Equinix Reports Second Quarter 2014 Results - WNEM TV 5

Equinix Reports Second Quarter 2014 Results

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SOURCE Equinix

-- Reported revenues of $605.2 million, a 4% increase over the previous quarter and a 14% increase over the same quarter last year

-- Raising 2014 annual guidance for revenues to range between $2,425.0 and $2,435.0 million and adjusted EBITDA to range between $1,105.0 and $1,115.0 million

REDWOOD CITY, Calif., July 30, 2014 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), a global interconnection and data center company, today reported quarterly results for the quarter ended June 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 $605.2 million for the second quarter, a 4% 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 $574.2 million for the second quarter, a 4% increase over the previous quarter and a 14% increase over the same quarter last year.  Non-recurring revenues were $31.0 million for the quarter.  Due to a lengthening of the estimated period that non-recurring installation fees are recognized, non-recurring revenues were reduced by $1.8 million for the second quarter and a total estimated revenue reduction of approximately $5.3 million for the full year 2014, a change in accounting estimate that the Company applied on a prospective basis beginning in the second quarter.  MRR churn for the second quarter was 2.7%, an increase from the previous quarter but lower than prior guidance.

"We are very pleased to have delivered both revenue and adjusted EBITDA above the top end of our guidance ranges with record bookings," said Steve Smith, president and CEO of Equinix. "This quarter we passed a major milestone of having over 1,000 networks available around the globe.  Our network density – combined with over 1,200 cloud and IT services providers – is at the heart of value creation for Platform Equinix creating business ecosystems in the cloud, financial, and content and digital media markets." 

Cost of revenues were $292.9 million for the second quarter, a 2% increase over the previous quarter and a 10% increase from the same quarter last year.  Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $102.0 million for the quarter, which we refer to as cash cost of revenues, were $190.9 million for the quarter, a 4% increase over the previous quarter and a 13% increase over the same quarter last year.  Gross margins for the quarter were 52%, up from 50% for the previous quarter and 49% 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 $186.9 million for the second quarter, a 9% increase over the previous quarter and a 26% increase over the same quarter last year.  Selling, general and administrative expenses, excluding depreciation, amortization, accretion and stock-based compensation of $47.9 million for the quarter, which we refer to as cash selling, general and administrative expenses, were $139.0 million for the quarter, a 3% increase over the previous quarter and a 24% increase over the same quarter last year. 

Interest expense was $66.9 million for the second quarter, a 3% decrease from the previous quarter and a 10% increase over the same quarter last year, primarily attributed to additional financings such as various capital lease and other financing obligations to support the Company's expansion projects.  The Company recorded an income tax benefit of $2.0 million for the second quarter as compared to an income tax benefit of $9.7 million in the same quarter last year.

During the second quarter, the Company entered into agreements with certain note holders to exchange $215.8 million of the principal amount of its 4.75% convertible subordinated notes for approximately 2.4 million shares of the Company's common stock and cash payments of approximately $51.7 million.  The Company also entered into an agreement with a note holder to exchange $217.2 million of the principal amount of its 3.00% convertible subordinated notes for approximately 1.9 million shares of the Company's common stock and a cash payment of approximately $5.4 million. As a result, the Company recognized a loss on debt extinguishment of $51.2 million in the second quarter upon the exchange of the convertible subordinated notes.  

Net income attributable to Equinix for the second quarter was $11.3 million.  This represents a basic and diluted net income per share attributable to Equinix of $0.22 based on a weighted average share count of 51.3 million and 51.7 million, respectively, for the second quarter of 2014.  This includes a charge to the income statement of $51.2 million for the loss on debt extinguishment related to the exchanges of the convertible subordinated notes.  

Income from operations was $124.7 million for the second quarter, a 3% increase from the previous quarter and an 8% 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 second quarter was $275.3 million, a 6% increase over the previous quarter and an 11% 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 second quarter, were $159.8 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 July 25, 2014. 

