Equinix Reports First Quarter 2005 Results

 

 

Foster City, CA — April 27, 2005 — Equinix, Inc. (Nasdaq: EQIX), the leading provider of network-neutral data centers and Internet exchange services, today reported its quarterly results for the period ended March 31, 2005.

Revenues were $48.7 million for the first quarter representing a 32% increase over the same quarter last year and an 8% increase over the previous quarter. Recurring revenues, consisting of colocation, interconnection and managed services, were $45.9 million, a 33% increase over the same quarter last year and an 8% increase over the previous quarter. Non-recurring revenues, consisting primarily of professional services and installation fees, were $2.8 million for the quarter, as compared to $2.3 million in the same quarter last year and $2.4 million the previous quarter. Cost of revenues were $36.9 million for the first quarter, a 9% increase over the same quarter last year and a 6% increase over the previous quarter. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $15.0 million, were $21.9 million for the first quarter, an 8% increase over same quarter last year and a 5% increase over the previous quarter. Cash gross margins, defined as gross profit less depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 55%, up from 45% the same quarter last year and 53% the previous quarter.

Selling, general and administrative expenses were $15.3 million for the first quarter, a 19% increase over the same quarter last year and a 17% increase over the previous quarter. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $2.9 million, were $12.4 million for the first quarter, a 13% increase over same quarter last year and a 6% increase over the previous quarter.

Net loss for the first quarter was $5.8 million, or a basic and diluted net loss per share of $0.26. The Company's cash net income, defined as net income (loss) less depreciation, amortization, accretion, stock-based compensation expense, restructuring charges and non-cash interest expense, for the quarter was $12.9 million, a 9% improvement over the previous quarter.

EBITDA, defined as loss from operations less depreciation, amortization, accretion, stock-based compensation expense and restructuring charges, for the first quarter was $14.3 million, up 16% over the previous quarter and up from $5.7 million the same quarter 2004.

Capital expenditures in the quarter were $5.5 million, of which $2.2 million was attributed to ongoing capital expenditures and $3.3 million was attributed to expansion capital expenditures.

The company generated cash from operating activities of $15.4 million, a $4.8 million or 45% increase over the previous quarter. Cash used in investing activities was $6.2 million, an increase of $1.7 million over the previous quarter. As a result, the company generated $9.2 million in free cash flow, a $3.1 million increase over the previous quarter. 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 March 31, 2005, the company's cash, cash equivalents and investments were $118.1 million, an increase of $10.0 million over the previous quarter.

"First quarter was a strong start to 2005. Particularly pleasing was the incremental recurring revenue growth achieved, which was the best we've seen to date," said Peter Van Camp, CEO of Equinix. "Great anchor bookings in our new Washington, D.C. and Silicon Valley IBX centers contributed to our momentum."

Other Company Metrics & Developments

On a same IBX basis (defined as IBX centers which have been available for customer installs for at least four full quarters), revenue was $48.5 million; cost of revenues were $35.3 million; cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation were $21.1 million and cash gross margins for the quarter were 56%. EBITDA on a same IBX basis was $14.9 million.

Equinix added 75 new customers in the quarter including Con Edison, Gamania Digital Entertainment Co. Ltd, Neighborcare, New York Magazine, Taiwan Business Bank, TC Group,L.L.C, Telekom Malaysia (Hong Kong) Ltd and XM Satellite Radio and ended the quarter with 1,005 customers. The company received additional orders in the quarter from 47% of its existing U.S. customers.

Based on a total cabinet capacity of 26,100, the number of cabinets billing at the end of the quarter was approximately 11,700, or 45%, up from approximately 11,100 the previous quarter, and includes the new Silicon Valley IBX, which opened in March 2005. On a weighted average basis, the number of cabinets billing was 11,400, which also represents 45%.

U.S. interconnection service revenues remained steady at 23% of U.S. recurring revenues for the quarter. Interconnection services represent 20% of total worldwide recurring revenues.

Business Outlook

For the second quarter 2005, the company expects revenue to be in the range of $51.5 to $52.5 million. Cash gross margins are expected to be in the range of 52 - 53%. 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 $14.0 and $15.0 million, as the company continues to invest in growing the business. Capital expenditures are estimated to be in the range of $9.0 to $10.0 million, including capital required for improvements to the newly acquired Silicon Valley and Washington, D.C. area IBX centers.

For the full year of 2005, revenues are expected to be in the range of $209.0 to $215.0 million. Cash gross margins are expected to be in the range of 53 - 56%. Cash selling, general and administrative expenses are expected to be in the range of $51.0 to $53.0 million. EBITDA is expected to be between $61.0 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.

The company will discuss its results and guidance on its quarterly conference call on Wednesday, April 27, 2005, at 5:30 p.m. ET (2:30 p.m. PT). To hear the conference call, please dial 1-773-799-3263 (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, April 27, 2005 at 7:30 p.m. (ET) by dialing 1-402-280-1626. In addition, the Webcast will be available for replay 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 reconciliation is also available at www.equinix.com under the Investor Relations heading.

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 2005). 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 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 liability, 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 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 months ended March 31, 2005 and 2004, presented within this press release.

View Q1 2005 Financial Statements