SAVVIS Reports First-Quarter 2005 Results

SAVVIS Reports First-Quarter 2005 Results

    Business Editors/Technology Writers

    ST. LOUIS--(BUSINESS WIRE)--April 25, 2005--SAVVIS Communications Corporation (NASDAQ:SVVS):

-- Gross profit of $53.1 million on revenue of $162.2 million, with continued growth in Managed IP VPN and Hosting revenue, in line with company outlook

-- Achieved Adjusted EBITDA of $15.7 million

-- Achieved positive operating cash flow of $10.0 million

    SAVVIS Communications Corporation (NASDAQ:SVVS), a leading global IT utility, announced today that revenue for the first quarter of 2005 totaled $162.2 million, up 50% from $108.1 million in the first quarter of 2004. Results for the 2004 quarter included one month of revenue attributable to the Cable & Wireless America ("CWA") operations acquired in March 2004. Compared to the fourth quarter of 2004, revenue decreased 2%, in line with company guidance, as growth in core Hosting and Managed IP VPN revenue was offset by anticipated declines in revenue from SAVVIS' two largest customers and from unmanaged bandwidth, reported in Other Network Services.
    SAVVIS' gross profit for the first quarter of 2005 grew 77%, to $53.1 million from $29.9 million in the first quarter of 2004. Sequentially, gross profit declined from $55.4 million in the fourth quarter of 2004. As a percentage of revenue, gross profit was 33% in the current quarter, up from 28% in the first quarter of 2004 and unchanged from the fourth quarter of 2004.
    SAVVIS' consolidated net loss for the current quarter was $20.9 million, an improvement of $13.3 million from the same quarter last year and an improvement of $0.8 million from the prior quarter. The first-quarter 2005 loss included $2.1 million of integration costs specifically related to the integration of CWA operations, compared to $1.9 million in the fourth quarter and $4.9 million in the first quarter of 2004. Adjusted EBITDA* of $15.7 million increased $18.3 million, from negative Adjusted EBITDA of $2.6 million a year earlier, and decreased from $18.4 million in the fourth quarter 2004, which, as previously reported, included approximately $4.9 million of non-recurring benefits.
    Operating cash flow was $10.0 million in the first quarter, an increase of $7.5 million from a year earlier and $1.7 million from the prior quarter. First quarter 2005 operating cash flow included cash payments of $3.3 million for acquisition and integration costs, compared to payments of $1.0 million for those costs in the first quarter 2004 and $5.6 million in the fourth quarter. SAVVIS' cash position at March 31, 2005, was $50.3 million, down from $55.4 million at December 31, 2004, as cash capital expenditures of $14.1 million offset the positive operating cash flow.
    Rob McCormick, SAVVIS' chairman and chief executive officer, said, "We're off to a solid start in 2005, with Adjusted EBITDA improvement of $30.3 million from pro forma Adjusted EBITDA of negative $14.6 million a year ago, continued growth in our core Managed IP VPN and Hosting revenue, and excellent sales success in the quarter. Our focus today is on successfully executing our business strategy by demonstrating the value of our industry-leading virtualized utility services in the market, and continuing to grow our core revenue and Adjusted EBITDA, which we view as an important driver of stockholder value."

First Quarter Results

Three months ended: March 31, 2005 Dec. 31, 2004 March 31, 2004 (1) -------------- ------------- ------------------ (US$ millions) reported reported reported pro forma Revenue Managed IP VPN $ 26.4 $ 24.8 $ 18.9 $ 19.5 Hosting 68.8 66.9 28.3 65.9 Other Network Services 31.6 34.1 20.6 41.1 Digital Content Management 9.6 11.7 8.6 12.4 -------------- ------------- -------- --------- Total Diversified Revenue 136.4 137.5 76.4 138.9 Reuters and Telerate 25.8 28.8 31.7 31.7 -------------- ------------- -------- --------- Total Revenue $ 162.2 $ 166.3 $ 108.1 $ 170.6 ============== ============= ======== ========= Gross Profit $ 53.1 $ 55.4 $ 29.9 $ 39.7 Sales, Gen. & Admin. Expenses $ 37.4 $ 37.0 $ 32.5 $ 54.4 Adjusted EBITDA $ 15.7 $ 18.4 $ (2.6) $ (14.6) Net Loss $ (20.9) $ (21.7) $ (34.2) $ (59.8)

(1) In reporting its financial results for the first quarter of 2004, SAVVIS prepared information in two categories to assist investors in analyzing the company's performance:

-- "Reported" results are in accordance with U.S. generally accepted accounting principles (GAAP).

