Government Deals Boost Terremark Results

Terremark Worldwide (TMRK) reported improved revenues from federal government customers in its most recent quarter.

Terremark Worldwide (TMRK) has spent years positioning itself as a provider of data center services for the federal government. That has meant enhancing its IT security offerings, building ultra-secure data center space, and wooing major systems integrators and the General Services Administration. Sales cycles have often been lengthy, and revenue uneven.

But Terremark's strategy is beginning to pay dividends, as the company's federal revenue grew to $17.9 million in the quarter ending Dec. 31, with record bookings of $8.6 million.That helped the company post revenues of $65.9 million and EBITDA of $18.4 million, a 63 percent year-over-year increase. And with a huge stimulus plan expected to boost government spending, the best may be yet to come.

"While our federal business has grown significantly over the past two years, we believe that we are entering a unique market opportunity," said Terremark CEO Manuel Medina, who sees the potential to "significantly accelerate the growth of our federal business over the coming quarters."

The most important factor in the growth of Terremark's federal business has been Terremark's decision to build the NAP of the Capital Region, the company's $250 million data center campus in Culpeper, Virginia. The first 50,000 square foot data center opened in June 2008 and is already 80 percent full. Terremark recently broke ground on the second 50,000 square foot "pod," which is 30 percent pre-leased.

Medina said Terremark has deepened its relationship with CSC, the anchor tenant in the Culpeper facility, which has begun offering services based on Terremark's Enterprise Cloud platform. Medina said Terremark's experience with CSC and other large system integrators has positioned it to benefit from technology spending tied to the Obama administration's stimulus package. 

"What you're going to see is a significant amount of effort to improve the data centers of civilian agencies," said Medina. "This is why a big focus has been working with integrators who have existing relationships with federal customers."

Terremark also stands to benefit from its status as an approved colocation provider by the General Services Administration. "The fact that the GSA has vetted the pricing is very helpful," said Medina "It shortens the sales cycle significantly."

Because of the growth in its federal business, Terremark said it would focus its construction budget on expanding the NAP of the Capital Region, and is postponing a planned expansion of its Santa Clara data center campus. Medina said the company has plenty of cash to fund the Culpeper expansion and make a $30 million scheduled debt repayment due in June, but had to prioritize its cosntruction spending.   

"At this particular stage we are being very prudent and we don’t want to take on anything that gives us the slightest discomfort when it comes to safety and liquidity," said Medina. "This is why we made that decision. Without a doubt, us getting going with the second pod at NCR took priority over us getting going in Santa Clara at this time."

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