The Company generated cash from operating activities of $99.0 million for the second quarter as compared to $171.7 million in the previous quarter and $147.2 million for the same quarter last year. The decrease in cash from operating activities was primarily attributed to tax payments related to both REIT and non-REIT related obligations and cash interest payments during the second quarter.  Cash provided by investing activities was $91.5 million in the second quarter as compared to cash provided by investing activities of $98.9 million in the previous quarter and cash provided by investing activities of $537.5 million in the same quarter last year, primarily attributed to $836.4 million of restricted cash released for the redemption of the $750.0 million 8.125% senior notes.  Cash used in financing activities was $278.9 million for the second quarter, primarily attributed to repurchases of common stock under the share repurchase program and the exchanges of the 3.00% convertible subordinated notes and 4.75% convertible subordinated notes, as compared to cash used in financing activities of $37.3 million in the previous quarter and cash used in financing activities of $850.0 million in the same quarter last year, primarily attributed to the redemption of the $750.0 million 8.125% senior notes.    

As of June 30, 2014, the Company's cash, cash equivalents and investments were $704.3 million, as compared to $1,030.1 million as of December 31, 2013.   

In July 2014, the Company purchased Riverwood Capital L.P.'s interest in ALOG Data Centers do Brasil S.A. ("ALOG"), along with the approximate 10% of ALOG owned by ALOG management, for cash consideration of approximately $225.0 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.

Business Outlook

For the third quarter of 2014, the Company expects revenues to range between $614.0 and $618.0 million.  Cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to approximate $140.0 million.  Adjusted EBITDA is expected to range between $278.0 and $282.0 million, which includes $8.0 million in professional fees and costs primarily related to the REIT conversion.  Capital expenditures are expected to range between $175.0 and $185.0 million, comprised of approximately $25.0 million of recurring capital expenditures and $150.0 to $160.0 million of expansion capital expenditures.  

For the full year of 2014, total revenues are now expected to range between $2,425.0 and $2,435.0 million, or an as-reported 13% year over year growth rate, which includes a positive foreign currency benefit of approximately $6.5 million compared to the rates used from the Company's prior guidance.  Total year cash gross margins are expected to approximate 68% and 69%.  Cash selling, general and administrative expenses are expected to approximate $550.0 million.  Adjusted EBITDA for the year is expected to range between $1,105.0 and $1,115.0 million, which includes a positive foreign currency benefit of approximately $3.0 million compared to the rates used from our prior guidance, and includes $35.0 million in professional fees and costs primarily related to the REIT conversion.  Capital expenditures for 2014 are expected to range between $600.0 and $650.0 million, comprised of approximately $115.0 million of recurring capital expenditures and $485.0 to $535.0 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 $1.36 to the Euro, $1.67 to the Pound, S$1.24 to the U.S. dollar and R$2.22 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 Q2 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, July 30, 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, July 30, 2014, at 7:30 p.m. ET through Thursday, October 30, 2014, by dialing 1-203-369-3450 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


Six Months Ended




June 30,


March 31,


June 30,


June 30,


June 30,




2014


2014


2013


2014


2013













Recurring revenues

$574,158


$549,703


$501,814


$1,123,861


$ 996,336

Non-recurring revenues

31,003


30,350


27,057


61,353


48,669


Revenues

605,161


580,053


528,871


1,185,214


1,045,005













Cost of revenues

292,859


287,525


267,109


580,384


525,700



Gross profit

312,302


292,528


261,762


604,830


519,305













Operating expenses:











Sales and marketing

75,254


67,428


59,478


142,682


117,754


General and administrative

111,675


103,303


88,632


214,978


179,450


Restructuring charges

-


-


(4,837)


-


(4,837)


Acquisition costs

676


185


2,526


861


6,188



Total operating expenses

187,605


170,916


145,799


358,521


298,555













Income from operations

124,697


121,612


115,963


246,309


220,750













Interest and other income (expense):











Interest income

744


1,434


917


2,178


1,664


Interest expense

(66,874)


