Savvis Wraps Up A 'Transition Year'
Savvis Inc. (SVVS) says 2007 was a "year of transition" as it sold off its content delivery network and two large facility leases, refined its focus on managed hosting and financial services, and expanded its data center footprint. As it looks to 2008, the managed hosting provider hopes to build its high-margin utility hosting and proximity hosting businesses, and capture the benefits of higher pricing in the colocation market.
Savvis reviewed its 2007 results and outlined its goals for 2008 in a conference call Monday with securities analysts. The company predicted its 2008 revenue will climb between 15 percent and 17 percent and exceed Wall Street forecasts.
CEO Philip Koen called 2007 "a challenging but ultimately successful transition year." Koen said Savvis has been "very successful" in selling space in the four new data centers it brought online in September and October in four markets – Piscataway, NJ; Santa Clara, Calif.; Sterling, Va. and Atlanta. "We already have signed contracts for 40,000 square feet of about 100,000 square feet of sellable space," Koen said.
Savvis also gained 50,000 square feet of existing space vacated by two "below-market" colocation customers. Koen said the customers dated to "a time when Cable & Wireless or Exodus was either in bankruptcy or in financial distress" and "just trying to fill the space up regardless of who the customer was or any type of strategy." He said that the basic colocation business offers a lower return than managed services.
Savvis has raised its colocation rates from $31 to $36 per square foot within the last month, and adding new services that "continue to take us beyond the commoditized colocation business." Revenue from Savvis' utility computing service is up 76 percent from a year ago and 21 percent from the third quarter.
"The take-up continues to be impressive," said Koen. "We've signed another 16 clients since October, bringing our total to 39 in a little over two quarters of selling a new product."
Koen said the average monthly revenue generated per square foot for managed services is double that of the colo-only space. "This higher revenue realization ... is fundamental to our value proposition," said Koen. "And since our Managed Hosting Solutions is highly automated, we generate strong flow through margins as well."
One area where Savvis has refined its sales process is in looking at the pace of customer installs. The company found that some customers were contracting for large chunks of data center space with a phased installation schedule, but then delaying the additional phases and associated revenue. Savvis now asks tougher questions about customer timetables to ensure that revenue won't be postponed by delayed buildouts.
"We have great sales, but the installs (were) happening over a longer period than what we would have liked," said Koen. "We had a number of examples in certain markets with the very high demand where we were telling customers that we have other customers willing to take (the space)," and that prospects should commit to have half the space installed and billing "within a very short cycle."
"That's just some of the discipline we went through in the fourth quarter to really make sure the organization and our customers' expectations were clear," said Koen. "This is a high demand market, and it isn't just about selling. It's also about selling and recognizing revenue. I'd much rather have my sales organization focused on identifying those customers that have immediate need, and fulfilling those need rather than entering into reservation agreements."
Savvis said it expects it may also reclaim up to 50,000 square feet of space from a below-market customer in Chicago, allowing the company to resell that space at a higher rate.
"I am assuming we will be reclaiming that, and that's a good thing for us, because that's simply in my view adding another datacenter on market that continues to be attractive to us," said Koen. "We are very fixated on driving our margins up. Top-line is interesting, but it's really important that we expand the margin and grow the EBITDA accordingly."
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By Rich Miller 
February 06, 2008 | Permalink | >Get Posts By E-mail
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