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SAVVIS Inc. Q2 2009 Earnings Call Transcript

July 29, 2009 | about: SVVS

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SAVVIS Inc. (SVVS)

Q2 2009 Earnings Call

July 29, 2009; 10.00 am ET

Executives

Phil Koen - Chief Executive Officer.

Greg Freiberg - Chief Financial Officer

Peggy Tharp - Director of Investor Relations

Analyst

Mark Kelleher - Brigantine Advisors

Jonathan Atkin - RBC Capital Markets

Simon Flannery - Morgan Stanley

Winston Len - Goldman Sachs

Robert Dezego - SunTrust Robinson

Jonathan Schildkraut - Jefferies

Colby Synesael - Kaufman Brothers

Sri Anantha - Oppenheimer

Donna Jaegers - D.A. Davidson

James Breen - Thomas Weisel

Erik Suppiger - Signal Hill

Steve Salberta - Boenning & Scattergood

Presentation

Operator

Good day, ladies and gentlemen and welcome to the SAVVIS second quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer-session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today’s conference, Peggy Tharp, Director of Investor Relations.

Peggy Tharp

Good morning and thank you for participating in the SAVVIS second quarter 2009 earnings call. I’m Peggy Reilly Tharp, Director of Investor Relations for SAVVIS. Earlier this morning we distributed a press release with detailed financial tables, which is available on our website at savvis.net.

In addition, we have corresponding slides available at that site, which will be referenced during this call. As always, please be aware that today’s discussion contains forward-looking statements as defined under federal securities laws.

Actual results could differ materially from the forward-looking statements due to various risk factors, including, but not limited to the factors disclosed in the company’s Form 10-K and other filings with the U.S. Securities and Exchange Commission, and we encourage you to review those disclosures.

Our presentation today will include references to certain non-GAAP financial measures that provide additional information for investors. In compliance with SEC’s Regulation G, our press release distributed today, which is posted on our website and furnished to the SEC on Form 8-K, includes both our rationale for why we believe non-GAAP information is important in describing our operating performance and the full reconciliation with the corresponding GAAP numbers.

Today we will begin with a brief overview from Phil Koen, our Chief Executive Officer. Greg Freiberg, our CFO, will follow with the financial updates. Phil will then provide an update of our major growth initiatives before turning the call back over to the moderator for Q-and-A.

With that, I would now like to turn the call over to Phil.

Phil Koen

Thank you, Peggy. Good morning, everyone and thank you for joining us today. I’m pleased to report that SAVVIS delivered a solid second quarter with revenue, adjusted EBITDA and adjusted free cash flow all ahead of our internal expectation.

As we discussed in prior calls, these are the financial metrics that best define success in our industry and we believe our strategy with Managed Hosting at the center point and Colocation and Network Services playing an important and foundational role will continue to contribute to our performance in these areas.

With the mid-year point behind us, our visibility and our confidence in our 2009 plan is improving. Given the uncertainty of the market and the loss of the American Stock Exchange, our focus entering 2009 was to drive year-over-year improvement on adjusted EBITDA margins, to deliver positive adjusted free cash flow and deploy our capital in an efficient manner while seeking industry leading returns.

Through the first half of 2009, SAVVIS has delivered on all of these metrics and we are well positioned as we move into the second half of the year. In retrospect, it is easy to see the definitive decline in IT outsourcing began in the second half of 2008 and accelerated into an actual freeze in the fourth quarter of last year.

In the first half of this year, our existing customers delayed spending as they continued to exercise extreme caution. The installed base focused on cost reduction and deferred projects whenever possible. However, counteracting this trend was demand from new logos. As we went through this first of the year, we found new customers were eager to accelerate the time to value that could be gained by outsourcing IT infrastructure.

This was reflected in our bookings mix as new logos accounted for a larger percentage of our bookings compared to our historical trends. Although new customers were highly attractive to the total cost of ownership savings we can provide, our existing customers remained sluggish in the second quarter. Not surprisingly, the behavior in our installed base contributed to our overall revenue growth being muted by slightly higher churn.

Part of the churn we experienced during the second quarter is related to a large Internet content customer who moved to in sourcing I might point out that we were not the only Colocation provider impacted by this move. Also, we expected to see additional churn from this customer in the second half of the year.

So while we still expect churn to be slightly higher in the third quarter, we are looking forward to an expected reduction in the fourth quarter. Looking forward, I see an improving sales funnel, characterized by the right types of customers, medium to large enterprises with needs for key offerings such as Proximity Hosting, web hosting, SaaS, cloud and, of course, our core Managed Hosting offering.

Of particular note is our unique opportunity in the financial vertical where we continue to strengthen our leadership position on Proximity Hosting. The demand for our services has given us the confidence to expand and create the financial data center complex, which will be the destination of choice for the financial services industry. This new facility is interconnected with low latency fiber to our adjacent NJ2 facility, our flagship property in the financial sector.

Before passing this onto Greg, I would like to quickly comment on bookings. For the second quarter, the Financial Vertical made up nearly 25% of our booking with the enterprise, SaaS and Web solutions around 60% of total bookings and our un-attacked Network Services just under 15%.

Over the past four quarters, our absolute bookings dollars have been relatively stable. When you consider the challenging economic time, this is a solid accomplishment. We are now just beginning to see early signs of a firming economy and this has been reflected in the increase in RFP activity as we move through the first half of 2009.

Overall, based on our performance year-to-date, I’m guardedly optimistic about the fourth quarter. We should begin to see overall strength at the end of the year from an expected third quarter low revenue and with that I would like to turn the call over to Greg for review of our financials.

Greg Freiberg

Thanks, Phil and good morning to everyone. I would like to begin by taking a few minutes to review each of our businesses in regions. Let’s start with Colocation on slide four. For the second quarter, we are seeing stable bookings. The sales cycle is longer than its historical average, but it is stable, as is pricing for the most part as industry demand continues to outpace supply. An area where this industry trend seems to be reversed is in suburban Chicago.

We are seeing price competition in that market, as there is a great deal of availability. Still, the funnel for SAVVIS is good, but slow. I would like to point out however, that this is one of our strongest markets for cloud computing, a real growth area for us, which Phil will be discussing in more detail.

In Managed Hosting, RFPs are still robust and our deals are getting larger and more complex than what we have seen historically, but as we indicated last quarter, large enterprises are breaking up their complete IT infrastructure spend into more bite-size chunks and looking to specialists like SAVVIS for help with areas like Web hosting and brand solutions.

