SAVVIS CEO Discusses Q3 2010 Results - Earnings Call Transcript

| About: SAVVIS, Inc. (SVVS)

SAVVIS (NASDAQ:SVVS)

Q3 2010 Earnings Call

October 27, 2010 10:00 am ET

Executives

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

Analysts

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.

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

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.

Operator

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 abs.com 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

exploit.

Operator

Our next question or comment is from Jonathan Schildkraut of Evercore.

Jonathan Schildkraut - Evercore Partners Inc.

Three questions here. First, Bill, you mentioned in your prepared remarks that bookings were up relative to the second quarter. I was wondering if you could give us a sense of order of magnitude. Second question is more on disclosure. The company has given us guidance, breaking down kind of ongoing CapEx from expansion CapEx, but you don't seem to report that on a quarterly basis. And I think it would be very helpful to track, so if you can give us a sense around those numbers. And then finally, in terms of the margin profile for the year, you've taken up your revenue numbers I think twice now. EBITDA seems to be centering around the midpoint of your range. The implication here is that maybe the margin profile for the year is a little lower than you anticipated. And I'm wondering if that has to do with sales commissions around growth, but if you can give us some color, it would be appreciated.

William Fathers

Yes, I'll just take the first one there and bookings. So I don't think we're being too precise here. I think the second quarter equally signaled that there was sequential growth on the previous quarter and again, sequential growth on this quarter as well. And we're also able to say, on a year-over-year basis, it's improvement as well, but I can't be any more specific than that.

Gregory Freiberg

This is Greg. I'll take the second and third question, Jonathan. So on the CapEx breakout by quarter, you're right. On Slide 5, I've got three categories for the full year. I think we can take a look at breaking that out by quarter. The big driver obviously, for the increase in CapEx this year is the success base, which I think is caught in that Slide 5, but I'll take that...

Jonathan Schildkraut - Evercore Partners Inc.

And did Jim say just a second ago, when you guys were talking about the growth, that the capital requirements, you felt, was going to be in the same range for next year as this year?

Gregory Freiberg

No. I think the general comment is we probably expect our CapEx next year to be higher than it is this year. And I'd ask you to tune in to the fourth quarter earnings call and we'll give the guidance for 2011 at that time. But the other wide comment is we didn't expect to see a huge expansion back to where we were in 2007. So I don't want to give you that wrong impression. Your third question about the margin profile, is it lower in the year? We've raised the revenue guidance, but you don't see the corresponding increase in the EBITDA guidance yet this year. And the answer there is really the time lag. There's a lag between when you get the revenue engine going again before you'll start to see the EBITDA leverage. And the drivers for that is you pay the sales commissions and you have the upfront installation costs when you have the year of the revenue growth. And so there's that couple of quarter lag after you get the revenue engine growth before you'll see the real corresponding EBITDA leverage. So we do think that the leverage is going to incur during 2011, which is what I think Jim was talking about.

Jonathan Schildkraut - Evercore Partners Inc.

And from our experience, customers tend to need a little bit more hand-holding in the first 90 days. So the customer service cost tend to go over time as well?

William Fathers

Yes, completely agree. Yes.

Operator

Our next question or comment is from the line of Jason Armstrong of Goldman Sachs.

Scott Goldman - Bear Stearns

It's Scott Goldman on for Jason. One, on renewal. Maybe you can give us a sense for what you're seeing in terms of renewal pricing, particularly given some comments out there from some of your peers in recent weeks. And then on the renewals, maybe how much of the remaining renewals you have to kind of hit that 2/3 target for this year. And then secondly, I just wanted to ask about the managed hosting pricing. Pretty nice step-up in this quarter. Wondering if that was a concerted effort, and kind of when we look at the billable managed hosting square feet as a percentage of Colo square feet, that actually went down. So was this really a concerted effort to kind of get better pricing, but perhaps resulted in the lower square footage I saw in there?

William Fathers

I'll take the question on renewal pricing. Yes, I think the area where we see price pressure is the sort of commoditized network contracts, of which there aren't many left. Frankly, when they come up for renewal, there tends to be price pressure. But across the Managed Services and Colocation, on average, pretty constant, no real price pressure downwards there. What we typically do is look at change in the customer's product mix at the renewal point and start to include some cloud platform into the mix, which obviously over time gives us both some strategic leverage. So that's the comment on renewal pricing.

Gregory Freiberg

And this is Greg. I'll take the second and third piece. And remaining to hit the 2/3, we're pretty darn close here, given that it's already late October. So very close to hitting that 2/3 target by the end of year. And I think your third question commenting on the managed hosting pricing and the relativity there for the Colo and the utilization. Yes, I think that's a validation of our strategy, which we've been talking about for quite a while, which is one of the benefits of that managed hosting strategy, you're able to add instances of products and services without driving additional square feet, which really helps differentiate from being the build-and-fill model, which you see in the Colo front. So I think you're starting to see some of the evidence of that, which is why we've taken that pricing up on the ARPU for Managed.

Operator

Our next question or comment is from Mark Kelleger of Dougherty & Company.

Mark Kelleher - Dougherty & Company LLC

Could you tell us what the cloud revenue was in the quarter?

Gregory Freiberg

Yes. So it's about $4 million in the quarter, and it's up about 93% from the year-ago quarter.

