SBAC SBA Communications Corporation

Equinix Inc. (EQIX) reported first-quarter 2013 earnings per share of 75 cents, in line with the Zacks Consensus Estimate of 75 cents.

Revenues

Total revenue in the reported quarter was $519.5 million, up 17.2% from the year-ago quarter. The company witnessed double-digit revenue growth compared with the previous year across all three regions of the network vertical, with particular strength in Asia-Pacific. Moreover, as the IP traffic continues to grow, Equinix has started witnessing better business in the sub-sea cable systems.

This apart, recurring revenues (including colocation, interconnection and managed services) were $495.3 million during the first quarter, up 17.7% from the year-ago quarter. Non-recurring revenues were $24.2 million in the quarter, up 8.2% from $22.4 million reported in the year-ago quarter.

Operating Results

Gross margin for the quarter was 50.1% versus 51.0% in the year-ago quarter. The gross margin remained constant, but was better than the company’s expectation, as a result of lower payroll costs and utility expenses.

Total operating expenses increased 20.9% from the year-ago quarter. The year-over-year increase in cash operating expenses was primarily attributed to higher selling and marketing expenses (up 25.6%) and general and administrative expenses (up 14.5%).

Operating income from continuing operation was $108.6 million, up 7.8% from $100.8 million reported in the year-ago quarter.

Net income attributable to Equinix stood at $35.9 million or 71 cents per share versus $34.5 million or 71 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Capital Expenditure

The company generated $84.2 million of cash from operating activities for the first quarter, down from $209.1 million reported in the previous quarter. This apart, cash, cash equivalents and short-term investments were $918.3 million versus $418.7 million in the earlier quarter.

Equinix reported capital expenditures of $75.7 million, which was below Equinix’s expectation, mostly as a result of the timing of cash payment to Equinix’s contractors. Total capital expenditure includes ongoing capital expenditure of $34.0 million.

Guidance

Equinix expects second-quarter 2013 revenues in the range of $530.0 to $534.0 million. While the cash gross margins are expected to range between 68.0% and 69.0%. Adjusted EBITDA would be around $240.0 and $244.0 million. Capital expenditures are expected to hover in the range of $170.0 to $180.0 million. This will include $45.0 million of ongoing capital expenditures and expansion capital expenditure in the range of $125.0 to $135.0 million.

Again, for full year 2013, the company expects total revenue to exceed $2,200.0 million. Cash gross margin is expected to range between 68% to 69%. Adjusted EBITDA is expected to exceed $1,010.0 million. Capital expenditures for 2013 are expected in the range of $550.0 to $650.0 million, which would include $165.0 million of ongoing capital expenditures and $385.0 to $485.0 million for expansion capital expenditures.

Outlook

Equinix’s first-quarter results were modest with the bottom line matching the company’s expectation. Total revenue for Equinix improved on a year-over-year basis as a result of good contribution from the acquired companies. Moreover, Equinix has been efficient in controlling costs, although gross margin remained flat sequentially.

Equinix is also experiencing improvement in business fundamentals across most of its business segments. Moreover, capital expenditure fund allocated by the company is quite decent and will help it generate meaningful growth. On the other hand, Equinix’s cash generation ability declined sequentially.

Moreover, the company must work to reduce its debt level. In spite of all the positives, competitive threats from the likes of AT&T Inc. (T) raise our apprehension. European exposure and industry consolidation are the other headwinds.

Currently, Equinix has a Zacks Rank #4 (Sell).

Investors can look into other stocks such as,SBA Comm Corp. (SBAC) with a Zacks Rank #2 (Buy) and Symmentricon Inc. (SYMM) with a Zacks Rank #2 (Buy).

 
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