Managed Hosting has always been well received in the U.K. and the pipeline there is good, where we have seen the biggest change is in terms of existing customers. We are seeing very little increased spend and slightly higher levels of churn than we have seen historically.

We alerted you to this shift during the quarter and are now focusing on new customers. While current customers may be deferring or canceling programs, plenty of new customers have decided that this is in fact a good time to outsource their IT infrastructure and switch focus to their core business.

I would like to point out that less than a year after kickoff, our SaaS offering has moved into our Managed Hosting business this past quarter. This is a great business for us and we have some good wins here during the quarter. We continue to see growth in SaaS and expect to see more in the future, as companies move their software online and in turn outsource the related IT infrastructure to a test trusted and professional team with proven experience.

Turning to Network Services, I would like to repeat what we discussed last quarter. Two plus years ago, our Colocation profile featured a number of less profitable Internet content customers. While we have managed to transform that customer base, we are just beginning to make a similar move in our network business.

You probably heard either me or Phil talk about this smaller and less centralized network customers. These are customers who fall outside our service profile and they require more effort and as a result are less profitable. We know this transformation will take time and we remain focused on the network customers within our data centers.

In addition, as we continue to expand into the cloud, we expect to see increased customer interest in our network. Enterprise cloud security needs are very stringent and our private network helps give customers the peace of mind they require.

On slide five so, moving over to the financials here, which shows total second quarter revenue of $219.9 million with hosting delivering $152.2 million of revenue and Network Services reporting $67.7 million of revenue.

Excluding a nonrecurring early termination fee from the American Stock Exchange, total revenue was $213.4 million, which still reflected a small year-over-year improvement over revenue of $212.9 million in the second quarter of last year. Gross profit was $99.9 million for the quarter or 45% of revenue. Excluding the AMEX ETF, gross profit was $93.4 million or 44% of revenue. Both results are within the gross profit margin range in the second quarter of 2008 and the first quarter of 2009.

SG&A for the quarter was $44.8 million or 20% of reported revenue or 21% of revenue excluding the AMEX ETF. This was down on a year-over-year basis, but was up on a quarter-over-quarter basis due to new install and related higher commissions in the second quarter. Adjusted EBITDA for the second quarter was $55.1 million or 25% of revenue.

After the AMEX ETF, adjusted EBITDA was $48.6 million or 23% of revenue and up 9% on a year-over-year basis. Excluding AMEX churn was flat quarter-over-quarter, and it is now consistent with our 2008 churn, which, as you recall, was under 2%. However, we anticipate third quarter churn levels to be slightly higher than our historical rate, which will cause a slight dip in revenue.

This is excluding the large Internet content customer that we expect to churn out late in the fourth quarter and which I will discuss in more detail later in the comments. I know accommodating for the AMEX revenue and ETF in the first quarter non-recurring ETF can be complicated.

So on slide six we have developed a table that shows revenue change on a quarter-by-quarter basis. At the top of this slide, we show revenue on a reported basis. So, as you can see, Managed Hosting for the second quarter is down when compared to the previous two quarters. At the bottom of this slide, we stripped out the historical American Stock Exchange revenue and ETF and the $3 million one-time ETF from the first quarter.

Here you can see that on a quarter-over-quarter basis Managed Hosting revenue is up slightly in the second quarter, which shows the impact the one-time events have had on the clarity of our revenue trends. On a year-over-year basis, we saw total reported hosting revenue growth of 9%, and this is including the AMEX revenue and ETF.

At the bottom of this slide, you can see that on an underlying basis we grew revenues slightly in the second quarter on a quarter-over-quarter basis from $212.4 million to $213.4 million. Based on the prevailing macroeconomic conditions, we believe we’re moving in the right direction for the fourth quarter.

On slide seven you can see how far we have come. For the second quarter, total data center yield, including our hosting area network, averaged $92 a square foot, down slightly from the first quarter due to the first quarter nonrecurring ETF. Our average builds square feet still shows 97% Colocation and 3% Managed Hosting. I think it is important to call out that that 3% of our build square feet footprint generates 44% of our hosting revenue.

In addition to the previous two slides, we have given you an indication of just how much we can grow our revenue, adjusted EBITDA and adjusted free cash flow as we work to expand Managed Hosting utilization and further execute our low capital intensity business model.

You will note that the Managed Hosting portion of our overall hosting revenue declined slightly from 45% in the first quarter to 44% in the second quarter and this was also due to the first quarter non-recurring ETF. Last quarter we showed you the good success we have had in realigning our Colocation business with the right kind of customers.

On slide eight the swing you can see we have seen in mix shift over the past two plus years has been beneficial to SAVVIS. We have actively worked to migrate away large Internet content customers. These customers are generally willing to only pay lower wholesale prices and they don’t order value added managed services.

Rather we have targeted enterprise customers who are willing to pay market rates for Colocation and are interested in managed services, cloud and other value added offerings. We expect to see a large Internet content customer continue its departure through the fourth quarter, resulting in average Colocation revenue per square foot of approximately $49 by year end.

We expect to regain space in our Dallas data center, which is currently priced at around $23 a square foot or at more than 50% below our average Colo revenue. We expect to be able to sell this Colocation space at our targeted market rate of approximately $50 a square foot.

As we exit the year, we expect to be down to less than a handful of large Internet content customers remaining in our Colocation business. We continue to generate positive adjusted free cash flow in the second quarter of 2009, as you can see on slide nine.

In the fourth quarter of 2008, we completed the second phase of our global data center expansion and we can have approximately 1 million sellable square feet. To-date, our utilization is roughly 67% and we are carefully managing this on a regional basis. Some areas, such as New York, London, DC and Santa Clara are experiencing higher demand and we are evaluating our long-term needs in these areas on a data center by data center basis.

We are dedicated to making the best use of our capital investments and slide 10 shows you how our approach has translated to a strong return on capital employed. At SAVVIS, we have invested in our Managed Hosting strategy through our mixed use data centers. Managed Hosting allows SAVVIS to do so much more with its available space and to increase the amount of revenue, adjusted EBITDA and adjusted free cash flow associated with each data center.

This is in addition to a strong return on capital, a metric that accurately defines success and outsource IT. Importantly, this slide shows you the difference between companies that have focused on returns versus companies that have targeted revenue growth. We feel that through a focus on returns, we can make the most efficient use of our capital for our shareholders.

