Equinix Reports Third Quarter 2014 Results

-- Reported revenues of $620.4 million, a 3% increase over the previous quarter and a 14% increase over the same quarter last year

-- Raising 2014 annual guidance for revenues to range between $2,433.0 and $2,437.0 million and adjusted EBITDA to range between $1,110.0 and $1,114.0 million

REDWOOD CITY, Calif., Oct. 29, 2014 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), a global interconnection and data center company, today reported quarterly results for the quarter ended September 30, 2014.  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 $620.4 million for the third quarter, a 3% increase over the previous quarter and a 14% increase over the same quarter last year.  Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $588.4 million for the third quarter, a 2% increase over the previous quarter and a 14% increase over the same quarter last year.  Non-recurring revenues were $32.0 million for the quarter.  MRR churn for the third quarter was 1.9%, a decrease from the previous quarter and lower than prior guidance. 

"Equinix delivered both revenue and adjusted EBITDA above the top end of our guidance range, despite significant currency headwinds," said Steve Smith, president and CEO of Equinix. "We are very pleased with our performance, driven by strength in the core business, global expansions with key customers and accelerated momentum in cloud.  The robust growth of our ecosystems generated a record 5,700 additional cross-connects this quarter, 36% higher than our previous record, and reflects an increase in interconnection activity between our cloud, content and network customers."

Cost of revenues were $304.1 million for the third quarter, a 4% increase over the previous quarter and a 13% increase from the same quarter last year.  Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $107.6 million for the quarter, which we refer to as cash cost of revenues, were $196.5 million for the quarter, a 3% increase over the previous quarter and a 13% increase over the same quarter last year.  Gross margins for the quarter were 51%, down from 52% for the previous quarter and up from 50% 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%, unchanged from the previous quarter and the same quarter last year.

Selling, general and administrative expenses were $181.5 million for the third quarter, a 3% decrease over the previous quarter and a 15% increase over the same quarter last year.  Selling, general and administrative expenses, excluding depreciation, amortization, accretion and stock-based compensation of $41.4 million for the quarter, which we refer to as cash selling, general and administrative expenses, were $140.1 million for the quarter, a 1% increase over the previous quarter and a 16% increase over the same quarter last year. 

Interest expense was $63.8 million for the third quarter, a 5% decrease from the previous quarter and a 3% increase over the same quarter last year.  The Company recorded income tax expense of $30.6 million for the third quarter as compared to income tax expense of $12.4 million in the same quarter last year.

Net income attributable to Equinix for the third quarter was $42.8 million.  This represents a basic net income per share attributable to Equinix of $0.81 and a diluted net income per share attributable to Equinix of $0.79 based on a weighted average share count of 53.1 million and 55.2 million, respectively, for the third quarter of 2014. 

Income from operations was $135.1 million for the third quarter, an 8% increase from the previous quarter and a 17% 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, impairment charges and acquisition costs, for the third quarter was $283.9 million, a 3% increase over the previous quarter and a 14% 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 third quarter, were $156.0 million. 

The Company has repurchased approximately 1.8 million shares of its common stock under the $500 million share repurchase program authorized in December 2013, at an average price of $191.95 per share, for total consideration of $346.8 million from December 5, 2013 through October 24, 2014. 

In July 2014, the Company purchased Riverwood Capital L.P.'s interest in ALOG Data Centers do Brasil S.A. ("ALOG"), the approximate 10% of ALOG owned by ALOG management and vested and outstanding stock options for common shares of ALOG for cash consideration of approximately $226.3 million.  As a result, the Company owns 100% of the outstanding shares of ALOG.  The Company has fully consolidated ALOG's results of operations in the Company's consolidated financial statements from the time the Company acquired a controlling equity interest in ALOG in April 2011.

The Company generated cash from operating activities of $216.4 million for the third quarter as compared to $99.0 million in the previous quarter and $206.6 million for the same quarter last year. The increase in cash from operating activities for the third quarter as compared to the previous quarter was primarily attributed to decreased tax payments related to both REIT and non-REIT related obligations and cash interest payments in the third quarter as compared to the previous quarter.  Cash used in investing activities was $6.3 million in the third quarter as compared to cash provided by investing activities of $91.5 million in the previous quarter and cash used in investing activities of $331.0 million in the same quarter last year, primarily attributed to the purchase of a New York IBX data center and net sales and maturities of investments.  Cash used in financing activities was $256.2 million for the third quarter as compared to cash used in financing activities of $278.9 million in the previous quarter and cash used in financing activities of $1.2 million in the same quarter last year.    

