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October 29, 2014

Equinix Reports Third Quarter 2014 Results

REDWOOD CITY, Calif., Oct. 29, 2014 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), a global interconnection and data center company, today reported quarterly results for the quarter ended September 30, 2014.  The Company uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

Revenues were $620.4 million for the third quarter, a 3% increase over the previous quarter and a 14% increase over the same quarter last year.  Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $588.4 million for the third quarter, a 2% increase over the previous quarter and a 14% increase over the same quarter last year.  Non-recurring revenues were $32.0 million for the quarter.  MRR churn for the third quarter was 1.9%, a decrease from the previous quarter and lower than prior guidance. 

"Equinix delivered both revenue and adjusted EBITDA above the top end of our guidance range, despite significant currency headwinds," said Steve Smith, president and CEO of Equinix. "We are very pleased with our performance, driven by strength in the core business, global expansions with key customers and accelerated momentum in cloud.  The robust growth of our ecosystems generated a record 5,700 additional cross-connects this quarter, 36% higher than our previous record, and reflects an increase in interconnection activity between our cloud, content and network customers."

Cost of revenues were $304.1 million for the third quarter, a 4% increase over the previous quarter and a 13% increase from the same quarter last year.  Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $107.6 million for the quarter, which we refer to as cash cost of revenues, were $196.5 million for the quarter, a 3% increase over the previous quarter and a 13% increase over the same quarter last year.  Gross margins for the quarter were 51%, down from 52% for the previous quarter and up from 50% for the same quarter last year.  Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 68%, unchanged from the previous quarter and the same quarter last year.

Selling, general and administrative expenses were $181.5 million for the third quarter, a 3% decrease over the previous quarter and a 15% increase over the same quarter last year.  Selling, general and administrative expenses, excluding depreciation, amortization, accretion and stock-based compensation of $41.4 million for the quarter, which we refer to as cash selling, general and administrative expenses, were $140.1 million for the quarter, a 1% increase over the previous quarter and a 16% increase over the same quarter last year. 

Interest expense was $63.8 million for the third quarter, a 5% decrease from the previous quarter and a 3% increase over the same quarter last year.  The Company recorded income tax expense of $30.6 million for the third quarter as compared to income tax expense of $12.4 million in the same quarter last year.

Net income attributable to Equinix for the third quarter was $42.8 million.  This represents a basic net income per share attributable to Equinix of $0.81 and a diluted net income per share attributable to Equinix of $0.79 based on a weighted average share count of 53.1 million and 55.2 million, respectively, for the third quarter of 2014. 

Income from operations was $135.1 million for the third quarter, an 8% increase from the previous quarter and a 17% increase over the same quarter last year.  Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges, impairment charges and acquisition costs, for the third quarter was $283.9 million, a 3% increase over the previous quarter and a 14% 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 $156.0 million

The Company has repurchased approximately 1.8 million shares of its common stock under the $500 million share repurchase program authorized in December 2013, at an average price of $191.95 per share, for total consideration of $346.8 million from December 5, 2013 through October 24, 2014. 

In July 2014, the Company purchased Riverwood Capital L.P.'s interest in ALOG Data Centers do Brasil S.A. ("ALOG"), the approximate 10% of ALOG owned by ALOG management and vested and outstanding stock options for common shares of ALOG for cash consideration of approximately $226.3 million.  As a result, the Company owns 100% of the outstanding shares of ALOG.  The Company has fully consolidated ALOG's results of operations in the Company's consolidated financial statements from the time the Company acquired a controlling equity interest in ALOG in April 2011.

The Company generated cash from operating activities of $216.4 million for the third quarter as compared to $99.0 million in the previous quarter and $206.6 million for the same quarter last year. The increase in cash from operating activities for the third quarter as compared to the previous quarter was primarily attributed to decreased tax payments related to both REIT and non-REIT related obligations and cash interest payments in the third quarter as compared to the previous quarter.  Cash used in investing activities was $6.3 million in the third quarter as compared to cash provided by investing activities of $91.5 million in the previous quarter and cash used in investing activities of $331.0 million in the same quarter last year, primarily attributed to the purchase of a New York IBX data center and net sales and maturities of investments.  Cash used in financing activities was $256.2 million for the third quarter as compared to cash used in financing activities of $278.9 million in the previous quarter and cash used in financing activities of $1.2 million in the same quarter last year.    