On slide 11, you can see our net leverage is improving and our liquidity and liabilities have remained stable over the past few quarters. Still let’s take a few minutes to walk through these components. We have $345 million of convertible notes, which are due in May of 2012 and have a 3% coupon. These are currently trading at around $0.81, which is up approximately 18% over the past 90 days. Our $50 million revolving credit agreement may be used to fund working capital or for capital expenditures or other corporate purposes.

The revolver matures in December of 2011 and we currently have about $23 million in letters of credit against it. As of June 30, the interest rate including margin would have been 7.5%, however, the revolver is un-drawn. Our Lombard Loan was entered into in June of last year to fund the construction and development of our slow U.K. data center.

The loan provides for GBP35 million or $57.8 million of current debt. The interest terms of this loan are fixed under a swap agreement at 7.86%. Our 6.5% Cisco term loan provided for borrowings of up to $33 million to purchase network equipment. As of June 30, the long-term portion of our borrowing was $17.5 million and the short-term portion was $6.6 million.

If you include our lease obligations, we have $188.6 million of long-term leases and this amount includes a $50.6 million deferred gain, which we will realize at the end of the lease in accordance with GAAP rules regarding financing method leases. Finally, I would like to point out that both our gross and our net leverage declined from March 31.

As of June 30, gross leverage was 2.8 times, a decline of 20 basis points and our net leverage was also down 20 basis points to 2.1 times. I believe we have one of the strongest balance sheets in the industry today. I’m pleased to have inherited such a well structured set of financials. Also, I would like to take a moment to reiterate our debt philosophy, which is to be selective in our use of debt, which is especially important at this point in the economic cycle.

I would like to turn to slide 12 now, to review the guidance we provided in our earnings release. We still need to overcome some headwinds in 2009 and our challenge is to restore Managed Hosting to growth mode. As Phil mentioned, we believe this will happen in the fourth quarter.

While we continue to have a generally cautious outlook for 2009, we have increased some of our guidance for the full year, based on our strong first and second quarters. We now expect adjusted EBITDA of 195 to 210, an increase over previous guidance of $190 million to $200 million. I would like to remind everyone once again that we expect revenue and adjusted EBITDA to be at its lowest point in the third quarter.

Total cash CapEx guidance remains between $110 million and $140 million. It includes $10 million to be expended in 2009 for the expansion of the financial data center complex in metro New York, which was announced earlier this morning

We still expect cash interest expense, net of approximately $40 million to $45 million. However, we have increased adjusted free cash flow guidance and now expect $25 million to $45 million, an increase over previous guidance of $20 million to $35 million.

With that, I will turn the call over to Phil for a review of our major growth initiatives.

Phil Koen

Thank you, Greg. I’m going to take a few minutes to walk you through our major growth initiatives. We issued two exciting press releases this morning. The first was an announcement detailing the creation of a financial data center complex in metro New York through an expansion of our NJ2 flagship Proximity Hosting facility.

If you were on last quarter’s call, you heard me state that we would do whatever was necessary to protect our leadership position within this franchise. We now have plans to create a robust financial data center complex to meet the demand we continue to see from existing and new customers.

We have secured a four-story building adjacent to our existing NJ2 facility, which will allow us to eventually provide 105,000 square feet of data center space. Our initial plan is to build up 35,000 square feet, which will be available at the end of the first quarter of 2010. The financial data center complex will represent 245,000 total square feet and be interconnected with fiber.

We believe this expansion will cement our leadership position as the destination of choice for exchanges, dark pools, data feeds and anyone else in the financial services industry. Dark pools, as you know, are crossing networks that provide liquidity that is not displayed on order books. Importantly, this significant expansion in a key market is expected to require a limited capital investment of $10 million in 2009, inline with current company guidance for the full year.

For 2010, we expect related CapEx of approximately $12 million to complete Phase 1. All-in-all, this phase of expansion will be completed for less than $1,000 a square foot. This morning’s second release introduced another terrific Proximity Hosting addition to an already installed base.

We now count Credit Suisse Crossfinder, the number one dark pool in terms of volume, as one of the more than 50 global exchanges, dark pools and data feeds we support by delivering a wide variety of low latency connectivity. Each day SAVVIS handles approximately one-third for all dark pool volume in the U.S. out of our New York area data centers.

We are pleased to be an industry leader in this space as we continue to expand our financial services leadership with the state-of-the-art data centers and robust solutions offerings that our customers demand. Gaining the trust of a high-volume customer like Credit Suisse, further demonstrates the benefits we have received due to our investment in financial IT infrastructure.

Crossfinder, like many of our other Proximity Hosting customers, will leverage our low latency solution, along with low latency exchange connectivity via our private managed global financial network. Moving to Software-as-a-Service or SaaS, on slide 15 you can see revenue growth of 3% quarter-over-quarter.

We currently have 70 plus customers, and going forward we expect the run rate from this quarter to be approximately $17 million. We achieved this in less than one year after launching our SaaS offering and will continue to invest in this growth story. SaaS was a strong focus for SAVVIS and part of our major growth initiatives.

During the quarter, we announced some significant customer wins, including MedeAnalytics, Workday, and just this week Ricoh, a leading provider of digital office equipment and document solutions. SAVVIS will be hosting Ricoh’s DoucumentMall, a SaaS document management solution, which will eliminate the cost of purchase and implement and maintain the server-based document management solution and allow customers to decrease distribution costs like shipping and courier service by digitizing paper documents.

MedeAnalytics is a leading healthcare performance analytics company. Through our SaaS offering, MedeAnalytics customers, including the U.K. National Health Service and healthcare finance professionals across the U.K., will now have access to analytics solutions. For MedeAnalytics our SaaS offering includes Managed Compute, storage, network and security.

Workday is a leader in the enterprise class SaaS-Based Human Resource and Financial Solutions, and we’re providing them with a global IT infrastructure solution to support the intensive demands of enterprise-class SaaS.

Other companies like Wall Street Systems, a leading global provider of treasury, central banking, FX trade processing and back office software, rely on our SaaS infrastructure solutions to provide a secure, scalable, global and functionally rich cloud hosting platform. This in turn allows for fast, economical and reliable deployment of SaaS applications.

Leading companies like Availity, a health information network that encompasses administrative, financial and clinical services supporting both real-time and batch exchange via the web and electronic data interchange, look for SAVVIS for SaaS infrastructure solutions. Each day more and more businesses and customers are looking for service-based delivery.

