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Press Release -- August 2nd, 2017
Source: Equinix
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Equinix Reports Second Quarter 2017 Results

Interconnection and Data Center Leader Delivers 58th Consecutive Quarter of Revenue Growth; Quarterly Revenues Surpass $1 Billion for the First Time

REDWOOD CITY, Calif., Aug. 2, 2017 /PRNewswire/ --

  • Quarterly revenues increased 18% year-over-year to $1,066 million; 11% year-over-year on a normalized and constant currency basis
  • Key customer and partner wins and expansions included Alibaba, AWS, Microsoft Azure, Salesforce, Shire, and Weyerhaeuser
  • Completed the acquisition of 29 Verizon data centers and opened three organic build facilities, expanding Equinix's global platform to 182 IBX data centers
  • Interconnection revenue growth continued to significantly outpace colocation revenue growth

Equinix, Inc. (NASDAQ:EQIX, news, filings), the global interconnection and data center company, today reported quarterly results for the quarter ended June 30, 2017. 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.

Second Quarter 2017 Results Summary

  • Revenues from continuing operations
    • $1,066 million, a 12% increase over the previous quarter
    • Includes $86.7 million of revenues from the acquisition of 29 Verizon data centers
  • Operating Income
    • $185 million, an 11% increase over the previous quarter
  • Adjusted EBITDA
    • $509 million, a 48% adjusted EBITDA margin
    • Includes $15 million of integration costs
  • Net Income from Continuing Operations
    • $46 million
  • AFFO
    • $360 million, an 18% increase over the previous quarter

2017 Annual Guidance Summary

  • Revenues from continuing operations
    • $4,317 - $4,327 million, a 20% increase over the previous year; a normalized and constant currency increase of greater than 11%
  • Adjusted EBITDA
    • $2,038 - $2,048 million or a 47% adjusted EBITDA margin
    • Assumes $52 million of integration costs for acquisitions
  • AFFO
    • $1,382 - $1,392 million, a 29% increase over the previous year; a normalized and constant currency increase of 13%
    • Assumes $52 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:
"Q2 was another strong quarter for Equinix, surpassing the milestone of $1 billion in quarterly revenues for the first time in the company's history. A key highlight in the quarter was the completion of the acquisition of Verizon's Americas data center portfolio, strengthening our global market leadership and providing additional capacity to meet customer demand. As the shift to digital impacts businesses across all segments, private, secure and distributed interconnection continues to grow as a core design principle of IT, resulting in key new customer wins, and healthy and growing market share for Equinix."

