Equinix Reports Third Quarter 2013 Results

  • Reported revenues of $540.5 million, a 3% increase over the previous quarter and an 11% increase over the same quarter last year
  • Surpassed 124,000 cross-connects on a strong global interconnection quarter

REDWOOD CITY, Calif.--()--Equinix, Inc. (Nasdaq: EQIX), a provider of global data center services, today reported quarterly results for the quarter ended September 30, 2013. The Company uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

Revenues were $540.5 million for the third quarter, a 3% increase over the previous quarter and an 11% increase over the same quarter last year, and include a $5.3 million reduction in revenues for the third quarter due to the lengthening of the estimated period that non-recurring installation fees are recognized, a change in estimate that the Company initiated in the second quarter of 2013. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $517.0 million for the third quarter, a 3% increase over the previous quarter and a 12% increase over the same quarter last year. Non-recurring revenues were $23.5 million in the quarter. Churn for the third quarter was 2.5%, up from 2.4% for the previous quarter and in line with prior guidance.

Regarding the non-recurring installation fee estimate change described above, the Company is evaluating whether changes in estimate should have been applied in earlier periods. The Company is currently completing its assessment of this matter and expects to reach a conclusion by the time it files its Form 10-Q for the quarterly period ended September 30, 2013. The outcome of this matter could lead to an adjustment to the Company’s financial results for historical and future periods over which installation fees were and will be recognized as revenue, effectively causing revenue to be decreased in periods prior to the second quarter of 2013 and increased in later periods. The Company believes potential adjustments, if any, would result in a change in revenues of less than approximately 1% on a consolidated basis for any period covered under the Company’s current Forms 10-K and 10-Q as well as on a prospective basis. Additionally, if such a change were determined to be appropriate, it would have no effect on the Company’s cash flows.

“Equinix delivered its 43rd quarter of revenue and adjusted EBITDA growth, with healthy demand in our target markets as evidenced by the strong interconnection growth, operating margins and firm MRR per cabinet globally,” said Steve Smith, president and CEO of Equinix. “In addition, we had a number of strategic wins in our cloud vertical, including a multi-site partnership with Microsoft Azure, that leverages our unique global platform, network density, and customer base to enable the hybrid-cloud deployments of the future, further widening the moat around our business.”

Cost of revenues were $273.0 million for the third quarter, a 2% increase over the previous quarter and a 9% increase over the same quarter last year. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $98.2 million, which we refer to as cash cost of revenues, were $174.8 million for the third quarter, a 3% increase from the previous quarter and an 11% increase over the same quarter last year. Gross margins for the quarter were 49%, unchanged from the previous quarter and the same quarter last year. Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 68%, unchanged from the previous quarter and the same quarter last year.

Selling, general and administrative expenses were $158.5 million for the third quarter, a 7% increase over the previous quarter, primarily attributed to professional fees related to the REIT conversion, and a 16% increase over the same quarter last year. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $38.0 million, which we refer to as cash selling, general and administrative expenses, were $120.5 million for the third quarter, a 7% increase over the previous quarter and an 18% increase over the same quarter last year.

Interest expense was $62.0 million for the third quarter, a 2% increase from the previous quarter and a 23% increase over the same quarter last year, primarily attributed to the $1.5 billion senior notes offering in March 2013 and additional capital leases and other financing obligations to support the Company’s expansion projects. The Company recorded income tax expense of $11.7 million for the third quarter and income tax expense of $13.5 million in the same quarter last year.

Net income attributable to Equinix for the third quarter was $36.6 million. This represents a basic net income per share attributable to Equinix of $0.74 and a diluted net income per share attributable to Equinix of $0.72 based on a weighted average share count of 49.6 million and 53.6 million, respectively, for the third quarter of 2013.

Income from operations was $108.6 million for the third quarter, a 3% decrease from the previous quarter and a 13% increase over the same quarter last year. Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges and acquisition costs, for the third quarter was $245.2 million, a slight increase over the previous quarter and a 7% increase over the same quarter last year.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the third quarter, were $171.0 million, of which $130.0 million was attributed to expansion capital expenditures and $41.0 million was attributed to ongoing capital expenditures.

