SAVVIS Achieves $167.2 Million Second-Quarter Revenue

HostReview.com
Monday, July 25, 2005; 09:42 AM

SAVVIS, Inc. (www.savvis.com), a provider of IT utility, announced today that revenue for the second quarter of 2005 totaled $167.2 million, compared to $173.0 million in the second quarter of 2004 and $162.2 million in the first quarter of 2005.

SAVVIS’ consolidated net loss for the current quarter was $21.3 million, compared to $60.0 million in the second quarter 2004 and $20.9 million in the first quarter 2005.

The second-quarter 2005 net loss included $3.3 million of net restructuring charges and $0.7 million of integration costs specifically related to the integration of CWA operations acquired in March 2004. Integration costs were $17.2 million in the second quarter 2004 and $2.1 million in the first quarter of 2005.

Cost of revenue, which excludes depreciation, amortization, and accretion, was $108.6 million, down 16% from a year ago and down just under 1% from the prior quarter.

Gross profit, defined as total revenue less cost of revenue, was $58.6 million, up 33% from a year ago and 10% from the first quarter 2005. Gross margin, defined as gross profit as a percentage of total revenue, was 35% in the current quarter, up from 25% a year earlier and 33% in the prior quarter.

Rob McCormick, SAVVIS’ chairman and chief executive officer, said, “This was a great quarter for SAVVIS, as we continued to deliver solid improvement in our financial results, demonstrating the strength of our IT solutions for enterprises and our industry-leading team of professionals.”

Total revenue for the second quarter decreased 3% from a year ago, primarily reflecting pricing pressure in the wholesale services market as well as the decline in revenue from Reuters, consistent with previous company announcements. Sequentially, revenue increased 3% from the first quarter of 2005, driven by growth in Hosting revenue and in Managed IP VPN revenue, both up 4% sequentially, reflecting new business from existing and new customers.

Cost of revenue was $108.6 million in the current quarter, compared to $129.1 million in the same quarter last year and $109.1 million in the first quarter of 2005. Gross margin improved to 35% in the current quarter, up from 25% in the same quarter last year and from 33% in the first quarter 2005, reflecting cost savings from continued network and hosting cost-optimization programs.

Sales, general, and administrative expenses (“SG&A”) for the current quarter were $39.2 million as compared to $50.4 million for the same period last year and $37.4 million in the first quarter of 2005. As a percentage of revenue, SG&A was 23% in the current quarter, down from 29% of revenue in the same quarter of 2004 and unchanged from the first quarter of 2005, reflecting management’s ongoing focus on operating cost control.

Net restructuring charges of $3.3 million in the quarter included payments to exit two long-term expense obligations: a naming rights agreement for a St. Louis sports and entertainment arena and a lease at a previously-vacated space.

Net cash provided by operating activities was $0.2 million in the second quarter, compared to $10.0 million in the first quarter and use of $25.8 million in the second quarter 2004. Second quarter 2005 operating cash flow included cash payments of $3.3 million for acquisition and integration costs, compared to payments of $21.9 million for those costs in the second quarter 2004 and $3.3 million in the first quarter 2005.

Cash payments in the second quarter 2005 also included $5.5 million to exit a naming-rights agreement, which had obligated the company to make payments totaling $62.1 million through 2020, and $2.0 million to exit a long-term lease for unused space at favorable terms. SAVVIS’ cash position at June 30, 2005, was $37.0 million compared to $50.3 million at March 31, 2005, largely reflecting the $10.8 million of one-time cash payments discussed above. Day Sales Outstanding were below 30 days.

In the second quarter, SAVVIS obtained $85 million in new financing through a senior secured revolving credit facility (the "Facility") with Wells Fargo Foothill, Inc., as arranger and administrative agent. The company used the funding to repay a $53.7 million capital lease obligation, resulting in projected savings in cash interest expense of approximately $1.0 million in 2005 and $2.7 million in 2006.

Chief Financial Officer Jeff Von Deylen commented, “We’re very pleased with our second-quarter financial performance. Given the continued strength in revenue and Adjusted EBITDA performance in the second quarter, as well as a record pace of new business installations and continued improvement in customer churn, we are refining our financial outlook for the full year 2005. We anticipate continued strong performance in our core Hosting and Managed IP VPN solutions, with some offset as revenue from Reuters, our largest client, will be a lower percentage of total revenue in the second half than in the first.

“We also improved our financial position in the quarter, using available cash to terminate two long-term expense obligations, and refinancing debt with a new credit facility with significantly improved rates, increased maturity, and increased debt capacity. We remain focused on delivering solid operating cash flow and Adjusted EBITDA, which we view as key drivers of stockholder value.”

“Adjusted EBITDA” represents results from operations before net restructuring charges, integration costs, depreciation, amortization, accretion, and non-cash equity-based compensation. We have included information concerning Adjusted EBITDA because our management believes that, in our industry, such information is a relevant measurement of a company's financial performance and liquidity.