFO (12)

$

289,525



$

290,755



$

219,760



$

580,280



$

420,626














AFFO (13) (14)

$

428,126



$

414,576



$

360,114



$

842,702



$

664,224
























(1)

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

















Americas Revenues:






















Colocation

$

433,895



$

427,125



$

374,764



$

861,020



$

674,037



Interconnection

131,720



129,253



116,248



260,973



217,098



Managed infrastructure

18,292



18,535



17,005



36,827



32,066



Other

4,980



1,079



1,903



6,059



2,822



Recurring revenues

588,887



575,992



509,920



1,164,879



926,023



Non-recurring revenues

29,388



26,635



23,688



56,023



44,032



Revenues

$

618,275



$

602,627



$

533,608



$

1,220,902



$

970,055

























EMEA Revenues:






















Colocation

$

293,518



$

288,061



$

259,684



$

581,579



$

512,938



Interconnection

33,969



34,977



23,655



68,946



46,006



Managed infrastructure

29,731



30,686



19,205



60,417



36,877



Other

2,364



1,766



2,037



4,130



5,367



Recurring revenues

359,582



355,490



304,581



715,072



601,188



Non-recurring revenues

23,586



24,140



18,363



47,726



36,603



Revenues

$

383,168



$

379,630



$

322,944



$

762,798



$

637,791














Asia-Pacific Revenues:






















Colocation

$

186,172



$

166,198



$

147,783



$

352,370



$

286,778



Interconnection

31,924



30,769



25,781



62,693



50,640



Managed infrastructure

21,184



22,180



21,983



43,364



43,859



Recurring revenues

239,280



219,147



195,547



458,427



381,277



Non-recurring revenues

21,220



14,473



14,322



35,693



26,823



Revenues

$

260,500



$

233,620



$

209,869



$

494,120



$

408,100














Worldwide Revenues:






















Colocation

$

913,585



$

881,384



$

782,231



$

1,794,969



$

1,473,753



Interconnection

197,613



194,999



165,684



392,612



313,744



Managed infrastructure

69,207



71,401



58,193



140,608



112,802



Other

7,344



2,845



3,940



10,189



8,189



Recurring revenues

1,187,749



1,150,629



1,010,048



2,338,378



1,908,488



Non-recurring revenues

74,194



65,248



56,373



139,442



107,458



Revenues

$

1,261,943



$

1,215,877



$

1,066,421



$

2,477,820



$

2,015,946
























(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

$

651,801



$

622,430



$

522,203



$

1,274,231



$

991,164



Depreciation, amortization and accretion expense

(225,461)



(223,009)



(174,556)



(448,470)



(337,066)



Stock-based compensation expense

(4,607)



(3,899)



(3,178)



(8,506)



(6,089)



Cash cost of revenues

$

421,733



$

395,522



$

344,469



$

817,255



$

648,009














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

















Americas cash cost of revenues

$

180,057



$

164,255



$

148,589



$

344,312



$

261,648



EMEA cash cost of revenues

155,085



152,814



124,485



307,899



246,660



Asia-Pacific cash cost of revenues

86,591



78,453



71,395



165,044



139,701



Cash cost of revenues

$

421,733



$

395,522



$

344,469



$

817,255



$

648,009









(3)

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














(4)

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







Selling, general, and administrative expense

$

364,691



$

362,933



$

332,921



$

727,624



$

643,247



Depreciation and amortization expense

(83,367)



(83,456)



(77,830)



(166,823)



(134,333)



Stock-based compensation expense

(45,118)



(38,637)



(42,447)



(83,755)



(77,859)



Cash operating expense

$

236,206



$

240,840



$

212,644



$

477,046



$

431,055















(5)

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













Sales and marketing expense

$

154,202



$

159,776



$

141,566



$

313,978



$

270,493



Depreciation and amortization expense

(48,626)



(50,001)



(38,524)



(98,627)



(56,618)



Stock-based compensation expense

(14,108)



(11,706)



(13,426)



(25,814)



(24,398)



