Equinix, Inc. (Nasdaq:EQIX), the leading provider of
network-neutral data centers and Internet exchange services, today
reported quarterly results for the period ended September 30, 2006.
Revenues were $73.7 million for the third quarter, a 27% increase
over the same quarter last year and an 8% increase over the
previous quarter. Recurring revenues, consisting primarily of
colocation, interconnection and managed services, were $69.9
million, a 29% increase over the same quarter last year and a 7%
increase over the previous quarter. Non-recurring revenues were
$3.8 million in the quarter, consisting primarily of professional
services and installation fees. Note: Equinix uses non-GAAP
financial measures, such as EBITDA, cash cost of revenues, cash
gross margins, cash operating expenses (also known as cash selling,
general and administrative expenses or cash SG&A), non-GAAP net
income (loss), free cash flow and adjusted free cash flow to
evaluate its operations. A reconciliation of these non-GAAP
financial measures to the most closely applicable GAAP financial
measure is attached to this release and commences at the bottom of
our condensed consolidated statements of operations � GAAP
presentation. Cost of revenues were $49.1 million for the third
quarter, including $664,000 of stock-based compensation, an 8%
increase over the previous quarter and a 20% increase over the same
quarter last year. Cost of revenues, excluding depreciation,
amortization, accretion and stock-based compensation of $19.4
million, were $29.7 million for the third quarter, an 11% increase
over the previous quarter and an 18% increase over the same quarter
last year. Cash gross margins, defined as gross profit less
depreciation, amortization, accretion and stock-based compensation,
divided by revenues, for the quarter were 60%, down from 61% the
previous quarter and up from 57% the same quarter last year. On a
same IBX basis (defined as IBX centers which have been available
for new customer installs for at least four full quarters), cash
gross margins were 63%. Selling, general and administrative
expenses were $26.1 million for the third quarter, including $6.2
million of stock-based compensation, approximately the same as the
previous quarter and a 55% increase over the same quarter last
year. Selling, general and administrative expenses, excluding
depreciation, amortization and stock-based compensation of $7.1
million, were $19.0 million for the third quarter, an 8% increase
over the previous quarter and a 27% increase over same quarter last
year. Selling, general and administrative expenses included $1.2
million in costs incurred in the quarter related to the audit
committee�s independent investigation of the Company�s stock
options practices, of which approximately $600,000 was greater than
anticipated. The Company recorded an adjustment to the $17.7
million restructuring charge that the Company recorded in the
fourth quarter of 2004 and increased the restructuring charge by
$1.5 million in the third quarter of 2006. The $1.5 million
increase in the restructuring charge was a result of revised
sublease assumptions related to the two leases covered under the
2004 restructuring charge that the Company is contractually
committed to through 2015. Net loss for the third quarter was $5.2
million, including stock-based compensation expense of $6.9 million
and the restructuring charge of $1.5 million. This represents a
basic and diluted net loss per share of $0.18 based on a weighted
average share count of 28.7 million. Excluding stock-based
compensation and the restructuring charge, the Company was net
income positive for the third quarter, with a non-GAAP net income
of $3.2 million. This was a $383,000 decrease from the previous
quarter�s result of $3.6 million and a $2.7 million improvement
over the same quarter last year. EBITDA, defined as income or loss
from operations before depreciation, amortization, accretion,
stock-based compensation expense and restructuring charges, for the
third quarter was $24.9 million, up from $24.0 million the previous
quarter and up from $17.9 million the same quarter last year. As
mentioned above, this result included $1.2 million in costs
incurred within the quarter for the audit committee�s independent
investigation of the Company�s stock options practices, of which
approximately $600,000 was not anticipated. �With good visibility
to the completion of 2006, it�s been another strong year of growth
for the Company,� said Peter Van Camp, chairman and CEO, Equinix.
�Our business execution, expansion program, and momentum as we exit
the year provide a solid foundation to continue to build on our
market leadership position in 2007.� Capital expenditures in the
third quarter were $46.6 million, of which $7.0 million was
attributed to ongoing capital expenditures and $39.6 million was
attributed to expansion capital expenditures. The Company generated
cash from operating activities of $20.7 million as compared to
$16.1 million in the previous quarter. Cash used in investing
activities was $50.0 million as compared to $35.8 million in the
previous quarter. Adjusted free cash flow was a negative $29.3
million in the third quarter. Adjusted free cash flow is defined as
net cash generated from operating activities less net cash used in
investing activities (excluding the purchases, sales and maturities
of short-term and long-term investments and the purchase and sale
of real estate). As of September 30, 2006, the Company�s cash, cash
equivalents and investments were $166.3 million, as compared to
$147.9 million in the previous quarter. In September 2006, the
Company drew down $40.0 million from its Silicon Valley Bank credit
line, which was repaid in full in October 2006. Other Company
Developments & Metrics As referenced in a separate press
release today, Equinix has announced that Peter Van Camp will
transition from his role as chairman and CEO of Equinix to
Executive Chairman once a new CEO has been appointed over the
course of the next year. Until this time, Mr. Van Camp will remain
fully engaged as CEO and chairman. On a same IBX basis (defined as
IBX centers which have been available for new customer installs for
at least four full quarters), revenues were $71.6 million; cost of
revenues were $43.5 million; cost of revenues, excluding
depreciation, amortization, accretion and stock-based compensation,
were $26.4 million and cash gross margins for the quarter were 63%.
EBITDA on a same IBX basis was $26.6 million. Equinix added 92 new
customers in the quarter including Acer Computers, Barnes and Noble
College Booksellers, Coram, Fannie Mae and Shopzilla. Based on a
total cabinet capacity of approximately 30,900, the number of
cabinets billing at the end of the quarter was approximately
16,200, or 52%, up from approximately 15,400 the previous quarter.
On a weighted average basis, the number of cabinets billing was
approximately 16,200 representing a utilization rate of 52%. U.S.
interconnection service revenues were 22% of U.S. recurring
revenues for the quarter. Interconnection services represent
approximately 20% of total worldwide recurring revenues.