They want on-premise and online delivery of the software they use, which leads all them one step closer to the virtualized data center, which in turns leads to the SAVVIS cloud offerings and potential for data center via the Internet.

As you recall, we recently announced two cloud offerings, Savvis Dedicated Cloud Compute and Savvis Open Cloud Compute. On slide 16 you can see that Savvis Dedicated Cloud is an expansion of our running utility compute offering. As you know, we are at the leading edge of utility computing and virtualization and have been since 2004.

It’s only natural that we would take our utility compute knowledge and expand and evolve into our Savvis Cloud Compute offering. Savvis Dedicated Cloud is available in all Savvis Managed Hosting data centers. This is a customized infrastructure offering that is dedicated solely to the individual enterprise customer.

It also allows for software visioning via the SavvisStation Portal. Savvis Dedicated Cloud customers can add instances on-demand or they can reserve resources on dedicated HP service if they prefer. This is a great solution for someone who knows when they will be achieving maximum server usage and needs the ability to burst for additional service capacity.

To make it even more convenient for our enterprise customers, we offer the flexibility they need, including month-to-month terms for additional instances and the annual contracts for infrastructure usage. For Savvis Open Cloud Compute, which is available in regional Savvis Managed Hosting data centers, we offer a multitenant cloud environment.

This means customers get to purchase more and smaller units of compute, which is sized on a flexible basis to allow enterprises to efficiently grow as they scale their businesses. With Savvis Open Cloud, we provide enterprise customers with a standard compute infrastructure and just like Savvis Dedicated Cloud, customers can self-provision via the SavvisStation Portal. They can purchase by the instance and they have a choice of instant sizes.

Also, because these enterprises need more flexibility for limited term projects or unexpected needs, we offer month-to-month terms. Currently SAVVIS manages 873 cloud instances and 226 cloud nodes, as you can see it on slide 17. Our order book shows that we are meeting the needs of our core enterprise customers. In the second quarter alone, we booked more than 50 new Savvis Dedicated and Open Cloud Compute customers.

What is important to note is that our Savvis Cloud Compute solutions are resonating with our key customers, medium and large enterprises and we’re seeing good traction in this area. Not only are these customers buying the Savvis cloud solution, they are actually taking a mix of our infrastructure offerings. This is core to grow our cloud business and it is in line with our growth strategy.

When you look at why enterprise customers are choosing Savvis Cloud Compute, you can see evidence that our enterprise-focused solution is meeting its mark. Customers are looking for a more robust and secure enterprise-class environment. Enterprise customers want to be able to layer in other services, such as Managed Hosting and Dedicated Web among others to create an integrated solution.

In addition, they are looking for burstability to run large projects fast, capacity flex websites and for large pools of capacity and rapid provisioning, all of which we provide. So, what’s next for Savvis enterprise cloud customers, on slide 18 we have a preview of Savvis Cloud 2.0, we expect this option to be available for beta release late in the fourth quarter of this year.

We believe Savvis Cloud 2.O will be an industry leading platform with enterprise class security and SLAs, along with enhanced flexibility and control. It is expected to provide Fibre channel over Ethernet, automated information lifecycle management, enhanced virtualization, improved quality of service and more all designed to meet the needs of the evolving enterprise data center.

Savvis Cloud 2.0 is expected to allow customers to interact with their data centers through a rich graphical interface. They can actually go to the SavvisStation Portal and drop and drag servers where they need them and when they need them with a simple point and click.

It is exciting proposition and I cannot wait to introduce you to all of it later this year. We have a good pipeline for the second half of the year and have some very strong interest. We have three committed customers for our Savvis Cloud 2.0 beta platform with a goal of five customers by launch.

Before wrapping up, there is just one final bit of news I cannot resist sharing with you. This year the Magic Quadrant was expanded and changed from a North American centric report to a global review. It focused on the portion of the hosting market that is evolving most rapidly, infrastructure utility services.

As a leader in Gartner’s Magic Quadrant for web hosting and hosted cloud systems infrastructure services, SAVVIS has proved that we have what it takes to meet the expected increase in cloud demand. As you know, the Gartner Magic Quadrant is widely recognized as one of the most influential reports for enterprises seeking to evaluate hosting vendors.

In Gartner’s report we outperformed some pretty strong competitors like IBM, amazon.com, CSC and SunGard. I think we have done an excellent job in staying ahead of the very good names that are chasing us, especially as we ramp up Savvis Cloud 2.0 in the fourth quarter and continue to invest in technology and innovation instead of just focusing on bricks and mortar.

Our Magic Quadrant ranking makes it clear that our R&D investments are paying off as we bring technology advances to the world of Managed Hosting.

And with that, I would like thank you for your time today and I’ll turn the call back over to our moderator for Q-and-A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Mark Kelleher from Brigantine Advisors.

Mark Kelleher - Brigantine Advisors

Thanks for taking the question. Let’s start with the guidance. Can you tell us how much additional early termination fee revenue for the second half of the year is factored into your EBITDA guidance?

Greg Freiberg

None.

Mark Kelleher - Brigantine Advisors

None?

Greg Freiberg

None.

Mark Kelleher - Brigantine Advisors

Okay. And then just to double-check that termination fee, that is dropping 100% to the EBITDA line, correct?

Greg Freiberg

Correct.

Mark Kelleher - Brigantine Advisors

Do you have the EBITDA, the GAAP EBITDA without that one-time?

Greg Freiberg

It is $6.5 million, so.

Mark Kelleher - Brigantine Advisors

$41 million, something like that?

Greg Freiberg

No, no, no, $55 million was what we reported as EBITDA. So $48.6 million is without.

Mark Kelleher - Brigantine Advisors

On a non-GAAP basis?

Greg Freiberg

EBITDA is not a GAAP term. I mentioned it in my comments, but on slide five is the $55.1 million adjusted EBITDA for second quarter. Just subtract $6.5 million from that to get to the exclusion.

Mark Kelleher - Brigantine Advisors

Okay and my second question is the competitive environment, can you tell us how that is working, particularly in the financial services sector with the New York Stock Exchange building some new buildings. How is that going?

Phil Koen

Mark this is Phil. Let me take that. I think as we look across the financial vertical, we continue to be pleased with our positioning and just the overall market, the market forces. I think that one of the pleasing things is we continue to see like in Q2 our financial vertical bookings were actually on a mixed basis just slightly above Q1.

