Equinix, Inc. (Nasdaq: EQIX), a provider of global data center services, today reported quarterly results for the quarter ended September 30, 2013. The Company uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measures after the presentation of our GAAP financial statements.

Revenues were $540.5 million for the third quarter, a 3% increase over the previous quarter and an 11% increase over the same quarter last year, and include a $5.3 million reduction in revenues for the third quarter due to the lengthening of the estimated period that non-recurring installation fees are recognized, a change in estimate that the Company initiated in the second quarter of 2013. Recurring revenues, consisting primarily of colocation, interconnection and managed services were $517.0 million for the third quarter, a 3% increase over the previous quarter and a 12% increase over the same quarter last year. Non-recurring revenues were $23.5 million in the quarter. Churn for the third quarter was 2.5%, up from 2.4% for the previous quarter and in line with prior guidance.

Regarding the non-recurring installation fee estimate change described above, the Company is evaluating whether changes in estimate should have been applied in earlier periods. The Company is currently completing its assessment of this matter and expects to reach a conclusion by the time it files its Form 10-Q for the quarterly period ended September 30, 2013. The outcome of this matter could lead to an adjustment to the Company’s financial results for historical and future periods over which installation fees were and will be recognized as revenue, effectively causing revenue to be decreased in periods prior to the second quarter of 2013 and increased in later periods. The Company believes potential adjustments, if any, would result in a change in revenues of less than approximately 1% on a consolidated basis for any period covered under the Company’s current Forms 10-K and 10-Q as well as on a prospective basis. Additionally, if such a change were determined to be appropriate, it would have no effect on the Company’s cash flows.

“Equinix delivered its 43rd quarter of revenue and adjusted EBITDA growth, with healthy demand in our target markets as evidenced by the strong interconnection growth, operating margins and firm MRR per cabinet globally,” said Steve Smith, president and CEO of Equinix. “In addition, we had a number of strategic wins in our cloud vertical, including a multi-site partnership with Microsoft Azure, that leverages our unique global platform, network density, and customer base to enable the hybrid-cloud deployments of the future, further widening the moat around our business.”

Cost of revenues were $273.0 million for the third quarter, a 2% increase over the previous quarter and a 9% increase over the same quarter last year. Cost of revenues, excluding depreciation, amortization, accretion and stock-based compensation of $98.2 million, which we refer to as cash cost of revenues, were $174.8 million for the third quarter, a 3% increase from the previous quarter and an 11% increase over the same quarter last year. Gross margins for the quarter were 49%, unchanged from the previous quarter and the same quarter last year. Cash gross margins, defined as gross profit before depreciation, amortization, accretion and stock-based compensation, divided by revenues, for the quarter were 68%, unchanged from the previous quarter and the same quarter last year.

Selling, general and administrative expenses were $158.5 million for the third quarter, a 7% increase over the previous quarter, primarily attributed to professional fees related to the REIT conversion, and a 16% increase over the same quarter last year. Selling, general and administrative expenses, excluding depreciation, amortization and stock-based compensation of $38.0 million, which we refer to as cash selling, general and administrative expenses, were $120.5 million for the third quarter, a 7% increase over the previous quarter and an 18% increase over the same quarter last year.

Interest expense was $62.0 million for the third quarter, a 2% increase from the previous quarter and a 23% increase over the same quarter last year, primarily attributed to the $1.5 billion senior notes offering in March 2013 and additional capital leases and other financing obligations to support the Company’s expansion projects. The Company recorded income tax expense of $11.7 million for the third quarter and income tax expense of $13.5 million in the same quarter last year.

Net income attributable to Equinix for the third quarter was $36.6 million. This represents a basic net income per share attributable to Equinix of $0.74 and a diluted net income per share attributable to Equinix of $0.72 based on a weighted average share count of 49.6 million and 53.6 million, respectively, for the third quarter of 2013.

Income from operations was $108.6 million for the third quarter, a 3% decrease from the previous quarter and a 13% increase over the same quarter last year. Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization, accretion, stock-based compensation, restructuring charges and acquisition costs, for the third quarter was $245.2 million, a slight increase over the previous quarter and a 7% increase over the same quarter last year.

Capital expenditures, defined as gross capital expenditures less the net change in accrued property, plant and equipment in the third quarter, were $171.0 million, of which $130.0 million was attributed to expansion capital expenditures and $41.0 million was attributed to ongoing capital expenditures.

The Company generated cash from operating activities of $206.6 million for the third quarter as compared to $147.2 million in the previous quarter and $102.2 million for the same quarter last year. Cash used in investing activities was $331.0 million in the third quarter as compared to cash provided by investing activities of $537.5 million in the previous quarter, primarily attributed to the $836.4 million of restricted cash released for the redemption of the $750.0 million 8.125% senior notes, and cash used in investing activities of $596.9 million for the same quarter last year, primarily attributed to the Asia Tone and ancotel acquisitions. Cash used in financing activities was $1.2 million for the third quarter as compared to cash used in financing activities of $850.0 million in the previous quarter, primarily attributed to the redemption of the $750.0 million 8.125% senior notes, and cash provided by financing activities of $73.7 million for the same quarter last year.