The Company generated cash from operating activities of $206.6 million for the third quarter as compared to $147.2 million in the previous quarter and $102.2 million for the same quarter last year. Cash used in investing activities was $331.0 million in the third quarter as compared to cash provided by investing activities of $537.5 million in the previous quarter, primarily attributed to the $836.4 million of restricted cash released for the redemption of the $750.0 million 8.125% senior notes, and cash used in investing activities of $596.9 million for the same quarter last year, primarily attributed to the Asia Tone and ancotel acquisitions. Cash used in financing activities was $1.2 million for the third quarter as compared to cash used in financing activities of $850.0 million in the previous quarter, primarily attributed to the redemption of the $750.0 million 8.125% senior notes, and cash provided by financing activities of $73.7 million for the same quarter last year.

As of September 30, 2013, the Company’s cash, cash equivalents and investments were $1,188.0 million, as compared to $1,216.9 million as of June 30, 2013.

Business Outlook

For the fourth quarter of 2013, the Company expects revenues to be in the range of $559.0 to $563.0 million, which includes a positive foreign currency benefit of approximately $8.0 million compared to the rates used from our prior guidance. Cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $123.0 and $128.0 million. Adjusted EBITDA is expected to range between $255.0 and $259.0 million, which includes $11.0 million in professional fees and costs primarily related to the REIT conversion, and includes a positive foreign currency benefit of approximately $3.0 million compared to the rates used from our prior guidance. Capital expenditures are expected to be approximately $190.0 to $210.0 million, comprised of approximately $50.0 million of ongoing capital expenditures and $140.0 to $160.0 million of expansion capital expenditures.

For the full year of 2013, total revenues are expected to range between $2,145.0 million to $2,149.0 million, or an as reported 13% year over year growth rate. Full-year guidance is also adjusted for approximately $9.0 million of positive foreign currency benefit, when compared to the rates used from our prior guidance. Total year cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $470.0 and $475.0 million. Adjusted EBITDA for the year is expected to range between $988.0 and $992.0 million, which includes $25.0 million in professional fees primarily related to the REIT conversion, and adjusting for approximately $4.0 million of positive currency benefit when compared to the rates used from our prior guidance. Capital expenditures for 2013 are expected to be in the range of $560.0 to $580.0 million, comprised of approximately $165.0 million of ongoing capital expenditures and $395.0 to $415.0 million for expansion capital expenditures.

The U.S. dollar exchange rates used for Q4 2013 guidance have been updated to $1.35 to the Euro, $1.60 to the Pound, S$1.24 to the U.S. dollar and R$2.18 to the U.S. dollar. Updated Q4 global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 15%, 9%, 6% and 4%, respectively.

Company Metrics and Q3 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, October 23, 2013, 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 1-210-234-8004 (domestic and international) and reference the passcode (EQIX). A presentation to accompany the call as well as the Company’s Non-Financial Metrics tracking sheet, will also be available on the website.

A replay of the call will be available beginning on Wednesday, October 23, 2013, at 7:30 p.m. (ET) through Friday, November 22, 2013, by dialing 1-203-369-0250 (domestic and international) and reference the passcode (2013). In addition, the webcast will be available on the investors section of the Company’s website over the same time period. No password is required for the replay or the webcast.

About Equinix

Equinix, Inc. (Nasdaq: EQIX), connects more than 4,400 companies directly to their customers and partners inside the world’s most networked data centers. Today, businesses leverage the Equinix interconnection platform in 31 strategic markets across the Americas, EMEA and Asia-Pacific. www.equinix.com.

Non-GAAP Financial Measures

Equinix provides all information required in accordance with generally accepted accounting principles (GAAP), but it believes that evaluating its ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, Equinix uses non-GAAP financial measures, such as adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), adjusted EBITDA margins, free cash flow, adjusted free cash flow, discretionary free cash flow and adjusted discretionary free cash flow to evaluate its operations. In presenting these non-GAAP financial measures, Equinix excludes certain items that it believes are not good indicators of the Company's current or future operating performance. These items are depreciation, amortization, accretion of asset retirement obligations and accrued restructuring charges, stock-based compensation, restructuring charges, impairment charges and acquisition costs. Legislative and regulatory requirements encourage use of and emphasis on GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. Equinix excludes these items in order for Equinix's lenders, investors, and industry analysts who review and report on the Company, to better evaluate the Company's operating performance and cash spending levels relative to its industry sector and competitors.

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

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

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

Investors should note, however, that the non-GAAP financial measures used by Equinix may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies. In addition, whenever Equinix uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data. Equinix intends to calculate the various non-GAAP financial measures in future periods consistent with how they were calculated for the periods presented within this press release.