(68,820)


(61,001)


(135,694)


(121,332)


Loss on debt extinguishment 

(51,183)


-


(93,602)


(51,183)


(93,602)


Other income (expense)

681


678


2,768


1,359


2,309



Total interest and other, net

(116,632)


(66,708)


(150,918)


(183,340)


(210,961)













Income (loss) before income taxes

8,065


54,904


(34,955)


62,969


9,789














Income tax benefit (expense)

2,014


(13,567)


9,668


(11,553)


(1,792)













Net income (loss)

10,079


41,337


(25,287)


51,416


7,997













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

1,249


50


(529)


1,299


(970)













Net income (loss) attributable to Equinix

$  11,328


$  41,387


$ (25,816)


$     52,715


$     7,027













Net income (loss) per share attributable to Equinix:























Basic net income (loss) per share (1)

$     0.22


$     0.83


$    (0.52)


$        1.04


$      0.14














Diluted net income (loss) per share (1)

$     0.22


$     0.81


$    (0.52)


$        1.04


$      0.14














Shares used in computing basic net income (loss) per share

51,332


49,598


49,379


50,470


49,205














Shares used in computing diluted net income (loss) per share

51,652


53,386


49,379


50,884


49,976

























(1)

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













Net income (loss)

$  10,079


$  41,337


$ (25,287)


$     51,416


$     7,997


Net (income) loss attributable to non-controlling interests

1,249


50


(529)


1,299


(970)



Net income (loss) attributable to Equinix, basic 

11,328


41,387


(25,816)


52,715


7,027


Interest on convertible debt

-


1,984


-


-


-



Net income (loss) attributable to Equinix, diluted

$  11,328


$  43,371


$ (25,816)


$     52,715


$     7,027



EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)














Three Months Ended


Six Months Ended



June 30,


March 31,


June 30,


June 30,


June 30,



2014


2014


2013


2014


2013












Net income (loss)

$10,079


$  41,337


$(25,287)


$51,416


$   7,997












Other comprehensive income (loss), net of tax:











 Foreign currency translation gain (loss) 

23,081


14,970


(30,666)


38,051


(103,220)


 Unrealized gain (loss) on available for sale securities 

(73)


839


(458)


766


(360)


 Unrealized gain on cash flow hedges 

54


200


-


254


-

 Other comprehensive income (loss), net of tax: 

23,062


16,009


(31,124)


39,071


(103,580)












 Comprehensive income (loss), net of tax 

33,141


57,346


(56,411)


90,487


(95,583)













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

1,249


50


(529)


1,299


(970)


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

(750)


(2,067)


5,309


(2,817)


4,540












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

$33,640


$  55,329


$(51,631)


$88,969


$(92,013)



EQUINIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)







Assets

June 30,


December 31,




2014


2013







Cash and cash equivalents

$   408,334


$       261,894

Investments

296,015


768,198

Accounts receivable, net

237,831


184,840

Property, plant and equipment, net

4,922,380


4,591,650

Goodwill


1,058,363


1,042,153

Intangible assets, net

170,130


184,182

Other assets

508,764


459,442


Total assets

$7,601,817


$    7,492,359







Liabilities and Stockholders' Equity










Accounts payable and accrued expenses

$   224,109


$       263,223

Accrued property and equipment

82,014


64,601

Capital lease and other financing obligations

1,134,607


931,246

Mortgage and loans payable

230,654


253,208

Senior notes

2,250,000


2,250,000

Convertible debt

320,914


724,202

Other liabilities

449,304


422,913


Total liabilities

4,691,602


4,909,393







Redeemable non-controlling interests

227,156


123,902







Common stock

53


50

Additional paid-in capital

2,797,186


2,693,887

Treasury stock

(52,938)


(84,663)

Accumulated other comprehensive loss

(77,514)


(113,767)

Retained earnings (accumulated deficit)

16,272


(36,443)


Total stockholders' equity

2,683,059


2,459,064








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

$7,601,817


$    7,492,359













Ending headcount by geographic region is as follows:











Americas headcount

2,059


1,984


EMEA headcount

945


899


Asia-Pacific headcount

655


617



Total headcount

3,659


3,500



EQUINIX, INC.

