Newsroom Press Release

9 February 2005

Equinix Reports Fourth Quarter and Year-End 2004 Results

  • Increased annual revenues by 39% over previous year
  • Increased annual EBITDA to $35.6 million, up from $1.7 million in previous year
  • Generated free cash flow of $16.2 million for 2004
  • Raises 2005 revenue guidance to $205.0 - $215.0 million

Foster City, CA — February 9, 2005 — Equinix, Inc. (Nasdaq: EQIX), the leading provider of network-neutral data centers and Internet exchange services, today reported its quarterly and year-end results for the period ended December 31, 2004.

Revenues were $45.0 million for the fourth quarter and $163.7 million for the year ended December 31, 2004, representing a 6% increase over the previous quarter, and a 39% increase over 2003 revenues. Recurring revenues, consisting of colocation, interconnection and managed services, were $42.6 million for the quarter and $154.5 million for the year ended December 31, 2004, a 6% increase over the previous quarter, and a 40% increase over 2003.

Non-recurring revenues for the fourth quarter were $2.4 million, consisting entirely of professional services and installation fees. Non-recurring revenues for the year ended December 31, 2004 were $9.2 million, consisting of $8.3 million of professional services and installation fees, and $889,000 of customer settlements. Annual non-recurring revenues excluding customer settlements increased 34% year over year.

Cost of revenues were $34.7 million for the fourth quarter and $137.0 million for the year ended December 31, 2004. Cost of revenues, excluding non-cash depreciation, amortization, accretion and stock-based compensation were $20.9 million for the fourth quarter and $82.4 million for the year ended December 31, 2004. Cash gross margins, defined as gross profit less non-cash depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 53%, up from 51% the previous quarter. Cash gross margins were 50% for 2004, up from 38% in 2003.

Selling, general and administrative expenses were $13.1 million for the fourth quarter. Selling, general and administrative expenses, excluding non-cash depreciation, amortization and stock-based compensation were $11.7 million for the fourth quarter, consistent with the previous quarter, and $45.6 million for 2004, a 6% increase over 2003.

The company was able to expand its footprint by 26% through the acquisition of fully built-out data centers at costs significantly below those costs we would incur to expand our existing centers. As a result, the company made the decision to exit leases for excess space located in its Secaucus and Los Angeles markets and recorded a restructuring charge totaling $17.7 million.

Net loss for the fourth quarter was $22.7 million, or a basic and diluted net loss per share of $1.21 on 18.8 million weighted-average shares outstanding. Excluding the restructuring charge, the pro forma basic and diluted net loss per share for the fourth quarter was $0.27. Net loss for the year ended December 31, 2004 was $68.6 million, or a basic and diluted net loss per share of $3.87. Excluding the restructuring charge and the loss on debt extinguishment and conversion during the year, the pro forma basic and diluted net loss per share for 2004 was $1.96.

EBITDA, defined as loss from operations less depreciation, amortization, accretion, stock-based compensation expense and restructuring charges, for the fourth quarter was $12.4 million and $35.6 million for the year ended December 31, 2004, representing a 23% increase over the previous quarter and up from $1.7 million in 2003. This reflects a 90% EBITDA flow-through rate on incremental revenues in the quarter and a 74% EBITDA flow-through rate for 2004.

Capital expenditures in the fourth quarter were $6.2 million. A total of $3.5 million in the quarter was attributed to ongoing capital expenditures, $2.2 million was attributed to expansion capital expenditures and $539,000 was related to directly billable capital expenditures to complete an existing U.S. government project. Capital expenditures for the year ended December 31, 2004 were $22.9 million. A total of $10.6 million in the year was attributed to ongoing capital expenditures, $9.9 million was attributed to expansion capital expenditures and the remaining $2.4 million was related to directly billable capital expenditures to expand an existing U.S. government project.

Cash generated from operations in the quarter was $10.6 million. Cash generated from operations for the year ended December 31, 2004 was $36.9 million. Cash used in investing activities was $4.5 million in the quarter. Cash used in investing activities for the year was $20.7 million. As a result, the company generated $6.1 million of free cash flow in the fourth quarter and $16.2 million for the year ended December 31, 2004. Free cash flow is defined as net cash generated from operating activities less net cash used in investing activities (excluding the purchase, sale and maturities of short-term and long-term investments).

As of December 31, 2004, the company's cash, cash equivalents and investments were $108.1 million, an increase of $35.1 million over the year.

Equinix added 69 new customers in the fourth quarter and 324 customers for the year 2004. Customers added in the fourth quarter included Arsenal Digital, Belgacom SA, China Merchant Bank, INET ATS (Instinet, LLC), Movielink, Solo Cup, Telecom New Zealand and Virgin Blue. The company received additional orders in the quarter from approximately 50% of its existing US customers including Doubleclick, Merrill Lynch, Ticketmaster, the U.S. Government, WebEx and Yahoo!.