Mark Kelleher - Dougherty & Company LLC

And what I really wanted to ask about was capacity utilization. Could you sort of give us a feel for that across the footprint, which areas are high-capacity utilization, which are on the lower side? And maybe specifically talk about New Jersey. I know you said the flow rates are strong at NJ2. What are your expectations there, with capacity utilization particularly ahead of the expected churn from one of the exchanges that's coming up?

James Ousley

This is Jim. I'll address the New Jersey issue. We're seeing very, very good business and fill rates in New Jersey. We're looking at a potential expansion there. And as it relates to the client that you referenced, as I said in the last couple sessions, we continue to negotiate with them and talk with them about expanded business opportunities. And in fact, they made a webcast statement last week that probably suggests that we're in a very strong position there to not have any financial impact in 2011 associated with that client. So we're optimistic about that.

Gregory Freiberg

I'll take a crack at the utilization. We really decline to give some of the specific markets just from the competitive perspective. But I'll try to give you some color. So in the total, we brought up our utilization from 70% at the end of the second quarter to 71% at the end of the third quarter. And we have some nice increases in utilization, really, across the whole of our footprint of facilities. So that growth was not just centered on the newest facilities. So that's the color I'll add there.

Operator

Our next question or comment is from Simon Flannery of Morgan Stanley.

Simon Flannery - Morgan Stanley

You're obviously seeing some good sales momentum here. A lot of divers of it. Perhaps you could just help us talk a little bit about what you consider the major drivers, to what extent -- you've talked a lot about the sales and the channels and the success there, but do you think we're seeing some improvement in the economy reflected in some of the new activity? Or do you think it's really sort of this outsourcing theme is finally starting to really accelerate, as businesses everywhere really embracing the managed services and the outsourcing concept. And then could you just talk a little bit about Fusepoint and about the integration, how you're feeling about that acquisition and the opportunities you see for future M&A down the road?

William Fathers

Simon, it's Bill. I'll have a crack at the first one around key drivers for sales momentum there. I think you probably summarized it well in terms of the increased momentum around outsourcing. Lots of it obviously is people are contemplating their next year's budget cycle way more aggressively in outsourcing than we've seen in previous years. So more clients are looking to outsource, and those clients want to outsource more of their infrastructure than they previously did. Within specific verticals, obviously, within the financial vertical, we highlighted the regulatory drivers there that are forcing infrastructure investments as a big positive. I wouldn't understate that. With our existing and new clients, EBIT, current or potential regulatory changes seem to be driving, across-the-board, a requirement for increased investments. And then of course, within other verticals, there are some very specific drivers which I won't drag you through. But the trick is to latch on to those drivers and really exploit them to drive the growth. I'll probably pass on to Jim on the Fusepoint.

James Ousley

On the Fusepoint integration, we are on plan to achieve the integration by the end of the year, which is what our goal has been. So that is going per plan. As far as additional acquisitions, as we stated last quarter, we probably would not be looking at any major acquisitions, but more targeted in financial capitals around the world. In conjunction with Thomson Reuters, we would be opening up new capabilities in some of the financial centers around the world. So that's probably the expansion you would see that relates to new capabilities, new facilities.

Operator

Our next question or comment is from David Barton of Bank of America Merrill Lynch.

David Nathan Barton

I guess, Greg, just looking at the guidance, and we've talked a little bit about this already, but if I look at the fourth quarter guidance kind of annualized and I look at the third to fourth quarter run rate adjusting for the $2 million of utility expenses, at the midpoint of your guidance, we're getting something like to $285 million type of EBITDA with 21% growth. If we go to the higher end and extrapolate that analysis, we get kind of a little over $300 million and 30% growth. I guess, is there a reason to believe that, kind of based on all the things you're saying, that kind of 20% to 30% growth for next year is not kind of a good range to think about for benchmarking next year? And I guess the second part of the question is, I guess, Jim, could you just give us the latest on your international partnership talks, I guess? We talked a little bit about India may be coming up by the end of the year, and where that generally stands.

Gregory Freiberg

I'll take the first part there, on the guidance. Yes, I think as you outlined it, the potential is there. I'd remind you that utilities, if you take it out of the fourth quarter, you have to reinsert it again as you go into next year because that'll flare up again. And the other driver as you're going to next year will be the in-year expense that we have for the revenue growth that will occur as well. What I think you outlined there is we stopped on the expansion or the investment front, and we certainly have some of that. So I'd ask you to tune in to the fourth quarter earnings call when we'll give the 2011 guidance, and we'll give some more detail on what we see those factors are.

James Ousley

As far as the international partner, as I just suggested, a lot of the activity internationally has been in association with our alliance with Thomson Reuters. We are looking at other partnerships. We continue to have discussions in India and China. I'm cautiously optimistic that we would be able to do something with a major partner in India by the end of the year.

David Nathan Barton

And would that have any monetary ramifications for, say, 2011? Or is that more of a long-term strategic development that kind of slowly builds over a couple of years?

James Ousley

Yes, it would be over a couple of years. But clearly, it would be with a partner that has existing capability and data centers, et cetera. So we would see business in 2011, but the real growth would take some time.

Operator

Our next question or comment is from Colby Synesael of Cowen and Company.