As of September 30, 2014, the Company's cash, cash equivalents and investments were $501.1 million, as compared to $1,030.1 million as of December 31, 2013.   

In October 2014, the Company's Board of Directors declared a special distribution of $416.0 million, or approximately $7.57 per share based on the number of shares outstanding on the declaration date (the "2014 Special Distribution"), to its common stockholders in connection with the Company's plan to convert to a real estate investment trust ("REIT"). The 2014 Special Distribution is payable on November 25, 2014 to the Company's common stockholders of record as of the close of business on October 27, 2014. Common stockholders can elect to receive payment of the 2014 Special Distribution in the form of stock or cash, with the total cash payment to all stockholders limited to no more than 20% of the total distribution.

Business Outlook

For the fourth quarter of 2014, the Company expects revenues to range between $627.0 and $631.0 million, which includes a negative foreign currency impact of approximately $11.0 million compared to the rates used from the Company's prior guidance.  Cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to approximate $139.0 million.  Adjusted EBITDA is expected to range between $291.0 and $295.0 million, which includes $6.0 million in professional fees and costs primarily related to the REIT conversion and a negative foreign currency impact of approximately $5.0 million compared to the rates used from the Company's prior guidance.  Capital expenditures are expected to range between $210.0 and $230.0 million, comprised of approximately $35.0 million of recurring capital expenditures and $175.0 to $195.0 million of expansion capital expenditures.  

For the full year of 2014, total revenues are expected to range between $2,433.0 and $2,437.0 million, or an as-reported 13% year over year growth rate, which includes a negative foreign currency impact of approximately $15.0 million compared to the rates used from the Company's prior guidance.  Total year cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to approximate $553.0 million.  Adjusted EBITDA for the year is expected to range between $1,110.0 and $1,114.0 million, which includes a negative foreign currency impact of approximately $8.0 million compared to the rates used from our prior guidance, and includes $32.0 million in professional fees and costs primarily related to the REIT conversion.  Capital expenditures for 2014 are expected to range between $630.0 and $650.0 million, comprised of approximately $110.0 million of recurring capital expenditures and $520.0 to $540.0 million of expansion capital expenditures. 

The U.S. dollar exchange rates used for 2014 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.32 to the Euro, $1.63 to the Pound, S$1.28 to the U.S. dollar and R$2.43 to the U.S. dollar.  The 2014 global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 15%, 9%, 7% and 4%, respectively.

Company Metrics and Q3 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, October 29, 2014, at 5:30 p.m. ET (2:30 p.m. PT).  A simultaneous live webcast of the call will be available over the internet at Equinix.com under the Investor Relations heading. To hear the conference call live, please dial 1-210-234-8004 (domestic and international) and reference the passcode (EQIX).  A presentation to accompany the call, as well as the Company's Non-Financial Metrics tracking sheet, will also be available on the website. 

A replay of the call will be available beginning on Wednesday, October 29, 2014, at 7:30 p.m. ET through Friday, January 30, 2015, by dialing 1-402-220-0203 and referencing the passcode (2014). In addition, the webcast will be available on the Investors section of the Company's website over the same time period.  No password is required for the webcast.

About Equinix

Equinix, Inc. (Nasdaq: EQIX), connects more than 4,500 companies directly to their customers and partners inside the world's most networked data centers. Today, businesses leverage the Equinix interconnection platform in 32 strategic markets across the Americas, EMEA and Asia-Pacific. www.equinix.com.