Washington, D.C. metro area IBX greenfield project is targeted to
open in January of 2007, with customer installations expected to
commence in February 2007. Business Outlook For the full year of
2006, total revenues are expected to be in the range of $286.0 to
$287.0 million. Total year cash gross margins are expected to be in
the range of 60% to 61% including approximately $4.0 million of net
cash costs attributed to our expansion IBXs. Cash selling, general
and administrative expenses are expected to be in the range of
$70.0 to $71.0 million, including an estimated $2.7 million of
incremental professional fees attributed to the stock option
investigation. EBITDA for the year is expected to be $102.0 to
$103.0 million. Net loss is expected to be in a range of $15.0 to
$16.0 million, including the restructuring charge of $1.5 million
and the impact of approximately $30.0 million of stock-based
compensation expense. Net interest expense will be approximately
$8.0 million. The weighted average shares outstanding will be
approximately 28.5 million. Capital expenditures for 2006 are
expected to be in a range of $175.0 to $180.0 million, comprised of
approximately $32.0 million of ongoing capital expenditures and
$143.0 to $148.0 million of expansion capital expenditures for the
build out of the Chicago, Los Angeles and Silicon Valley expansions
opened this year, as well as the greenfield expansions in the
Washington, D.C., Chicago and New York metro areas. For 2007, total
revenues are expected to be in the range of $352.0 to $362.0
million. EBITDA for the year is expected to be between $137.0 and
$143.0 million, including $6.0 million of net costs related to the
Company�s expansion projects. Capital expenditures for 2007 are
expected to be in a range of $230.0 to $245.0 million, comprised of
approximately $30.0 million of ongoing capital expenditures and
$200.0 to $215.0 million of expansion capital expenditures. This
includes approximately $10.0 million of expansion capital
expenditures shifted from 2006 to 2007 specifically related to the
Chicago Greenfield project. About Equinix Equinix is the leading
global provider of network-neutral data centers and Internet
exchange services for enterprises, content companies, systems
integrators and network services providers. Through the company�s
Internet Business Exchange� (IBX�) centers in 11 markets in the
U.S. and Asia, customers can directly interconnect with every major
global network and ISP for their critical peering, transit and
traffic exchange requirements. These interconnection points
facilitate the highest performance and growth of the Internet by
serving as neutral and open marketplaces for Internet
infrastructure services, allowing customers to expand their
businesses while reducing costs. 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; a failure to receive
significant revenue from customers in recently-acquired data
centers; failure to complete any financing arrangements
contemplated from time to time; failure to receive the proceeds
from our loan commitments as expected; failure to increase the debt
financing on our Washington, D.C. area campus as expected;
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; the results of any regulatory review of
past stock option grants and practices or any litigation relating
to such grants and practices; 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. Internet Business Exchange
is a trademark of Equinix, Inc. Non-GAAP Financial Measures Equinix
continues to provide 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 EBITDA, cash cost
of revenues, cash gross margins, cash operating expenses (also
known as cash selling, general and administrative expenses or cash
SG&A), non-GAAP net income (loss), free cash flow and adjusted
free cash flow to evaluate its operations. In presenting these
non-GAAP financial measures, Equinix excludes certain non-cash or
non-recurring items that it believes are not good indicators of the
Company's current or future operating performance. These non-cash
or non-recurring items are depreciation, amortization, accretion,
stock-based compensation and restructuring charges. Recent
legislative and regulatory changes 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 non-cash or non-recurring 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 competitor base. Equinix excludes
depreciation expense as these charges primarily relate to the
initial construction costs of our IBX centers and IBX expansion
projects or acquired 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 ten 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 non-cash 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 charge liabilities, as these expenses
represent costs, which Equinix believes are not meaningful in
evaluating the Company's current operations. Equinix excludes
non-cash stock-based compensation expense as it represents expense
attributed to stock awards that have no current or future cash
obligations. As such, we, and our investors and analysts, exclude
this stock-based compensation expense when assessing the cash
generating performance of our operations. The restructuring charges
relate to the Company's decision to exit leases for excess space
adjacent to several of our IBX centers, which we do not intend to
build out now or in the future. Management believes such
restructuring charges were unique costs that are not expected to
recur, and consequently, does not consider these charges as a
normal component of expenses related to current and ongoing
operations. 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 ongoing business operations.
Management believes that the inclusion of these non-GAAP financial
measures provide consistency and comparability with past reports
and provide 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, net income (loss) from operations, interest income, cash
generated from operating activities and cash used in investing
activities, and as a result, is not able to provide a
reconciliation of GAAP to non-GAAP financial measures for
forward-looking data. Equinix intends to calculate the various
non-GAAP financial measures in future periods consistent with how
it was calculated for the three and nine months ended September 30,
2006 and 2005, presented within this press release. EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP PRESENTATION
(in thousands, except per share detail) (unaudited) � � Three
Months Ended Nine Months Ended Sept. 30, June 30, Sept. 30, Sept.
30, Sept. 30, 2006� 2006� 2005� 2006� 2005� � Recurring revenues $
69,918� $ 65,089� $ 54,291� $ 196,759� $ 149,623� Non-recurring
revenues � 3,808� � 3,459� � 3,805� � 10,384� � 9,636� Revenues
73,726� 68,548� 58,096� 207,143� 159,259� � Cost of revenues �
49,137� � 45,563� � 40,955� � 138,045� � 116,639� Gross profit �
24,589� � 22,985� � 17,141� � 69,098� � 42,620� � Operating
expenses: Sales and marketing 7,502� 8,480� 4,829� 23,180� 14,793�
General and administrative 18,631� 17,725� 12,078� 53,486� 33,594�
Restructuring charges � 1,527� � -� � -� � 1,527� � -� Total
operating expenses � 27,660� � 26,205� � 16,907� � 78,193� �
48,387� � Income (loss) from operations � (3,071) � (3,220) � 234�
� (9,095) � (5,767) � Interest and other income (expense): Interest
income 1,724� 1,730� 1,075� 5,065� 2,644� Interest expense and
other � (3,551) � (3,565) � (1,928) � (10,984) � (6,332) Total
interest and other, net � (1,827) � (1,835) � (853) � (5,919) �
(3,688) � Net loss before income taxes and cumulative effect of a
change in accounting principle (4,898) (5,055) (619) (15,014)
(9,455) � Income taxes (270) (215) (164) (870) (553) � Net loss
before cumulative effect of a change in accounting principle � � �
� � (5,168) (5,270) (783) (15,884) (10,008) Cumulative effect of a
change in accounting principle -� -� -� 376� -� � � � � � Net loss
$ (5,168) $ (5,270) $ (783) $ (15,508) $ (10,008) � Net loss per
share: Basic and diluted net loss per share before cumulative
effect of a change in accounting principle $ (0.18) $ (0.19) $
(0.03) $ (0.56) $ (0.43) Cumulative effect of a change in
accounting principle � -� � -� � -� � 0.01� � -� Basic and diluted
net loss per share $ (0.18) $ (0.19) $ (0.03) $ (0.55) $ (0.43) �
Shares used in computing basic and diluted net loss per share �
28,743� � 28,468� � 24,076� � 28,356� � 23,335� � � � � � � � � � �
� � � � � � � Non-GAAP net income (loss) (1) $ 3,244� $ 3,627� $
575� $ 9,559� $ (3,717) � � (1) Non-GAAP net income (loss) excludes
stock-based compensation and restructuring charges as follows: �
Net loss $ (5,168) $ (5,270) $ (783) $ (15,508) $ (10,008)
Stock-based compensation 6,885� 8,897� 1,358� 23,540� 6,291�
Restructuring charges � 1,527� � -� � -� � 1,527� � -� Non-GAAP net
income (loss) $ 3,244� $ 3,627� $ 575� $ 9,559� $ (3,717) EQUINIX,
INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP
PRESENTATION (in thousands) (unaudited) � � Three Months Ended Nine
Months Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, �
2006� � 2006� � 2005� � 2006� � 2005� � Recurring revenues $
69,918� $ 65,089� $ 54,291� $ 196,759� $ 149,623� Non-recurring
revenues � 3,808� � 3,459� � 3,805� � 10,384� � 9,636� Revenues (1)
73,726� 68,548� 58,096� 207,143� 159,259� � Cash cost of revenues
(2) � 29,738� � 26,845� � 25,119� � 81,855� � 70,365� Cash gross
profit (3) � 43,988� � 41,703� � 32,977� � 125,288� � 88,894� �
Cash operating expenses (4): Cash sales and marketing expenses(5)
5,864� 6,333� 4,566� 17,488� 13,599� Cash general and
administrative expenses (6) � 13,197� � 11,332� � 10,492� � 36,000�
� 26,984� Total cash operating expenses (7) � 19,061� � 17,665� �
15,058� � 53,488� � 40,583� � EBITDA (8) $ 24,927� $ 24,038� $
17,919� $ 71,800� $ 48,311� � � Cash gross margins (9) � 60% � 61%
� 57% � 60% � 56% � EBITDA flow-through rate (10) � 17% � 33% � 33%
� 46% � 57% � � (1) The geographic split of our revenues is
presented below: � U.S. revenues $ 63,654� $ 58,900� $ 50,527� $
178,394� $ 137,927� Asia-Pacific revenues � 10,072� � 9,648� �
7,569� � 28,749� � 21,332� Revenues $ 73,726� $ 68,548� $ 58,096� $
207,143� $ 159,259� � Revenues on a services basis is presented
below: � Colocation $ 51,678� $ 47,988� $ 40,138� $ 145,235� $
109,479� Interconnection 13,862� 12,644� 10,527� 38,310� 29,696�
Managed infrastructure 4,066� 4,046� 3,626� 12,045� 10,448� Rental
� 312� � 411� � -� � 1,169� � -� Recurring revenues 69,918� 65,089�
54,291� 196,759� 149,623� Non-recurring revenues � 3,808� � 3,459�
� 3,805� � 10,384� � 9,636� Revenues $ 73,726� $ 68,548� $ 58,096�
$ 207,143� $ 159,259� � New IBX centers are IBX centers which have
not been available for customer installs for at least four full
quarters. Revenues on a same IBX versus new IBX basis is presented
below: � Same IBX centers $ 71,572� $ 68,190� $ 54,776� $ 202,292�
$ 154,515� New IBX centers � 2,154� � 358� � 3,320� � 4,851� �
4,744� Revenues $ 73,726� $ 68,548� $ 58,096� $ 207,143� $ 159,259�
� (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 $ 49,137� $ 45,563� $
40,955� $ 138,045� $ 116,639� Depreciation, amortization and
accretion expense (18,735) (17,755) (15,836) (53,805) (46,274)
Stock-based compensation expense � (664) � (963) � -� � (2,385) �
-� Cash cost of revenues $ 29,738� $ 26,845� $ 25,119� $ 81,855� $
70,365� � The geographic split of our cash cost of revenues is
presented below: � U.S. cash cost of revenues $ 25,154� $ 22,312� $
20,933� $ 68,417� $ 58,333� Asia-Pacific cash cost of revenues �
4,584� � 4,533� � 4,186� � 13,438� � 12,032� Cash cost of revenues
$ 29,738� $ 26,845� $ 25,119� $ 81,855� $ 70,365� � New IBX centers
are IBX centers which have not been available for customer installs
for at least four full quarters. Cost of revenues and cash cost of
revenues on a same IBX versus new IBX basis is presented below: �
Same IBX centers-cash cost of revenues $ 26,422� $ 24,849� $
23,292� $ 73,747� $ 65,773� Same IBX centers-depreciation,
amortization and accretion expense 16,445� 16,433� 14,031� 48,410�
42,410� Same IBX centers-stock-based compensation expense � 632� �
963� � -� � 2,353� � -� Same IBX centers cost of revenues � 43,499�
� 42,245� � 37,323� � 124,510� � 108,183� � New IBX centers-cash
cost of revenues 3,316� 1,996� 1,827� 8,108� 4,592� New IBX
centers-depreciation, amortization and accretion expense 2,290�
1,322� 1,805� 5,395� 3,864� New IBX centers-stock-based
compensation expense � 32� � -� � -� � 32� � -� New IBX centers
cost of revenues � 5,638� � 3,318� � 3,632� � 13,535� � 8,456� �
Cost of revenues $ 49,137� $ 45,563� $ 40,955� $ 138,045� $
116,639� � (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 and
stock-based compensation. 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 $ 7,502� $ 8,480� $ 4,829� $ 23,180� $ 14,793�
Depreciation and amortization expense (15) (15) (15) (45) (45)
Stock-based compensation expense � (1,623) � (2,132) � (248) �
(5,647) � (1,149) Cash sales and marketing expenses $ 5,864� $
6,333� $ 4,566� $ 17,488� $ 13,599� � (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 $ 18,631� $
17,725� $ 12,078� $ 53,486� $ 33,594� Depreciation and amortization
expense (836) (591) (476) (1,978) (1,468) Stock-based compensation
expense � (4,598) � (5,802) � (1,110) � (15,508) � (5,142) Cash
general and adminis-trative expenses $ 13,197� $ 11,332� $ 10,492�
$ 36,000� $ 26,984� � (7) Our cash operating expenses, or cash
SG&A, as defined above, is presented below: � Cash sales and
marketing expenses $ 5,864� $ 6,333� $ 4,566� $ 17,488� $ 13,599�
Cash general and administrative expenses � 13,197� � 11,332� �
10,492� � 36,000� � 26,984� Cash SG&A $ 19,061� $ 17,665� $
15,058� $ 53,488� $ 40,583� � The geographic split of our cash
operating expenses, or cash SG&A, is presented below: � U.S.
cash SG&A $ 16,261� $ 14,599� $ 12,338� $ 44,187� $ 32,732�
Asia-Pacific cash SG&A � 2,800� � 3,066� � 2,720� � 9,301� �
7,851� Cash SG&A $ 19,061� $ 17,665� $ 15,058� $ 53,488� $
40,583� � (8) We define EBITDA as income (loss) from operations
less depreciation, amortization, accretion, stock-based
compensation expense and restructuring charges as presented below:
� Income (loss) from operations $ (3,071) $ (3,220) $ 234� $
(9,095) $ (5,767) Depreciation, amortization and accretion expense
19,586� 18,361� 16,327� 55,828� 47,787� Stock-based compensation
expense 6,885� 8,897� 1,358� 23,540� 6,291� Restructuring charges �
1,527� � -� � -� � 1,527� � -� EBITDA $ 24,927� $ 24,038� $ 17,919�
$ 71,800� $ 48,311� � The geographic split of our EBITDA is
presented below: � U.S. income (loss) from operations $ (3,967) $
(3,405) $ 541� $ (9,619) $ (3,944) U.S. depreciation, amortization
and accretion expense 18,607� 17,419� 15,357� 52,892� 44,515� U.S.
stock-based compensation expense 6,072� 7,975� 1,358� 20,990�
6,291� U.S. restructuring charges � 1,527� � -� � -� � 1,527� � -�
U.S. EBITDA � 22,239� � 21,989� � 17,256� � 65,790� � 46,862� �
Asia-Pacific income (loss) from operations 896� 185� (307) 524�
(1,823) Asia-Pacific depreciation, amortization and accretion
expense 979� 942� 970� 2,936� 3,272� Asia-Pacific stock-based
compensation expense 813� 922� -� 2,550� -� Asia-Pacific
restructuring charges � -� � -� � -� � -� � -� Asia-Pacific EBITDA
� 2,688� � 2,049� � 663� � 6,010� � 1,449� � EBITDA $ 24,927� $
24,038� $ 17,919� $ 71,800� $ 48,311� � New IBX centers are IBX
centers which have not been available for customer installs for at
least four full quarters. EBITDA on a same IBX versus new IBX basis
is presented below: � Same IBX centers-income (loss) from
operations $ 944� $ 76� $ 1,008� $ 652� $ (1,179) Same IBX
centers-depreciation, amortization and accretion expense 17,296�
17,039� 14,522� 50,433� 43,923� Same IBX centers-stock-based
compensation expense 6,853� 8,897� 1,358� 23,508� 6,291� Same IBX
centers-restructuring charges � 1,527� � -� � -� � 1,527� � -� Same
IBX center EBITDA � 26,620� � 26,012� � 16,888� � 76,120� � 49,035�
� New IBX centers-income (loss) from operations (4,015) (3,296)
(774) (9,747) (4,588) New IBX centers-depreciation, amortization
and accretion expense 2,290� 1,322� 1,805� 5,395� 3,864� New IBX
centers-stock-based compensation expense 32� -� -� 32� -� New IBX
centers-restructuring charges � -� � -� � -� � -� � -� New IBX
center EBITDA � (1,693) � (1,974) � 1,031� � (4,320) � (724) �
EBITDA $ 24,927� $ 24,038� $ 17,919� $ 71,800� $ 48,311� � (9) We
define cash gross margins as cash gross profit divided by revenues.