SUMMARY OF DEBT OUTSTANDING

(in thousands)

(unaudited)








June 30,


December 31,



2014


2013






Capital lease and other financing obligations

$  1,134,607


$       931,246






U.S. term loan

120,000


140,000

ALOG financings

65,972


67,882

Mortgage payable

42,634


43,497

Other loans payable

2,048


1,829


Total mortgage and loans payable

230,654


253,208






Senior notes

2,250,000


2,250,000






Convertible debt, net of debt discount

320,914


724,202

Plus: debt discount

15,762


45,508


Total convertible debt principal

336,676


769,710






Total debt outstanding

$  3,951,937


$    4,204,164



EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)




















Three Months Ended


Six Months Ended



June 30,


March 31,


June 30,


June 30,


June 30,






2014


2014


2013


2014


2013















Cash flows from operating activities:











Net income (loss)

$  10,079


$  41,337


$ (25,287)


$  51,416


$     7,997


Adjustments to reconcile net income (loss) to net cash











provided by operating activities:












Depreciation, amortization and accretion

116,074


113,610


110,189


229,684


218,792



Stock-based compensation

33,830


24,981


24,194


58,811


48,030



Debt issuance costs and debt discount

4,717


6,409


5,884


11,126


11,637



Loss on debt extinguishment 

51,183


-


93,602


51,183


93,602



Restructuring charges

-


-


(4,837)


-


(4,837)



Excess tax benefits from employee equity awards

(1,614)


(10,018)


(3,431)


(11,632)


(22,421)



Other reconciling items

7,455


5,292


3,949


12,747


7,034



Changes in operating assets and liabilities:













Accounts receivable

(24,510)


(28,995)


(19,098)


(53,505)


(43,761)




Income taxes, net

(76,764)


(15,749)


(73,209)


(92,513)


(75,556)




Accounts payable and accrued expenses

(16,498)


8,830


28,392


(7,668)


396




Other assets and liabilities

(4,988)


26,021


6,811


21,033


(9,573)





Net cash provided by operating activities

98,964


171,718


147,159


270,682


231,340

Cash flows from investing activities:











Purchases, sales and maturities of investments, net

250,737


221,654


(175,593)


472,391


(408,558)


Purchase of Asia Tone, less cash acquired

-


-


-


-


(107)


Purchase of real estate

-


(16,791)


(2,960)


(16,791)


(2,960)


Purchases of other property, plant and equipment

(159,816)


(105,907)


(122,863)


(265,723)


(198,530)


Other investing activities

582


(71)


838,963


511


5,162





Net cash provided by (used in) investing activities

91,503


98,885


537,547


190,388


(604,993)

Cash flows from financing activities:











Purchases of treasury stock

(208,263)


(47,120)


-


(255,383)


-


Proceeds from employee equity awards

1,434


14,387


1,512


15,821


15,880


Proceeds from senior notes

-


-


-


-


1,500,000


Repayment of capital lease and other financing obligations

(5,033)


(4,250)


(4,157)


(9,283)


(7,673)


Repayment of mortgage and loans payable

(16,777)


(10,317)


(18,139)


(27,094)


(32,191)


Repayment of senior notes

-


-


(750,000)


-


(750,000)


Repayment of convertible debt

(29,479)


-


-


(29,479)


-


Debt extinguishment costs

(22,552)


-


(80,925)


(22,552)


(80,925)


Excess tax benefits from employee equity awards

1,614


10,018


3,431


11,632


22,421


Other financing activities

128


-


(1,756)


128


(20,786)





Net cash provided by (used in) financing activities

(278,928)


(37,282)


(850,034)


(316,210)


