ST. LOUIS, MO. – February 22, 2005 – SAVVIS Communications Corporation (NASDAQ: SVVS), a leading global IT utility, announced today that revenue for the fourth quarter of 2004 totaled $166.3 million, up 140% from $69.4 million in the fourth quarter of 2003. Results for the 2004 quarter included revenue attributable to the Cable & Wireless America (“CWA”) operations acquired in March 2004. Compared to the third quarter of 2004, revenue decreased 2%, in line with company guidance, largely due to the previously-reported price deterioration in the wholesale carrier market.

SAVVIS’ gross margin for the fourth quarter grew 120%, to $55.4 million from $25.2 million in the fourth quarter of 2003. Sequentially, gross margin grew 12% from $49.6 million in the third quarter of 2004, largely driven by continued reductions in network and operational costs as a result of planned synergies from the acquisition of the CWA operations in March. As a percentage of revenue, gross margin was 33% in the current quarter, versus 29% in the third quarter and 36% in the fourth quarter of 2003.

SAVVIS’ consolidated net loss for the current quarter was $21.7 million, versus $15.8 million for the same quarter last year and an improvement of $11.2 million from $32.9 million consolidated net loss in the third quarter of 2004. The fourth-quarter 2004 loss included $1.9 million of acquisition and integration expenses specifically related to the integration of CWA operations, compared to $3.7 million in the third quarter. Adjusted EBITDA* of $18.4 million was up from $2.5 million a year earlier and $5.1 million in the prior quarter.

Operating cash flow was $8.3 million in the fourth quarter, up $4.3 million from a year earlier and $20.0 million from the prior quarter. Fourth quarter 2004 operating cash flow included cash payments of $5.6 million for acquisition and integration costs, compared to payments of $10.1 million in the third quarter. Results for the fourth quarter included strong working capital performance. Cash capital expenditures in the quarter were $7.2 million, slightly lower than planned. SAVVIS generated positive cash flow for the fourth quarter of $2.0 million, an improvement of $2.1 million from negative cash flow of $0.1 million a year ago, and an improvement of $23.9 million from the third quarter of 2004.

For the full year 2004, revenue totaled $616.8 million, compared to $252.9 million in 2003. Gross margin doubled, to $178.9 million in 2004 from $89.3 million in 2003. SAVVIS’ consolidated net loss for the full year 2004 was $148.8 million, compared to $94.0 million a year earlier. The loss in 2004 included $27.7 million of acquisition and integration expenses specifically related to the integration of CWA operations. Adjusted EBITDA of $14.4 million was a $15.6 million improvement from negative Adjusted EBITDA of $1.2 million in 2003.

Rob McCormick, SAVVIS’ chairman and chief executive officer, said, “The fourth quarter was an impressive finish to a great year at SAVVIS, as we achieved improved operating cash flow of $8.3 million in the quarter, up 107% from a year ago, and Adjusted EBITDA of $18.4 million, up from $2.5 million a year ago. The important strides we’ve made in our financial performance are largely due to our rapid, successful integration of the CWA operations we acquired in March.

“The acquisition, which doubled the size of our company; the subsequent integration, which brought together our facilities, services, and people into a seamless SAVVIS team; and the introduction of our virtualized utility solutions, which lead the industry for performance, innovation, and cost-effectiveness, were our defining achievements of 2004,” Mr. McCormick continued. “We look forward to building on our successes in 2005, as we introduce our unique IT services model to clients who are eager for solutions to the cost and complexity of conventional IT infrastructures. We’re committed to expanding our presence in core markets to achieve long-term, profitable growth that creates value for all of our stakeholders.”

