Savvis Delivers Year-over-Year Revenue Growth of 13% and Adjusted EBITDA Growth of 17% for Third Quarter 2010

Managed Services revenue growth of 30% YoY and 10% QoQ

Colocation revenue growth of 12% YoY and 13% QoQ

Network revenue growth flat YoY and 3% QoQ

Oct 27, 2010, 07:00 ET from Savvis, Inc.

ST. LOUIS, Oct. 27 /PRNewswire-FirstCall/ -- Savvis, Inc. (Nasdaq: SVVS), a global leader in cloud infrastructure and hosted IT solutions for enterprises, today reported its third quarter 2010 financial results, with revenue of $241.9 million, compared to $213.2 million in the third quarter of 2009.  Adjusted EBITDA* was $59.7 million, compared to $51.2 million of adjusted EBITDA in the third quarter of 2009.  

"Savvis continues to deliver on its stated goal of exiting the year at a quarterly sequential double-digit run rate for both revenue and adjusted EBITDA growth," said Jim Ousley, chairman and chief executive officer for Savvis.  "The company-wide changes and improvements we have made over the past year, specifically in sales and marketing, are now flowing through to our results.  Based on the strength we continue to see in bookings, installs and renewals, we expect to continue on this path throughout 2011."

Income from continuing operations for the third quarter of 2010 was $3.5 million, compared to $4.5 million in the third quarter of 2009.  Savvis reported a net loss of ($26.2) million, or ($0.47) per share, in the third quarter of 2010, and this amount includes approximately $11.8 million in costs related to the company's debt refinancing, which occurred during the quarter.  Savvis had a net loss of ($9.9) million, or ($0.18) per share, in the third quarter of 2009.  

Third Quarter Financial Results

US$ in millions

Three months ended

9/30/10

6/30/10

9/30/09

Hosting

$176.7

$158.2

$148.1

Network

$65.2

$63.6

$65.1

Total revenue

$241.9

$221.8

$213.2

Cost of revenue(1)

$131.6

$120.2

$117.9

SG&A expenses(1) (2)

$56.5

$56.9

$52.6

Non-cash, equity-based compensation(1)

$5.4

$6.5

$8.5

Income from continuing operations

$3.5

$2.2

$4.5

Net income (loss) from continuing operations

($26.2)

($13.3)

($9.9)

Income (loss) from discontinued operations, net of income tax(3)

($0.0)

($0.1)

--

Net income (loss)

($26.2)

($13.4)

($9.9)

Adjusted EBITDA

$59.7

$54.7

$51.2

Adjusted EBITDA margin

25%

25%

24%

(1) Both cost of revenue and SG&A expenses exclude depreciation, amortization and accretion and include non-cash, equity-based compensation.  Total non-cash, equity-based compensation attributed to cost of revenue for the three months ended Sept. 30, 2010, June 30, 2010, and Sept. 30, 2009, was $1.5 million, $1.5 million and $1.5 million and to SG&A expenses was $3.9 million, $5.1 million and $7.0 million, respectively.  (2) SG&A expenses include acquisition and integration costs of $0.5 million and $3.5 million for the three months ended Sept. 30, 2010, and June 30, 2010, respectively.  (3) Includes losses from the application services business acquired from Fusepoint, which is classified as an asset held for sale at Sept. 30, 2010.  Total losses attributed to net income for the three months ended Sept. 30, 2010, and June 30, 2010, were ($9,000) and ($88,000), respectively.

Third Quarter Overview

Total Savvis revenue for the third quarter was $241.9 million, up 9% compared to second quarter 2010 revenue of $221.8 million.  Revenue improved in the third quarter, as the company continued to exceed its internal bookings, installs and renewals targets for 2010.

Adjusted EBITDA was $59.7 million for the third quarter of 2010, up 9% compared to $54.7 million of adjusted EBITDA in the second quarter of 2010.  Growth in adjusted EBITDA continues to track the company's quarterly sequential improvements in revenue.

Both revenue and adjusted EBITDA included a full-quarter of contribution from the Fusepoint acquisition, which closed on June 16, 2010.