Non-GAAP Financial Measures

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

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

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

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

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

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

Forward Looking Statements

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

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



EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)































Three Months Ended


Nine Months Ended





September 30,


June 30,


September 30,


September 30,


September 30,





2014


2014


2013


2014


2013














Recurring revenues


$        588,437


$574,158


$        515,566


$     1,712,298


$     1,511,902

Non-recurring revenues


32,004


31,003


27,518


93,357


76,187


Revenues


620,441


605,161


543,084


1,805,655


1,588,089














Cost of revenues


304,052


292,859


268,960


884,436


794,660



Gross profit

316,389


312,302


274,124


921,219


793,429














Operating expenses:












Sales and marketing

72,185


75,254


61,619


214,867


179,373


General and administrative

109,354


111,675


96,874


324,332


276,324


Restructuring charges

-


-


-


-


(4,837)


Acquisition costs

(281)


676


438


580


6,626



Total operating expenses

181,258


187,605


158,931


539,779


457,486














Income from operations

135,131


124,697


115,193


381,440


335,943














Interest and other income (expense):











Interest income


356


744


929


2,534


2,593


Interest expense

(63,756)


(66,874)


(61,957)


(199,450)


(183,289)


Loss on debt extinguishment 

-


(51,183)


-


(51,183)


(93,602)


Other income 


1,811


681


985


3,170


3,294



Total interest and other, net

(61,589)


(116,632)


(60,043)


(244,929)


(271,004)














Income before income taxes

73,542


8,065


55,150


136,511


64,939















Income tax benefit (expense)

(30,581)


2,014


(12,397)


(42,134)


(14,189)














Net income 



42,961


10,079


42,753


94,377


50,750














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

(120)


1,249


(282)


1,179


(1,252)














Net income attributable to Equinix

$          42,841


$  11,328


$          42,471


$          95,556


$          49,498














Net income per share attributable to Equinix:
























Basic net income per share (1)

$             0.81


$     0.22


$             0.86


$             1.86


$             1.00















Diluted net income per share (1)

$             0.79


$     0.22


$             0.83


$             1.84


$             0.99















Shares used in computing basic net income per share

53,137


51,332


49,555


51,369


49,325















Shares used in computing diluted net income per share

55,238


51,652


53,581


54,502


50,050



























(1)

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
















Net income 


$          42,961


$  10,079


$          42,753


$          94,377


$          50,750


Net (income) loss attributable to non-controlling interests

(120)


1,249


(282)


1,179


(1,252)



Net income attributable to Equinix, basic 

42,841


11,328


42,471


95,556


49,498


Interest on convertible debt

885


-


1,865


4,862


-



Net income attributable to Equinix, diluted

$          43,726


$  11,328


$          44,336


$        100,418


$          49,498















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,



2014


2014


2013


2014


2013












Net income

$          42,961


$10,079


$          42,753


$          94,377


$          50,750












Other comprehensive income (loss), net of tax:











 Foreign currency translation gain (loss) 

(144,993)


23,081


78,113


(106,942)


(25,107)


 Unrealized gain (loss) on available for sale securities 

(1,179)


(74)


438


(414)


78


 Unrealized gain on cash flow hedges 

4,510


54


-


4,764


-

 Other comprehensive income (loss), net of tax: 

(141,662)


23,061


78,551


(102,592)


(25,029)












 Comprehensive income (loss), net of tax 

(98,701)


33,140


121,304


(8,215)


25,721













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

(120)


1,249


(282)


1,179


(1,252)


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

(18,304)


(750)


(200)


(21,121)


4,340












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

$       (117,125)


$33,639


$        120,822


$         (28,157)


$          28,809



EQUINIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)







Assets

September 30,


December 31,




2014


2013







Cash and cash equivalents

$        354,181


$       261,894

Short-term investments

130,859


369,808

Accounts receivable, net

275,264


184,840

Other current assets

97,407


72,118


Total current assets

857,711


888,660

Long-term investments

16,075


398,390

Property, plant and equipment, net

4,983,376


4,591,650

Goodwill


1,024,555


1,042,153

Intangible assets, net

157,475


184,182

Other assets

422,808


387,324


Total assets

$     7,462,000


$    7,492,359







Liabilities and Stockholders' Equity










Accounts payable and accrued expenses

$        303,669


$       263,223

Accrued property and equipment

138,956


64,601

Current portion of capital lease and other financing obligations

20,132


17,214

Current portion of mortgage and loans payable

57,767


53,508

Other current liabilities

147,676


147,958


Total current liabilities

668,200


546,504

Capital lease and other financing obligations, less current portion

1,172,356


914,032

Mortgage and loans payable, less current portion

160,643


199,700

Senior notes

2,250,000


2,250,000

Convertible debt

322,757


724,202

Other liabilities

290,364


274,955


Total liabilities

4,864,320


4,909,393







Redeemable non-controlling interests

-


123,902







Common stock

54


50

Additional paid-in capital

2,870,752


2,693,887

Treasury stock

(94,759)


