ST. LOUIS, July 26, 2010 – Savvis, Inc. (NASDAQ: SVVS), a global leader in cloud infrastructure and hosted IT solutions for enterprises, today reported its second quarter 2010 financial results, with revenue of $221.8 million, compared to $219.9 million in the second quarter of 2009. Adjusted EBITDA* was $54.7 million, excluding $3.5 million of Fusepoint acquisition and integration costs, compared to $55.1 million of adjusted EBITDA in the second quarter of 2009.
Income from continuing operations for the second quarter of 2010 was $2.6 million, compared to $9.5 million in the second quarter of 2009. The company reported a net loss of ($13.2) million, or ($0.24) per share, in the second quarter of 2010, compared to a second quarter 2009 net loss of ($6.2) million, or ($0.12) per share. Leveraged free cash flow* in the second quarter of 2010 was ($13.2) million, down from $15.3 million in the second quarter of 2009.
“Once again, Savvis outperformed internal plans for revenue, bookings, installs, churn and renewals,” said Jim Ousley, chairman and chief executive officer for Savvis. “The organic growth we are seeing - in combination with our strategic acquisition of Fusepoint - has left us poised to exit the year at double digit growth run rates for both revenue and adjusted EBITDA. We look forward to building on our successive quarterly strength, as we continue implementing our new programs and process improvements and benefiting from our efforts."
Second Quarter Financial Results
US dollars in millions
Three months ended
Cost of revenue(1)
Non-cash, equity-based compensation(1)
Income from continuing operations
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax(2)
Net income (loss)
Adjusted EBITDA margin
The Fusepoint acquisition was completed on June 16, 2010. (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 June 30, 2010, March 31, 2010, and June 30, 2009, was $1.5 million, $1.6 million and $1.5 million and to SG&A expenses was $5.1 million, $6.8 million and $6.3 million, respectively. (2) Includes a ($49,000) loss from the application services business acquired from Fusepoint, which has been classified as an asset held for sale, as of June 30, 2010.
Second Quarter Overview
Total Savvis revenue for the second quarter was $221.8 million, up 2% compared to first quarter 2010 revenue of $216.6 million. Excluding revenue from the Fusepoint acquisition, revenue for the second quarter was $220.3 million, up 2% compared to the first quarter of 2010.
Adjusted EBITDA was $54.7 million for the second quarter of 2010, up 1% compared to $54.0 million of adjusted EBITDA recorded in the first quarter of 2010. As expected, the company increased its sales and marketing spend, as it continued to ramp up its efforts in this area.
For the second quarter of 2010, income from continuing operations of $2.6 million was down when compared to the $4.8 million recorded in the first quarter of 2010. A net loss from continuing operations of ($13.1) million was recorded in the second quarter of 2010, compared to a net loss of ($11.3) million in the first quarter of 2010. Savvis recorded a loss per share of ($0.24) in the second quarter of 2010, compared to a loss per share of ($0.21) in the first quarter of 2010. For the second quarter, leveraged free cash flow was ($13.2) million, down from ($4.5) million in the first quarter of 2010.
US dollars in millions
Three months ended
Total Hosting revenue
Overall Hosting revenue was $158.2 million in the second quarter, up 4% on a quarter-over-quarter basis. On a year-over-year basis, Hosting revenue was up 4%. Excluding revenue from the Fusepoint acquisition, overall Hosting revenue was $156.8 million in the second quarter, up 3% on a year-over-year basis and up 3% on a quarter-over-quarter basis.
For the quarter, Managed Services contributed $73.9 million to overall Hosting revenue, or 47%. Managed Services revenue was up 5% on a quarterly basis and year-over-year it was up 10%. Excluding revenue from the Fusepoint acquisition, Managed Services revenue was $73.2 million in the second quarter, up 4% on a quarter-over-quarter basis and up 9% on a year-over-year basis. The growth in revenue reflects client interest in both standard managed services and cloud services. For the second quarter of 2010, cloud revenue was up 24% on a quarter-over-quarter basis and up 129% year-over-year.
Colocation contributed $84.3 million to overall Hosting revenue in the quarter, or 53%. Quarter-over-quarter, Colocation revenue was up 2%. On a year-over-year basis, Colocation revenue was roughly flat. Excluding revenue from the Fusepoint acquisition, Colocation revenue was $83.6 million in the second quarter, up 1% on a quarter-over-quarter basis and down (2%) on a year-over-year basis. The company is experiencing strong trends in colocation bookings, with increased interest from financial and cloud related clients.
