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Press Release -- February 15th, 2017
Source: Equinix
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Equinix Reports Fourth Quarter And Full Year 2016 Results

Interconnection and Data Center Leader Delivers 56th Consecutive Quarter of Revenue Growth; 2016 Annual Revenues Increase 33% Year-over-Year to $3.6 Billion

REDWOOD CITY, Calif., Feb. 15, 2017 /PRNewswire/ --

  • Record quarterly bookings with particular strength in the enterprise vertical
  • Added seven Fortune 500 customers and 11 Forbes Global 2000 customers
  • Customer deployments across multiple metros represent 82% of total recurring revenue, demonstrating the strength of Equinix's global platform
  • Company announces $175 million in new expansions in Amsterdam, Chicago, Dubai, Rio de Janeiro and Toronto

Equinix, Inc. (NASDAQ:EQIX, news, filings), the global interconnection and data center company, today reported quarterly and annual results for the quarter and the year ended December 31, 2016. Equinix uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

2016 Results Summary

  • Revenues from continuing operations
    • $3,612 million, a 33% increase over the previous year; an organic and constant currency growth rate of greater than 14%
    • Includes $400 million of revenues from Telecity
    • Includes $149 million of revenues from Bit-isle
  • Operating Income
    • $619 million, a 9% increase over the previous year
  • Adjusted EBITDA
    • $1,657 million, a 46% adjusted EBITDA margin
    • Includes $187 million of adjusted EBITDA from Telecity
    • Includes $50 million of adjusted EBITDA from Bit-isle
    • Includes $58 million of integration costs for acquisitions
  • Net Income from Continuing Operations
    • $114 million
  • AFFO
    • $1,078 million, a 30% increase from the previous year
    • Assumes $58 million of integration costs for acquisitions

2017 Annual Guidance Summary

  • Revenues from continuing operations
    • >$3,933 million, a 9% increase over the previous year; a normalized and constant currency growth rate of greater than 11%
  • Adjusted EBITDA
    • >$1,842 million or a 47% adjusted EBITDA margin
    • Assumes $30 million of integration costs for acquisitions
  • AFFO
    • >$1,249 million, a 16% increase over the previous year
    • Assumes $30 million of integration costs for acquisitions

Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data without unreasonable effort. The impact of such adjustments could be significant.

Quote

Steve Smith, President and CEO, Equinix:

"2016 was a pivotal year for Equinix. We continued to capture the shift to the cloud, expand our global reach and scale, grow interconnection, and deliver record bookings and increasing shareholder returns. We are operating at the intersection of some of the greatest technology trends in our lifetime, and the digital transformation driven by cloud services is shifting compute, storage and networking to the edge, which plays into our dense ecosystems and global scale. We look forward to a busy 2017 as we integrate our acquisitions, grow our global platform, enhance our portfolio of services and increase our reach and relevance to the cloud-enabled enterprise."

Business Highlights

  • Equinix continues to invest and expand the reach of its global platform with $1.1 billion in capital expenditures in 2016 and 19 announced expansion projects currently underway. Today Equinix announced new expansions in Amsterdam, Chicago, Dubai, Rio de Janeiro and Toronto totaling more than $175 million of capital expenditures.  The global reach of Equinix continues to attract companies seeking to locate their infrastructure closer to the digital edge, and in Q4 2016, customer deployments across multiple regions of Platform Equinix (Americas, EMEA or Asia-Pacific) represented 70% of total recurring revenue.
  • Equinix achieved record bookings from enterprise customers in Q4 2016, as businesses re-architect their infrastructure to directly and securely interconnect their people, locations, clouds and data.
    • Wins/expansions included Philips, a global 400 manufacturer connecting to AWS, Microsoft Azure and IBM SoftLayer in multiple locations, and Walmart, which is further investing in e-commerce by optimizing its network topology connecting to Microsoft Azure via Equinix Cloud Exchange.
    • Equinix has now penetrated more than one-third of the Fortune 500, and a quarter of the Forbes Global 2000 companies.
  • Equinix continues to deliver growth in the cloud and IT services vertical led by the EMEA region. Major Infrastructure-as-a-Service players, such as AWS, Microsoft Azure, IBM SoftLayer, Google Cloud Platform and Oracle on average have a presence across 15 markets with Equinix, and they continue to grow.  Software-as-a-Service providers are joining the Equinix Cloud Exchange to provide the performance and security benefits of private interconnection to their customers, with Salesforce.com, SAP and ServiceNow deploying across multiple markets in 2017.
  • Interconnection revenue in Q4 2016 grew 21% year over year on an organic and constant currency basis, as companies continue to adopt an Interconnection Oriented Architecture™ (IOA™) that leverages Equinix's global platform and ecosystems.  With the Telecity acquisition, Equinix now provides more than 230,000 cross-connects between the company's more than 8,500 customers.
  • Equinix further strengthened the reach of its global platform with the announcement of a $3.6 billion definitive agreement to purchase 29 data centers from Verizon across 15 metro areas in North and South America.  The deal, which includes the addition of strategic facilities and customers and is expected to close in mid-2017, will increase capacity in key markets; expand our presence to three new markets - Bogotá, Culpeper and Houston; enhance Equinix's interconnection density; and accelerate relationships in the government and energy sectors. Upon closing of this transaction, the global reach of Platform Equinix will span 179 data centers, 44 metros and 22 countries. With this acquisition, Equinix will have invested more than $17 billion in capital in building out the global footprint of Platform Equinix since the company was founded.

