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Press Release -- October 27th, 2010
Source: Savvis
Tags: Colocation, Merger

Savvis Delivers Year-over-Year Revenue Growth of 13% and Adjusted EBITDA Growth of 17% for Third Quarter 2010

Managed Services revenue growth of 30% YoY and 10% QoQ
Colocation revenue growth of 12% YoY and 13% QoQ
Network revenue growth flat YoY and 3% QoQ

ST. LOUIS, Oct. 27, 2010 – Savvis, Inc. (NASDAQ: SVVS), a global leader in cloud infrastructure and hosted IT solutions for enterprises, today reported its third quarter 2010 financial results, with revenue of $241.9 million, compared to $213.2 million in the third quarter of 2009. Adjusted EBITDA* was $59.7 million, compared to $51.2 million of adjusted EBITDA in the third quarter of 2009.

“Savvis continues to deliver on its stated goal of exiting the year at a quarterly sequential double-digit run rate for both revenue and adjusted EBITDA growth,” said Jim Ousley, chairman and chief executive officer for Savvis. “The company-wide changes and improvements we have made over the past year, specifically in sales and marketing, are now flowing through to our results. Based on the strength we continue to see in bookings, installs and renewals, we expect to continue on this path throughout 2011."

Income from continuing operations for the third quarter of 2010 was $3.5 million, compared to $4.5 million in the third quarter of 2009. Savvis reported a net loss of ($26.2) million, or ($0.47) per share, in the third quarter of 2010, and this amount includes approximately $11.8 million in costs related to the company’s debt refinancing, which occurred during the quarter. Savvis had a net loss of ($9.9) million, or ($0.18) per share, in the third quarter of 2009.

US$ in millions Three months ended
9/30/10 6/30/10 9/30/09
Hosting $176.7 $158.2 $148.1
Network $65.2 $63.6 $65.1
Total revenue $241.9 $221.8 $213.2
Cost of revenue(1) $131.6 $120.2 $117.9
SG&A expenses(1) (2) $56.5 $56.9 $52.6
Non-cash, equity-based compensation(1) $5.4 $6.5 $8.5
Income from continuing operations $3.5 $2.2 $4.5
Net income (loss) from continuing operations ($26.2) ($13.3) ($9.9)
Income (loss) from discontinued operations, net of income tax(3) ($0.0) ($0.1) --
Net income (loss) ($26.2) ($13.4) ($9.9)
Adjusted EBITDA $59.7 $54.7 $51.2
Adjusted EBITDA margin 25% 25% 24%

(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 Sept. 30, 2010, June 30, 2010, and Sept. 30, 2009, was $1.5 million, $1.5 million and $1.5 million and to SG&A expenses was $3.9 million, $5.1 million and $7.0 million, respectively. (2) SG&A expenses include acquisition and integration costs of $0.5 million and $3.5 million for the three months ended Sept. 30, 2010, and June 30, 2010, respectively. (3) Includes losses from the application services business acquired from Fusepoint, which is classified as an asset held for sale at Sept. 30, 2010. Total losses attributed to net income for the three months ended Sept. 30, 2010, and June 30, 2010, were ($9,000) and ($88,000), respectively.

Third Quarter Overview
Total Savvis revenue for the third quarter was $241.9 million, up 9% compared to second quarter 2010 revenue of $221.8 million. Revenue improved in the third quarter, as the company continued to exceed its internal bookings, installs and renewals targets for 2010.

Adjusted EBITDA was $59.7 million for the third quarter of 2010, up 9% compared to $54.7 million of adjusted EBITDA in the second quarter of 2010. Growth in adjusted EBITDA continues to track the company’s quarterly sequential improvements in revenue.

Both revenue and adjusted EBITDA included a full-quarter of contribution from the Fusepoint acquisition, which closed on June 16, 2010.

US$ in millions Percent of Revenue Three months ended
9/30/10 6/30/10 9/30/09
Managed Services 46% $81.5 $73.9 $62.8
Percentage change 10% 30%
Colocation 54% $95.2 $84.3 $85.3
Percentage change 13% 12%
Total Hosting revenue $176.7 $158.2 $148.1
Percentage change 12% 19%

In the third quarter, Managed Services revenue grew as enterprises in the company’s targeted verticals looked to outsourcing as a way to improve the benefit they receive from technology solutions while reducing their overall spend and time to implementation. Managed services revenue includes Savvis Symphony Cloud solutions, such as Open, Dedicated and Virtual Private Data Center.