Fourth Quarter Results

 

Three months ended: Dec. 31, 2004 Sept. 30, 2004 Dec. 31, 2003
(US$ millions)      
Revenue      
     Managed IP VPN  $ 24.8 $ 22.6 $ 16.9
     Hosting(1) 66.9 63.6 9.5
     Other Network Services(1) 34.1 38.4 5.3
     Digital Content Management 11.7 14.1  6.0
  Total Diversified Revenue 137.5 138.7 37.7
  Reuters and Telerate 28.8 30.7 31.7
Total Revenue $ 166.3 $ 169.4 $ 69.4
Gross Margin $ 55.4 $ 49.6 $ 25.2
Sales, Gen. & Admin. Expenses $ 37.0 $ 44.5 $ 22.7
Adjusted EBITDA $ 18.4 $ 5.1 $ 2.5
Net Loss $ (21.7) $ (32.9) $(15.8)

 

(1)Some revenue previously reported as Hosting revenue in the third quarter of 2004 has been re-classified as Other Network Services revenue. The re-classified revenue derives from providing unmanaged connectivity to hosting clients. The re-classification is designed to distinguish between value-added hosting services provided to customers and more commodity-like connectivity bandwidth.

Total revenue for the fourth quarter increased 140% year-over-year, driven primarily by revenue associated with the CWA assets acquired in March 2004. Sequentially, revenue declined 2% from the third quarter, primarily reflecting pricing pressure in the wholesale services market. Growth in Managed IP VPN revenue, up 10% sequentially, and in Hosting revenue, up 5% sequentially, offset much of the decline in the wholesale market, reflected in Other Network Services. Digital Content Management revenue was $11.7 million in the quarter, down $2.4 million from the third quarter, primarily due to a decrease in usage from a single customer.

Diversified Revenue, defined as revenue from all customers except Reuters and Telerate, represented 83% of total revenue in the fourth quarter, up from 82% in the third quarter 2004 and from 54% in the fourth quarter of 2003.

Gross margin, defined as total revenue less data communications and operations expenses, was $55.4 million in the current quarter, compared to $25.2 million in the fourth quarter of 2003 and $49.6 million in the third quarter of 2004. As a percentage of revenues, gross margin was 33% in the current quarter, versus 36% in the fourth quarter of 2003 and up from 29% in the third quarter of 2004. Sequential-quarter growth in gross margin was driven largely by the realization of savings from the CWA integration and by ongoing improvements in operating efficiency.

Sales, general, and administrative expenses (“SG&A”) for the quarter were $37.0 million as compared to $22.7 million for the same period last year and $44.5 million in the third quarter of 2004. As a percentage of revenue, SG&A was 22% in the current quarter, down from 33% of revenue in the same quarter of 2003 and 26% in the third quarter of 2004. The improvement in SG&A from the third quarter reflected planned savings realized from the CWA integration and ongoing efficiency initiatives.

Chief Financial Officer Jeff Von Deylen said, “We’re pleased with the financial results SAVVIS achieved in the fourth quarter, with revenue in line with expectations and strong Adjusted EBITDA and operating cash flow, which exceeded capital expenditures. Last year was clearly a transformational period for our company, as we more than doubled the size of our business with the acquisition of the CWA assets. Our strong Adjusted EBITDA reflects the substantial improvement in operating efficiency we’ve achieved throughout the year as a result of the integration of the businesses. Fourth-quarter Adjusted EBITDA included approximately $4.9 million of one-time benefits from cost savings and contractual savings realized from previous quarter recorded estimates. After eliminating the effect of those non-recurring items, reported Adjusted EBITDA would be approximately $13.5 million for the quarter.”

Full Year Results

 

Twelve months ended: December 31, 2004 December 31, 2003
(US$ millions)    
Revenue Managed    
     IP VPN $ 87.1 $ 57.7
     Hosting(1) 223.9 28.5
     Other Network Services(1) 137.0 19.1
     Digital Content Management 46.8 10.4
  Total Diversified Revenue 494.8 115.7
  Reuters and Telerate 122.0 137.2
Total Revenue  $ 616.8 $ 252.9
Gross Margin $ 178.9 $ 89.3
Sales, Gen. & Admin. Expenses $ 164.5 $ 90.5
Adjusted EBITDA $ 14.4 $ (1.2)
Net Loss $ (148.8) $ (94.0)

 

(1)Some revenue previously reported as Hosting revenue in the first three quarters of 2004 has been re-classified as Other Network Services revenue. The re-classified revenue derives from providing unmanaged connectivity to hosting clients. The re-classification is designed to distinguish between value-added hosting services provided to customers and more commodity-like connectivity bandwidth.