Business Highlights

  • Equinix completed its acquisition of Verizon's 29 data centers in Q2, creating significant growth and scaling opportunities for the Americas business, and enhancing interconnection capabilities with core strategic hubs in 15 metro areas. The new data centers, and the 600 plus net new customers, strengthen Equinix's global market leadership, creating new opportunities to grow business ecosystems around the world with both existing and new customers. The acquisition opens three new markets (Bogotá, Culpeper andHouston), and the Miami NAP of the Americas ("NOTA") (MI 1) facility significantly expands Equinix's ability to serve interconnection needs between North and South America.
  • Equinix also continued its organic expansion, opening new data centers in Amsterdam, Frankfurt and Silicon Valley, and extending the reach of Equinix's global platform to 182 IBX data centers across 44 markets and 22 countries. The Amsterdam 4 IBX, adjacent to Equinix's existing Amsterdam 3 facility in the Amsterdam Science Park, builds out one of the most cloud dense locations in Europe, helping Equinix meet the growing demand for interconnection and colocation in the Netherlands as a key launch pad for serving the continent. In Frankfurt, the Frankfurt 6 IBX, located on owned land next to Equinix's Frankfurt 4 IBX, and tethered to Equinix's Frankfurt5 IBX, supports the scaling of Equinix's operations in one of Europe's leading financial centers and a hub for banking, commerce and manufacturing. The Silicon Valley 10 IBX adds capacity to Equinix's network dense San Jose campus, which serves as one of the largest concentrations of high-tech companies and peering hubs in the world.
  • Enterprise remained the fastest growing vertical with a record number of new logos and Fortune 500 wins in Q2. Key wins in Q2 included Weyerhaeuser, a Fortune 350 manufacturer transforming its supply chain management to digital, and Shire, a leading pharmaceutical company connecting to multiple clouds to support distributed analytics and hybrid data storage.
  • With the Verizon data center acquisition, Equinix now serves 42% of the Fortune 500 and 30% of the Global 2000, as the benefits of Equinix's globally consistent platform continue to grow. In Q2, over 58% of revenues came from customers deployed across all three regions, and 84% came from customers deployed across multiple metros, up from 83% last quarter.
  • Interconnection revenues in Q2 grew 24% year-over-year and 17% year-over-year on a normalized and constant currency basis, significantly outpacing colocation revenues and reflecting the movement towards Interconnection Oriented ArchitecturesTM and the rapid adoption of hybrid, multi-cloud as the preferred IT deployment model. Cross-connects between customers increased to over 242,000, and traction with Equinix Cloud ExchangeTM continued with expansions from AWS, Microsoft Azure and Salesforce into new markets on Cloud Exchange in the second quarter.
  • Equinix also announced its intention to enter into an "At-the-Market" equity offering program under which Equinix may offer and sell, from time to time, up to an aggregate of $750 million of its common stock (the "ATM Program"). Equinix expects to use the net proceeds, if any, from the ATM Program for working capital and general corporate purposes, which may include, among other things, repayment of indebtedness, capital expenditures and acquisitions of complementary businesses or assets.

Business Outlook

For the third quarter of 2017, the Company expects revenues to range between $1,133 and $1,141 million, an increase of 7% quarter over quarter at the midpoint, or a normalized and constant currency increase of 3%. This guidance includes a foreign currency benefit of $2 million when compared to the average FX rates in Q2 2017. Cash gross margins are expected to approximate 67%. Cash selling, general and administrative expenses are expected to range between $218 and $226 million. Adjusted EBITDA is expected to range between $535 and $543 million, which includes a $2 million foreign currency benefit when compared to the average FX rates in Q2 2017, and $16 million of integration costs for the Verizon data center, Telecity and Bit-isle acquisitions. Capital expenditures are expected to range between $313 and $333 million, which includes approximately $53 million of recurring capital expenditures.

For the full year of 2017, total revenues are expected to range between $4,317 and $4,327 million, an increase of 20% year over year, or a normalized and constant currency increase of greater than 11%. This $19 million guidance raise is due to better than expected combined operating business performance of $8 million and a foreign currency benefit of $11 million when compared to prior Equinix guidance rates. This guidance is comprised of full year organic revenues of greater than $3,987 million, and the Verizon data center acquisition revenues ranging between $330 and $340 million. Total year cash gross margins are expected to approximate 67 - 68%. Cash selling, general and administrative expenses are expected to range between $868 and $878 million. Adjusted EBITDA is expected to range between $2,038 and $2,048 million, an increase of 23% year over year, or a normalized and constant currency increase of 11%. This $17 million adjusted EBITDA raise is due to better than expected combined operating performance of $14 millionand a foreign currency benefit of $3 million when compared to prior Equinix guidance rates. This guidance includes an expected $52 million in integration costs for the Verizon data center, Telecity and Bit-isle acquisitions. AFFO is expected to range between $1,382 and $1,392 million, an increase of 29% year over year, or a normalized and constant currency increase of 13%. Capital expenditures are expected to range between $1,250 and $1,300 million, including approximately $175 million of recurring capital expenditures and$1,075 and $1,125 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 $1.12 to the Euro, $1.39 to the Pound, S$1.38 to the U.S. dollar,  ¥112.36 to the U.S. dollar and R$3.31 to the U.S. dollar. The Q2 2017 global revenue breakdown by currency for the Euro, Pound, Singapore Dollar, Japanese Yen and Brazilian Real is 18%, 9%, 6%, 7% and 4%, 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.

