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Press Release -- August 4th, 2016
Source: Equinix
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Equinix Reports Second Quarter 2016 Results

REDWOOD CITY, Calif., Aug. 3, 2016 /PRNewswire/ -- Equinix, Inc. (EQIX), a global interconnection and data center company, today reported quarterly results for the quarter ended June 30, 2016.  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.

Second Quarter 2016 Results Summary

  • Revenues from continuing operations
    • $900.5 million, a 7% increase over the previous quarter
    • Includes $37.3 million of revenues from Bit-isle
    • Includes $107.2 million of revenues from Telecity
  • $900.5 million, a 7% increase over the previous quarter
  • Includes $37.3 million of revenues from Bit-isle
  • Includes $107.2 million of revenues from Telecity
  • Operating Income
    • $151.7 million, a 35% increase from the previous quarter
  • $151.7 million, a 35% increase from the previous quarter
  • Adjusted EBITDA
    • $420.3 million, a 47% adjusted EBITDA margin
    • Includes $12.1 million of adjusted EBITDA from Bit-isle
    • Includes $51.9 million of adjusted EBITDA from Telecity
    • Includes $10.4 million of integration costs
  • $420.3 million, a 47% adjusted EBITDA margin
  • Includes $12.1 million of adjusted EBITDA from Bit-isle
  • Includes $51.9 million of adjusted EBITDA from Telecity
  • Includes $10.4 million of integration costs
  • Net Income from Continuing Operations
    • $39.3 million
  • $39.3 million
  • AFFO
    • $290.5 million, a 38% increase over the previous quarter
    • Includes $10.4 million of integration costs
  • $290.5 million, a 38% increase over the previous quarter
  • Includes $10.4 million of integration costs

2016 Annual Guidance Summary

  • Revenues from continuing operations
    • $3,598.0 million - $3,608.0 million, a 32% increase over the previous year; an organic and constant currency growth rate of 13.8%
    • Assumes $550.0 million - $560.0 million in revenues from Telecity and Bit-isle
  • $3,598.0 million - $3,608.0 million, a 32% increase over the previous year; an organic and constant currency growth rate of 13.8%
  • Assumes $550.0 million - $560.0 million in revenues from Telecity and Bit-isle
  • Adjusted EBITDA
    • $1,658.0 million - $1,668.0 million or a 46.2% adjusted EBITDA margin
    • Assumes 120 basis point YoY improvement in adjusted EBITDA for the Equinix organic business
    • Assumes $250.0 million - $260.0 million of adjusted EBITDA from Telecity and Bit-isle
    • Assumes approximately $55.0 million of integration costs for acquisitions
  • $1,658.0 million - $1,668.0 million or a 46.2% adjusted EBITDA margin
  • Assumes 120 basis point YoY improvement in adjusted EBITDA for the Equinix organic business
  • Assumes $250.0 million - $260.0 million of adjusted EBITDA from Telecity and Bit-isle
  • Assumes approximately $55.0 million of integration costs for acquisitions
  • AFFO
    • $1,040.0 million - $1,050 million, a 26% increase over the previous year
    • Includes the Q1 $63.5 million foreign currency loss related to the Telecity acquisition
    • Assumes approximately $55.0 million of integration costs for acquisitions
  • $1,040.0 million - $1,050 million, a 26% increase over the previous year
  • Includes the Q1 $63.5 million foreign currency loss related to the Telecity acquisition
  • Assumes approximately $55.0 million of integration costs for acquisitions

The Company 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.

The second quarter includes full quarterly results of Bit-isle and Telecity, which were acquired by the Company in November 2015 and January 2016, respectively. In addition, in order to obtain the approval of the European Commission for the acquisition of Telecity, the Company and Telecity agreed to divest certain data centers, including the Company's London 2 International Business Exchange™ (IBX®) in London, UK ("LD2") and certain Telecity data centers. The Company completed these divestitures on July 5, 2016. The quarterly financial results include results from LD2 in continuing operations; the data centers in Telecity that were divested are reported as discontinued operations.

Revenues from continuing operations were $900.5 million for the second quarter, a 7% increase over the previous quarter and a 35% increase over the same quarter last year. Results include $144.5 million of revenues from the acquisitions of Bit-isle and Telecity. Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $851.8 million for the second quarter, a 7% increase over the previous quarter and a 36% increase over the same quarter last year.  Non-recurring revenues were $48.7 million in the quarter. MRR churn for the second quarter was 1.8% as compared to 2.2% in the previous quarter.

