11 February 2009
Equinix Reports Fourth Quarter and Year-End 2008 Results
- Reported 2008 annual revenues of $704.7 million, a 68% increase over the previous year
- Reported 2008 annual adjusted EBITDA of $292.5 million, an 88% increase over the previous year
- Revised 2009 annual revenue guidance to $855.0 million to $875.0 million, an increase of approximately 23% over 2008 results at midpoint
- Maintained adjusted EBITDA guidance of $365.0 million to $385.0 million
FOSTER CITY, CA — February 11, 2009 — Equinix, Inc. (Nasdaq: EQIX), a provider of global data center services, today reported quarterly and year-end results for the period ended December 31, 2008.
Revenues were $190.7 million for the fourth quarter, a 4% increase over the previous quarter, and $704.7 million for the year-ended December 31, 2008, a 68% increase over 2007 revenues. 2007 results reflect the Company's acquisition of IXEurope plc effective September 14, 2007. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $182.8 million for the fourth quarter, a 5% increase over the previous quarter, and $670.1 million for the year-ended December 31, 2008, a 68% increase over 2007. Non-recurring revenues were $7.9 million in the quarter and $34.6 million for the year-ended December 31, 2008.
Cost of revenues were $108.3 million for the fourth quarter, a 1% decrease from the previous quarter, and $414.7 million for the year-ended December 31, 2008, a 57% increase over 2007. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $42.1 million for the fourth quarter and $150.0 million for the year, were $66.2 million for the fourth quarter, a 6% decrease over the previous quarter, and $264.7 million for the year-ended December 31, 2008, a 60% increase over 2007. Cash gross margins, defined as gross profit less depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 65%, up from 62% the previous quarter and 57% the same quarter last year. Cash gross margins were 62% for the full year of 2008, up from 61% for the prior year.
Selling, general and administrative expenses were $55.5 million for the fourth quarter, an 8% increase over the previous quarter and $213.5 million for the year-ended December 31, 2008, a 46% increase over 2007. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $15.1 million for the fourth quarter and $66.0 million for the year, were $40.4 million for the fourth quarter, a 12% increase over the previous quarter, and $147.5 million for 2008, a 50% increase over 2007.
The Company recorded a net income tax benefit in the fourth quarter of 2008 of $104.9 million, which was largely the result of the Company releasing its valuation allowances for its U.S. and Australian operations and recording the associated net deferred tax assets on its balance sheet. As a result, net income for the fourth quarter was $116.5 million, or $11.6 million excluding the net income tax benefit. This represents a basic net income per share of $3.13 and diluted net income per share of $2.74 based on a weighted average share count of 37.3 million and 43.7 million, respectively, for the fourth quarter of 2008. Net income for the year-ended December 31, 2008 was $131.5 million, or $27.1 million excluding the net income tax benefit. This represents a basic net income per share of $3.58 and diluted net income per share of $3.31 based on a weighted average share count of 36.8 million and 43.7 million, respectively, for the year-ended December 31, 2008. Commencing in 2009, the Company will record income tax expense at the prevailing net blended tax rates and the Company's effective tax rate will be more significant than in prior years.
Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges and any gains or losses from asset sales, for the fourth quarter was $84.1 million, an increase of 9% over the previous quarter, and $292.5 million for the year-ended December 31, 2008, an 88% increase over 2007.
“Equinix delivered exceptional results in 2008, creating a strong platform for continued growth in 2009,” said Steve Smith, president and CEO of Equinix. “Although we continue to closely monitor our leading indicators, we believe that strong day-to-day execution, a fully funded expansion plan, and a continued focus on customer requirements will help us navigate through this challenging economic environment.”
Capital expenditures in the fourth quarter were $165.6 million, of which $32.1 million was attributed to ongoing capital expenditures and $133.5 million was attributed to expansion capital expenditures. Capital expenditures for the year-ended December 31, 2008 were $471.1 million, of which $67.5 million was attributed to ongoing capital expenditures and $403.6 million was attributed to expansion capital expenditures.
The Company generated cash from operating activities of $76.3 million for the fourth quarter as compared to $63.3 million in the previous quarter. Cash generated from operating activities for the year-ended December 31, 2008 was $267.6 million as compared to $120.0 million in the previous year. Cash used in investing activities was $51.9 million in the fourth quarter as compared to $82.4 million in the previous quarter. Cash used in investing activities for the year was $486.7 million as compared to $1.1 billion in the previous year.
As of December 31, 2008, the Company's cash, cash equivalents and investments were $307.9 million, as compared to $383.9 million as of December 31, 2007.
Other Company Developments
- Announced plans for incremental expansions to the Company's Los Angeles 1 and Chicago 2 IBX centers increasing the net sellable cabinets by approximately 700. The Company will spend approximately $35.0 million in expansion capital expenditures, of which $4.0 million was spent in 2008
- Completed expansions in the Singapore and Sydney markets, adding approximately 1,100 cabinets in Asia-Pacific
- Announced plans for a fourth-phase expansion to the Company's Hong Kong 1 IBX center, adding 200 net sellable cabinets. The Company will spend approximately $7.5 million in expansion capital expenditures
- Cabinet capacity as of December 31, 2008, and excluding the Europe region, was approximately 34,200 cabinets, including 27,100 in the U.S., and 7,100 in Asia-Pacific
- The total number of cabinets billing as of December 31, 2008, and excluding the Europe region, was approximately 27,650 representing an approximate utilization rate of 81%, a net increase of approximately 1,250 cabinets in the quarter.
