EQUINIX INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-31293

EQUINIX, INC.

(Exact name of registrant as specified in its charter)

Delaware

77-0487526

(State of incorporation)

(I.R.S. Employer

Identification No.)

301 Velocity Way, Fifth Floor, Foster City, California 94404

(Address of principal executive offices, including ZIP code)

(650) 513-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes x No ¨ and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Exchange Act). Yes ¨ No x.

The number of shares outstanding of the Registrant’s Common Stock as of June 30, 2003 was 9,086,336.

EQUINIX, INC.

INDEX


		Page No.

Part I. Financial Information

Item 1.	Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

	Other Factors Affecting Operating Results	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	51

Part II. Other Information

Item 1.	Legal Proceedings	52

Item 2.	Changes in Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Submission of Matters to a Vote of Security Holders	53

Item 5.	Other Information	53

Item 6.	Exhibits and Reports on Form 8-K	54

Signatures		61

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

EQUINIX, INC.

Condensed Consolidated Balance Sheets

(in thousands)

	June 30, 2003			December 31, 2002
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,257		$	41,216
Accounts receivable, net		9,965			9,152
Current portion of restricted cash		—			1,981
Prepaids and other current assets		6,232			11,146

Total current assets		40,454			63,495
Property and equipment, net		360,922			390,048
Restricted cash, less current portion		2,187			2,426
Intangible assets, net		24,013			24,981
Debt issuance costs, net		6,537			7,250
Other assets		3,285			3,803

Total assets	$	437,398		$	492,003

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	12,901		$	20,347
Accrued restructuring charges		2,521			11,528
Accrued interest payable		1,030			2,311
Current portion of debt facilities and capital lease obligations		2,983			5,591
Current portion of credit facility		6,981			1,981
Other current liabilities		2,829			4,413

Total current liabilities		29,245			46,171
Debt facilities and capital lease obligations, less current portion		2,007			3,633
Credit facility		83,538			89,529
Senior notes		29,064			28,908
Convertible secured notes		27,466			25,354
Other liabilities		17,035			14,214

Total liabilities		188,355			207,809

Stockholders’ equity:
Preferred stock		2			2
Common stock		9			8
Additional paid-in capital		648,314			638,065
Deferred stock-based compensation		(1,082	)		(2,865	)
Accumulated other comprehensive income		189			617
Accumulated deficit		(398,389	)		(351,633	)

Total stockholders’ equity		249,043			284,194

Total liabilities and stockholders’ equity	$	437,398		$	492,003

See accompanying notes to condensed consolidated financial statements.

EQUINIX, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(unaudited)
Revenues	$	28,434		$	18,040		$	53,869		$	38,198

Costs and operating expenses:
Cost of revenues (includes stock-based compensation of $25, $76, $65 and $167 for the three and six months ended June 30, 2003 and 2002, respectively)		31,634			26,956			62,253			52,382
Sales and marketing (includes stock-based compensation of $69, $151, $182 and $584 for the three and six months ended June 30, 2003 and 2002, respectively)		4,684			5,110			9,387			9,280
General and administrative (includes stock-based compensation of $616, $1,340, $1,421 and $3,397 for the three and six months ended June 30, 2003 and 2002, respectively)		8,358			7,835			19,282			14,576
Restructuring charge		—			9,950			—			9,950

Total costs and operating expenses		44,676			49,851			90,922			86,188

Loss from operations		(16,242	)		(31,811	)		(37,053	)		(47,990	)
Interest income		66			289			136			782
Interest expense		(5,027	)		(8,561	)		(9,839	)		(18,231	)
Gain on debt extinguishment		—			15,526			—			27,188

Net loss	$	(21,203	)	$	(24,557	)	$	(46,756	)	$	(38,251	)

Net loss per share:
Basic and diluted	$	(2.44	)	$	(7.94	)	$	(5.43	)	$	(13.31	)

Weighted average shares		8,706			3,092			8,609			2,874

See accompanying notes to condensed consolidated financial statements.

EQUINIX, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six months ended June 30,
	2003			2002
	(unaudited)
Cash flows from operating activities:
Net loss	$	(46,756	)	$	(38,251	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and accretion		31,556			25,419
Amortization of intangible assets		1,044			—
Amortization of deferred stock-based compensation		1,668			4,148
Non-cash interest expense		4,337			2,169
Deferred rent		1,578			809
Allowance for doubtful accounts		281			2,493
Loss on disposal of property and equipment		—			11
Restructuring charge		—			9,950
Gain on debt extinguishment		—			(27,188	)
Changes in operating assets and liabilities:
Accounts receivable		(883	)		(1,993	)
Prepaids and other current assets		4,914			4,055
Other assets		501			1,590
Accounts payable and accrued expenses		(7,446	)		(2,288	)
Accrued restructuring charge		(9,657	)		(8,376	)
Accrued interest payable		(1,981	)		213
Other current liabilities		(1,136	)		(409	)
Other liabilities		(266	)		1,799

Net cash used in operating activities		(22,246	)		(25,849	)

Cash flows from investing activities:
Purchase of short-term investments		—			(14,666	)
Sales and maturities of short-term investments		—			37,047
Purchases of property and equipment		(1,460	)		(4,024	)
Accrued construction costs		—			(28,708	)
Purchase of restricted cash and short-term investments		(50	)		(5,090	)
Sale of restricted cash and short-term investments		2,270			5,820

Net cash provided by (used in) investing activities		760			(9,621	)

Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan		382			365
Proceeds from convertible secured notes		10,000

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