Back to top

Analyst Blog

Equinix Inc. (EQIX - Analyst Report) reported second-quarter 2014 GAAP earnings of 22 cents, which improved from a loss of 52 cents reported in the year-ago period.

Revenues

Total revenue in the reported quarter was $605.2 million, up 14.4% from the year-ago quarter, and beat the Zacks Consensus Estimate of $596.0 million. The company witnessed revenue growth across all three geographic regions and verticals. Robust growth in revenues from Equinix’ Cloud and IT services (up 19% year over year) positively impacted total revenue.
 
Moreover, solid performance in MRR (monthly recurring revenues) per cabinet, MRR churn and cross connect addition (3,600 net cross connect) drove the quarter’s revenues.

Moreover, recurring revenues came in at $574.2 million (95% of total revenues), up 14.4% from the year-ago quarter. Non-recurring revenues increased 14.6% from the year-ago quarter to $31.0 million (5% of total revenues). Customer deployment across various regions accounted for 66% of recurring revenues, up from 62% in the year-ago quarter. As much as 80% of the recurring revenues came from customer deployment across various metros, up from 78% 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 9.2%, 23.7% and 19.6% to $342.3 million, $157.2 million and $105.7 million, respectively.

Additionally, Equinix’s MRR churn was 2.7%, up from 2.3% on a sequential basis. The rate of churn was also higher than the previous guidance.

During the quarter, Equinix acquired the remaining 10% stake in ALOG Data Centers of Brazil S.A. for approximately $225.0 million in cash. The Brazilian data center space will allow Equinix to cater to the strong demand from its network, content, cloud and financial services customers eying this rapidly growing market.

Operating Results

Gross margin for the quarter was 51.6% compared with 49.5% in the year-ago quarter, primarily due to a higher revenue base. Total operating expenses increased 28.7% from the year-ago quarter and came in at $187.6 million. Moreover, as a percentage of revenues, operating expenses increased 343 basis points (bps) and came in at 31.0%. This in turn impacted the quarter’s operating margins.

Operating income on GAAP basis came in at $124.7 million, up 7.5% from the year-ago quarter. Operating margin contracted 132 bps and came in at 20.6%. Net income came in at $11.3 million or 22 cents compared with net loss of $25.8 million or 52 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Equinix exited the quarter with cash, cash equivalents and short-term investments of $704.3 million, compared with $817.5 million in the previous quarter. Equinix generated cash from operating activities of $98.9 million compared with $171.7 million in the previous quarter.

The company’s total debt outstanding (including total loans payable, senior notes and total convertible debt principal) stood at $2.80 billion. During the quarter, the company repurchased 1.1 million shares for a total consideration of $208.0 million.

Guidance

Equinix expects third-quarter 2014 revenues in the range of $614.0 to $618.0 million, higher than the Zacks Consensus Estimate of $605.0 million. Gross margin is expected to range between 68% and 69%, while selling, general and administrative (SG&A) expenses are expected to be roughly $140.0 million. Adjusted EBITDA is expected in the range of $278.0 to $282.0 million. Capital expenditures are expected in the $175.0 to $185.0 million range.

For fiscal 2014, total revenue is expected to be in the range of $2.425 billion to $2.435 billion (mid-point $2.43 billion), higher than the Zacks Consensus Estimate of $2.403 billion. Gross margins are expected to range between 68% and 69% and SG&A expenses are expected to be approximately $550.0 million.

Adjusted EBITDA is expected to be in the range of $1.105 billion to $1.115 billion. Capital expenditures for 2014 are expected in the range of $600.0 to $650.0 million.

Outlook

Equinix’s second-quarter 2014 results were encouraging as both the top and bottom lines increased on a year-over-year basis. Growth across geographies and business segments also had a positive impact on revenues.

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 completed on Jan 1, 2015.  Additionally, the company’s associations with Verizon (VZ - Analyst Report) and AT&T (T - Analyst Report) 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 #3 (Hold). Investors can also consider NVIDIA Corporation (NVDA - Analyst Report) which has a Zacks Rank #1 (Strong Buy) and is worth buying.

Please login to Zacks.com or register to post a comment.