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Press release from Business Wire

Equinix Reports Second Quarter 2013 Results

<ul> <li class='bwlistitemmargb'> <b>Reported revenues of $525.7 million, a 1% increase over the previous quarter and a 15% increase over the same quarter last year, and includes the negative impact of a $5.8 million accounting change related to non-recurring installation fees</b> </li> <li class='bwlistitemmargb'> <b>Eclipses 120,000 cross-connects on a strong global interconnection quarter</b> </li> <li class='bwlistitemmargb'> <b>Tempers revenue acceleration in second half of 2013</b> </li> </ul>

Wednesday, July 24, 2013

Equinix Reports Second Quarter 2013 Results

16:01 EDT Wednesday, July 24, 2013

REDWOOD CITY, Calif. (Business Wire) -- Equinix, Inc. (Nasdaq: EQIX), a provider of global data center services, today reported quarterly results for the quarter ended June 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 $525.7 million for the second quarter, a 1% increase over the previous quarter and a 15% increase over the same quarter last year and includes a $5.8 million reduction in revenue for the second quarter due to a change in accounting estimate related to non-recurring installation fees. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $502.5 million for the second quarter, a 1% increase over the previous quarter and a 16% increase over the same quarter last year. Non-recurring revenues were $23.2 million in the quarter. Churn for the second quarter was 2.4%, down from 3.7% for the previous quarter and in line with prior guidance.

Non-recurring installation fees, although generally paid in a lump sum upon installation, are deferred and recognized ratably over the expected life of the installation. During the second quarter, the Company reassessed the estimated period that revenue related to non-recurring installation fees is recognized due to its determination that its customers were generally benefitting from their installations longer than originally anticipated. For example, in North America new customer contracts have generally been lengthened from one to two years, to three years or more, which the Company believes extends the overall life of both the installation and the overall customer relationship. As a result of the Company's analysis, the estimated period that revenue related to non-recurring installation fees is recognized has been lengthened to four years, up from two to three years. This change was accounted for as a change in accounting estimate on a prospective basis effective April 1, 2013. The change in the estimated period that revenue related to non-recurring installation fees is recognized, which has resulted in less revenue than would have otherwise been recorded, resulted in a $5.8 million reduction in revenue for the second quarter and a total estimated decrease in non-recurring revenue of $16.0 million for the full year 2013.

“Our strong quarterly results reflect growth in all three regions, with particular strength in the cloud vertical. We are winning smaller, interconnection rich deals that enhance our vertical ecosystems while keeping MRR per cabinet firm through a disciplined approach to pricing and customer mix,” said Steve Smith, president and CEO of Equinix. “We remain confident in our long-term strategy and will execute with discipline while balancing top and bottom line growth.”

Cost of revenues were $267.7 million for the second quarter, a 3% increase over the previous quarter and a 19% increase over the same quarter last year. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $98.6 million, which we refer to as cash cost of revenues, were $169.1 million for the second quarter, a 4% increase from the previous quarter and a 19% increase over the same quarter last year. Gross margins for the quarter were 49%, down from 50% for the previous quarter and down from 51% 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%, down from 69% for the previous quarter and the same quarter last year.

Selling, general and administrative expenses were $148.1 million for the second quarter, a slight increase over the previous quarter and a 16% increase over the same quarter last year. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $35.7 million, which we refer to as cash selling, general and administrative expenses, were $112.4 million for the second quarter, a 1% decrease over the previous quarter and a 15% increase over the same quarter last year.

Interest expense was $61.0 million for the second quarter, a 1% increase from the previous quarter and a 30% increase over the same quarter last year, primarily attributed to the $1.5 billion senior notes offering in March 2013, additional financings such as various capital lease and other financing obligations to support the Company's expansion projects and less capitalized interest expense. The Company recorded an income tax benefit of $10.6 million for the second quarter and income tax expense of $17.1 million in the same quarter last year.

In April 2013, a portion of the proceeds from the $1.5 billion senior notes offering were used to redeem the entire principal amount of the $750.0 million 8.125% senior notes, including $80.9 million paid to settle the “make-whole” payment to the bondholders, which was effectively the interest that would have been earned to the March 1, 2014 call date plus the applicable premium. The Company recorded a loss on debt extinguishment of $93.6 million for the second quarter, which includes the “make-whole” payment, write-off of unamortized debt issuance costs and other transaction-related fees.