Forward Looking Statements

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

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

EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
           
 
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2013 2013 2012 2013 2012
 
Recurring revenues $ 517,049 $ 502,470 $ 462,829 $ 1,514,790 $ 1,317,505
Non-recurring revenues   23,474     23,199     25,901     70,857     71,719  
Revenues 540,523 525,669 488,730 1,585,647 1,389,224
 
Cost of revenues   273,012     267,693     251,487     799,973     693,874  
Gross profit   267,511     257,976     237,243     785,674     695,350  
 
Operating expenses:
Sales and marketing 61,619 59,478 53,211 179,373 147,224
General and administrative 96,874 88,632 83,621 275,191 242,532
Restructuring charges - (4,837 ) - (4,837 ) -
Acquisition costs   438     2,526     4,542     6,626     6,883  
Total operating expenses   158,931     145,799     141,374     456,353     396,639  
 
Income from operations   108,580     112,177     95,869     329,321     298,711  
 
Interest and other income (expense):
Interest income 929 917 1,054 2,593 2,708
Interest expense (61,957 ) (61,001 ) (50,207 ) (183,289 ) (149,812 )
Loss on debt extinguishment - (93,602 ) (5,204 ) (93,602 ) (5,204 )
Other income (expense)   985     2,768     507     3,294     (1,491 )
Total interest and other, net   (60,043 )   (150,918 )   (53,850 )   (271,004 )   (153,799 )
 
Income (loss) from continuing operations before income taxes 48,537 (38,741 ) 42,019 58,317 144,912
 
Income tax benefit (expense)   (11,680 )   10,612     (13,498 )   (13,266 )   (44,489 )
 
Net income (loss) from continuing operations 36,857 (28,129 ) 28,521 45,051 100,423
 
Net income from discontinued operations, net of tax   -     -     679     -     1,228  
 
Net income (loss) 36,857 (28,129 ) 29,200 45,051 101,651
 
Net income attributable to redeemable non-controlling interests (281 ) (529 ) (362 ) (1,251 ) (1,843 )
         
Net income (loss) attributable to Equinix $ 36,576   $ (28,658 ) $ 28,838   $ 43,800   $ 99,808  
 
Net income (loss) per share attributable to Equinix:
 
Basic net income (loss) per share from continuing operations $ 0.74 $ (0.58 ) $ 0.58 $ 0.89 $ 2.06
Basic net income per share from discontinued operations   -     -     0.02     -     0.03  
Basic net income (loss) per share (1) $ 0.74   $ (0.58 ) $ 0.60   $ 0.89   $ 2.09  
 
Diluted net income (loss) per share from continuing operations $ 0.72 $ (0.58 ) $ 0.57 $ 0.88 $ 2.01
Diluted net income per share from discontinued operations   -     -     0.01     -     0.02  
Diluted net income (loss) per share (2) $ 0.72   $ (0.58 ) $ 0.58   $ 0.88   $ 2.03  
 
Shares used in computing basic net income (loss) per share   49,555     49,379     48,361     49,325     47,779  
 
Shares used in computing diluted net income (loss) per share   53,581     49,379     52,655     50,050     51,724  
     
 
(1) The net income (loss) used in the computation of basic net income per share attributable to Equinix is presented below:
 
Net income (loss) from continuing operations $ 36,857 $ (28,129 ) $ 28,521 $ 45,051 $ 100,423
Net income attributable to non-controlling interests   (281 )   (529 )   (362 )   (1,251 )   (1,843 )
Net income (loss) from continuing operations attributable to Equinix, basic 36,576 (28,658 ) 28,159 43,800 98,580
Net income from discontinued operations   -     -     679     -     1,228  
Net income (loss) attributable to Equinix, basic $ 36,576   $ (28,658 ) $ 28,838   $ 43,800   $ 99,808  
 
(2) The net income (loss) used in the computation of diluted net income per share attributable to Equinix is presented below:
 
Net income (loss) from continuing operations attributable to Equinix, basic $ 36,576 $ (28,658 ) $ 28,159 $ 43,800 $ 98,580
Interest on convertible debt   1,865     -     1,696     -     5,073  
Net income (loss) from continuing operations attributable to Equinix, diluted 38,441 (28,658 ) 29,855 43,800 103,653
Net income from discontinued operations   -     -     679     -     1,228  
Net income (loss) attributable to Equinix, diluted $ 38,441   $ (28,658 ) $ 30,534   $ 43,800   $ 104,881  
 

