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Equinix Breezes Past Estimates

Zacks Equity Research

Equinix Inc. (EQIX) reported first quarter 2012 earnings per share of $1.33, way ahead of the Zacks Consensus Estimate of 49 cents.


Revenues in the reported quarter were $452.2 million, up 24.6% from the year-ago quarter. The company’s strong first quarter results reflect growth across three of its geographical regions. The company also witnessed strong business trends across mobility, cloud computing and data management, and is well positioned to achieve its objective in 2012.

On the other hand, quarterly revenues were slightly impacted by the negative currency fluctuations that the company has faced in the recent quarter, thereby registering a revenue loss of $500,000.

Within segments, Recurring revenues (consisting primarily of colocation, interconnection and managed services) were $429.6 million in the first quarter, a 24.9% increase over the year-ago quarter. Non-recurring revenues were $22.6 million in the quarter, up 18.1% from $19.1 million in the year-ago quarter. The company secures 59% of monthly recurring revenues from different customers from different countries.

Operating Results

Gross margin for the quarter was 50.2% versus 46.4% in the year-ago quarter. The improvement in gross margin was the result of strong revenue growth, and lower lease cost and an amicable settlement with one of Equinix’s contractors in the EU region.

Total operating expenses increased 29.7% from the year-ago quarter. The year-over-year increase in cash operating expenses was primarily attributed to higher selling and marketing expenses (up 38.4%) and general and administrative expenses (up 25.3%).

Adjusted EBITDA, defined as income or loss from operations before depreciation, amortization and accretion, stock-based compensation, restructuring charges and acquisition costs, was $215.1 million in the quarter, up 28.6% year over year. The adjusted EBITDA has grown consistently over the past few quarters and reflects the underlying strength in the company’s business.

Adjusted net income attributable to Equinix stood at $67.9 million or $1.33 per diluted share versus $75.8 million or $1.61 per share in the year-ago quarter.

Balance Sheet, Cash Flow & Capital Expenditure

The company generated cash from operating activities of $126.0 million in the first quarter compared with $187.6 million in the previous quarter. As of March 31, 2012 cash, cash equivalents and short-term investments were $916.9 million versus $914.5 million in the earlier quarter. During reported quarter, the company repurchased 1 million shares for a total consideration of $100 million.


For the second quarter of 2012, the revenue is expected in the range of $466.0 to $468.0 million. Cash gross margin is projected to be 68%. Cash selling, general and administrative expenses are expected to range between $100.0 and $104.0 million. Adjusted EBITDA is expected in the $212.0 and $214.0 million range. Capital expenditures are expected to be between $240.0 and $260.0 million.

For fiscal 2012, total revenue is expected to be more than $1,890.0 million. Cash gross margin is expected to approximate 67%. Adjusted EBITDA for the year is expected to be higher than $860.0 million. The company expects capital expenditures in the range of $700.0 to $800.0 million, comprised of ongoing capital expenditures of $565.0 to $665.0 million.

Our Take

The company has delivered modest first quarter results with EPS exceeding our expectation. Moreover, revenue improved substantially on a year-over-year basis as the company is witnessing improvement in mobility, cloud computing and data management. The company is also experiencing improvement in business fundamentals across all the segments, along with better supply chain process and firm pricing environment.  

Although the company is cash rich, the company should reduce its debt level. We are also positive about its recurring revenue model. Despite all the positives, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) raise our apprehension. European exposure and industry consolidation are also concerning. 

Equinix carries a Zacks #3 Rank, implying a short-term Hold rating.

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