Equinix, Inc. (EQIX)
Interview with:
Peter Van Camp, CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
network-neutral data centers and Internet exchange services for enterprises, content companies and network services providers.

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Equinix, Inc. - offering  managed co-location services with a unique network neutral business model, is driving successful growth, with revenues up 58% over last year

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Services
Communications Services
(EQIX-NASD)

Equinix, Inc.

301 Velocity Way-Fifth Floor
Foster City, CA 94404
Phone: 650-513-7000


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Peter Van Camp
Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor

CEOCFOinterviews.com
August 2003

BIO:
Peter Van Camp joined Equinix in 2000 as CEO. Prior to joining Equinix, Mr. Van Camp served as President, Americas Region for UUNET, a WorldCom company. In this position, Mr. Van Camp oversaw the operations for the Americas region, which included North America, Latin and South America, and Canada. Previously, Mr. Van Camp held other leadership positions at UUNET including President of Internet Markets for UUNET, a role he assumed in February 1999 when UUNET combined forces with WorldCom Advanced Networks. Mr. Van Camp also served as president, with full operational responsibility for WorldCom Advanced Networks, the integrated network services division of WorldCom. During 1998, Mr. Van Camp led the integration of distinct product and technology sets from multiple business units to form WorldCom Advanced Networks.

Prior to the company's acquisition by WorldCom, Mr. Van Camp served as president for CompuServe Network Services, the corporate data networking division of CompuServe, Inc. During his sixteen years with CompuServe, he held a variety of positions including Vice President of Sales and Support and General Manager of Point of Sale Networking. He also led the company's entry into the European marketplace. Mr. Van Camp was named President of CompuServe Network Services in 1996, giving him responsibility over all business operations.

Mr. Van Camp graduated from Boston College with Bachelor of Science degrees in Accounting and Computer Science.

Company Profile:
Equinix, Inc. (NASD: EQIX) is the leading global provider of network-neutral data centers and Internet exchange services for enterprises, content companies and network services providers. Through the company's 14 Internet Business Exchange(TM) (IBX) centers in five countries, customers can directly interconnect with the providers that serve more than 90% of the world's Internet networks and users 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.

With a global footprint of more than one million square feet across 14 locations in the United States and Asia Pacific region, Equinix Internet Business Exchange™ (IBX) centers serve as core hubs for critical IP networks and Internet operations worldwide. With direct access to more than 100 networks, including all of the top global Tier 1 networks, Equinix's network-neutral IBX centers and services overcome the limitations of existing data center, network and Internet operations through direct interconnection to the largest aggregation of networks for unmatched service diversity, flexibility and reliability. At Equinix, customers can directly access the providers that serve over 90% of the world’s Internet networks and users. In addition, Equinix IBX centers are the industry’s premier peering hubs which provide customers unparalleled network performance and scalability.

CEOCFOinterviews: Mr. Van Camp, what attracted you to Equinix and what changes did you orchestrate?

Mr. Van Camp: “What attracted me originally was the company’s opportunity and a unique approach into the outsourced Internet hosting and infrastructure opportunity. Historically, it had always been served by large networking companies, and this was a company that was flying in the face of that, by not having a network and seeing a chance to create a place where its customers could benefit from connecting to multiple networks; was the attractive thing. I was at UUNET at the time, which was Worldcom’s Internet services arm, and I understood this space well, so I could see the opportunity. What has largely changed and what really wasn’t in the brochure when I signed up, was the market downturn that we all have experienced, and the mistaken belief that the opportunity, whether it was for the Internet co-location and hosting, or the broad Internet opportunity;  would materialize at the level everybody thought it would. That was the biggest change that we have been managing effectively through the last three years, and  I won’t say that it has been easy.”

CEOCFOinterviews: Will you give us an overview and explain what Equinix does?

