13 February 2008
Equinix Reports Fourth Quarter and Year-End 2007 Results
- Increased 2007 annual revenues to $419.4 million, a 46% increase over the previous year
- Increased 2007 annual EBITDA to $155.4 million, a 52% increase over the previous year
- Raised 2008 annual revenue guidance to $650.0 to $665.0 million and EBITDA guidance to $251.0 million to $257.0 million
FOSTER CITY, CA — February 13, 2008 — Equinix, Inc. (Nasdaq: EQIX), the leading provider of network-neutral data centers and Internet exchange services, today reported quarterly and year-end results for the period ended December 31, 2007.
Revenues were $138.7 million for the fourth quarter, a 34% increase over the previous quarter, and $419.4 million for the year-ended December 31, 2007, a 46% increase over 2006 revenues. Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $131.6 million for the fourth quarter, a 33% increase over the previous quarter, and $399.6 million for the year-ended December 31, 2007, a 46% increase over 2006. Non-recurring revenues were $7.1 million in the quarter and $19.8 million for the year-ended December 31, 2007.
Cost of revenues were $92.5 million for the fourth quarter and $263.7 million for the year-ended December 31, 2007, a 40% increase over cost of revenues for 2006. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $33.0 million for the fourth quarter and $98.3 million for the year, were $59.5 million for the fourth quarter, a 48% increase over the previous quarter, and $165.4 million for the year-ended 2007, a 48% increase over 2006. Cash gross margins, defined as gross profit less depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 57%, down from 61% the previous quarter and 63% the same quarter last year. The reduction in cash gross margins reflects the first full quarter's results from the company's operations in Europe. Cash gross margins were 61% for the full year of 2007, the same as in the prior year.
Selling, general and administrative expenses were $46.8 million for the fourth quarter and $146.5 million for the year-ended December 31, 2007. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $14.6 million for the fourth quarter and $47.9 million for the year, were $32.2 million for the fourth quarter, a 40% increase over the previous quarter, and $98.6 million for 2007, a 34% increase over 2006.
Net loss for the fourth quarter was $6.1 million, including stock-based compensation expense of $11.7 million. This represents a basic and diluted net loss per share of $0.17 based on a weighted average share count of 36.0 million. Net loss for the year-ended December 31, 2007 was $5.2 million, including stock-based compensation expense of $42.7 million, or a basic and diluted net loss per share of $0.16 based on a weighted average share count of 32.1 million.
EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation expense, restructuring charges and any gains or losses from asset sales, for the fourth quarter was $47.1 million, an increase of 16% from the previous quarter, and $155.4 million for the year-ended 2007, up 52% from 2006.
“Equinix delivered exceptional results in 2007, creating a strong platform for growth in 2008,” said Steve Smith, CEO of Equinix. “Although we continue to closely monitor our leading indicators, we continue to see no let up in demand. Strong day-to-day execution, a fully funded expansion plan, and a continued focus on customer requirements will accelerate our market leadership in 2008.”
Capital expenditures in the fourth quarter were $121.0 million, of which $17.9 million was attributed to ongoing capital expenditures and $103.1 million was attributed to expansion capital expenditures. Capital expenditures for the year-ended December 31, 2007, excluding purchases of real estate and the IXEurope acquisition, were $416.8 million, of which $43.6 million was attributed to ongoing capital expenditures and $373.2 million was attributed to expansion capital expenditures. In addition, the Company invested $120.5 million to acquire properties in the Los Angeles and Silicon Valley markets in 2007.
The Company generated cash from operating activities of $14.0 million for the fourth quarter as compared to $48.7 million in the previous quarter, as the Company settled outstanding obligations related to the IXEurope acquisition. Cash generated from operating activities for the year-ended December 31, 2007 was $121.0 million as compared to $75.9 million in the previous year. Cash used in investing activities was $103.4 million in the fourth quarter as compared to $718.2 million in the previous quarter. Cash used in investing activities for the year was $1.0 billion as compared to $155.0 million in the previous year.
As of December 31, 2007, the Company's cash, cash equivalents and investments were $383.9 million, as compared to $156.5 million as of December 31, 2006.
Other Company Developments & Metrics
- On February 6, 2008, Equinix acquired Virtu Secure Webservices B.V., a provider of network-neutral data center services in the Netherlands.
- On a weighted average basis, excluding approximately 14,100 available cabinet equivalents attributed to the Europe region at the end of 2007, the number of cabinets billing was approximately 21,400 representing an approximate utilization rate of 76%.