Cash sales and marketing expense

$

91,468



$

98,069



$

89,616



$

189,537



$

189,477
























(6)

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













General and administrative expense

$

210,489



$

203,157



$

191,355



$

413,646



$

372,754



Depreciation and amortization expense

(34,741)



(33,455)



(39,306)



(68,196)



(77,715)



Stock-based compensation expense

(31,010)



(26,931)



(29,021)



(57,941)



(53,461)



Cash general and administrative expense

$

144,738



$

142,771



$

123,028



$

287,509



$

241,578















(7)

The geographic split of our cash operating expense, or cash SG&A, as defined above, is presented below:













Americas cash SG&A

$

144,263



$

146,823



$

126,868



$

291,086



$

251,637



EMEA cash SG&A

57,268



60,638



56,837



117,906



119,955



Asia-Pacific cash SG&A

34,675



33,379



28,939



68,054



59,463



Cash SG&A

$

236,206



$

240,840



$

212,644



$

477,046



$

431,055















(8)

We define adjusted EBITDA as income from operations excluding depreciation, amortization, accretion, stock-based compensation, restructuring charges, impairment charges, acquisition costs and gain or loss on asset sales as presented below:













Income from operations

$

215,038



$

225,875



$

184,895



$

440,913



$

352,108



Depreciation, amortization and accretion expense

308,828



306,465



252,386



615,293



471,399



Stock-based compensation expense

49,725



42,536



45,625



92,261



83,948



Acquisition costs

30,413



4,639



26,402



35,052



29,427



Adjusted EBITDA

$

604,004



$

579,515



$

509,308



$

1,183,519



$

936,882














The geographic split of our adjusted EBITDA is presented below:

















Americas income from operations

$

87,711



$

101,736



$

75,039



$

189,447



$

156,149



Americas depreciation, amortization and accretion expense

160,337



158,026



124,905



318,363



213,333



Americas stock-based compensation expense

35,104



29,877



33,771



64,981



61,545



Americas acquisition costs

10,803



1,910



24,436



12,713



25,743



Americas adjusted EBITDA

$

293,955



$

291,549



$

258,151



$

585,504



$

456,770

























EMEA income from operations

$

73,046



$

64,103



$

54,927



$

137,149



$

99,908



EMEA depreciation, amortization and accretion expense

88,828



92,492



78,118



181,320



154,924



EMEA stock-based compensation expense

8,403



7,139



6,611



15,542



12,660



EMEA acquisition costs

538



2,444



1,966



2,982



3,684



EMEA adjusted EBITDA

$

170,815



$

166,178



$

141,622



$

336,993



$

271,176














Asia-Pacific income from operations

$

54,281



$

60,036



$

54,929



$

114,317



$

96,051



Asia-Pacific depreciation, amortization and accretion expense

59,663



55,947



49,363



115,610



103,142



Asia-Pacific stock-based compensation expense

6,218



5,520



5,243



11,738



9,743



Asia-Pacific acquisition costs

19,072



285





19,357





Asia-Pacific adjusted EBITDA

$

139,234



$

121,788



$

109,535



$

261,022



$

208,936



















(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

%


73

%


72

%


72

%


73

%


EMEA cash gross margins

60

%


60

%


61

%


60

%


61

%


Asia-Pacific cash gross margins

67

%


66

%


66

%


67

%


66

%














(10)

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













Americas adjusted EBITDA margins

48

%


48

%


48

%


48

%


47

%


EMEA adjusted EBITDA margins

45

%


44

%


44

%


44

%


43

%


Asia-Pacific adjusted EBITDA margins

53

%


52

%


52

%


53

%


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

$

604,004



$

579,515



$

509,308



$

1,183,519



$

936,882



Less adjusted EBITDA - prior period

(579,515)



(564,840)



(427,574)



(1,115,159)



(856,533)



Adjusted EBITDA growth

$

24,489



$

14,675



$

81,734



$

68,360



$

80,349

























Revenues - current period

$

1,261,943



$

1,215,877



$

1,066,421



$

2,477,820



$

2,015,946



Less revenues - prior period

(1,215,877)



(1,200,221)



(949,525)



(2,352,482)



(1,867,323)



Revenue growth

$

46,066



$

15,656



$

116,896



$

125,338



$

148,623














Adjusted EBITDA flow-through rate

53

%


94

%


70

%


55

%


54

%














(12)

FFO is defined as net income or loss, excluding gain or loss from the disposition of real estate assets, depreciation and amortization on real estate assets and adjustments for unconsolidated joint ventures' and non-controlling interests' share of these items.