Net loss attributable to Equinix for the second quarter was $28.7 million. This represents a basic and diluted net loss per share attributable to Equinix of $0.58 based on a weighted average share count of 49.4 million for the second quarter of 2013. This includes the one-time charge to the income statement of $93.6 million for the loss on debt extinguishment related to the redemption of the $750.0 million 8.125% senior notes.

Income from continuing operations was $112.2 million for the second quarter, a 3% increase from the previous quarter and a 10% 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 second quarter was $244.2 million, a slight increase over the previous quarter and a 12% increase over the same quarter last year.

“We significantly outperformed our adjusted EBITDA targets this quarter and our operating profits continue to improve, increasing the level of cash generated from operations after adjusting for the REIT-related cash costs and taxes,” said Keith Taylor, CFO of Equinix. “We see a clear path to improving adjusted EBITDA margins to support our long-term model, and are balancing growth and profitability as we scale the business.”

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the second quarter, were $122.9 million, of which $82.7 million was attributed to expansion capital expenditures and $40.2 million was attributed to ongoing capital expenditures.

The Company generated cash from operating activities of $147.2 million for the second quarter as compared to $84.2 million in the previous quarter and $194.8 million for the same quarter last year. Cash provided by investing activities was $537.5 million in the second quarter, primarily attributed to the $836.4 million of restricted cash released for the redemption of the $750.0 million 8.125% senior notes, as compared to cash used in investing activities of $1,142.5 million in the previous quarter, primarily attributed to the $836.4 million that was placed into a restricted cash account for the redemption of the $750.0 million 8.125% senior notes, and cash provided by investing activities of $93.9 million for the same quarter last year. Cash used in financing activities was $850.0 million for the second quarter, primarily attributed to the redemption of the $750.0 million 8.125% senior notes, as compared to cash provided by financing activities of $1,496.8 million, primarily attributed to the issuance of the $1.5 billion senior notes, and cash used in financing activities of $264.7 million for the same quarter last year.

As of June 30, 2013, the Company's cash, cash equivalents and investments were $1,216.9 million, as compared to $1,212.1 million as of March 31, 2013.

Business Outlook

For the third quarter of 2013, the Company expects revenues to be in the range of $538.0 to $542.0 million, which includes an approximate $6.0 million impact from the change in accounting estimate related to non-recurring installation fees and negative foreign currency headwinds of approximately $4.0 million. Cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $126.0 and $130.0 million. Adjusted EBITDA is expected to be between $236.0 and $240.0 million, which includes $11.0 million in professional fees primarily related to the REIT conversion. This also includes an approximate $6.0 million impact from the change in accounting estimate related to non-recurring installation fees, and negative foreign currency headwinds of $2.0 million. Capital expenditures are expected to be approximately $180.0 to $200.0 million, comprised of approximately $50.0 million of ongoing capital expenditures and $130.0 to $150.0 million of expansion capital expenditures.

For the full year of 2013, total revenues are expected to range between $2,135.0 million to $2,145.0 million, or an as reported 13% year over year growth rate. This includes an approximate $16.0 million decrease in revenues due to the change in accounting estimate related to our non-recurring installation fees. This is a non-cash change only, the result of a longer estimated life for our customer installations. Full-year guidance is also adjusted for $11.0 million of negative foreign currency headwinds, when compared to the rates used from our prior guidance. On a normalized and constant currency basis, we expect 2013 revenue growth of approximately 15.5% compared to the prior year. Total year cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $465.0 and $475.0 million. Adjusted EBITDA for the year is expected to range between $985.0 and $990.0 million, which includes an approximate $16.0 million impact due to the change in accounting estimate related to our non-recurring installation fees, $6.0 million in incremental professional fees primarily related to the REIT conversion, and adjusting for $5.0 million of negative currency headwinds when compared to the rates used from our prior guidance. Capital expenditures for 2013 are expected to be in the range of $575.0 to $625.0 million, comprised of approximately $165.0 million of ongoing capital expenditures and $410.0 to $460.0 million for expansion capital expenditures.