� Our cash gross margins by geographic region is presented below: �
U.S. cash gross margins � 60% � 62% � 59% � 62% � 58% �
Asia-Pacific cash gross margins � 54% � 53% � 45% � 53% � 44% �
Same IBX centers are IBX centers which have been available for
customer installs for at least four full quarters. Our cash gross
margins for same IBX centers is presented below: � Same IBX cash
gross margins � 63% � 64% � 57% � 64% � 57% � (10) We define EBITDA
flow-through rate as incremental EBITDA growth divided by
incremental revenue growth as follows: � EBITDA - current period $
24,927� $ 24,038� $ 17,919� $ 71,800� $ 48,311� Less EBITDA - prior
period � (24,038) � (22,835) � (16,055) � (55,802) � (29,957)
EBITDA growth $ 889� $ 1,203� $ 1,864� $ 15,998� $ 18,354� �
Revenues - current period $ 73,726� $ 68,548� $ 58,096� $ 207,143�
$ 159,259� Less revenues - prior period � (68,548) � (64,869) �
(52,479) � (172,373) � (126,851) Revenue growth $ 5,178� $ 3,679� $
5,617� $ 34,770� $ 32,408� � EBITDA flow-through rate � 17% � 33% �
33% � 46% � 57% EQUINIX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) (unaudited) � � Assets September 30, December 31, �
2006� � 2005� � Cash, cash equivalents and investments $ 166,346� $
188,855� Accounts receivable, net 24,129� 17,237� Property and
equipment, net 499,917� 438,790� Goodwill and other intangible
assets, net 23,375� 21,829� Debt issuance costs, net 2,685� 3,075�
Prepaid expenses 7,378� 5,098� Deposits 3,727� 3,548� Other assets
� 3,063� � 2,565� Total assets $ 730,620� $ 680,997� � Liabilities
and Stockholders' Equity � Accounts payable and accrued expenses $
23,007� $ 22,557� Accrued property and equipment 18,597� 15,783�
Accrued restructuring charges 44,546� 49,831� Borrowings under
credit line 40,000� 30,000� Capital lease obligations 33,925�
34,530� Other financing obligations 61,150� 61,675� Mortgage
payable 59,165� 60,000� Convertible subordinated debentures 86,250�
86,250� Deferred installation revenue 9,678� 7,658� Customer
deposits 1,008� 1,188� Deferred rent 21,118� 18,792� Asset
retirement obligations 4,043� 3,649� Other liabilities � 549� �
411� Total liabilities � 403,036� � 392,324� � Common stock 29� 27�
Additional paid-in capital 887,319� 839,497� Deferred stock-based
compensation -� (4,930) Accumulated other comprehensive income
2,791� 1,126� Accumulated deficit � (562,555) � (547,047) Total
stockholders' equity � 327,584� � 288,673� � Total liabilities and
stockholders' equity $ 730,620� $ 680,997� � � � � � � � � � Ending
headcount by geographic region is as follows: � U.S. headcount 422�
372� Asia-pacific headcount � 171� � 165� Total headcount � 593� �
537� EQUINIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(1) (in thousands) (unaudited) � � Three Months Ended Nine Months
Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2006� 2006�
2005� 2006� 2005� � Cash flows from operating activities: Net loss
$ (5,168) $ (5,270) $ (783) $ (15,508) $ (10,008) Adjustments to
reconcile net loss to net cash provided by operating activities: �
Depreciation, amortization and accretion 19,586� 18,361� 16,327�
55,828� 47,787� Stock-based compensation 6,885� 8,897� 1,358�
23,540� 6,291� Non-cash interest expense 227� 208� 278� 643� 1,451�
Restructuring charges 1,527� -� -� 1,527� -� Other reconciling
items 437� (64) (404) (354) (453) Changes in operating assets and
liabilities: Accounts receivable (646) (5,011) (75) (6,908) (3,823)
Accounts payable and accrued expenses (1,134) 2,597� 650� 470�
3,602� Accrued restructuring charges (3,088) (3,168) (480) (9,213)
(1,448) Other assets and liabilities � 2,029� � (443) � (1,377) �
(472) � 5,637� Net cash provided by operating activities � 20,655�
� 16,107� � 15,494� � 49,553� � 49,036� Cash flows from investing
activities: Purchase of Los Angeles IBX property -� -� (34,727) -�
(34,727) Purchase of Chicago IBX property -� (9,766) -� (9,766) -�
Purchases of other property and equipment (46,620) (29,671) (7,079)
(102,904) (22,492) Accrued property and equipment (3,341) 3,643�
(267) 2,814� 2,245� Other investing activities � 2� � -� � -� � 8�
� -� Net cash used in investing activities � (49,959) � (35,794) �
(42,073) � (109,848) � (54,974) Cash flows from financing
activities: Proceeds from warrants, stock options and employee
stock purchase plans 8,180� 5,862� 3,585� 28,756� 11,217� Proceeds
from borrowings under credit line 40,000� -� -� 40,000� -�
Repayment of borrowings under credit line -� -� -� (30,000) -�
Repayment of capital lease obligations (207) (201) (167) (605)
(489) Repayment of other financing obligations (184) (174) (34)
(525) (3,724) Repayment of mortgage payable (319) (311) -� (835) -�
Other financing activities � (9) � 200� � (342) � 561� � (342) Net
cash provided by financing activities � 47,461� � 5,376� � 3,042� �
37,352� � 6,662� Effect of foreign currency exchange rates on cash
and cash equivalents � 250� � 27� � (202) � 434� � (526) Net
increase (decrease) in cash, cash equivalents and investments
18,407� (14,284) (23,739) (22,509) 198� Cash, cash equivalents and
investments at beginning of period � 147,939� � 162,223� � 132,029�
� 188,855� � 108,092� Cash, cash equivalents and investments at end
of period $ 166,346� $ 147,939� $ 108,290� $ 166,346� $ 108,290� �
� Free cash flow (2) $ (29,304) $ (19,687) $ (26,579) $ (60,295) $
(5,938) � Adjusted free cash flow (3) $ (29,304) $ (9,921) $ 8,148�
$ (50,529) $ 28,789� � � � � � � (1) The cash flow statements
presented herein combine our short-term and long-term investments
with our cash and cash equivalents in an effort to present our
total unrestricted cash and equivalent balances. In our quarterly
filings with the SEC on Forms 10-Q and 10-K, the purchases, sales
and maturities of our short-term and long-term investments will be
presented as activities within the investing activities portion of
the cash flow statements. � (2) We define free cash flow as net
cash provided by operating activities plus net cash used in
investing activities (excluding the purchases, sales and maturities
of short-term and long-term investments) as presented below: � Net
cash provided by operating activities as presented above $ 20,655�
$ 16,107� $ 15,494� $ 49,553� $ 49,036� Net cash used in investing
activities as presented above � (49,959) � (35,794) � (42,073) �
(109,848) � (54,974) Free cash flow $ (29,304) $ (19,687) $
(26,579) $ (60,295) $ (5,938) � (3) We define adjusted free cash
flow as free cash flow (as defined above) excluding any purchases
or sales of real estate as presented below: � Free cash flow (as
defined above) $ (29,304) $ (19,687) $ (26,579) $ (60,295) $
(5,938) Less purchase of Los Angeles IBX property -� -� 34,727� -�
34,727� Less purchase of Chicago IBX property � -� � 9,766� � -� �
9,766� � -� Adjusted free cash flow $ (29,304) $ (9,921) $ 8,148� $
(50,529) $ 28,789� Equinix, Inc. (Nasdaq:EQIX), the leading
provider of network-neutral data centers and Internet exchange
services, today reported quarterly results for the period ended
September 30, 2006. Revenues were $73.7 million for the third
quarter, a 27% increase over the same quarter last year and an 8%
increase over the previous quarter. Recurring revenues, consisting
primarily of colocation, interconnection and managed services, were
$69.9 million, a 29% increase over the same quarter last year and a
7% increase over the previous quarter. Non-recurring revenues were
$3.8 million in the quarter, consisting primarily of professional
services and installation fees. Note: Equinix uses non-GAAP
financial measures, such as EBITDA, cash cost of revenues, cash
gross margins, cash operating expenses (also known as cash selling,
general and administrative expenses or cash SG&A), non-GAAP net
income (loss), free cash flow and adjusted free cash flow to
evaluate its operations. A reconciliation of these non-GAAP
financial measures to the most closely applicable GAAP financial
measure is attached to this release and commences at the bottom of
our condensed consolidated statements of operations -- GAAP
presentation. Cost of revenues were $49.1 million for the third
quarter, including $664,000 of stock-based compensation, an 8%
increase over the previous quarter and a 20% increase over the same
quarter last year. Cost of revenues, excluding depreciation,
amortization, accretion and stock-based compensation of $19.4
million, were $29.7 million for the third quarter, an 11% increase
over the previous quarter and an 18% increase over the same quarter
last year. Cash gross margins, defined as gross profit less
depreciation, amortization, accretion and stock-based compensation,
divided by revenues, for the quarter were 60%, down from 61% the
previous quarter and up from 57% the same quarter last year. On a
same IBX basis (defined as IBX centers which have been available
for new customer installs for at least four full quarters), cash
gross margins were 63%. Selling, general and administrative
expenses were $26.1 million for the third quarter, including $6.2
million of stock-based compensation, approximately the same as the
previous quarter and a 55% increase over the same quarter last
year. Selling, general and administrative expenses, excluding
depreciation, amortization and stock-based compensation of $7.1
million, were $19.0 million for the third quarter, an 8% increase
over the previous quarter and a 27% increase over same quarter last
year. Selling, general and administrative expenses included $1.2
million in costs incurred in the quarter related to the audit
committee's independent investigation of the Company's stock
options practices, of which approximately $600,000 was greater than
anticipated. The Company recorded an adjustment to the $17.7
million restructuring charge that the Company recorded in the
fourth quarter of 2004 and increased the restructuring charge by