(84,663)

Accumulated other comprehensive loss

(237,480)


(113,767)

Retained earnings (accumulated deficit)

59,113


(36,443)


Total stockholders' equity

2,597,680


2,459,064








Total liabilities, redeemable non-controlling interests





and stockholders' equity

$     7,462,000


$    7,492,359



















Ending headcount by geographic region is as follows:











Americas headcount

2,111


1,984


EMEA headcount

983


899


Asia-Pacific headcount

696


617



Total headcount

3,790


3,500



EQUINIX, INC.

SUMMARY OF DEBT OUTSTANDING

(in thousands)

(unaudited)








September 30,


December 31,



2014


2013






Capital lease and other financing obligations

$     1,192,488


$       931,246






U.S. term loan

110,000


140,000

ALOG financings

59,317


67,882

Mortgage payable

39,052


43,497

Other loans payable

10,041


1,829


Total mortgage and loans payable

218,410


253,208






Senior notes

2,250,000


2,250,000






Convertible debt, net of debt discount

322,757


724,202

Plus: debt discount

13,905


45,508


Total convertible debt principal

336,662


769,710






Total debt outstanding

$     3,997,560


$    4,204,164



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,






2014


2014


2013


2014


2013















Cash flows from operating activities:











Net income (loss)

$          42,961


$  10,079


$          42,753


$          94,377


$          50,750


Adjustments to reconcile net income (loss) to net cash











provided by operating activities:












Depreciation, amortization and accretion

121,349


116,074


105,534


351,033


324,326



Stock-based compensation

27,662


33,830


27,280


86,473


75,310



Debt issuance costs and debt discount

3,714


4,717


5,965


14,840


17,602



Loss on debt extinguishment 

-


51,183


-


51,183


93,602



Restructuring charges

-


-


-


-


(4,837)



Excess tax benefits from employee equity awards

(5,825)


(1,614)


(4,951)


(17,457)


(27,372)



Other reconciling items

5,957


7,455


4,595


18,704


11,629



Changes in operating assets and liabilities:













Accounts receivable

(50,889)


(24,510)


3,469


(104,394)


(40,292)




Income taxes, net

23,340


(76,764)


3,989


(69,173)


(71,567)




Accounts payable and accrued expenses

34,778


(23,002)


17,003


20,606


17,399




Other assets and liabilities

13,394


1,516


925


40,931


(8,648)





Net cash provided by operating activities

216,441


98,964


206,562


487,123


437,902

Cash flows from investing activities:











Purchases, sales and maturities of investments, net

148,789


250,737


(89,219)


621,180


(497,777)


Purchase of New York IBX data center

-


-


(70,481)


-


(73,441)


Purchase of Asia Tone, less cash acquired

-


-


862


-


755


Purchases of real estate

-


-


(2,244)


(16,791)


(2,244)


Purchases of other property, plant and equipment

(156,003)


(159,816)


(171,035)


(421,726)


(369,565)


Other investing activities

898


582


1,159


1,409


6,321





Net cash provided by (used in) investing activities

(6,316)


91,503


(330,958)


184,072


(935,951)

Cash flows from financing activities:











Purchases of treasury stock

(42,575)


(208,263)


-


(297,958)


-


Proceeds from employee equity awards

12,362


1,434


12,202


28,183


28,082


Purchase of redeemable non-controlling interests

(226,276)


-


-


(226,276)


-


Proceeds from senior notes

-


-


-


-


1,500,000


Repayment of capital lease and other financing obligations

(3,857)


(5,033)


(4,553)


(13,140)


(12,226)


Repayment of mortgage and loans payable

(10,416)


(16,777)


(10,113)


(37,510)


(42,304)


Repayment of senior notes

-


-


-


-


(750,000)


Repayment of convertible debt

-


(29,479)


-


(29,479)


-


Debt extinguishment costs

-


(22,552)


(3,750)


(22,552)


(84,675)


Debt issuance costs

-


-


(1,649)


-


(22,435)