The number of cabinets billing as of December 31, 2004 was approximately 11,100, up from approximately 10,750 the previous quarter, and up from 8,200 as of December 31, 2003. Churn was 4.1% for the quarter on a cabinet basis, primarily related to a customer contract which the company elected not to renew. Monthly recurring revenue churn was approximately 3% in the quarter. Churn, on both a cabinet and monthly recurring revenue basis, was approximately 12% for the year ended December 31, 2004. The company ended the year with 950 customers and a weighted-average utilization rate of 45% in its existing IBX centers, excluding the new Silicon Valley IBX, which is scheduled to open for customers in March 2005. Average monthly recurring revenue per cabinet on a weighted-average basis increased to $1,292 for the quarter from $1,270 the previous quarter.

"2004 was a breakout year as we exceeded all of our expectations," said Peter Van Camp, CEO of Equinix. "As we look to 2005, we continue to aggressively execute on all fronts, positioning Equinix for another great year as we drive towards market leadership."

Recent Company Developments

U.S. interconnection services revenue increased by 8% over third quarter 2004 and grew to 23% of total U.S. recurring revenues for the quarter. Total company interconnection service revenue represented 21% of total recurring revenues for the quarter. Customer cross-connects grew to 9,005, a 6% increase over the prior quarter. Ports on the Equinix GigE Exchange totaled 330, a 5% increase over the prior quarter.

In the fourth quarter 2004, Equinix signed a long-term lease for an additional 103,000 square feet of data center space in San Jose. The expansion, acquired through the purchase of assets and the assumption of the existing data center lease, adds approximately 2,000 cabinets and expands Equinix's Silicon Valley footprint to approximately 400,000 square feet and its global footprint to approximately 1.4 million square feet.

Equinix converted 95%, or an aggregate of approximately $38.0 million of the outstanding convertible secured notes held by i-STT, including accrued and unpaid interest, into 4.1 million shares of Equinix Series A-1 preferred stock, effective January 1, 2005. On February 1, 2005, these shares converted into Equinix common stock on a 1 to 1 basis.

Business Outlook

For the first quarter 2005, the company expects revenue to be in the range of $48.5 to $49.5 million. Cash gross margins are expected to be in the range of 51 - 52%. Cash selling, general and administrative expenses are expected to be in the range of $12.5 to $13.5 million. EBITDA is expected to be between $12.0 and $13.0 million. Capital expenditures are estimated to be in the range of $7.0 to $8.0 million, including capital required for improvements to the newly acquired Silicon Valley IBX and Washington, D.C. area IBX.

For the full year of 2005, revenues are expected to be in the range of $205.0 to $215.0 million. Cash gross margins are expected to be in the range of 53 - 55%. Cash selling, general and administrative expenses are expected to be in the range of $50.0 to $52.0 million. EBITDA is expected to be between $60.0 and $65.0 million. Capital expenditures for 2005 are expected to be in a range of $23.0 to $27.0 million, comprised of $13.0 to $15.0 million of ongoing capital expenditures and approximately $10.0 to $12.0 million of expansion capital expenditures for the new Silicon Valley IBX and the remaining build-out of the Washington D.C. area IBX expansion.

With the conversion of 95% of i-STT's convertible secured notes, the company is accelerating its guidance to become net income positive, excluding the impact of the new stock option expensing guidelines, from fourth quarter 2005 to third quarter 2005.

The company will discuss its results and guidance on its quarterly conference call on Wednesday, February 9, 2005, at 5:30 p.m. Eastern Time (2:30 p.m. Pacific Time). To hear the conference call, please dial 1-484-630-5144 (domestic and international) at 5:20 p.m. (ET) 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 on Wednesday, February 9, 2005 at 7:30 p.m. (ET) by dialing 1-402-220-9761. 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. A reconciliation between GAAP information and non-GAAP information contained in this press release is provided in a table immediately following the Condensed Consolidated Statements of Operations - GAAP Presentation. This information is also available on our Web Site under the Investor Relations heading.

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 14 Internet Business Exchange™ (IBX®) centers in five countries, 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. 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), cash interest expense and cash net income (loss) and 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, non-cash interest, and, with respect to 2004 results, the non-cash portion of loss on debt extinguishment and conversion and restructuring charges (there were no such charges or losses in 2003). 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 non-cash 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 non-cash cost that may not recur and is not a good indicator of the company's current or future operating performance. Equinix excludes non-cash stock-based compensation expense as it represents expense attributed to stock options 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 interest expense associated with the amortization of debt issuance costs and discounts, as well as the interest expense associated with its convertible secured notes as such interest expenses do not require any cash in the periods presented nor will they in future periods. Lastly, with respect to its 2004 results, Equinix excludes restructuring charges and the non-cash portion of the loss on debt extinguishment and conversion. 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. The non-cash portion of the loss on debt extinguishment and conversion, which represents the write-off of the unamortized debt issuance costs and discounts associated with the debt facilities extinguished or converted as no cash was expended in the periods presented for such write-offs nor will there be in the future. Management believes such restructuring charges and write-offs of debt issuance costs and discounts 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 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, 2004 and 2003, presented within this press release.

View Q4 2004 Financial Statements

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.