ST. LOUIS, October 29, 2008 – SAVVIS Inc. (NASDAQ: SVVS), a global leader in IT infrastructure services for business applications, today reported its third quarter 2008 financial results. For the quarter, SAVVIS reported revenue of $218.4 million and income from operations of $11.1 million. The company also reported a net loss of ($0.6) million, or ($0.01) per share, and adjusted EBITDA of $47.7 million.

Revenue in the quarter increased 3%, compared to the second quarter of 2008. The improvement was driven by continued demand for managed hosting and colocation services. On a year-over-year basis, revenue was up 15%, compared to the third quarter of 2007.

Adjusted EBITDA in the quarter was up 7% from the second quarter of 2008 and up 34% from the third quarter of 2007. The growth in adjusted EBITDA was primarily due to the revenue increase experienced during the quarter and lower SG&A costs compared to the second quarter. It also reflects an improvement in gross margin and lower SG&A as a percentage of revenue, when compared to the third quarter of 2007.

“Despite the uncertain economic situation that we faced in the third quarter, SAVVIS was able to deliver solid results, including 27% year-over-year growth in total Hosting revenue and year-over-year growth in adjusted EBITDA of 34%,” said Phil Koen, chief executive officer of SAVVIS. “While we are pleased with the positive third quarter results, our team remains mindful of the global macro-economic environment, as we focus on making the most of our recently completed global expansion plan by targeting free cash flow generation in 2009.”

Third Quarter Financial Results

US dollars in millions

Three months ended

 

9/30/08

6/30/08

9/30/07

Colocation

$78.4

$74.8

$58.6

Managed Hosting

$66.5

$64.7

$55.1

Hosting

$144.9

$139.5

$113.7

Network Services

$73.5

$73.4

$76.6

Total Revenue

$218.4

$212.9

$190.3

 

 

 

 

Cost of Revenue(1)

$126.9

$121.3

$110.9

SG&A Expenses(1)

$43.8

$47.0

$43.8

Non-Cash, Equity-Based Compensation(2)

$2.4

$9.6

$8.7

Income from Operations

$11.1

$0.9

$3.7

Net Income (Loss)

($0.6)

($7.4)

$5.3

 

 

 

 

Adjusted EBITDA

$47.7

$44.7

$35.5

Adjusted EBITDA Margin

22%

21%

19%

(1) Both cost of revenue and SG&A expenses exclude depreciation, amortization, accretion, and non-cash, equity-based compensation. Total non-cash, equity-based compensation in cost of revenue for the three months ended September 30, 2008, June 30, 2008, and September 30, 2007, was $0.2 million, $1.6 million and $1.4 million and in SG&A expenses was $2.2 million, $8.0 million and $7.3 million, respectively.
(2) Non-cash, equity-based compensation was favorably impacted in the three and nine months ended September 30, 2008, by a change in estimated forfeiture rate.

Third Quarter Results
Total SAVVIS revenue for the third quarter was $218.4 million, an increase of 15% compared to revenue of $190.3 million in the third quarter of 2007 and an increase of 3% when compared to $212.9 million of revenue in the second quarter of 2008. Income from operations of $11.1 million in the third quarter compared favorably to $3.7 million in the third quarter of 2007 and $0.9 million in the second quarter of 2008. During the third quarter of 2008, the company recorded a one-time benefit of $5.6 million related to non-cash, equity-based compensation, which positively impacted income from operations.

For the third quarter, adjusted EBITDA was $47.7 million, an increase of 34% from adjusted EBITDA of $35.5 million in the third quarter of 2007 and an improvement of 7% when compared to $44.7 million of adjusted EBITDA in the second quarter of 2008. Adjusted EBITDA margin for the quarter was 22%, which reflected a year-over-year improvement of approximately 300 basis points and a quarter-over-quarter improvement of approximately 100 basis points.

The company’s consolidated net loss was ($0.6) million in the third quarter of 2008, compared to net income of $5.3 million in the third quarter of 2007 and a loss of ($7.4) million in the second quarter of 2008. The loss per share was ($0.01) in the third quarter of 2008, compared to earnings of $0.10 in the third quarter of 2007 and a loss of ($0.14) in the second quarter of 2008.

Since SAVVIS began its global data center expansion plan in 2007, the company has opened 10 new data centers on time and on budget. The new facilities give SAVVIS additional key-market capacity of approximately 215,000 sellable square feet, all with ultra-power density. Total cash capital expenditures related to the expansion, which has taken place over the past two years, will be approximately $390 million. The majority of this amount has already been expended through the third quarter of 2008, as October marks the final new data center opening of the previously-announced global expansion plan.

Hosting

US dollars in millions

Three months ended

 

9/30/08

6/30/08

9/30/07

Colocation

$78.4

$74.8

$58.6

Managed Hosting

$66.5

$64.7

$55.1

Total Hosting Revenue

$144.9

$139.5

$113.7

Percentage change

 

4%

27%

Overall Hosting revenue was $144.9 million in the third quarter, with Managed Hosting contributing $66.5 million, or 46%. Year-over-year, Managed Hosting revenue grew 21%, reflecting continued adoption of outsourced enterprise IT solutions. On a quarter-over-quarter basis, Managed Hosting revenue grew 3%, as the elongation of the sales cycle, which began in the first quarter of this year, extended into the third quarter.

Colocation contributed $78.4 million to overall Hosting revenue in the third quarter, or 54%. Year-over-year, Colocation grew 34%, reflecting continued strong industry trends. On a quarter-over-quarter basis, Colocation grew 5%, as demand for these services has continued.