Business Outlook

For the first quarter of 2017, the Company expects revenues to range between $940 and $946 million, or a constant currency growth rate of 2% quarter over quarter.  This guidance includes a negative foreign currency impact of $18 million when compared to the average FX rates in Q4 2016.  Cash gross margins are expected to approximate 67-68%.  Cash selling, general and administrative expenses are expected to range between $208 and $214 million. Adjusted EBITDA is expected to range between $421 and $427 million, which includes a $10 million negative foreign currency impact when compared to the average FX rates in Q4 2016, $14 millionof integration costs from acquisitions and $18 million of seasonally adjusted costs. Capital expenditures are expected to range between $280 and $300 million, which includes approximately $30 million of recurring capital expenditures.

For the full year of 2017, total revenues are expected to be greater than $3,933 million, a normalized and constant currency growth rate of greater than 11% year over year. This guidance includes a negative foreign currency impact of $88 million when compared to prior Equinix guidance rates, and has been normalized for the Telecity January 15th close impact and other acquisition related activities. Total year cash gross margins are expected to approximate 67-68%.  Cash selling, general and administrative expenses are expected to range between $805 and $825 million.  Adjusted EBITDA is expected to be greater than $1,842 million, a normalized and constant currency growth rate of greater than 11% year over year.  This guidance includes $37 million of negative foreign currency impact on adjusted EBITDA when compared to prior Equinix guidance rates and an expected $30 million in integration costs.  AFFO is expected to be greater than $1,249 million. Capital expenditures are expected to range between $1,100 and $1,200 million, including approximately $160 - $165 million of recurring capital expenditures and $940 - $1,035 million of non-recurring capital expenditures.

The U.S. dollar exchange rates used for 2017 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.08 to the Euro, $1.40 to the Pound, S$1.45 to the U.S. dollar,  ¥117.65 to the U.S. dollar and R$3.26 to the U.S. dollar. The 2017 global revenue breakdown by currency for the Euro, Pound, Singapore Dollar, Japanese Yen and Brazilian Real is 19%, 9%, 6%, 7% and 3%, respectively.

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

Q4 2016 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended December 31, 2016, along with its future outlook, in its quarterly conference call on Wednesday, February 15, 2017, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on Equinix's Investor Relations website 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 replay of the call will be available one hour after the call, through Tuesday, May 16, 2017, by dialing 1-402-220-6419 and referencing the passcode 2017. In addition, the webcast will be available at www.equinix.com/investors. No password is required for the webcast.

Investor Presentation and Supplemental Financial Information

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

Additional Resources

About Equinix

Equinix, Inc. (NASDAQ: EQIX) connects the world's leading businesses to their customers, employees and partners inside the most interconnected data centers. In 41 markets across five continents, Equinix is where companies come together to realize new opportunities and accelerate their business, IT and cloud strategies.

Non-GAAP Financial Measures

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

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

In presenting non-GAAP financial measures, such as adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), adjusted EBITDA margins, free cash flow and adjusted free cash flow, Equinix excludes certain items that it believes are not good indicators of Equinix's current or future operating performance. These items are depreciation, amortization, accretion of asset retirement obligations and accrued restructuring charges, stock-based compensation, restructuring charges, impairment charges, acquisition costs and gains on asset sales.  Equinix excludes these items in order for its lenders, investors and the industry analysts who review and report on Equinix to better evaluate Equinix's operating performance and cash spending levels relative to its industry sector and competitors.