Hosting

US$ in millions

Percent of Revenue

Three months ended

9/30/10

6/30/10

9/30/09

Managed Services

46%

$81.5

$73.9

$62.8

Percentage change

10%

30%

Colocation

54%

$95.2

$84.3

$85.3

Percentage change

13%

12%

Total Hosting revenue

$176.7

$158.2

$148.1

Percentage change

12%

19%

In the third quarter, Managed Services revenue grew as enterprises in the company's targeted verticals looked to outsourcing as a way to improve the benefit they receive from technology solutions while reducing their overall spend and time to implementation.  Managed services revenue includes Savvis Symphony Cloud solutions, such as Open, Dedicated and Virtual Private Data Center.  

Colocation revenue was up both quarterly and annually in the third quarter, due to the return of enterprise client demand, lower churn and an improved fill rate.  The trend of combining colocation with the company's managed services and network to create a complete solution, continued during the quarter.

Network

US$ in millions

Percent of Revenue

Three months ended

9/30/10

6/30/10

9/30/09

Core(1)

56%

$36.4

$33.5

$28.7

Percentage change

9%

27%

Sustaining(2)

44%

$28.8

$30.1

$36.4

Percentage change

(4%)

(21%)

Total Network revenue

$65.2

$63.6

$65.1

Percentage change

3%

--

(1) Core network includes revenue from Thomson Reuters and from other financial vertical and data center clients, who also purchase bundled network and hosting services.  

(2) Sustaining network includes revenue from services that are either in slower growth or declining markets or are not directly tied to the future growth of the company's network and hosting businesses.

As expected, the overall Network business showed quarterly sequential revenue growth in the third quarter.  Core Network revenue continued to grow, while the decline in Sustaining Network revenue continued to slow.  The majority of Savvis' hosting clients continued to take the company's network offering, as 96% use Network as part of an end-to-end solution.

Other Highlights

The Financial Vertical represented 28% of total revenue, or $67.0 million, in the third quarter of 2010.  Revenue in the quarter was up 11%, compared to the second quarter of 2010 and was up 24%, compared to the third quarter of 2009.  Financial firms have begun making additional investments in infrastructure, in order to meet new industry-related regulatory requirements.  Savvis has benefitted from this interest in outsourcing, by providing both new and existing clients with the services they require in centrally located data centers.

Cash Flow and Balance Sheet

Net cash provided by operating activities was $35.7 million in the third quarter of 2010, compared to $45.0 million in the third quarter of 2009.  Cash capital expenditures for the third quarter of 2010 totaled $56.6 million.  

The company's cash position at Sept. 30, 2010, was $88.0 million, compared to $118.7 million at June 30, 2010.  As of Sept. 30, 2010, the long-term debt and capital leases for Savvis (net of current portion) totaled $747.7 million, up from $712.8 million as of June 30, 2010.  

In August, the company closed its senior secured credit facilities, which include a $550.0 million term loan, maturing in 2016, and a $75.0 million revolving credit facility, maturing in 2014.  The company also completed a cash tender offer for its 3% Convertible Senior Notes due May 2012, with approximately 99% of the outstanding $345.0 million Notes tendered.

Financial Outlook

"With strong revenue and adjusted EBITDA growth reported in the third quarter, we have been able to raise and tighten our revenue and adjusted EBITDA guidance for 2010," said Greg Freiberg, chief financial officer for Savvis.  "Due to successful sales and marketing efforts, we have seen strong revenue growth this year.  We are now beginning to see commensurate leverage in adjusted EBITDA and expect both of these trends to continue into 2011."