Q2 2017 Results Conference Call and Replay Information

Equinix will discuss its quarterly results for the period ended June 30, 2017, along with its future outlook, in its quarterly conference call on Wednesday, August 2, 2017, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live webcast of the call will be available on the Company'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 Wednesday, November 1, 2017, by dialing 1-402-998-0968 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 44 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 provides normalized and constant currency growth rates, which are calculated to adjust for acquisitions, dispositions, integration costs and foreign currency.

Equinix presents adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA represents income or loss from continuing operations excluding depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gain or loss 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 gain or loss 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 gain or loss 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 gain or loss 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 gain (loss) 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, gain (loss) 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 revenues 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 revenues 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 gain (loss) 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 data 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 revenues 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,
2017

March 31,
2017

June 30,
2016

June 30,
2017

June 30,
2016

Recurring revenues

$

1,010,048

$

898,440

$

851,306

$

1,908,488

$

1,647,926

Non-recurring revenues

56,373

51,085

49,204

107,458

96,740

Revenues

1,066,421

949,525

900,510

2,015,946

1,744,666

Cost of revenues

522,203

468,961

456,967

991,164

884,647

Gross profit

544,218

480,564

443,543

1,024,782

860,019

Operating expenses:

Sales and marketing

141,566

128,927

107,832

270,493

214,422

General and administrative

191,355

181,399

168,462

372,754

334,366

Acquisition costs

26,402

3,025

15,594

29,427

52,130

Gain on asset sales

(5,242)

Total operating expenses

359,323

313,351

291,888

672,674

595,676

Income from continuing operations

184,895

167,213

151,655

352,108

264,343

Interest and other income (expense):

Interest income

4,437

3,092

841

7,529

1,766

Interest expense

(119,042)

(111,684)

(100,332)

(230,726)

(201,195)

Other income (expense)

1,284

337

1,555

1,621

(59,155)

Loss on debt extinguishment

(16,444)

(3,503)

(605)

(19,947)

(605)

Total interest and other, net

(129,765)

(111,758)

(98,541)

(241,523)

(259,189)

Income from continuing operations before income taxes

55,130

55,455

53,114

110,585

5,154

Income tax expense

(9,325)

(13,393)

(13,812)

(22,718)

(3,179)

Net income from continuing operations

45,805

42,062

39,302

87,867

1,975

Net income from discontinued operations, net of tax

5,409

11,625

Net income

$

45,805

$

42,062

$

44,711

$

87,867

$

13,600

Net income per share:

Basic net income per share from continuing operations

$

0.59

$

0.58

$

0.56

$

1.17

$

0.03

Basic net income per share from discontinued operations

0.08

0.17

Basic net income per share

$

0.59

$

0.58

$

0.64

$

1.17

$

0.20

Diluted net income per share from continuing operations

$

0.58

$

0.57

$

0.56

$

1.16

$

0.03

Diluted net income per share from discontinued operations

0.08

0.17

Diluted net income per share

$

0.58

$

0.57

$

0.64

$

1.16

$

0.20

Shares used in computing basic net income per share

77,923

72,773

69,729

75,383

68,931

Shares used in computing diluted net income per share

78,508

73,367

70,364

76,008

69,575

EQUINIX, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,
2017

March 31,
2017

June 30,
2016

June 30,
2017

June 30,
2016

Net income

$

45,805

$

42,062

$

44,711

$

87,867

$

13,600

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment ("CTA") gain (loss)

200,983

106,938

(298,361)

307,921

(182,462)

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

(65)

(265)

1,199

(330)

895

Unrealized gain (loss) on cash flow hedges

(27,671)

(11,727)

14,726

(39,398)

7,942

Net investment hedge CTA gain (loss)

(101,847)

(28,551)

55,196

(130,398)

38,884

Net actuarial gain on defined benefit plans

15

11

8

26

14

Total other comprehensive income (loss), net of tax

71,415

66,406

(227,232)

137,821

(134,727)

Comprehensive income (loss), net of tax

$

117,220

$

108,468

$

(182,521)

$

225,688

$

(121,127)