-- "Pro forma" results present the combined results of operations of the existing SAVVIS business and CWA as if the acquisition had occurred as of January 1, 2004, after giving effect to certain adjustments, including depreciation, accretion, interest, the issuance of Series B Convertible Preferred Stock and the issuance of additional debt.

SAVVIS believes that providing pro-forma financial information assists investors and others in comparing financial trends of ongoing business activities.

    Total revenue for the first quarter increased 50% year-over-year, driven by revenue associated with the CWA assets acquired in March 2004 and growth in Managed IP VPN and Hosting revenue. Sequentially, revenue declined 2% from the fourth quarter of 2004, primarily reflecting anticipated declines in revenue from SAVVIS' two largest customers and pricing pressure in the wholesale services market, consistent with previous company announcements. Growth in Managed IP VPN revenue, up 6% sequentially, and in Hosting revenue, up 3% sequentially, offset much of the decline. Digital Content Management revenue was $9.6 million in the quarter, down $2.1 million from the fourth quarter, primarily due to a decrease in usage from a single customer.
    Diversified Revenue, defined as revenue from all customers except Reuters and Telerate, represented 84% of total revenue in the first quarter, up from 83% in the fourth quarter 2004 and from 71% in the first quarter of 2004.
    Gross profit, defined as total revenue less data communications and operations expenses, was $53.1 million in the current quarter, compared to $29.9 million in the first quarter of 2004 and $55.4 million in the fourth quarter of 2004. As a percentage of revenues, gross profit was 33% in the current quarter, up from 28% in the first quarter of 2004 and unchanged from the fourth quarter of 2004.
    Sales, general, and administrative expenses ("SG&A") for the quarter were $37.4 million as compared to $32.5 million for the same period last year and $37.0 million in the fourth quarter of 2004. As a percentage of revenue, SG&A was 23% in the current quarter, down from 30% of revenue in the same quarter of 2004 and up slightly from 22% in the fourth quarter of 2004.

    Balance Sheet and Cash Flow

    Net cash provided by operating activities in the first quarter 2005 was $10.0 million, compared to $2.5 million a year ago and $8.3 million in the fourth quarter of 2004. Operating cash flow included cash payments of $3.3 million of acquisition and integration-related costs to realize synergies in the first quarter 2005, $1.0 million in the first quarter 2004, and $5.6 million in the fourth quarter 2004. The balance sheet and cash position remain in line with management expectations, with $50.3 million in cash at March 31, 2005, and Days Sales Outstanding ("DSO") below 30 days.

    Financial Outlook

    Chief Financial Officer Jeff Von Deylen commented, "Solid revenue and Adjusted EBITDA performance in the first quarter was at the high end of our guidance, so we are refining our outlook for 2005, to an expectation of revenue in a range of $640-660 million and Adjusted EBITDA in a range of $55-65 million. Core Managed IP VPN and Hosting revenue now constitute 59% of total revenue at SAVVIS, continuing the trend of higher revenue contribution from higher-margin, value-added services where SAVVIS truly differentiates itself in the market. Additionally, we achieved strong operating cash flow in the quarter of $10.0 million and maintained a gross margin of 33%, testifying to the growing strength of our operating model."
    Based on current information, SAVVIS management's expectations for 2005 financial results include:

--	Double-digit year-over-year growth in Hosting and Managed IP VPN revenue;
--	Lower revenue from Reuters and Telerate, contributing 13-15% of total annual revenue;
--	Total revenue in a range of $640-660 million;
--	Adjusted EBITDA in a range of $55-65 million
--	Positive operating cash flow
--	Cash capital expenditures in a range of $40-45 million
--	Cash debt service payments of approximately $15-16 million
--	Cash payments for integration-related costs of $8-12 million

    Operational Highlights

    -- Installed new business generating approximately $39 million of
    annualized revenue; backlog of approximately $30 million.

    -- Rapid commercial adoption of virtualized utility services
    platform, deploying more than 800 virtual firewalls, more than
    420 virtual servers, and more than 120 terabytes of
    virtualized storage.

    -- New customers signed include enterprises such as Campmor; G2
    Switchworks; Keenan and Associates; Mayer, Browne, Rowe & Maw;
    Progress Interactive; whitbybird Ltd.; others to come.

    -- SAVVIS expanded relationships with existing customers
    including Ascent Media Group; GoldenSource Corporation; Gray
    Hawk Systems; True Advantage, others to come.

    * Adjusted EBITDA

    "Adjusted EBITDA" is results from operations before 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. The calculation of Adjusted EBITDA is not specified by U.S. generally-accepted accounting principles. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Please see the table under Selected Condensed Consolidated Financial Information for a reconciliation of Adjusted EBITDA.