Excess tax benefits from employee equity awards

5,825


1,614


4,951


17,457


27,372


Other financing activities

8,698


128


1,734


8,826


1,734





Net cash provided by (used in) financing activities

(256,239)


(278,928)


(1,178)


(572,449)


645,548

Effect of foreign currency exchange rates on cash and cash equivalents

(8,039)


1,621


7,820


(6,459)


30

Net increase (decrease) in cash and cash equivalents

(54,153)


(86,840)


(117,754)


92,287


147,529

Cash and cash equivalents at beginning of period

408,334


495,174


517,496


261,894


252,213

Cash and cash equivalents at end of period

$        354,181


$408,334


$        399,742


$        354,181


$        399,742
















Supplemental cash flow information:












Cash paid for taxes

$            5,506


$  75,371


$            9,882


$        110,790


$          86,736



Cash paid for interest

$          45,833


$  79,517


$          39,037


$        167,735


$        135,317















Free cash flow (1)


$          61,336


$ (60,270)


$         (35,177)


$          50,015


$             (272)















Adjusted free cash flow (2)

$          74,812


$  12,119


$          50,855


$        190,306


$        174,225















Ongoing capital expenditures (3)

$          45,549


$  63,581


$          41,064


$        154,044


$        115,271















Discretionary free cash flow (4)

$        170,892


$  35,383


$        165,498


$        333,079


$        322,631















Adjusted discretionary free cash flow (5)

$        184,368


$107,772


$        179,667


$        456,579


$        422,198





























(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

$        216,441


$  98,964


$        206,562


$        487,123


$        437,902


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

(6,316)


91,503


(330,958)


184,072


(935,951)


Purchases, sales and maturities of investments, net

(148,789)


(250,737)


89,219


(621,180)


497,777



Free cash flow (negative free cash flow)

$          61,336


$ (60,270)


$         (35,177)


$          50,015


$             (272)















(2)

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
















Free cash flow (as defined above)

$          61,336


$ (60,270)


$         (35,177)


$          50,015


$             (272)


Less purchase of New York IBX data center

-


-


70,481


-


73,441


Less purchase of Asia Tone, less cash acquired

-


-


(862)


-


(755)


Less purchase of real estate

-


-


2,244


16,791


2,244


Less excess tax benefits from employee equity awards

5,825


1,614


4,951


17,457


27,372


Less cash paid for taxes resulting from the planned REIT conversion 

978


61,873


805


80,678


58,109


Less costs related to the planned REIT conversion

6,673


8,902


8,413


25,365


14,086



Adjusted free cash flow

$          74,812


$  12,119


$          50,855


$        190,306


$        174,225
















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

$              978


$  61,873


$              805


$          80,678


$          58,109


Other cash taxes paid

4,528


13,498


9,077


30,112


28,627



Total cash paid for taxes

$            5,506


$  75,371


$            9,882


$        110,790


$          86,736















(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

$          45,549


$  63,581


$          41,064


$        154,044


$        115,271


Expansion capital expenditures

110,454


96,235


129,971


267,682


254,294



Total capital expenditures

$        156,003


$159,816


$        171,035


$        421,726


$        369,565















(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

$        216,441


$  98,964


$        206,562


$        487,123


$        437,902


Less ongoing capital expenditures

(45,549)


(63,581)


(41,064)


(154,044)


(115,271)



Discretionary free cash flow

$        170,892


$  35,383


$        165,498


$        333,079


$        322,631















(5)

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
















Discretionary free cash flow (as defined above)

$        170,892


$  35,383


$        165,498


$        333,079


$        322,631


Excess tax benefits from employee equity awards

5,825


1,614


4,951


17,457


27,372


Cash paid for taxes resulting from the planned REIT conversion 

978


61,873


805


80,678


58,109


Costs related to the planned REIT conversion

6,673


8,902


8,413


25,365


14,086



Adjusted discretionary free cash flow

$        184,368


$107,772


$        179,667


$        456,579


$        422,198



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,





2014


2014


2013


2014


2013














Recurring revenues


$        588,437


$574,158


$        515,566


$     1,712,298


$     1,511,902

Non-recurring revenues


32,004


31,003


27,518


93,357


76,187


Revenues (1)