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,

2013

2013 2012 2013 2012
 
Net income (loss) $ 36,857   $ (28,129 ) $ 29,200   $ 45,051   $ 101,651  
 
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss) 78,113 (30,666 ) 41,782 (25,107 ) 26,887
Unrealized gain (loss) on available for sale securities   438     (458 )   113     78     14  
Other comprehensive loss, net of tax:   78,551     (31,124 )   41,895     (25,029 )   26,901  
 
Comprehensive income (loss), net of tax   115,408     (59,253 )   71,095     20,022     128,552  
 
Net income attributable to redeemable non-controlling interests (281 ) (529 ) (362 ) (1,251 ) (1,843 )
Other comprehensive income (loss) attributable to redeemable non-controlling interests   (200 )   5,309     240     4,340     3,155  
 
Comprehensive income (loss) attributable to Equinix, net of tax $ 114,927   $ (54,473 ) $ 70,973   $ 23,111   $ 129,864  
 

EQUINIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
   
Assets September 30, December 31,
2013 2012
 
Cash and cash equivalents $ 399,742 $ 252,213
Short-term investments 346,038 166,492
Accounts receivable, net 200,480 163,840
Other current assets   59,008     57,206  
Total current assets 1,005,268 639,751
Long-term investments 442,195 127,819
Property, plant and equipment, net 4,381,020 3,918,999
Goodwill 1,036,179 1,042,564
Intangible assets, net 182,345 201,562
Other assets   337,702     202,269  
Total assets $ 7,384,709   $ 6,132,964  
 
Liabilities and Stockholders' Equity
 
Accounts payable and accrued expenses $ 299,135 $ 268,853
Accrued property and equipment 91,468 63,509
Current portion of capital lease and other financing obligations 16,979 15,206
Current portion of loans payable 40,185 52,160
Other current liabilities   123,022     139,561  
Total current liabilities 570,789 539,289
Capital lease and other financing obligations, less current portion 862,410 545,853
Loans payable, less current portion 156,787 188,802
Senior notes 2,250,000 1,500,000
Convertible debt 720,215 708,726
Other liabilities   255,452     230,843  
Total liabilities   4,815,653     3,713,513  
 
Redeemable non-controlling interests   101,059     84,178  
 
Common stock 50 49
Additional paid-in capital 2,692,210 2,583,371
Treasury stock (35,903 ) (36,676 )
Accumulated other comprehensive loss (121,731 ) (101,042 )
Accumulated deficit   (66,629 )   (110,429 )
Total stockholders' equity   2,467,997     2,335,273  
 

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

$ 7,384,709   $ 6,132,964  
 
       
 
Ending headcount by geographic region is as follows:
 
Americas headcount 1,976 1,821
EMEA headcount 898 811
Asia-Pacific headcount   612     521  
Total headcount   3,486     3,153  
 

EQUINIX, INC.
SUMMARY OF DEBT OUTSTANDING
(in thousands)
(unaudited)
   
September 30, December 31,
2013 2012
 
Capital lease and other financing obligations $ 879,389 $ 561,059
 
U.S. term loan 150,000 180,000
ALOG financing 46,792 48,807
Paris 4 IBX financing 115 8,071
Other loans payable   65   4,084
Total loans payable   196,972   240,962
 
Senior notes   2,250,000   1,500,000
 
Convertible debt, net of debt discount 720,215 708,726
Plus debt discount   49,495   60,990
Total convertible debt principal   769,710   769,716
 