"The second quarter marked another strong performance for Equinix as we delivered both revenues and adjusted EBITDA above the top end of our guidance ranges, and as the company recorded its 54th quarter of consecutive revenue growth," said Steve Smith, president and CEO of Equinix.  "As digital transformation drives companies to evolve business models and operations, Equinix continues to serve as an important partner as reflected in our strong growth and market leadership position. During the quarter we made significant progress towards our goal of owning more of our real estate with the acquisition of two Paris data centers, and we commenced construction on DC12, our first data center build on our owned Ashburn North Campus. The Ashburn campus is the largest internet exchange point in North America, and this expansion will effectively double our owned capacity in this important market over the next few years."

Cost of revenues was $457.0 million for the second quarter, a 7% increase from the previous quarter and a 45% increase from the same quarter last year. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $164.9 million for the quarter, which we refer to as cash cost of revenues, was $292.0 million for the quarter, an 8% increase over the previous quarter and a 43% increase over the same quarter last year.  Gross margins were 49%, unchanged from the prior quarter, as compared to 53% for the same quarter last year. Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, were 68% for the quarter, unchanged from the previous quarter, and 69% for the same quarter last year.

Selling, general and administrative expenses were $276.3 million for the second quarter, a 1% increase over the previous quarter and a 38% increase over the same quarter last year. Selling, general and administrative expenses, excluding depreciation, amortization, accretion and stock-based compensation of $88.1 million for the quarter, which we refer to as cash selling, general and administrative expenses, were $188.2 million for the quarter, a 2% decrease from the previous quarter and a 26% increase over the same quarter last year.

Interest expense was $100.3 million for the second quarter, a 1% decrease from the previous quarter, primarily attributed to prepayment of Brazil financings and maturity of the 4.75% convertible notes, and a 35% increase from the same quarter last year, primarily attributed to the interest associated with debt financings in November 2015 and other financings, such as various capital lease and other financing obligations related to the Bit-isle and Telecity acquisitions.

The Company recorded income tax expense from continuing operations of $13.8 million for the second quarter as compared to an income tax benefit of $10.6 million for the previous quarter and income tax expense from continuing operations of $7.5 million for the same quarter last year.

Income from continuing operations was $151.7 million for the second quarter, a 35% increase from the previous quarter and a 9% increase over the same quarter last year.  Adjusted EBITDA, as defined below, for the second quarter was $420.3 million, a 10% increase over the previous quarter and a 35% increase over the same quarter last year. Adjusted EBITDA includes $64.0 million from the acquisitions of Bit-isle and Telecity.

Net income from continuing operations was $39.3 million for the second quarter. This represents a basic and diluted net income per share from continuing operations of $0.56 for the second quarter based on a weighted average basic and diluted share count of 69.7 million shares and 70.4 million shares, respectively. Net income from discontinued operations was $5.4 million for the second quarter. Basic and diluted net income per share from discontinued operations was $0.08 per share.

Adjusted funds from operations ("AFFO"), as defined below, were $290.5 million for the second quarter, a 38% increase from the previous quarter and a 31% increase over the same quarter last year. AFFO for the second quarter included $10.4 million of integration costs.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the second quarter, were $249.9 million, as compared to capital expenditures of $197.7 million for the previous quarter and $221.3 million for the same quarter last year.

The Company generated cash from operating activities of $278.8 million for the second quarter as compared to cash generated from operating activities of $104.3 million in the previous quarter. Cash used in investing activities was $252.9 million in the second quarter, as compared to cash used in investing activities of $1.3 billion in the previous quarter, primarily attributable to the Telecity acquisition. Cash used in financing activities was $169.9 million for the second quarter as compared to cash used in financing activities of $376.4 million in the previous quarter.

As of June 30, 2016, the Company's cash, cash equivalents and investments were $494.2 million, as compared to $2,246.3 million as of December 31, 2015.

Business Outlook

The Company's guidance includes forecasted results for Telecity from January 15, 2016, Bit-isle for the full year of 2016 and incremental operating results relating to the Company's purchase of our two data centers, Paris 2 and Paris 3, from Digital Realty on August 1, 2016 for approximately $211.7 million.  As previously announced, the Company divested eight assets, seven from Telecity along with LD2, to obtain regulatory clearance for the transaction. The Company completed these divestitures on July 5, 2016 for approximately $827.2 million, which excludes the benefit attributed to our favorable hedge arrangement. The Company's guidance does not include the seven Telecity assets, which were treated as discontinued operations, but does assume six months, or $6.0 million in revenues, from LD2, which was under a different accounting treatment that required results to be reported as continuing operations until the sales were completed.