- U.S. interconnection service revenues were 20% of U.S. revenues for the quarter and 21% for the year-ended December 31, 2007. Interconnection services represented approximately 15% of total worldwide revenues for the quarter and 18% for the year-ended December 31, 2007.
For the first quarter of 2008, the Company expects revenues to be in the range of $151.0 to $152.0 million. Cash gross margins are expected to be approximately 58%. Cash selling, general and administrative expenses are expected to be approximately $34.0 million. EBITDA for the quarter is expected to be between $53.0 and $54.0 million. Capital expenditures for the first quarter of 2008 are expected to be $110.0 to $115.0 million, comprised of approximately $20.0 million of ongoing capital expenditures and $90.0 to $95.0 million of expansion capital expenditures.
For the full year of 2008, total revenues are expected to be in the range of $650.0 to $665.0 million, including approximately $10.0 million attributed to the Virtu acquisition. Total year cash gross margins are expected to be approximately 60%. Cash selling, general and administrative expenses are expected to be approximately $135.0 million. EBITDA for the year is expected to be between $251.0 and $257.0 million, including approximately $1.0 million attributed to the Virtu acquisition. Capital expenditures for 2008 are expected to be in the range of $335.0 to $340.0 million, comprised of approximately $50.0 million of ongoing capital expenditures and $285.0 to $290.0 million of expansion capital expenditures. Expansion capital expenditures are for the announced expansions in Amsterdam, Frankfurt, Hong Kong, London, Los Angeles, Paris, Silicon Valley, Singapore, Sydney, Tokyo and Washington, D.C. markets.
The Company will discuss its results and guidance on its quarterly conference call on Wednesday, February 13, 2008, at 5:30 p.m. ET (2:30 p.m. PT). To hear the conference call live, please dial 210-839-8500 (domestic and international) and reference the passcode (EQIX). A simultaneous live Webcast of the call will be available over the Internet at www.equinix.com, under the Investor Relations heading.
A replay of the call will be available beginning on Wednesday, February 13, 2008 at 7:30 p.m. (ET) through March 12, 2008 by dialing 203-369-1627. In addition, the Webcast will be available on the company's Web site at www.equinix.com. No password is required for either method of replay.
Equinix is the leading global provider of network-neutral data center and interconnection services, offering premium colocation, traffic exchange and outsourced IT infrastructure solutions. Global enterprises, content companies, systems integrators and network service providers look to Equinix Internet Business Exchange (IBX®) centers for world-class reliability and network diversity. Equinix IBX centers serve as critical, core hubs for IP networks and Internet operations worldwide. With 39 IBX centers located in 18 strategic markets across North America, Europe and Asia-Pacific, Equinix enables customers to reliably operate their mission-critical infrastructure on a global basis.
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 non-GAAP revenues, 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 a non-recurring revenue adjustment with respect to 2006 results, depreciation, amortization, accretion, stock-based compensation, restructuring charges and, with respect to 2006 results, the gain on Honolulu IBX sale, and with respect to 2007 results, the loss from conversion and extinguishment of debt and gain on EMS sale. 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 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 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. 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 do not intend to build out now or in the future. With respect to its 2006 results, Equinix reports non-GAAP revenues and excludes the gain on Honolulu IBX sale. Non-GAAP revenues exclude a revenue adjustment recorded in the fourth quarter of 2006 in connection with our adoption of Staff Accounting Bulletin No. 108, which is a one-time adjustment and will not recur. The gain on Honolulu IBX sale represents a unique transaction for the Company and future sales of IBX centers are not expected. The Honolulu market was not considered a core, strategic market for the Company. With respect to its 2007 results, Equinix excludes the loss from conversion and extinguishment of debt and the gain from EMS sale. The loss from conversion and extinguishment of debt represents activity that is not typical for the company. The gain on EMS sale represents a unique transaction for the Company and future sales of other service offerings are not expected. Management believes such items as restructuring charges, the gain on the sale of an IBX center and a service offering and the loss from conversion and extinguishment of debt are unique transactions that are not expected to recur, and consequently, does not consider these items as a normal component of expenses or income 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 core, 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, 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 twelve months ended December 31, 2007 and 2006, 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 IXEurope into Equinix; a failure to receive significant revenue from customers in recently built out 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; the results of any litigation relating to past stock option 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.