As of September 30, 2014, the Company's cash, cash equivalents and investments were $501.1 million, as compared to $1,030.1 million as of December 31, 2013.   

In October 2014, the Company's Board of Directors declared a special distribution of $416.0 million, or approximately $7.57 per share based on the number of shares outstanding on the declaration date (the "2014 Special Distribution"), to its common stockholders in connection with the Company's plan to convert to a real estate investment trust ("REIT"). The 2014 Special Distribution is payable on November 25, 2014 to the Company's common stockholders of record as of the close of business on October 27, 2014. Common stockholders can elect to receive payment of the 2014 Special Distribution in the form of stock or cash, with the total cash payment to all stockholders limited to no more than 20% of the total distribution.

Business Outlook

For the fourth quarter of 2014, the Company expects revenues to range between $627.0 and $631.0 million, which includes a negative foreign currency impact of approximately $11.0 million compared to the rates used from the Company's prior guidance.  Cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to approximate $139.0 million.  Adjusted EBITDA is expected to range between $291.0 and $295.0 million, which includes $6.0 million in professional fees and costs primarily related to the REIT conversion and a negative foreign currency impact of approximately $5.0 million compared to the rates used from the Company's prior guidance.  Capital expenditures are expected to range between $210.0 and $230.0 million, comprised of approximately $35.0 million of recurring capital expenditures and $175.0 to $195.0 million of expansion capital expenditures.  

For the full year of 2014, total revenues are expected to range between $2,433.0 and $2,437.0 million, or an as-reported 13% year over year growth rate, which includes a negative foreign currency impact of approximately $15.0 million compared to the rates used from the Company's prior guidance.  Total year cash gross margins are expected to approximate 68% to 69%.  Cash selling, general and administrative expenses are expected to approximate $553.0 million.  Adjusted EBITDA for the year is expected to range between $1,110.0 and $1,114.0 million, which includes a negative foreign currency impact of approximately $8.0 million compared to the rates used from our prior guidance, and includes $32.0 million in professional fees and costs primarily related to the REIT conversion.  Capital expenditures for 2014 are expected to range between $630.0 and $650.0 million, comprised of approximately $110.0 million of recurring capital expenditures and $520.0 to $540.0 million of expansion capital expenditures. 

The U.S. dollar exchange rates used for 2014 guidance, taking into consideration the impact of our foreign currency hedges, have been updated to $1.32 to the Euro, $1.63 to the Pound, S$1.28 to the U.S. dollar and R$2.43 to the U.S. dollar.  The 2014 global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 15%, 9%, 7% and 4%, respectively.

Company Metrics and Q3 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, October 29, 2014, at 5:30 p.m. ET (2:30 p.m. PT).  A simultaneous live webcast of the call will be available over the internet at Equinix.com under the Investor Relations heading. 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, October 29, 2014, at 7:30 p.m. ET through Friday, January 30, 2015, by dialing 1-402-220-0203 and referencing the passcode (2014). 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 webcast.

About Equinix

Equinix, Inc. (Nasdaq: EQIX), connects more than 4,500 companies directly to their customers and partners inside the world's most networked data centers. Today, businesses leverage the Equinix interconnection platform in 32 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.

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

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2014

2014

2013

2014

2013

Recurring revenues

$        588,437

$574,158

$        515,566

$     1,712,298

$     1,511,902

Non-recurring revenues

32,004

31,003

27,518

93,357

76,187

Revenues

620,441

605,161

543,084

1,805,655

1,588,089

Cost of revenues

304,052

292,859

268,960

884,436

794,660

Gross profit

316,389

312,302

274,124

921,219

793,429

Operating expenses:

Sales and marketing

72,185

75,254

61,619

214,867

179,373

General and administrative

109,354

111,675

96,874

324,332

276,324

Restructuring charges

-

-

-

-

(4,837)

Acquisition costs

(281)

676

438

580

6,626

Total operating expenses

181,258

187,605

158,931

539,779

457,486

Income from operations

135,131

124,697

115,193

381,440

335,943

Interest and other income (expense):