Equinix excludes depreciation expense as these charges primarily relate to the initial construction costs of an IBX center, and do not reflect its current or future cash spending levels to support its business. Its IBX centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of an IBX center do not recur with respect to such data center, although Equinix may incur initial construction costs in future periods with respect to additional IBX centers, and future capital expenditures remain minor relative to the initial investment. This is a trend it expects to continue. In addition, depreciation is also based on the estimated useful lives of the IBX 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 also excludes amortization expense related to acquired intangible assets. Amortization expense is significantly affected by the timing and magnitude of acquisitions and these charges may vary in amount from period to period. We exclude amortization expense to facilitate a more meaningful evaluation of our current operating performance and comparisons to our prior periods. Equinix excludes accretion expense, both as it relates to its asset retirement obligations as well as its accrued restructuring charges, as these expenses represent costs which Equinix also believes are not meaningful in evaluating Equinix's current operations. Equinix excludes stock-based compensation expense, as it can vary significantly from period to period based on share price, the timing, size and nature of equity awards. As such, Equinix and many investors and analysts, exclude this stock-based compensation expense to compare its operating results with those of other companies. Equinix excludes restructuring charges from its non-GAAP financial measures. The restructuring charges relate to Equinix's decision to exit leases for excess space adjacent to several of its IBX centers, which it did not intend to build out, or its decision to reverse such restructuring charges.  Equinix also excludes impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Equinix also excludes gains on asset sales as it represents profit that is not meaningful in evaluating the current or future operating performance. Finally, Equinix excludes acquisition costs from its non-GAAP financial measures to allow more comparable comparisons of the financial results to the historical operations. The acquisition costs relate to costs Equinix incurs in connection with business combinations. Such charges generally are not relevant to assessing the long-term performance of Equinix. In addition, the frequency and amount of such charges vary significantly based on the size and timing of the acquisitions. Management believes items such as restructuring charges, impairment charges, acquisition costs and gains on asset sales are non-core transactions; however, these types of costs may occur in future periods.

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

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

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

Non-GAAP financial measures are not a substitute for financial information prepared in accordance with GAAP.  Non-GAAP financial measures should not be considered in isolation, but should be considered together with the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financials measures. Equinix presents such non-GAAP financial measures to provide investors with an additional tool to evaluate its operating results in a manner that focuses on what management believes to be its core, ongoing business operations.  Management believes that the inclusion of these non-GAAP financial measures provides consistency and comparability with past reports and provides a better understanding of the overall performance of the business and its ability to perform in subsequent periods. Equinix believes that if it did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze Equinix effectively.

Investors should note that the non-GAAP financial measures used by Equinix may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as those of other companies. Investors should, therefore, exercise caution when comparing non-GAAP financial measures used by us to similarly titled non-GAAP financial measures of other companies. Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data without unreasonable effort. The impact of such adjustments could be significant. Equinix intends to calculate the various non-GAAP financial measures in future periods consistent with how they were calculated for the periods presented within this press release.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from expectations discussed in such forward-looking statements. Factors that might cause such differences include, but are not limited to, the challenges of acquiring, operating and constructing IBX centres 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; failure to receive significant revenue from customers in recently built out or acquired data centres; 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

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2016

2016

2015

2016

2015

Recurring revenues

$       892,442

$        877,006

$       686,072

$    3,417,374

$    2,569,141

Non-recurring revenues

50,205

47,670

44,390

194,615

156,726

Revenues

942,647

924,676

730,462

3,611,989

2,725,867

Cost of revenues

465,921

470,302

351,968

1,820,870

1,291,506

Gross profit

476,726

454,374

378,494

1,791,119

1,434,361

Operating expenses:

Sales and marketing

113,384

110,936

88,439

438,742

332,012

General and administrative

178,956

181,239

136,829

694,561

493,284

Impairment charges

-

7,698

-

7,698

-

Acquisition costs

(440)

12,505

17,349

64,195

41,723

(Gain) loss on asset sales

371

(27,945)

-

(32,816)

-

Total operating expenses

292,271

284,433

242,617

1,172,380

867,019

Income from continuing operations

184,455

169,941

135,877

618,739

567,342

Interest and other income (expense):

Interest income

948

762

1,206

3,476

3,581

Interest expense

(98,761)

(92,200)

(79,499)

(392,156)

(299,055)

Other income (expense)

(1,707)

2,938

(48,617)

(57,924)

(60,581)

Loss on debt extinguishment 

(1,777)

(9,894)

(289)

(12,276)

(289)

Total interest and other, net

(101,297)

(98,394)

(127,199)

(458,880)

(356,344)

Income from continuing operations before income taxes

83,158

71,547

8,678

159,859

210,998

Income tax benefit (expense)

(19,494)

(22,778)

2,053

(45,451)

(23,224)

Net income from continuing operations

63,664

48,769

10,731

114,408

187,774

Net income (loss) from discontinued operations, net of tax

(1,914)

2,681

-

12,392

-

Net income

$         61,750

$          51,450

$         10,731

$       126,800

$       187,774

Net income per share:

Basic net income per share from continuing operations

$            0.89

$             0.69

$            0.18

$            1.63

$            3.25

Basic net income (loss) per share from discontinued operations

(0.03)

0.04

-

0.18

-

Basic net income per share

$            0.86

$             0.73

$            0.18

$            1.81

$            3.25

Diluted net income per share from continuing operations

$            0.88

$             0.68

$            0.18

$            1.62

$            3.21

Diluted net income (loss) per share from discontinued operations

(0.02)

0.04

-

0.17

-

Diluted net income per share

$            0.86

$             0.72

$            0.18

$            1.79

$            3.21

Shares used in computing basic net income per share

71,389

71,190

60,393

70,117

57,790

Shares used in computing diluted net income per share

71,959

71,908

60,943

70,816

58,483

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2016

2016

2015

2016

2015

Net income

$         61,750

$          51,450

$         10,731

$       126,800

$       187,774

Other comprehensive loss, net of tax:

Foreign currency translation adjustment ("CTA") loss 

(292,355)

(32,603)

(37,217)

(507,420)

(186,763)

Unrealized gain (loss) on available-for-sale securities 

(133)

1,487

(139)

2,249

(40)

Unrealized gain (loss) on cash flow hedges 

15,762

(4,153)

4,975

19,551

4,550

Net investment hedge CTA gain (loss) 

41,342

(34,721)

10,447

45,505

4,484

Net actuarial gain on defined benefit plans 

11

7

887

32

1,153

Other comprehensive loss, net of tax: 

(235,373)

(69,983)

(21,047)

(440,083)

(176,616)

Comprehensive income (loss), net of tax 

$      (173,623)

$         (18,533)

$        (10,316)

$      (313,283)

$         11,158

EQUINIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

Assets

December 31,

 December 31, 

2016

2015

Cash and cash equivalents

$       748,476

$      2,228,838

Short-term investments

3,409

12,875

Accounts receivable, net

396,245

291,964

Current portion of restricted cash

15,065

479,417

Other current assets

304,331

212,929

Assets held for sale

-

33,257

Total current assets

1,467,526

3,259,280

Long-term investments

10,042

4,584

Property, plant and equipment, net

7,199,210

5,606,436

Goodwill

2,986,064

1,063,200

Intangible assets, net

719,231

224,565

Other assets

226,298

198,630

Total assets

$  12,608,371

$    10,356,695

Liabilities and Stockholders' Equity

Accounts payable and accrued expenses

$       581,739

$         400,948

Accrued property, plant and equipment

144,842

103,107

Current portion of capital lease and other financing obligations

101,046

40,121

Current portion of mortgage and loans payable

67,928

770,236

Convertible debt

-

146,121

Other current liabilities

133,140

192,286

Liabilities held for sale

-

3,535

Total current liabilities

1,028,695

1,656,354

Capital lease and other financing obligations, less current portion

1,410,742

1,287,139

Mortgage and loans payable, less current portion

1,369,087

472,769

Senior notes

3,810,770

3,804,634

Other liabilities

623,248

390,413

Total liabilities

8,242,542

7,611,309

Common stock

72

62

Additional paid-in capital

7,413,519

4,838,444

Treasury stock

(147,559)

(7,373)

Accumulated dividends

(1,969,645)

(1,468,472)

Accumulated other comprehensive loss

(949,142)

(509,059)

Retained earnings (accumulated deficit)

18,584

(108,216)

Total stockholders' equity

4,365,829

2,745,386

Total liabilities and stockholders' equity

$  12,608,371

$    10,356,695

Ending headcount by geographic region is as follows:

Americas headcount

2,510

2,329

EMEA headcount

2,063

1,188

Asia-Pacific headcount

1,420

1,525

Total headcount

5,993

5,042

EQUINIX, INC.

SUMMARY OF DEBT PRINCIPAL OUTSTANDING

(in thousands)

(unaudited)

December 31,

December 31,

2016

2015

Capital lease and other financing obligations

$    1,511,788

$    1,327,260

Term loans, net of debt discount and debt issuance costs

993,572

454,503

Japanese Yen term loan, net of debt issuance costs

397,199

-

Brazil financings, net of debt issuance costs

-

26,668

Mortgage payable and other loans payable

46,244

436,212

Revolving credit facility borrowings

-

325,622

Plus: debt discount, debt issuance costs and premium, net

20,949

694

Total mortgage and loans payable principal

1,457,964

1,243,699

Senior notes, net of debt issuance costs

3,810,770

3,804,634

Plus: debt issuance costs

39,230

45,366

Total senior notes principal

3,850,000

3,850,000

Convertible debt, net of debt discount and debt issuance costs

-

146,121

Plus: debt discount and debt issuance costs

-

3,961

Total convertible debt principal

-

150,082

Total debt principal outstanding

$    6,819,752

$    6,571,041

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2016

2016

2015

2016

2015

Cash flows from operating activities:

Net income

$         61,750

$          51,450

$         10,731

$       126,800

$       187,774

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation, amortization and accretion

212,268

215,370

144,861

843,510

528,929

Stock-based compensation

39,837

42,346

33,868

155,567

132,443

Amortization of debt issuance costs and debt discounts

5,428

2,684

4,493

19,137

16,050

Loss on debt extinguishment 

1,777

10,181

289

12,276

289

Impairment charges

-

7,698

-

7,698

-

(Gain) loss on asset sales

371

(27,945)

-

(32,816)

-

(Gain) loss on sale of discontinued operations

1,891

(4,242)

-

(2,351)

-

Other items

3,706

3,905

5,452

19,793

18,148

Changes in operating assets and liabilities:

Accounts receivable

(27,423)

(30,440)

(2,581)

(100,230)

(44,583)

Income taxes, net

27,999

24,776

(25,056)

29,020

(109,579)

Accounts payable and accrued expenses

73,091

(901)

33,906

61,565

109,125

Other assets and liabilities

(101,385)

39,290

29,155

(123,389)

56,197

Net cash provided by operating activities

299,310

334,172

235,118

1,016,580

894,793

Cash flows from investing activities:

Purchases, sales and maturities of investments, net

779

(2,123)

(9,369)

10,839

514,108

Business acquisitions, net of cash acquired

621

(165,901)

(235,306)

(1,766,907)

(245,553)

Purchases of real estate

-

-

-

(28,118)

(38,282)

Purchases of other property, plant and equipment

(386,321)

(279,477)

(280,612)

(1,113,365)

(868,120)

Proceeds from asset sales

23,385

805,372

-

851,582

-

Other investing activities

9,078

(21,851)

(3,709)

453,814

(497,080)

Net cash provided by (used in) investing activities

(352,458)

336,020

(528,996)

(1,592,155)

(1,134,927)

Cash flows from financing activities:

Proceeds from employee equity awards

36

16,504

185

34,179

30,040

Payments of dividend distributions

(125,312)

(127,457)

(230,452)

(499,463)

(521,461)

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

-

-

829,496

-

829,496

Proceeds from loans payable

457,900

9,154

707,108

1,168,304

1,197,108

Proceeds from senior notes

-

-

1,100,000

-

1,100,000

Repayment of capital lease and other financing obligations

(13,522)

(55,528)

(8,450)

(114,385)

(28,663)

Repayments of mortgage and loans payable and convertible debt

(476,474)

(13,354)

(185,823)

(1,462,939)

(715,270)

Debt extinguishment costs

(1,199)

(10,181)

-

(11,380)

-

Debt issuance costs

370

(11,709)

(17,481)

(11,381)

(18,098)

Other financing activities

1,308

1,465

(1,633)

2,773

30

Net cash provided by (used in) financing activities

(156,893)

(191,106)

2,192,950

(894,292)

1,873,182

Effect of foreign currency exchange rates on cash and cash equivalents

(33,153)

4,313

(5,703)

(10,495)

(15,127)

Change in cash balances included in assets held for sale

3,755

21,356

-

-

-

Net increase (decrease) in cash and cash equivalents

(239,439)

504,755

1,893,369

(1,480,362)

1,617,921

Cash and cash equivalents at beginning of period

987,915

483,160

335,469

2,228,838

610,917

Cash and cash equivalents at end of period

$       748,476

$        987,915

$    2,228,838

$       748,476

$    2,228,838

Supplemental cash flow information:

Cash paid (refunded) for taxes

$          7,817

$               (73)

$         29,165

$         39,320

$       132,302

Cash paid for interest

$         78,553

$        111,094

$         73,044

$       350,083

$       237,410

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

$        (53,927)

$        672,315

$      (284,509)

$      (586,414)

$      (754,242)

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

$        (53,240)

$        839,681

$        (33,081)

$    1,211,384

$      (385,543)

(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

$       299,310

$        334,172

$       235,118

$    1,016,580

$       894,793

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

(352,458)

336,020

(528,996)

(1,592,155)

(1,134,927)

Purchases, sales and maturities of investments, net

(779)

2,123

9,369

(10,839)

(514,108)

Free cash flow (negative free cash flow)

$        (53,927)

$        672,315

$      (284,509)

$      (586,414)

$      (754,242)

