ST. LOUIS----SAVVIS, Inc. NASDAQ: SVVS, a global leader in IT infrastructure
services for business applications, announced today that its revenue for
the second quarter of 2007 totaled $200.6 million, an increase of 6%
from the second quarter of 2006. Income from operations was $192.5
million in the second quarter 2007, and net income was $133.3 million;
both figures reflect a $180.8 million gain recorded on the sale of
data-center assets and net income reflects a charge of $45.1 million in
the second quarter related to debt retirement. Adjusted EBITDA* for the
second quarter was $42.6 million, an increase of 50% from a year ago.
Second quarter operating cash flow was $28.0 million and cash capital
expenditures were $126.1 million, of which $90.1 million was for
previously-announced growth projects, including the build-out of four
new data centers and SAVVIS’ next-generation
network.
Chief Executive Officer Phil Koen said, “With
record sales bookings in the second quarter, SAVVIS continues to build
its track record of delivering solid financial results as we transition
the company to operate in increasingly high-growth, high-margin areas.
Our investments in new, high-quality data center space and significant
enhancements in our network backbone are enhancing our ability to offer
IT infrastructure as a service – an approach
that addresses the most pressing challenges facing enterprise IT today.
Our strategic initiatives are continuing to improve SAVVIS’
capital structure and Adjusted EBITDA margins and, most important, lay
the groundwork to create increasing value for stockholders in 2008 and
beyond.”
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Second-quarter Results
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US$ millions
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Three months ended:
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June 30, 2007
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March 31, 2007
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June 30, 2006
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Revenue:
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Colocation
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$
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68.4
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$
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69.4
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$
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54.8
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Managed hosting
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51.0
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50.3
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39.8
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Total Hosting
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119.4
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119.7
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94.6
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Network services
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75.6
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79.0
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80.8
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Other services
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5.6
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6.5
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14.2
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Total Revenue
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$
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200.6
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$
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205.2
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$
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189.6
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Cost of Revenue1
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$
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113.8
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$
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116.7
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$
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117.1
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Sales, Gen. & Admin. Expenses1
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$
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52.3
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$
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53.2
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$
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46.8
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Income from Operations
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$
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192.5
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$
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139.0
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$
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6.0
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Net Income Loss
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$
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133.3
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$
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114.5
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$
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11.1
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Adjusted EBITDA
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$
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42.6
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$
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43.2
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$
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28.5
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Adjusted EBITDA Margin
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21
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%
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21
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%
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15
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%
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1 Cost of revenue excludes
depreciation, amortization, and accretion. Both cost of revenue
and sales, general and administrative expenses include the effect of
non-cash equity-based compensation. Total non-cash equity-based
compensation in cost of revenue was $1.5 million, $1.4 million, and $0.2
million and in sales, general and administrative expenses was $6.7
million, $6.4 million, and $2.6 million for the three months ended June
30, 2007, March 31, 2007, and June 30, 2006, respectively.
Total revenue for the second quarter was $200.6 million, an increase of
6% compared to the second quarter of 2006, primarily due to continued
growth in hosting revenue. Compared to the first quarter 2007, excluding
the impact of $3.6 million of non-recurring colocation revenue, total
revenue for the second quarter 2007 decreased slightly, reflecting
anticipated declines in network services and other revenue.
Growth in hosting revenue reflected re-pricing of existing colocation
contracts to market rates and continued customer demand for managed
hosting services. Managed hosting services contributed 25% of total
revenue, up from 21% of revenue a year ago. Virtualized and utility
services contributed $13.7 million of managed hosting revenue, up 121%
from a year ago and 13% from the first quarter.
Network services revenue consists primarily of revenue from managed IP
VPN services, Internet access services sold to customers using SAVVIS
hosting services, and bandwidth services to wholesale customers. In the
second quarter, network services revenue of $75.6 million declined 6%
from the same period a year previously, and 4% from the prior quarter.
Hosting customers continued to increase their use of SAVVIS networks for
data transport, driving revenue growth, which was offset by declines in
wholesale bandwidth volumes and in managed IP VPN services as SAVVIS
transitions its service offerings with the roll-out of enhancements to
its network backbone that will be launched in the fourth quarter of 2007.