Total debt outstanding $ 4,096,071 $ 3,071,737
 

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,
2013 2013 2012 2013 2012
 
Cash flows from operating activities:
Net income (loss) $ 36,857 $ (28,129 ) $ 29,200 $ 45,051 $ 101,651
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, amortization and accretion 108,940 110,117 107,623 327,588 298,489
Stock-based compensation 27,280 24,194 22,582 74,177 62,234
Debt issuance costs and debt discount 5,965 5,884 5,048 17,602 18,057
Loss on debt extinguishment - 93,602 5,204 93,602 5,204
Restructuring charges - (4,837 ) - (4,837 ) -
Excess tax benefits from employee equity awards (4,951 ) (3,431 ) (53,174 ) (27,372 ) (53,174 )
Other reconciling items 5,498 3,949 2,205 12,532 6,046
Changes in operating assets and liabilities:
Accounts receivable 2,633 (19,098 ) (12,359 ) (41,128 ) (46,900 )
Income taxes, net 3,271 (74,153 ) 1,375 (72,491 ) 24,597
Accounts payable and accrued expenses 17,003 28,392 14,966 17,399 5,079
Other assets and liabilities   4,066     10,669     (20,518 )   (4,221 )   1,644  
Net cash provided by operating activities   206,562     147,159     102,152     437,902     422,927  
Cash flows from investing activities:
Purchases, sales and maturities of investments, net (89,219 ) (175,593 ) (111,574 ) (497,777 ) 514,413
Purchase of New York IBX data center (70,481 ) (2,960 ) - (73,441 ) -
Purchase of Asia Tone, less cash acquired 862 - (188,798 ) 755 (188,798 )
Purchase of ancotel, less cash acquired - - (84,236 ) - (84,236 )
Purchases of real estate (2,244 ) - - (2,244 ) -
Purchases of other property, plant and equipment (171,035 ) (122,863 ) (212,118 ) (369,565 ) (554,092 )
Other investing activities   1,159     838,963     (133 )   6,321     79,167  
Net cash provided by (used in) investing activities   (330,958 )   537,547     (596,859 )   (935,951 )   (233,546 )
Cash flows from financing activities:
Purchases of treasury stock - - - - (13,364 )
Proceeds from employee equity awards 12,202 1,512 13,666 28,082 50,139
Proceeds from loans payable 1,734 - 249,633 1,734 258,542
Proceeds from senior notes - - - 1,500,000 -
Repayment of capital lease and other financing obligations (4,553 ) (4,157 ) (3,049 ) (12,226 ) (8,907 )
Repayment of loans payable (10,113 ) (18,139 ) (238,480 ) (42,304 ) (315,779 )
Repayment of senior notes - (750,000 ) - (750,000 ) -
Repayment of convertible debt - - - - (250,007 )
Debt extinguishment costs (3,750 ) (80,925 ) - (84,675 ) -
Excess tax benefits from employee equity awards 4,951 3,431 53,174 27,372 53,174
Other financing activities   (1,649 )   (1,756 )   (1,247 )   (22,435 )   (8,767 )
Net cash provided by (used in) financing activities   (1,178 )   (850,034 )   73,697     645,548     (234,969 )
Effect of foreign currency exchange rates on cash and cash equivalents   7,820     (2,195 )   6,601     30     6,452  
Net increase (decrease) in cash and cash equivalents (117,754 ) (167,523 ) (414,409 ) 147,529 (39,136 )
Cash and cash equivalents at beginning of period   517,496     685,019     654,096     252,213     278,823  
Cash and cash equivalents at end of period $ 399,742   $ 517,496   $ 239,687   $ 399,742   $ 239,687  
 
Supplemental cash flow information:
Cash paid for taxes $ 9,882   $ 62,818   $ 12,813   $ 86,736   $ 19,578  
Cash paid for interest $ 38,319   $ 29,664   $ 65,616   $ 135,958   $ 157,917  
 
Free cash flow (1) $ (35,177 ) $ 860,299   $ (383,133 ) $ (272 ) $ (325,032 )
 
Adjusted free cash flow (2) $ 50,855   $ 923,876   $ (56,925 ) $ 174,225   $ 1,176  
 
Ongoing capital expenditures (3) $ 41,064   $ 40,210   $ 37,593   $ 115,271   $ 113,592  
 
Discretionary free cash flow (4) $ 165,498   $ 106,949   $ 64,559   $ 322,631   $ 309,335  
 
Adjusted discretionary free cash flow (5) $ 179,667   $ 167,566   $ 117,733   $ 422,198   $ 362,509  
     
 
(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 $ 206,562 $ 147,159 $ 102,152 $ 437,902 $ 422,927
Net cash provided by (used in) investing activities as presented above (330,958 ) 537,547 (596,859 ) (935,951 ) (233,546 )
Purchases, sales and maturities of investments, net   89,219     175,593     111,574     497,777     (514,413 )
Free cash flow (negative free cash flow) $ (35,177 ) $ 860,299   $ (383,133 ) $ (272 ) $ (325,032 )
 