While we recognize there is additional capacity coming in, you named one I think that the overall demand environment and there seemingly has been a shift I think in some financial customers about building their own data centers to moving toward service provider models is going to continue to drive for service providers such as ourselves for the foreseeable future a very nice environment. So, we see that as an improving trend as we look towards the end of the year and looking beyond the 2010.

Mark Kelleher - Brigantine Advisors

Okay, thanks.

Phil Koen

Thank you.

Operator

Our next question comes from the line of Jonathan Atkin from RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets

Yes, good morning. I wondered the churn up tick that you referenced in third quarter, if you could tell us which data center is affected? I guess I was just missing that detail and then if you could also comment on book-to-bill intervals for Colo or even for Managed?

Greg Freiberg

It is Greg. I will take the first. The churn that we referenced in the third quarter is in the Dallas data center and it is one of those large high internet content providers coming out. My comment, I’ve got to keep saying this is we are down to less than a handful as we expect by the end of the year left of these big large high internet content providers.

Phil Koen

John, I guess I will take the book-to-bill both for Colo. I mean we have not seen any change at all. I suspect I have heard this from a number of other people, but I think that maybe actually more codeword for ramp.

I suspect that a number of these large deals or maybe people are doing, and we don’t play in that large market or probably against some type of scheduled ramp and really is not taking longer. We certainly aren’t taking longer. So that is my current view.

Jonathan Atkin - RBC Capital Markets

Then on Cloud, you talked about Dedicated Cloud Compute, Open Cloud Compute. Which would be a larger contributor as you see things now?

Phil Koen

Well, I think they are both very embryonic. We just launched these, so I think we are very early in the early stages of this. I would say that to date, if we had to wait one, the Dedicated probably is a little bit faster out of the shoot, but both of these I think are really on target for how we see this market evolving to more and more of a service based delivery for your Cloud and compute needs.

Jonathan Atkin - RBC Capital Markets

And the example that you cited with workday, I think it was you kind of implied somewhat of a linkage between SaaS and Cloud. Is that something that you think is leverageable going forward, or is that going to be more kind of the exception?

Phil Koen

Well, two of our most core growth strategies is to continue to push very hard our cloud service offering, and clearly a second growth strategy is our SaaS offering and there is going to be some intersection, some overlap between those two, but we are not looking at that as the intersection of those two as something that is important. We are trying to push as hard as we possibly can the adoption of both of those service capabilities.

Jonathan Atkin - RBC Capital Markets

Okay, and then finally on storage. I think you had a big win that you referenced on your last call. In case I missed it, is there any kind of update on further deals of that magnitude?

Phil Koen

No, I mean that was obviously a real blockbuster deal with an online digital media company. All I could say is that inflation and their relationship is going very, very well.

Jonathan Atkin - RBC Capital Markets

Thanks very much.

Operator

Our next question comes from Simon Flannery from Morgan Stanley.

Simon Flannery - Morgan Stanley

Thank you very much. Perhaps you could comment on the comments by Senator Schumer and others about the high frequency trading and to what extent that has an impact on proximity hosting?

Secondly on New Jersey, perhaps you just go through your thought process in terms of adding the capacity in Weehawken and when this is turned on the 35,000 square foot? Do you have sort of pre-sales?

Would we expect to see revenues from that starting immediately, or what’s the kind of the initial indication of interest that causes you to build that? Thanks.

Phil Koen

Sure, Simon. This is Phil. Let me start off by saying that, I am far from being an expert in flash trading. So the things that I have seen are probably the same things you have seen.

I think that there will always be some type of rules and regulations that these [Inaudible] traders have to comply with, but having said that I don’t thing it in anyway changes the fundamental demand for electronic trading.

The benefit of electronic trading is that it creates a greater liquidity; it allows for reduced errors, lower costs, and better pre-impose trade analytics. So I think that what we’re seeing across the industry is this ongoing march towards more and more of electronic and algorithmic trading.

Flash trading, as I understand it, is a subtext. It’s just one trading strategy that’s being employed by a couple of alternative exchanges and I think that it appears that at least from what I’ve seen as of late last night, there is a strong movement to regulate that portion of that particular strategy.

I would caution everyone out there that it doesn’t fundamentally change the larger market for us in place here, which is this march towards electronic trading, which the benefits I think are obvious to all.

Moving on to your second question, with regard to our expansion of NJ2. To start off with, it is an absolute franchise. I mean the number of exchanges we have in their pools, data feed providers, gives us a tremendous amount of competitive advantage and it’s a franchise, and we want to absolutely certain that as that network effect continues to expand, that you’re able to accommodate the second and third order effects of people wanting to be in that and take part of that Proximity Hosting capability.

So the facility literally is directly next door. In fact, the two buildings were originally built to be a complex. Fiber already exists between the two, and our plan is to continue to on a project-by-project basis build out each floor as we see the demand is warranted.

Our decision to build out the first floor clearly, is a function of our contact of our existing base of customers and other customers who want to be in that flagship center. So for right now, we’re going to go as fast as we can to bring up that first floor. I guess it only stands to reason that we’d be doing that because the demand is seemingly fairly strong.

Simon Flannery - Morgan Stanley

So, can you give us sort of a sense of where your capacity utilization is on the existing facility?

Phil Koen

For NJ2, I think we said our overall capacity utilization is in the high 6s, 67%. What I will tell you is that NJ2 is north of that. It got to the point where, as I’ve talked about in the past, that we want to be cautious about when we make this move, but it was time and prudent for us to go ahead and take this step.

Simon Flannery - Morgan Stanley

Thank you.

Operator

Our next question comes from Winston Len from Goldman Sachs.

Winston Len - Goldman Sachs

Hi, thanks for taking the question. Just to clarify your 3Q revenue comments. When you refer to a sequential revenue decline in 3Q, are you comparing this against the normalized 213 or the reported 219?

Greg Freiberg

Hi Winston, it’s Greg. Yes, I am comparing it to the reported second quarter.

Winston Len - Goldman Sachs

Okay. And how much of a benefit was foreign exchange this quarter compared to 1Q?

Greg Freiberg

Very small

Winston Len - Goldman Sachs

Then on SaaS; it looks like SaaS is an increasingly important part of growth. So can you talk a bit about the incremental EBITDA margins that the SaaS brings to you?

