Equinix Reports Second Quarter 2011 Results

• Reported revenues of $394.9 million, a 9% increase over the previous quarter and a 33% increase over the same quarter last year
• Reported adjusted EBITDA of $181.3 million, an 8% increase over the previous quarter and a 37% increase over the same quarter last year
• Increased 2011 annual revenue guidance to greater than $1,590.0 million and increased 2011 adjusted EBITDA guidance to greater than $720.0 million  

REDWOOD CITY, CA — July 27, 2011 — Equinix, Inc. (NASDAQ:EQIX, news, filings), a provider of global data center services, today reported quarterly results for the quarter ended June 30, 2011.  This quarter included the results from the acquisition of an indirect, controlling equity interest in ALOG Data Centers do Brasil S.A. from April 25, 2011, which is referred to as the ALOG acquisition.

Revenues were $394.9 million for the second quarter, a 9% increase over the previous quarter and a 33% increase over the same quarter last year.  This result included $11.7 million in revenues from ALOG for the quarter.  Recurring revenues, consisting primarily of colocation, interconnection and managed services were $376.5 million for the second quarter, a 9% increase over the previous quarter and a 33% increase over the same quarter last year.  Non-recurring revenues were $18.4 million in the quarter.

“With outstanding first-half results, Equinix is on target to surpass its original financial objectives for 2011. Solid market fundamentals such as the growth of IP, mobile, video, cloud and electronic trading combined with our global leadership position set us up well for the long term,” said Steve Smith, president and CEO of Equinix. “Our investments are paying off and we will continue to carefully allocate capital to support our growth, while generating attractive returns for our shareholders.”

Cost of revenues were $215.6 million for the second quarter, an 11% increase over the previous quarter and a 33% increase over the same quarter last year.  Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $78.0 million, were $137.6 million for the second quarter, a 12% increase from the previous quarter and a 32% increase over the same quarter last year.  Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 65%, down from 66% for the previous quarter and unchanged from the same quarter last year.

Selling, general and administrative expenses were $102.7 million for the second quarter, a 7% increase over the previous quarter and a 24% increase over the same quarter last year. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $26.7 million, were $76.0 million for the second quarter, a 4% increase over the previous quarter and a 27% increase over the same quarter last year.

Interest expense was $37.7 million for the second quarter, a 1% increase from the previous quarter and essentially flat over the same quarter last year.  The Company recorded income tax expense of $8.1 million for the second quarter as compared to an income tax expense of $11.1 million in the prior quarter and income tax expense of $2.4 million in the same quarter last year.

Net income attributable to Equinix for the second quarter was $30.7 million.  This represents a basic net income per share attributable to Equinix of $0.65 and diluted net income per share of $0.64 based on a weighted average share count of 46.9 million and 50.7 million, respectively, for the second quarter of 2011.

Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges and acquisition costs for the second quarter, was $181.3 million, an increase of 8% over the previous quarter and a 37% increase over the same quarter last year.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the second quarter, were $188.9 million, of which $160.9 million was attributed to expansion capital expenditures and $28.0 million was attributed to ongoing capital expenditures.

The Company generated cash from operating activities of $140.3 million for the second quarter as compared to $117.8 million in the previous quarter and $56.9 million for the same quarter last year. Cash used in investing activities was $209.7 million in the second quarter as compared to cash used in investing activities of $286.4 million in the previous quarter and cash used in investing activities of $327.5 million for the same quarter last year. Cash provided by financing activities was $61.8 million for the second quarter, which was primarily related to the proceeds from employee equity awards and draw downs of certain loans payable.

As of June 30, 2011, the Company’s cash, cash equivalents and investments were $423.1 million, as compared to $456.7 million as of March 31, 2011.  In July 2011, the Company received net proceeds from the 7.00% senior notes offering of approximately $735.6 million.

Company Metrics and Q2 Results Presentation

• A presentation to accompany Equinix’s Q2 Results conference call, as well as the Company’s Non-Financial Metrics tracking sheet, have been posted on the Investors section of Equinix’s web site at www.equinix.com/investors

Business Outlook

For the third quarter of 2011, the Company expects revenues to be in the range of $412.0 to $417.0 million.  Cash gross margins are expected to be approximately 65%.  Cash selling, general and administrative expenses are expected to be approximately $86.0 million.  Adjusted EBITDA is expected to be between $180.0 and $185.0 million.  Capital expenditures are expected to be approximately $160.0 and $180.0 million, comprised of approximately $30.0 million of ongoing capital expenditures and $130.0 to $150.0 million of expansion capital expenditures.

For the full year of 2011, total revenues are expected to be greater than $1,590.0 million.  Total year cash gross margins are expected to range between 65% and 66%.  Cash selling, general and administrative expenses are expected to approximate $320.0 million.  Adjusted EBITDA for the year is expected to be greater than $720.0 million.  Capital expenditures for 2011 are expected to be in the range of $645.0 to $665.0 million, comprised of approximately $115.0 million of ongoing capital expenditures and $530.0 to $550.0 million for expansion capital expenditures.

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, July 27, 2011, at 5:30 p.m. ET (2:30 p.m. PT).  A presentation to accompany the call will be available on the Company’s website at www.equinix.com/investors.  To hear the conference call live, please dial 210-234-8004 (domestic and international) and reference the passcode (EQIX).  A simultaneous live Webcast of the call will also be available at www.equinix.com/investors.

A replay of the call will be available beginning on Wednesday, July 27, 2011, at 7:30 p.m. (ET) through August 28, 2011, by dialing 203-369-1470.  In addition, the webcast will be available on the company’s web site at www.equinix.com/investors over the same time period.  No password is required for the replay or the webcast.

About Equinix

Equinix, Inc. (NASDAQ: EQIX) connects businesses with partners and customers around the world through a global platform of high performance data centers, containing dynamic ecosystems and the broadest choice of networks. Platform Equinix connects more than 4,000 enterprises, cloud, digital content and financial companies including more than 675 network service providers to help them grow their businesses, improve application performance and protect their vital digital assets. Equinix operates in 38 strategic markets across the Americas, EMEA and Asia-Pacific and continually invests in expanding its platform to power customer growth. http://www.equinix.com

Non-GAAP Financial Measures

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

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

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

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

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

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

Forward Looking Statements

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

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