ST. LOUIS, MO. – October 20, 2005 – SAVVIS, Inc. (NASDAQ: SVVS), a leading global IT utility, announced today that revenue for the third quarter of 2005 totaled $166.1 million, compared to $169.4 million in the third quarter of 2004 and $167.2 million in the second quarter of 2005. Strong growth in Hosting and Managed IP VPN revenue was offset by lower revenue, as expected, from Reuters, SAVVIS’ largest customer, and from Other Network Services and Digital Content Services. SAVVIS achieved income from operations of $2.3 million in the third quarter, and the company’s consolidated net loss narrowed to $13.7 million, compared to a loss of $32.9 million in the third quarter 2004 and a loss of $21.3 million in the second quarter 2005.
Cost of revenue, which excludes depreciation, amortization, and accretion, was $106.9 million, down 11% from a year ago and down 2% from the prior quarter. Gross profit, defined as total revenue less cost of revenue, was $59.2 million, up 19% from a year ago and 1% from the second quarter 2005. Gross margin, defined as gross profit as a percentage of total revenue, was 36% in the current quarter, up from 29% a year earlier and 35% in the prior quarter. Adjusted EBITDA* of $21.9 million increased $16.8 million from $5.1 million a year earlier, and increased $2.5 million, or 13%, from $19.4 million from the previous quarter.
Rob McCormick, SAVVIS’ chairman and chief executive officer, said, “In the third quarter, our core Managed IP VPN and Hosting revenue grew 25% and 17%, respectively, from a year ago, demonstrating the power of our value-added offerings for enterprises. Given the robust market for high-quality hosting, we have announced plans to commission a nearly-complete data center in Silicon Valley, increasing capacity of our hosting facilities by an additional 127,000 square feet in the first quarter of 2006. The strong demand for conventional hosting services is also helping drive interest in SAVVIS’ unique virtualized utility offering.
“SAVVIS remains focused on delivering value to stockholders through margin improvement and cash flow. Our results in the third quarter, including strong adjusted EBITDA of $21.9 million and a sequential improvement of $13.8 million in our cash position, attest to our successful execution this quarter. We’re delivering value to customers through innovative, managed solutions to the IT problem. Where other IT infrastructure models deliver complexity and wasted capacity, with too little security and performance, SAVVIS offers higher availability and more security at significantly lower cost.”
Three months ended:
|Sept. 30, 2005||June 30, 2005||Sept. 30, 2004|
|Managed IP VPN||$ 28.3||$ 27.5||$ 22.6|
|Other Network Services||28.6||30.2||38.4|
|Digital Content Services||10.3||11.4||14.1|
|Total Diversified Revenue||141.8||140.8||138.7|
|Total Revenue||$ 166.1||$ 167.2||$ 169.4|
|Cost of Revenue1||$ 106.9||$ 108.6||$ 119.8|
|Sales, Gen. & Admin. Expenses||$ 37.3||$ 39.2||$ 44.5|
|Adjusted EBITDA||$ 21.9||$ 19.4||$ 5.1|
|Income (Loss) from Operations||$ 2.3||$ (3.5)||$ (19.3)|
|Net (Loss)||$ (13.7)||$ (21.3)||$ (32.9)|
Total revenue for the third quarter decreased 2% from a year ago, primarily reflecting pricing pressure in unmanaged bandwidth, which is included in Other Network Services, as well as a decline in revenue from Reuters, consistent with previous company announcements. Sequentially, revenue decreased approximately 1% from the second quarter of 2005, driven by the previously-announced new pricing for Reuters negotiated in May and continued pricing pressure for unmanaged bandwidth, largely offset by growth in Hosting revenue and in Managed IP VPN revenue. Revenue from Digital Content Services declined $3.8 million from the previous year and $1.1 million from the prior quarter, primarily as a result of lower revenues from a single large content delivery-network client.
Cost of revenue was $106.9 million in the current quarter, down 11% from $119.8 million in the same quarter last year and down 2% from $108.6 million in the second quarter of 2005, reflecting cost savings from continued network and hosting cost-optimization efforts. Gross margin improved to 36% in the current quarter, up from 29% in the same quarter last year and from 35% in the second quarter 2005.
Sales, general, and administrative expenses (“SG&A”) for the current quarter were $37.3 million as compared to $44.5 million for the same period last year and $39.2 million in the second quarter of 2005. As a percentage of revenue, SG&A was 22% in the current quarter, down from 26% of revenue in the same quarter of 2004 and 23% in the second quarter of 2005, reflecting management’s ongoing focus on operating cost control.
Income from operations was $2.3 million in the third quarter, compared to losses from operations of $19.3 million in the same period last year and $3.5 million in the second quarter of 2005. SAVVIS’ consolidated net loss of $13.7 million was an improvement of $19.2 million from the third quarter 2004 and of $7.6 million from the second quarter 2005, reflecting the success of cost control initiatives in both cost of revenue and SG&A. The second quarter 2005 loss from operations and net loss included $3.3 million of net restructuring charges and $0.7 million of integration costs specifically related to the integration of CWA operations acquired in March 2004, and the third quarter 2004 loss from operations and net loss included $3.7 million of such integration costs.
