ST. LOUIS, October 28, 2009 – Savvis, Inc. (NASDAQ:SVVS), a global leader in outsourced internet infrastructure services for enterprises, today reported its third quarter 2009 financial results, with revenue of $213.2 million, compared to $218.4 million in the third quarter of 2008. Adjusted EBITDA for the third quarter of 2009 was $51.2 million, compared to $47.7 million of adjusted EBITDA in the third quarter of 2008. For the third quarter, positive adjusted free cash flow was $15.4 million, compared to negative adjusted free cash flow of ($26.2) million in the third quarter of 2008.

Income from operations for the third quarter of 2009 was $4.5 million, compared to $11.1 million in the third quarter of 2008. The company reported a net loss of ($9.9) million, or ($0.18) per share, in the third quarter of 2009, compared to a third quarter 2008 net loss of ($3.8) million, or ($0.07) per share.

“Performance in the third quarter was as expected, and we look forward to continuing the transformation of our business as we drive our long-term growth initiatives,” said Phil Koen, chief executive officer of Savvis. “We believe our Proximity Hosting strength - which is being supported by our NJ2X financial data center complex expansion - the continued growth of our Cloud and Software-as-a-Service offerings, and our collaboration with Thomson Reuters will drive our revenue growth over the long term, while making efficient use of our capital resources.”

Third Quarter Financial Results US dollars in millions

US dollars in millions

Three months ended

 

9/30/09

6/30/09(1)

9/30/08

Colocation

$85.3

$84.9

$78.4

Managed Hosting

$62.8

$67.3

$66.5

Hosting

$148.1

$152.2

$144.9

Network Services

$65.1

$67.7

$73.5

Total Revenue

$213.2

$219.9

$218.4

 

 

 

 

Cost of Revenue(2)(3)

$117.9

$121.4

$124.0

SG&A Expenses(2)(3)

$52.6

$51.1

$49.0

Non-Cash, Equity-Based Compensation

$8.5

$7.8

$2.4

Income from Operations

$4.5

$9.5

$11.1

Net Income (Loss)(4)

($9.9)

($6.2)

($3.8)

 

 

 

 

Adjusted EBITDA

$51.2

$55.1

$47.7

Adjusted EBITDA Margin

24%

25%

22%

(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 23%.
(2) Both cost of revenue and SG&A expenses exclude depreciation, amortization, accretion and include non-cash, equity-based compensation. Total non-cash, equity-based compensation attributed to cost of revenue for the three months ended September 30, 2009, June 30, 2009, and September 30, 2008, was $1.5 million, $1.5 million and $0.2 million and to SG&A expenses was $7.0 million, $6.3 million and $2.2 million, respectively.
(3) Amounts include a reclassification from cost of revenue to SG&A expenses of $3.0 million for the three months ended September 30, 2008.
(4) Net income (loss) is restated from amounts reported in the prior year, due to Savvis’ adoption of new accounting guidance for certain convertible securities. Interest expense increased $3.2 million for the three months ended September 30, 2008.

Third Quarter Overview
Total Savvis revenue for the third quarter was $213.2 million. Revenue was down (3%), compared to second quarter 2009 revenue of $219.9 million, which included a $6.5 million non-recurring early termination fee (ETF) related to the departure of the American Stock Exchange (AMEX). Excluding the AMEX non-recurring ETF, revenue was basically flat on quarter-over-quarter basis, compared to revenue of $213.4 million for the second quarter of 2009.

For the third quarter of 2009, income from operations of $4.5 million was down when compared to the $9.5 million recorded in the second quarter of 2009. A consolidated net loss of ($9.9) million was recorded in the third quarter of 2009, compared to a net loss of ($6.2) million in the second quarter of 2009. Savvis recorded a loss per share of ($0.18) in the third quarter of 2009, compared to a loss per share of ($0.12) in the second quarter of 2009.

Adjusted EBITDA was $51.2 million for the third quarter of 2009, which represented a (7%) decline from the $55.1 million of adjusted EBITDA that was recorded in the second quarter of 2009. Excluding the impact of the AMEX non-recurring ETF, adjusted EBITDA was up 5%, when compared to second quarter 2009 adjusted EBITDA of $48.6 million.

Hosting

 

US dollars in millions

Three months ended

 

9/30/09

6/30/09

9/30/08

Colocation

$85.3

$84.9

$78.4

Managed Hosting

$62.8

$67.3

$66.5

Total Hosting Revenue

$148.1

$152.2

$144.9

Percentage change

 

(3%)

2%

 

Overall Hosting revenue was $148.1 million in the third quarter, and on a year-over-year basis, was up 2%. On a quarter-over-quarter basis, Hosting was down (3%), due to the departure of the American Stock Exchange. Excluding all AMEX revenue, Hosting revenue was up 6%, on a year-over-year basis, and up slightly, on a quarter-over-quarter basis.

