Equinix Earnings Soar on Strong Demand

Revenue and new contracts surged at Equinix (EQIX) in the first quarter of 2008, defying concerns that the slowing economy might impact demand for data center space. The colocation and interconnection company said it added 1,500 billing cabinets in the first quarter, and that leasing at its newest data centers in northern Virginia, New Jersey and Chicago was stronger than anticipated. Equinix gained 160 new customers during the quarter, and now has 1,994.

"We continue to see a very strong pipeline across all our regions, and expect pricing to remain intact," said Equinix CFO Keith Taylor. "We saw a strong uplift in all of our key markets across all three regions (the US, Asia-Pacific and Europe)."

For the first quarter, Equinix posted net income of $5.4 million, or 15 cents a share, compared with a loss of $4.5 million, or 15 cents a share, a year earlier. Revenue rose 86 percent to $158.2 million. Analysts had been expecting a loss of 13 cents a share on revenue of $151.3 million, according to estimates by Reuters.

Equinix shares, which closed at $81 yesterday, traded 6 percent higher in after-hours trading.

"Clearly this reflects a great deal of momentum in the business and the impact of an outstanding first quarter," said Equinix CEO Steve Smith. "We are still being mindful of the economic environment that we're operating in ... (but) the accelerated momentum of the business in the first quarter has increased the fill rate of certain IBXs and presents some pressure on our availability of inventory in the latter half of the year. As you can imagine, we're very excited about the state of the business today."

Pricing Remains Strong

Equinix also had good news for investors on pricing, reporting that average revenue per cabinet increased 7 percent over the previous quarter, rising from $1,581 to $1,603. "This reflects continued strong growth in our interconnection services and the favorable pricing attributed to our higher powered cabinet sold in the quarter," said Taylor.

Prices are strongest in the United States, where per cabinet revenue grew from $1,681 to $1,693. Equinix now has 23,500 cabinets producing revenue, or about 78 percent of all saleable cabinets, and an increase of 1,500 for the quarter.

Some analysts have been concerned about continuing demand for data center space in light of the slowing economy and credit crunch. Taylor said demand has been "quite a bit faster than we predicted," stronger than they anticipated.

"Our three greenfields opened in 2007 are ahead of our initial expectations, particularly in New York, where we're finishing up our design for phase two," said Smith. "Our New York 4 IBX center (in Secaucus, New Jersey) after only five months of operation is now generating positive operating cash, and we expect our Chicago 3 IBX to accomplish this milestone by the end of Q2, both ahead of schedule." That suggests that demand remains solid from the financial sector, a key vertical for Equinix in both the New York and Chicago markets.

For the full year, Equinix raised its revenue guidance to a range of $685 million to $700 million, compared to analyst expectations of $656 million. For 2008, the company sees revenue of $685 million to $700 million, up from its prior view of $650 million to $665 million. Analysts were looking for revenue of $658.6 million for the year.

Self Funding At Hand?

Equinix had $325 in cash at the end of the quarter, none of which was invested in auction-rate securities, which have experienced liquidity problems.

"As we go forward the amount of cash that this business is generating is certainly going to fund any incremental expansion that we see today," said Taylor. "I think it's fair to say that we're almost at an inflection point where we are fully self-funding. Having said that ... we want to make sure we raise capital under our terms versus more restrictive terms that you see today."