Greg Freiberg

Yes, listen, I don’t think we have broken out SaaS incremental margins as a standalone service. What I’ve told, and we’ve said in the past talked about incremental margins for Managed Hosting and I’d say you SaaS is right in the suite spot of that. So, it reflects what our experience has been in other managed services offerings.

Winston Len - Goldman Sachs

Okay, great. Thank you.

Operator

Our next question comes from Robert Dezego from SunTrust Robinson.

Robert Dezego – Suntrust Robinson

Hi, good afternoon. Just a quick follow-up on the foreign exchange question, was there any impact in foreign exchange in the full year guidance versus your last guidance?

Greg Freiberg

Hi, it’s Greg. No impact.

Robert Dezego – Suntrust Robinson

There is no impact on there, okay and then I was just wondering if you could talk about a little bit more detail on the expectation of this negative growth in the third quarter and the return in the fourth quarter. At this point in the quarter, I’m assuming you have some visibility.

Can you give us any kind of expectation of where you think it is versus the normalized number? Is it going to be down from there and maybe any expectation on the split between Colo and Managed Hosting. Where you’re going to see the declines?

Phil Koen

I’m afraid not. Certainly the network you are going to see continuing to decline for at least a couple of years. I talked about the migration that’s going to be going on there, but within the third quarter, the revenue as a whole it will decline. We just haven’t given more specifics than that.

Robert Dezego – Suntrust Robinson

Okay. On the cost side of the business, obviously you had another good quarter I think in getting some costs in the face of some weaker revenue sequentially. How much do you have left in 2009? Do you think on the cost side of this business in the face of some of the revenue declines that you are looking at?

Phil Koen

We think our fixed cost infrastructure is about where it is right now. Certainly the power went up for us, which is part of our cost of goods sold in the second quarter. You will see that come up again a bit more in the third quarter and the fourth quarter will have a benefit from that.

Robert Dezego – Suntrust Robinson

And can you put any numbers around the sequential utility costs that you’re expecting in the third quarter and fourth quarter?

Phil Koen

It’s usually, I think about $1 million probably in the third quarter sequentially over the second quarter and then it will drop again.

Robert Dezego – Suntrust Robinson

Okay and so, the last question is on the New Jersey build, you kept your CapEx level the same. So, was there another project that was pushed out or was this kind of always in the plan and just not announced publicly?

Phil Koen

We gave a range with the capital guidance, because obviously we try to have some flexibility on what the business requirements might be. So, this was within that range.

Robert Dezego – Suntrust Robinson

Okay. So, there is nothing else that’s getting pushed out into 2010?

Phil Koen

No.

Robert Dezego – Suntrust Robinson

Okay. Thanks. Good quarter, guys.

Phil Koen

Thank you.

Greg Freiberg

Thank you.

Operator

Our next question comes from Jonathan Schildkraut from Jefferies.

Jonathan Schildkraut - Jefferies

Great, actually two questions. I will break them apart though. Phil, one of the things you did a really nice job on in this call was kind of taking us through some of the customer transition and obviously the company has gone through a big customer transition moving away from some of those large Internet companies.

Also, you’ve gone through an asset transformation, building out some new data centers, closing a couple of the very small dated ones and now you’re going through a technology transformation, launching some new products. Organizationally, what have you had to do, either from sales or service perspective in order to support those changes?

Phil Koen

Thanks for the compliment. Just listening to you, I’m shaking my head going, man; I guess we have done a lot. So, I think I would say this, I’m just delighted with the organization team that I have.

I think over the last 18 months, we’ve worked hard and being able to, first of all create a structure. One of the big things that I think that we did that has helped us a lot in getting more focus and intensity around.

The core aspects of our business was, the whole SBU concepts, having Bill driving very hard the SBUs and from a domestic standpoint and the addition to Tom Riley, driving and he’s been on board now for about six months. So, he is still ramping very hard around the international side has been a huge benefit.

I think clearly taking a guy like Jeff and moving him over into the ops area, I just don’t think there’s a better person who, first of all have such detailed understanding and knowledge, and a huge fellowship within the company as we continue to drive through some of the asset transformations you’re talking about. I think that has and a lot of the continually looking hard at our cost structure.

I want everyone to understand that, we are very committed to trying to continue to be the low cost producer. That’s the way you’re going to win this game. So, having a maniacal eye on cost and being able to leverage your assets and leverage scale is a critical component, I think to the success and I think Jeff is driving that very hard.

With Greg coming on board and having his deep background in the network piece of this and clearly we have talked about the challenges that are around that. Greg’s been onboard; this is his first real call. He’s got a nice look from Jeff, but that I think has solidified the team.

Lastly, Bryan Doerr and the team, the whole Cloud 2.0 development team that we have built, there’s a whole bunch of people you haven’t met. Guys like John Young who have been just instrumental in the product roadmap, which I think is absolutely compelling and that’s one of the reasons why I think Gartner gave the tip that they did to us as far as where we are on that Magic Quadrant.

So stepping back, I think the most important thing for everyone out there, is that this is a team that I think is solid. I look across it and I think it is one of the strongest in the industry, and I think it’s clear what our mission has to be. We are not confused about what the challenges ahead of us are. I hope that answers your question John.

Jonathan Schildkraut – Jefferies.

I have a second question, and this is part of a follow-up to the guidance questions I think you asked a little earlier. In the last two quarters you had about $9.5 million of termination related fees. In looking at your guidance as you came into the year, how much termination related fees were included in the EBITDA guidance, again from the initial guidance perspective?

Phil Koen

In reality, none. I think the two that we had, the $3 million that came in Q1, as we all said back in Q1 that was an absolute surprise. That caught us by surprise given the fact that we just stood that customer up.

With regard to this $6.5 million, it was unknown as to whether or not how that would play out and not to get into much detail, there’s been a lot of discussions around the AMEX and the NYSE relationship and we hadn’t planned on in our guidance. So I guess that’s the answer.

Jonathan Schildkraut – Jefferies.

Okay, thank you for taking the questions.

Operator

Our next question comes from Colby Synesael from Kaufman Brothers.

Colby Synesael - Kaufman Brothers

Great thanks for taking my question. The first question has to do with the various large internet content customers that you talked about, that you have in your base. I think you mentioned one is turning out this quarter, another one is turning out in the fourth quarter. One of the things I think historically that has played the company is that we haven’t been able to get a better sense of how big these customers are and when they were going to actually churn out.

Is there anyway you could quantify for us what the impact is going to be in the third and fourth quarter and just what the overall size of all these customers are today and maybe what your expectations are going forward for them.