Interest income

356

744

929

2,534

2,593

Interest expense

(63,756)

(66,874)

(61,957)

(199,450)

(183,289)

Loss on debt extinguishment 

-

(51,183)

-

(51,183)

(93,602)

Other income 

1,811

681

985

3,170

3,294

Total interest and other, net

(61,589)

(116,632)

(60,043)

(244,929)

(271,004)

Income before income taxes

73,542

8,065

55,150

136,511

64,939

Income tax benefit (expense)

(30,581)

2,014

(12,397)

(42,134)

(14,189)

Net income 

42,961

10,079

42,753

94,377

50,750

Net (income) loss attributable to redeemable non-controlling interests

(120)

1,249

(282)

1,179

(1,252)

Net income attributable to Equinix

$          42,841

$  11,328

$          42,471

$          95,556

$          49,498

Net income per share attributable to Equinix:

Basic net income per share (1)

$             0.81

$     0.22

$             0.86

$             1.86

$             1.00

Diluted net income per share (1)

$             0.79

$     0.22

$             0.83

$             1.84

$             0.99

Shares used in computing basic net income per share

53,137

51,332

49,555

51,369

49,325

Shares used in computing diluted net income per share

55,238

51,652

53,581

54,502

50,050

(1)

The net income attributable to Equinix used in the computation of basic and diluted net income per share attributed to Equinix is presented below:

Net income 

$          42,961

$  10,079

$          42,753

$          94,377

$          50,750

Net (income) loss attributable to non-controlling interests

(120)

1,249

(282)

1,179

(1,252)

Net income attributable to Equinix, basic 

42,841

11,328

42,471

95,556

49,498

Interest on convertible debt

885

-

1,865

4,862

-

Net income attributable to Equinix, diluted

$          43,726

$  11,328

$          44,336

$        100,418

$          49,498

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2014

2014

2013

2014

2013

Net income

$          42,961

$10,079

$          42,753

$          94,377

$          50,750

Other comprehensive income (loss), net of tax:

 Foreign currency translation gain (loss) 

(144,993)

23,081

78,113

(106,942)

(25,107)

 Unrealized gain (loss) on available for sale securities 

(1,179)

(74)

438

(414)

78

 Unrealized gain on cash flow hedges 

4,510

54

-

4,764

-

 Other comprehensive income (loss), net of tax: 

(141,662)

23,061

78,551

(102,592)

(25,029)

 Comprehensive income (loss), net of tax 

(98,701)

33,140

121,304

(8,215)

25,721

 Net (income) loss attributable to redeemable non-controlling interests 

(120)

1,249

(282)

1,179

(1,252)

 Other comprehensive (income) loss attributable to redeemable non-controlling interests 

(18,304)

(750)

(200)

(21,121)

4,340

 Comprehensive income (loss) attributable to Equinix, net of tax 

$       (117,125)

$33,639

$        120,822

$         (28,157)

$          28,809

EQUINIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

Assets

September 30,

December 31,

2014

2013

Cash and cash equivalents

$        354,181

$       261,894

Short-term investments

130,859

369,808

Accounts receivable, net

275,264

184,840

Other current assets

97,407

72,118

Total current assets

857,711

888,660

Long-term investments

16,075

398,390

Property, plant and equipment, net

4,983,376

4,591,650

Goodwill

1,024,555

1,042,153

Intangible assets, net

157,475

184,182

Other assets

422,808

387,324

Total assets

$     7,462,000

$    7,492,359

Liabilities and Stockholders' Equity

Accounts payable and accrued expenses

$        303,669

$       263,223

Accrued property and equipment

138,956

64,601

Current portion of capital lease and other financing obligations

20,132

17,214

Current portion of mortgage and loans payable

57,767

53,508

Other current liabilities

147,676

147,958

Total current liabilities

668,200

546,504

Capital lease and other financing obligations, less current portion

1,172,356

914,032

Mortgage and loans payable, less current portion

160,643

199,700

Senior notes

2,250,000

2,250,000

Convertible debt

322,757

724,202

Other liabilities

290,364

274,955

Total liabilities

4,864,320

4,909,393

Redeemable non-controlling interests

-

123,902

Common stock

54

50

Additional paid-in capital

2,870,752

2,693,887

Treasury stock

(94,759)

(84,663)

Accumulated other comprehensive loss

(237,480)

(113,767)

Retained earnings (accumulated deficit)

59,113

(36,443)

Total stockholders' equity

2,597,680

2,459,064

Total liabilities, redeemable non-controlling interests

and stockholders' equity

$     7,462,000

$    7,492,359

Ending headcount by geographic region is as follows:

Americas headcount

2,111

1,984

EMEA headcount

983

899

Asia-Pacific headcount

696

617

Total headcount

3,790

3,500

EQUINIX, INC.