Colby Synesael - Merriman Curhan Ford

I just wanted to get a better understanding on the implied guidance for the fourth quarter. It looks like the revenue range is about $5 million and the EBITDA range is about $10 million in terms of what you've given actually for 2010. So I was trying to understand why the EBITDA ranges is so much larger than that of the revenue. What could be on the low end, what's going to happen, or what could be on the high end, which gets us there? And then also, as it relates to the last question on expansion, you obviously didn't mention or announced any new expansion on the call, but you talked about planning on being in a lot of other places, including obviously India, potentially in the next few months, maybe in the next six months. Do you expect to announce a bunch of different expansions within the next few months? And as a result of that, is it likely that we'll see a meaningful impact on revenue as early as 2011 from all these expansions?

Gregory Freiberg

Colby, I'll take the first question on the EBITDA range. I was smiling a bit there, because I actually narrowed both of them, but your comment is really getting more narrow on the EBITDA front, but fair enough. I think, the first thing is on the revenue side, we're recurring revenue-based business really. And we've really gotten a great handle on the churn, as both Jim and Bill have been talking to earlier. So that allows me to have a pretty good comfort about where our revenue is for the fourth quarter because it's fairly locked in now, given that recurring revenue is the nature of our business. And on the EBITDA front, a piece there that I'm still calculating for with a wider range is the in-year sales performance, again, given that you got that upfront cost. And so that's why it's a bit wider there, I've got some flexibility on what would be the in-year sales cost associated with that revenue ramp.

James Ousley

And as far as the expansion, we've been talking for a while about the alliance relationship with Thomson Reuters. And that is, as Bill suggested, generating -- we did 50% more in the third quarter than the second quarter. Started from a lower base, of course. But we continue to see very favorable growth and expansion opportunities as it relates to that. As far as other -- we will be looking at facility expansions and we've put some in place this year. We'll put some in place next year. So we'll revenue growth from those, particularly the ones that we put in this year. And as far as other major -- I don't think you should anticipate major, big increases out of our new location or whatever. It would be gradual growth over one to three years.

Colby Synesael - Merriman Curhan Ford

And the facilities that you're looking at expanding into internationally, are these facilities where you could be up and running in a fairly short time? Or is it going to take upwards of a year to actually generate revenue? Just any sense of color on when we could actually start to see some type of impact from these expansions that you're most likely going to be announcing?

James Ousley

We don't anticipate at this point in time any greenfield of expansion, that would be expansion of existing facilities or adjacent facilities. So those take considerably less time. So depending on when we would implement those next year, would be when we could start seeing revenue.

Colby Synesael - Merriman Curhan Ford

And just a housekeeping question, what was the quarter-over-quarter FX benefit in the third quarter?

Gregory Freiberg

About $1 million on revenue benefit.

Operator

Our next question or comment is from Gray Powell of Wells Fargo.

Gray Powell - Wells Fargo Securities, LLC

From a high level, on the Managed Hosting side, do you see any significant change in booking trends over the next six to 12 month versus the last six to 12?

William Fathers

My sense would be -- it's been steady improvement over the last three quarters, driven principally by this trend towards IT outsourcing opportunities. So if I had to, I'd say that trend will probably flow through into 2011.

Gray Powell - Wells Fargo Securities, LLC

And then just on a different topic. Where do you see EBITDA margins longer term, just given that colocation should be sort of a 35% to 40% margin-type business, managed hosting could be 30%-plus and you guys are closer to 25% for 2010?

Gregory Freiberg

So the next step for us is getting it to 30% EBITDA margins and we're currently at 25%, we know we're bearing some of that in-year cost from the sales growth that we hint in the leverage coming in next year. So the next step we see is getting up to the 30%, but I don't see it stopping there, but I see that as the next step.

James Ousley

This Jim Ousley. That is a key initiative as we go forward. We've got the revenue engine moving recently well. We're going to be working very hard on margin improvement, et cetera.

Gray Powell - Wells Fargo Securities, LLC

And I don't want to pressure too much, but is there any kind of time frame you can give for that 30% margin target?

William Fathers

I think it's not going to be within one year. So it's going to take more than that, but it's going to be a couple of steps to get there.

Operator

Our next question or comment is from Michael Bowen of Guggenheim Securities.

Michael Bowen - Guggenheim Securities, LLC

So a couple here. Can you walk us through a little bit more -- walk us through a little bit how you're balancing these strong renewals with steady pricing, particularly we saw a nice uptick on the Managed Services side. And then also, on a daily and weekly basis, how are you getting a better handle on churn? We've seen one of your more competitors have a little bit of an issue, or a lot of an issue, on that, and I'm curious as to how you guys have endeavored to get a better handle on churn.

William Fathers

It's Bill here. I'll take that one, Michael. So the two main drivers of why we get a better handle on it. One was structural, that Jim outlined, which -- our customer mix is just healthier. We have far fewer clients now who have a propensity to churn. The second, it's just been, I'm afraid, it's basic blocking and tackling since the end of last year, is really thorough account planning so that you're getting ahead of renewals earlier in the contract life cycle and that you're coming to the client with a value proposition that is something like in the event that you renew this, here's some other value-added services we can offer and include into our offer to you. And a lot of that is around cloud, or other Managed Services capabilities. And the value proposition there is if you spend slightly more with us, you'll save more money, which has been the theme of the last year or two. And so I think that probably -- I wish there was more genius I could claim for it, but that's basically what it is. Very systematic, thorough account by account relationship, nothing proactive on renewals that you're getting in there six, nine or 12 months before the three-year contract is up for renewal. I don't know if Jim or Greg will add anything, but that's pretty much where we are.