(2)

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

 
Free cash flow (as defined above) $ (35,177 ) $ 860,299 $ (383,133 ) $ (272 ) $ (325,032 )
Less purchase of New York IBX data center 70,481 2,960 - 73,441 -
Less purchase of Asia Tone, less cash acquired (862 ) - 188,798 (755 ) 188,798
Less purchase of ancotel, less cash acquired - - 84,236 - 84,236
Less purchases of real estate 2,244 - - 2,244 -
Less excess tax benefits from employee equity awards 4,951 3,431 53,174 27,372 53,174
Less cash paid for taxes resulting from the planned REIT conversion 805 53,570 - 58,109 -
Less costs related to the planned REIT conversion   8,413     3,616     -     14,086     -  
Adjusted free cash flow (negative adjusted free cash flow) $ 50,855   $ 923,876   $ (56,925 ) $ 174,225   $ 1,176  
 
We categorize our cash paid for taxes into cash paid for taxes resulting from the planned REIT conversion (as defined above) and other cash taxes paid.
 
Cash paid for taxes resulting from the planned REIT conversion $ 805 $ 53,570 $ - $ 58,109 $ -
Other cash taxes paid   9,077     9,248     12,813     28,627     19,578  
Total cash paid for taxes $ 9,882   $ 62,818   $ 12,813   $ 86,736   $ 19,578  
 
(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 $ 41,064 $ 40,210 $ 37,593 $ 115,271 $ 113,592
Expansion capital expenditures   129,971     82,653     174,525     254,294     440,500  
Total capital expenditures $ 171,035   $ 122,863   $ 212,118   $ 369,565   $ 554,092  
 
(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 $ 206,562 $ 147,159 $ 102,152 $ 437,902 $ 422,927
Less ongoing capital expenditures   (41,064 )   (40,210 )   (37,593 )   (115,271 )   (113,592 )
Discretionary free cash flow $ 165,498   $ 106,949   $ 64,559   $ 322,631   $ 309,335  
 
(5)

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

 
Discretionary free cash flow $ 165,498 $ 106,949 $ 64,559 $ 322,631 $ 309,335
Excess tax benefits from employee equity awards 4,951 3,431 53,174 27,372 53,174
Cash paid for taxes resulting from the planned REIT conversion 805 53,570 - 58,109 -
Costs related to the planned REIT conversion   8,413     3,616     -     14,086     -  
Adjusted discretionary free cash flow $ 179,667   $ 167,566   $ 117,733   $ 422,198   $ 362,509  
 

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP PRESENTATION

(in thousands)
(unaudited)
           
 
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2013 2013 2012 2013 2012
 
Recurring revenues $ 517,049 $ 502,470 $ 462,829 $ 1,514,790 $ 1,317,505
Non-recurring revenues   23,474     23,199     25,901     70,857     71,719  
Revenues (1)   540,523     525,669     488,730     1,585,647     1,389,224  
 
Cash cost of revenues (2)   174,758     169,077     158,038     506,594     436,410  
Cash gross profit (3)   365,765     356,592     330,692     1,079,053     952,814  
 
Cash operating expenses (4):
Cash sales and marketing expenses (5) 48,172 46,430 42,120 140,882 118,928
Cash general and administrative expenses (6)   72,355     65,985     60,274     205,296     177,512  
Total cash operating expenses (7)   120,527     112,415     102,394     346,178     296,440  
 
Adjusted EBITDA (8) $ 245,238   $ 244,177   $ 228,298   $ 732,875   $ 656,374  
 
Cash gross margins (9)   68 %   68 %   68 %   68 %   69 %
 
Adjusted EBITDA margins (10)   45 %   46 %   47 %   46 %   47 %
 
Adjusted EBITDA flow-through rate (11)   7 %   12 %   34 %   36 %   57 %
     
 
(1) The geographic split of our revenues on a services basis is presented below:
 
Americas Revenues:
 
Colocation $ 230,827 $ 226,536 $ 213,011 $ 680,928 $ 626,685
Interconnection 61,984 59,800 54,943 179,990 159,730
Managed infrastructure 13,307 13,977 12,424 40,900 38,924
Rental   818     445     469     1,723     1,353  
Recurring revenues 306,936 300,758 280,847 903,541 826,692
Non-recurring revenues   11,213     11,685     13,034     35,605     34,439  
Revenues   318,149     312,443     293,881     939,146     861,131  
 
