February 8, 2006
Equinix Reports Fourth Quarter and Year-End 2005 Results
Foster City, CA — February 8, 2006 — 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, 2005.
Revenues were $61.8 million for the fourth quarter and $221.1 million for the year ended December 31, 2005, representing a 6% increase over the previous quarter, and a 35% increase over 2004 revenues. Recurring revenues, consisting primarily of colocation, interconnection and managed services, were $58.4 million for the quarter and $208.0 million for the year ended December 31, 2005, an 8% increase over the previous quarter, and a 35% increase over 2004.
Non-recurring revenues for the fourth quarter were $3.4 million, consisting primarily of professional services and installation fees. Non-recurring revenues for the year ended December 31, 2005 were $13.1 million, consisting of $12.2 million of professional services and installation fees, and $861,000 of customer settlements. Annual non-recurring revenues, excluding customer settlements, increased 46% year over year.
Note: 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, cash net income (loss), 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 are attached to this release and commence at the bottom of our condensed consolidated statements of operations - GAAP presentation.
Cost of revenues were $41.7 million for the fourth quarter and $158.4 million for the year ended December 31, 2005, representing a 2% increase over the previous quarter, and a 16% increase over 2004 cost of revenues. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation, were $25.2 million for the fourth quarter and $95.6 million for the year ended December 31, 2005. Cash gross margins, defined as gross profit less depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 59%, up from 57% the previous quarter. Cash gross margins were 57% for 2005, up from 50% in 2004.
Selling, general and administrative expenses were $17.3 million for the fourth quarter. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation were $14.8 million for the fourth quarter, a 2% decrease from the previous quarter, and $55.4 million for 2005, a 21% increase over 2004.
The company was able to expand its IBX footprint by approximately 19% in 2005 through the acquisition of previously built-out data centers in the Silicon Valley, Chicago and Los Angeles areas, all scheduled to open around the first half of 2006. Equinix also acquired the campus that houses its flagship Washington, D.C. area IBX center for a total purchase price of $53.8 million. In fourth quarter, Equinix completed transactions to purchase and finance its Washington, D.C. area center, the sale and leaseback of its Los Angeles data center, and the planned exit of its San Jose ground lease. The exit of the San Jose ground lease resulted in the recognition of a restructuring charge totaling $33.8 million in the quarter.
Net loss for the fourth quarter was $32.6 million, including stock-based compensation expense of $2.0 million, and including the restructuring charge of $33.8 million. This represents a basic and diluted net loss per share of $1.25 on a weighted average share count of 26.1 million. Net loss for the year ended December 31, 2005 was $42.6 million, or a basic and diluted net loss per share of $1.78. Excluding the restructuring charge and stock-based compensation, the company was net income positive for the quarter, with a non-GAAP net income of $3.2 million, a $7.7 million improvement over the same quarter last year and $2.6 million improvement over the previous quarter. The company's cash net income, defined as net income (loss) less depreciation, amortization, accretion, stock-based compensation expense, restructuring changes and non-cash interest expense for the quarter was $20.5 million, a 19% improvement over the previous quarter.
EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation expense and restructuring charges, was $21.8 million for the fourth quarter and $70.1 million for the year ended December 31, 2005, an increase of 22% over the previous quarter and up from $35.6 million in 2004, or a 60% EBITDA flow-through rate in 2005.
Capital expenditures in the fourth quarter were $22.9 million, of which $8.0 million was attributed to ongoing capital expenditures and $14.9 million was attributed to expansion capital expenditures. Capital expenditures for the year ended December 31, 2005 were $45.4 million, of which $19.7 million was attributed to ongoing capital expenditures and $25.7 million was attributed to expansion capital expenditures.
The Company generated cash from operating activities of $18.6 million for the fourth quarter as compared to $15.5 million in the previous quarter. Cash generated from operating activities for the year ended December 31, 2005 was $67.6 million as compared to $36.9 million in 2004. Cash used in investing activities was $65.9 million in the fourth quarter as compared to $42.1 million in the previous quarter. Cash used in investing activities for the year was $120.9 million, which includes the purchase of real estate properties, as compared to $20.7 million in 2004. Adjusted free cash flow was $6.4 million in the fourth quarter and $35.2 million for the year ended December 31, 2005. 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, 2005, the Company's cash, cash equivalents and investments were $188.9 million, including the $30.0 million draw-down under the Silicon Valley Bank revolving line of credit, an increase of $80.8 million over the previous year. The draw down was repaid in full in January 2006.
