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SAVVIS Q3 2010 Earnings Call Transcript

SAVVIS Q3 2010 Earnings Call Transcript


Q3 2010 Earnings Call

October 27, 2010 10:00 am ET


Peggy Tharp - Director of IR

James Ousley - Chairman, Chief Executive Officer and Member of Business Development Committee

William Fathers - Senior Vice President of Global Sales and Marketing

Bryan Doerr - Chief Technology Officer and Senior Vice President

Gregory Freiberg - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Colby Synesael - Merriman Curhan Ford

David Nathan Barton

Jonathan Atkin - RBC Capital Markets Corporation

Gray Powell - Wells Fargo Securities, LLC

Jonathan Schildkraut - Evercore Partners Inc.

Donna Jaegers - D.A. Davidson & Co.

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Srinivas Anantha - Oppenheimer & Co. Inc.

Mark Kelleher - Dougherty & Company LLC

James Breen - William Blair & Company L.L.C.

Michael Bowen - Guggenheim Securities, LLC

Ben Abramovitz - Kaufman Bros., L.P.

Frank Louthan - Raymond James & Associates

Erik Suppiger - Signal Hill

Simon Flannery - Morgan Stanley

Scott Goldman - Bear Stearns

George Sutton - Craig-Hallum Capital Group LLC

Robert Dezego - SunTrust Robinson Humphrey Capital Markets


Question-and-Answer Session

William Fathers

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Previous Statements by SVVS
» SAVVIS Q2 2010 Earnings Call Transcript
» SAVVIS Q1 2010 Earnings Call Transcript
» SAVVIS, Inc. Q4 2009 Earnings Call Transcript

It's Bill, and I'll take care of that one, if I may. So one of the key things we start at the beginning of the year was creating our consulting business, which I guess helps the client understand which of our services to buy. If there is any integration required between their infrastructure and ours, obviously, we're able to offer that as a paid-for service offering. So thus far, we don't see margin pressure from these larger opportunities. In fact, I'd probably say what we're looking at now is some potential upsides as we get perhaps better at the way in which we handle these engagements.

James Ousley

The other thing I would add to that is those clients, because of the application that they're moving, tend to be much more sticky than this traditional infrastructure.

Jonathan Atkin - RBC Capital Markets Corporation

Also, could you comment on the sales mix between inbound versus outbound, versus maybe third-party channels, and how that has changed versus prior period?

William Fathers

Again, it's Bill. So I guess inbound versus outbound, I guess it's saying -- the way that manifests itself for us is how much of our growth is coming from existing customers that we're driving from thorough account planning versus how much is new customer acquisition, often driven by investments in direct marketing activity that we discussed. And from that perspective, definitely an increase in Q3 from the start of the year in terms of how much growth we're seeing from some new clients and some new wins, partly driven by our investments in marketing there. I won't try to remember to guess what that percentage is, but definitely a mix shift more towards same inbound growing. And then in terms of direct versus indirect, I won't drive specific number, but the percentage of bookings coming now through channels is increasing rapidly. And obviously, the TR alliance relationship is the single biggest driver of that. And I think from our perspective, we see the opportunity to replicate that in a number of areas.


Our next question or comment is from the line of Robert Dezego of SunTrust Robinson Humphrey.

Robert Dezego - SunTrust Robinson Humphrey Capital Markets

So you've spoken in the press release about exiting the year at double-digit EBITDA and revenue growth rates. And I was wondering if you can comment on how long you think that the sustainable level could be, and what kind of CapEx you would need maybe to support that kind of growth? And the second question is can we just get a little bit more color on the ARPU growth in the quarter? That nearly $51 number was a lot higher than I think we expected and a lot higher than historical trends, and you kind of talked about what drove the ARPU so high in the quarter. That will be appreciated.

James Ousley

This is Jim Ousley. I'll take the first part. As we stated at the beginning of this year, we wanted to get to double-digit growth in both revenue and EBITDA. And based on the bookings that we're seeing in the third and fourth quarter and so on, we expect to be able, as I said, to continue into 2011. And we would expect the capital requirement to do that would be in the same range as we're seeing this year.

Gregory Freiberg

And Rob, it's Greg. I'll take the second part of that, and really add maybe a little comment to what Jim just said. Typically, when you have a new customer come on, the EBITDA in the first year is not as high as the second and the third year because these guys usually have a 36-month contract. And so you start to see the EBITDA leverage trail a few quarters behind when you see the revenue growth happen. So that also gives some weight behind why we see that future EBITDA growth. And the second part of your question on the ARPU front, early widened the lens here a bit. When you go back three, four years ago, when we de-emphasized the undifferentiated content, and then moving away from those guys to the enterprise, we saw our Colo revenue per square foot go from about $32 to $48. And what we had said publicly is it would probably remain firm right about the $50 mark. So we're up to $51 right now. We still believe it's going to remain firm around that $50 mark. I'm not guiding it exponentially higher than that because we've already gotten that big step to get to the $50 mark. And we sell a solution of products to our customers, like Bill talked about. And it's all of those solutions together are driving the value for us.

Robert Dezego - SunTrust Robinson Humphrey Capital Markets

Can you give any comment on that government contract you guys won, and kind of maybe talk about any of the work that you're doing in the government space?

William Fathers

It's Bill. I'll take that one. Again, I alluded to the fact that we have a good foothold in a number of other verticals that we can now look to exploit and expand. Yes, we were lucky to be awarded that contract in the third quarter. And I think what we're seeing now is we're actively bidding a number of agencies within the government to basically use that contract award as a platform. Looks like, just a bit color on that would be -- obviously, with cloud adoption being mandated across multiple agencies, multiple large opportunities with some long deal cycles where, I think in the enterprise space and the cloud world, we're seeing shorter deal cycles and slightly smaller deals than the government opportunities. Last bit of color. That's a U.S. win. We've also been successful in that vertical in Europe and Asia as well, where in places like London and Singapore, there are several government mandates. Certainly, Singapore, very aggressive adoption rates of cloud platforms, which obviously we think we're well-placed to

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