ST. LOUIS -- Nov. 2, 2004 -- SAVVIS Communications Corporation (NASDAQ: SVVS), a leading global IT utility, announced today that revenue for the third quarter of 2004 totaled $169.4 million, up 149% from $67.9 million in the third quarter of 2003. Results for the 2004 quarter included revenue attributable to the Cable & Wireless America ("CWA") operations acquired in March. Compared to the second quarter of 2004, revenue decreased 2%, largely due to the anticipated termination of transitional services for CWA's former parent.
SAVVIS' gross margin for the third quarter of 2004 grew 94%, to $49.6 million from $25.5 million in the third quarter of 2003. Sequentially, gross margin grew 13% from $43.9 million in the second quarter of 2004, largely driven by reductions in network costs as a result of realized synergies from the acquisition in March. As a percentage of revenue, gross margin was 29% in the current quarter, versus 25% in the second quarter and 38% in the third quarter of 2003.
SAVVIS' consolidated net loss for the current quarter was $32.9 million versus $23.7 million for the same quarter last year and an improvement from $60.0 million in the second quarter of 2004. The third-quarter 2004 loss included $3.7 million of costs specifically related to the integration of CWA operations, compared to $17.2 million of integration costs in the second quarter of 2004. Exceeding company projections, Adjusted EBITDA* was positive in the third quarter, at $5.1 million.
Rob McCormick, SAVVIS' chairman and chief executive officer, said, "SAVVIS achieved significant milestones in the third quarter, including a record gross margin and an $11.5 million improvement in Adjusted EBITDA. We continued a very successful business integration, which is yielding greater expense synergies than originally projected, and continued to win new business at a healthy pace. In addition, SAVVIS received an important acknowledgement of our quality service, solid operational processes, and vision for the future with our placement in the Leader quadrant of the influential Gartner North American Web Hosting Magic Quadrant benchmark.
"While our view of our core business is positive, the environment for the wholesale carrier market continues to deteriorate, which lowers our expectations for revenue for the fourth quarter," Mr. McCormick added. "The foundation of our successful business strategy, however, continues to be providing businesses with value-added, managed infrastructure services, incorporating virtualization, utility and automation. As we continue to transform information technology, SAVVIS is well positioned to create value for its stakeholders."
Commenting on the outlook for the fourth quarter, Jeff Von Deylen, SAVVIS' chief financial officer, said, "With two full quarters of financial results of our merged business, we are refining our guidance for the fourth quarter of 2004. We expect to achieve revenue in a range of $162-167 million in the fourth quarter, reflecting the competitive pressure in the wholesale carrier market and higher churn among acquired hosting customers than initially anticipated. However, annualized expense synergies from the integration will be higher than the $100 million we had projected originally, totaling more than $120 million in recurring annual savings. We project that these savings, and our internal expense controls, will help drive continued growth in Adjusted EBITDA. We currently expect that in the fourth quarter, operating cash flow, before acquisition and integration-related costs, will be positive."
About SAVVIS
SAVVIS Communications (NASDAQ: SVVS) is a global IT utility services provider that leads the industry in delivering 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.