646,726

Effect of foreign currency exchange rates on cash and cash equivalents

1,621


(41)


(2,195)


1,580


(7,790)

Net increase (decrease) in cash and cash equivalents

(86,840)


233,280


(167,523)


146,440


265,283

Cash and cash equivalents at beginning of period

495,174


261,894


685,019


261,894


252,213

Cash and cash equivalents at end of period

$408,334


$495,174


$517,496


$408,334


$ 517,496
















Supplemental cash flow information:












Cash paid for taxes

$  75,371


$  29,913


$  62,818


$105,284


$   76,854



Cash paid for interest

$  79,517


$  42,385


$  29,440


$121,902


$   96,280















Free cash flow (1)


$ (60,270)


$  48,949


$860,299


$ (11,321)


$   34,905















Adjusted free cash flow (2)

$  12,119


$103,375


$923,876


$115,494


$ 123,370















Ongoing capital expenditures (3)

$  63,581


$  44,914


$  40,210


$108,495


$   74,207















Discretionary free cash flow (4)

$  35,383


$126,804


$106,949


$162,187


$ 157,133















Adjusted discretionary free cash flow (5)

$107,772


$164,439


$167,566


$272,211


$ 242,531





























(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

$  98,964


$171,718


$147,159


$270,682


$ 231,340


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

91,503


98,885


537,547


190,388


(604,993)


Purchases, sales and maturities of investments, net

(250,737)


(221,654)


175,593


(472,391)


408,558



Free cash flow (negative free cash flow)

$ (60,270)


$  48,949


$860,299


$ (11,321)


$   34,905















(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)

$ (60,270)


$  48,949


$860,299


$ (11,321)


$   34,905


Less purchase of Asia Tone, less cash acquired

-


-


-


-


107


Less purchase of real estate

-


16,791


2,960


16,791


2,960


Less excess tax benefits from employee equity awards

1,614


10,018


3,431


11,632


22,421


Less cash paid for taxes resulting from the planned REIT conversion 

61,873


17,827


53,570


79,700


57,304


Less costs related to the planned REIT conversion

8,902


9,790


3,616


18,692


5,673



Adjusted free cash flow

$  12,119


$103,375


$923,876


$115,494


$ 123,370
















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

$  61,873


$  17,827


$  53,570


$  79,700


$   57,304


Other cash taxes paid

13,498


12,086


9,248


25,584


19,550



Total cash paid for taxes

$  75,371


$  29,913


$  62,818


$105,284


$   76,854















(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

$  63,581


$  44,914


$  40,210


$108,495


$   74,207


Expansion capital expenditures

96,235


60,993


82,653


157,228


124,323



Total capital expenditures

$159,816


$105,907


$122,863


$265,723


$ 198,530















(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

$  98,964


$171,718


$147,159


$270,682


$ 231,340


Less ongoing capital expenditures

(63,581)


(44,914)


(40,210)


(108,495)


(74,207)



Discretionary free cash flow

$  35,383


$126,804


$106,949


$162,187


$ 157,133















(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)

$  35,383


$126,804


$106,949


$162,187


$ 157,133


Excess tax benefits from employee equity awards

1,614


10,018


3,431


11,632


22,421


Cash paid for taxes resulting from the planned REIT conversion 

61,873


17,827


53,570


79,700


57,304


Costs related to the planned REIT conversion

8,902


9,790


3,616


18,692


5,673



Adjusted discretionary free cash flow

$107,772


$164,439


$167,566


$272,211


$ 242,531



EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP PRESENTATION

(in thousands)

(unaudited)


















Three Months Ended


Six Months Ended





June 30,


March 31,


June 30,


June 30,


June 30,





2014


2014


2013


2014


2013














Recurring revenues


$574,158


$549,703


$501,814


$1,123,861


$   996,336

Non-recurring revenues


31,003


30,350


27,057


61,353


48,669


Revenues (1)


605,161


580,053


528,871


1,185,214


1,045,005














Cash cost of revenues (2)