$1.5 million in the third quarter of 2006. The $1.5 million
increase in the restructuring charge was a result of revised
sublease assumptions related to the two leases covered under the
2004 restructuring charge that the Company is contractually
committed to through 2015. Net loss for the third quarter was $5.2
million, including stock-based compensation expense of $6.9 million
and the restructuring charge of $1.5 million. This represents a
basic and diluted net loss per share of $0.18 based on a weighted
average share count of 28.7 million. Excluding stock-based
compensation and the restructuring charge, the Company was net
income positive for the third quarter, with a non-GAAP net income
of $3.2 million. This was a $383,000 decrease from the previous
quarter's result of $3.6 million and a $2.7 million improvement
over the same quarter last year. EBITDA, defined as income or loss
from operations before depreciation, amortization, accretion,
stock-based compensation expense and restructuring charges, for the
third quarter was $24.9 million, up from $24.0 million the previous
quarter and up from $17.9 million the same quarter last year. As
mentioned above, this result included $1.2 million in costs
incurred within the quarter for the audit committee's independent
investigation of the Company's stock options practices, of which
approximately $600,000 was not anticipated. "With good visibility
to the completion of 2006, it's been another strong year of growth
for the Company," said Peter Van Camp, chairman and CEO, Equinix.
"Our business execution, expansion program, and momentum as we exit
the year provide a solid foundation to continue to build on our
market leadership position in 2007." Capital expenditures in the
third quarter were $46.6 million, of which $7.0 million was
attributed to ongoing capital expenditures and $39.6 million was
attributed to expansion capital expenditures. The Company generated
cash from operating activities of $20.7 million as compared to
$16.1 million in the previous quarter. Cash used in investing
activities was $50.0 million as compared to $35.8 million in the
previous quarter. Adjusted free cash flow was a negative $29.3
million in the third quarter. Adjusted free cash flow is defined as
net cash generated from operating activities less net cash used in
investing activities (excluding the purchases, sales and maturities
of short-term and long-term investments and the purchase and sale
of real estate). As of September 30, 2006, the Company's cash, cash
equivalents and investments were $166.3 million, as compared to
$147.9 million in the previous quarter. In September 2006, the
Company drew down $40.0 million from its Silicon Valley Bank credit
line, which was repaid in full in October 2006. Other Company
Developments & Metrics -- As referenced in a separate press
release today, Equinix has announced that Peter Van Camp will
transition from his role as chairman and CEO of Equinix to
Executive Chairman once a new CEO has been appointed over the
course of the next year. Until this time, Mr. Van Camp will remain
fully engaged as CEO and chairman. -- On a same IBX basis (defined
as IBX centers which have been available for new customer installs
for at least four full quarters), revenues were $71.6 million; cost
of revenues were $43.5 million; cost of revenues, excluding
depreciation, amortization, accretion and stock-based compensation,
were $26.4 million and cash gross margins for the quarter were 63%.
EBITDA on a same IBX basis was $26.6 million. -- Equinix added 92
new customers in the quarter including Acer Computers, Barnes and
Noble College Booksellers, Coram, Fannie Mae and Shopzilla. --
Based on a total cabinet capacity of approximately 30,900, the
number of cabinets billing at the end of the quarter was
approximately 16,200, or 52%, up from approximately 15,400 the
previous quarter. On a weighted average basis, the number of
cabinets billing was approximately 16,200 representing a
utilization rate of 52%. -- U.S. interconnection service revenues
were 22% of U.S. recurring revenues for the quarter.
Interconnection services represent approximately 20% of total
worldwide recurring revenues. -- Washington, D.C. metro area IBX
greenfield project is targeted to open in January of 2007, with
customer installations expected to commence in February 2007.
Business Outlook For the full year of 2006, total revenues are
expected to be in the range of $286.0 to $287.0 million. Total year
cash gross margins are expected to be in the range of 60% to 61%
including approximately $4.0 million of net cash costs attributed
to our expansion IBXs. Cash selling, general and administrative
expenses are expected to be in the range of $70.0 to $71.0 million,
including an estimated $2.7 million of incremental professional
fees attributed to the stock option investigation. EBITDA for the
year is expected to be $102.0 to $103.0 million. Net loss is
expected to be in a range of $15.0 to $16.0 million, including the
restructuring charge of $1.5 million and the impact of
approximately $30.0 million of stock-based compensation expense.
Net interest expense will be approximately $8.0 million. The
weighted average shares outstanding will be approximately 28.5
million. Capital expenditures for 2006 are expected to be in a
range of $175.0 to $180.0 million, comprised of approximately $32.0
million of ongoing capital expenditures and $143.0 to $148.0
million of expansion capital expenditures for the build out of the
Chicago, Los Angeles and Silicon Valley expansions opened this
year, as well as the greenfield expansions in the Washington, D.C.,
Chicago and New York metro areas. For 2007, total revenues are
expected to be in the range of $352.0 to $362.0 million. EBITDA for
the year is expected to be between $137.0 and $143.0 million,
including $6.0 million of net costs related to the Company's
expansion projects. Capital expenditures for 2007 are expected to
be in a range of $230.0 to $245.0 million, comprised of
approximately $30.0 million of ongoing capital expenditures and
$200.0 to $215.0 million of expansion capital expenditures. This
includes approximately $10.0 million of expansion capital
expenditures shifted from 2006 to 2007 specifically related to the
Chicago Greenfield project. About Equinix Equinix is the leading
global provider of network-neutral data centers and Internet
exchange services for enterprises, content companies, systems
integrators and network services providers. Through the company's
Internet Business Exchange(TM) (IBX(R)) centers in 11 markets in
the U.S. and Asia, customers can directly interconnect with every
major global network and ISP for their critical peering, transit
and traffic exchange requirements. These interconnection points
facilitate the highest performance and growth of the Internet by
serving as neutral and open marketplaces for Internet
infrastructure services, allowing customers to expand their
businesses while reducing costs. 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; a failure to receive
significant revenue from customers in recently-acquired data
centers; failure to complete any financing arrangements
contemplated from time to time; failure to receive the proceeds
from our loan commitments as expected; failure to increase the debt
financing on our Washington, D.C. area campus as expected;
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; the results of any regulatory review of
past stock option grants and practices or any litigation relating
to such grants and practices; 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. Internet Business Exchange
is a trademark of Equinix, Inc. Non-GAAP Financial Measures Equinix
continues to provide 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 EBITDA, cash cost
of revenues, cash gross margins, cash operating expenses (also
known as cash selling, general and administrative expenses or cash
SG&A), non-GAAP net income (loss), free cash flow and adjusted
free cash flow to evaluate its operations. In presenting these
non-GAAP financial measures, Equinix excludes certain non-cash or
non-recurring items that it believes are not good indicators of the
Company's current or future operating performance. These non-cash
or non-recurring items are depreciation, amortization, accretion,
stock-based compensation and restructuring charges. Recent
legislative and regulatory changes 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 non-cash or non-recurring 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 competitor base. Equinix excludes
depreciation expense as these charges primarily relate to the
initial construction costs of our IBX centers and IBX expansion
projects or acquired 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 ten 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 non-cash 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 charge liabilities, as these expenses
represent costs, which Equinix believes are not meaningful in
evaluating the Company's current operations. Equinix excludes
non-cash stock-based compensation expense as it represents expense
attributed to stock awards that have no current or future cash
obligations. As such, we, and our investors and analysts, exclude
this stock-based compensation expense when assessing the cash
generating performance of our operations. The restructuring charges
relate to the Company's decision to exit leases for excess space
adjacent to several of our IBX centers, which we do not intend to
build out now or in the future. Management believes such
restructuring charges were unique costs that are not expected to
recur, and consequently, does not consider these charges as a
normal component of expenses related to current and ongoing
operations. 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 ongoing business operations.
