This is the Tagline, edited under "Misc Content"
Feb 7, 2007
Foster City, CA — February 7, 2007 — 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, 2006.
Revenues were $79.8 million for the fourth quarter and $286.9 million for the year-ended December 31, 2006, representing an 8% increase over the previous quarter, and a 30% increase over 2005 revenues; however, excluding a non-recurring revenue adjustment that the Company recorded in connection with its adoption of Staff Accounting Bulletin No. 108 (SAB 108), pro forma revenues were $81.0 million for the fourth quarter and $288.1 million for the year-ended December 31, 2006, representing a 10% increase over the previous quarter, and a 30% increase over 2005 revenues. Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $76.4 million for the quarter and $273.2 million for the year-ended December 31, 2006, a 9% increase over the previous quarter, and a 31% increase over 2005.
Non-recurring revenues were $3.4 million in the quarter, consisting primarily of services and installation fees, and $13.7 million for the year ended December 31, 2006. However, excluding the non-recurring revenue adjustment, pro forma non-recurring revenues were $4.6 million in the quarter, an increase of 19% over the previous quarter, and $14.9 million for the year-ended December 31, 2006.
Note:Equinix uses non-GAAP financial measures, such as pro forma 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. 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 $50.3 million for the fourth quarter, including $853,000 of stock-based compensation, a 2% increase over the previous quarter. Cost of revenues were $188.4 million for the year-ended December 31, 2006, including $3.2 million of stock-based compensation, a 19% increase over cost of revenues for 2005. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $20.0 million and $76.3 million, respectively, were $30.3 million for the fourth quarter and $112.1 million for the year-ended 2006. Cash gross margins, defined as gross profit less depreciation, amortization, accretion and stock-based compensation divided by pro forma revenues, for the quarter were 63%, up from 60% the previous quarter. Cash gross margins were 61% for 2006, up from 57% in 2005. 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 67% for the fourth quarter, and 65% for the year-ended 2006.
Selling, general and administrative expenses were $28.1 million for the fourth quarter, including $6.4 million of stock-based compensation, and $104.7 million for the year-ended December 31, 2006, including $27.5 million of stock-based compensation. During the quarter, we recognized greater than expected variable sales and corporate compensation costs totaling $2.8 million. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $7.7 million and $30.8 million, respectively, were $20.4 million for the fourth quarter, a 7% increase from the previous quarter and $73.9 million for 2006, a 33% increase over 2005. This increase included $1.7 million in annual costs related to the audit committee's independent investigation of the Company's stock options practices.
Net income for the fourth quarter was $9.1 million, including stock-based compensation expense of $7.2 million, the gain on the sale of the Honolulu IBX of $9.6 million and the $1.2 million adjustment recorded in connection with the adoption of SAB 108. This represents basic net income per share of $0.31 on a weighted average share count of 29.1 million and diluted net income per share of $0.30 on a weighted average share count of 32.7 million. Net loss for the year-ended December 31, 2006 was $6.4 million, or a basic and diluted net loss per share of $0.22.
EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation expense, restructuring charges and, with respect to the 2006 results, the gain on the sale of the Honolulu IBX and the adjustment recorded in connection with the adoption of SAB 108, for the fourth quarter was $30.3 million and $102.1 million for the year-ended December 31, 2006, an increase of 21% over the previous quarter, and up from $70.1 million in 2005, a 46% increase.
Capital expenditures in the fourth quarter were $59.4 million, of which $8.9 million was attributed to ongoing capital expenditures and $50.5 million was attributed to expansion capital expenditures. Capital expenditures for the year-ended December 31, 2006 were $162.3 million, of which $31.2 million was attributed to ongoing capital expenditures and $131.1 million was attributed to expansion capital expenditures. The result reflects approximately $25.0 million of expansion capital expenditures that were shifted into 2007 as a result of project timing, offset by an additional $10.0 million of expansion capital expenditures attributed to accelerated customer installs in our newly-opened IBXs and some capitalized interest associated with our recent financing for our Washington D.C. area campus.
The Company generated cash from operating activities of $26.3 million for the fourth quarter as compared to $20.7 million in the previous quarter. Cash generated from operating activities for the year-ended December 31, 2006 was $75.9 million as compared to $67.6 million in 2005. Cash used in investing activities was $45.1 million in the fourth quarter as compared to $50.0 million in the previous quarter. Cash used in investing activities for the year was $155.0 million as compared to $120.9 million in 2005. Adjusted free cash flow was negative $28.3 million in the fourth quarter, and negative $78.8 million for the year-ended December 31, 2006. 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 December 31, 2006, the Company's cash, cash equivalents and investments were $156.5 million as compared to $188.9 million as of December 31, 2005.
"2006 was 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 completed the year provide a solid foundation to continue to build on our market leadership position in 2007."
Other Company Developments & Metrics
Business Outlook
For the first quarter 2007, the Company expects revenue to be in the range of $84.0 to $85.0 million. Cash gross margins are expected to be approximately 61% including approximately $3.0 million of net cash costs attributed to our expansion IBXs. Cash selling, general and administrative expenses are expected to be approximately $20.0 million. EBITDA is expected to be between $31.0 and $32.0 million. Net loss will approximate $2.0 million, including the impact of approximately $9.0 million of stock-based compensation expense. Net interest expense will be approximately $3.0 million. The weighted average shares outstanding will be approximately 29.5 million. Capital expenditures are expected to be in a range of $55.0 to $60.0 million, comprised of approximately $15.0 million of ongoing capital expenditures and $40.0 to $45.0 million of expansion capital expenditures.
For the full year of 2007, total revenues are expected to be in the range of $354.0 to $364.0 million. Cash gross margins are expected to be in the range of 59% to 61%. Cash selling, general and administrative expenses are expected to be in the range of $78.0 to $80.0 million. EBITDA is expected to be between $134.0 and $139.0 million, including $9.0 million of net costs related to the Company's expansion projects. Net loss will approximate $21.0 million, including the impact of approximately $40.0 million of stock-based compensation expense. Net interest expense will be approximately $18.0 million. The estimated weighted average shares outstanding will be approximately 30.0 million. Capital expenditures for 2007 are expected to be in a range of $316.0 to $336.0 million, comprised of approximately $36.0 million of ongoing capital expenditures and $280.0 to $300.0 million of expansion capital expenditures, which includes $25.0 million of expansion capital shifted from 2006 into 2007. In addition, the Company will invest capital of $65.0 million for the purchase of the Silicon Valley IBX.
The Company will discuss its results and guidance on its quarterly conference call on Wednesday, February 7, 2007, at 5:30 p.m. ET (2:30 p.m. PT). To hear the conference call live, please dial 1-773-799-3263 (domestic and international) and reference the pass code (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 7, 2007 at 7:30 p.m. (ET) by dialing 1-203-369-0633. 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 Internet Business Exchange(TM) (IBX®) centers in 10 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.
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 pro forma 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), cash interest expense, cash net income (loss), 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, non-cash interest, restructuring charges and, with respect to 2006 results, the gain on Honolulu IBX sale (there was no such activity 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. With respect to its 2006 and 2005 results, Equinix excludes restructuring charges and the gain on Honolulu IBX sale. 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 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. Management believes such restructuring charges and the gain on the sale of an IBX center were 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. Lastly, with respect to its 2006 results, the Company excludes a non-recurring revenue adjustment recorded in the fourth quarter of 2006 as a result of the Company's adoption of Staff Accounting Bulletin No. 108.
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, 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, 2006 and 2005, presented within this press release.
View Q4 2006 Financial 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.