Net income

$

67,618



$

62,894



$

45,805



$

130,512



$

87,867



Adjustments:











Real estate depreciation

221,029



222,855



175,387



443,884



334,801



(Gain) loss on disposition of real estate property

878



5,006



(1,460)



5,884



(2,098)



Adjustments for FFO from unconsolidated joint ventures





28





56



FFO

$

289,525



$

290,755



$

219,760



$

580,280



$

420,626















(13)

AFFO is defined as FFO, excluding depreciation and amortization expense on non-real estate assets, accretion, stock-based compensation, restructuring charges, impairment charges, acquisition costs, an installation revenue adjustment, a straight-line rent expense adjustment, a contract cost adjustment, amortization of deferred financing costs and debt discounts and premiums, gain or loss on debt extinguishment, an income tax expense adjustment, net income or loss from discontinued operations, net of tax, recurring capital expenditures and adjustments from FFO to AFFO for unconsolidated joint ventures' and non-controlling interests' share of these items.













FFO

$

289,525



$

290,755



$

219,760



$

580,280



$

420,626



Adjustments:











Installation revenue adjustment

840



2,159



6,939



2,999



11,614



Straight-line rent expense adjustment

1,664



2,301



1,015



3,965



3,424



Amortization of deferred financing costs and debt discounts and premiums

3,362



4,099



4,130



7,461



15,710



Contract cost adjustment

(4,384)



(3,355)





(7,739)





Stock-based compensation expense

49,725



42,536



45,625



92,261



83,948



Non-real estate depreciation expense

35,267



34,097



29,241



69,364



57,816



Amortization expense

51,035



50,616



50,158



101,651



79,175



Accretion expense (adjustment)

1,497



(1,103)



(2,400)



394



(393)



Recurring capital expenditures

(42,206)



(35,231)



(37,869)



(77,437)



(60,541)



Loss on debt extinguishment

19,215



21,491



16,444



40,706



19,947



Acquisition costs

30,413



4,639



26,402



35,052



29,427



Income tax expense adjustment

(7,827)



1,572



674



(6,255)



3,483



Adjustments for AFFO from unconsolidated joint ventures





(5)





(12)



AFFO

$

428,126



$

414,576



$

360,114



$

842,702



$

664,224
























(14)

 Following is how we reconcile from adjusted EBITDA to AFFO:











Adjusted EBITDA

$

604,004



$

579,515



$

509,308



$

1,183,519



$

936,882



Adjustments:











Interest expense, net of interest income

(130,715)



(121,667)



(114,605)



(252,382)



(223,197)



Amortization of deferred financing costs and debt discounts and premiums

3,362



4,099



4,130



7,461



15,710



Income tax expense

(6,356)



(16,759)



(9,325)



(23,115)



(22,718)



Income tax expense adjustment

(7,827)



1,572



674



(6,255)



3,483



Straight-line rent expense adjustment

1,664



2,301



1,015



3,965



3,424



Contract cost adjustment

(4,384)



(3,355)





(7,739)





Installation revenue adjustment

840



2,159



6,939



2,999



11,614



Recurring capital expenditures

(42,206)



(35,231)



(37,869)



(77,437)



(60,541)



Other income (expense)

8,866



(3,064)



1,284



5,802



1,621



(Gain) loss on disposition of real estate property

878



5,006



(1,460)



5,884



(2,098)



Adjustments for unconsolidated JVs' and non-controlling interests





23





44



AFFO

$

428,126



$

414,576



$

360,114



$

842,702



$

664,224


 

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