EMEA Revenues:
 
Colocation 109,742 103,916 91,512 314,190 263,283
Interconnection 9,234 8,854 7,188 26,469 15,204
Managed infrastructure 6,216 5,734 5,112 16,199 11,788
Rental   116     138     314     374     994  
Recurring revenues 125,308 118,642 104,126 357,232 291,269
Non-recurring revenues   7,596     6,970     7,832     21,578     24,722  
Revenues   132,904     125,612     111,958     378,810     315,991  
 
Asia-Pacific Revenues:
 
Colocation 69,080 67,881 63,204 207,975 159,972
Interconnection 10,433 9,699 8,550 29,536 23,664
Managed infrastructure   5,292     5,490     6,102     16,506     15,908  
Recurring revenues 84,805 83,070 77,856 254,017 199,544
Non-recurring revenues   4,665     4,544     5,035     13,674     12,558  
Revenues   89,470     87,614     82,891     267,691     212,102  
 
Worldwide Revenues:
 
Colocation 409,649 398,333 367,727 1,203,093 1,049,940
Interconnection 81,651 78,353 70,681 235,995 198,598
Managed infrastructure 24,815 25,201 23,638 73,605 66,620
Rental   934     583     783     2,097     2,347  
Recurring revenues 517,049 502,470 462,829 1,514,790 1,317,505
Non-recurring revenues   23,474     23,199     25,901     70,857     71,719  
Revenues $ 540,523   $ 525,669   $ 488,730   $ 1,585,647   $ 1,389,224  
 
(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 $ 273,012 $ 267,693 $ 251,487 $ 799,973 $ 693,874
Depreciation, amortization and accretion expense (95,984 ) (96,822 ) (91,723 ) (287,713 ) (252,887 )
Stock-based compensation expense   (2,270 )   (1,794 )   (1,726 )   (5,666 )   (4,577 )
Cash cost of revenues $ 174,758   $ 169,077   $ 158,038   $ 506,594   $ 436,410  
 
The geographic split of our cash cost of revenues is presented below:
 
Americas cash cost of revenues $ 93,529 $ 90,546 $ 85,384 $ 272,548 $ 245,931
EMEA cash cost of revenues 47,925 47,304 42,615 138,858 115,360
Asia-Pacific cash cost of revenues   33,304     31,227     30,039     95,188     75,119  
Cash cost of revenues $ 174,758   $ 169,077   $ 158,038   $ 506,594   $ 436,410  
 
(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 $ 61,619 $ 59,478 $ 53,211 $ 179,373 $ 147,224
Depreciation and amortization expense (6,197 ) (6,223 ) (6,296 ) (18,695 ) (14,791 )
Stock-based compensation expense   (7,250 )   (6,825 )   (4,795 )   (19,796 )   (13,505 )
Cash sales and marketing expenses $ 48,172   $ 46,430   $ 42,120   $ 140,882   $ 118,928  
 
(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 $ 96,874 $ 88,632 $ 83,621 $ 275,191 $ 242,532
Depreciation and amortization expense (6,759 ) (7,072 ) (7,431 ) (21,180 ) (21,196 )
Stock-based compensation expense   (17,760 )   (15,575 )   (15,916 )   (48,715 )   (43,824 )
Cash general and administrative expenses $ 72,355   $ 65,985   $ 60,274   $ 205,296   $ 177,512  
 
(7) Our cash operating expenses, or cash SG&A, as defined above, is presented below:
 
Cash sales and marketing expenses $ 48,172 $ 46,430 $ 42,120 $ 140,882 $ 118,928
Cash general and administrative expenses   72,355     65,985     60,274     205,296     177,512  
Cash SG&A $ 120,527   $ 112,415   $ 102,394   $ 346,178   $ 296,440  
 
The geographic split of our cash operating expenses, or cash SG&A, is presented below:
 
Americas cash SG&A $ 76,226 $ 69,287 $ 67,136 $ 219,064 $ 199,759
EMEA cash SG&A 28,191 29,016 22,818 84,818 62,017
Asia-Pacific cash SG&A   16,110     14,112     12,440     42,296     34,664  
Cash SG&A $ 120,527   $ 112,415   $ 102,394   $ 346,178   $ 296,440  
 