James Ousley

I think to that point, it always costs you a lot more money to get a new customer. But I would have to say that we were not looking at renewals, the real cost of losing a customer. And so when we really focused on that and put measurements and incentive around renewals in the same vein of "hey, it's a lot less expensive to keep a customer than get a new customer," it showed some real results.

Michael Bowen - Guggenheim Securities, LLC

And with regard to as far as the steady pricing on the renewals?

James Ousley

That really comes in the form of -- you know there's always pressure around renewal pricing. Technology goes down and the customers expect to get a better price. But if you're negotiating with them six to 12 months in advance and you're talking about other services, so moving them from just colo to managed towards some network or some cloud, typically as we said, there may be some pricing discount on the original Colo business, but when we add in the other services, the contract value is greater than our original contract was with them.

Michael Bowen - Guggenheim Securities, LLC

I guess that brings up an interesting question. I think you mentioned -- am I right that you said 2/3 of your contracts are up for renewal in this next year? Is that correct?

James Ousley

No. Actually 2/3 have been renewed.

Michael Bowen - Guggenheim Securities, LLC

I guess with customers knowing that, does that create any pricing pressure, the fact that others know that a lot of contracts are being renewed as well?

James Ousley

We haven't seen that. It's a company-by-company scenario as to where they're going, what they need and so on. So it's more of the company. I would say the pressure one would see would be more from a market standpoint. Everybody's looking at cost cutting for 2011, and we're in the budgeting cycle, all companies are. So you see that. But we see that every year.

Gregory Freiberg

And Michael, I'll just clarify one point. When we say 2/3 of the contracts are renewed, that's just the ones with forward expiration dates. So that's not saying what already expired. So they've expired '11 or '12 or '13, and we're proactively reaching forward.

Michael Bowen - Guggenheim Securities, LLC

And lastly, what's been the average contract length of those renewals?

William Fathers

It's been surprisingly healthy. So we're up about 29, 30 months. So when averaged, the two trends now. In renewals, we know in average, renewing for just about 29 or 30 months. And the other trend, which we alluded to here, was the larger contracts are typically coming in with initial terms in excess of three, four, five years. And we're starting to see 10-year contracts re-emerge now as well.

Operator

Our next question or comment is from the line of Sri Anantha of Oppenheimer.

Srinivas Anantha - Oppenheimer & Co. Inc.

Jim or Bill, if you could comment on the Thomson Reuters relationship. Clearly, the growth in the financial vertical has been very strong. And I think one of the things you mentioned about is the Thomson Reuters relationship. How should we think about this relationship going forward, and that (sic) the growth that we're seeing in that segment is sustainable going forward?

William Fathers

So on the Thomson Reuters relationship, Sri, today, the genesis of that is we're hosting one of the key applications for the enterprise division within the markets group of Thomson Reuters. And by focusing on that one particular product range that we now host for them in eight cities around the world, that's the growth we've seen during this year. Obviously, our intent here is to try and broaden that relationship over time so we host more and more of their applications in more and more centers. And we'll keep you appraised as and when we hit any other major milestone there about broadening the portfolio of applications we're hosting for them. And as Jim mentioned, it's likely that the applications we are already hosting will see this expand into some new markets and geographies during 2011.

James Ousley

Another piece that I think is really important, Bill mentioned it, but we've had questions over the last couple of quarters about concerns over the impact of regulation, SEC regulation and so on, negatively impacting Proximity Hosting, et cetera. What we're finding now is that the impact of some of these new regulations is causing a large demand in new compute resource to keep track of all these regulatory issues. And so we're actually seeing positive out of it, not negative, which is good for us, focused in the financial vertical.

Srinivas Anantha - Oppenheimer & Co. Inc.

Greg, when we look at your Network segment, the top line growth has clearly steadied there, we saw a nice sequential growth there. But on the margin front, we saw a slight downtake this particular quarter. Are there any specific expenses that are driving that margin compression here?

Gregory Freiberg

I don't think we've broken out the margin for the network separately, Sri.

Srinivas Anantha - Oppenheimer & Co. Inc.

Like the adjusted EBITDA margin is what I mean.

Gregory Freiberg

Just in total?

Srinivas Anantha - Oppenheimer & Co. Inc.

Yes.

Gregory Freiberg

That's not really attributable to the network. That's more looking at the business as a whole in the upfront sales and marketing costs that we're incurring for that revenue growth. The Network business, we're still stable in the teens, mid-teens, in terms of margin, so not seeing a decline there as we've now stabilized the Network revenue performance.

Srinivas Anantha - Oppenheimer & Co. Inc.

And Jim, one last question is clearly, you guys have been pretty upbeat about the outsourcing outlook, IT outsourcing is the only thing to be gaining momentum. But are you beginning to see clients that were previously just taking colocation space where they have been managing their IT infrastructure on their own, selectively shift a portion of their IT workloads to more of a managed/cloud environment?

James Ousley

Most definitely. And we've been saying for a while that our strategy is to have a broad offering colo, managed, cloud and so on. And as I gave you in the statistics, the large majority of our revenue now comes from clients that take at least two of those, in some cases three of those, offerings. So we definitely are seeing that trend.