EQUINIX, INC.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

June 30, 2017

December 31,
2016

Assets

Cash and cash equivalents

$

1,063,777

$

748,476

Short-term investments

4,242

3,409

Accounts receivable, net

545,734

396,245

Other current assets

235,871

319,396

          Total current assets

1,849,624

1,467,526

Long-term investments

6,389

10,042

Property, plant and equipment, net

8,746,595

7,199,210

Goodwill

4,225,553

2,986,064

Intangible assets, net

2,382,230

719,231

Other assets

263,546

226,298

          Total assets

$

17,473,937

$

12,608,371

Liabilities and Stockholders' Equity

Accounts payable and accrued expenses

$

612,593

$

581,739

Accrued property, plant and equipment

192,381

144,842

Current portion of capital lease and other financing obligations

62,937

101,046

Current portion of mortgage and loans payable

83,022

67,928

Other current liabilities

140,502

133,140

          Total current liabilities

1,091,435

1,028,695

Capital lease and other financing obligations, less current portion

1,584,287

1,410,742

Mortgage and loans payable, less current portion

2,511,447

1,369,087

Senior notes

5,047,426

3,810,770

Other liabilities

715,679

623,248

          Total liabilities

10,950,274

8,242,542

Common stock

78

72

Additional paid-in capital

9,648,817

7,413,519

Treasury stock

(146,982)

(147,559)

Accumulated dividends

(2,274,503)

(1,969,645)

Accumulated other comprehensive loss

(811,321)

(949,142)

Retained earnings

107,574

18,584

          Total stockholders' equity

6,523,663

4,365,829

          Total liabilities and stockholders' equity

$

17,473,937

$

12,608,371

Ending headcount by geographic region is as follows:

          Americas headcount

2,922

2,510

          EMEA headcount

2,218

2,063

          Asia-Pacific headcount

1,468

1,420

                    Total headcount

6,608

5,993

EQUINIX, INC.

Summary of Debt Principal Outstanding

(in thousands)

(unaudited)

June 30, 2017

December 31, 2016

Capital lease and other financing obligations

$

1,647,224

$

1,511,788

Term loans, net of debt discount and debt issuance costs

2,546,605

1,390,771

Mortgage payable and other loans payable

47,864

46,244

Plus: debt discount, premium and issuance costs, net

31,608

20,949

           Total mortgage and loans payable principal

2,626,077

1,457,964

Senior notes, net of debt issuance costs

5,047,426

3,810,770

Plus: debt issuance costs

52,574

39,230

          Total senior notes principal

5,100,000

3,850,000

Total debt principal outstanding

$

9,373,301

$

6,819,752

EQUINIX, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,
2017

March 31,
2017

June 30,
2016

June 30,
2017

June 30,
2016

Cash flows from operating activities:

Net income

$

45,805

$

42,062

$

44,711

$

87,867

$

13,600

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion

252,386

219,013

213,719

471,399

415,872

Stock-based compensation

45,625

38,323

39,323

83,948

73,384

Amortization of debt issuance costs and debt discounts

4,130

11,580

5,517

15,710

11,025

Loss on debt extinguishment

16,444

3,503

318

19,947

318

Gain on asset sales

(5,242)

Other items

3,775

8,380

6,747

12,155

12,182

Changes in operating assets and liabilities:

Accounts receivable

(112,236)

(39,664)

(31,055)

(151,900)

(42,367)

Income taxes, net

(13,290)

(20,637)

4,901

(33,927)

(23,755)

Accounts payable and accrued expenses

81,585

(65,414)

29,592

16,171

(10,625)

Other assets and liabilities

(17,751)

50,225

(35,509)

32,474

(61,294)

Net cash provided by operating activities

306,473

247,371

278,264

553,844

383,098

Cash flows from investing activities:

Purchases, sales and maturities of investments, net

10,303

(7,104)

8,764

3,199

12,183

Business acquisitions, net of cash and restricted cash acquired

(3,593,613)

(36,041)

(3,629,654)

(1,601,326)

Purchases of real estate

(6,841)

(41,739)

(11,710)

(48,580)