For the quarter, Managed Hosting contributed $62.8 million to overall Hosting revenue, or 42%. Managed Hosting revenue was down (6%), on a year-over-year basis, and (7%), on a quarter-over-quarter basis. Both the annual and quarterly comparisons reflect the loss of the American Stock Exchange, which was primarily a Managed Hosting customer.

Colocation contributed $85.3 million to overall Hosting revenue in the quarter, or 58%. Year-over-year, Colocation grew 9%. On a quarter-over-quarter basis, colocation growth was flat. Savvis remains committed to attracting enterprise customers into its data centers, as the company continues to transition away from below-market margin customers to customers with stronger margins and pricing.

Network Services

 

US dollars in millions

Three months ended

 

9/30/09

6/30/09

9/30/08

Revenue

$65.1

$67.7

$73.5

Percentage change

 

(4%)

(11%)

 

In the third quarter, Network Services revenue was 31% of overall revenue, or $65.1 million. This represented an (11%) year-over-year decline and a (4%) quarter-over-quarter decline. The company continues to focus on improving the network revenue associated with its data centers, over the long term, while moving away from less profitable customers.

Highlights

For the third quarter of 2009, the Financial Vertical represented 25% of total revenue, or $54.0 million. Financial Vertical revenue in the quarter was down (7%), compared to the third quarter of 2008, and down (10%), compared to the second quarter of 2009, both reflecting the departure of the American Stock Exchange. Excluding any AMEX related revenue, the Financial Vertical would have been up 5% on an annual and 1% on a quarterly basis.

Since its second quarter earnings release, Savvis has made several major announcements, including this week’s news that BATS Global Markets is expanding its hosting space in Savvis’ Weehawken, NJ, data center. This expansion will help support the launch of the BATS U.S. Equity Options Exchange. BATS will also expand its footprint within the Savvis Docklands data center in London, in expectation of continued growth of the BATS Europe multilateral trading facility.

Earlier this month, Savvis announced that it will be collaborating with Thomson Reuters in a major expansion of their hosting capabilities, which will be powered by Savvis. This collaboration represents a strategic shift toward providing the Thomson Reuters trading infrastructure solution as a fully managed, hosted offering. This collaboration is expected to create new sales channel opportunities for Savvis, and it should enhance the company’s ability to grow revenue more broadly in the Financial Vertical.

In September, the company previewed its next-generation cloud compute platform - Project Spirit - which will power the industry's first enterprise-class Virtual Private Data Center with multi-tiered Quality of Service capabilities. Savvis believes Project Spirit will be the industry's most feature-rich cloud delivery platform available for enterprises. In addition, Project Spirit should help advance Savvis’ current suite of dedicated and open cloud solutions, which are gaining traction worldwide.

Cash Flow and Balance Sheet
Net cash provided by operating activities was $45.0 million in the third quarter of 2009, compared to $47.3 million in the third quarter of 2008. Cash capital expenditures for the quarter totaled $30.3 million.

As of September 30, 2009, the long-term debt and capital leases for Savvis (net of current portion) totaled $561.6 million. The company’s cash position at September 30, 2009, was $163.5 million, compared to $154.9 million at June 30, 2009.

Financial Outlook
“Our performance year-to-date has resulted in an increase in our 2009 guidance, however, we are still facing a challenging environment,” said Greg Freiberg, chief financial officer for Savvis. “We are anticipating approximately $4 to $6 million of colocation revenue will churn in the first quarter of 2010, as we substantially complete our transition away from below-market margin customers to customers with stronger margins and pricing.”

Savvis now expects the following for full year 2009:

  • Adjusted EBITDA of $215 to $220 million, an increase over previous guidance of $195 to $210 million
  • Total cash capital expenditures of $120 to $140 million, an increase over previous guidance of $110 to $140 million and 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 $40 to $50 million, an increase over previous guidance of $25 to $45 million

Financial Tables

Investor Conference Call
Savvis will webcast an investor conference call at 10:00 a.m. ET today, October 28, 2009. 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) 259-1024 for financial analysts in North America or (703) 639-1218 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, November 11, by dialing (888) 266-2081 in North America or (703) 925-2533 internationally and using the access code 1404087.

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 the operating environment; and changes in regulatory environments. The forward-looking statements contained in this document speak only as of the date of publication, October 28, 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. “Cash 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 cash 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. 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, adjusted free cash flow and cash return on capital employed for forward looking data, including 2009 full-year guidance. The calculations of adjusted EBITDA, adjusted free cash flow and cash return on capital employed are not specified by United States generally accepted accounting principles. Our calculations of adjusted EBITDA, adjusted free cash flow and cash return on capital employed may not be comparable to similarly-titled measures of other companies.