The U.S. dollar exchange rates used for 2013 guidance have been updated to $1.30 to the Euro, $1.52 to the Pound, S$1.27 to the U.S. dollar and R$2.23 to the U.S. dollar. Updated global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 14%, 8%, 6% 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 24, 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, July 24, 2013, at 7:30 p.m. (ET) through August 23, 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 4,000 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 Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2013 2013 2012 2013 2012
 
Recurring revenues $ 502,470 $ 495,271 $ 433,786 $ 997,741 $ 854,676
Non-recurring revenues   23,199     24,184     23,463     47,383     45,818  
Revenues 525,669 519,455 457,249 1,045,124 900,494
 
Cost of revenues   267,693     259,268     225,289     526,961     442,387  
Gross profit   257,976     260,187     231,960     518,163     458,107  
 
Operating expenses:
Sales and marketing 59,478 58,276 47,603 117,754 94,013
General and administrative 88,632 89,685 80,595 178,317 158,911
Restructuring charges (4,837 ) - - (4,837 ) -
Acquisition costs   2,526     3,662     1,666     6,188     2,341  
Total operating expenses   145,799     151,623     129,864     297,422     255,265  
 
Income from continuing operations   112,177     108,564     102,096     220,741     202,842  
 
Interest and other income (expense):
Interest income 917 747 963 1,664 1,654
Interest expense (61,001 ) (60,331 ) (46,787 ) (121,332 ) (99,605 )
Loss on debt extinguishment (93,602 ) - - (93,602 ) -
Other income (expense)   2,768     (459 )   (1,844 )   2,309     (1,998 )
Total interest and other, net   (150,918 )   (60,043 )   (47,668 )   (210,961 )   (99,949 )
 
Income (loss) from continuing operations before income taxes (38,741 ) 48,521 54,428 9,780 102,893
 
Income tax benefit (expense)   10,612     (12,198 )   (17,138 )   (1,586 )   (30,991 )
 
Net income (loss) from continuing operations (28,129 ) 36,323 37,290 8,194 71,902
 
Net income from discontinued operations, net of tax   -     -     350     -     549  
 
Net income (loss) (28,129 ) 36,323 37,640 8,194 72,451
 
Net income attributable to redeemable non-controlling interests (529 ) (441 ) (1,193 ) (970 ) (1,481 )
         
Net income (loss) attributable to Equinix $ (28,658 ) $ 35,882   $ 36,447   $ 7,224   $ 70,970  
 
Net income (loss) per share attributable to Equinix:
 
Basic net income (loss) per share from continuing operations $ (0.58 ) $ 0.73 $ 0.75 $ 0.15 $ 1.48
Basic net income per share from discontinued operations   -     -     0.01     -     0.01  
Basic net income (loss) per share (1) $ (0.58 ) $ 0.73   $ 0.76   $ 0.15   $ 1.49  
 
Diluted net income (loss) per share from continuing operations $ (0.58 ) $ 0.71 $ 0.72 $ 0.14 $ 1.43
Diluted net income per share from discontinued operations   -     -     0.01     -     0.01  
Diluted net income (loss) per share (2) $ (0.58 ) $ 0.71   $ 0.73   $ 0.14   $ 1.44  
 
Shares used in computing basic net income (loss) per share   49,379     49,029     48,016     49,205     47,485  
 
Shares used in computing diluted net income (loss) per share   49,379     53,480     52,351     49,976     51,633  
       
 
(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 $ (28,129 ) $ 36,323 $ 37,290 $ 8,194 $ 71,902
Net income attributable to non-controlling interests   (529 )   (441 )   (1,193 )   (970 )   (1,481 )
Net income (loss) from continuing operations attributable to Equinix, basic (28,658 ) 35,882 36,097 7,224 70,421
Net income from discontinued operations   -     -     350     -     549  
Net income (loss) attributable to Equinix, basic $ (28,658 ) $ 35,882   $ 36,447   $ 7,224   $ 70,970  
 
