ST. LOUIS, July 29, 2009 – Savvis, Inc. (NASDAQ:SVVS), a global leader in outsourced internet infrastructure services for enterprises, today reported its second quarter 2009 financial results, with revenue of $219.9 million, compared to $212.9 million in the second quarter of 2008. Second quarter 2009 revenue included $6.5 million of non-recurring early termination fees (ETF) related to the departure of the American Stock Exchange (AMEX), following its acquisition by NYSE Euronext. Excluding this amount, revenue was $213.4 million, up slightly on a year-over-year basis.

Income from operations for the second quarter of 2009 was $9.5 million, compared to $0.9 million in the second quarter of 2008. The company also reported a net loss of ($6.2) million, or ($0.12) per share, in the second quarter of 2009, which is an improvement compared to a second quarter 2008 loss of ($10.6) million, or ($0.20) per share.

Adjusted EBITDA for the second quarter of 2009 was $55.1 million, compared to $44.7 million of adjusted EBITDA in the second quarter of 2008. Excluding the AMEX non-recurring ETF, adjusted EBITDA was $48.6 million and up 9% on a year-over-year basis. In addition, Savvis reported positive adjusted free cash flow of $15.3 million for the second quarter.

“I’m pleased with our progress to date, especially in light of the overall macroeconomic conditions. As expected, our results for the second quarter were positive,” said Phil Koen, chief executive officer of Savvis. “I’d like to specifically call out our continued positive adjusted free cash flow. This metric, along with return on capital employed*, really defines the kind of success we have seen with our focus on managed hosting. We will continue to make the best use of our capital, as we position the company for long-term growth through our managed hosting strategy.”

Second Quarter Financial Results
 

 

US dollars in millions

Three months ended

 

6/30/09

3/31/09

6/30/08

Colocation

$84.9

$84.2

$74.8

Managed Hosting

$67.3

$68.1

$64.7

Hosting

$152.2

$152.3

$139.5

Network Services

$67.7

$69.2

$73.4

Total Revenue(1)

$219.9

$221.5

$212.9

 

 

 

 

Cost of Revenue(2)(3)

$120.0

$119.0

$118.2

SG&A Expenses(2)(3)

$44.8

$43.7

$50.1

Non-Cash, Equity-Based Compensation(4)

$7.8

$6.9

$9.6

Income from Operations(5)

$9.5

$15.6

$0.9

Net Income (Loss)(5)

($6.2)

$0.6

($10.6)

 

 

 

 

Adjusted EBITDA(1)

$55.1

$58.8

$44.7

Adjusted EBITDA Margin(1)

25.1%

26.5%

21.0%

 

 

(1) Excluding the $6.5 million AMEX non-recurring ETF, for the three months ended June 30, 2009, total revenue was $213.4 million, adjusted EBITDA was $48.6 million and adjusted EBITDA margin was 22.8%.
(2) Both cost of revenue and SG&A expenses exclude depreciation, amortization, accretion and non-cash, equity-based compensation. Total non-cash, equity-based compensation attributed to cost of revenue for the three months ended June 30, 2009, March 31, 2009, and June 30, 2008, was $1.5 million, $1.5 million and $1.6 million and to SG&A expenses was $6.3 million, $5.4 million and $8.0 million, respectively.
(3) Amounts include a reclassification from cost of revenue to SG&A expenses of $3.1 million for the three months ended June 30, 2008.
(4) Non-cash, equity-based compensation was favorably impacted in the three months ended March 31, 2009, by net one-time adjustments of $0.9 million, which were primarily related to the impact of employee turnover.
(5) Income from operations and net income (loss) are restated from previously reported amounts due to Savvis’ adoption of FASB Staff Position APB 14-1. Interest expense increased $3.2 million for the three months ended June 30, 2008.

