Equinix Inc.’s (EQIX) third-quarter 2010 earnings per share of 27 cents were in line with the Zacks Consensus Estimate, and revenue of $330.3 million was above the Zacks Consensus of 329.0 million.
Revenues in the third quarter were $330.3 million, up 45.2% from the comparable period last year and 11.6% from the previous quarter. Third quarter revenues also exceeded the Zacks Consensus Estimate of $329.0 million, but came in below the company’s guided range of $335.0 to $338.0 million.
This reflects continued benefit from strong demand across international markets, especially in the global data center services segment and benefits from the capex made earlier. Additionally, the quarter’s revenues include a $57.5 million contribution from Switch & Data Facilities Company Inc.
Recurring revenues, which come from colocation, interconnection and managed services, were $314.7 million (95.3% of total revenue), up 45.3% from the year-ago quarter and 11.5% from the previous quarter. However, non-recurring revenues were $15.6 million (4.7% of total revenue), which increased 45.2% from the comparable quarter last year and 11.5% sequentially.
Operating Results
Cash gross margin (excluding depreciation, amortization, but including stock-based compensation) in the quarter was 65.0%, compared to 64.0% in the year-ago period and 65.0% in the prior quarter. Total operating expenses increased 65.8% from the year-ago quarter but fell 0.5% from the previous quarter.
The year-over-year increase may be attributed to whopping year-over-year increases of 100.3% in selling and marketing expenses and 50.1% in general and administrative expenses. Adjusted EBITDA margin in the quarter was 44.0%, compared to 47.0% in the third quarter last year and 45.0% in the previous quarter.
Reported net loss in the quarter came in at $11.2 million or 24 cents per diluted share, versus net income of $2.3 million or 5 cents in the year-ago quarter. However, excluding restructuring charges and acquisition costs and including stock-based compensation, adjusted net income came in at $12.6 million or 27 cents.
Equinix generated $113.3 million from operating activities versus $56.9 million in the previous quarter. Capital expenditures in the third quarter were $143.9 million, of which $103.2 million was spent on capacity expansion and $40.7 million on ongoing expenditures. Equinix exited the quarter with $715.4 million in total cash and cash equivalents as well as investments versus $722.0 million in the previous quarter.
Guidance
For the fourth quarter of 2010, Equinix expects total revenue to range between $1.210 billion and $1.218 billion. Cash gross margin is expected to be around 65%. Cash selling, general and administrative expenses are expected to be approximately $250.0 million. Adjusted EBITDA is expected around $542.0 million.
Capital expenditures are expected in the range of $560.0 to $580.0 million, comprising approximately $110.0 million of ongoing expenditures and $450.0 to $470.0 million of expansion activity.
For fiscal 2011, Equinix’s revenue is expected to be greater than $1.500 billion. The cash gross margin for the year is expected to be approximately 65%. Adjusted EBITDA is expected to be about $675.0 million.
Conclusion
We are encouraged by Equinix’ efforts to expand the current facilities, while exercising 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 (short-term Hold rating).
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