Operator

Our next question or comment is from the line of Frank Louthan of Raymond James.

Frank Louthan - Raymond James & Associates

Do you have a target exposure to the financial services vertical. Should we expect that to grow to over 30% of revenue over time? And can give us a dollar value of the opportunity for business from other government agencies? You mentioned it is possible for some other wins after that financial regulatory win. Can you give us a dollar value for that potential opportunity?

James Ousley

I think as far as the financial vertical, I think we're in the range that you'll continue to see in the future, 30%, it could go 35% potentially. But we don't see it going to 50% or something like that, because the other verticals are growing quite rapidly, media and so on. And as far as -- the second question was?

William Fathers

Government agencies.

James Ousley

There's a lot of governments around the world that are really looking at cloud offerings and so on, and mandating in some cases. So we do see it as a significant opportunity. As far as size of those, they range the whole gamut. There's some very large wins and there's some very small -- so I can't really quantify what impact that would have.

Operator

Our next question or comment is from Donna Jaegers of D.A. Davidson.

Donna Jaegers - D.A. Davidson & Co.

On Fusepoint. Can you give us some -- either some feel for whether top line sales are growing relative to when you acquired this? Or maybe even break out what the impact was in Q3? And also, one of the reasons for the acquisitions of Fusepoint was because of companies wanting to sort of segregate off their Canadian data in Canadian data centers. Are you seeing orders for that yet?

James Ousley

As far as the overall plan, we're relatively on plan for Fusepoint. The major thrust is, looking in the financial vertical there, our financial customers that need to have access in Canada, in Toronto. Those decisions do take some time, so we're still working those. And we're looking at potential expansion with the exchange up there, that type of activity. So we aren't seeing any major new growth scenarios up there yet. We have a lot of opportunities with financial entities from the U.S. and multinationals to look at opportunities up there. So I think you could expect to basically see what we planned on is what we're getting there.

Gregory Freiberg

And Donna, this is Greg. We're not going to break out the Fusepoint separately, because part of achieving those synergies means we're one integrated business. And so you can't really do a comparison after and before, because it's not run the same way.

Donna Jaegers - D.A. Davidson & Co.

But as far as saying things are on plan, obviously on the cost side, you've already commented on that. Are sales picking up relative to where they were last year?

James Ousley

I would say at this stage, just given the whole integration and changes et cetera, and learning the Savvis offering such that they're basically flat, which was what we had in the plan.

Donna Jaegers - D.A. Davidson & Co.

And then on Thomson Reuters. Obviously, they're a big customer for you in growing again, which is great to see. Can you talk about what percentage of sales they are? Are they 10%?

James Ousley

At roughly 8%.

Operator

Our next question or comment is from George Sutton of Craig-Hallum.

George Sutton - Craig-Hallum Capital Group LLC

Jim, with the private cloud getting more attention, and your comments recently at a conference that nearly all of your large customers are looking at private cloud options, can you give us a sense of the significance of the opportunity over the next 12 to 18 months?

James Ousley

It continues to be a very hot discussion and opportunity. That being said, typically, what we're seeing is either a major government entity or agency that wants to provide cloud services to multiple agencies, or a major corporation or association of banks or whatever that want to provide cloud services to their entity. So they're not short decisions. They're the classic traditional major outsourcing decision process, which unfortunately is six to 12 months, so we have a lot of activity. Bryan Doerr, our CTO, is spending a majority, of his time now talking to these people. And we believe we're positioned very well for two reasons. One, we focused, not on the low-end cloud services, but on what we call enterprise-grade. So our technology is focused that way, as well as we're seeing most of these people want a secure network environment associated with the enterprise cloud. And so we're one of the few that can integrate that and provide that. So we're optimistic that we're going to see some significant wins in 2011. They do take time, but that's kind of expected in that kind of environment.

Operator

Our next question or comment is from James Breen of William Blair.

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

One, on SG&A. The percentage of revenue is at once to a point where it was in the beginning of 2009, at flattish sequentially on an absolute basis. Can you comment there as sort of the changes you're seeing? And then also, you mentioned that 2/3 of the contract that came up from renewal this year, net pricing has been stable. A little more color on that. Is pricing stable on a customer basis or on sort of a per unit price? And are you seeing, as customers are renewing, are majority of those customers taking additional services from you in that process?

Gregory Freiberg

James, I'll take the first part of that. On the SG&A front, yes. Now the percentage of revenue, the fact that we're at 23.4% and then going to 24.7% where it was at the year-ago quarter, and then 25.7% in the preceding quarter. It really comes back to the drivers we talked about earlier. That in the year, that's a reflection of what does that upfront sales and marketing cost and the installation cost associated with getting the revenue engine going again. And some of that cost goes away as you get past the first few quarters of the customer relationship, and particularly the installation cost, the care cost and the like. So we expect to see leverage there. You just don't quite see it yet in the year of the revenue growth.

