InterXion Reports a Healthy Quarter, Along With Expansion and Partnership Plans

| About: InterXion Holding (INXN)

InterXion (NYSE:INXN) reported Q2 2011 earnings Wednesday morning, before market open.

A quick look at some of the highlights:

  • Revenues were €60.0 million, a 19% increase compared to Q2 2010 (€50.4 million), and a 3.7% increase sequentially;
  • Adjusted EBITDA was €23.3 million, a 19% increase compared to last year (Q2 2010: €19.6 million), and a 5% increase compared to the previous quarter;
  • Adjusted EBITDA margin increased to 38.9%, compared to 38.8% in Q2 2010 and 38.4% in Q1 2011;
  • Capital Expenditures during the quarter was €16.2 million;
  • Net profit was €5.2 million in Q2 2011, up 32% from Q2 2010 – EPS were € 0.08.

These numbers were slightly higher than consensus of revenues of €59.83 million and EPS of € 0.07.

The company reaffirmed 2011 guidance for revenues in the range of €239 to € 245 million and adjusted EBITDA in the range of €91 to 95 million. The midpoint of guidance implies revenues of about €62 million both in Q3 and Q4 and just a slight adjusted EBITDA increase from Q2 level in the last two quarters of the year. This seems quite conservative, given the company's track record of Q/Q increases and the good momentum for network-neutral data center demand in Europe. Unless we miss some information, we believe management is setting a low 2011 objective, and lost a good opportunity to narrow to the high end or even increase yearly guidance.

Here is a chart resuming InterXion's performance in the last 8 quarters (click to enlarge):

During the quarter, the company opened two expansion projects, in London and Dusseldorf, that added about 500 square meters of equipped space in London (Dusseldorf was a power upgrade within the existing footprint). Larger expansions are foreseen for the second half of 2011, including Vienna and Dublin (1,300 and 640 square meters, respectively, with the Vienna second phase expansion due to completion in 2012).

During the conference call, InterXion's management spent a few minutes commenting on the partnership with Coresite (NYSE:COR), which was disclosed last June.

As known, the partnership targets mainly cloud companies looking for data center space in the U.S. and Europe as well as cloud customers of both companies looking to expand internationally.

InterXion, however, already had in place a similar agreement with TelX, established at the end of 2010. TelX was recently acquired by two Boston investment firms, ABRY Partners and Berkshire Partners, after filing papers with the SEC, last year, for a proposed IPO.

Management stressed that the TelX ownership change should not mean anything as far as the established partnership, and that the two partners (TelX and Coresite) are seen, by InterXion, as good complements to each other, both for the footprint (with one of them stronger on the West Coast of the US, and the other on the East Coast), and a slightly different sales approach (retail to wholesale). TelX also represents a very good partner for the financial sector, a key vertical for InterXion.

It may be somehow funny to remind that InterXion had, in the past, similar partnerships both with Equinix (NASDAQ:EQIX) (that was interrupted when Equinix bought a European competitor, IX Europe) and Switch and Data, later acquired by Equinix.

Lastly, it is interesting to note that InterXion reiterated its capital expenditure forecast for the year, consisting of €140 million to €160 million. As the company spent € 35.5 million only in the first half, there is no doubt that the second half of 2011 will see an acceleration in spending. The company expects to spend about €95 million to €110 million in expansion cap ex, with most of it used for the new built in Paris and previously announced expansions, but also leaving the door open for new not-yet-announced initiatives.

InterXion's shares trade now at a discount to its peers -- Equinix and TeleCity (OTCPK:TLEIY) -- a problem that was also addressed during the conference call. While the company is improving on the disclosure of its metrics/performance, and some of the recent trading can also be attributed to bad market conditions combined with the fact that the company is not really on most investors' radar screen, we see the current weakness as a good buying opportunity, as we mentioned previously.

Disclosure: I am long EQIX, INXN.

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