US dollars in millions
Three months ended
Total Network revenue
Overall Network revenue was $63.6 million in the second quarter and was flat on a quarterly basis. On an annual basis, Network revenue was down (6%). As of the second quarter, Core Network revenue surpassed Sustaining Network revenue, as the Core Network continued to grow while the Sustaining Network decline continued to slow. The Network business has continued to stabilize, as the company has refocused its efforts in this area, and it should begin to show overall growth by the end of 2010. The Network has also benefited from increased client interest in converged cloud.
For the quarter, Core Network contributed $33.5 million to overall Network revenue. Core Network revenue was up 6% on a quarter-over-quarter basis and was up 24% on a year-over-year basis. Sustaining Network contributed $30.1 million to overall Network revenue in the quarter. Quarter-over-quarter, Sustaining Network revenue was down (6%). On a year-over-year basis, Sustaining Network revenue declined (26%).
The Financial Vertical represented 27% of total revenue, or $60.4 million, in the second quarter of 2010. Revenue in the quarter was up 9% compared to the first quarter of 2010 and was flat compared to the second quarter of 2009.
During the second quarter, the company announced the addition of Barclays Capital’s dark liquidity crossing network and UBS Investment Bank's Alternative Trading System to its financial vertical ecosystem, in addition to many other new financial vertical clients.
Savvis continues to lead in the Financial Vertical, by functioning as a vital component of the fabric that interconnects the financial industry. In addition, the company remains well-positioned in this area, with infrastructure resources in the key financial markets, such as New York, Chicago, Toronto, London, Frankfurt, Tokyo, Hong Kong and Singapore.
In June, Savvis announced that its Savvis Symphony Virtual Private Data Center (VPDC) had successfully transitioned from beta to general availability. VPDC is one of the industry’s first enterprise-class virtual private data center solutions, with multi-tiered security, service and network profiles.
Savvis Symphony is the centerpiece of a converged cloud solution that blends cloud with traditional infrastructure services such as colocation and managed services. This unique combination, coupled with Savvis’ Tier1 network and global data center footprint, enables enterprises to have a consistent, secure, low-latency solution anywhere in the world.
Cash Flow and Balance Sheet
Net cash provided by operating activities was $32.3 million in the second quarter of 2010, compared to $38.4 million in the second quarter of 2009. Cash capital expenditures for the second quarter of 2010 totaled $51.5 million.
The company’s cash position at June 30, 2010, was $118.7 million, compared to $145.9 million at March 31, 2010. As of June 30, 2010, the long-term debt and capital leases for Savvis (net of current portion) totaled $712.8 million, up from $595.8 million as of March 31, 2010.
The company’s debt position increased during the second quarter of 2010, as the company borrowed $110.0 million on its revolving credit facility to fund the acquisition of Fusepoint. As part of the acquisition, Savvis added $9.3 million of capital leases.
“In addition to a 2% quarterly increase in revenue, we saw a slight quarterly increase in adjusted EBITDA, excluding Fusepoint acquisition and integration costs of $3.5 million. This improvement was despite our expected investment in cloud sales and marketing spend, performance driven sales and support costs, and an increase in commissions related to new business,” said Greg Freiberg, chief financial officer for Savvis. “Thanks to our continued strong organic growth, we have decided to provide full year 2010 revenue guidance of $912 to $927 million, which includes the Fusepoint acquisition.”
In addition, Savvis now expects the following for full year 2010, which includes the Fusepoint acquisition:
•Adjusted EBITDA of $220 to $240 million, which is an increase from previous guidance of $210 to $225 million and does not include the $5 to $6 million of acquisition and integration costs
•Total cash capital expenditures of $190 to $210 million, which is an increase from previous guidance of $180 to $200 million and includes $50 to $55 million for data center expansion
•Cash interest expense (net) of approximately $55 to $60 million, which is an increase over previous guidance of $40 to $50 million and is due to expected changes in the company’s debt structure
Investor Conference Call
Savvis will webcast an investor conference call at 10:00 a.m. ET today, July 26, 2010. 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) 835-8906 for financial analysts in North America or (703) 639-1413 for international analysts. A replay will be available on the web site for six months. Investors may also access the replay by telephone through Saturday, Aug. 7, by dialing (888) 266-2081 in North America or (703) 925-2533 internationally and using the access code 1469201.
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.
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, 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, July 26, 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.
Peggy Reilly Tharp