William Fathers

And on renewals. Specifically around pricing stability, is that by customer or is that by product? I say the only price concessions we'd really see from a product perspective are down in the wholesale network space, which is getting an ever decreasing part of our revenue stream. The non-core network space, that's where you do see some pressure on IT transit. On colocation or managed hosting renewals, almost no pricing pressure early at that point of renewal. Very often, after a three-year contract, the customer's own application infrastructure's expanding, and they, therefore, are typically talking about growth at the same unit prices. And then over 2/3 of the clients who renew with us so far this year are then buying something else as part of the renewal. Now that's something that we track very carefully, the incremental sales we sell into that renewal discussion. So yeah, at least 2/3 will be going something else at the point of renewal.

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

So it's better to say that the absolute revenue you're getting from those 2/3 is actually increasing?

William Fathers

Yes, overall.

Operator

Our next question or comment is from Ben Abramovitz of Kaufman Bros.

Ben Abramovitz - Kaufman Bros., L.P.

Someone was asking about financials as a percentage of total revenue, and where you think that potentially grows to. It's been growing sequentially. Last quarter, financials were about 40% of new bookings. I'm curious, in terms of understanding directionally where that vertical has been going. This quarter, financials, what were they as a percentage of the new bookings you have out there?

William Fathers

Last quarter, the middle was 40% of bookings.

I would say I don't have the precise number to hand, but in that range. Perhaps slightly lesser this quarter than last quarter, but in that range.

Ben Abramovitz - Kaufman Bros., L.P.

So it's still roughly around 40% of the new bookings?

William Fathers

Give or take, yes.

James Ousley

To that point, I would just add that I've been saying this for a bit here, but we were really impacted over the last few years by the financial industry turndown. But as we've seen now, we are really benefiting by that focus. And there's been concern, I know, by some that -- is this new regulation's going to have negative impact, and we're seeing just the opposite. There are some examples out there where some of these regulations are causing massive data storage requirements by our clients, and data compute requirements by our clients, that they just aren't geared to perform. And so they're having to take it outhouse to get it accomplished. So it's been continues to be positive for us.

Operator

Our next question or comment is from Erik Suppiger of Signal Hill.

Erik Suppiger - Signal Hill

First up, did you report what churn was in your hosting?

James Ousley

No, we've not.

Erik Suppiger - Signal Hill

Did you see many wins against switching data? Obviously, that was an issue for Equinix. Did you see any difference there in terms of your competitive position?

William Fathers

Not noticeably, Erik, in the quarter. So obviously that would be in the Colo space there. And I'm thinking now about the competitive wins we had during the quarter, Nothing noticeably different to previous quarters.

Erik Suppiger - Signal Hill

On Fusepoint, you said that was flat. The company had been growing previously. What's the reason why you are expecting for revenues to flatten?

James Ousley

I think it's just the normal integration. I think you see it with all major -- not that this was a major acquisition, but I think you see it with all sales forces gets realigned. In this case, we're realigning all their product offerings around Savvis' product offerings. All the support is being centralized. So you're going to naturally see a quarter or two while they get retrained, et cetera to reenergize. And then our customers that we anticipate on going up there, they're going to take some quarter or two before they make that happen. So it's pretty much in the plan that we anticipated, and I think you would see in most competitors, even one of our other competitors that had a major acquisition last year, same scenario, there is integration time.

Erik Suppiger - Signal Hill

And then on the cloud. You've been growing the cloud kind of in the range of $500,000 to $700,000 a quarter. Do you feel like you're at a point in sometime in 2011 where you might hit critical mass and start to see that accelerate? Or is this more the rate that you would expect to continue?

James Ousley

No, we would hope that it increases. We've only been at particularly what we would call enterprise-grade cloud offerings, taken to the market for a relatively short amount of time here. And as I suggested earlier, it is a longer sell cycle. So hopefully some of those major opportunities that we're pursuing now would to start to hit in 2011.

Erik Suppiger - Signal Hill

Is the majority of the customers using cloud, they're traditional customers as well, is that correct?

James Ousley

Yes, they are.

Erik Suppiger - Signal Hill

Do they consume the same type of support and services capabilities with the cloud as they do for their traditional service?

James Ousley

Conceptually, they should not. Obviously, they can provision on their own. And of course, they have -- their existing customers who were uninformed initially [ph] (1:25:16) know our processes and procedures. And this should conceptually make it easier, and require less support.

Operator

And I'm showing no further questions in the queue. Thank you, ladies and gentlemen, for joining today's conference. That concludes the program. You may now disconnect. Have a great day.

Operator

Welcome, ladies and gentlemen, to the Savvis Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Peggy Tharp.

Peggy Tharp

Thank you. Good morning, and thank you for participating in the Savvis Third Quarter 2010 Earnings Call. I am Peggy Reilly Tharp, Senior 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 (sic) 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 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 the SEC's Regulation G, our press release distributed today, which is posted on our website and furnished to the SEC on Form 8-K, include 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.

Joining us on the call today are Jim Ousley, Chairman and Chief Executive Officer; Greg Freiberg, Chief Financial Officer; and Bill Fathers, Senior Vice President and Global Head of Sales and Marketing.

Today, we'll begin with the financial review from Greg, followed by a strategic update from Jim. We will wrap with a sales summary from Bill before turning the call back over to the moderator for Q&A. And I'd now like to turn the call over to Greg Freiberg.