Second Quarter Overview
Total Savvis revenue for the second quarter was $219.9 million. Both including and excluding the AMEX non-recurring ETF, revenue was up, when compared to revenue of $212.9 million in the second quarter of 2008, and down, when compared to first quarter 2009 revenue of $221.5 million. The quarterly decline reflected slower growth in Managed Hosting and churn in Colocation related to the departure of an internet content customer in one of the company’s data centers.

Income from operations of $9.5 million showed an improvement from the $0.9 million recorded in the second quarter of 2008. For the first quarter of 2009, the company reported income from operations of $15.6 million.

A consolidated net loss of ($6.2) million was recorded in the second quarter of 2009, compared to a loss of ($10.6) million in the second quarter of 2008 and net income of $0.6 million in the first quarter of 2009. Savvis recorded a loss per share of ($0.12) in the second quarter of 2009, compared to a loss per share of ($0.20) in the second quarter of 2008 and earnings per share of $0.01 in the first quarter of 2009.

For the second quarter, adjusted EBITDA was $55.1 million. Excluding the $6.5 million AMEX non-recurring ETF, adjusted EBITDA improved 9% from adjusted EBITDA of $44.7 million in the second quarter of 2008 and declined on a quarter-over-quarter basis. Excluding the second quarter AMEX non-recurring ETF, adjusted EBITDA margin for the quarter was 23%. This reflects a year-over-year improvement of approximately 180 basis points and a quarter-over-quarter decline of approximately 380 basis points.

Hosting 

 

US dollars in millions

Three months ended

 

6/30/09

3/31/09

6/30/08

Colocation

$84.9

$84.2

$74.8

Managed Hosting

$67.3

$68.1

$64.7

Total Hosting Revenue

$152.2

$152.3

$139.5

Percentage change

 

--%

9%

 

 

Overall Hosting revenue was $152.2 million in the second quarter, and on a year-over-year basis, Hosting was up 9%. The year-over-year improvement in Hosting revenue reflects increased enterprise interest in outsourced hosting offerings, due to the more challenging economic conditions. However, the overall sales cycle remains elongated, compared to historical trends.

For the quarter, Managed Hosting contributed $67.3 million to overall Hosting revenue, or 44%. Year-over-year, Managed Hosting revenue grew 4%, while on a quarter-over-quarter basis, revenue was down slightly.

Colocation contributed $84.9 million to overall Hosting revenue in the second quarter, or 56%. Year-over-year, Colocation grew 14%. On a quarter-over-quarter basis, Colocation grew slightly, despite some increased churn during the quarter related to the departure of an internet content customer.

Network Services 

 

US dollars in millions

Three months ended

 

6/30/09

3/31/09

6/30/08

Revenue

$67.7

$69.2

$73.4

Percentage change

 

(2%)

(8%)

 

 

In the second quarter, Network Services revenue was 31% of overall revenue, or $67.7 million. This represented an (8%) year-over-year decline and a (2%) quarter-over-quarter decline. Savvis continued to focus on network customers within its service profile.

Highlights
For the second quarter of 2009, the Financial Vertical represented 27% of total revenue, or $60.0 million. Financial Vertical revenue in the quarter was up 10%, compared to the second quarter of 2008, and 5%, compared to the first quarter of 2009. The funnel for new Financial Vertical business remains strong, and today Savvis announced that it has added Credit Suisse Crossfinder to its roster of customers.

During the quarter, Savvis announced a three-year extension of its master services agreement with Thomson Reuters, its largest customer with 7% of revenue. In addition to other managed hosting and IT infrastructure services, Savvis will continue to manage the IT infrastructure solutions required for the collection of exchange data for Thomson Reuters market data services worldwide.

Savvis also received several significant certifications during the second quarter. The company achieved Cisco Powered designation for Managed TelePresence™ Network Connection. In addition, Savvis joined the Microsoft Software + Services Incubation Center Program as a Gold Certified Microsoft partner, based on its abilities as a global hosting and IT infrastructure services provider in delivering Software-as-a-Service (SaaS) enablement services to independent software vendors (ISVs) and enterprise customers.