Other services revenue includes revenue from two sources that, as
previously announced, SAVVIS expects will be eliminated in 2007: $1.6
million from Telerate, formerly SAVVIS’
second-largest customer, which is migrating its customers to Reuters
products in 2007, and $4.0 million from the non-strategic CDN assets
sold in January 2007. The majority of those customers had been
transitioned to the purchaser of those assets by the end of the second
quarter, so SAVVIS anticipates that other services revenue will be
eliminated for the second half of 2007.
Cost of revenue was $113.8 million, and included $1.5 million of
non-cash equity-based compensation costs, resulting in gross profit as a
percentage of total revenue, or gross margin, of 43% in the current
quarter, an increase from 38% in the same period a year ago, and
consistent with the gross margin in the first quarter 2007.
Sales, general, and administrative expenses “SG&A”
for the current quarter were $52.3 million, as compared to $46.8 million
for the same period last year and $53.2 million in the first quarter
2007. SG&A included non-cash equity-based compensation costs for the
current quarter of $6.7 million, as compared to $2.6 million for the
same period last year and $6.4 million in the first quarter 2007. As a
percentage of revenue, excluding non-cash equity-based compensation
costs, SG&A was 23% in the current quarter, the same as in the second
quarter 2006 and the first quarter 2007.
SAVVIS realized a gain of $180.8 million from the sale of assets related
to two data centers in June 2007, driving income from operations for the
second quarter to $192.5 million. SAVVIS also recorded a charge of $45.1
million in the second quarter related to the retirement of its 15%
Series A Subordinated Notes the Subordinated Notes, including $23.2
million for a make-whole premium and $21.9 million for amortization of
the original-issue discount associated with the Subordinated Notes.
In the second quarter of 2007, SAVVIS recorded an income tax benefit of
$1.7 million to reflect the reduction of its expected annual effective
tax rate from 5% to 1.75%. The reduction in effective tax rate reflects
tax deductions taken for cash interest paid in retiring the Subordinated
Notes.
SAVVIS’ consolidated net income was $133.3
million in the second quarter, compared to net losses of $11.1 million
in the same period last year and net income of $114.5 million in the
first quarter 2007, which included $125.2 million for the gain on a sale
of non-strategic assets.
Cash Flow and Balance Sheet
Net cash provided by operating activities was $28.0 million in the
second quarter. Cash capital expenditures for the quarter totaled $126.1
million, which included $90.1 million for previously-announced growth
projects including the next-generation network and the build-out of four
new data centers. SAVVIS’ cash position at
June 30, 2007, was $309.0 million, compared to $98.7 million at December
31, 2006, and $221.6 million at March 31, 2007.
SAVVIS issued $345 million of unsecured 3% Convertible Senior Notes due
May 2012 during the second quarter. At the end of the quarter, SAVVIS
used $342.5 million of proceeds from that debt offering and cash on hand
to retire all of the outstanding 15% Series A Subordinated Notes. The
net effect of the two transactions was to reduce interest expenses for
2008 by approximately $55.4 million.
SAVVIS added to its cash balance in the quarter through the sale of
assets related to two data centers for cash proceeds of $190.2 million,
which also generated a gain, as previously discussed, of $180.8 million.
The company intends to invest the proceeds of that sale in growth
opportunities such as select data center expansions, potential network
enhancements or possible acquisitions.
Financial Outlook
Chief Financial Officer Jeff Von Deylen said, “In
the second quarter, SAVVIS drove continued strong Adjusted EBITDA growth
through improvements in hosting revenue and gross margin. Our activities
in the second quarter are a further step in the transition of the
company to a sustainable, high-growth, high-margin business model. In
the second quarter, consistent with that strategy, we monetized certain
data-center assets with low growth potential to fund higher return on
investment initiatives. We continue to develop our next-generation
network and enhancements to our managed hosting product suite that
better enable our integrated IT infrastructure solution.”