Gregory Freiberg

Thanks, Peggy, and good morning, everyone. I'd like to start with third quarter results, which are on Slide 4. Total revenue was $242 million, up 9% over second quarter 2010 revenue of $222 million and up 13% when compared to the third quarter 2009 revenue of $213 million. For the third quarter, Hosting, which includes both managed services and colocation, accounted for 73% of total revenue. The remaining 27% of revenue was attributable to our Network Services. In the third quarter, both Hosting and Network saw revenue growth on a quarter-over-quarter basis.

Starting first with Hosting, revenue was $177 million in the third quarter, up 12% over second quarter 2010 Hosting revenue of $158 million. When compared to third quarter 2009 Hosting revenue of $148 million, it was up 19%.

Managed Services revenue was $82 million in the third quarter, and accounted for 46% of hosting revenue. When compared to second quarter 2010 revenue of $74 million, Managed Services was up 10%. When compared to third quarter 2009 Managed Services revenue of $63 million, we saw a 30% year-over-year improvement.

Colocation revenue in the third quarter was $95 million and accounted for 54% of overall Hosting revenue. Colo revenue was up 13% over second quarter 2010 revenue of $84 million, and up 12% over third quarter 2009 revenue of $85 million.

Moving on to Network Services, where we reported revenue of $65 million for the third quarter, which was up 3% over second quarter 2010 revenue of $64 million. When compared to third quarter 2009 Network revenue of $65 million, it was flat on a year-over-year basis.

In the third quarter, Core Network, which is network attached to our Hosting business, accounted for 56% of overall network revenue. Core Network revenue of $36 million was up 9% over second quarter 2010 revenue of $34 million, and up 27% when compared to third quarter 2009 revenue of $29 million.

Turning to gross profit. Savvis had gross profit of $110 million in the third quarter. On a quarterly basis, gross profit was up $9 million, and on an annual basis, it was up $15 million. Excluding nearly $2 million of non-cash equity-based compensation, gross margin was flat quarter-over-quarter and up approximately 100 basis points year-over-year. As expected, we experienced higher seasonal utility costs in the third quarter of approximately $2 million when compared to the second quarter of 2010.

SG&A for the second quarter was $57 million or 23% of revenue, and included $4 million of non-cash equity-based compensation. Excluding this amount, SG&A was up approximately $1 million quarter-over-quarter and up $7 million on a year-over-year basis. We increased SG&A spending in the third quarter of this year as we continue to invest in sales and marketing efforts. This included spend for our cloud marketing campaign and upfront costs incurred for commissions, for client renewals and new installs.

Turning to adjusted EBITDA, which was $60 million for the third quarter and 25% of revenue. Adjusted EBITDA was up 9% over second quarter 2010 adjusted EBITDA of $55 million. When compared to third quarter of 2009 adjusted EBITDA of $51 million, it was up 17%. Just as we have seen strong revenue growth this year, we expect to see corresponding growth in adjusted EBITDA in the fourth quarter and throughout 2011.

Now if you will turn to Slide 5, I would like to review our guidance for the year. Starting with revenue, we now expect the range of $925 million to $930 million for 2010, an increase over our previous guidance range of $917 million to $927 million. We have narrowed our full year adjusted EBITDA guidance to a range of $225 million to $ $235 million from our previous guidance range of $220 million to $240 million.

For 2010 cash interest expense, we expect this amount to be approximately $50 million. This is a change from our previous guidance range of $55 million to $60 million, and it's due to finalizing changes to our debt structure. For cash CapEx, our guidance range for 2010 remains between $190 million and $210 million.

Before turning things over to Jim, I'd like to walk through the changes to our infrastructure during the quarter on Slide 6. In August, we closed our senior secured credit facility's offering, which included a $550 million term loan maturing in 2016 and a $75 million revolving credit facility maturing in 2014. In August, we also completed a tender offer for our convertible senior notes, with approximately 99% of the outstanding $345 million notes tendered or approximately $342 million.

Our total long-term debt position as of September 30 was $748 million, and our net debt was $660 million. In the third quarter, gross leverage was 3.3x, while net leverage was 3.0x. As of September 30, the company had $88 million in cash, a decline from the $119 million in cash as of June 30, due in part to the timing of the debt restructuring.

And with that, I'd like to hand the call over to Jim Ousley for a strategic update.

James Ousley

Thank you, Greg, and thank you, all, for joining us today. If you would please turn to Slide 8, I'll start with gross bookings. Once again, we showed quarterly and sequential improvement in this area. Our momentum was in line with last quarter, and we are on track for the fourth quarter. We continue to see strength in bookings and expect this trend to carry into 2011.

While Bill's going to talk in more detail about the kinds of clients we're winning, overall, we're seeing more large outsourcing deals. As a result, we continue to see an increase in the number of wins, with monthly reoccurring revenue of $250,000 or greater. Our average Colo revenue per square foot was $51 in the third quarter, and overall pricing trends have remained steady. As we have stated in the past, we still believe we will hover around the $50 mark. This metric is a blended average of all of our 31 data centers around the world and is reflective with the various locations and power availabiity, as well as the overall industry environment.

For many services, our average monthly revenue per square foot was just over $1,000. This increase was due to clients adding capabilities to existing servers, which allowed us to increase revenue without increasing utilized square feet. And while these are positive indicators, it's important to remember that industry overall still has a great deal of room to grow. Today, only about 10% of all IT infrastructure is outsourced. This means all outsourcing providers have the opportunity to grow, and assuming they're providing a differentiated and value-added service like we believe Savvis is.