Then my next question just has to deal with signs of improvement. You noted in your press release and on the call that you guys are seeing a better market and expecting trends to improve. Is that because just churn trends are going to start to slow down and bookings are continuing the way that they have been, or is there something more to that? Thanks

Phil Koen

So, let me jump on the first one there Colby. It is only one customer I spoke about in the third quarter. I didn’t mention one in the fourth quarter, but that one customer was not really given the size of that. What I did try to hint at though is this has been a long migration over a couple of years here, and there’s only less than a handful of these guys left. So the end of the tunnel is very close.

Colby Synesael - Kaufman Brothers

Is there any concern though from your perspective, that based off of your guidance, that in any given quarter here, that we could see a meaningful reduction in terms of your expectations, because one of these quarters come in? If that is true, I would think that it might be advantageous to let us know what the size of that potential impact could be.

Phil Koen

We factor all of this into our ‘04 guidance. So the guidance is the guidance. We’ve taken that into consideration. I think that should address your point. I might add that quite frankly this transformation that we’ve gone through is a good thing. I mean this is the reason why our average sales prices have gone up to somewhere in the low 30s to approaching now 50.

I might point out that those are true price increases. One of the problems that this industry has is that we get confused between true price increases and price going up because of more power usage, which isn’t really a price increase; it’s a volume increase.

So in these instances, every time this has occurred, while obviously as a short term pain we get that, taking a long term view. This is a good thing because it increases the margins, it increases the returns, it increases the cash flow and is something that we just had to address and work through.

The last point I’d put on this is that, we are substantially through this, that’s why we put that graph to help you get a gauge as to go forward, what is the exposure. Obviously the reasons why we don’t give you the exact numbers is that we play in a competitive environment, and I think that that’s something we would want to keep internally, it’s not to share out in the public forum.

Phil Koen

Let me take the second part of the question around the signs of improvement. I think there’s three things that we look at, to give us a gauge as to where we are in this process of hopefully turning to a better long term growth rate.

The three things that I look at is; just the number of RFPs, the quality of the funnel, the actual engagement level. What did those customers look like, the types of deals that we’re engaged in and then lastly, we’re constantly probing, churn management it takes an incredible amount of effort and focus on the part of the management team.

So we are looking at every single customer name, rank and serial number and making certain we understand their issues, what challenges they’re facing in their business, where they are in their own business cycle, and where we are positioned competitively. So taking all that back and using that kind of as a navigational guide, what we’re saying is that we’re beginning to see an environment that is one that’s healing, it’s improving.

I would say that, in listening to a number of other tech companies out there, I don’t think we’re seeing anything differently than some other people are seeing at this particular point in time.

Colby Synesael - Kaufman Brothers

Great. Thank you.

Operator

Our next question comes from Sri Anantha of Oppenheimer

Sri Anantha - Oppenheimer

Yes, good morning. Thank you. Phil, you talked about the opportunity of that Cloud Services and everything, could you just maybe give us some color on what percentage of your customers currently use your Cloud Services or you expect them to use within the next year or so, where you’re currently in conversations with them?

Secondarily, as some of those customers migrate to cloud services, what impact would it have on your revenue? Let’s say if some of those customers were already taking managed services from you and if they migrate to a Cloud, what impact would it have on your revenue? Thank you.

Phil Koen

Yes Sri, I will tell you that since the dedicating Cloud opened were services that we just launched within the last few months. As I said earlier, the percentage is still diminimus compared to that the big installed base. I’m not certain that I have enough history here to give you a good range of what I think the expected take up rate would be.

What we do now, and this is based upon a number of analysts’ reports out there, which I’m sure you’ve seen as well as I have, that there’s no question that this march towards compute layer and storage layer being offered in a virtualized state, basically what we call as data center via the internet is a long term trend. There are going to be benefits to first movers out there who have the ability to set the standard on how people will be thinking about moving their environment.

Quite honestly, the gauges for everyone out there, I think we’re still ways away where you’re going to see production environment going into that type of cloud service offering. So what we really are focused on is really the test and dev environment and this is where we’re seeing a number of competitors out there that are focused. I think that’s where we have our biggest opportunity to start penetration.

Quite frankly, the ratio of production servers, the test and dev services anywhere from four-to-one to as high as six-to-one for a number of enterprises. That’s a market, the test and dev market is one that’s traditionally we’ve not really played in. Why that’s so important is that this is where people will get an experience, they will get a better sense, they want to test before they buy.

We want to be able to have them become comfortable with that experience and then overtime and I’m not smart enough to tell you how that transition period will occur, they will move their production environment on. So that’s our strategy; that’s what we’re focused on and the key to this thing is that innovation, technology innovation, is a core growth driver for us and we’re right there front and center.

Sri Anantha - Oppenheimer

Any color on what kind of revenue impact would it have or is it too early?

Phil Koen

It is too early.

Sri Anantha - Oppenheimer

Got it. Phil or maybe Greg, any update on the space that you guys got back in Chicago and how the uptake of that particular space is going on, the Colocation space?

Greg Freiberg

Sri, I’ll jump in, we are working it. I think our view again, and I want to be very clear, is that this is not a race to sellout. We’ve gone through the whole transition of making certain that we’re focused on the right customer base. I think in our prepared remarks we indicated to you that in the suburban market there’s a lot of supply. Two other competitors are literally around the block from us.

Now, on the other side of that, the downtown market is very strong and I want to remind everyone that we have facilities both in the suburban and downtown market. So we are on it, we are working it and I think that it will just take some more time.

Sri Anantha – Oppenheimer

Thanks Phil. Thanks Greg.

Operator

Our next question comes from Donna Jaegers with D.A. Davidson.

Donna Jaegers - D.A. Davidson

Hi Phil and Greg. Two quick questions; on Proximity Hosting, sort of a follow-up to Simons question, do you sense that this effort by the SEC and by Schumer is in anyway freezing the market and can you give us any sense of is price discovery a big portion of the business that you do, this flash trading that you called that? Is that a big portion or is that a very small portion of the business that you do in Proximity Hosting?

Phil Koen

Yes, Donna to answer your first question, I don’t see that this issue around flash trading is freezing the Proximity market at all. I’ll give you, I tried it last night, just tried to quantify and this is kind of the answer to your second question.

We really don’t have any visibility as to the trading strategy that these platforms are using, because we are at the end for structure layer. We are at the infrastructure and management layer. We are not seeing peering through as to what actually they are doing.