(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 conversion into a real estate investment trust ("REIT") and costs related to the REIT conversion, as presented below:

Free cash flow (as defined above)

$        (53,927)

$        672,315

$      (284,509)

$      (586,414)

$      (754,242)

Less business acquisitions, net of cash

(621)

165,901

235,306

1,766,907

245,553

Less purchases of real estate

-

-

-

28,118

38,282

Less excess tax benefits from employee equity awards

1,308

1,465

(1,633)

2,773

30

Less cash paid for taxes resulting from the REIT conversion 

-

-

17,306

-

82,452

Less costs related to the REIT conversion

-

-

449

-

2,382

Adjusted free cash flow

$        (53,240)

$        839,681

$        (33,081)

$    1,211,384

$      (385,543)

We categorize our cash paid for taxes into cash paid for taxes resulting from the REIT conversion (as defined above) and other cash taxes paid.

Cash paid for taxes resulting from the REIT conversion

$               -

$                   -

$         17,306

$               -

$         82,452

Other cash taxes paid

7,817

(73)

11,859

39,320

49,850

Total cash paid for taxes

$          7,817

$               (73)

$         29,165

$         39,320

$       132,302

EQUINIX, INC.

NON-GAAP MEASURES AND OTHER SUPPLEMENTAL DATA

(in thousands)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2016

2016

2015

2016

2015

Recurring revenues

$       892,442

$         877,006

$       686,072

$    3,417,374

$    2,569,141

Non-recurring revenues

50,205

47,670

44,390

194,615

156,726

Revenues (1)

942,647

924,676

730,462

3,611,989

2,725,867

Cash cost of revenues (2)

301,540

304,821

227,956

1,169,494

836,439

Cash gross profit (3)

641,107

619,855

502,506

2,442,495

1,889,428

Cash operating expenses (4):

Cash sales and marketing expenses (5)

85,196

79,515

72,069

322,474

269,270

Cash general and administrative expenses (6)

119,420

120,298

97,292

462,547

348,531

Total cash operating expenses (7)

204,616

199,813

169,361

785,021

617,801

Adjusted EBITDA (8)

$       436,491

$         420,042

$       333,145

$    1,657,474

$    1,271,627

Cash gross margins (9)

68%

67%

69%

68%

69%

Adjusted EBITDA margins (10)

46%

45%

46%

46%

47%

Adjusted EBITDA flow-through rate (11)

92%

(1%)

27%

44%

56%

FFO (12)

$       219,868

$         187,831

$       131,483

$       725,089

$       629,238

AFFO (13) (14)

$       293,785

$         284,179

$       178,293

$    1,078,339

$       831,798

(1)

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

Americas Revenues:

Colocation

$       299,200

$         294,046

$       274,198

$    1,161,665

$    1,059,713

Interconnection

100,459

94,865

84,796

374,655

321,198

Managed infrastructure

14,385

14,649

10,927

53,404

48,042

Other

943

902

817

3,360

3,131

Recurring revenues

414,987

404,462

370,738

1,593,084

1,432,084

Non-recurring revenues

21,555

20,680

23,751

86,465

80,451

Revenues

436,542

425,142

394,489

1,679,549

1,512,535

EMEA Revenues:

Colocation

242,829

244,420

146,879

941,848

562,817

Interconnection

22,280

21,464

16,775

85,869

58,490

Managed infrastructure

17,243

16,359

7,619

67,553

25,196

Other

2,919

3,947

862

11,382

5,275

Recurring revenues

285,271

286,190

172,135

1,106,652

651,778

Non-recurring revenues

16,353

15,060

10,519

64,687

47,029

Revenues

301,624

301,250

182,654

1,171,339

698,807

Asia-Pacific Revenues:

Colocation

146,483

140,493

112,498

543,581

397,345

Interconnection

23,159

21,172

18,979

82,521

62,061

Managed infrastructure

22,362

24,138

9,447

89,335

23,598

Other

180

551

2,275

2,201

2,275

Recurring revenues

192,184

186,354

143,199

717,638

485,279

Non-recurring revenues

12,297

11,930

10,120

43,463

29,246

Revenues

204,481

198,284

153,319

761,101

514,525

Worldwide Revenues:

Colocation

688,512

678,959

533,575

2,647,094

2,019,875

Interconnection

145,898

137,501

120,550

543,045

441,749

Managed infrastructure

53,990

55,146

27,993

210,292

96,836

Other

4,042

5,400

3,954

16,943

10,681

Recurring revenues

892,442

877,006

686,072

3,417,374

2,569,141

Non-recurring revenues

50,205

47,670

44,390

194,615

156,726

Revenues

$       942,647

$         924,676

$       730,462

$    3,611,989

$    2,725,867

(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

$       465,921

$         470,302

$       351,968

$    1,820,870

$    1,291,506

Depreciation, amortization and accretion expense

(161,049)