620,441


605,161


543,084


1,805,655


1,588,089














Cash cost of revenues (2)

196,458


190,901


174,111


571,607


504,542




Cash gross profit (3)

423,983


414,260


368,973


1,234,048


1,083,547














Cash operating expenses (4):











Cash sales and marketing expenses (5)

58,434


58,785


48,172


173,018


140,882


Cash general and administrative expenses (6)

81,688


80,198


72,356


241,504


205,297




Total cash operating expenses (7)

140,122


138,983


120,528


414,522


346,179














Adjusted EBITDA (8)


$        283,861


$275,277


$        248,445


$        819,526


$        737,368














Cash gross margins (9)

68%


68%


68%


68%


68%














Adjusted EBITDA margins (10)

46%


45%


46%


45%


46%














Adjusted EBITDA flow-through rate (11)

56%


59%


3%


35%


40%



























(1)

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























Americas Revenues:
























Colocation


$        244,979


$242,873


$        230,583


$        724,466


$        680,158


Interconnection


69,512


66,451


61,984


200,265


179,990


Managed infrastructure

15,214


14,885


12,905


43,211


39,619


Rental



978


943


818


2,873


1,723



Recurring revenues

330,683


325,152


306,290


970,815


901,490


Non-recurring revenues

16,729


17,104


13,123


48,886


37,183



Revenues

347,412


342,256


319,413


1,019,701


938,673















EMEA Revenues:
























Colocation


130,873


127,132


108,906


380,181


313,354


Interconnection


13,163


12,329


9,233


36,858


26,468


Managed infrastructure

7,179


7,434


6,215


21,478


16,198


Rental



1,588


1,730


116


5,036


374



Recurring revenues

152,803


148,625


124,470


443,553


356,394


Non-recurring revenues

8,777


8,537


8,784


26,619


23,838



Revenues

161,580


157,162


133,254


470,172


380,232















Asia-Pacific Revenues:
























Colocation


86,613


82,655


69,080


245,101


207,975


Interconnection


12,973


12,189


10,433


36,520


29,536


Managed infrastructure

5,364


5,537


5,293


16,308


16,507



Recurring revenues

104,951


100,381


84,806


297,930


254,018


Non-recurring revenues

6,498


5,362


5,611


17,852


15,166



Revenues

111,449


105,743


90,417


315,782


269,184















Worldwide Revenues:
























Colocation


462,465


452,660


408,569


1,349,748


1,201,487


Interconnection


95,648


90,969


81,650


273,643


235,994


Managed infrastructure

27,757


27,856


24,413


80,997


72,324


Rental



2,566


2,673


934


7,909


2,097



Recurring revenues

588,437


574,158


515,566


1,712,298


1,511,902


Non-recurring revenues

32,004


31,003


27,518


93,357


76,187



Revenues

$        620,441


$605,161


$        543,084


$     1,805,655


$     1,588,089














(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

$        304,052


$292,859


$        268,960


$        884,436


$        794,660


Depreciation, amortization and accretion expense

(105,449)


(99,730)


(92,579)


(306,586)


(284,452)


Stock-based compensation expense

(2,145)


(2,228)


(2,270)


(6,243)


(5,666)



Cash cost of revenues

$        196,458


$190,901


$        174,111


$        571,607


$        504,542















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























Americas cash cost of revenues

$          97,775


$  94,684


$          92,882


$        283,496


$        270,496


EMEA cash cost of revenues

59,593


58,727


47,924


176,436


138,857


Asia-Pacific cash cost of revenues

39,090


37,490


33,305


111,675


95,189



Cash cost of revenues

$        196,458


$190,901


$        174,111


$        571,607


$        504,542














(3)

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














(4)

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














(5)

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















Sales and marketing expenses

$          72,185


$  75,254


$          61,619


$        214,867


$        179,373


Depreciation and amortization expense

(6,495)


(8,526)


(6,197)


(19,650)


(18,695)


Stock-based compensation expense

(7,256)


(7,943)


(7,250)


(22,199)


(19,796)



Cash sales and marketing expenses

$          58,434


$  58,785


$          48,172


$        173,018


$        140,882














(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

$        109,354


$111,675


$          96,874


$        324,332


$        276,324


Depreciation and amortization expense

(9,405)