(28,118)

Purchases of other property, plant and equipment

(348,572)

(277,242)

(249,867)

(625,814)

(447,567)

Proceeds from asset sales

47,767

47,767

22,825

Net cash used in investing activities

(3,938,723)

(314,359)

(252,813)

(4,253,082)

(2,042,003)

Cash flows from financing activities:

Proceeds from employee equity awards

45

20,074

1,335

20,119

17,639

Payments of dividend distributions

(156,290)

(148,083)

(121,858)

(304,373)

(246,694)

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

83

2,126,258

2,126,341

Proceeds from loans payable

1,059,800

1,059,800

701,250

Proceeds from senior notes

1,250,000

1,250,000

Repayment of capital lease and other financing obligations

(27,864)

(16,596)

(12,103)

(44,460)

(45,335)

Repayments of mortgage and loans payable and convertible debt

(20,795)

(21,510)

(36,758)

(42,305)

(973,111)

Debt extinguishment costs

(8,122)

(3,132)

(11,254)

Debt issuance costs

46

(40,665)

23

(40,619)

(42)

Other financing activities

(900)

(900)

Net cash provided by (used in) financing activities

(212,897)

4,225,246

(169,361)

4,012,349

(546,293)

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

5,327

11,541

18,140

16,868

8,639

Change in cash balances included in assets held for sale

(25,111)

(25,111)

Net increase (decrease) in cash, cash equivalents and restricted cash

(3,839,820)

4,169,799

(150,881)

329,979

(2,221,670)

Cash, cash equivalents and restricted cash at beginning of period

4,943,046

773,247

647,638

773,247

2,718,427

Cash, cash equivalents and restricted cash at end of period

$

1,103,226

$

4,943,046

$

496,757

$

1,103,226

$

496,757

Supplemental cash flow information:

Cash paid for taxes

$

16,269

$

29,552

$

12,361

$

45,821

$

31,576

Cash paid for interest

$

97,960

$

115,434

$

85,897

$

213,394

$

160,437

Free cash flow (negative free cash

flow) (1)

$

(3,642,553)

$

(59,884)

$

16,687

$

(3,702,437)

$

(1,671,088)

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

$

(42,099)

$

17,896

$

28,397

$

(24,203)

$

(41,644)

(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

$

306,473

$

247,371

$

278,264

$

553,844

$

383,098

Net cash used in investing activities as presented above

(3,938,723)

(314,359)

(252,813)

(4,253,082)

(2,042,003)

Purchases, sales and maturities of investments, net

(10,303)

7,104

(8,764)

(3,199)

(12,183)

Free cash flow (negative free cash flow)

$

(3,642,553)

$

(59,884)

$

16,687

$

(3,702,437)

$

(1,671,088)

(2)

We define adjusted free cash flow as free cash flow (as defined above) excluding any purchases of real estate and business acquisitions, net of cash and restricted cash acquired as presented below:

Free cash flow (as defined above)

$

(3,642,553)

$

(59,884)

$

16,687

$

(3,702,437)

$

(1,671,088)

Less business acquisitions, net of cash and restricted cash acquired

3,593,613

36,041

3,629,654

1,601,326

Less purchases of real estate

6,841

41,739

11,710

48,580

28,118

Adjusted free cash flow

$

(42,099)

$

17,896

$

28,397

$

(24,203)

$

(41,644)

EQUINIX, INC.

Non-GAAP Measures and Other Supplemental Data

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 2017

March 31, 2017

June 30, 2016

June 30, 2017

June 30, 2016

Recurring revenues

$

1,010,048

$

898,440

$

851,306

$

1,908,488

$

1,647,926

Non-recurring revenues

56,373

51,085

49,204

107,458

96,740

Revenues (1)

1,066,421

949,525

900,510

2,015,946

1,744,666

Cash cost of revenues (2)

344,469

303,540

292,033

648,009

563,133

Cash gross profit (3)

721,952

645,985

608,477

1,367,937

1,181,533

Cash operating expenses (4):

Cash sales and marketing expenses (5)