(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 $ (28,658 ) $ 35,882 $ 36,097 $ 7,224 $ 70,421
Interest on convertible debt   -     1,851     1,678     -     3,377  
Net income (loss) from continuing operations attributable to Equinix, diluted (28,658 ) 37,733 37,775 7,224 73,798
Net income from discontinued operations   -     -     350     -     549  
Net income (loss) attributable to Equinix, diluted $ (28,658 ) $ 37,733   $ 38,125   $ 7,224   $ 74,347  
 

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,
2013 2013 2012 2013 2012
 
Net income (loss) $ (28,129 ) $ 36,323   $ 37,640   $ 8,194   $ 72,451  
 
Other comprehensive income (loss), net of tax:
Foreign currency translation loss (30,666 ) (72,554 ) (49,207 ) (103,220 ) (14,895 )
Unrealized gain (loss) on available for sale securities   (458 )   98     (177 )   (360 )   (99 )
Other comprehensive loss, net of tax:   (31,124 )   (72,456 )   (49,384 )   (103,580 )   (14,994 )
 
Comprehensive income (loss), net of tax   (59,253 )   (36,133 )   (11,744 )   (95,386 )   57,457  
 
Net income attributable to redeemable non-controlling interests (529 ) (441 ) (1,193 ) (970 ) (1,481 )
Other comprehensive income (loss) attributable to redeemable non-controlling interests   5,309     (769 )   3,974     4,540     2,915  
 
Comprehensive income (loss) attributable to Equinix, net of tax $ (54,473 ) $ (37,343 ) $ (8,963 ) $ (91,816 ) $ 58,891  
 

EQUINIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
         
Assets June 30, December 31,
2013 2012
 
Cash and cash equivalents $ 517,496 $ 252,213
Short-term investments 323,460 166,492
Accounts receivable, net 201,336 163,840
Other current assets   55,317     57,206  
Total current assets 1,097,609 639,751
Long-term investments 375,971 127,819
Property, plant and equipment, net 4,103,344 3,918,999
Goodwill 1,012,102 1,042,564
Intangible assets, net 184,740 201,562
Other assets   304,083     202,269  
Total assets $ 7,077,849   $ 6,132,964  
 
Liabilities and Stockholders' Equity
 
Accounts payable and accrued expenses $ 258,027 $ 268,853
Accrued property and equipment 101,015 63,509
Current portion of capital lease and other financing obligations 85,262 15,206
Current portion of loans payable 40,360 52,160
Other current liabilities   122,871     139,561  
Total current liabilities 607,535 539,289
Capital lease and other financing obligations, less current portion 684,873 545,853
Loans payable, less current portion 164,919 188,802
Senior notes, less current portion 2,250,000 1,500,000
Convertible debt 716,265 708,726
Other liabilities   245,768     230,843  
Total liabilities   4,669,360     3,713,513  
 
Redeemable non-controlling interests   96,614     84,178  
 
Common stock 50 49
Additional paid-in capital 2,651,396 2,583,371
Treasury stock (36,284 ) (36,676 )
Accumulated other comprehensive loss (200,082 ) (101,042 )
Accumulated deficit   (103,205 )   (110,429 )
Total stockholders' equity   2,311,875     2,335,273  
 

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

$ 7,077,849   $ 6,132,964  
 
             
 
Ending headcount by geographic region is as follows:
 
Americas headcount 1,918 1,821
EMEA headcount 872 811
Asia-Pacific headcount   573     521  
Total headcount   3,363     3,153  
 

EQUINIX, INC.
SUMMARY OF DEBT OUTSTANDING
(in thousands)
(unaudited)
       
June 30, December 31,
2013 2012
 
Capital lease and other financing obligations $ 770,135 $ 561,059
 
U.S. term loan 160,000 180,000
ALOG financing 44,924 48,807
Paris 4 IBX financing 317 8,071
Other loans payable   38   4,084
Total loans payable   205,279   240,962
 
Senior notes   2,250,000   1,500,000
 
Convertible debt, net of debt discount 716,265 708,726
Plus debt discount   53,447   60,990
Total convertible debt principal   769,712   769,716
 