190,901


184,248


168,421


375,149


330,431




Cash gross profit (3)

414,260


395,805


360,450


810,065


714,574














Cash operating expenses (4):











Cash sales and marketing expenses (5)

58,785


55,799


46,430


114,584


92,710


Cash general and administrative expenses (6)

80,198


79,618


65,985


159,816


132,941




Total cash operating expenses (7)

138,983


135,417


112,415


274,400


225,651














Adjusted EBITDA (8)


$275,277


$260,388


$248,035


$   535,665


$   488,923














Cash gross margins (9)

68%


68%


68%


68%


68%














Adjusted EBITDA margins (10)

45%


45%


47%


45%


47%














Adjusted EBITDA flow-through rate (11)

59%


(20%)


56%


31%


45%



























(1)

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















Americas Revenues:
























Colocation


$242,873


$236,614


$226,290


$   479,487


$   449,575


Interconnection


66,451


64,302


59,800


130,753


118,006


Managed infrastructure

14,885


13,112


13,567


27,997


26,714


Rental



943


952


445


1,895


905



Recurring revenues

325,152


314,980


300,102


640,132


595,200


Non-recurring revenues

17,104


15,053


13,366


32,157


24,060



Revenues

342,256


330,033


313,468


672,289


619,260















EMEA Revenues:
























Colocation


127,132


122,176


103,916


249,308


204,448


Interconnection


12,329


11,366


8,854


23,695


17,235


Managed infrastructure

7,434


6,865


5,734


14,299


9,983


Rental



1,730


1,718


138


3,448


258



Recurring revenues

148,625


142,125


118,642


290,750


231,924


Non-recurring revenues

8,537


9,305


8,367


17,842


15,054



Revenues

157,162


151,430


127,009


308,592


246,978















Asia-Pacific Revenues:
























Colocation


82,655


75,833


67,881


158,488


138,895


Interconnection


12,189


11,358


9,699


23,547


19,103


Managed infrastructure

5,537


5,407


5,490


10,944


11,214



Recurring revenues

100,381


92,598


83,070


192,979


169,212


Non-recurring revenues

5,362


5,992


5,324


11,354


9,555



Revenues

105,743


98,590


88,394


204,333


178,767















Worldwide Revenues:
























Colocation


452,660


434,623


398,087


887,283


792,918


Interconnection


90,969


87,026


78,353


177,995


154,344


Managed infrastructure

27,856


25,384


24,791


53,240


47,911


Rental



2,673


2,670


583


5,343


1,163



Recurring revenues

574,158


549,703


501,814


1,123,861


996,336


Non-recurring revenues

31,003


30,350


27,057


61,353


48,669



Revenues

$605,161


$580,053


$528,871


$1,185,214


$1,045,005














(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

$292,859


$287,525


$267,109


$   580,384


$   525,700


Depreciation, amortization and accretion expense

(99,730)


(101,407)


(96,894)


(201,137)


(191,873)


Stock-based compensation expense

(2,228)


(1,870)


(1,794)


(4,098)


(3,396)



Cash cost of revenues

$190,901


$184,248


$168,421


$   375,149


$   330,431















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























Americas cash cost of revenues

$  94,684


$  91,037


$  89,890


$   185,721


$   177,614


EMEA cash cost of revenues

58,727


58,116


47,304


116,843


90,933


Asia-Pacific cash cost of revenues

37,490


35,095


31,227


72,585


61,884



Cash cost of revenues

$190,901


$184,248


$168,421


$   375,149


$   330,431














(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

$  75,254


$  67,428


$  59,478


$   142,682


$   117,754


Depreciation and amortization expense

(8,526)


(4,629)


(6,223)


(13,155)


(12,498)


Stock-based compensation expense

(7,943)


(7,000)


(6,825)


(14,943)


(12,546)



Cash sales and marketing expenses

$  58,785


$  55,799


$  46,430


$   114,584


$     92,710














(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

$111,675


$103,303


$  88,632


$   214,978


$   179,450


Depreciation and amortization expense

(7,818)