(162,165)

(121,505)

(638,290)

(445,189)

Stock-based compensation expense

(3,332)

(3,316)

(2,507)

(13,086)

(9,878)

Cash cost of revenues

$       301,540

$         304,821

$       227,956

$    1,169,494

$       836,439

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

Americas cash cost of revenues

$       115,838

$         114,934

$       107,640

$       449,088

$       410,915

EMEA cash cost of revenues

113,796

116,587

64,089

446,842

249,457

Asia-Pacific cash cost of revenues

71,906

73,300

56,227

273,564

176,067

Cash cost of revenues

$       301,540

$         304,821

$       227,956

$    1,169,494

$       836,439

(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, marketing, 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

$       113,384

$         110,936

$         88,439

$       438,742

$       332,012

Depreciation and amortization expense

(17,345)

(19,719)

(7,329)

(73,238)

(25,895)

Stock-based compensation expense

(10,843)

(11,702)

(9,041)

(43,030)

(36,847)

Cash sales and marketing expenses

$         85,196

$           79,515

$         72,069

$       322,474

$       269,270

(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

$       178,956

$         181,239

$       136,829

$       694,561

$       493,284

Depreciation and amortization expense

(33,874)

(33,486)

(16,027)

(131,982)

(57,845)

Stock-based compensation expense

(25,662)

(27,455)

(23,510)

(100,032)

(86,908)

Cash general and administrative expenses

$       119,420

$         120,298

$         97,292

$       462,547

$       348,531

(7)

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

Cash sales and marketing expenses

$         85,196

$           79,515

$         72,069

$       322,474

$       269,270

Cash general and administrative expenses

119,420

120,298

97,292

462,547

348,531

Cash SG&A

$       204,616

$         199,813

$       169,361

$       785,021

$       617,801

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

Americas cash SG&A

$       115,012

$         108,077

$       106,035

$       443,150

$       403,016

EMEA cash SG&A

59,977

63,195

36,971

230,234

130,789

Asia-Pacific cash SG&A

29,627

28,541

26,355

111,637

83,996

Cash SG&A

$       204,616

$         199,813

$       169,361

$       785,021

$       617,801

(8)

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

Income from continuing operations

$       184,455

$         169,941

$       135,877

$       618,739

$       567,342

Depreciation, amortization and accretion expense

212,268

215,370

144,861

843,510

528,929

Stock-based compensation expense

39,837

42,473

35,058

156,148

133,633

Impairment charges

-

7,698

-

7,698

-

Acquisition costs

(440)

12,505

17,349

64,195

41,723

(Gain) loss on asset sales

371

(27,945)

-

(32,816)

-

Adjusted EBITDA

$       436,491

$         420,042

$       333,145

$    1,657,474

$    1,271,627

The geographic split of our adjusted EBITDA is presented below:

Americas income from continuing operations

$         87,537

$           89,004

$         83,425

$       352,180

$       324,458

Americas depreciation, amortization and accretion expense

83,305

82,204

73,023

321,103

278,644

Americas stock-based compensation expense

28,312

29,309

25,576

109,740

100,760

Americas acquisition costs

6,538

1,614

(1,210)

9,530

(5,258)

Americas gain on asset sales

-

-

-

(5,242)

-

Americas adjusted EBITDA

205,692

202,131

180,814

787,311

698,604

EMEA income from continuing operations

51,347

51,829

34,011

124,853

145,527

EMEA depreciation, amortization and accretion expense

76,598

78,555

30,434

314,570

118,008

EMEA stock-based compensation expense

6,884

8,138

4,348

28,317

16,690

EMEA acquisition costs

(6,978)

10,891

12,801

54,468

38,336

EMEA gain on asset sales

-

(27,945)

-

(27,945)

-

EMEA adjusted EBITDA

127,851

121,468

81,594

494,263

318,561

Asia-Pacific income from continuing operations

45,571

29,108

18,441

141,706

97,357

Asia-Pacific depreciation, amortization and accretion expense

52,365

54,611

41,404

207,837

132,277

Asia-Pacific stock-based compensation expense

4,641

5,026

5,134

18,091

16,183

Asia-Pacific impairment charges

-

7,698

-

7,698

-

Asia-Pacific acquisition costs

-

-

5,758

197

8,645

Asia-Pacific loss on asset sales

371

-

-

371

-

Asia-Pacific adjusted EBITDA

102,948

96,443

70,737

375,900

254,462

Adjusted EBITDA

$       436,491

$         420,042

$       333,145

$    1,657,474

$    1,271,627

(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

73%

73%

73%

73%

73%

EMEA cash gross margins

62%

61%

65%

62%

64%

Asia-Pacific cash gross margins

65%

63%

63%

64%

66%

(10)

