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Equinix Beats EPS Est, Revs Grow

Zacks Equity Research

Equinix Inc. (EQIX) reported fourth-quarter 2012 earnings per share of 88 cents, exceeding the Zacks Consensus Estimate of 68 cents.


Total revenues in the reported quarter were $506.5 million, up 20.0% from the year-ago quarter. Revenue from continuing operations for fiscal 2012 were $1,895.7 million, up 21% year over year. Total revenues include $34.6 million in revenue from the acquired companies such as Asia Tone and ancotel, which excludes $29.6 million of revenue from discontinued operations.

This apart, recurring revenue (including colocation, interconnection and managed services) was $481.7 million during the fourth quarter, up 21% from the year-ago quarter. Non-recurring revenue was $24.8 million in the quarter, up 21.8% from $20.3 million reported in the year-ago quarter.

Operating Results

Gross margin for the quarter was 50.6% versus 47.6% in the year-ago quarter. The improvement in gross margin took place as revenue increased at a higher rate than the cost of sales.

Total operating expenses increased 30.2% from the year-ago quarter. The year-over-year increase in cash operating expenses was primarily attributed to higher selling and marketing expenses (up 23.4%) and general and administrative expenses (up 21.4%).

Operating income of $102.0 million increased 23.9% from $82.3 million reported in the year-ago quarter.

Net income attributable to Equinix stood at $44.8 million or 88 cents per share versus $17.8 million or 35 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Capital Expenditure

The company generated cash from operating activities of $209.1 million in the fourth quarter compared with $102.2 million in the previous quarter. Cash, cash equivalents and short-term investments were $418.7 million versus $404.5 million in the earlier quarter.

Capital expenditures in the quarter were $210.4 million, of which $166.9 million was attributed to expansion capital expenditures, while $43.5 million was attributed to the ongoing capital expenditures.


Again, for the first quarter of 2013, revenue is expected in the range of $518.0 to $522.0 million, while cash gross profit margin is expected between 68% and 69%. Capital expenditures are expected between $140.0 to $160.0 million including approximately $40.0 million of ongoing capital expenditures and $100.0 to $120.0 million of expansion capital expenditures.

For the full year 2013, total revenues are expected exceed $2,200.0 million. Full year cash gross margins are expected between 68% and 69%. While the cash selling, general and administrative expenses are expected between $490.0 and $510.0 million. Moreover, the company projected capital expenditures for 2013 in the range of $550.0 to $650.0 million, including $165.0 million of ongoing capital expenditures and $385.0 to $485.0 million of expansion capital expenditures.

Our Take

The company’s fourth-quarter results were modest with both revenue and bottom line matching our expectation. Total revenues improved on a year-over-year basis as a result of good contribution from the acquired companies.

This apart, the company has a decent cash balance increasing sequentially. Equinix is also experiencing improvement in business fundamentals across most of its business segments, while the capital expenditure fund reflects the company’s future growth prospects.

On the other hand, the company must work to reduce its debt level. In spite of all the positives, competitive threats from the likes of AT&T Inc. (T) raise our apprehension. European exposure and industry consolidation are the other headwinds.

Investors can consider other stocks such as ACME Packet Inc.(ACME), and Arris Group Inc. (ARRS) and CA Technologies (CA). While both ACME and Arris carry a Zacks Rank #1 (Strong Buy), CA carries a Zacks Rank #2 (Buy). Equinix carries a Zacks Rank #2 (Buy).

Read the Full Research Report on EQIX

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Read the Full Research Report on ARRS

Read the Full Research Report on CA

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