Total debt outstanding $ 3,995,126 $ 3,071,737
 

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,
2013 2013 2012 2013 2012
 
Cash flows from operating activities:
Net income (loss) $ (28,129 ) $ 36,323 $ 37,640 $ 8,194 $ 72,451
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, amortization and accretion 110,117 108,531 96,944 218,648 190,866
Stock-based compensation 24,194 22,703 20,549 46,897 39,652
Debt issuance costs and debt discount 5,884 5,753 4,902 11,637 13,009
Loss on debt extinguishment 93,602 - - 93,602 -
Restructuring charges (4,837 ) - - (4,837 ) -
Excess tax benefits from employee equity awards (3,431 ) (18,990 ) - (22,421 ) -
Other reconciling items 3,949 3,085 984 7,034 3,841
Changes in operating assets and liabilities:
Accounts receivable (19,098 ) (24,663 ) (14,864 ) (43,761 ) (34,541 )
Income taxes, net (74,153 ) (1,609 ) 31,985 (75,762 ) 23,222
Accounts payable and accrued expenses 28,392 (27,996 ) 30,648 396 (9,887 )
Other assets and liabilities   10,669     (18,956 )   (14,006 )   (8,287 )   22,162  
Net cash provided by operating activities   147,159     84,181     194,782     231,340     320,775  
Cash flows from investing activities:
Purchases, sales and maturities of investments, net (175,593 ) (232,965 ) 279,621 (408,558 ) 625,987
Purchase of New York IBX data center (2,960 ) - - (2,960 ) -
Purchase of Asia Tone, less cash acquired - (107 ) - (107 ) -
Purchases of other property, plant and equipment (122,863 ) (75,667 ) (196,484 ) (198,530 ) (341,974 )
Other investing activities   838,963     (833,801 )   10,743     5,162     79,300  
Net cash provided by (used in) investing activities   537,547     (1,142,540 )   93,880     (604,993 )   363,313  
Cash flows from financing activities:
Purchases of treasury stock - - - - (13,364 )
Proceeds from employee equity awards 1,512 14,368 6,013 15,880 36,473
Proceeds from loans payable - - - - 8,909
Proceeds from senior notes - 1,500,000 - 1,500,000 -
Repayment of capital lease and other financing obligations (4,157 ) (3,516 ) (3,032 ) (7,673 ) (5,858 )
Repayment of loans payable (18,139 ) (14,052 ) (10,170 ) (32,191 ) (77,299 )
Repayment of senior notes (750,000 ) - - (750,000 ) -
Repayment of convertible debt - - (250,007 ) - (250,007 )
Debt extinguishment costs (80,925 ) - - (80,925 ) -
Excess tax benefits from employee equity awards 3,431 18,990 - 22,421 -
Other financing activities   (1,756 )   (19,030 )   (7,520 )   (20,786 )   (7,520 )
Net cash provided by (used in) financing activities   (850,034 )   1,496,760     (264,716 )   646,726     (308,666 )
Effect of foreign currency exchange rates on cash and cash equivalents   (2,195 )   (5,595 )   (2,794 )   (7,790 )   (149 )
Net increase (decrease) in cash and cash equivalents (167,523 ) 432,806 21,152 265,283 375,273
Cash and cash equivalents at beginning of period   685,019     252,213     632,944     252,213     278,823  
Cash and cash equivalents at end of period $ 517,496   $ 685,019   $ 654,096   $ 517,496   $ 654,096  
 
Supplemental cash flow information:
Cash paid for taxes $ 62,818   $ 14,036   $ 5,031   $ 76,854   $ 6,765  
Cash paid for interest $ 29,664   $ 67,975   $ 28,965   $ 97,639   $ 92,301  
 
Free cash flow (1) $ 860,299   $ (825,394 ) $ 9,041   $ 34,905   $ 58,101  
 
Adjusted free cash flow (2) $ 866,690   $ (806,297 ) $ 9,041   $ 60,393   $ 58,101  
 
Ongoing capital expenditures (3) $ 40,210   $ 33,997   $ 37,537   $ 74,207   $ 75,999  
 
Discretionary free cash flow (4) $ 106,949   $ 50,184   $ 157,245   $ 157,133   $ 244,776  
 
Adjusted discretionary free cash flow (5) $ 163,950   $ 72,908   $ 157,245   $ 236,858   $ 244,776  
         