(7,574)


(7,072)


(15,392)


(14,421)


Stock-based compensation expense

(23,659)


(16,111)


(15,575)


(39,770)


(32,088)



Cash general and administrative expenses

$  80,198


$  79,618


$  65,985


$   159,816


$   132,941














(7)

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

















Cash sales and marketing expenses

$  58,785


$  55,799


$  46,430


$   114,584


$     92,710


Cash general and administrative expenses

80,198


79,618


65,985


159,816


132,941



Cash SG&A

$138,983


$135,417


$112,415


$   274,400


$   225,651















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





















Americas cash SG&A

$  89,447


$  89,433


$  69,287


$   178,880


$   142,838


EMEA cash SG&A

33,084


30,109


29,016


63,193


56,627


Asia-Pacific cash SG&A

16,452


15,875


14,112


32,327


26,186



Cash SG&A

$138,983


$135,417


$112,415


$   274,400


$   225,651














(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

$124,697


$121,612


$115,963


$   246,309


$   220,750


Depreciation, amortization and accretion expense

116,074


113,610


110,189


229,684


218,792


Stock-based compensation expense

33,830


24,981


24,194


58,811


48,030


Acquisition costs

676


185


2,526


861


6,188



Adjusted EBITDA

$275,277


$260,388


$248,035


$   535,665


$   488,923















The geographic split of our adjusted EBITDA is presented below:
























Americas income from operations

$  67,739


$  71,735


$  73,673


$   139,474


$   133,052


Americas depreciation, amortization and accretion expense

62,481


58,933


65,149


121,414


128,445


Americas stock-based compensation expense

27,177


18,793


18,168


45,970


36,612


Americas acquisition costs

728


102


2,138


830


5,536



Americas adjusted EBITDA

158,125


149,563


154,291


307,688


298,808















EMEA income from operations

34,067


29,903


23,811


63,970


46,349


EMEA depreciation, amortization and accretion expense

27,901


29,902


23,424


57,803


46,495


EMEA stock-based compensation expense

3,385


3,317


3,065


6,702


6,103


EMEA acquisition costs

(2)


83


389


81


471



EMEA adjusted EBITDA

65,351


63,205


50,689


128,556


99,418















Asia-Pacific income from operations

22,891


19,974


18,479


42,865


41,349


Asia-Pacific depreciation, amortization and accretion expense

25,692


24,775


21,616


50,467


43,852


Asia-Pacific stock-based compensation expense

3,268


2,871


2,961


6,139


5,315


Asia-Pacific acquisition costs

(50)


-


(1)


(50)


181



Asia-Pacific adjusted EBITDA

51,801


47,620


43,055


99,421


90,697

















Adjusted EBITDA

$275,277


$260,388


$248,035


$   535,665


$   488,923














(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%


62%


63%


62%


63%















Asia-Pacific cash gross margins

65%


64%


65%


64%


65%














(10)

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

















Americas adjusted EBITDA margins

46%


45%


49%


46%


48%















EMEA adjusted EBITDA margins

42%


42%


40%


42%


40%















Asia-Pacific adjusted EBITDA margins

49%


48%


49%


49%


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

$275,277


$260,388


$248,035


$   535,665


$   488,923


Less adjusted EBITDA - prior period

(260,388)


(263,530)


(240,888)


(511,975)


(464,702)



Adjusted EBITDA growth

$  14,889


$   (3,142)


$    7,147


$     23,690


$     24,221















Revenues - current period

$605,161


$580,053


$528,871


$1,185,214


$1,045,005


Less revenues - prior period

(580,053)


(564,677)


(516,134)


(1,107,761)


(990,894)



Revenue growth

$  25,108


$  15,376


$  12,737


$     77,453


$     54,111















Adjusted EBITDA flow-through rate

59%


(20%)


56%


31%


45%

 

Equinix.

 

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