89,616

99,861

78,071

189,477

157,763

Cash general and administrative expenses (6)

123,028

118,550

110,115

241,578

222,829

Total cash operating expenses (7)

212,644

218,411

188,186

431,055

380,592

Adjusted EBITDA (8)

$

509,308

$

427,574

$

420,291

$

936,882

$

800,941

Cash gross margins (9)

68

%

68

%

68

%

68

%

68

%

Adjusted EBITDA margins (10)

48

%

45

%

47

%

46

%

46

%

Adjusted EBITDA flow-through rate(11)

70

%

(130)

%

70

%

54

%

45

%

FFO (12)

$

219,760

$

200,866

$

201,515

$

420,626

$

317,390

AFFO (13) (14)

$

360,114

$

304,110

$

290,529

$

664,224

$

500,375

(1)

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

Americas Revenues:

Colocation

$

374,764

$

299,273

$

287,855

$

674,037

$

568,419

Interconnection

116,248

100,850

91,722

217,098

179,331

Managed infrastructure

17,005

15,061

13,116

32,066

24,370

Other

1,903

919

786

2,822

1,515

Recurring revenues

509,920

416,103

393,479

926,023

773,635

Non-recurring revenues

23,688

20,344

19,992

44,032

44,230

Revenues

$

533,608

$

436,447

$

413,471

$

970,055

$

817,865

EMEA Revenues:

Colocation

$

259,684

$

253,254

$

240,421

$

512,938

$

454,599

Interconnection

23,655

22,351

22,425

46,006

42,125

Managed infrastructure

19,205

17,672

15,391

36,877

33,951

Other

2,037

3,330

3,573

5,367

4,516

Recurring revenues

304,581

296,607

281,810

601,188

535,191

Non-recurring revenues

18,363

18,240

18,799

36,603

33,274

Revenues

$

322,944

$

314,847

$

300,609

$

637,791

$

568,465

Asia-Pacific Revenues:

Colocation

$

147,783

$

138,995

$

132,952

$

286,778

$

256,605

Interconnection

25,781

24,859

19,912

50,640

38,190

Managed infrastructure

21,983

21,876

22,339

43,859

42,835

Other

814

1,470

Recurring revenues

195,547

185,730

176,017

381,277

339,100

Non-recurring revenues

14,322

12,501

10,413

26,823

19,236

Revenues

$

209,869

$

198,231

$

186,430

$

408,100

$

358,336

Worldwide Revenues:

Colocation

$

782,231

$

691,522

$

661,228

$

1,473,753

$

1,279,623

Interconnection

165,684

148,060

134,059

313,744

259,646

Managed infrastructure

58,193

54,609

50,846

112,802

101,156

Other

3,940

4,249

5,173

8,189

7,501

Recurring revenues

1,010,048

898,440

851,306

1,908,488

1,647,926

Non-recurring revenues

56,373

51,085

49,204

107,458

96,740

Revenues

$

1,066,421

$

949,525

$

900,510

$

2,015,946

$

1,744,666

(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

$

522,203

$

468,961

$

456,967

$

991,164

$

884,647

Depreciation, amortization and accretion expense

(174,556)

(162,510)

(161,493)

(337,066)

(315,076)

Stock-based compensation expense

(3,178)

(2,911)

(3,441)

(6,089)

(6,438)

Cash cost of revenues

$

344,469

$

303,540

$

292,033

$

648,009

$

563,133

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

Americas cash cost of revenues

$

148,589

$

113,059

$

109,296

$

261,648

$

218,316

EMEA cash cost of revenues

124,485

122,175

114,950

246,660

216,459

Asia-Pacific cash cost of revenues

71,395

68,306

67,787

139,701

128,358

Cash cost of revenues

$

344,469

$

303,540

$

292,033

$

648,009

$

563,133

(3)

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

(4)

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

Selling, general, and administrative expense

$

332,921

$

310,326

$

276,294

$

643,247

$

548,788

Depreciation and amortization expense

(77,830)

(56,503)

(52,226)

(134,333)

(100,796)