    Investor Conference Call

    SAVVIS will webcast an investor conference call today, April 25, 2005, at 4:30 pm EDT. Both the webcast and supporting presentation will be available at www.savvis.net, under "Presentations" on the Investor Relations page. The conference call will also be available via telephone, at +1 517-308-9004 or 888-395-1810 (US and Canada only), under the password "SAVVIS NEWS." A replay of the call will be available on the website for one year and via telephone, at +1 203-369-0152 or 866-359-6495 (US and Canada only) for ten business days.

    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, 2004, 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, and changes in regulatory environments. The forward-looking statements contained in this document speak only as of the date of publication, April 25, 2005, and the company will not undertake efforts to revise those forward-looking statements to reflect events after this date.

    About SAVVIS

    SAVVIS Communications (NASDAQ:SVVS) is a leading global IT utility services provider that delivers secure, reliable, and scalable hosting, network, and application services. SAVVIS' strategic approach combines the use of virtualization technology, a utility services model, and automated software management and provisioning systems. SAVVIS solutions enable customers to focus on their core business while SAVVIS ensures the quality of their IT infrastructure. With an IT services platform that extends to 47 countries, SAVVIS is one of the worlds' largest providers of IP computing services. For more information about SAVVIS, visit http://www.savvis.net.

SAVVIS Communications Corporation Condensed Consolidated Statements of Operations (unaudited)

(dollars in thousands, except share and per share amounts)

For the Three Months Ended March 31, --------------------------- 2005 2004 ------------ ------------

TOTAL REVENUES (1) $ 162,172 $ 108,135

Data communications and operations expenses (2) 109,063 78,207 ------------ ------------

GROSS PROFIT 53,109 29,928 Gross profit as a percentage of revenue 33% 28%

Sales, general, and administrative expenses 37,426 32,515 Integration costs 2,061 4,906 Depreciation, amortization, and accretion 18,819 11,976 Non-cash equity-based compensation 123 6,838 ------------ ------------ TOTAL OTHER OPERATING EXPENSES 58,429 56,235 ------------ ------------

LOSS FROM OPERATIONS (5,320) (26,307)

NON-OPERATING EXPENSE: Net interest expense and other (15,562) (7,921) ------------ ------------

NET LOSS (20,882) (34,228)

Accreted and deemed dividend on Series A Preferred Stock (9,991) (8,926) ------------ ------------

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (30,873) $ (43,154) ============ ============

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (3) 180,447,121 102,261,670

BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.17) $ (0.42) ============ ============

(1) Includes $16,355 and $20,013 from affiliates for the three months ended March 31, 2005 and 2004, respectively.

(2) Exclusive of depreciation, amortization, and accretion shown separately below.

(3) As the effects of including the incremental shares associated with options, warrants, and convertible Series A Preferred Stock are antidilutive, they are not included in the diluted weighted average common shares outstanding.

SAVVIS Communications Corporation Condensed Consolidated Balance Sheets

(dollars in thousands)

March 31, December 31, ----------- ------------ 2005 2004 ----------- ------------ (unaudited) ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 50,266 $ 55,369 Trade accounts receivable, net 46,186 48,050 Prepaid expenses and other current assets 16,560 15,004 ----------- ------------ TOTAL CURRENT ASSETS 113,012 118,423 ----------- ------------

Property and equipment, net 255,922 264,542 Intangibles, net and other non-current assets 20,483 23,285 ----------- ------------

TOTAL ASSETS $ 389,417 $ 406,250 =========== ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES: Payables and other trade accruals $ 50,349 $ 50,350 Current portion of capital lease obligations 511 505 Other accrued liabilities 67,318 66,150 ----------- ------------ TOTAL CURRENT LIABILITIES 118,178 117,005 ----------- ------------

Capital lease obligations, net of current portion 113,703 113,529 Long-term debt 182,172 171,051 Other accrued liabilities 60,079 68,606 ----------- ------------ TOTAL LIABILITIES 474,132 470,191 ----------- ------------

STOCKHOLDERS' DEFICIT: Series A Preferred stock 280,050 272,137 Common stock 1,805 1,804 Additional paid-in capital 376,998 384,847 Accumulated deficit (742,145) (721,263) Deferred compensation (382) (515) Treasury stock, at cost - (16) Accumulated other comprehensive loss: Cumulative foreign currency translation adjustment (1,041) (935) ----------- ------------ TOTAL STOCKHOLDERS' DEFICIT (84,715) (63,941) ----------- ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 389,417 $ 406,250 =========== ============

SAVVIS Communications Corporation Condensed Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)