Having said that, what I do know based upon just out there reading published reports, is that there’s one particular trading venue who is kind of the leader in this and I’ve seen numbers that suggest that only about 6% of their actual equity trades are done through the flash trading.

So that’s the leader and you can probably guess that some of the other guys that are in this, who have been in it only for a short period of time have far less, but I think that’s important to kind of ring-fence what we are really talking about.

Donna Jaegers - D.A. Davidson

Great. You guys have never given out any size on how much revenues you are getting from Proximity Hosting. Equinex sort of brags about their position, but I think you guys are number one in the business. Is $50 million sort of a good ballpark number for what you are getting in revenues there?

Phil Koen

We are not going to give numbers and I think you know why. I will absolutely declare that we are the absolute leader in here and I think the key is the number and quality of trading venues that you have and the NJ2 complex just speaks for itself.

Donna Jaegers - D.A. Davidson

Great and then just one quick follow up question on the SaaS product line and SaaS contracts; you guys have been very successful in winning some new contracts. Can you give us any sort of ballpark average size of SaaS contracts and I know they range all over the map, but just some sort of average that as we see these new wins, we’ve got some number to relate it to?

Phil Koen

Donna I’m going to skirt around that. I’ve said normally for a Managed Hosting our sweet spot where deals range between 50,000 and 100,000 of MRR. I think on the low end the SaaS deal is maybe below that, but I haven’t actually looked at the plot of this, but they are not too far out of that range of 50,000 to 100,000.

Donna Jaegers - D.A. Davidson

Okay, great. Thanks.

Operator

Your next question comes from James Breen from Thomas Weisel.

James Breen - Thomas Weisel

Thanks a lot for taking the question. Once is on the housekeeping side you gave us chart that showed quarterly revenue comparisons, AMEX, GAAP. Can you give a comparable EBITDA number for the first quarter of ‘09 versus the $212.4 million in revenue?

Then the second question; just with respect to the network business, can you talk about some of the trends there, obviously revenue down again sequentially. How does it look in terms of the combination of pricing as well as volumes? Thanks.

Greg Freiberg

First question, it’s comparable for the first quarter on the $212.4 million. So the $212.4 million is taking out both the AMEX run-rate revenue and the $3 million of EPS, so there’s a decline there of $9.1 million. Of the $6.1 million, which would be the AMEX portion that was about 90% EBITDA margins. So call that about $5.4 million EBITDA.

James Breen - Thomas Weisel

Okay, thanks and then on the network side?

Greg Freiberg

I’m sorry, can you repeat that question?

James Breen - Thomas Weisel

On the network portion of the business, can you just talk about some of the trends there? Revenue down sequentially again, can you talk about what’s happening in price and volumes?

Phil Koen

Yes correct. So it goes really fundamentally goes back to, we’ve got a lot of customers here that are not core to our hosting strategy. These are legacy customers that we picked up from the CNW business and so we call these somewhat distant in loan length compared to our network; that’s going to continue to decline.

We have a table let on the back of the press release, on page 11 in the press release, where you can see the network services revenue by quarter over a five quarter period and within the second quarter, the managed network has gone down. We’ll expect to continue to see that go down because of these small customers that are non-core.

The hosted area network within Network Services, there’s also a small decline here in the second quarter and there’s been a decline going since December of 2008. What’s happened here is, within that hosted area network product that’s actually core for us, because that’s attached with the hosting product.

Why is that going down? There’s a component to that where it’s bursting, which is these customers have a usage based billing for bursting. They are not bursting as much as they used to and I think this really ties back to the economy. These customers are restricting their usage that they don’t burst out of their prescribed parameters and then incur that extra charge. So that activity is driving that decline there.

Then the bandwidth is coming down. You’ll see that coming down, because that’s just not a non-core for us. We are not going to be competitive against people that focus on selling that. Does that answer your question?

James Breen - Thomas Weisel

It does. Thank you very much.

Operator

Our next question comes from Erik Suppiger from Signal Hill.

Erik Suppiger - Signal Hill

Can you allude a little bit on the Cloud 2.0 service? Who do you think your primary competitor will be there, and what are some of the key differentiation that you’ll have with that product?

Phil Koen

Sure Erik. I think I talked a little bit about that in the prepared remarks. I think that our Cloud 2.0 offering in many ways is a step forward from anything out there today.

I think that the fact that we’re going to be offering Fibre Channel over Ethernet, automated the information lifecycle management. We are doing some enhanced virtualization and this very, very rich graphical interface where literally you can provision instances with a simple point and click, and drop and drag and then everything on the backend is automatically provisioned is truly unique.

So, we are very excited about this. With out dipping too much, I just wanted everyone to know that this is coming right behind our dedicated and open offering, and stay tuned when we get it to the beta and towards the end of the fourth quarter.

Erik Suppiger - Signal Hill

So, will IBM and AT&T be the two primary competitors that you would envision?

Phil Koen

Well, I would point you to the Magic Quadrant. Just take a look at kind of the race. There is a number of people up there that are kind of I would say the breakaway pack, all good folks. Not knowing exactly what they have in their R&D or product pipeline, I can’t comment on that, but I would guess that this will be the same folks that we’d be competing again.

Erik Suppiger - Signal Hill

Thank you.

Operator

And our next question comes from Steve Salberta from Boenning & Scattergood.

Steve Salberta - Boenning & Scattergood

Hi, guys. If we look at the average revenue per square foot for the Managed Hosting business, it declined. I assume that the ETF was in there, but if we back that out, it declined quite a bit sequentially. Is there anything going on in terms of mix, the storage customer ramping? Anything going on there that would have it continuing to decline going forward?

Greg Freiberg

Hi Steve, this is Greg. Really three comments that I’d put to that, and you’re absolutely right, there is a decline, a small decline and yes, the EPS is in that number for the second quarter of 2009, but three things here. First is, that metric is really a mishmash of selling several different products and services. So, there’s a competition component to that, that's hard to trend accurately when you do a comparison.

My second comment is, one of the real underlying trends here is that the CapEx cost per server has been going down over that five quarter period, quite a bit actually and that’s pass through. So the revenue per server and then the corresponding revenue is going down.

The third comment is just to kind of remind ourselves a bit. That’s still about $1000 a square foot, which is 20 times what we’re yielding from Colo. So I just want to make sure we’re putting that in perspective. That’s really a nice return for us.