Mr. Van Camp: “Equinix provides carrier neutral co-location facilities. We provide a place to safely and securely house web and network infrastructures for companies focused on that opportunity. The value that we bring is that the IBX’s as major Internet exchange points house the largest networks that make up the routes of the Internet are installed in our facilities and to exchange network traffic, or peering. This aggregation of networks, and the services they provide, also makes it more cost-effective, and improves network performance, for our content and enterprise customers who also have a presence in the same facility. With 8 of the top 10 content sites now, customers like Electronic Arts, are putting their content of Online Gaming onto the Internet from our co-location facilities. IBM houses a lot of   e-business customers in our facilities. Other customers, such as Washington Post or Google, are housing their web infrastructure in our facilities. We manage those infrastructures in an outsourced fashion for them.”

CEOCFOinterviews: Is outsourcing increasing?

Mr. Van Camp: “Yes, I think outsourcing has been a healthy answer for quite sometime in many areas, particularly in technology. In fact, we just had a significant win with Amazon.com as this is the first time they’ve ever outsourced.  We continue to see that as being a strong answer. The reality is it’s more effective to leverage our capital and infrastructure, and expertise, vs. having to create your own in the way you manage your website or your network architecture.”

CEOCFOinterviews: Where are your facilities located around the world and why have you chosen those particular areas?

Mr. Van Camp: “We are in seven major markets in the United States, and in Asia, we are in Hong Kong, Sydney, Tokyo and Singapore. These markets are nexus points for the interconnection of the networks that make up the Internet. Our centers are often described as “key hubs” for Internet connectivity. For example, the Electronic Arts website, was originally housed in their own facility and connecting it to the networks via local loops to reach the end-users. Today they are doing it in two of our facilities in the U.S.  and connect to these networks directly via cross connects. There are two markets in Asia that will be important to getting their content closer to the gaming   users. With our recent acquisitions in Asia, we have provided them a trusted solution there so they can house more of their infrastructure, and by putting closer to their end-users, it will perform in a better fashion..”

CEOCFOinterviews: Is Asia a primary focus for you?

Mr. Van Camp: “It has become a new focus for us over the past six months. We acquired two companies that were neutral service providers similar to ourselves in Asia at the end of last year; one of them was called PIHANA PACIFIC and the other was i-STT, Singapore Technology Telemedia’s Hosting Division, in  Singapore.. These acquisitions provided us with an Asia Pacific solution..”

CEOCFOinterviews:   I see that today you have a release out about Telekom Malaysia, is that typical of what you are doing?

Mr. Van Camp: “Yes, I think you will see regular releases of new customers that we win. Because we have created these points where these networks aggregate, there is an excellent opportunity for someone like Telekom Malaysia to put their networking infrastructure into our facilities to allow them to better connect to both the network backbones that exist in our facilities, and some of the key content providers that are installed in our facilities. Telekom Malaysia can take its network, bring it into a couple of Equinix facilities, and then inter-connect to major U.S. backbones, such as the AT&Ts, and other major networks, of the world. They can directly connect their end-users to the content providers that are also installed in these facilities such as Yahoo, Google, and MSN."

CEOCFOinterviews: Is linking to content a big factor in the decision to use your services?

Mr. Van Camp: “That is a big reason for our business growth.  We have seen our interconnection revenues grow over 140% since the same quarter last year.”

CEOCFOinterviews: Sprint and Cable and Wireless are exiting the hosting and co-location market; how does that help you?

Mr. Van Camp: “The first thing is the statement about what the neutral co-location market opportunity is. We are seeing more of our customers coming to us because they want the opportunity to have a choice of networks and the flexibility to move to additional one, should their existing provider be challenged at a business level. The business assurance of having multiple providers is very important to an Electronic Arts, or any of the customers that we have. That is in strong statement about what is the right answers for the co-location and outsource model; it is not a model that the networks themselves can provide. The reason these guys are exiting the market is that they have been unsuccessful in creating a critical mass of customers to justify them maintaining these facilities on an ongoing basis. There is very much a fixed cost level or nature to the business that they have to maintain enough of a revenue stream in a given building to make it worthwhile and they aren’t doing that.  I think they are also retreating to their core business of providing networking and telecom services and being very much focused on ensuring that is successful in these challenging times. Our opportunity from all of this is that now more than ever these customers realize they need to find a good service provider who is focused on providing managed colocation services and who will be with them for the long run. Sprint and Cable and Wireless networks specifically are available in our facilities, along with 120 other networks, which is an added benefit for these customers that may be displaced.  That is great news from a share shift standpoint, and we are winning our fair portion of that.”