For the Three Months Ended March 31, -------------------------- 2005 2004 ------------ ------------ OPERATING ACTIVITIES: Net loss $ (20,882) $ (34,228) Reconciliation of net loss to net cash provided by operating activities: Accrued interest 11,765 8,230 Depreciation, amortization, and accretion 18,819 11,976 Non-cash equity-based compensation 123 6,838 Net changes in operating assets and liabilities: Trade accounts receivable 1,641 (8,222) Prepaid expenses and other current assets (1,574) (726) Other non-current assets (606) 467 Accounts payable 3,185 8,056 Other accrued liabilities (2,491) 10,093 ------------ ------------ Net cash provided by operating activities 9,980 2,484 ------------ ------------

INVESTING ACTIVITIES: Capital expenditures (14,121) (5,987) Acquisition, net of cash received - (117,136) Proceeds from sale of acquired assets 180 - Purchase of WAM!NET assets (1,014) - ------------ ------------ Net cash used in investing activities (14,955) (123,123) ------------ ------------

FINANCING ACTIVITIES: Payments under capital lease obligations (36) (219) Issuance of subordinated debt and associated warrants - 200,000 Deferred subordinated debt issuance costs (100) (625) Other 90 1,430 ------------ ------------ Net cash provided by / (used in) financing activities (46) 200,586 ------------ ------------

Effect of exchange rate changes on cash and cash equivalents (82) 109 ------------ ------------

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (5,103) 80,056

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 55,369 28,173 ------------ ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 50,266 $ 108,229 ============ ============

Cash paid for interest $ 3,788 $ 500

SAVVIS Communications Corporation Selected Condensed Consolidated Financial Information

(dollars in thousands, except share amounts)

For the Three Months Ended --------------------------------------------------- REPORTED PRO FORMA(1) -------------------------------------- ------------ March 31, December 31, March 31, March 31, 2005 2004 2004 2004 ------------ ------------ ------------ ------------ Revenues by customer: Diversified revenues Managed IP VPN $ 26,363 $ 24,785 $ 18,952 $ 19,516 Hosting 68,784 66,902 28,322 65,915 Other Network Services 31,736 34,143 20,560 41,105 Digital Content Management 9,560 11,708 8,559 12,364 ------------ ------------ ------------ ------------ Subtotal $ 136,443 $ 137,538 $ 76,393 $ 138,900

Reuters and Telerate 25,729 28,770 31,742 31,742 ------------ ------------ ------------ ------------ Total revenues $ 162,172 $ 166,308 $ 108,135 $ 170,642 ------------ ------------ ------------ ------------

EBITDA reconciliation: Loss from operations $ (5,320) $ (4,131) $ (26,307) $ (45,998)

Integration costs 2,061 1,889 4,906 4,906 Depreciation, amortization, and accretion 18,819 20,495 11,976 19,614 Non-cash equity based compensation 123 149 6,838 6,838 ------------ ------------ ------------ ------------

Adjusted EBITDA(2) $ 15,683 $ 18,402 $ (2,587) $ (14,640) ------------ ------------ ------------ ------------

Diluted common shares: Common shares outstanding 180,463,461 180,329,963 109,137,532 Series B Preferred Stock on an as converted basis - - 65,528,860 ------------ ------------ ------------ Total common shares outstanding on an as converted basis 180,463,461 180,329,963 174,666,392 ------------ ------------ ------------ Series A Preferred Stock on an as converted basis 377,421,276 366,871,247 336,967,562 Warrants and options outstanding (treasury method) 8,612,167 29,723,925 33,673,004 ------------ ------------ ------------ Diluted common shares on an as converted basis 566,496,904 576,925,135 545,306,958 ------------ ------------ ------------

(1) Summarizes the combined results of operations of SAVVIS Communications Corporation and Cable & Wireless America, on a pro forma basis, as though the companies had been combined as of the beginning of the three month period presented. This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place at the beginning of the three month period presented.

(2) "Adjusted EBITDA" is loss from operations before 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. The calculation of adjusted EBITDA is not specified by United States generally accepted accounting principals. Our calculation of adjusted EBITDA may not be comparable to similarly titled measures of other companies.

--30--JS/ph*

CONTACT: SAVVIS Communications Corporation Investors: Elizabeth Corse, 703-667-6984 elizabeth.corse@savvis.net or Media: Carter Cromley, 703-667-6110 carter.cromley@savvis.net

KEYWORD: NEW YORK MISSOURI UNITED KINGDOM INTERNATIONAL EUROPE INDUSTRY KEYWORD: TELECOMMUNICATIONS NETWORKING HARDWARE SOFTWARE BANKING CONFERENCE CALLS EARNINGS SOURCE: SAVVIS Communications Corporation

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