SUMMARY OF DEBT OUTSTANDING

(in thousands)

(unaudited)

September 30,

December 31,

2014

2013

Capital lease and other financing obligations

$     1,192,488

$       931,246

U.S. term loan

110,000

140,000

ALOG financings

59,317

67,882

Mortgage payable

39,052

43,497

Other loans payable

10,041

1,829

Total mortgage and loans payable

218,410

253,208

Senior notes

2,250,000

2,250,000

Convertible debt, net of debt discount

322,757

724,202

Plus: debt discount

13,905

45,508

Total convertible debt principal

336,662

769,710

Total debt outstanding

$     3,997,560

$    4,204,164

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2014

2014

2013

2014

2013

Cash flows from operating activities:

Net income (loss)

$          42,961

$  10,079

$          42,753

$          94,377

$          50,750

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Depreciation, amortization and accretion

121,349

116,074

105,534

351,033

324,326

Stock-based compensation

27,662

33,830

27,280

86,473

75,310

Debt issuance costs and debt discount

3,714

4,717

5,965

14,840

17,602

Loss on debt extinguishment 

-

51,183

-

51,183

93,602

Restructuring charges

-

-

-

-

(4,837)

Excess tax benefits from employee equity awards

(5,825)

(1,614)

(4,951)

(17,457)

(27,372)

Other reconciling items

5,957

7,455

4,595

18,704

11,629

Changes in operating assets and liabilities:

Accounts receivable

(50,889)

(24,510)

3,469

(104,394)

(40,292)

Income taxes, net

23,340

(76,764)

3,989

(69,173)

(71,567)

Accounts payable and accrued expenses

34,778

(23,002)

17,003

20,606

17,399

Other assets and liabilities

13,394

1,516

925

40,931

(8,648)

Net cash provided by operating activities

216,441

98,964

206,562

487,123

437,902

Cash flows from investing activities:

Purchases, sales and maturities of investments, net

148,789

250,737

(89,219)

621,180

(497,777)

Purchase of New York IBX data center

-

-

(70,481)

-

(73,441)

Purchase of Asia Tone, less cash acquired

-

-

862

-

755

Purchases of real estate

-

-

(2,244)

(16,791)

(2,244)

Purchases of other property, plant and equipment

(156,003)

(159,816)

(171,035)

(421,726)

(369,565)

Other investing activities

898

582

1,159

1,409

6,321

Net cash provided by (used in) investing activities

(6,316)

91,503

(330,958)

184,072

(935,951)

Cash flows from financing activities:

Purchases of treasury stock

(42,575)

(208,263)

-

(297,958)

-

Proceeds from employee equity awards

12,362

1,434

12,202

28,183

28,082

Purchase of redeemable non-controlling interests

(226,276)

-

-

(226,276)

-

Proceeds from senior notes

-

-

-

-

1,500,000

Repayment of capital lease and other financing obligations

(3,857)

(5,033)

(4,553)

(13,140)

(12,226)

Repayment of mortgage and loans payable

(10,416)

(16,777)

(10,113)

(37,510)

(42,304)

Repayment of senior notes

-

-

-

-

(750,000)

Repayment of convertible debt

-

(29,479)

-

(29,479)

-

Debt extinguishment costs

-

(22,552)

(3,750)

(22,552)

(84,675)

Debt issuance costs

-

-

(1,649)

-

(22,435)

Excess tax benefits from employee equity awards

5,825

1,614

4,951

17,457

27,372

Other financing activities

8,698

128

1,734

8,826

1,734

Net cash provided by (used in) financing activities

(256,239)

(278,928)

(1,178)

(572,449)

645,548

Effect of foreign currency exchange rates on cash and cash equivalents

(8,039)