 
(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 $ 147,159 $ 84,181 $ 194,782 $ 231,340 $ 320,775
Net cash provided by (used in) investing activities as presented above 537,547 (1,142,540 ) 93,880 (604,993 ) 363,313
Purchases, sales and maturities of investments, net   175,593     232,965     (279,621 )   408,558     (625,987 )
Free cash flow (negative free cash flow) $ 860,299   $ (825,394 ) $ 9,041   $ 34,905   $ 58,101  
 
(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 and any excess tax benefits from employee equity awards, as presented below:

 
Free cash flow (as defined above) $ 860,299 $ (825,394 ) $ 9,041 $ 34,905 $ 58,101
Less purchase of New York IBX data center 2,960 - - 2,960 -
Less purchase of Asia Tone, less cash acquired - 107 - 107 -
Less excess tax benefits from employee equity awards   3,431     18,990     -     22,421     -  
Adjusted free cash flow (negative adjusted free cash flow) $ 866,690   $ (806,297 ) $ 9,041   $ 60,393   $ 58,101  
 
(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 $ 40,210 $ 33,997 $ 37,537 $ 74,207 $ 75,999
Expansion capital expenditures   82,653     41,670     158,947     124,323     265,975  
Total capital expenditures $ 122,863   $ 75,667   $ 196,484   $ 198,530   $ 341,974  
 
(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 $ 147,159 $ 84,181 $ 194,782 $ 231,340 $ 320,775
Less ongoing capital expenditures   (40,210 )   (33,997 )   (37,537 )   (74,207 )   (75,999 )
Discretionary free cash flow $ 106,949   $ 50,184   $ 157,245   $ 157,133   $ 244,776  
 
(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 and cash paid for taxes associated with reclassifying our assets for tax purposes triggered by our planned conversion into a real estate investment trust ("REIT"), as presented below:

 
Discretionary free cash flow $ 106,949 $ 50,184 $ 157,245 $ 157,133 $ 244,776
Excess tax benefits from employee equity awards 3,431 18,990 - 22,421 -
Cash paid for taxes resulting from the planned REIT conversion   53,570     3,734     -     57,304     -  
Adjusted discretionary free cash flow $ 163,950   $ 72,908   $ 157,245   $ 236,858   $ 244,776  
 
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 $ 53,570 $ 3,734 $ - $ 57,304 $ -
Other cash taxes paid   9,248     10,302     5,031     19,550     6,765  
Total cash paid for taxes $ 62,818   $ 14,036   $ 5,031   $ 76,854   $ 6,765  
 

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,
2013 2013 2012 2013 2012
 
Recurring revenues $ 502,470 $ 495,271 $ 433,786 $ 997,741 $ 854,676
Non-recurring revenues   23,199     24,184     23,463     47,383     45,818  
Revenues (1)   525,669     519,455     457,249     1,045,124     900,494  
 
Cash cost of revenues (2)   169,077     162,759     142,011     331,836     278,372  
Cash gross profit (3)   356,592     356,696     315,238     713,288     622,122  
 
Cash operating expenses (4):
Cash sales and marketing expenses (5) 46,430 46,280 38,689 92,710 76,808
Cash general and administrative expenses (6)   65,985     66,956     59,069     132,941     117,238  
Total cash operating expenses (7)   112,415     113,236     97,758     225,651     194,046  
 
Adjusted EBITDA (8) $ 244,177   $ 243,460   $ 217,480   $ 487,637   $ 428,076  
 
Cash gross margins (9)   68 %   69 %   69 %   68 %   69 %
 
Adjusted EBITDA margins (10)   46 %   47 %   48 %   47 %   48 %
 
Adjusted EBITDA flow-through rate (11)   12 %   32 %   49 %   40 %   68 %
         
 
(1) The geographic split of our revenues on a services basis is presented below:
 
Americas Revenues:
 
Colocation $ 226,536 $ 223,565 $ 209,756 $ 450,101 $ 413,674
Interconnection 59,800 58,206 53,048 118,006 104,787
Managed infrastructure 13,977 13,616 12,564 27,593 26,500
Rental   445     460     445     905     884  
Recurring revenues 300,758 295,847 275,813 596,605 545,845
Non-recurring revenues   11,685     12,707     12,308     24,392     21,405  
Revenues   312,443     308,554     288,121     620,997     567,250  
 
