Equinix Inc. (EQIX) reported first-quarter 2014 earnings of 81 cents, ahead of the Zacks Consensus Estimate of 73 cents. The quarter’s figure excludes interest on convertible debt. On a year-over-year basis, earnings improved 23.9%
Revenues
Total revenue in the reported quarter was $580.1 million, up 12.4% from the year-ago quarter, and beat the Zacks Consensus Estimate of $575.0 million. The company witnessed revenue growth across all three geographic regions. Robust growth in revenues from Equinix’s Cloud and IT services (up 15% year over year) also positively impacted total revenue.
Moreover, solid performance in MRR (monthly recurring revenues) per cabinet (an increase of roughly 900 net cabinet billings), MRR churn and cross connect addition (1,500 net cross connect) drove the quarter’s revenues.
Moreover, recurring revenues came in at $549.7 million, up 11.2% from the year-ago quarter. Non-recurring revenues increased 40.4% from the year-ago quarter to $30.4 million. Customer deployment across various regions accounted for 65.0% of recurring revenues, up from 60.0% in the year-ago quarter. As much as 80.0% of the recurring revenues came from customer deployment across various metros, up from 78.0% in the year-ago period
Revenues across all three geographic regions increased on a year-over-year basis. Revenues from the Americas, EMEA and Asia-Pacific increased 7.9%, 26.2% and 9.1% to $330.0 million, $151.4 million and $98.6 million, respectively.
Additionally, Equinix’s MRR churn was 2.3%, flat on a sequential basis. The rate of churn was also lower than the previous guidance.
During the quarter, Equinix unveiled a new solution called Equinix Performance Hub that bridges the gap between network, data center and cloud infrastructure. It has the potential to improve network performance and enhance user experience.
Operating Results
Gross margin for the quarter was 50.4% compared with 49.9% in the year-ago quarter, primarily due to a higher revenue base. Total operating expenses increased 11.9% from the year-ago quarter while as a percentage of revenues, operating expenses decreased 13 basis points (bps) and came in at 29.5%. This in turn impacted the quarter’s operating income.
Operating income on GAAP basis came in at $121.6 million, up 16.1% from the year-ago quarter. As a percentage of revenues, operating margin expanded 67 bps and came in at $20.9%. Net income excluding interest on convertible debt stood at $43.4 million or 81 cents compared with net income from continuing operations of $34.6 million or 66 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Equinix exited the quarter with cash, cash equivalents and short-term investments of $817.5 million, compared with $631.7 million in the previous quarter. Equinix generated cash from operating activities of $171.7 million compared with $166.7 million in the previous quarter. The company’s total debt outstanding (including total loans payable, senior notes and total convertible debt principal) stood at $3.22 billion. The company repurchased 732,000 shares for a total consideration of $127.0 million.
Guidance
Equinix expects second-quarter 2014 revenues in the range of $594.0 to $598.0 million, higher than the Zacks Consensus Estimate of $586.0 million. Gross margins are expected to range between 68% and 69%, while selling, general and administrative (SG&A) expenses are expected to range between $135.0 million and $139.0 million. Adjusted EBITDA is expected in the range of $267.0 to $273.0 million. Capital expenditures are expected in the $105.0 to $115.0 million range.
For fiscal 2014, total revenue is expected to be up 11% year over year to approximately $2.395 billion, in line with the Zacks Consensus Estimate. SG&A expenses are expected to range between $530 million and $550 million.
Adjusted EBITDA is expected to be above $1.11 billion. Capital expenditures for 2014 are expected in the range of $550.0 to $650.0 million.
Our Take
Equinix’s first-quarter 2014 results came ahead of the Zacks Consensus Estimate. Growth across geographies and business segments helped revenues to improve on a year-over-year basis.
Moreover, the company provided an encouraging guidance. The data center business is thriving across geographies and Equinix is uniquely positioned to capitalize on this opportunity. Consequently, it is planning to further expand its Solution Validation Center in multiple locations in 2014.
Moreover, Equinix’s recurring revenue model will support its revenues. Also, the company’s proposed REIT conversion is on track and is scheduled to be complete on Jan 1, 2015. Additionally, the company’s associations with Verizon (VZ), AT&T (T) remain growth catalysts, going forward.
On the other hand, European exposure and industry consolidation remain headwinds. Moreover, the company’s highly leveraged balance sheet is also a concern.
Equinix carries a Zacks Rank #4 (Sell). Western Digital Corporation (WDC) is a better-ranked technology stock carrying a Zacks Rank #1 (Strong Buy).
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