1,621

7,820

(6,459)

30

Net increase (decrease) in cash and cash equivalents

(54,153)

(86,840)

(117,754)

92,287

147,529

Cash and cash equivalents at beginning of period

408,334

495,174

517,496

261,894

252,213

Cash and cash equivalents at end of period

$        354,181

$408,334

$        399,742

$        354,181

$        399,742

Supplemental cash flow information:

Cash paid for taxes

$            5,506

$  75,371

$            9,882

$        110,790

$          86,736

Cash paid for interest

$          45,833

$  79,517

$          39,037

$        167,735

$        135,317

Free cash flow (1)

$          61,336

$ (60,270)

$         (35,177)

$          50,015

$             (272)

Adjusted free cash flow (2)

$          74,812

$  12,119

$          50,855

$        190,306

$        174,225

Ongoing capital expenditures (3)

$          45,549

$  63,581

$          41,064

$        154,044

$        115,271

Discretionary free cash flow (4)

$        170,892

$  35,383

$        165,498

$        333,079

$        322,631

Adjusted discretionary free cash flow (5)

$        184,368

$107,772

$        179,667

$        456,579

$        422,198

(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

$        216,441

$  98,964

$        206,562

$        487,123

$        437,902

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

(6,316)

91,503

(330,958)

184,072

(935,951)

Purchases, sales and maturities of investments, net

(148,789)

(250,737)

89,219

(621,180)

497,777

Free cash flow (negative free cash flow)

$          61,336

$ (60,270)

$         (35,177)

$          50,015

$             (272)

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

Free cash flow (as defined above)

$          61,336

$ (60,270)

$         (35,177)

$          50,015

$             (272)

Less purchase of New York IBX data center

-

-

70,481

-

73,441

Less purchase of Asia Tone, less cash acquired

-

-

(862)

-

(755)

Less purchase of real estate

-

-

2,244

16,791

2,244

Less excess tax benefits from employee equity awards

5,825

1,614

4,951

17,457

27,372

Less cash paid for taxes resulting from the planned REIT conversion 

978

61,873

805

80,678

58,109

Less costs related to the planned REIT conversion

6,673

8,902

8,413

25,365

14,086

Adjusted free cash flow

$          74,812

$  12,119

$          50,855

$        190,306

$        174,225

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

Cash paid for taxes resulting from the planned REIT conversion

$              978

$  61,873

$              805

$          80,678

$          58,109

Other cash taxes paid

4,528

13,498

9,077

30,112

28,627

Total cash paid for taxes

$            5,506

$  75,371

$            9,882

$        110,790

$          86,736

(3)

We refer to our purchases of other property, plant and equipment as our capital expenditures (or capex).  We categorize our capital expenditures into expansion and ongoing capex. Expansion capex is capex spent to build out our new data centers and data center expansions. Our ongoing capex represents all of our other capex spending.

Ongoing capital expenditures

$          45,549

$  63,581

$          41,064

$        154,044

$        115,271

Expansion capital expenditures

110,454

96,235

129,971

267,682

254,294

Total capital expenditures

$        156,003

$159,816

$        171,035

$        421,726

$        369,565

(4)

We define discretionary free cash flow as net cash provided by operating activities less ongoing capital expenditures (as described above), as presented below:

Net cash provided by operating activities, as presented above

$        216,441

$  98,964

$        206,562

$        487,123

$        437,902

Less ongoing capital expenditures

(45,549)

(63,581)

(41,064)

(154,044)

(115,271)

Discretionary free cash flow

$        170,892

$  35,383

$        165,498

$        333,079

$        322,631

(5)

We define adjusted discretionary free cash flow as discretionary free cash flow (as defined above), excluding any excess tax benefits from employee equity awards, cash paid for taxes associated with reclassifying our assets for tax purposes triggered by our planned REIT conversion and costs related to the planned REIT conversion, as presented below:

Discretionary free cash flow (as defined above)

$        170,892

$  35,383

$        165,498

$        333,079

$        322,631

Excess tax benefits from employee equity awards

5,825

1,614

4,951

17,457

27,372

Cash paid for taxes resulting from the planned REIT conversion 

978

61,873

805

80,678

58,109

Costs related to the planned REIT conversion

6,673

8,902

8,413

25,365

14,086

Adjusted discretionary free cash flow

$        184,368

$107,772

$        179,667

$        456,579

$        422,198

EQUINIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP PRESENTATION

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2014

2014

2013

2014

2013

Recurring revenues

$        588,437

$574,158

$        515,566

$     1,712,298

$     1,511,902

Non-recurring revenues

32,004

31,003

27,518

93,357

76,187

Revenues (1)

