10-QPeriod: Q2 FY2006

EQUINIX INC Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 14, 2006For Securities:EQIX

Summary

Equinix, Inc. (EQIX) reported its financial results for the quarterly period ending June 30, 2006. The company experienced a revenue increase of 31% year-over-year for the three months ended June 30, 2006, reaching $68.5 million, and a 32% increase for the six months ended June 30, 2006, to $133.4 million. This growth was driven by strong recurring revenues, primarily from colocation and interconnection services, with a 13% increase in customer count and a rise in utilization rate to 53% from 47% year-over-year. Despite revenue growth, Equinix reported a net loss of $5.3 million for the quarter and $10.3 million for the six months. This loss is partly attributed to increased operating expenses, including sales and marketing and general and administrative costs, significantly impacted by the adoption of SFAS No. 123(R) related to stock-based compensation, which added $8.9 million in the quarter and $16.7 million over six months. The company is also undertaking significant expansion projects in Washington D.C. and Chicago, which will require substantial capital investment. The report also highlights ongoing investigations into past stock option granting practices, which have resulted in an additional $0.4 million charge.

Key Highlights

  • 1Revenue increased by 31% year-over-year to $68.5 million for the three months ended June 30, 2006.
  • 2Net loss for the quarter was $5.3 million, compared to a net loss of $3.4 million in the prior year period.
  • 3Operating expenses increased, notably in sales and marketing and general and administrative categories, partly due to the adoption of SFAS No. 123(R) for stock-based compensation.
  • 4Customer count grew by 13% to 1,189 as of June 30, 2006, and the utilization rate increased to 53%.
  • 5The company is investing heavily in expansion projects, including new IBX centers in Washington D.C. and Chicago.
  • 6An additional non-cash stock-based compensation charge of $445,000 was recorded due to revisions in accounting for certain stock option grants.
  • 7Equinix is cooperating with SEC and U.S. Attorney investigations into past stock option granting practices.

Frequently Asked Questions

Equinix's revenue grew by 31% year-over-year to $68.5 million for the three months ended June 30, 2006. However, the company reported a net loss of $5.3 million for the quarter, compared to a net loss of $3.4 million in the same period last year.

Operating expenses have increased due to several factors, including significant investments in sales and marketing and general and administrative functions. A substantial portion of this increase is related to the adoption of SFAS No. 123(R), which requires the expensing of stock-based compensation, adding $8.9 million in stock-based compensation expenses for the quarter. Additionally, ongoing investigations into stock option practices resulted in an extra $0.4 million charge.

Equinix is actively expanding its operations with significant capital investments planned for new IBX centers. Major projects include the build-out of a new center in the Washington D.C. metro area, expected to open in early 2007, and the development of a new IBX center in the Chicago metro area, with the first phase planned for investment of $70 million in 2006. The company also announced plans for a new IBX center in the New York metro area, with the first phase expected to open in the second half of 2007.

Yes, Equinix is cooperating with informal inquiries from the SEC and a grand jury subpoena from the U.S. Attorney's Office regarding its historical stock option granting practices. An internal review by the Audit Committee found unintentional errors in accounting measurement dates for certain grants, leading to an additional $445,000 non-cash stock-based compensation charge. A shareholder derivative complaint has also been filed alleging improper stock option grant practices.