Savvis now expects the following for full year 2010:

  • Revenue of $925 to $930 million, increasing from previous guidance of $917 to $927 million
  • Adjusted EBITDA of $225 to $235 million, narrowing from previous guidance of $220 to $240 million
  • Total cash capital expenditures of $190 to $210 million
  • Cash interest expense (net) of approximately $50 million, decreasing from previous guidance of $55 to $60 million

Investor Conference Call

Savvis will webcast an investor conference call at 10:00 a.m. ET today, Oct. 27, 2010.  Both the webcast and supporting presentation will be available at savvis.net on the Investor Relations page.  A live conference call will be available at (866) 261-2650 for analysts in North America or (703) 639-1221 for international analysts.  A replay will be available on the website for six months.  Investors may also access the replay by dialing (888) 266-2081 in North America or (703) 925-2533 internationally and using the access code 1487309 through Monday, Nov. 8.

About Savvis

Savvis, Inc. (NASDAQ: SVVS) is a global leader in cloud infrastructure and hosted IT solutions for enterprises. More than 2,500 unique clients, including 30 of the top 100 companies in the Fortune 500, use Savvis to reduce capital expense, improve service levels and harness the latest advances in cloud computing. For more information, please visit savvis.net.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Actual results may differ materially from Savvis' expectations.  Certain factors that could adversely affect actual results are set forth as risk factors described in Savvis' SEC reports and filings, including its annual report on Form 10-K for the year ended Dec. 31, 2009, and subsequent filings.  Those risk factors include, but are not limited to, uncertainties in economic conditions, including conditions that could pressure enterprise IT spending; introduction of, demand for and market acceptance of Savvis' products and services; whether or not Savvis is able to sign additional outsourcing deals; variability in pricing for those products and services; merger and acquisition activity by Savvis customers or other customer activity that affects the level of business done with Savvis; rapid evolution of technology; changes in the operating environment; and changes or proposed changes in, or introduction of new, regulatory schemes or environments that impact Savvis and/or its customers' businesses.  The forward-looking statements contained in this document speak only as of the date of publication, Oct. 27, 2010.  Subsequent events and developments may cause the company's forward-looking statements to change, and the company will not undertake efforts to revise those forward-looking statements to reflect events after this date.

* Non-GAAP Measures

Savvis includes information pertaining to certain non-GAAP measures in conjunction with reporting of its quarterly and year-end financial results.  Adjusted EBITDA represents income from continuing operations before depreciation, amortization and accretion, and non-cash, equity-based compensation and excludes acquisition and integration costs.  We have included information concerning adjusted EBITDA because we believe that in our industry such information is a relevant measurement of a company's operating financial performance and liquidity.  Leveraged free cash flow represents adjusted EBITDA less cash paid acquisition and integration costs, less cash capital expenditures and less cash interest, net.  We have included information concerning leveraged free cash flow because we believe that in our industry such information is a relevant measurement of a company's operating financial performance and liquidity.  We do not provide forward looking guidance for certain financial data, such as income from operations, depreciation, amortization and accretion, non-cash, equity-based compensation, and interest income.  As a result, we are unable to provide a reconciliation of non-GAAP measures, such as adjusted EBITDA and leveraged free cash flow, for forward looking data, including 2010 full-year guidance. The calculations of adjusted EBITDA and leveraged free cash flow are not specified by United States generally accepted accounting principles.  Our calculations of adjusted EBITDA and leveraged free cash flow may not be comparable to similarly-titled measures of other companies.

SAVVIS, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2010

2009

2010

2009

Revenue

$ 241,901

$ 213,211

$ 680,244

$ 654,595

Operating Expenses:

Cost of revenue (including non-cash, equity-based

compensation of $1,536, $1,473, $4,657 and $4,430) (1)

131,597

117,945

371,186

359,907

Sales, general and administrative expenses (including

non-cash, equity-based compensation of $3,899, $7,003, $15,776 and $18,722) (1)

56,500

52,551

165,096

152,704

Depreciation, amortization and accretion

50,335

38,201

133,513

112,335

Total Operating Expenses

238,432

208,697

669,795

624,946

Income from Continuing Operations

3,469

4,514

10,449

29,649

Loss on debt extinguishment

8,735

-

8,735

-

Other income and expense

21,845

13,887

52,935

43,268

Income (Loss) from Continuing Operations before

Income Taxes

(27,111)

(9,373)

(51,221)