Network Services

US dollars in millions

Three months ended

 

9/30/08

6/30/08

9/30/07

Revenue

$73.5

$73.4

$76.6

Percentage change

 

--%

(4%)

In the third quarter, Network Services revenue was 34% of overall revenue, or $73.5 million. Network Services revenue for SAVVIS declined (4%) from the third quarter of 2007, however, it was virtually flat when compared to the second quarter of 2008. SAVVIS continues to focus on stabilizing the Network Services portion of the company.

Highlights

Financial Vertical
Despite the turmoil in the banking industry during the third quarter, the financial vertical posted revenue of $58.6 million, or 27% of overall revenue. Compared to the third quarter of 2007, revenue increased 22%. On a quarter-over-quarter basis, revenue in the financial vertical increased 6% over the second quarter of 2008. During the third quarter of 2008, the company structure was reorganized in an effort to maximize performance in the financial vertical. As a result, SAVVIS is now employing a concentrated sales, marketing and delivery focus for this area of the company.

Growth in the financial vertical has been led by providing infrastructure services, such as proximity hosting and low latency network, which support electronic trading. In the third quarter, SAVVIS added six new trading venues and an international market data provider. SAVVIS customers can now cross-connect, or have network access, to over 59 exchanges, electronic communication networks (ECNs) and market data providers.

The company continues to see strong demand for proximity hosting colocation services tied to electronic trading. Along with low latency network and colocation services, financial firms are also taking advantage of the full suite of SAVVIS managed-hosting solutions to significantly leverage total cost of ownership (TCO) advantages. While SAVVIS is excited about the opportunities for the financial vertical going forward, the company is maintaining a near-term cautious view of the growth outlook for this area of the company.

International
On October 1, 2008, SAVVIS announced the opening of its Slough U.K. data center. The Slough facility was the final data center to be completed as part of the company’s global expansion plan and has 37,500 square feet of raised floor space. In addition, the Slough data center has 34,500 square feet of expansion capability, for a total of 72,000 square feet of raised floor space at full build. The facility is connected to two separate electricity sub-stations and has ultra-power density. The facility was built to meet the growth in customer demand that SAVVIS has experienced for hosting services in the U.K. In addition to offering the full range of the company’s integrated hosting and network services, the Slough data center offers proximity hosting for the financial community.

On the other side of the globe, SAVVIS announced the opening of its expanded Singapore data center on July 18, 2008. The facility now has more than 18,000 square feet of raised floor space. In addition to managed hosting services, the facility offers proximity hosting. Customers can now host at the SAVVIS Singapore data center and connect via low latency network access to the Singapore Exchange.

Cash Flow and Balance Sheet
Net cash provided by operating activities was $47.3 million in the third quarter of 2008. Cash capital expenditures for the quarter totaled $68.9 million, which included $32.7 million for the build-out of new data centers. Operating cash flow of $47.3 million grew 39% year-over-year.

The long-term debt and capital leases for SAVVIS, as of September 30, 2008, totaled $588.6 million. The company’s cash position at September 30, 2008, was $116.0 million, compared to $118.2 million at June 30, 2008.

Financial Outlook
“SAVVIS continues to focus on growth in revenue and adjusted EBITDA, as evidenced by our third quarter results,” said Jeff Von Deylen, chief financial officer of SAVVIS. “With our global data center expansion plan largely completed, we have the opportunity to focus on the generation of positive free cash flow in 2009.”

For full year 2008, SAVVIS continues to expect to achieve the following previously-announced guidance:

  • Total revenue of $840 to $870 million
    • Managed Hosting revenue growth of approximately 20%
    • Colocation revenue growth of approximately 27%, pro forma
    • Network Services revenue decline of approximately (6%)
  • Adjusted EBITDA of $175 to $190 million
  • Total cash capital expenditures of $260 to $280 million, which is slightly lower than previously announced
    • Includes approximately $145 to $150 million for completed data center expansions

Investor Conference Call
SAVVIS will webcast an investor conference call today, October 29, 2008, at 10:00 a.m. ET. Both the webcast and supporting presentation will be available at savvis.net on the Investor Relations page. A live conference call will also be available by telephone at (866) 847-7859 (toll free in North America) and at (703) 639-1426. A replay will be available on the Web site for six months. Investors may also access the replay by telephone through Wednesday, November 12, at (888) 266-2081 (toll free in North America) and at (703) 925-2533, by using the access code 297693.

About SAVVIS
SAVVIS Inc. (NASDAQ: SVVS) is a global leader in IT infrastructure services for enterprise applications. With an IT services platform spanning North America, Europe and Asia, SAVVIS 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 multiple data centers, and automated management and provisioning systems. For more information about SAVVIS, 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 December 31, 2007, and subsequent filings. Those risk factors include, but are not limited to, uncertainties in economic conditions, including conditions that could pressure enterprise IT spending; demand for and market acceptance of SAVVIS’ products and services; 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 our operating environment; and changes in regulatory environments. The forward-looking statements contained in this document speak only as of the date of publication, October 29, 2008. 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 financial results. “Adjusted EBITDA” represents income from operations before depreciation, amortization and accretion, gains and losses on sales of assets, and non-cash, equity-based compensation. 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. “Pro forma” results exclude certain revenue and costs related to exited contracts and sold assets. We have included information concerning pro forma results because we believe they enable investors to better compare current results to results of prior periods. The calculations of adjusted EBITDA and pro forma results are not specified by United States generally accepted accounting principles. Our calculations of adjusted EBITDA and of pro forma results may not be comparable to similarly-titled measures of other companies.

CONTACTS:
Investors:
Peggy Reilly Tharp
(314) 628-7491
peggy.tharp@savvis.net

Media:

Carter Cromley


(703) 667-6110


carter.cromley@savvis.net