For the full year 2004, revenue totaled $616.8 million, up 144% from $252.9 million in 2003. Gross margin was $178.9 million, an increase of 100% from $89.3 million in 2003. Both revenue and gross margin in 2004 were significantly affected by acquisition of the CWA operations in March 2004. The gross margin for 2004 was 29% of total revenue, compared to 35% in 2003. Gross margin percentage improved from 25% in the second quarter of 2004, which was the first quarter to reflect a full three months’ results including the CWA operations, to 33% in the fourth quarter, reflecting efficiency improvements achieved through the integration of operations.

Net loss for 2004 was $148.8 million, compared to $94.0 million in 2003. Adjusted EBITDA for 2004 was $14.4 million, compared to negative $1.2 million in 2003. Both net loss and Adjusted EBITDA showed consistent quarterly improvement in 2004, reflecting the financial impact of the integration of CWA operations.

Diversified revenue for 2004 comprised 80% of total revenue, up from 46% in 2003. The changing business mix is also reflected in higher Hosting revenue, 36% of 2004 revenue, compared to 11% of 2003 revenue.

Balance Sheet and Cash Flow

Net cash provided by operating activities in the fourth quarter 2004 was $8.3 million, compared to $4.0 million a year ago and net cash used of $11.7 million in the third quarter of 2004. Operating cash flow included cash payments of $5.6 million of acquisition and integration-related costs to realize synergies in the fourth quarter 2004, and $10.1 million in the third quarter 2004. The balance sheet and cash position remain in line with management expectations, with $55.4 million in cash at December 31, 2004, and Days Sales Outstanding (“DSO”) below 30 days.

In the fourth quarter, as previously announced, SAVVIS’ Series B Preferred stock converted into 65.5 million common shares. As of December 31, 2004, SAVVIS had 180.3 million common shares outstanding and Series A Preferred stock convertible into 366.9 million shares of common stock. Including the Series A Preferred stock and warrants and options outstanding on an as-converted basis, SAVVIS had 576.9 million common shares on a fully-diluted basis as of December 31, 2004.

Financial Outlook

Based on current information, SAVVIS management expects that 2005 financial results will include:
• Double-digit year-over-year growth in Hosting and Managed IP VPN revenue;
• Lower revenue from Reuters and Telerate, contributing 13-15% of total annual revenue;
• Total revenue in a range of $630-660 million;
• Adjusted EBITDA in a range of $50-60 million
• Cash capital expenditures in a range of $35-45 million
• Cash debt service payments of approximately $15-16 million
• Cash payments for integration-related costs of $6-10 million

Operational Highlights

• Industry analyst group Gartner, Inc. listed SAVVIS in the “Leader” quadrant in the Gartner North American Web Hosting Magic Quadrant, published October 5, 2004. According to Gartner, vendors listed in the Leader quadrant are performing well today, have a clear vision of market direction, and are actively building competencies to sustain their leadership position in the market.
• Rapid commercial adoption of virtualized utility services platform, including more than 650 virtual firewalls, more than 300 virtual servers, and more than 60 terabytes of virtualized storage.
• New customers signed include enterprises such as APCO Worldwide, Bitfone Corp, and Novell Inc.
• SAVVIS expanded relationships with existing customers including the General Services Administration, ITG Inc., and Layered Technologies.

*Adjusted EBITDA

“Adjusted EBITDA” is results from operations before depreciation, amortization, accretion, non-cash equity-based compensation, loss on sale of data center, restructuring charges, and integration costs. 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 accounting principles generally accepted in the United States of America. 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, February 22, 2005, at 9:00 am EST. Both the webcast and supporting presentation will be available at www.savvis.net, under “Presentations” on the Investor Relations page. The conference call will also be available via telephone, at +1 610-769-3888 or 888-405-4399 (US and Canada only), under the password “SAVVIS NEWS.” A replay of the call will be available from about noon today, on the website for one year and via teleconference.

Financial Tables