(13,619)

Income tax (benefit) expense

(886)

557

(307)

1,868

Income (Loss) from Continuing Operations, net

of Income Taxes

(26,225)

(9,930)

(50,914)

(15,487)

Income (loss) from discontinued operations, net

of income taxes

(9)

-

(98)

-

Net Income (Loss)

$ (26,234)

$   (9,930)

$ (51,012)

$ (15,487)

Income (Loss) per Share from Continuing Operations

Basic earnings per share

$     (0.47)

$     (0.18)

$     (0.92)

$     (0.29)

Diluted earnings per share

$     (0.47)

$     (0.18)

$     (0.92)

$     (0.29)

Weighted-Average Common Shares Outstanding

Basic

55,282

53,960

55,453

53,724

Diluted

55,282

53,960

55,453

53,724

(1)

Excludes depreciation, amortization and accretion, which is reported separately.

SAVVIS, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands)

September 30,

December 31,

2010

2009

ASSETS

Current Assets:

Cash and cash equivalents

$             88,048

$         160,815

Trade accounts receivable, net

74,130

45,754

Prepaid expenses and other current assets

34,407

21,217

Total Current Assets

196,585

227,786

Property and equipment, net

841,083

783,852

Goodwill

77,208

-

Intangible assets

20,864

404

Other non-current assets

23,156

12,716

Total Assets

$        1,158,896

$      1,024,758

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Payables and other trade accruals

$             64,849

$           52,710

Current portion of long-term debt and lease obligations

18,901

17,479

Other accrued liabilities

74,399

68,314

Total Current Liabilities

158,149

138,503

Long-term debt, net of current portion

531,283

376,089

Capital and financing method lease obligations, net of current portion

216,429

223,897

Other accrued liabilities

79,340

76,452

Total Liabilities

985,201

814,941

Stockholders' Equity:

Common stock

558

545

Additional paid-in capital

871,795

862,834

Accumulated deficit

(685,441)

(634,429)

Accumulated other comprehensive loss

(13,217)

(19,133)

Total Stockholders' Equity

173,695

209,817

Total Liabilities and Stockholders' Equity

$        1,158,896

$      1,024,758

SAVVIS, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2010

2009

2010

2009

Cash Flows from Operating Activities:

Net income (loss)

$ (26,234)

$   (9,930)

$ (51,012)

$ (15,487)

(Income) loss from discontinued operations, net of income taxes

(9)

-

(98)

-

Income (loss) from continuing operations, net of income taxes

(26,225)

(9,930)

(50,914)

(15,487)

Reconciliation of net income (loss) from continuing operations to

net cash provided by operating activities:

Depreciation, amortization and accretion

50,335

38,201

133,513

112,335

Non-cash, equity-based compensation

5,435

8,476

20,433

23,152

Accrued interest, net

2,279

4,016

3,617

6,280

Amortization of debt discount

1,774

3,615

9,386

10,628

Loss on debt extinguishment

7,535

-

7,535

-

Other, net

3,642

1,469

4,235

927

Net changes in operating assets and liabilities:

Trade accounts receivable, net

(14,649)

8

(23,082)

5,472

Prepaid expenses and other current and non-current assets

4,239

1,712

(17,636)

(565)

Payables and other trade accruals

3,196

(2,284)

12,421

(5,275)

Other accrued liabilities

(2,419)

(318)

6,456

(8,456)

Net cash provided by continuing operations

35,142

44,965

105,964

129,011

Net cash provided by discontinued operations

514

-

351

-

Net cash provided by operating activities

35,656

44,965

106,315

129,011

Cash Flows from Investing Activities:

Payments for capital expenditures

(56,576)

(30,328)

(158,743)

(75,804)

Acquisition of business, net of cash acquired

(826)

-

(112,790)

-

Net cash used in investing activities

(57,402)

(30,328)

(271,533)

(75,804)

Cash Flows from Financing Activities:

Proceeds from long-term debt

533,500

-

643,500

2,865

Principal payments on long-term debt

(520,944)

(1,650)