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SAVVIS management's current expectations for 2007 financial results
include:
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-- Total revenue in a range of $805-815 million, including
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-- total Hosting revenue of $480-490 million, including 26-28%
growth in revenue from managed hosting services,
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-- Network services revenue declining approximately 3%, and
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-- Other services revenue declining to zero in the second half of
the year; and
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-- Adjusted EBITDA in a range of $161-166 million, reflecting an
Adjusted EBITDA margin of approximately 20%, including
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-- approximately $7-9 million of negative impact from operating four
new data centers, as operating expenses precede anticipated customer
revenue,
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-- approximately $8 million of negative impact from the sale of data
center assets; and
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-- Cash capital expenditures of $350-360 million, including $35-40
million for the next-generation network upgrade and approximately
$200 million for the four new data centers, with approximately
60-70% of the remainder reflecting ongoing customer-growth-based
investments.
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-- Capital expenditures for 2007 will be primarily funded by
existing resources and proceeds from the sales of non-strategic
assets.
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-- SAVVIS anticipates bringing its four new data centers online
beginning in the fourth quarter of 2007. Those data centers are
expected to generate approximately $50 million of revenue in 2008 at
approximately 40% Adjusted EBITDA margins.
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* Adjusted EBITDA
“Adjusted EBITDA”
represents income from operations before depreciation, amortization and
accretion, gains 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. The calculation of Adjusted EBITDA is not specified by United
States generally accepted accounting principles. Our calculation of
Adjusted EBITDA may not be comparable to similarly titled measures of
other companies.
Investor Conference Call
SAVVIS will webcast an investor conference call today, July 23, 2007, at
5:30 PM EDT. Both the webcast and supporting presentation will be
available at www.savvis.net on the
Investor Relations page. A live conference call will also be available
at +1-703-639-1122 and 866-219-5631 in North America, toll free.
Recorded replays will be available on the website for six months, and by
telephone through Monday, August 6, at +1-703-925-2533 and 888-266-2081
in North America, toll free with the access code 1107285, beginning at
8:00 PM EDT that day.
Forward-Looking Statements
This document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Actual results,
including financial performance and product growth, 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, 2006, and all subsequent filings. Those risk factors
include, but are not limited to, variability in pricing for SAVVIS’
products, highly competitive markets, rapid evolution of technology,
variability in the availability and terms of financing, uncertainties
related to merger and acquisition activity, 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 23, 2007. 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.
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 23 data
centers, and automated management and provisioning systems. For more
information about SAVVIS, visit www.savvis.net.
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SAVVIS, Inc. and Subsidiaries
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Unaudited Condensed Consolidated Statements of Operations
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dollars in thousands, except share data
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2007
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2006
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2007
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|
2006
|
|
|
|
|
|
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Revenue
|
|
$
|
200,554
|
|
$
|
189,597
|
|
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$
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405,802
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$
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369,552
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Operating Expenses:
|
|
|
|
|
|
|
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Cost of revenue including non-cash equity-based compensation of
$1,507, $186, $2,866, and $429 1
|
|
|
113,755
|
|
|
117,102
|
|
|
|
230,430
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|
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230,071
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|
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Sales, general, and administrative expenses including non-cash
equity-based compensation of $6,658, $2,608, $13,078, and $4,182
|
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52,321
|
|
|
46,825
|
|
|
|
105,492
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|
|
90,179
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|
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Depreciation, amortization, and accretion
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|
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22,787
|
|
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19,636
|
|
|
|
44,432
|
|
|
39,563
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Gain on sales of data center and CDN assets
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180,846
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|
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-
|
|
|
|
306,044
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|
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-
|
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Total Operating Expenses
|
|
|
8,017
|
|
|
183,563
|
|
|
|
74,310
|
|
|
359,813
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Income from Operations
|
|
|
192,537
|
|
|
6,034
|
|
|
|
331,492
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|
|
9,739
|
|
|
Loss on debt extinguishment
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|
|
45,127
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|
|
-
|
|
|
|
45,127
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|
|
-
|
|
|
Net interest expense and other
|
|
|
15,800
|
|
|
17,125
|
|
|
|
34,137
|
|
|
33,278
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|
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Net Income Loss before Income Taxes
|
|
|
131,610
|
|
|
11,091
|
|
|
|
252,228
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|
|
23,539
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|
|
Income taxes
|
|
|
1,663
|
|
|
-
|
|
|
|
4,414
|
|
|
-
|
|
|
Net Income Loss
|
|
|
133,273
|
|
|
11,091
|
|
|
|
247,814
|
|
|
23,539
|
|
|
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