In addition to other SaaS wins, two significant new customers joined Savvis during the quarter. Savvis is providing MedeAnalytics with a managed IT infrastructure services solution, which includes managed compute, storage, network and security. Savvis also announced that it is providing global IT infrastructure solutions to Workday, Inc., the leader in enterprise-class, SaaS-based human resource and financial solutions. Savvis’ SaaS infrastructure solutions are focused on providing a secure, scalable, global and function-rich cloud hosting platform that enables fast, economical and reliable deployment of SaaS applications. SaaS continues to be a strong focus for Savvis, and revenue in this area grew 3%, quarter-over-quarter.

Finally, Savvis was positioned in the Leaders Quadrant in the Web Hosting and Hosted Cloud System Infrastructure Services Magic Quadrant. The Gartner Magic Quadrant is widely recognized as one of the most influential reports for enterprises seeking to evaluate hosting vendors. Its evaluation is based on completeness of vision, including market understanding, product strategy and innovation, and assesses ability to execute, which includes operations and overall viability, among other criteria.

Cash Flow and Balance Sheet
Net cash provided by operating activities was $38.4 million in the second quarter of 2009, compared to $21.4 million in the second quarter of 2008. Cash capital expenditures for the quarter totaled $27.2 million.

As of June 30, 2009, the long-term debt and capital leases for Savvis (net of current portion) totaled $562.5 million. The company’s cash position at June 30, 2009, was $154.9 million, compared to $145.9 million at March 31, 2009.

Financial Outlook
“Although we are seeing an improving overall environment, we still expect our third quarter revenue to be down sequentially,” said Greg Freiberg, chief financial officer for Savvis. “However, given our sales funnel and the quality of engagements to date, we are targeting a return to top- and bottom-line growth during the fourth quarter.”

Reflecting its first half results, Savvis now expects the following for full year 2009:

  • Adjusted EBITDA of $195 to $210 million, an increase over previous guidance of $190 to $200 million
  • Total cash capital expenditures of $110 to $140 million, including $10 million to be expended in 2009 for the expansion of the financial data center complex in metro New York
  • Cash interest expense (net) of approximately $40 to $45 million
  • Adjusted free cash flow of $25 to $45 million, an increase over previous guidance of $20 to $35 million

Financial Tables

 

Investor Conference Call
Savvis will webcast an investor conference call today, July 29, 2009, 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) 837-9780 for financial analysts in North America or (703) 639-1418 for international analysts. A replay will be available on the Web site for six months. Investors may also access the replay by telephone through Wednesday, August 12, by dialing (888) 266-2081 in North America or (703) 925-2533 internationally and using the access code 1376623.

About Savvis
Savvis, Inc. (NASDAQ:SVVS) is a global leader in outsourced internet infrastructure services for enterprises. More than 4,000 customers, including 40 percent 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 visit www.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, 2008, 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 our operating environment; and changes in regulatory environments. The forward-looking statements contained in this document speak only as of the date of publication, July 29, 2009. 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. “Adjusted free cash flow” represents adjusted EBITDA less cash capital expenditures and less cash interest, net. We have included information concerning adjusted 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. “Return on capital employed” represents operating cash flow divided by capital employed (short-term and long-term debt plus equity). We have included information concerning return on capital employed because we believe that in our industry such information is a relevant measurement of a company's operating financial performance and its efficient use of capital. The calculations of adjusted EBITDA, adjusted free cash flow and return on capital employed are not specified by United States generally accepted accounting principles. Our calculations of adjusted EBITDA, adjusted free cash flow and return on capital employed may not be comparable to similarly-titled measures of other companies.

 

Investors:
Peggy Reilly Tharp
(314) 628-7491

Media: 
Amanda Gomez 
(314) 628-7417 
amanda.gomez@savvis.net


peggy.tharp@savvis.net