EMEA Revenues:
 
Colocation 103,916 100,532 87,820 204,448 171,771
Interconnection 8,854 8,381 4,192 17,235 8,016
Managed infrastructure 5,734 4,249 3,262 9,983 6,676
Rental   138     120     336     258     680  
Recurring revenues 118,642 113,282 95,610 231,924 187,143
Non-recurring revenues   6,970     7,012     7,087     13,982     16,890  
Revenues   125,612     120,294     102,697     245,906     204,033  
 
Asia-Pacific Revenues:
 
Colocation 67,881 71,014 49,651 138,895 96,768
Interconnection 9,699 9,404 7,794 19,103 15,114
Managed infrastructure   5,490     5,724     4,918     11,214     9,806  
Recurring revenues 83,070 86,142 62,363 169,212 121,688
Non-recurring revenues   4,544     4,465     4,068     9,009     7,523  
Revenues   87,614     90,607     66,431     178,221     129,211  
 
Worldwide Revenues:
 
Colocation 398,333 395,111 347,227 793,444 682,213
Interconnection 78,353 75,991 65,034 154,344 127,917
Managed infrastructure 25,201 23,589 20,744 48,790 42,982
Rental   583     580     781     1,163     1,564  
Recurring revenues 502,470 495,271 433,786 997,741 854,676
Non-recurring revenues   23,199     24,184     23,463     47,383     45,818  
Revenues $ 525,669   $ 519,455   $ 457,249   $ 1,045,124   $ 900,494  
 
(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 $ 267,693 $ 259,268 $ 225,289 $ 526,961 $ 442,387
Depreciation, amortization and accretion expense (96,822 ) (94,907 ) (81,744 ) (191,729 ) (161,164 )
Stock-based compensation expense   (1,794 )   (1,602 )   (1,534 )   (3,396 )   (2,851 )
Cash cost of revenues $ 169,077   $ 162,759   $ 142,011   $ 331,836   $ 278,372  
 
The geographic split of our cash cost of revenues is presented below:
 
Americas cash cost of revenues $ 90,546 $ 88,473 $ 81,465 $ 179,019 $ 160,547
EMEA cash cost of revenues 47,304 43,629 37,392 90,933 72,745
Asia-Pacific cash cost of revenues   31,227     30,657     23,154     61,884     45,080  
Cash cost of revenues $ 169,077   $ 162,759   $ 142,011   $ 331,836   $ 278,372  
 
(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, impairment 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 $ 59,478 $ 58,276 $ 47,603 $ 117,754 $ 94,013
Depreciation and amortization expense (6,223 ) (6,275 ) (4,239 ) (12,498 ) (8,495 )
Stock-based compensation expense   (6,825 )   (5,721 )   (4,675 )   (12,546 )   (8,710 )
Cash sales and marketing expenses $ 46,430   $ 46,280   $ 38,689   $ 92,710   $ 76,808  
 
(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 $ 88,632 $ 89,685 $ 80,595 $ 178,317 $ 158,911
Depreciation and amortization expense (7,072 ) (7,349 ) (7,291 ) (14,421 ) (13,765 )
Stock-based compensation expense   (15,575 )   (15,380 )   (14,235 )   (30,955 )   (27,908 )
Cash general and administrative expenses $ 65,985   $ 66,956   $ 59,069   $ 132,941   $ 117,238  
 
(7) Our cash operating expenses, or cash SG&A, as defined above, is presented below:
 
Cash sales and marketing expenses $ 46,430 $ 46,280 $ 38,689 $ 92,710 $ 76,808
Cash general and administrative expenses   65,985     66,956     59,069     132,941     117,238  
Cash SG&A $ 112,415   $ 113,236   $ 97,758   $ 225,651   $ 194,046  
 
The geographic split of our cash operating expenses, or cash SG&A, is presented below:
 
Americas cash SG&A $ 69,287 $ 73,551 $ 65,774 $ 142,838 $ 132,623
EMEA cash SG&A 29,016 27,611 20,100 56,627 39,199
Asia-Pacific cash SG&A   14,112     12,074     11,884     26,186     22,224  
Cash SG&A $ 112,415   $ 113,236   $ 97,758   $ 225,651   $ 194,046  
 