620,441

605,161

543,084

1,805,655

1,588,089

Cash cost of revenues (2)

196,458

190,901

174,111

571,607

504,542

Cash gross profit (3)

423,983

414,260

368,973

1,234,048

1,083,547

Cash operating expenses (4):

Cash sales and marketing expenses (5)

58,434

58,785

48,172

173,018

140,882

Cash general and administrative expenses (6)

81,688

80,198

72,356

241,504

205,297

Total cash operating expenses (7)

140,122

138,983

120,528

414,522

346,179

Adjusted EBITDA (8)

$        283,861

$275,277

$        248,445

$        819,526

$        737,368

Cash gross margins (9)

68%

68%

68%

68%

68%

Adjusted EBITDA margins (10)

46%

45%

46%

45%

46%

Adjusted EBITDA flow-through rate (11)

56%

59%

3%

35%

40%

(1)

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

Americas Revenues:

Colocation

$        244,979

$242,873

$        230,583

$        724,466

$        680,158

Interconnection

69,512

66,451

61,984

200,265

179,990

Managed infrastructure

15,214

14,885

12,905

43,211

39,619

Rental

978

943

818

2,873

1,723

Recurring revenues

330,683

325,152

306,290

970,815

901,490

Non-recurring revenues

16,729

17,104

13,123

48,886

37,183

Revenues

347,412

342,256

319,413

1,019,701

938,673

EMEA Revenues:

Colocation

130,873

127,132

108,906

380,181

313,354

Interconnection

13,163

12,329

9,233

36,858

26,468

Managed infrastructure

7,179

7,434

6,215

21,478

16,198

Rental

1,588

1,730

116

5,036

374

Recurring revenues

152,803

148,625

124,470

443,553

356,394

Non-recurring revenues

8,777

8,537

8,784

26,619

23,838

Revenues

161,580

157,162

133,254

470,172

380,232

Asia-Pacific Revenues:

Colocation

86,613

82,655

69,080

245,101

207,975

Interconnection

12,973

12,189

10,433

36,520

29,536

Managed infrastructure

5,364

5,537

5,293

16,308

16,507

Recurring revenues

104,951

100,381

84,806

297,930

254,018

Non-recurring revenues

6,498

5,362

5,611

17,852

15,166

Revenues

111,449

105,743

90,417

315,782

269,184

Worldwide Revenues:

Colocation

462,465

452,660

408,569

1,349,748

1,201,487

Interconnection

95,648

90,969

81,650

273,643

235,994

Managed infrastructure

27,757

27,856

24,413

80,997

72,324

Rental

2,566

2,673

934

7,909

2,097

Recurring revenues

588,437

574,158

515,566

1,712,298

1,511,902

Non-recurring revenues

32,004

31,003

27,518

93,357

76,187

Revenues

$        620,441

$605,161

$        543,084

$     1,805,655

$     1,588,089

(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

$        304,052

$292,859

$        268,960

$        884,436

$        794,660

Depreciation, amortization and accretion expense

(105,449)

(99,730)

(92,579)

(306,586)

(284,452)

Stock-based compensation expense

(2,145)

(2,228)

(2,270)

(6,243)

(5,666)

Cash cost of revenues

$        196,458

$190,901

$        174,111

$        571,607

$        504,542

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

Americas cash cost of revenues

$          97,775

$  94,684

$          92,882

$        283,496

$        270,496

EMEA cash cost of revenues

59,593

58,727

47,924

176,436

138,857

Asia-Pacific cash cost of revenues

39,090

37,490

33,305

111,675

95,189

Cash cost of revenues

$        196,458

$190,901

$        174,111

$        571,607

$        504,542

(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

$          72,185

$  75,254

$          61,619

$        214,867

$        179,373

Depreciation and amortization expense

(6,495)

(8,526)

(6,197)

(19,650)

(18,695)

Stock-based compensation expense

(7,256)

(7,943)

(7,250)

