Equinix Inc. (EQIX) reported fourth-quarter 2013 earnings of $1.13 per share, ahead of the Zacks Consensus Estimate of 78 cents. The quarter’s figure excludes loss on debt extinguishment.
Revenues
Total revenue in the reported quarter was $564.7 million, up 11.6% from the year-ago quarter. The Zacks Consensus Estimate was pegged at $565 million. The company witnessed decent revenue growth across all three geographic regions. With over 1,200 customers, cloud and IT services continued to be the highest growth vertical.
Apart from this, the company witnessed substantial growth in Software-as-a-Service. This sub-segment continues to contribute significantly as end users require highly interconnected footprint to deliver the application performance that customers expect.
Moreover, recurring revenues came in at $538.1 million, up 11.4% from the year-ago quarter, while Equinix’s non-recurring revenues increased 14.6% from the year-ago quarter to $26.6 million.
Revenues across all three geographic regions increased on a year-over-year basis. Revenues from the Americas, EMEA and Asia-Pacific increased 9.8%, 23.4% and 2.3% to $326.1 million, $144.8 million and $93.8 million, respectively.
Additionally, Equinix’s MRR (monthly recurring revenues) churn was within the expectations of 2.3%. The churning remained in line with the guidance, as Equinix adopted highly disciplined approach to customer renewals.
Operating Results
Reported gross margin for the quarter was 52.3% compared with 50.8% in the year-ago quarter primarily due to higher revenue base. Reported total operating expenses increased 10.3% from the year-ago quarter while as a percentage of revenues, operating margins came in at 30.1% compared to 30.4% over the same period of time.
Operating income on GAAP basis came in at $125.4 million, up 22.1% from the year-ago quarter. Net income excluding loss on debt extinguishment stood at $60.7 million or $1.13 per share compared with net income from continuing operations of $34.8 million or 66 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Equinix generated cash from operating activities of $166.7 million compared to $206.6 million in the previous quarter. Cash, cash equivalents and short-term investments were $631.7 million, compared to $745.8 million in the previous quarter. The company’s total debt outstanding (including total loans payable, senior notes and total convertible debt principal) stood at $4.2 billion.
Guidance
Equinix expects first-quarter 2014 revenues in the range of $572.0 to $576.0 million, lower than the Zacks Consensus Estimate of $581.0 million. Gross margins are expected to range between 68% and 69%, while selling, general and administrative (SG&A) expenses are expected to range between $133.0 million and $137.0 million. Adjusted EBITDA is expected in the range of $256.0 to $260.0 million. Capital expenditures are expected in the $130.0 to $140.0 million range.
For fiscal 2014, total revenue is expected to be up 11% year over year to approximately $2.38 billion, but lower than the Zacks Consensus Estimate which is pegged at $2.41 billion. SG&A expenses are expected to range between $530 million and $550 million.
Adjusted EBITDA is expected to be above $1.1 billion. Capital expenditures for 2014 are expected in the range of $550.0 to $650.0 million.
Outlook
Equinix’s fourth-quarter 2013 earnings beat the Zacks Consensus Estimate while revenues were relatively in line. Growth across geographies and business segments helped revenues to improve on a year-over-year basis.
It is worth noting that demand for Equinix’s data centers are growing. The recurring revenue model is sufficiently supporting the company’s revenues. Moreover, the company’s proposed REIT conversion is on track. Additionally, the company’s associations with Verizon (VZ), AT&T (T) remain the growth catalysts, going forward.
On the other hand, the company must work to reduce its debt level. European exposure and industry consolidation are the other headwinds. The company’s lower-than-expected revenue guidance remains an overhang on the stock.
Equinix carries a Zacks Rank #2 (Buy). Apart from Equinix, investors can also consider Lexmark International (LXK), which sports a Zacks Rank #1 (Strong Buy).
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