As of September 30, 2013, the Company’s cash, cash equivalents and investments were $1,188.0 million, as compared to $1,216.9 million as of June 30, 2013.

Business Outlook

For the fourth quarter of 2013, the Company expects revenues to be in the range of $559.0 to $563.0 million, which includes a positive foreign currency benefit of approximately $8.0 million compared to the rates used from our prior guidance. Cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $123.0 and $128.0 million. Adjusted EBITDA is expected to range between $255.0 and $259.0 million, which includes $11.0 million in professional fees and costs primarily related to the REIT conversion, and includes a positive foreign currency benefit of approximately $3.0 million compared to the rates used from our prior guidance. Capital expenditures are expected to be approximately $190.0 to $210.0 million, comprised of approximately $50.0 million of ongoing capital expenditures and $140.0 to $160.0 million of expansion capital expenditures.

For the full year of 2013, total revenues are expected to range between $2,145.0 million to $2,149.0 million, or an as reported 13% year over year growth rate. Full-year guidance is also adjusted for approximately $9.0 million of positive foreign currency benefit, when compared to the rates used from our prior guidance. Total year cash gross margins are expected to approximate 68%. Cash selling, general and administrative expenses are expected to range between $470.0 and $475.0 million. Adjusted EBITDA for the year is expected to range between $988.0 and $992.0 million, which includes $25.0 million in professional fees primarily related to the REIT conversion, and adjusting for approximately $4.0 million of positive currency benefit when compared to the rates used from our prior guidance. Capital expenditures for 2013 are expected to be in the range of $560.0 to $580.0 million, comprised of approximately $165.0 million of ongoing capital expenditures and $395.0 to $415.0 million for expansion capital expenditures.

The U.S. dollar exchange rates used for Q4 2013 guidance have been updated to $1.35 to the Euro, $1.60 to the Pound, S$1.24 to the U.S. dollar and R$2.18 to the U.S. dollar. Updated Q4 global revenue breakdown by currency for the Euro, Pound, Singapore dollar and Brazilian Real is 15%, 9%, 6% and 4%, respectively.

Company Metrics and Q3 Results Presentation

The Company will discuss its results and guidance on its quarterly conference call on Wednesday, October 23, 2013, at 5:30 p.m. ET (2:30 p.m. PT). A simultaneous live Webcast of the call will be available on the Equinix investors website located at www.equinix.com/investors. To hear the conference call live, please dial 1-210-234-8004 (domestic and international) and reference the passcode (EQIX). A presentation to accompany the call as well as the Company’s Non-Financial Metrics tracking sheet, will also be available on the website.

A replay of the call will be available beginning on Wednesday, October 23, 2013, at 7:30 p.m. (ET) through Friday, November 22, 2013, by dialing 1-203-369-0250 (domestic and international) and reference the passcode (2013). In addition, the webcast will be available on the investors section of the Company’s website over the same time period. No password is required for the replay or the webcast.

About Equinix

Equinix, Inc. (Nasdaq: EQIX), connects more than 4,400 companies directly to their customers and partners inside the world’s most networked data centers. Today, businesses leverage the Equinix interconnection platform in 31 strategic markets across the Americas, EMEA and Asia-Pacific. www.equinix.com.

Non-GAAP Financial Measures

Equinix provides 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 adjusted EBITDA, cash cost of revenues, cash gross margins, cash operating expenses (also known as cash selling, general and administrative expenses or cash SG&A), adjusted EBITDA margins, free cash flow, adjusted free cash flow, discretionary free cash flow and adjusted discretionary free cash flow to evaluate its operations. In presenting these non-GAAP financial measures, Equinix excludes certain items that it believes are not good indicators of the Company's current or future operating performance. These items are depreciation, amortization, accretion of asset retirement obligations and accrued restructuring charges, stock-based compensation, restructuring charges, impairment charges and acquisition costs. Legislative and regulatory requirements 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 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 competitors.

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 10 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 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 charges, as these expenses represent costs which Equinix believes are not meaningful in evaluating the Company's current operations. Equinix excludes stock-based compensation expense as it primarily represents expense attributed to equity awards that have no current or future cash obligations. As such, we, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations. Equinix excludes restructuring charges from its non-GAAP financial measures. The restructuring charges relate to the Company's decision to exit leases for excess space adjacent to several of our IBX centers, which we did not intend to build out, or our decision to reverse such restructuring charges or severance charges related to the Switch and Data acquisition. Equinix also excludes impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Finally, Equinix excludes acquisition costs from its non-GAAP financial measures. The acquisition costs relate to costs the Company incurs in connection with business combinations. Management believes such items as restructuring charges, impairment charges and acquisition costs are non-core transactions; however, these types of costs will or may occur in future periods.

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 core, ongoing business operations. Management believes that the inclusion of these non-GAAP financial measures provides consistency and comparability with past reports and provides 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, 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 they were calculated for the periods 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 companies we have acquired or will acquire into Equinix; a failure to receive significant revenue from customers in recently built out or acquired 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; 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. International Business Exchange is a trademark of Equinix, Inc.