Management believes that the inclusion of these non-GAAP financial
measures provide consistency and comparability with past reports
and provide 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, net income (loss) from operations, interest income, cash
generated from operating activities and cash used in investing
activities, and as a result, is not able to provide a
reconciliation of GAAP to non-GAAP financial measures for
forward-looking data. Equinix intends to calculate the various
non-GAAP financial measures in future periods consistent with how
it was calculated for the three and nine months ended September 30,
2006 and 2005, presented within this press release. -0- *T EQUINIX,
INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
PRESENTATION (in thousands, except per share detail) (unaudited)
Three Months Ended Nine Months Ended ----------------------------
------------------- Sept. 30, June 30, Sept. 30, Sept. 30, Sept.
30, 2006 2006 2005 2006 2005 --------- -------- --------- ---------
--------- Recurring revenues $ 69,918 $65,089 $ 54,291 $196,759
$149,623 Non-recurring revenues 3,808 3,459 3,805 10,384 9,636
--------- -------- --------- --------- --------- Revenues 73,726
68,548 58,096 207,143 159,259 Cost of revenues 49,137 45,563 40,955
138,045 116,639 --------- -------- --------- --------- ---------
Gross profit 24,589 22,985 17,141 69,098 42,620 --------- --------
--------- --------- --------- Operating expenses: Sales and
marketing 7,502 8,480 4,829 23,180 14,793 General and
administrative 18,631 17,725 12,078 53,486 33,594 Restructuring
charges 1,527 - - 1,527 - --------- -------- --------- ---------
--------- Total operating expenses 27,660 26,205 16,907 78,193
48,387 --------- -------- --------- --------- --------- Income
(loss) from operations (3,071) (3,220) 234 (9,095) (5,767)
--------- -------- --------- --------- --------- Interest and other
income (expense): Interest income 1,724 1,730 1,075 5,065 2,644
Interest expense and other (3,551) (3,565) (1,928) (10,984) (6,332)
--------- -------- --------- --------- --------- Total interest and
other, net (1,827) (1,835) (853) (5,919) (3,688) --------- --------
--------- --------- --------- Net loss before income taxes and
cumulative effect of a change in accounting principle (4,898)
(5,055) (619) (15,014) (9,455) Income taxes (270) (215) (164) (870)
(553) Net loss before cumulative effect of --------- --------
--------- --------- --------- a change in accounting principle
(5,168) (5,270) (783) (15,884) (10,008) Cumulative effect of a
change in accounting principle - - - 376 - --------- --------
--------- --------- --------- Net loss $ (5,168) $(5,270) $ (783)
$(15,508) $(10,008) ========= ======== ========= =========
========= Net loss per share: Basic and diluted net loss per share
before cumulative effect of a change in accounting principle $
(0.18) $ (0.19) $ (0.03) $ (0.56) $ (0.43) Cumulative effect of a
change in accounting principle - - - 0.01 - --------- --------
--------- --------- --------- Basic and diluted net loss per share
$ (0.18) $ (0.19) $ (0.03) $ (0.55) $ (0.43) ========= ========
========= ========= ========= Shares used in computing basic and
diluted net loss per share 28,743 28,468 24,076 28,356 23,335
========= ======== ========= ========= =========
----------------------------------------------------------------------
Non-GAAP net income (loss) (1) $ 3,244 $ 3,627 $ 575 $ 9,559 $
(3,717) ========= ======== ========= ========= ========= (1)
Non-GAAP net income (loss) excludes stock-based compensation and
restructuring charges as follows: Net loss $ (5,168) $(5,270) $
(783) $(15,508) $(10,008) Stock-based compensation 6,885 8,897
1,358 23,540 6,291 Restructuring charges 1,527 - - 1,527 -
--------- -------- --------- --------- --------- Non-GAAP net
income (loss) $ 3,244 $ 3,627 $ 575 $ 9,559 $ (3,717) =========
======== ========= ========= ========= *T -0- *T EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP
PRESENTATION (in thousands) (unaudited) Three Months Ended Nine
Months Ended ----------------------------- ---------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2006 2006 2005
2006 2005 --------- --------- --------- ---------- ----------
Recurring revenues $ 69,918 $ 65,089 $ 54,291 $ 196,759 $ 149,623
Non-recurring revenues 3,808 3,459 3,805 10,384 9,636 ---------
--------- --------- ---------- ---------- Revenues (1) 73,726
68,548 58,096 207,143 159,259 Cash cost of revenues (2) 29,738
26,845 25,119 81,855 70,365 --------- --------- ---------
---------- ---------- Cash gross profit (3) 43,988 41,703 32,977
125,288 88,894 --------- --------- --------- ---------- ----------
Cash operating expenses (4): Cash sales and marketing expenses(5)
5,864 6,333 4,566 17,488 13,599 Cash general and administrative
expenses (6) 13,197 11,332 10,492 36,000 26,984 --------- ---------
--------- ---------- ---------- Total cash operating expenses (7)
19,061 17,665 15,058 53,488 40,583 --------- --------- ---------
---------- ---------- EBITDA (8) $ 24,927 $ 24,038 $ 17,919 $
71,800 $ 48,311 ========= ========= ========= ========== ==========
Cash gross margins (9) 60% 61% 57% 60% 56% ========= =========
========= ========== ========== EBITDA flow-through rate (10) 17%
33% 33% 46% 57% ========= ========= ========= ========== ==========
------------------- (1)The geographic split of our revenues is
presented below: U.S. revenues $ 63,654 $ 58,900 $ 50,527 $ 178,394
$ 137,927 Asia-Pacific revenues 10,072 9,648 7,569 28,749 21,332
--------- --------- --------- ---------- ---------- Revenues $
73,726 $ 68,548 $ 58,096 $ 207,143 $ 159,259 ========= =========
========= ========== ========== Revenues on a services basis is
presented below: Colocation $ 51,678 $ 47,988 $ 40,138 $ 145,235 $
109,479 Interconnection 13,862 12,644 10,527 38,310 29,696 Managed
infrastructure 4,066 4,046 3,626 12,045 10,448 Rental 312 411 -
1,169 - --------- --------- --------- ---------- ----------
Recurring revenues 69,918 65,089 54,291 196,759 149,623
Non-recurring revenues 3,808 3,459 3,805 10,384 9,636 ---------
--------- --------- ---------- ---------- Revenues $ 73,726 $
68,548 $ 58,096 $ 207,143 $ 159,259 ========= ========= =========
========== ========== New IBX centers are IBX centers which have
not been available for customer installs for at least four full
quarters. Revenues on a same IBX versus new IBX basis is presented
below: Same IBX centers $ 71,572 $ 68,190 $ 54,776 $ 202,292 $
154,515 New IBX centers 2,154 358 3,320 4,851 4,744 ---------
--------- --------- ---------- ---------- Revenues $ 73,726 $