CEOCFOinterviews: How do you prevent other companies from emulating what you do?

Mr. Van Camp: “It is a capital intensive model. To start cold would require a great deal of capital to enter a market that is consolidating as seen by Cable and Wireless’s and Sprint’s departure. Someone could try to enter the market and try to acquire some distressed assets and shop to approach this market. Without a critical mass of customers already, the time it would take to build up a customer base to cover the fixed cost of maintaining and managing these centers, there is a high execution risk against that, that would scare people away from being a new entrance into this market. Lastly, the interesting thing about where Equinix sits today is that most of the major providers are not just Internet service providers, but also the fiber that carries those networks into our facilities, have already made the bet; and installed in  facilities. It would be very difficult proposition for a new entrant to be able to get these networks to come to anew facility, and at their own expense, given the CapEx constraints these providers have today.”

CEOCFOinterviews: Please give us a sense of the revenue model and tell us if your contracts are long-term.

Mr. Van Camp: “It is a recurring revenue model, which is great to just have the visibility of the business and to be able to plan for it going forward. A typical agreement is one to three years, if you look at our customer base today, it would probably be an average of two-year time line, that our revenue is in-place and they pay it monthly for the services that they acquire from us. Over Ninety percent of our Q-2 revenue stream of twenty-eight point four million we did in Q-2 of this year is of a recurring revenue nature.  That will recur on second quarter, and the sales and bookings we made in first quarter, will layer in on top of that number. That is the nice thing about the business model and it gives us great visibility into the future.”

CEOCFOinterviews: You had  87 new customers in second quarter of this year and that seems like a lot!

Mr. Van Camp: “Yes, that is a global number and about 56 of those took place in the U.S. We are up to just over 600 different customers and it is a good solid customer base. In first quarter, 55% of our installed U.S. customer base actually ordered more services with us. On top of this recurring stream, the current customers also bring future orders. We have seen growth in our four years of operating revenue here, of thirteen million in 2000 to sixty-three million in 2001, to seventy-seven million in 2002, and the midpoint of our range for this year is one hundred and sixteen million. This has been one of the most difficult economic times in history, at least that I can recall. I think this improved performance in the face of this  is a good statement about the company and its business model.”

CEOCFOinterviews: When companies are taking additional services, what are they adding?

Mr. Van Camp: “Customer’s may add to their existing deployment or expand to another geographic area for backup or redundancy purposes. Another thing they are doing is acquiring more interconnections to other customers of ours and other business partners of theirs. This gets back to this network-neutral model; after someone has become a customer, and let’s say they were connected to AT&T, as a supplier of their bandwidth, but Level (3) has some interesting reach and economics; they will then create another connection over the Level (3) network. That connection is also part of our recurring revenue stream. They may have a need to connect another connection to a business partner, or maybe connect to a content company over our GigE Exchange peering fabric.

You will notice our tagline is the Home of the Internet; what we have created is this hub for service providers, networks and the key content in enterprise applications that make up the Internet and they are always adding new interconnections to each other to improve their cost base or performance. That is a big source of our growth. On our most recent earnings call we stated  that“currently in the United States we have over 5400 interconnections taking place in our U.S. facilities.” Of the 600 total customers, about 425 of those customers were U.S. based. That tells you that on average our U.S. customers are generating slightly over ten interconnections. Some of this is for redundancy and there are out-liars that will have a great deal of interconnection in their plans, but on average, twelve interconnections for each customer is a real strong statement about the business and how the Internet connects with itself.”

CEOCFOinterviews: How do you reach your customers and why are they choosing you?

