Equinix Reports Second Quarter 2013 Results

• Reported revenues of $525.7 million, a 1% increase over the previous quarter and a 15% increase over the same quarter last year, and includes the negative impact of a $5.8 million accounting change related to non-recurring installation fees
• Eclipses 120,000 cross-connects on a strong global interconnection quarter
• Tempers revenue acceleration in second half of 2013
• Q2 Financials 2013 (PDF)

REDWOOD CITY, CA – July 24, 2013 – Equinix, Inc. (NASDAQ:EQIX, news, filings), a provider of global data center services, today reported quarterly results for the quarter ended June 30, 2013. The Company uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

Revenues were $525.7 million for the second quarter, a 1% increase over the previous quarter and a 15% increase over the same quarter last year and includes a $5.8 million reduction in revenue for the second quarter due to a change in accounting estimate related to non-recurring installation fees. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $502.5 million for the second quarter, a 1% increase over the previous quarter and a 16% increase over the same quarter last year. Non-recurring revenues were $23.2 million in the quarter. Churn for the second quarter was 2.4%, down from 3.7% for the previous quarter and in line with prior guidance.

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

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

Cost of revenues were $267.7 million for the second quarter, a 3% increase over the previous quarter and a 19% increase over the same quarter last year. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $98.6 million, which we refer to as cash cost of revenues, were $169.1 million for the second quarter, a 4% increase from the previous quarter and a 19% increase over the same quarter last year. Gross margins for the quarter were 49%, down from 50% for the previous quarter and down from 51% for the same quarter last year. Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 68%, down from 69% for the previous quarter and the same quarter last year.

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

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

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

Net loss attributable to Equinix for the second quarter was $28.7 million. This represents a basic and diluted net loss per share attributable to Equinix of $0.58 based on a weighted average share count of 49.4 million for the second quarter of 2013. This includes the one-time charge to the income statement of $93.6 million for the loss on debt extinguishment related to the redemption of the $750.0 million 8.125% senior notes.Income from continuing operations was $112.2 million for the second quarter, a 3% increase from the previous quarter and a 10% increase over the same quarter last year. Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges and acquisition costs, for the second quarter was $244.2 million, a slight increase over the previous quarter and a 12% increase over the same quarter last year.

“We significantly outperformed our adjusted EBITDA targets this quarter and our operating profits continue to improve, increasing the level of cash generated from operations after adjusting for the REIT-related cash costs and taxes,” said Keith Taylor, CFO of Equinix. “We see a clear path to improving adjusted EBITDA margins to support our long-term model, and are balancing growth and profitability as we scale the business.” Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the second quarter, were $122.9 million, of which $82.7 million was attributed to expansion capital expenditures and $40.2 million was attributed to ongoing capital expenditures.

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

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

Business Outlook

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

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

The U.S. dollar exchange rates used for 2013 guidance have been updated to $1.30 to the Euro, $1.52 to the Pound, S$1.27 to the U.S. dollar and R$2.23 to the U.S. dollar. Updated global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 14%, 8%, 6% and 4%, respectively.

Company Metrics and Q2 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, July 24, 2013, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live Webcast of the call will be available on the Equinix investors website located at www.equinix.com/investors. To hear the conference call live, please dial 1-210-234-8004 (domestic and international) and reference the passcode (EQIX). A presentation to accompany the call as well as the Company’s Non-Financial Metrics tracking sheet, will also be available on the website.

A replay of the call will be available beginning on Wednesday, July 24, 2013, at 7:30 p.m. (ET) through August 23, 2013, by dialing 1-203-369-0250 (domestic and international) and reference the passcode (2013). In addition, the webcast will be available on the investors section of the Company’s website over the same time period. No password is required for the replay or the webcast.

About Equinix

Equinix, Inc. (NASDAQ: EQIX), connects more than 4,000 companies directly to their customers and partners inside the world’s most networked data centers. Today, businesses leverage the Equinix interconnection platform in 31 strategic markets across the Americas, EMEA and Asia-Pacific. www.equinix.com.

Non-GAAP Financial Measures

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

Equinix excludes depreciation expense as these charges primarily relate to the initial construction costs of our IBX centers and do not reflect our current or future cash spending levels to support our business. Our IBX centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of our IBX centers do not recur and future capital expenditures remain minor relative to our initial investment. This is a trend we expect to continue. In addition, depreciation is also based on the estimated useful lives of our IBX centers. These estimates could vary from actual performance of the asset, are based on historic costs incurred to build out our IBX centers, and are not indicative of current or expected future capital expenditures. Therefore, Equinix excludes depreciation from its operating results when evaluating its operations.In addition, in presenting the non-GAAP financial measures, Equinix excludes amortization expense related to certain intangible assets, as it represents a cost that may not recur and is not a good indicator of the Company’s current or future operating performance. Equinix excludes accretion expense, both as it relates to its asset retirement obligations as well as its accrued restructuring charges, as these expenses represent costs which Equinix believes are not meaningful in evaluating the Company’s current operations. Equinix excludes stock-based compensation expense as it primarily represents expense attributed to equity awards that have no current or future cash obligations. As such, we, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations. Equinix excludes restructuring charges from its non-GAAP financial measures. The restructuring charges relate to the Company’s decision to exit leases for excess space adjacent to several of our IBX centers, which we did not intend to build out, or our decision to reverse such restructuring charges or severance charges related to the Switch and Data acquisition. Equinix also excludes impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Finally, Equinix excludes acquisition costs from its non-GAAP financial measures. The acquisition costs relate to costs the Company incurs in connection with business combinations. Management believes such items as restructuring charges, impairment charges and acquisition costs are non-core transactions; however, these types of costs will or may occur in future periods.

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

Investors should note, however, that the non-GAAP financial measures used by Equinix may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies. In addition, whenever Equinix uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.Equinix does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data. Equinix intends to calculate the various non-GAAP financial measures in future periods consistent with how they were calculated for the periods presented within this press release.

PR Archives: Latest, By Company, By Date