(524,244)

(4,950)

Payments for debt extinguishment

(1,179)

-

(1,179)

-

Payments for debt issuance costs

(10,190)

-

(12,740)

-

Proceeds from stock option exercises

7,207

288

16,538

330

Payments for employee taxes on equity-based instruments

(283)

(1,175)

(3,097)

(1,619)

Principal payments under capital lease obligations

(14,109)

(1,932)

(19,298)

(6,090)

Other, net

(3,409)

(1,462)

(4,607)

(1,462)

Net cash provided by (used in) financing activities

(9,407)

(5,931)

94,873

(10,926)

Effect of exchange rate changes on

cash and cash equivalents

531

(156)

(2,422)

(67)

Net Increase (Decrease) in Cash and Cash Equivalents

(30,622)

8,550

(72,767)

42,214

Cash and Cash Equivalents, Beginning of Period

118,670

154,948

160,815

121,284

Cash and Cash Equivalents, End of Period

$  88,048

$ 163,498

$  88,048

$ 163,498

Supplemental Disclosures of Cash Flow Information:

Cash paid for interest

$  14,298

$     5,541

$  35,084

$   25,642

SAVVIS, Inc. and Subsidiaries

  Unaudited Selected Condensed Consolidated Financial Information

(in thousands)

Three Months Ended

September 30,

June 30,

2010

2009

2010

Segment Revenue:

Hosting

$ 176,724

$ 148,155

$ 158,179

Network

65,177

65,056

63,577

Total Revenue

$ 241,901

$ 213,211

$ 221,756

Segment Adjusted EBITDA:

Hosting

$   66,892

$   55,582

$   59,280

Network

15,747

18,484

16,589

Corporate - Other (1)

(22,917)

(22,875)

(21,153)

Total Adjusted EBITDA (2)

$   59,722

$   51,191

$   54,716

Adjusted EBITDA Reconciliation:

Income from continuing operations

$     3,469

$     4,514

$     2,217

Depreciation, amortization and accretion

50,335

38,201

42,441

Non-cash, equity-based compensation

5,435

8,476

6,545

Acquisition and integration costs

483

-

3,513

Adjusted EBITDA

$   59,722

$   51,191

$   54,716

Reconciliation of Adjusted EBITDA to Income (Loss)

from Continuing Operations before Income Taxes:

Adjusted EBITDA

$   59,722

$   51,191

$   54,716

Depreciation, amortization and accretion

(50,335)

(38,201)

(42,441)

Non-cash, equity-based compensation

(5,435)

(8,476)

(6,545)

Acquisition and integration costs

(483)

-

(3,513)

Interest income

41

33

20

Interest expense

(18,391)

(14,533)

(15,573)

Other income (expense)

(12,230)

613

220

Income (Loss) from Continuing Operations

before Income Taxes

$ (27,111)

$   (9,373)

$ (13,116)

Leveraged Free Cash Flow Reconciliation:

Adjusted EBITDA

$   59,722

$   51,191

$   54,716

Acquisition and integration costs

(483)

-

(3,513)

Cash capital expenditures

(56,576)

(30,328)

(51,476)

Cash interest paid

(14,298)

(5,541)

(12,953)

Interest income

41

33

20

Leveraged Free Cash Flow (3)

$ (11,594)

$   15,355

$ (13,206)

(1)

Corporate - Other adjusted EBITDA includes all costs not directly associated with hosting services or network services. Costs not directly associated with hosting services or network services include, but are not limited to, general and administrative costs.

(2)

Adjusted EBITDA represents income from continuing operations before depreciation, amortization, accretion and non-cash, equity-based compensation and excludes acquisition and integration costs.  We have included information concerning adjusted EBITDA because we believe that in our industry such information is a relevant measurement of a company's operating financial performance and liquidity.  The calculation of adjusted EBITDA is not specified by United States generally accepted accounting principles.  Our calculation of adjusted EBITDA may not be comparable to similarly titled measures of other companies.