For the third quarter of 2016, the Company expects revenues to range between $915.0 and $921.0 million, or a normalized and constant currency growth rate of 2.4% quarter over quarter.  This guidance includes a negative foreign currency impact of $3.0 million when compared to the average FX rates in Q2 2016. Cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $199.0 and $205.0 million.  Adjusted EBITDA is expected to range between $419.0 and $425.0 million, which includes a $1.6 million negative foreign currency impact when compared to the average FX rates in Q2 2016 and approximately $17.0 million in integration costs from the two acquisitions. Capital expenditures are expected to range between $270.0 and $290.0 million, which includes approximately $40.0 million of recurring capital expenditures and $230.0 to $250.0 million of non-recurring capital expenditures.

For the full year of 2016, total revenues are expected to range between $3,598.0 and $3,608.0 million, an organic and constant currency growth rate of 13.8% over year.  This guidance includes a positive foreign currency benefit of $1.5 million on revenues when compared to prior guidance rates, and includes an expected $550.0 to $560.0 million in revenues from the Bit-isle and Telecity acquisitions. Total year cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $782.0 and $792.0 million. Adjusted EBITDA is expected to range between $1,658.0 and $1,668.0 million, or a year over year organic and constant currency growth rate of 16.8%.  This guidance includes $0.8 million of positive foreign currency benefit on adjusted EBITDA when compared to our prior guidance rates, and includes an expected $250.0 to $260.0 million in adjusted EBITDA from the Bit-isle and Telecity acquisitions, as well as approximately $55.0 million in integration costs related to these two acquisitions. AFFO is expected to range between $1,040.0 and $1,050 million, including approximately $55.0 million of integration costs and the $63.5 million Q1 foreign currency loss attributed to the Telecity acquisition.  Capital expenditures are expected to range from $950.0 to $1,000.0 million, including approximately $145.0 million of recurring capital expenditures and $805.0 to $855.0 million of non-recurring capital expenditures.

The U.S. dollar exchange rates used for 2016 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.12 to the Euro, $1.43 to the Pound, S$1.35 to the U.S. dollar,  ¥101.0 to the U.S. dollar and R$3.327 to the U.S. dollar. The 2016 global revenue breakdown by currency for the Euro, Pound, Japanese Yen, Singapore Dollar and Brazilian Real is 19%, 11%, 7%, 6% and 3%, respectively.

The guidance provided above is forward-looking and includes the impact of the Company's acquisition of Telecity, which closed on January 15, 2016.  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 Results Conference Call and Replay Information

The Company will discuss its quarterly results for the period ended June 30, 2016, along with its future outlook, in its quarterly conference call on Wednesday, August 3, 2016, 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 Friday, November 4, 2016, by dialing 1-203-369-1052 and referencing the passcode 2016.  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

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

Additional Resources

About Equinix

Equinix, Inc. (EQIX) connects the world's leading businesses to their customers, employees and partners inside the most interconnected data centers. In 40 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

The Company 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, the Company uses non-GAAP financial measures to evaluate its operations.

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, the Company 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, acquisition costs and gains on asset sales.  The Company excludes these items in order for its lenders, investors and the 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.

The Company 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 the Company 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, the Company excludes depreciation from its operating results when evaluating its operations.

In addition, in presenting the non-GAAP financial measures, the Company also excludes amortization expense related to intangible assets, as it is not meaningful in evaluating the Company's current or future operating performance; however, like depreciation, is an expense expected to recur in future periods. The Company 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 the Company also believes are not meaningful in evaluating the Company's current operations. The Company excludes stock-based compensation expense as it represents expense attributed to equity awards that have no current or future cash obligations.  As such, the Company, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations. The Company 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 its IBX centers, which it did not intend to build out, or its decision to reverse such restructuring charges.  The Company 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. The Company also excludes gains on asset sales as it represents profit that is not meaningful in evaluating the current or future operating performance. Finally, the Company 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 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.

The Company 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.

The Company 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.

The Company 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. The Company 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. The Company 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. The Company excludes gains (losses) on debt extinguishment since it represents a cost that is not a good indicator of the Company's current or future operating performance. The Company 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. The Company 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. The Company 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.

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. The Company 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. The Company believes that if it did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze the Company effectively.

Investors should note that the non-GAAP financial measures used by the Company 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. The Company 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. The Company intends to calculate the various non-GAAP financial measures in future periods consistent with how they were calculated for the periods presented within this press release.