Mr. Van Camp: “One way we reach our customers is with a direct sales force; both in the U.S. and Asia, we have a team on the ground that understands the space extremely well and the key players, so we are very much a direct sales business. Many of these service partners of ours that are also our customers, will often bring their key customers to us because their customer had a need to be close to some of these other services that we provide, so we see the network effect also as an important channel for us. Additionally, some of the largest systems integrators sell our space as part of a larger solution.  Our largest customer is IBM. IBM is doing their e-business hosting platform in seven of our U.S. markets.  IBM’s sales force is out acquiring new business,  that is then brought to Equinix.  IBM manages it inside of our facility, but has access to all of the network activity that exists there. That is how we approach these customers. They are there because of the quality and the availability of all the network choice.”

CEOCFOinterviews: Please tell us about the ten million dollars from Crosslink Capital, and how that has affected the financial condition of the company.

Mr. Van Camp: “Crosslink was an interesting one; at the end of the year we acquired these Asian companies that I mentioned and we also gained a strategic investment from Singapore Technologies Telemedia. They had a business in Singapore that strategically, they were looking for a better answer for, something that could connect that business to a global proposition. They were interested in seeing the value for that by selling it to us and allowing us to manage that for them. In doing so, they also put thirty million dollars into Equinix at that point in time. That money was valuable to us to allow us to buy down a large portion of our long-term debt to reposition the company with a much healthier looking balance sheet at the time.

Crosslink became aware of us around the time of that transaction, and was very excited about the company’s prospects, and wanted to invest as well. We thought it was a great opportunity to put a little more on the balance sheet as enhanced optics for us, and just cushion, in what is still a volatile time. In these times, having capital is a strategic weapon. As customers see Sprint getting out of the business, or Cable and Wireless being beleaguered in their U.S. business performance and desiring to get out of the business, they want to know their providers have staying power. Having that additional ten million from Crosslink was a power statement for our customers to see that some intelligent money has made an investment in Equinix, because they believe in the business model.  For us, it is just having a customer look at our balance sheet and see plenty of cash there, and know we are going to be around for the long haul. That makes them feel comfortable making an important outsourcing decision of critical infrastructure with us.”

CEOCFOinterviews: Do you see additional acquisitions going forward, and from where do you see the most growth coming?

Mr. Van Camp: “Going forward, I wouldn’t comment on future acquisitions, although we will see some consolidation and interesting things occur over time, that we may have interest in. We are experiencing some great growth; last year we did seventy-seven million and we have set our mid-point guidance atone hundred and fifteen million for this year. We are seeing growing acceptance of the business model for what it is today and how valuable it is for our customers. We are going to continue to be a nice and solid growth story in the face of an environment where companies like Sprint, Cable and Wireless are pulling out."

CEOCFOinterviews: How are you prepared for your challenges?

Mr. Van Camp: “We are prepared from the standpoint that we have restructured the balance sheet, we have capital, we are in a solid position to compete and a position of trust for our customers as they get to know us. If you were to package up what an outsourced service provider should be doing for their customers, it should be trust. You can trust to place your critical infrastructure in our facilities because we provide exceptional service, are here to stay, and should any of the networks that you are acquiring services from or service partners change, it doesn’t mean that you have to back out of an Equinix facility, you just need to connect to someone else. I think that proposition and our position strategically, gives us the opportunity to win over time.”

CEOCFOinterviews: In closing, why should potential investors be interested in Equinix?

Mr. Van Camp: “The first thing I would offer to potential investors is to come in and do your homework, and take a good look at the underlying position of the company today. The interesting thing that is presented to you is that Equinix will be operating cash flow positive in the third quarter of this year. We have a high visibility in our revenue line because of the recurring revenue that we see. What we have is a fixed-cost business that is at an inflection point, just beginning to generate cash. Incrementally, each new dollar of revenue has a flow-through affect to our cash balance or the EBITDA line, of approximately 80%, and that is a very strong number.

If you start to look at the guidance we are offering through growth and start to think about the company’s position, and how it is acquiring new business, you will start to see that we will be in a very strong cash generation position in the not-to-distant future. I think the thing that any investor should walk away with is first of all our unique network neutral business model that is the right business model for outsourced Internet infrastructure and managed co-location, and is driving successful growth. The proof points are there in the numbers we have established. Thirdly, this is a company that is in a cash break-even position, here in the third quarter, where each dollar of that incremental growth has fallen straight to the bottom line in driving some significant returns in the company going forward.”

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