(3)

Leveraged Free Cash Flow represents adjusted EBITDA less cash paid acquisition and integration costs, less cash capital expenditures and less cash interest, net. We have included information concerning leveraged free cash flow because we believe that in our industry such information is a relevant measurement of a company's operating financial performance and liquidity.

SAVVIS, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months

Nine Months

Ended

Ended

September 30, 2010

Revenue

$           241,901

$      680,244

Operating Expenses:

Cost of revenue (including non-cash, equity-based

compensation of $1,536 and $4,657)

131,597

371,186

Sales, general and administrative expenses (including

non-cash, equity-based compensation of $3,899 and $15,776)

56,500

165,096

Depreciation, amortization and accretion

50,335

133,513

Total Operating Expenses

238,432

669,795

Income from Continuing Operations

3,469

10,449

Loss on debt extinguishment

8,735

8,735

Other income and expense

21,845

52,935

Income (Loss) from Continuing Operations before

Income Taxes

(27,111)

(51,221)

Income tax expense

(886)

(307)

Income (Loss) from Continuing Operations, net

of Income Taxes

(26,225)

(50,914)

Income (loss) from discontinued operations, net

of income taxes

(9)

(98)

Net Income (Loss)

$           (26,234)

$       (51,012)

Adjusted EBITDA

$             59,722

$      168,391

    As a percentage of revenue

25%

25%

Acquisition and integration costs

483

3,996

Adjusted EBITDA including acquisition and integration costs

$             59,239

$      164,395

    As a percentage of revenue

24%

24%

SAVVIS, Inc. and Subsidiaries

Unaudited Supplemental Revenue Information

(in thousands, except per square foot amounts)

Three Months Ended

September 30,

December 31,

March 31,

June 30,

September 30,

2009

2009

2010

2010

2010

Data Center Revenue

Colocation

$            85,341

$          86,892

$            82,467

$          84,281

$            95,211

Managed hosting

62,814

67,772

70,284

73,898

81,513

Data Center Metrics (1)

Total raised floor

1,433

1,433

1,477

1,477

1,564

Revenue space

886

878

889

885

957

Billed square feet

640

591

601

622

678

Utilization

72%

67%

68%

70%

71%

Average Billed Square Feet

Colocation

608.6

592.3

572.1

586.6

623.4

Managed hosting

22.2

22.9

23.8

25.1

26.8

Total Average Billed Square Feet

630.8

615.2

595.9

611.7

650.3

Average Monthly Data Center Revenue

      Per Billed Square Foot (2)

Colocation

$                46.7

$              48.9

$                48.1

$              47.5

$                50.9

Managed hosting

945.1

985.4

984.5

974.4

1,012.7

(1)

Data center metrics are calculated as of period end for each respective quarter.

(2)

Average monthly data center revenue per billed square foot is calculated as the revenue per quarter divided by the average billed square feet per quarter stated on a monthly basis.

SAVVIS Revenue by Vertical

Three Months Ended

September 30,

December 31,

March 31,

June 30,

September 30,

2009

2009

2010

2010

2010

Financial vertical

$            53,974

$          57,742

$            55,532

$          60,417

$            67,007

Other

            159,237

          162,077

            161,055

          161,339

            174,894

Total Revenue

$          213,211

$        219,819

$          216,587

$        221,756

$          241,901

Network Revenue Supplemental Information:

Three Months Ended

September 30,

December 31,

March 31,

June 30,

September 30,

2009

2009

2010

2010

2010

Core (1)

$            28,616

$          31,483

$            31,670

$          33,459

$            36,339

Sustaining (2)

              36,440

            33,672

              32,166

            30,118

              28,838

Total Network Revenue

$            65,056

$          65,155

$            63,836

$          63,577

$            65,177

(1)

Core network includes revenue from Thomson Reuters and from other financial vertical and data center clients, who also purchase bundled network and hosting services.

(2)

Sustaining network includes revenue from services that are either in slower growth or declining markets or are not directly tied to the future growth of the company's network and hosting businesses.

SOURCE Savvis, Inc.



RELATED LINKS

http://www.savvis.net