EQIX Equinix Inc

Equinix Inc. (EQIX) reported first-quarter 2011 earnings per share of 55 cents, comprehensively beating the Zacks Consensus Estimate of 30 cents.

Revenues

Revenues in the first quarter were $363.0 million, up 46.0% from the comparable period last year and 5.0% from the previous quarter. Reported revenues exceeded the Zacks Consensus Estimate of $355.0 million as well as the company’s guidance.

The quarterly revenue of the company includes non-recurring benefits of about $4.0 million. The company faced volatility in foreign currency rates in the reported quarter, which led to positive revenue benefits of roughly $1.5 million versus the average rates witnessed during the fourth quarter and a benefit of $1.2 million compared to the guidance rates used.

On a regional basis, all the operating units of the company performed better-than- expected, especially America. Moreover, the company is also witnessing a favorable pricing environment across all of its markets.

In first quarter 2011, contractual bookings (excluding billings) witnessed significant upside compared with the prior-quarter level.

Recurring revenues in the quarter, arising from collocation, interconnection and managed services, were $343.9 million (94.7% of the total revenue), up 44.9% from the year-ago quarter and 5.4% from the previous quarter. However, non-recurring revenues were $19.1 million (5.3% of the total revenue), which shot up 67.6% from the comparable quarter last year and 1.13% sequentially.

Operating Results

Cash gross margin (excluding depreciation, amortization, but including stock-based compensation) in the quarter was 66.0%, was flat on a year-over-year basis and up from 64.0% in the sequentially preceding quarter. Total operating expenses surged 43.7% from the year-ago quarter, but dipped 0.06% from the previous quarter.

The year-over-year increase in operating expenses was primarily attributed to higher selling and marketing expenses (up 72.8%) and general and administrative expenses (up 45%). Adjusted EBITDA margin in the quarter was 46.0% compared with 47.0% in the comparable quarter last year and 43.0% in the previous quarter.

Reported net loss in the quarter came in at $25.1 million or 53 cents per diluted share, versus net income of $14.2 million or 35 cents in the year-ago quarter. However, excluding restructuring charges and acquisition costs but including stock-based compensation, adjusted net income came in at $26.1 million or 55 cents (pls ckh point 8 for calculation in the press release).

The company generated cash from operating activities of $115.2 million for the first quarter compared with $122.9 million in the previous quarter and $99.8 million in the year-ago quarter.

Capital expenditures in the first quarter were $172.5 million, of which $139.8 million was attributed to future expansion strategies and the remaining $32.7 million was attributed to the ongoing capital expenditures. Equinix exited the quarter with cash, cash equivalents and investments of $456.7 million compared with $592.8 million as of December 31, 2010.

Guidance

For the second quarter of 2011, the company expects revenues in the range of $376.0 to $378.0 million. Cash gross margins are expected to be approximately 65.0%. Cash selling, general and administrative expenses are projected to be roughly $76.0 million.

Adjusted EBITDA is expected to be in $166.0 and $170.0 million range. Capital expenditures are expected to be in the range of $220.0 and $240.0 million, comprising approximately $40.0 million of ongoing capital expenditures and between $180.0 and $200.0 million for expansion strategies.

For fiscal 2011, total revenues are expected to be more than $1,525.0 million. Cash gross margin is expected to range between 65.0% and 66.0%. Cash selling, general and administrative expenses are expected to approximate $315.0 million.Adjusted EBITDA for the full-year is expected to be greater than $685.0 million. Capital expenditures for 2011 are expected to be in the range of $615.0 to $665.0 million, comprising approximately $115.0 million of ongoing capital expenditures and $500.0 to $550.0 million for expansion strategies.

Conclusion

We are encouraged by Equinix’ effort to expand the current facilities and also maintaining its fiscal discipline simultaneously. We are positive about its recurring revenue model. However, increased competition, European exposure, industry consolidation and a long sales cycle are causes for concern.

The company currently has a Zacks #3 Rank, implying a short-term Hold rating.

 
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