Forward Looking Statements

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

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

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2016

2016

2015

2016

2015

Recurring revenues

$       851,771

$        797,094

$        626,691

$     1,648,865

$     1,236,348

Non-recurring revenues

48,739

47,062

38,891

95,801

72,408

Revenues

900,510

844,156

665,582

1,744,666

1,308,756

Cost of revenues

456,967

427,680

315,757

884,647

614,070

Gross profit

443,543

416,476

349,825

860,019

694,686

Operating expenses:

Sales and marketing

107,832

106,590

81,248

214,422

159,864

General and administrative

168,462

165,904

119,578

334,366

233,218

Acquisition costs

15,594

36,536

9,866

52,130

11,022

Gains on asset sales

-

(5,242)

-

(5,242)

-

Total operating expenses

291,888

303,788

210,692

595,676

404,104

Income from continuing operations

151,655

112,688

139,133

264,343

290,582

Interest and other income (expense):

Interest income

841

925

921

1,766

1,441

Interest expense

(100,332)

(100,863)

(74,496)

(201,195)

(143,287)

Other income (expense)

1,555

(60,710)

1,386

(59,155)

872

Loss on debt extinguishment 

(605)

-

-

(605)

-

Total interest and other, net

(98,541)

(160,648)

(72,189)

(259,189)

(140,974)

Income (loss) from continuing operations before income taxes

53,114

(47,960)

66,944

5,154

149,608

Income tax benefit (expense)

(13,812)

10,633

(7,485)

(3,179)

(13,697)

Net income (loss) from continuing operations

39,302

(37,327)

59,459

1,975

135,911

Net income from discontinued operations, net of tax

5,409

6,216

-

11,625

-

Net income (loss)

$        44,711

$         (31,111)

$          59,459

$          13,600

$        135,911

Net income (loss) per share:

Basic net income (loss) per share from continuing operations

$            0.56

$            (0.55)

$             1.04

$             0.03

$             2.39

Basic net income per share from discontinued operations

0.08

0.09

-

0.17

-

Basic net income (loss) per share

$            0.64

$            (0.46)

$             1.04

$             0.20

$             2.39

Diluted net income (loss) per share from continuing operations

$            0.56

$            (0.55)

$             1.03

$             0.03

$             2.37

Diluted net income per share from discontinued operations

0.08

0.09

-

0.17

-

Diluted net income (loss) per share

$            0.64

$            (0.46)

$             1.03

$             0.20

$             2.37

Shares used in computing basic net income (loss) per share

69,729

68,132

56,935

68,931

56,798

Shares used in computing diluted net income (loss) per share

70,364

68,132

57,499

69,575

57,410

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2016

2016

2015

2016

2015

Net income (loss)

$         44,711

$         (31,111)

$          59,459

$          13,600

$        135,911

Other comprehensive income (loss), net of tax:

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

(298,361)

115,899

69,443

(182,462)

(76,869)

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

1,199

(304)

17

895

120

 Unrealized gain (loss) on cash flow hedges 

14,726

(6,784)

(14,290)

7,942

(3,734)

 Net investment hedge CTA gain (loss) 

55,196

(16,312)

(10,389)

38,884

(10,389)

 Net actuarial gain on defined benefit plans 

8

6

83

14

142

 Other comprehensive income (loss), net of tax: 

(227,232)

92,505

44,864

(134,727)

(90,730)

 Comprehensive income (loss), net of tax 

(182,521)

61,394

104,323

(121,127)

45,181

EQUINIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

Assets

June 30,

 December 31, 

2016

2015

Cash and cash equivalents

$           483,160

$     2,228,838

Short-term investments

3,328

12,875

Accounts receivable, net

346,994

291,964

Current portion of restricted cash

3,411

479,417

Other current assets

233,870

212,929

Assets held for sale

1,024,666

33,257

Total current assets

2,095,429

3,259,280

Long-term investments

7,694

4,584

Property, plant and equipment, net

6,958,794

5,606,436

Goodwill

3,190,197

1,063,200

Intangible assets, net

788,955

224,565

Other assets

227,976

198,630

Total assets

$      13,269,045

$   10,356,695

Liabilities and Stockholders' Equity

Accounts payable and accrued expenses

$           498,212

$        400,948

Accrued property, plant and equipment

163,388

103,107

Current portion of capital lease and other financing obligations

92,611

40,121

Current portion of mortgage and loans payable

511,331

770,236

Convertible debt

-

146,121

Other current liabilities

142,113

192,286

Liabilities held for sale

152,124

3,535

Total current liabilities

1,559,779

1,656,354

Capital lease and other financing obligations, less current portion

1,514,804

1,287,139

Mortgage and loans payable, less current portion

1,074,663

472,769

Senior notes

3,807,816

3,804,634

Other liabilities

606,518

390,413

Total liabilities

8,563,580

7,611,309

Common stock

71

62

Additional paid-in capital

7,307,575

4,838,444

Treasury stock

(148,246)