(22,199)

(19,796)

Cash sales and marketing expenses

$          58,434

$  58,785

$          48,172

$        173,018

$        140,882

(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

$        109,354

$111,675

$          96,874

$        324,332

$        276,324

Depreciation and amortization expense

(9,405)

(7,818)

(6,758)

(24,797)

(21,179)

Stock-based compensation expense

(18,261)

(23,659)

(17,760)

(58,031)

(49,848)

Cash general and administrative expenses

$          81,688

$  80,198

$          72,356

$        241,504

$        205,297

(7)

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

Cash sales and marketing expenses

$          58,434

$  58,785

$          48,172

$        173,018

$        140,882

Cash general and administrative expenses

81,688

80,198

72,356

241,504

205,297

Cash SG&A

$        140,122

$138,983

$        120,528

$        414,522

$        346,179

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

Americas cash SG&A

$          89,562

$  89,447

$          76,227

$        268,442

$        219,065

EMEA cash SG&A

32,201

33,084

28,191

95,394

84,818

Asia-Pacific cash SG&A

18,359

16,452

16,110

50,686

42,296

Cash SG&A

$        140,122

$138,983

$        120,528

$        414,522

$        346,179

(8)

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

Income from operations

$        135,131

$124,697

$        115,193

$        381,440

$        335,943

Depreciation, amortization and accretion expense

121,349

116,074

105,534

351,033

324,326

Stock-based compensation expense

27,662

33,830

27,280

86,473

75,310

Acquisition costs

(281)

676

438

580

6,626

Adjusted EBITDA

$        283,861

$275,277

$        248,445

$        819,526

$        737,368

The geographic split of our adjusted EBITDA is presented below:

Americas income from operations

$          72,614

$  67,739

$          70,691

$        212,088

$        203,743

Americas depreciation, amortization and accretion expense

66,594

62,481

58,939

188,008

187,384

Americas stock-based compensation expense

21,148

27,177

20,591

67,118

57,203

Americas acquisition costs

(281)

728

83

549

5,619

Americas adjusted EBITDA

160,075

158,125

150,304

467,763

449,112

EMEA income from operations

38,848

34,067

28,685

102,818

75,034

EMEA depreciation, amortization and accretion expense

27,650

27,901

24,503

85,453

70,998

EMEA stock-based compensation expense

3,288

3,385

3,596

9,990

9,699

EMEA acquisition costs

-

(2)

355

81

826

EMEA adjusted EBITDA

69,786

65,351

57,139

198,342

156,557

Asia-Pacific income from operations

23,669

22,891

15,817

66,534

57,166

Asia-Pacific depreciation, amortization and accretion expense

27,105

25,692

22,092

77,572

65,944

Asia-Pacific stock-based compensation expense

3,226

3,268

3,093

9,365

8,408

Asia-Pacific acquisition costs

-

(50)

-

(50)

181

Asia-Pacific adjusted EBITDA

54,000

51,801

41,002

153,421

131,699

Adjusted EBITDA

$        283,861

$275,277

$        248,445

$        819,526

$        737,368

(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%

72%

71%

72%

71%

EMEA cash gross margins

63%

63%

64%

62%

63%

Asia-Pacific cash gross margins

65%

65%

63%

65%

65%

(10)

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

Americas adjusted EBITDA margins

46%

46%

47%

46%

48%

EMEA adjusted EBITDA margins

43%

42%

43%

42%

41%

Asia-Pacific adjusted EBITDA margins

48%

49%

45%

49%

49%

(11)

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

Adjusted EBITDA - current period

$        283,861

$275,277

$        248,445

$        819,526

$        737,368

Less adjusted EBITDA - prior period

(275,277)

(260,388)

(248,035)

(760,010)

(681,122)

Adjusted EBITDA growth

$            8,584

$  14,889

$              410

$          59,516

$          56,246

Revenues - current period

$        620,441

$605,161

$        543,084

$     1,805,655

$     1,588,089

Less revenues - prior period

(605,161)

(580,053)

(528,871)

(1,636,632)

(1,446,424)

Revenue growth

$          15,280

$  25,108

$          14,213

$        169,023

$        141,665

Adjusted EBITDA flow-through rate

56%

59%

3%

35%

40%

Equinix

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SOURCE Equinix, Inc.