10-QPeriod: Q3 FY2006

EQUINIX INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 1, 2006For Securities:EQIX

Summary

Equinix Inc. (EQIX) reported its third-quarter 2006 results, showing a 27% year-over-year increase in total revenues to $73.7 million. This growth was driven by a 28% increase in U.S. recurring revenues and a 33% increase in Asia-Pacific revenues, primarily from colocation and interconnection services. The company continues to invest heavily in expansion projects, with new IBX centers planned in Washington D.C., Chicago, and New York, expected to open in 2007. These investments are being financed through a combination of cash flow from operations and new debt facilities, including a $75 million credit line amendment and loan commitments totaling $150 million. Despite revenue growth, the company reported a net loss of $5.2 million for the quarter, an improvement from the $0.8 million net loss in the prior year's quarter, largely due to significant increases in stock-based compensation expenses resulting from the adoption of SFAS 123(R) and higher general and administrative expenses related to ongoing investigations into past stock option practices. Equinix's financial position remains solid with $84.6 million in cash and cash equivalents as of September 30, 2006. The company continues to focus on expanding its global footprint and service offerings, with a stated strategy of acquiring or building out IBX centers based on customer demand, market pricing, and financial returns. However, the company also faces risks related to its significant capital expenditures, potential delays in project timelines, increased operating costs, and ongoing investigations and litigation concerning its historical stock option granting practices. Investors should monitor the company's ability to convert its significant investments in new facilities into profitable operations and manage the legal and financial repercussions of the stock option investigations.

Key Highlights

  • 1Total revenues increased by 27% to $73.7 million for the three months ended September 30, 2006, compared to $58.1 million in the same period of 2005.
  • 2Recurring revenues, the primary revenue driver, accounted for 95% of total revenues for the quarter.
  • 3The company reported a net loss of $5.2 million for the three months ended September 30, 2006, compared to a net loss of $0.8 million for the same period in 2005.
  • 4Significant investments are being made in expansion projects, with new IBX centers planned in Washington D.C., Chicago, and New York, expected to open in 2007.
  • 5Stock-based compensation expense increased substantially to $6.9 million for the quarter due to the adoption of SFAS 123(R).
  • 6General and administrative expenses rose by 53% to $18.6 million, partly due to legal fees related to stock option investigations.
  • 7Cash and cash equivalents were $84.6 million as of September 30, 2006.
  • 8The company has secured loan commitments totaling $150 million for expansion projects and amended its credit line to $75 million.

Frequently Asked Questions

Equinix reported a 27% increase in total revenues for the three months ended September 30, 2006, reaching $73.7 million, up from $58.1 million in the same period of 2005. This growth was primarily driven by its recurring revenue streams, which constituted 95% of total revenues.

Equinix incurred a net loss of $5.2 million for the third quarter of 2006. While this represents an improvement from the $0.8 million net loss in the prior year's quarter, the company is investing heavily in new IBX center expansions. Factors impacting profitability include significant increases in stock-based compensation expense due to the adoption of SFAS 123(R) and higher general and administrative expenses, particularly legal fees associated with investigations into past stock option practices.

Equinix is funding its significant expansion projects through a combination of operating cash flow and new financing. As of September 30, 2006, the company had $84.6 million in cash and cash equivalents. Additionally, it amended its credit line to $75 million and secured loan commitments totaling $150 million for its expansion projects in Washington D.C. and Chicago. The company believes it has sufficient liquidity to meet its identified business objectives for the next twelve months.

Equinix is cooperating with an informal inquiry from the SEC and a subpoena from the U.S. Attorney's Office related to its historical stock option granting practices. Shareholder derivative complaints have also been filed alleging improper stock option practices. The company has conducted its own review, concluding no intentional misconduct occurred, but acknowledges that these matters present substantial costs and potential risks, including possible restatements of financial statements or material adverse effects on its business.