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

Americas adjusted EBITDA margins

47%

48%

46%

47%

46%

EMEA adjusted EBITDA margins

42%

40%

45%

42%

46%

Asia-Pacific adjusted EBITDA margins

50%

49%

46%

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

$       436,491

$         420,042

$       333,145

$    1,657,474

$    1,271,627

Less adjusted EBITDA - prior period

(420,042)

(420,291)

(321,472)

(1,271,627)

(1,113,891)

Adjusted EBITDA growth

$         16,449

$              (249)

$         11,673

$       385,847

$       157,736

Revenues - current period

$       942,647

$         924,676

$       730,462

$    3,611,989

$    2,725,867

Less revenues - prior period

(924,676)

(900,510)

(686,649)

(2,725,867)

(2,443,776)

Revenue growth

$         17,971

$           24,166

$         43,813

$       886,122

$       282,091

Adjusted EBITDA flow-through rate

92%

(1%)

27%

44%

56%

(12)

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

Net income

$         61,750

$           51,450

$         10,731

$       126,800

$       187,774

Adjustments:

Real estate depreciation and amortization

157,054

159,788

120,144

626,564

439,969

(Gain) loss on disposition of real estate property

1,036

(23,436)

579

(28,388)

1,382

Adjustments for FFO from unconsolidated joint ventures

28

29

29

113

113

FFO 

$       219,868

$         187,831

$       131,483

$       725,089

$       629,238

(13)

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

FFO 

$       219,868

$         187,831

$       131,483

$       725,089

$       629,238

Adjustments:

Installation revenue adjustment

4,788

4,612

5,843

20,161

35,498

Straight-line rent expense adjustment

1,986

2,686

1,462

7,700

7,931

Amortization of deferred financing costs

5,258

2,687

4,495

18,696

16,135

Stock-based compensation expense

39,837

42,474

35,058

156,149

133,633

Non-real estate depreciation expense

23,265

22,108

15,921

87,781

58,165

Amortization expense

29,478

32,929

8,100

122,862

27,446

Accretion expense

2,471

545

696

6,303

3,349

Recurring capital expenditures

(36,476)

(41,600)

(44,668)

(141,819)

(120,281)

Loss on debt extinguishment

1,777

9,894

289

12,276

289

Acquisition costs

(440)

12,505

17,349

64,195

41,723

Impairment charges

-

7,698

-

7,698

-

Income tax expense adjustment

68

2,501

2,279

3,680

(1,270)

Net (income) loss from discontinued operations, net of tax

1,914

(2,681)

-

(12,392)

-

Adjustments for AFFO from unconsolidated joint ventures

(9)

(10)

(14)

(40)

(58)

AFFO

$       293,785

$         284,179

$       178,293

$    1,078,339

$       831,798

(14)

Following is how we reconcile from adjusted EBITDA to AFFO:

Adjusted EBITDA 

$       436,491

$         420,042

$       333,145

$    1,657,474

$    1,271,627

Adjustments:

Interest expense, net of interest income

(97,813)

(91,437)

(78,293)

(388,679)

(295,474)

Amortization of deferred financing costs

5,258

2,687

4,495

18,696

16,135

Income tax benefit (expense)

(19,494)

(22,778)

2,053

(45,451)

(23,224)

Income tax expense adjustment

68

2,501

2,279

3,680

(1,270)

Straight-line rent expense adjustment

1,986

2,686

1,462

7,700

7,931

Installation revenue adjustment

4,788

4,612

5,843

20,161

35,498

Recurring capital expenditures

(36,476)

(41,600)

(44,668)

(141,819)

(120,281)

Other income (expense)

(1,707)

2,938

(48,617)

(57,924)

(60,581)

(Gain) loss on disposition of depreciable real estate property

1,036

(23,436)

579

(28,388)

1,382

Adjustments for unconsolidated JVs' and non-controlling interests

19

19

15

73

55

Adjustment for gain (loss) on sale of asset

(371)

27,945

-

32,816

-

AFFO

$       293,785

$         284,179

$       178,293

$    1,078,339

$       831,798

SOURCE Equinix, Inc.

Investor Relations, Katrina Rymill, Equinix, Inc., (650) 598-6583, krymill@equinix.com; or Paul Thomas, Equinix, Inc., (650) 598-6442, pthomas@equinix.com; or Media, Michelle Lindeman, Equinix, Inc., (650) 598-6361, mlindeman@equinix.com

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