(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 $ 108,580 $ 112,177 $ 95,869 $ 329,321 $ 298,711
Depreciation, amortization and accretion expense 108,940 110,117 105,450 327,588 288,874
Stock-based compensation expense 27,280 24,194 22,437 74,177 61,906
Restructuring charges - (4,837 ) - (4,837 ) -
Acquisition costs   438     2,526     4,542     6,626     6,883  
Adjusted EBITDA $ 245,238   $ 244,177   $ 228,298   $ 732,875   $ 656,374  
 
The geographic split of our adjusted EBITDA is presented below:
 
Americas income from continuing operations $ 65,375 $ 72,064 $ 63,740 $ 200,036 $ 191,978
Americas depreciation, amortization and accretion expense 62,345 65,077 60,322 190,646 175,630
Americas stock-based compensation expense 20,591 18,168 17,299 56,070 47,924
Americas restructuring charges - (4,837 ) - (4,837 ) -
Americas acquisition costs   83     2,138     -     5,619     (91 )
Americas adjusted EBITDA   148,394     152,610     141,361     447,534     415,441  
 
EMEA income from continuing operations 28,334 22,414 20,565 73,611 70,806
EMEA depreciation, amortization and accretion expense 24,503 23,424 22,054 70,998 57,695
EMEA stock-based compensation expense 3,596 3,065 2,900 9,699 7,737
EMEA acquisition costs   355     389     1,006     826     2,376  
EMEA adjusted EBITDA   56,788     49,292     46,525     155,134     138,614  
 
Asia-Pacific income from continuing operations 14,871 17,699 11,564 55,674 35,927
Asia-Pacific depreciation, amortization and accretion expense 22,092 21,616 23,074 65,944 55,549
Asia-Pacific stock-based compensation expense 3,093 2,961 2,238 8,408 6,245
Asia-Pacific acquisition costs   -     (1 )   3,536     181     4,598  
Asia-Pacific adjusted EBITDA   40,056     42,275     40,412     130,207     102,319  
 
Adjusted EBITDA $ 245,238   $ 244,177   $ 228,298   $ 732,875   $ 656,374  
 
(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 %   71 %   71 %   71 %   71 %
 
EMEA cash gross margins   64 %   62 %   62 %   63 %   63 %
 
Asia-Pacific cash gross margins   63 %   64 %   64 %   64 %   65 %
 
(10) We define adjusted EBITDA margins as adjusted EBITDA divided by revenues.
 
Americas adjusted EBITDA margins   47 %   49 %   48 %   48 %   48 %
 
EMEA adjusted EBITDA margins   43 %   39 %   42 %   41 %   44 %
 
Asia-Pacific adjusted EBITDA margins   45 %   48 %   49 %   49 %   48 %
 
(11)

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

 
Adjusted EBITDA - current period $ 245,238 $ 244,177 $ 228,298 $ 732,875 $ 656,374
Less adjusted EBITDA - prior period   (244,177 )   (243,460 )   (217,480 )   (685,061 )   (558,044 )
Adjusted EBITDA growth $ 1,061   $ 717   $ 10,818   $ 47,814   $ 98,330  
 
Revenues - current period $ 540,523 $ 525,669 $ 488,730 $ 1,585,647 $ 1,389,224
Less revenues - prior period   (525,669 )   (519,455 )   (457,249 )   (1,452,499 )   (1,215,835 )
Revenue growth $ 14,854   $ 6,214   $ 31,481   $ 133,148   $ 173,389  
 
Adjusted EBITDA flow-through rate   7 %   12 %   34 %   36 %   57 %

Contacts

Equinix Investor Relations Contacts:
Equinix, Inc.
Katrina Rymill, 650-598-6583
krymill@equinix.com
Samir Patodia, 650-598-6587
spatodia@equinix.com
or
Equinix Media Contacts:
Equinix, Inc.
Melissa Neumann, 650-598-6098
mneumann@equinix.com
Liam Rose, 650-598-6590
lrose@equinix.com

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Contacts

Equinix Investor Relations Contacts:
Equinix, Inc.
Katrina Rymill, 650-598-6583
krymill@equinix.com
Samir Patodia, 650-598-6587
spatodia@equinix.com
or
Equinix Media Contacts:
Equinix, Inc.
Melissa Neumann, 650-598-6098
mneumann@equinix.com
Liam Rose, 650-598-6590
lrose@equinix.com