Colocation revenue was up both quarterly and annually in the third quarter, due to the return of enterprise client demand, lower churn and an improved fill rate. The trend of combining colocation with the company’s managed services and network to create a complete solution, continued during the quarter.

US$ in millions Percent of Revenue Three months ended
9/30/10 6/30/10 9/30/09
Core(1) 56% $36.4 $33.5 $28.7
Percentage change 9% 27%
Sustaining(2) 44% $28.8 $30.1 $36.4
Percentage change (4%) (21%)
Total Network revenue $65.2 $63.6 $65.1
Percentage change 3% --

(1) Core network includes revenue from Thomson Reuters and from other financial vertical and data center clients, who also purchase bundled network and hosting services. (2) Sustaining network includes revenue from services that are either in slower growth or declining markets or are not directly tied to the future growth of the company's network and hosting businesses.

As expected, the overall Network business showed quarterly sequential revenue growth in the third quarter. Core Network revenue continued to grow, while the decline in Sustaining Network revenue continued to slow. The majority of Savvis’ hosting clients continued to take the company’s network offering, as 96% use Network as part of an end-to-end solution.

Other Highlights
The Financial Vertical represented 28% of total revenue, or $67.0 million, in the third quarter of 2010. Revenue in the quarter was up 11%, compared to the second quarter of 2010 and was up 24%, compared to the third quarter of 2009. Financial firms have begun making additional investments in infrastructure, in order to meet new industry-related regulatory requirements. Savvis has benefitted from this interest in outsourcing, by providing both new and existing clients with the services they require in centrally located data centers.

Cash Flow and Balance Sheet
Net cash provided by operating activities was $35.7 million in the third quarter of 2010, compared to $45.0 million in the third quarter of 2009. Cash capital expenditures for the third quarter of 2010 totaled $56.6 million.

The company’s cash position at Sept. 30, 2010, was $88.0 million, compared to $118.7 million at June 30, 2010. As of Sept. 30, 2010, the long-term debt and capital leases for Savvis (net of current portion) totaled $747.7 million, up from $712.8 million as of June 30, 2010.

In August, the company closed its senior secured credit facilities, which include a $550.0 million term loan, maturing in 2016, and a $75.0 million revolving credit facility, maturing in 2014. The company also completed a cash tender offer for its 3% Convertible Senior Notes due May 2012, with approximately 99% of the outstanding $345.0 million Notes tendered.

Financial Outlook
“With strong revenue and adjusted EBITDA growth reported in the third quarter, we have been able to raise and tighten our revenue and adjusted EBITDA guidance for 2010,” said Greg Freiberg, chief financial officer for Savvis. “Due to successful sales and marketing efforts, we have seen strong revenue growth this year. We are now beginning to see commensurate leverage in adjusted EBITDA and expect both of these trends to continue into 2011.”

Savvis now expects the following for full year 2010:

• Revenue of $925 to $930 million, increasing from previous guidance of $917 to $927 million
• Adjusted EBITDA of $225 to $235 million, narrowing from previous guidance of $220 to $240 million
• Total cash capital expenditures of $190 to $210 million
• Cash interest expense (net) of approximately $50 million, decreasing from previous guidance of $55 to $60 million

Investor Conference Call
Savvis will webcast an investor conference call at 10:00 a.m. ET today, Oct. 27, 2010. Both the webcast and supporting presentation will be available at on the Investor Relations page. A live conference call will be available at (866) 261-2650 for analysts in North America or (703) 639-1221 for international analysts. A replay will be available on the website for six months. Investors may also access the replay by dialing (888) 266-2081 in North America or (703) 925-2533 internationally and using the access code 1487309 through Monday, Nov. 8.

Financial Tables

About Savvis
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

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 Dec. 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, Oct. 27, 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
(314) 628-7491

George Csolak
(314) 628-7266

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