68,548 $ 58,096 $ 207,143 $ 159,259 ========= ========= =========
========== ========== (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 $ 49,137 $ 45,563
$ 40,955 $ 138,045 $ 116,639 Depreciation, amortization and
accretion expense (18,735) (17,755) (15,836) (53,805) (46,274)
Stock-based compensation expense (664) (963) - (2,385) - ---------
--------- --------- ---------- ---------- Cash cost of revenues $
29,738 $ 26,845 $ 25,119 $ 81,855 $ 70,365 ========= =========
========= ========== ========== The geographic split of our cash
cost of revenues is presented below: U.S. cash cost of revenues $
25,154 $ 22,312 $ 20,933 $ 68,417 $ 58,333 Asia-Pacific cash cost
of revenues 4,584 4,533 4,186 13,438 12,032 --------- ---------
--------- ---------- ---------- Cash cost of revenues $ 29,738 $
26,845 $ 25,119 $ 81,855 $ 70,365 ========= ========= =========
========== ========== New IBX centers are IBX centers which have
not been available for customer installs for at least four full
quarters. Cost of revenues and cash cost of revenues on a same IBX
versus new IBX basis is presented below: Same IBX centers-cash cost
of revenues $ 26,422 $ 24,849 $ 23,292 $ 73,747 $ 65,773 Same IBX
centers- depreciation, amortization and accretion expense 16,445
16,433 14,031 48,410 42,410 Same IBX centers-stock- based
compensation expense 632 963 - 2,353 - --------- ---------
--------- ---------- ---------- Same IBX centers cost of revenues
43,499 42,245 37,323 124,510 108,183 --------- --------- ---------
---------- ---------- New IBX centers-cash cost of revenues 3,316
1,996 1,827 8,108 4,592 New IBX centers- depreciation, amortization
and accretion expense 2,290 1,322 1,805 5,395 3,864 New IBX
centers-stock- based compensation expense 32 - - 32 - ---------
--------- --------- ---------- ---------- New IBX centers cost of
revenues 5,638 3,318 3,632 13,535 8,456 --------- ---------
--------- ---------- ---------- Cost of revenues $ 49,137 $ 45,563
$ 40,955 $ 138,045 $ 116,639 ========= ========= =========
========== ========== (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 and stock-based compensation. 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 $ 7,502 $ 8,480 $ 4,829 $ 23,180 $ 14,793
Depreciation and amortization expense (15) (15) (15) (45) (45)
Stock-based compensation expense (1,623) (2,132) (248) (5,647)
(1,149) --------- --------- --------- ---------- ---------- Cash
sales and marketing expenses $ 5,864 $ 6,333 $ 4,566 $ 17,488 $
13,599 ========= ========= ========= ========== ========== (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 $ 18,631 $ 17,725 $ 12,078 $ 53,486 $
33,594 Depreciation and amortization expense (836) (591) (476)
(1,978) (1,468) Stock-based compensation expense (4,598) (5,802)
(1,110) (15,508) (5,142) --------- --------- --------- ----------
---------- Cash general and adminis- trative expenses $ 13,197 $
11,332 $ 10,492 $ 36,000 $ 26,984 ========= ========= =========
========== ========== (7)Our cash operating expenses, or cash
SG&A, as defined above, is presented below: Cash sales and
marketing expenses $ 5,864 $ 6,333 $ 4,566 $ 17,488 $ 13,599 Cash
general and administrative expenses 13,197 11,332 10,492 36,000
26,984 --------- --------- --------- ---------- ---------- Cash
SG&A $ 19,061 $ 17,665 $ 15,058 $ 53,488 $ 40,583 =========
========= ========= ========== ========== The geographic split of
our cash operating expenses, or cash SG&A, is presented below:
U.S. cash SG&A $ 16,261 $ 14,599 $ 12,338 $ 44,187 $ 32,732
Asia-Pacific cash SG&A 2,800 3,066 2,720 9,301 7,851 ---------
--------- --------- ---------- ---------- Cash SG&A $ 19,061 $
17,665 $ 15,058 $ 53,488 $ 40,583 ========= ========= =========
========== ========== (8)We define EBITDA as income (loss) from
operations less depreciation, amortization, accretion, stock-based
compensation expense and restructuring charges as presented below:
Income (loss) from operations $ (3,071) $ (3,220) $ 234 $ (9,095) $
(5,767) Depreciation, amortization and accretion expense 19,586
18,361 16,327 55,828 47,787 Stock-based compensation expense 6,885
8,897 1,358 23,540 6,291 Restructuring charges 1,527 - - 1,527 -
--------- --------- --------- ---------- ---------- EBITDA $ 24,927
$ 24,038 $ 17,919 $ 71,800 $ 48,311 ========= ========= =========
========== ========== The geographic split of our EBITDA is
presented below: U.S. income (loss) from operations $ (3,967) $
(3,405) $ 541 $ (9,619) $ (3,944) U.S. depreciation, amortization
and accretion expense 18,607 17,419 15,357 52,892 44,515 U.S.
stock- based compensation expense 6,072 7,975 1,358 20,990 6,291
U.S. restructuring charges 1,527 - - 1,527 - --------- ---------
--------- ---------- ---------- U.S. EBITDA 22,239 21,989 17,256
65,790 46,862 --------- --------- --------- ---------- ----------
Asia-Pacific income (loss) from operations 896 185 (307) 524
(1,823) Asia-Pacific depreciation, amortization and accretion
expense 979 942 970 2,936 3,272 Asia-Pacific stock-based
compensation expense 813 922 - 2,550 - Asia-Pacific restructuring
charges - - - - - --------- --------- --------- ----------
---------- Asia-Pacific EBITDA 2,688 2,049 663 6,010 1,449
--------- --------- --------- ---------- ---------- EBITDA $ 24,927
$ 24,038 $ 17,919 $ 71,800 $ 48,311 ========= ========= =========
========== ========== New IBX centers are IBX centers which have
not been available for customer installs for at least four full
quarters. EBITDA on a same IBX versus new IBX basis is presented
below: Same IBX centers-income (loss) from operations $ 944 $ 76 $
1,008 $ 652 $ (1,179) Same IBX centers- depreciation, amortization
and accretion expense 17,296 17,039 14,522 50,433 43,923 Same IBX
centers-stock- based compensation expense 6,853 8,897 1,358 23,508
6,291 Same IBX centers- restructuring charges 1,527 - - 1,527 -
--------- --------- --------- ---------- ---------- Same IBX center
EBITDA 26,620 26,012 16,888 76,120 49,035 --------- ---------
--------- ---------- ---------- New IBX centers-income (loss) from
operations (4,015) (3,296) (774) (9,747) (4,588) New IBX centers-
depreciation, amortization and accretion expense 2,290 1,322 1,805
5,395 3,864 New IBX centers-stock- based compensation expense 32 -
- 32 - New IBX centers- restructuring charges - - - - - ---------
--------- --------- ---------- ---------- New IBX center EBITDA
(1,693) (1,974) 1,031 (4,320) (724) --------- --------- ---------
---------- ---------- EBITDA $ 24,927 $ 24,038 $ 17,919 $ 71,800 $
48,311 ========= ========= ========= ========== ========== (9)We
define cash gross margins as cash gross profit divided by revenues.