(7,818)


(6,758)


(24,797)


(21,179)


Stock-based compensation expense

(18,261)


(23,659)


(17,760)


(58,031)


(49,848)



Cash general and administrative expenses

$          81,688


$  80,198


$          72,356


$        241,504


$        205,297














(7)

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















Cash sales and marketing expenses

$          58,434


$  58,785


$          48,172


$        173,018


$        140,882


Cash general and administrative expenses

81,688


80,198


72,356


241,504


205,297



Cash SG&A

$        140,122


$138,983


$        120,528


$        414,522


$        346,179















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















Americas cash SG&A

$          89,562


$  89,447


$          76,227


$        268,442


$        219,065


EMEA cash SG&A

32,201


33,084


28,191


95,394


84,818


Asia-Pacific cash SG&A

18,359


16,452


16,110


50,686


42,296



Cash SG&A

$        140,122


$138,983


$        120,528


$        414,522


$        346,179














(8)

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















Income from operations

$        135,131


$124,697


$        115,193


$        381,440


$        335,943


Depreciation, amortization and accretion expense

121,349


116,074


105,534


351,033


324,326


Stock-based compensation expense

27,662


33,830


27,280


86,473


75,310


Acquisition costs

(281)


676


438


580


6,626



Adjusted EBITDA

$        283,861


$275,277


$        248,445


$        819,526


$        737,368















The geographic split of our adjusted EBITDA is presented below:















Americas income from operations

$          72,614


$  67,739


$          70,691


$        212,088


$        203,743


Americas depreciation, amortization and accretion expense

66,594


62,481


58,939


188,008


187,384


Americas stock-based compensation expense

21,148


27,177


20,591


67,118


57,203


Americas acquisition costs

(281)


728


83


549


5,619



Americas adjusted EBITDA

160,075


158,125


150,304


467,763


449,112















EMEA income from operations

38,848


34,067


28,685


102,818


75,034


EMEA depreciation, amortization and accretion expense

27,650


27,901


24,503


85,453


70,998


EMEA stock-based compensation expense

3,288


3,385


3,596


9,990


9,699


EMEA acquisition costs

-


(2)


355


81


826



EMEA adjusted EBITDA

69,786


65,351


57,139


198,342


156,557















Asia-Pacific income from operations

23,669


22,891


15,817


66,534


57,166


Asia-Pacific depreciation, amortization and accretion expense

27,105


25,692


22,092


77,572


65,944


Asia-Pacific stock-based compensation expense

3,226


3,268


3,093


9,365


8,408


Asia-Pacific acquisition costs

-


(50)


-


(50)


181



Asia-Pacific adjusted EBITDA

54,000


51,801


41,002


153,421


131,699

















Adjusted EBITDA

$        283,861


$275,277


$        248,445


$        819,526


$        737,368














(9)

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















Our cash gross margins by geographic region is presented below:















Americas cash gross margins

72%


72%


71%


72%


71%















EMEA cash gross margins

63%


63%


64%


62%


63%















Asia-Pacific cash gross margins

65%


65%


63%


65%


65%














(10)

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















Americas adjusted EBITDA margins

46%


46%


47%


46%


48%















EMEA adjusted EBITDA margins

43%


42%


43%


42%


41%















Asia-Pacific adjusted EBITDA margins

48%


49%


45%


49%


49%














(11)

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


























Adjusted EBITDA - current period

$        283,861


$275,277


$        248,445


$        819,526


$        737,368


Less adjusted EBITDA - prior period

(275,277)


(260,388)


(248,035)


(760,010)


(681,122)



Adjusted EBITDA growth

$            8,584


$  14,889


$              410


$          59,516


$          56,246















Revenues - current period

$        620,441


$605,161


$        543,084


$     1,805,655


$     1,588,089


Less revenues - prior period

(605,161)


(580,053)


(528,871)


(1,636,632)


(1,446,424)



Revenue growth

$          15,280


$  25,108


$          14,213


$        169,023


$        141,665















Adjusted EBITDA flow-through rate

56%


59%


3%


35%


40%

Logo - http://photos.prnewswire.com/prnh/20140102/MM39832LOGO

SOURCE Equinix, Inc.