- Cabinet churn, excluding the Europe region, was approximately 1.3% in the quarter. Monthly Recurring Revenue (MRR) churn, excluding the Europe region, was approximately 2.4% in the quarter
- On a weighted average basis as of December 31, 2008, and excluding the Europe region, the number of cabinets billing was approximately 27,320 representing an approximate utilization rate of 80%. In the U.S., this result was 21,400 representing an approximate utilization rate of 79%. In Asia-Pacific, this result was 5,920 representing an approximate utilization rate of 85%
- Weighted average MRR per cabinet as of December 31, 2008, and excluding the Europe region, was $1,689. In the U.S., the MRR per cabinet was $1,816 and in Asia-Pacific, the MRR per cabinet was $1,272
- U.S. interconnection service revenues were 19% of U.S. recurring revenues for the quarter. Interconnection services represented approximately 14% of total worldwide recurring revenues for the quarter
- The total number of U.S. cross connects billing as of December 31, 2008 was 22,193
- The total number of exchange ports sold as of December 31, 2008 was 702, of which 146 were in Asia-Pacific, 71 were in Europe, and 183 were 10 gigabits per second Ethernet ports. This number also reflected churn from customer upgrades to 10 gigabits per second and non-billing ports that were decommissioned in the U.S. Traffic on the U.S. exchange platform increased to 255 gigabits per second in the fourth quarter compared to 235 gigabits per second the previous quarter
- Added 110 new customers in the quarter bringing the total number of customers worldwide to 2,272
For the first quarter of 2009, the Company expects revenues to be in the range of $198.0 to $200.0 million. Cash gross margins are expected to be approximately 63%. Cash selling, general and administrative expenses are expected to be approximately $40.0 million. Adjusted EBITDA is expected to be between $86.0 and $88.0 million. Capital expenditures are expected to be between $100.0 to $110.0 million, comprised of approximately $20.0 million of ongoing capital expenditures and $80.0 to $90.0 million of expansion capital expenditures.
For the full year of 2009, total revenues are expected to be in the range of $855.0 to $875.0 million. Total year cash gross margins are expected to be approximately 63%. Cash selling, general and administrative expenses are expected to be in the range of $160.0 to $170.0 million. Adjusted EBITDA for the year is expected to be between $365.0 and $385.0 million. Capital expenditures for 2009 are expected to be in the range of $325.0 to $375.0 million, comprised of approximately $60.0 million of ongoing capital expenditures and $265.0 to $315.0 million of expansion capital expenditures. Expansion capital expenditures are for the announced expansions in Amsterdam, Chicago, Frankfurt, Hong Kong, London, Los Angeles, New York, Paris and Singapore.
The Company will discuss its results and guidance on its quarterly conference call on Wednesday, February 11, 2009, at 5:30 p.m. ET (2:30 p.m. PT). To hear the conference call live, please dial 210-234-0004 (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 11, 2009 at 7:30 p.m. (ET) through March 11, 2009 by dialing 203-369-3317. 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, Inc. (Nasdaq: EQIX) provides global data center services that ensure the vitality of the information-driven world. Global enterprises, content and financial companies, and network service providers rely upon Equinix's insight and expertise to protect and connect their most valued information assets. Equinix operates 42 International Business Exchange™ (IBX®) data centers across 18 markets in North America, Europe and Asia-Pacific. Important information about Equinix is routinely posted on the investor relations page of its website located at www.equinix.com. We encourage you to check Equinix's website regularly for the most up-to-date information.
Forward Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from expectations discussed in such forward-looking statements. Factors that might cause such differences include, but are not limited to, the challenges of acquiring, operating and constructing IBX centers and developing, deploying and delivering Equinix services; unanticipated costs or difficulties relating to the integration of companies we have acquired or will acquire into Equinix; a failure to receive significant revenue from customers in recently built out or acquired data centers; failure to complete any financing arrangements contemplated from time to time; competition from existing and new competitors; the ability to generate sufficient cash flow or otherwise obtain funds to repay new or outstanding indebtedness; the loss or decline in business from our key customers; and other risks described from time to time in Equinix's filings with the Securities and Exchange Commission. In particular, see Equinix's recent quarterly and annual reports filed with the Securities and Exchange Commission, copies of which are available upon request from Equinix. Equinix does not assume any obligation to update the forward-looking information contained in this press release.
Equinix and IBX are registered trademarks of Equinix, Inc. International Business Exchange is a trademark of Equinix, Inc.
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 adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), 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, restructuring charges and, with respect to 2007 results, the 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 did not intend to build out. With respect to its 2007 results, Equinix excludes the gain from EMS sale. 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 and the gain on the sale of a service offering 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.
Equinix also prepares non-GAAP cash flow statements which combine the Company's short-term and long-term investments with our cash and cash equivalents in an effort to present our total unrestricted cash and equivalent balances, which is how management views its cash and equivalent holdings, including its investments in marketable securities.
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, 2008 and 2007, presented within this press release.