Our cash gross margins by geographic region is presented below:
U.S. cash gross margins 60% 62% 59% 62% 58% ========= =========
========= ========== ========== Asia-Pacific cash gross margins 54%
53% 45% 53% 44% ========= ========= ========= ========== ==========
Same IBX centers are IBX centers which have been available for
customer installs for at least four full quarters. Our cash gross
margins for same IBX centers is presented below: Same IBX cash
gross margins 63% 64% 57% 64% 57% ========= ========= =========
========== ========== (10)We define EBITDA flow-through rate as
incremental EBITDA growth divided by incremental revenue growth as
follows: EBITDA - current period$ 24,927 $ 24,038 $ 17,919 $ 71,800
$ 48,311 Less EBITDA - prior period (24,038) (22,835) (16,055)
(55,802) (29,957) --------- --------- --------- ----------
---------- EBITDA growth$ 889 $ 1,203 $ 1,864 $ 15,998 $ 18,354
========= ========= ========= ========== ========== Revenues -
current period$ 73,726 $ 68,548 $ 58,096 $ 207,143 $ 159,259 Less
revenues - prior period (68,548) (64,869) (52,479) (172,373)
(126,851) --------- --------- --------- ---------- ----------
Revenue growth $ 5,178 $ 3,679 $ 5,617 $ 34,770 $ 32,408 =========
========= ========= ========== ========== EBITDA flow- through rate
17% 33% 33% 46% 57% ========= ========= ========= ==========
========== *T -0- *T EQUINIX, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (in thousands) (unaudited) Assets September 30, December 31,
2006 2005 ------------- ------------ Cash, cash equivalents and
investments $ 166,346 $ 188,855 Accounts receivable, net 24,129
17,237 Property and equipment, net 499,917 438,790 Goodwill and
other intangible assets, net 23,375 21,829 Debt issuance costs, net
2,685 3,075 Prepaid expenses 7,378 5,098 Deposits 3,727 3,548 Other
assets 3,063 2,565 ------------- ------------ Total assets $
730,620 $ 680,997 ============= ============ Liabilities and
Stockholders' Equity Accounts payable and accrued expenses $ 23,007
$ 22,557 Accrued property and equipment 18,597 15,783 Accrued
restructuring charges 44,546 49,831 Borrowings under credit line
40,000 30,000 Capital lease obligations 33,925 34,530 Other
financing obligations 61,150 61,675 Mortgage payable 59,165 60,000
Convertible subordinated debentures 86,250 86,250 Deferred
installation revenue 9,678 7,658 Customer deposits 1,008 1,188
Deferred rent 21,118 18,792 Asset retirement obligations 4,043
3,649 Other liabilities 549 411 ------------- ------------ Total
liabilities 403,036 392,324 ------------- ------------ Common stock
29 27 Additional paid-in capital 887,319 839,497 Deferred
stock-based compensation - (4,930) Accumulated other comprehensive
income 2,791 1,126 Accumulated deficit (562,555) (547,047)
------------- ------------ Total stockholders' equity 327,584
288,673 ------------- ------------ Total liabilities and
stockholders' equity $ 730,620 $ 680,997 ============= ============
---------------------------------------------------------
------------ Ending headcount by geographic region is as follows:
U.S. headcount 422 372 Asia-pacific headcount 171 165 -------------
------------ Total headcount 593 537 ============= ============ *T
-0- *T EQUINIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (1) (in thousands) (unaudited) Three Months Ended Nine Months
Ended ----------------------------- -------------------- Sept. 30,
June 30, Sept. 30, Sept. 30, Sept. 30, 2006 2006 2005 2006 2005
--------- --------- --------- ---------- --------- Cash flows from
operating activities: Net loss $ (5,168) $ (5,270) $ (783) $
(15,508) $(10,008) Adjustments to reconcile net loss to net cash
provided by operating activities: Depreciation, amortization and
accretion 19,586 18,361 16,327 55,828 47,787 Stock-based
compensation 6,885 8,897 1,358 23,540 6,291 Non-cash interest
expense 227 208 278 643 1,451 Restructuring charges 1,527 - - 1,527
- Other reconciling items 437 (64) (404) (354) (453) Changes in
operating assets and liabilities: Accounts receivable (646) (5,011)
(75) (6,908) (3,823) Accounts payable and accrued expenses (1,134)
2,597 650 470 3,602 Accrued restructuring charges (3,088) (3,168)
(480) (9,213) (1,448) Other assets and liabilities 2,029 (443)
(1,377) (472) 5,637 --------- --------- --------- ----------
--------- Net cash provided by operating activities 20,655 16,107
15,494 49,553 49,036 --------- --------- --------- ----------
--------- Cash flows from investing activities: Purchase of Los
Angeles IBX property - - (34,727) - (34,727) Purchase of Chicago
IBX property - (9,766) - (9,766) - Purchases of other property and
equipment (46,620) (29,671) (7,079) (102,904) (22,492) Accrued
property and equipment (3,341) 3,643 (267) 2,814 2,245 Other
investing activities 2 - - 8 - --------- --------- ---------
---------- --------- Net cash used in investing activities (49,959)
(35,794) (42,073) (109,848) (54,974) --------- --------- ---------
---------- --------- Cash flows from financing activities: Proceeds
from warrants, stock options and employee stock purchase plans
8,180 5,862 3,585 28,756 11,217 Proceeds from borrowings under
credit line 40,000 - - 40,000 - Repayment of borrowings under
credit line - - - (30,000) - Repayment of capital lease obligations
(207) (201) (167) (605) (489) Repayment of other financing
obligations (184) (174) (34) (525) (3,724) Repayment of mortgage
payable (319) (311) - (835) - Other financing activities (9) 200
(342) 561 (342) --------- --------- --------- ---------- ---------
Net cash provided by financing activities 47,461 5,376 3,042 37,352
6,662 --------- --------- --------- ---------- --------- Effect of
foreign currency exchange rates on cash and cash equivalents 250 27
(202) 434 (526) --------- --------- --------- ---------- ---------
Net increase (decrease) in cash, cash equivalents and investments
18,407 (14,284) (23,739) (22,509) 198 Cash, cash equivalents and
investments at beginning of period 147,939 162,223 132,029 188,855
108,092 --------- --------- --------- ---------- --------- Cash,
cash equivalents and investments at end of period $166,346 $147,939
$108,290 $ 166,346 $108,290 ========= ========= =========
========== ========= Free cash flow (2) $(29,304) $(19,687)
$(26,579) $ (60,295) $ (5,938) ========= ========= =========
========== ========= Adjusted free cash flow (3) $(29,304) $
(9,921) $ 8,148 $ (50,529) $ 28,789 ========= ========= =========
========== ========= ------------------- (1)The cash flow
statements presented herein combine our short-term and long-term
investments with our cash and cash equivalents in an effort to
present our total unrestricted cash and equivalent balances. In our
quarterly filings with the SEC on Forms 10-Q and 10-K, the
purchases, sales and maturities of our short-term and long-term
investments will be presented as activities within the investing
activities portion of the cash flow statements. (2)We define free
cash flow as net cash provided by operating activities plus net
cash used in investing activities (excluding the purchases, sales
and maturities of short-term and long-term investments) as
presented below: Net cash provided by operating activities as
presented above $ 20,655 $ 16,107 $ 15,494 $ 49,553 $ 49,036 Net
cash used in investing activities as presented above (49,959)
(35,794) (42,073) (109,848) (54,974) --------- --------- ---------
---------- --------- Free cash flow $(29,304) $(19,687) $(26,579) $
(60,295) $ (5,938) ========= ========= ========= ==========
========= (3)We define adjusted free cash flow as free cash flow
(as defined above) excluding any purchases or sales of real estate
as presented below: Free cash flow (as defined above) $(29,304)
$(19,687) $(26,579) $ (60,295) $ (5,938) Less purchase of Los
Angeles IBX property - - 34,727 - 34,727 Less purchase of Chicago
IBX property - 9,766 - 9,766 - --------- --------- ---------
---------- --------- Adjusted free cash flow $(29,304) $ (9,921) $
8,148 $ (50,529) $ 28,789 ========= ========= ========= ==========
========= *T
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