(8)

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

 
Income from continuing operations $ 112,177 $ 108,564 $ 102,096 $ 220,741 $ 202,842
Depreciation, amortization and accretion expense 110,117 108,531 93,274 218,648 183,424
Stock-based compensation expense 24,194 22,703 20,444 46,897 39,469
Restructuring charges (4,837 ) - - (4,837 ) -
Acquisition costs   2,526     3,662     1,666     6,188     2,341  
Adjusted EBITDA $ 244,177   $ 243,460   $ 217,480   $ 487,637   $ 428,076  
 
The geographic split of our adjusted EBITDA is presented below:
 
Americas income from continuing operations $ 72,064 $ 62,597 $ 66,672 $ 134,661 $ 128,238
Americas depreciation, amortization and accretion expense 65,077 63,224 58,659 128,301 115,308
Americas stock-based compensation expense 18,168 17,311 15,552 35,479 30,625
Americas restructuring charges (4,837 ) - - (4,837 ) -
Americas acquisition costs   2,138     3,398     (1 )   5,536     (91 )
Americas adjusted EBITDA   152,610     146,530     140,882     299,140     274,080  
 
EMEA income from continuing operations 22,414 22,863 22,962 45,277 50,241
EMEA depreciation, amortization and accretion expense 23,424 23,071 18,329 46,495 35,641
EMEA stock-based compensation expense 3,065 3,038 2,673 6,103 4,837
EMEA acquisition costs   389     82     1,241     471     1,370  
EMEA adjusted EBITDA   49,292     49,054     45,205     98,346     92,089  
 
Asia-Pacific income from continuing operations 17,699 23,104 12,462 40,803 24,363
Asia-Pacific depreciation, amortization and accretion expense 21,616 22,236 16,286 43,852 32,475
Asia-Pacific stock-based compensation expense 2,961 2,354 2,219 5,315 4,007
Asia-Pacific acquisition costs   (1 )   182     426     181     1,062  
Asia-Pacific adjusted EBITDA   42,275     47,876     31,393     90,151     61,907  
 
Adjusted EBITDA $ 244,177   $ 243,460   $ 217,480   $ 487,637   $ 428,076  
 
(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 %   72 %   71 %   72 %
 
EMEA cash gross margins   62 %   64 %   64 %   63 %   64 %
 
Asia-Pacific cash gross margins   64 %   66 %   65 %   65 %   65 %
 
(10) We define adjusted EBITDA margins as adjusted EBITDA divided by revenues.
 
Americas adjusted EBITDA margins   49 %   47 %   49 %   48 %   48 %
 
EMEA adjusted EBITDA margins   39 %   41 %   44 %   40 %   45 %
 
Asia-Pacific adjusted EBITDA margins   48 %   53 %   47 %   51 %   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 $ 244,177 $ 243,460 $ 217,480 $ 487,637 $ 428,076
Less adjusted EBITDA - prior period   (243,460 )   (239,283 )   (210,596 )   (467,581 )   (380,463 )
Adjusted EBITDA growth $ 717   $ 4,177   $ 6,884   $ 20,056   $ 47,613  
 
Revenues - current period $ 525,669 $ 519,455 $ 457,249 $ 1,045,124 $ 900,494
Less revenues - prior period   (519,455 )   (506,520 )   (443,245 )   (995,250 )   (830,324 )
Revenue growth $ 6,214   $ 12,935   $ 14,004   $ 49,874   $ 70,170  
 
Adjusted EBITDA flow-through rate   12 %   32 %   49 %   40 %   68 %

Equinix Investor Relations Contacts:
Equinix, Inc.
Katrina Rymill, 650-598-6583
krymill@equinix.com
or
Equinix, Inc.
Samir Patodia, 650-598-6587
spatodia@equinix.com
or
Equinix Media Contacts:
Equinix, Inc.
Melissa Neumann, 650-598-6098
mneumann@equinix.com
or
GolinHarris for Equinix, Inc.
Liam Rose, 415-318-4380
lrose@golinharris.com

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