Stock-based compensation expense

(42,447)

(35,412)

(35,882)

(77,859)

(67,400)

Cash operating expense

$

212,644

$

218,411

$

188,186

$

431,055

$

380,592

(5)

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

Sales and marketing expense

$

141,566

$

128,927

$

107,832

$

270,493

$

214,422

Depreciation and amortization expense

(38,524)

(18,094)

(19,047)

(56,618)

(36,174)

Stock-based compensation expense

(13,426)

(10,972)

(10,714)

(24,398)

(20,485)

Cash sales and marketing expense

$

89,616

$

99,861

$

78,071

$

189,477

$

157,763

(6)

We define cash general and administrative expense as general and administrative expense less depreciation, amortization and stock-based compensation as presented below:

General and administrative expense

$

191,355

$

181,399

$

168,462

$

372,754

$

334,366

Depreciation and amortization expense

(39,306)

(38,409)

(33,179)

(77,715)

(64,622)

Stock-based compensation expense

(29,021)

(24,440)

(25,168)

(53,461)

(46,915)

Cash general and administrative expense

$

123,028

$

118,550

$

110,115

$

241,578

$

222,829

(7)

The geographic split of our cash operating expense, or cash SG&A, as defined above, is presented below:

Americas cash SG&A

$

126,868

$

124,769

$

109,147

$

251,637

$

220,061

EMEA cash SG&A

56,837

63,118

52,204

119,955

107,062

Asia-Pacific cash SG&A

28,939

30,524

26,835

59,463

53,469

Cash SG&A

$

212,644

$

218,411

$

188,186

$

431,055

$

380,592

(8)

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

Income from continuing operations

$

184,895

$

167,213

$

151,655

$

352,108

$

264,343

Depreciation, amortization and accretion expense

252,386

219,013

213,719

471,399

415,872

Stock-based compensation expense

45,625

38,323

39,323

83,948

73,838

Acquisition costs

26,402

3,025

15,594

29,427

52,130

Gain on asset sales

(5,242)

Adjusted EBITDA

$

509,308

$

427,574

$

420,291

$

936,882

$

800,941

The geographic split of our adjusted EBITDA is presented below:

Americas income from continuing operations

$

75,039

$

81,110

$

87,100

$

156,149

$

175,639

Americas depreciation, amortization and accretion expense

124,905

88,428

78,874

213,333

155,594

Americas stock-based compensation expense

33,771

27,774

27,790

61,545

52,119

Americas acquisition costs

24,436

1,307

1,264

25,743

1,378

Americas gain on asset sales

(5,242)

Americas adjusted EBITDA

$

258,151

$

198,619

$

195,028

$

456,770

$

379,488

EMEA income from continuing operations

$

54,927

$

44,981

$

29,096

$

99,908

$

21,677

EMEA depreciation, amortization and accretion expense

78,118

76,806

82,929

154,924

159,417

EMEA stock-based compensation expense

6,611

6,049

7,060

12,660

13,295

EMEA acquisition costs

1,966

1,718

14,370

3,684

50,555

EMEA adjusted EBITDA

$

141,622

$

129,554

$

133,455

$

271,176

$

244,944

Asia-Pacific income from continuing operations

$

54,929

$

41,122

$

35,459

$

96,051

$

67,027

Asia-Pacific depreciation, amortization and accretion expense

49,363

53,779

51,916

103,142

100,861

Asia-Pacific stock-based compensation expense

5,243

4,500

4,473

9,743

8,424

Asia-Pacific acquisition costs

(40)

197

Asia-Pacific adjusted EBITDA

$

109,535

$

99,401

$

91,808

$

208,936

$

176,509

(9)

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

Our cash gross margins by geographic region is presented below:

Americas cash gross margins

72

%

74

%

74

%

73

%

73

%

EMEA cash gross margins

61

%

61

%

62

%

61

%

62

%

Asia-Pacific cash gross margins

66

%

66

%

64

%

66

%

64

%

(10)