(7,373)

Accumulated dividends

(1,715,533)

(1,468,472)

Accumulated other comprehensive loss

(643,786)

(509,059)

Accumulated deficit

(94,616)

(108,216)

Total stockholders' equity

4,705,465

2,745,386

Total liabilities and stockholders' equity

$      13,269,045

$   10,356,695

Ending headcount by geographic region is as follows:

Americas headcount

2,408

2,329

EMEA headcount

2,088

1,188

Asia-Pacific headcount

1,311

1,525

Total headcount

5,807

5,042

EQUINIX, INC.

SUMMARY OF DEBT PRINCIPAL OUTSTANDING

(in thousands)

(unaudited)

June 30,

December 31,

2016

2015

Capital lease and other financing obligations

$                     1,607,415

$                         1,327,260

Term loan, net of debt discount and debt issuance costs

1,071,853

454,503

Brazil financings, net of debt issuance costs

2,841

26,668

Mortgage payable and other loans payable

511,300

436,212

Revolving credit facility borrowings

-

325,622

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

12,651

694

Total mortgage and loans payable principal

1,598,645

1,243,699

Senior notes, net of debt issuance costs

3,807,816

3,804,634

Plus: debt issuance costs

42,184

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

$                     7,056,060

$                         6,571,041

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2016

2016

2015

2016

2015

Cash flows from operating activities:

Net income (loss)

$               44,711

$         (31,111)

$          59,459

$          13,600

$        135,911

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Depreciation, amortization and accretion

213,719

202,153

128,270

415,872

250,800

Stock-based compensation

39,323

34,061

33,993

73,384

64,606

Amortization of debt issuance costs and debt discounts

5,517

5,508

3,811

11,025

7,585

Loss on debt extinguishment 

318

-

-

318

-

Gains on asset sales

-

(5,242)

-

(5,242)

-

Other items

7,311

4,871

4,946

12,182

9,108

Changes in operating assets and liabilities:

Accounts receivable

(31,055)

(11,312)

(10,991)

(42,367)

(41,782)

Income taxes, net

4,901

(28,656)

(53,592)

(23,755)

(66,147)

Accounts payable and accrued expenses

29,592

(40,217)

19,600

(10,625)

49,293

Other assets and liabilities

(35,509)

(25,785)

26,967

(61,294)

35,900

Net cash provided by operating activities

278,828

104,270

212,463

383,098

445,274

Cash flows from investing activities:

Purchases, sales and maturities of investments, net

8,764

3,419

433,966

12,183

429,260

Business acquisitions, net of cash acquired

-

(1,601,627)

-

(1,601,627)

(10,247)

Purchases of real estate

(11,710)

(16,408)

-

(28,118)

(38,282)

Purchases of other property, plant and equipment

(249,867)

(197,700)

(221,342)

(447,567)

(371,462)

Proceeds from asset sales

-

22,825

-

22,825

-

Other investing activities

(117)

466,704

(511,166)

466,587

(507,645)

Net cash used in investing activities

(252,930)

(1,322,787)

(298,542)

(1,575,717)

(498,376)

Cash flows from financing activities:

Proceeds from employee equity awards

1,335

16,304

181

17,639

16,565

Payment of dividend distributions

(121,858)

(124,836)

(96,349)

(246,694)

(192,968)

Proceeds from loans payable

-

701,250

490,000

701,250

490,000

Repayment of capital lease and other financing obligations

(12,103)

(33,232)

(8,342)

(45,335)

(13,638)

Repayment of mortgage and loans payable

(36,758)

(936,353)

(505,268)

(973,111)

(518,629)

Other financing activities

(541)

499

216

(42)

314

Net cash used in financing activities

(169,925)

(376,368)

(119,562)

(546,293)

(218,356)

Effect of foreign currency exchange rates on cash and cash equivalents

18,540

(195)

5,065

18,345

(3,326)

Change in cash balances included in assets held for sale

(25,111)

-

-

(25,111)

-

Net increase (decrease) in cash and cash equivalents

(150,598)

(1,595,080)

(200,576)

(1,745,678)

(274,784)

Cash and cash equivalents at beginning of period

633,758

2,228,838

536,709

2,228,838

610,917

Cash and cash equivalents at end of period

$              483,160

$        633,758

$        336,133

$        483,160

$        336,133

Supplemental cash flow information:

Cash paid for taxes

$               12,361

$          19,215

$          60,266

$          31,576

$          74,804

Cash paid for interest

$               85,897

$          74,540

$          71,823

$        160,437

$          95,799

Free cash flow (1)