Other Company Developments & Metrics
On a same IBX basis (defined as IBX centers which have been available for new customer installs for at least four full quarters), revenues were $56.8 million; cost of revenues were $35.9 million; cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation, were $21.6 million and cash gross margins for the quarter were 62%. EBITDA on a same IBX basis was $20.7 million. Included in the same IBX results were certain selling, general and administrative expenses related to costs for the filing of our recent S-3 registration statement and certain severance charges.
Equinix added 68 new customers in the fourth quarter and 287 customers for the year 2005, ending the year with 1,138 total customers. Some of the customers added in the fourth quarter include Cable & Wireless Global Ptd Ltd, Bausch & Lomb (HK) Ltd, NTT Australia Pty Ltd, Nokia Japan, PNC Bank, Hotel Booking Solutions, Inc. and Xanga. Over 50 percent of Equinix's new bookings in the quarter came from existing customers including Amazon.com, GE Capital, Goldman Sachs Group, IBM, XM Satellite Radio and Yahoo!.
Based on a total cabinet capacity of approximately 26,200, the number of cabinets billing as of December 31, 2005 was approximately 14,100, up from approximately 13,700 the previous quarter, and up from 11,100 as of December 31, 2004. On a weighted average basis, the number of cabinets billing was approximately 14,000 representing a utilization rate of 54%.
U.S. interconnection service revenues were 21% of U.S. recurring revenues for the fourth quarter and 22% for the year ended December 31, 2005. Interconnection services revenues represent approximately 20% of total worldwide recurring revenues for the year ended December 31, 2005. Equinix signed additional customers on its new 10 Gigabit Ethernet service including Akamai, Beyond the Network, Big Pipe and Cable and Wireless.
The Company also announced that it will build out a new center at its Washington, D.C. area campus to further expand its Washington, D.C. area Internet Business Exchange™ (IBX®) center. Equinix also announced that it intends to expand in the Chicago metro area and has identified a potential site and commenced performing its due diligence for possible expansion.
For the first quarter 2006, the company expects revenue to be in the range of $63.5 to $64.5 million. Cash gross margins are expected to be in the range of 57% to 59%. Cash selling, general and administrative expenses are expected to approximate $15.0 million. EBITDA is expected to be between $21.5 and $22.5 million. Net loss is expected to range between $9.0 and $10.0 million including the impact of approximately $10.0 million of stock-based compensation expense, primarily related to the new stock-based compensation expensing requirements. Net interest expense will approximate $2.0 million. The weighted average shares outstanding will approximate 27.6 million. Capital expenditures are expected to be approximately $30.0 to $35.0 million including between $24.0 and $27.0 million of expansion capital expenditures.
For the full year of 2006, revenues are expected to be in the range of $275.0 to $285.0 million. Cash gross margins are expected to be in the range of 57% - 59%. Cash selling, general and administrative expenses are expected to be in the range of $60.0 to $64.0 million. EBITDA is expected to be between $95.0 and $105.0 million. Capital expenditures for 2006 are expected to be in a range of $95.0 to $100.0 million, comprised of approximately $20.0 million of ongoing capital expenditures and approximately $75.0 to $80.0 million of expansion capital expenditures for the new Chicago, Los Angeles, and Silicon Valley expansions, as well as the expansion build out in the Washington D.C. area campus announced today. We expect our adjusted free cash flow to be in a range of breakeven to a negative $5.0 million for the year. 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, as well as purchases and sales of real estate).
The company will discuss its results and guidance on its quarterly conference call on Wednesday, February 8, 2006, 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 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 8, 2006 at 7:30 p.m. (ET) by dialing 402-220-9685. 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.
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™ (IBX®) centers in 11 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.
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, 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 depreciation, amortization, accretion, stock-based compensation, non-cash interest, restructuring charges and, with respect to 2004 results, the non-cash portion of loss on debt extinguishment and conversion (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 2005 and 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 does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, stock-based compensation (with respect to 2006), net income (loss) from operations, interest income, 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, 2005 and 2004, 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.