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

Americas adjusted EBITDA margins

48

%

46

%

47

%

47

%

46

%

EMEA adjusted EBITDA margins

44

%

41

%

44

%

43

%

43

%

Asia-Pacific adjusted EBITDA margins

52

%

50

%

49

%

51

%

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

$

509,308

$

427,574

$

420,291

$

936,882

$

800,941

Less adjusted EBITDA - prior period

(427,574)

(436,491)

(380,650)

(856,533)

(654,617)

Adjusted EBITDA growth

$

81,734

$

(8,917)

$

39,641

$

80,349

$

146,324

Revenues - current period

$

1,066,421

$

949,525

$

900,510

$

2,015,946

$

1,744,666

Less revenues - prior period

(949,525)

(942,647)

(844,156)

(1,867,323)

(1,417,111)

Revenue growth

$

116,896

$

6,878

$

56,354

$

148,623

$

327,555

Adjusted EBITDA flow-through rate

70

%

(130)

%

70

%

54

%

45

%

(12)

FFO is defined as net income or loss, excluding gain or loss 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

$

45,805

$

42,062

$

44,711

$

87,867

$

13,600

Adjustments:

Real estate depreciation and amortization

175,387

159,414

158,727

334,801

309,722

Gain on disposition of real estate property

(1,460)

(638)

(1,951)

(2,098)

(5,988)

Adjustments for FFO from unconsolidated joint ventures

28

28

28

56

56

FFO

$

219,760

$

200,866

$

201,515

$

420,626

$

317,390

(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, gain or loss on debt extinguishment, an income tax expense adjustment, net income or loss 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

$

219,760

$

200,866

$

201,515

$

420,626

$

317,390

Adjustments:

Installation revenue adjustment

6,939

4,675

7,407

11,614

10,761

Straight-line rent expense adjustment

1,015

2,409

1,895

3,424

3,028

Amortization of deferred financing costs

4,130

11,580

5,243

15,710

10,751

Stock-based compensation expense

45,625

38,323

39,323

83,948

73,838

Non-real estate depreciation expense

29,241

28,575

21,021

57,816

42,408

Amortization expense

50,158

29,017

32,303

79,175

60,455

Accretion expense

(2,400)

2,007

1,668

(393)

3,287

Recurring capital expenditures

(37,869)

(22,672)

(31,928)

(60,541)

(63,743)

Loss on debt extinguishment

16,444

3,503

605

19,947

605

Acquisition costs

26,402

3,025

15,594

29,427

52,130

Income tax expense adjustment

674

2,809

1,301

3,483

1,111

Net income from discontinued operations, net of tax

(5,409)

(11,625)

Adjustments for AFFO from unconsolidated joint ventures

(5)

(7)

(9)

(12)

(21)

AFFO

$

360,114

$

304,110

$

290,529

$

664,224

$

500,375

(14)

 Following is how we reconcile from adjusted EBITDA to AFFO:

Adjusted EBITDA

$

509,308

$

427,574

$

420,291

$

936,882

$

800,941

Adjustments:

Interest expense, net of interest income

(114,605)

(108,592)

(99,491)

(223,197)

(199,429)

Amortization of deferred financing costs

4,130

11,580

5,243

15,710

10,751

Income tax expense

(9,325)

(13,393)

(13,812)

(22,718)

(3,179)

Income tax expense adjustment

674

2,809

1,301

3,483

1,111

Straight-line rent expense adjustment

1,015

2,409

1,895

3,424

3,028

Installation revenue adjustment

6,939

4,675

7,407

11,614

10,761

Recurring capital expenditures

(37,869)

(22,672)

(31,928)

(60,541)

(63,743)

Other income (expense)

1,284

337

1,555

1,621

(59,155)

Gain on disposition of depreciable real estate property

(1,460)

(638)

(1,951)

(2,098)

(5,988)

Adjustments for unconsolidated JVs' and non-controlling interests

23

21

19

44

35

Adjustment for gain on sale of asset

5,242

AFFO

$

360,114

$

304,110

$

290,529

$

664,224

$

500,375

Equinix. (PRNewsFoto/Equinix)

SOURCE Equinix, Inc.

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