$               17,134

$    (1,221,936)

$       (520,045)

$    (1,204,802)

$       (482,362)

Adjusted free cash flow (2)

$               28,280

$        396,663

$       (474,162)

$        424,943

$       (386,496)

(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

$              278,828

$        104,270

$        212,463

$        383,098

$        445,274

Net cash used in investing activities as presented above

(252,930)

(1,322,787)

(298,542)

(1,575,717)

(498,376)

Purchases, sales and maturities of investments, net

(8,764)

(3,419)

(433,966)

(12,183)

(429,260)

Free cash flow (negative free cash flow)

$               17,134

$    (1,221,936)

$       (520,045)

$    (1,204,802)

$       (482,362)

(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)

$               17,134

$    (1,221,936)

$       (520,045)

$    (1,204,802)

$       (482,362)

Less business acquisitions, net of cash

-

1,601,627

-

1,601,627

10,247

Less purchases of real estate

11,710

16,408

-

28,118

38,282

Less excess tax benefits from employee equity awards

(564)

564

223

-

931

Less cash paid for taxes resulting from the REIT conversion 

-

-

45,113

-

45,113

Less costs related to the REIT conversion

-

-

547

-

1,293

Adjusted free cash flow

$               28,280

$        396,663

$       (474,162)

$        424,943

$       (386,496)

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

$                         -

$                    -

$          45,113

$                     -

$           45,113

Other cash taxes paid

12,361

19,215

15,153

31,576

29,691

Total cash paid for taxes

$               12,361

$          19,215

$          60,266

$          31,576

$          74,804

EQUINIX, INC.

NON-GAAP MEASURES AND OTHER SUPPLEMENTAL DATA

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2016

2016

2015

2016

2015

Recurring revenues

$        851,771

$        797,094

$        626,691

$     1,648,865

$  1,236,348

Non-recurring revenues

48,739

47,062

38,891

95,801

72,408

Revenues (1)

900,510

844,156

665,582

1,744,666

1,308,756

Cash cost of revenues (2)

292,033

271,100

204,736

563,133

396,866

Cash gross profit (3)

608,477

573,056

460,846

1,181,533

911,890

Cash operating expenses (4):

Cash sales and marketing expenses (5)

78,071

79,692

65,058

157,763

128,878

Cash general and administrative expenses (6)

110,115

112,714

84,526

222,829

166,002

Total cash operating expenses (7)

188,186

192,406

149,584

380,592

294,880

Adjusted EBITDA (8)

$        420,291

$        380,650

$        311,262

$        800,941

$     617,010

Cash gross margins (9)

68%

68%

69%

68%

70%

Adjusted EBITDA margins (10)

47%

45%

47%

46%

47%

Adjusted EBITDA flow-through rate (11)

70%

42%

25%

45%

77%

FFO (12)

$        201,515

$        115,875

$        167,368

$        317,390

$     346,558

AFFO (13) (14)

$        290,529

$        209,846

$        221,388

$        500,375

$     443,144

(1)

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

Americas Revenues:

Colocation

$        289,578

$        282,321

$        262,934

$        571,899

$     520,866

Interconnection

89,860

85,936

77,102

175,796

152,188

Managed infrastructure

13,255

11,170

12,837

24,425

26,132

Other

786

729

732

1,515

1,473

Recurring revenues

393,479

380,156

353,605

773,635

700,659

Non-recurring revenues

19,992

24,238

17,842

44,230

34,757

Revenues

413,471

404,394

371,447

817,865

735,416

EMEA Revenues:

Colocation

240,421

214,178

139,482

454,599

272,217

Interconnection

22,425

19,700

13,440

42,125

26,488

Managed infrastructure

15,391

18,560

5,919

33,951

11,702

Other

3,573

943

1,222

4,516

3,080

Recurring revenues

281,810

253,381

160,063

535,191

313,487

Non-recurring revenues

18,799

14,475

13,904

33,274

25,103

Revenues

300,609

267,856

173,967

568,465

338,590

Asia-Pacific Revenues:

Colocation

132,670

123,394

94,194

256,064

185,072

Interconnection

23,436

21,569

14,119

45,005

27,643

Managed infrastructure

16,597

15,006

4,710

31,603

9,487

Other

3,779

3,588

-

7,367

-

Recurring revenues

176,482

163,557

113,023

340,039

222,202

Non-recurring revenues

9,948

8,349

7,145

18,297

12,548

Revenues

186,430

171,906

120,168

358,336

234,750

Worldwide Revenues:

Colocation

662,669

619,893

496,610

1,282,562

978,155

Interconnection

135,721

127,205

104,661

262,926

206,319

Managed infrastructure

45,243

44,736

23,466

89,979

47,321

Other

8,138

5,260

1,954

13,398

4,553

Recurring revenues

851,771

797,094

626,691

1,648,865

1,236,348

Non-recurring revenues

48,739

47,062

38,891

95,801

72,408

Revenues

$        900,510

$        844,156

$        665,582

$     1,744,666

$  1,308,756

(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

$        456,967

$        427,680

$        315,757

$        884,647

$     614,070

Depreciation, amortization and accretion expense

(161,493)

(153,583)

(108,470)

(315,076)

(212,347)

Stock-based compensation expense

(3,441)

(2,997)

(2,551)

(6,438)

(4,857)

Cash cost of revenues

$        292,033

$        271,100

$        204,736

$        563,133

$     396,866

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

Americas cash cost of revenues

$        109,296

$        109,020

$        102,249

$        218,316

$     197,411

EMEA cash cost of revenues

114,950

101,509

62,431

216,459

120,925

Asia-Pacific cash cost of revenues

67,787

60,571

40,056

128,358

78,530

Cash cost of revenues

$        292,033

$        271,100

$        204,736

$        563,133

$     396,866

(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, 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

$        107,832

$        106,590

$          81,248

$        214,422

$     159,864

Depreciation and amortization expense

(19,047)

(17,127)

(6,268)

(36,174)

(12,353)

Stock-based compensation expense

(10,714)

(9,771)

(9,922)

(20,485)

(18,633)

Cash sales and marketing expenses

$          78,071

$          79,692

$          65,058

$        157,763

$     128,878

(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

$        168,462

$        165,904

$        119,578

$        334,366

$     233,218

Depreciation and amortization expense

(33,179)

(31,443)

(13,532)

(64,622)

(26,100)

Stock-based compensation expense

(25,168)

(21,747)

(21,520)

(46,915)

(41,116)

Cash general and administrative expenses

$        110,115

$        112,714

$          84,526

$        222,829

$     166,002

(7)

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

Cash sales and marketing expenses

$          78,071

$          79,692

$          65,058

$        157,763

$     128,878

Cash general and administrative expenses

110,115

112,714

84,526

222,829

166,002

Cash SG&A

$        188,186

$        192,406

$        149,584

$        380,592

$     294,880

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

Americas cash SG&A

$        109,147

$        110,914

$          98,312

$        220,061

$     194,385

EMEA cash SG&A

52,204

54,858

32,003

107,062

62,101

Asia-Pacific cash SG&A

26,835

26,634

19,269

53,469

38,394

Cash SG&A

$        188,186

$        192,406

$        149,584

$        380,592

$     294,880

(8)

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

Income from continuing operations

$        151,655

$        112,688

$        139,133

$        264,343

$     290,582

Depreciation, amortization and accretion expense

213,719

202,153

128,270

415,872

250,800

Stock-based compensation expense

39,323

34,515

33,993

73,838

64,606

Acquisition costs

15,594

36,536

9,866

52,130

11,022

Gains on asset sales

-

(5,242)

-

(5,242)

-

Adjusted EBITDA

$        420,291

$        380,650

$        311,262

$        800,941

$     617,010

The geographic split of our adjusted EBITDA is presented below:

Americas income from continuing operations

$          87,100

$          88,539

$          77,653

$        175,639

$     159,119

Americas depreciation, amortization and accretion expense

78,874

76,720

68,692

155,594

135,503

Americas stock-based compensation expense

27,790

24,329

25,883

52,119

49,374

Americas acquisition costs

1,264

114

(1,342)

1,378

(376)

Americas gains on asset sales

-

(5,242)

-

(5,242)

-

Americas adjusted EBITDA

195,028

184,460

170,886

379,488

343,620

EMEA income from continuing operations

29,096

(7,419)

36,110

21,677

81,651

EMEA depreciation, amortization and accretion expense

82,929

76,488

27,826

159,417

54,519

EMEA stock-based compensation expense

7,060

6,235

4,397

13,295

8,004

EMEA acquisition costs

14,370

36,185

11,200

50,555

11,390

EMEA adjusted EBITDA

133,455

111,489

79,533

244,944

155,564

Asia-Pacific income from continuing operations

35,459

31,568

25,370

67,027

49,812

Asia-Pacific depreciation, amortization and accretion expense

51,916

48,945

31,752

100,861

60,778

Asia-Pacific stock-based compensation expense

4,473

3,951

3,713

8,424

7,228

Asia-Pacific acquisition costs

(40)