Balance Sheet and Cash Flow
Net cash provided by operating activities was $21.4 million in the third quarter, compared to $0.2 million in the second quarter and cash used of $11.7 million in the third quarter 2004. Third quarter 2005 operating cash flow included cash payments totaling $0.6 million of acquisition and integration costs related to assets acquired in March 2004, as compared to payments of $3.3 million and $10.1 million for such costs in the second quarter 2005 and the third quarter 2004, respectively. Cash payments in the second quarter 2005 also included $7.5 million in one-time items to exit long-term lease obligations. SAVVIS’ cash position at September 30, 2005, was $50.8 million compared to $37.0 million at June 30, 2005, largely reflecting higher Adjusted EBITDA, lower acquisition and restructuring payments and improved working capital.
Chief Financial Officer Jeff Von Deylen said, “SAVVIS is continuing to deliver financial margin improvement as a result of strong growth in our core services on a largely fixed-cost base. The improvement in our profit margin also helped drive strong cash flow performance in the quarter. The high quality of our products and growth of our markets were reflected in record sales success and low customer churn in the third quarter. SAVVIS remains focused on improving Adjusted EBITDA and cash flow performance to create value for all of our stockholders.”
Based on current information, SAVVIS management’s current expectations for 2005 financial results include:
- Total revenue in a range of $168-172 million in the fourth quarter, for full-year revenue of $663-667 million, including:
- Continued growth in core Hosting and Managed IP VPN revenue, and
- Reuters contributing 13-14% of total fourth-quarter revenue, compared to 15% of total revenue in the first nine months of the year;
- Adjusted EBITDA in a range of $21-24 million in the fourth quarter, for full-year Adjusted EBITDA of $78-81 million;
- Cash capital expenditures for business growth in a range of $20-22 million for the fourth quarter, including approximately $10 million of expenditures for commissioning of the Santa Clara data center, for full-year cash capital expenditures of $56-58 million; and
- Positive cash flow in the fourth quarter of 2005.
- SAVVIS announced plans for commissioning of an existing data center, to add 127,000 square feet of high-quality hosting capacity by first-quarter 2006 in response to strong market demand.
- The company installed new business generating approximately $39 million of annualized revenue, with an installation backlog of approximately $56 million of annualized revenue.
- Rapid commercial adoption of virtualized utility services platform continued. SAVVIS currently deploys almost 1,100 virtual firewalls and load balancers, 730 virtual servers, and 240 terabytes of virtualized storage.
- New customers signed include enterprises such as AdMedian LLC, BATS Trading, Inc., easyJet, MTM Technologies, Inc., Pfizer Health Solutions Inc., and OMS SafeHarbor.
- SAVVIS expanded relationships with existing customers including InfoMart Co., Ltd. (Japan), Linedata Services, Lycos, Procter & Gamble, Siras.com, STA Travel, Track Data Corporation, and Workflow One.
“Adjusted EBITDA” represents income (loss) from operations before depreciation, amortization, and accretion, net restructuring charges, integration costs, and non-cash equity-based compensation. We have included information concerning Adjusted EBITDA because our management believes that, in our industry, such information is a relevant measurement of a company's financial performance and liquidity. The calculation of Adjusted EBITDA is not specified by U.S. generally accepted accounting principles. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Please see the table under Selected Condensed Consolidated Financial Information for a reconciliation of Adjusted EBITDA.
Investor Conference Call
SAVVIS will webcast an investor conference call today, October 20, 2005, at 5:00 pm EDT. Both the webcast and supporting presentation will be available at www.savvis.net on the Investor Relations page. A live conference call will also be available at +1 630-395-0019 and 888-398-1687 (in North America, toll free), with the password “SAVVIS NEWS.” Recorded replays will be available on the website, and by telephone at +1 203-369-1259 and 866-455-0459 (in North America, toll free) beginning at 7:00 pm EDT today.
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 December 31, 2004, and all subsequent filings. Those risk factors include, but are not limited to, variability in pricing for SAVVIS’ products, highly competitive markets, rapid evolution of technology, and changes in regulatory environments. The forward-looking statements contained in this document speak only as of the date of publication, October 20, 2005, and the company will not undertake efforts to revise those forward-looking statements to reflect events after this date.
SAVVIS, Inc. (NASDAQ: SVVS) is a global IT utility services provider that focuses exclusively on IT solutions for businesses. With an IT services platform that extends to 47 countries, SAVVIS has over 5,000 enterprise customers and leads the industry in delivering secure, reliable, and scalable hosting, network, and application services. These solutions enable customers to focus on their core business while SAVVIS ensures the quality of their IT systems and operations. SAVVIS’ strategic approach combines virtualization technology, a global network and 25 data centers, and automated management and provisioning systems. For more information about SAVVIS, visit www.savvis.net.