237

8

197

8

Asia-Pacific adjusted EBITDA

91,808

84,701

60,843

176,509

117,826

Adjusted EBITDA

$        420,291

$        380,650

$        311,262

$        800,941

$     617,010

(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

74%

73%

72%

73%

73%

EMEA cash gross margins

62%

62%

64%

62%

64%

Asia-Pacific cash gross margins

64%

65%

67%

64%

67%

(10)

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

Americas adjusted EBITDA margins

47%

46%

46%

46%

47%

EMEA adjusted EBITDA margins

44%

42%

46%

43%

46%

Asia-Pacific adjusted EBITDA margins

49%

49%

51%

49%

50%

(11)

We define adjusted EBITDA flow-through rate as incremental adjusted EBITDA growth divided by incremental revenue growth as follows:

Adjusted EBITDA - current period

$        420,291

$        380,650

$        311,262

$        800,941

$     617,010

Less adjusted EBITDA - prior period

(380,650)

(333,145)

(305,748)

(654,617)

(578,226)

Adjusted EBITDA growth

$          39,641

$          47,505

$            5,514

$        146,324

$       38,784

Revenues - current period

$        900,510

$        844,156

$        665,582

$     1,744,666

$  1,308,756

Less revenues - prior period

(844,156)

(730,462)

(643,174)

(1,417,111)

(1,258,562)

Revenue growth

$          56,354

$        113,694

$          22,408

$        327,555

$       50,194

Adjusted EBITDA flow-through rate

70%

42%

25%

45%

77%

(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 (loss)

$          44,711

$         (31,111)

$          59,459

$          13,600

$     135,911

Adjustments:

Real estate depreciation and amortization

158,727

150,995

107,321

309,722

209,969

Gain/loss on disposition of real estate property

(1,951)

(4,037)

559

(5,988)

621

Adjustments for FFO from unconsolidated joint ventures

28

28

29

56

57

FFO 

$        201,515

$        115,875

$        167,368

$        317,390

$     346,558

(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 

$        201,515

$        115,875

$        167,368

$        317,390

$     346,558

Adjustments:

Installation revenue adjustment

7,407

3,354

12,474

10,761

21,128

Straight-line rent expense adjustment

1,895

1,133

2,017

3,028

5,218

Amortization of deferred financing costs

5,243

5,508

3,848

10,751

7,706

Stock-based compensation expense

39,323

34,515

33,993

73,838

64,606

Non-real estate depreciation expense

21,021

21,387

13,605

42,408

26,298

Amortization expense

32,303

28,152

6,450

60,455

12,745

Accretion expense

1,668

1,619

894

3,287

1,788

Recurring capital expenditures

(31,928)

(31,815)

(27,330)

(63,743)

(49,703)

Loss on debt extinguishment

605

-

-

605

-

Acquisition costs

15,594

36,536

9,866

52,130

11,022

Income tax expense adjustment

1,301

(190)

(1,784)

1,111

(4,192)

Net Income from discontinued operations, net of tax

(5,409)

(6,216)

(13)

(11,625)

(30)

Adjustments for AFFO from unconsolidated joint ventures

(9)

(12)

-

(21)

-

AFFO

$        290,529

$        209,846

$        221,388

$        500,375

$     443,144

(14)

Following is how we reconcile from adjusted EBITDA to AFFO:

Adjusted EBITDA

$        420,291

$        380,650

$        311,262

$        800,941

$     617,010

Adjustments:

Interest expense, net of interest income

(99,491)

(99,938)

(73,575)

(199,429)

(141,846)

Amortization of deferred financing costs

5,243

5,508

3,848

10,751

7,706

Income tax (benefit) expense

(13,812)

10,633

(7,485)

(3,179)

(13,697)

Income tax expense adjustment

1,301

(190)

(1,784)

1,111

(4,192)

Straight-line rent expense adjustment

1,895

1,133

2,017

3,028

5,218

Installation revenue adjustment

7,407

3,354

12,474

10,761

21,128

Recurring capital expenditures

(31,928)

(31,815)

(27,330)

(63,743)

(49,703)

Other (income)/expense

1,555

(60,710)

1,386

(59,155)

872

Gain/loss on disposition of depreciable real estate property

(1,951)

(4,037)

559

(5,988)

621

Adjustments for unconsolidated JVs' and non-controlling interests

19

16

16

35

27

Adjustment for gain on sale of asset

-

5,242

-

5,242

-

AFFO

$        290,529

$        209,846

$        221,388

$        500,375

$     443,144

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