Turning to installs. We exceeded our internal plan for the third quarter as well. This traction bodes very well for our fourth quarter revenue. As you can generally expect, most managed services installations to occur approximately 30 days after the booking of the order. The sooner we can install new clients, obviously, the sooner we can begin generating revenue.

Of course, I can't talk about revenue without talking about our Network business, which showed quarter-over-quarter growth for the first time in 14 quarters. Our Network continues to benefit from the Thomson Reuters relationship and alliance. In addition, we expect infrastructure technology outsourcing to both drive core network growth and to help stabilize overall network revenue going forward.

We continue to see clients take our network as part of a converged solution, with 96% of our hosting clients using our network as a component of an end-to-end solution. The converged solution trend we have continues to differentiate Savvis, as 66% of our revenue comes from clients taking network colocation and managed services in addition to our cloud offering. I know Bill will talk about this in some detail, but we continue to see enterprise clients looking for more options when it comes to outsourcing.

At Savvis, we are able to operate in more than just space and power. We're able to offer them a solution that can grow with their business and with the changes in technology. This helps move us out of the competition with lower-end wholesale regional players and allows us to focus on enterprise clients and their specific needs. We provide our clients with a quicker path to benefiting from changes and improvements in technology solutions by helping them save time and money during implementation.

Even though the economy has improved over the past 24 months, enterprises are still looking for ways to reduce their spend and improve their return on our IT infrastructure solutions, and help with both.

If you turn to Slide 9, I'd like to take a look at our turn and renewal activity for the quarter. For the third quarter, we dramatically exceeded our renewal target, and we're still on track to renew nearly 2/3 of our contracts this year, which helps put us ahead of the game for next year. In addition to renewals, we're seeing strong new client interest and continued service additions from our existing clients. I think it's clear that the focus we put in place around renewals has helped drive our reduced churn rates. In the third quarter, churn remains steady and was in line with first and second quarters of this year.

Nowhere is this improvement in churn more evident than in our Colocation business. As you know, nearly four years ago, we put in place a plan to proactively churn out clients that didn't meet our strategic profile. While we took some hits over the past few years for this approach, we were able to successfully move out of undifferentiated revenue related to Internet content firms. For the third quarter of 2006, Internet content firms made up 41% of our Colocation revenue, while enterprises were the remaining 59%. As of today, Internet content is 6% of Colocation revenue and approximately 3% of overall revenue.

These clients are generally interested in the lowest Colo rate possible, and they have no interest in value-added managed services. They take large footprints and this can result in higher churn, as they move into their own data centers, which many of them have been building. Our shifting our focus away from these types of clients, we've been able to maximize the concept of our converged solutions.

Thanks to the breadth and depth of our products and services, we've seen clients pick Savvis over many other providers. They know that when they're ready to move beyond colocation, we'll be able to help provide them with the right mixture of Colo, managed and cloud, all reliably secured through our Tier 1 network.

I know Bill Fathers has some tangible examples of these kinds of wins, so I'd now like to turn it over to Bill.

Bryan Doerr

Thanks, Jim, and good morning, everybody. I'm pleased to be sharing another very strong quarter of sales results with you, with both bookings and renewals showing quarterly sequential improvement. And as you may recall during our first quarter earnings call earlier this year, we shared our strategy for accelerating revenue growth at Savvis in 2010, and this strategy had four key elements. And if you'll turn to Slide 11, I'll briefly review our progress against each of these areas.

Firstly, a global focus on renewals, client loyalty and revenue retention. Second, continued improvement in sales productivity. And third, I said we'd exploit the global opportunity in financial services. And fourth, that we'd have a relentless drive to be the global source for enterprise cloud services. And Jim's already covered the success we've seen by focusing on our clients and renewals, so I'd like to start with the second area, improving sales productivity.

This quarter, we delivered our third straight quarterly sequential increase in sales productivity, and I'd like to just take a moment to focus on just two of the main drivers behind the success. Firstly, at the beginning of this year, we accelerated the transition from a geographic to a vertically oriented sales force, by adding consumer brands and software to our already solid financial and media verticals. And we've been able to gain traction quickly in these two new verticals, having established a strong foothold with blue-chip clients in each vertical in previous years. We already have similar foundations in place to enable us to successfully launch more verticals in 2011.

The second area of focus for improving sales productivity has been our investment in demand creation activity, and this has really made our new client acquisition process easier and more efficient, and we're already seeing some clear results from this. As Jim said, the sales pipeline remains strong and as discussed, bookings in the quarter were up versus the previous quarter. Bill rates for our new data center expansions are at or ahead of plan, which includes Slough in London, DC4 and NJ2 in Weehawken.

Now I'd like you to turn to Slide 12 for a review of our third key growth driver for 2010, the financial vertical. And this area's been a great success for us and has served as the model for building out and expanding our vertical sales approach. No way is this more apparent than in our Thomson Reuters alliance relationship. Alliance revenue was up more than 50% over the second quarter and made up approximately 1/4 of overall Thomson Reuters revenue. Growth in this collaboration continues to accelerate and exceed our forecast. Strategically, we're starting to see the benefit of having alternate channels to market, which complement our direct sales channels. And as you can imagine, we're focused on replicating the success with other channel partners in other verticals.

As in the past, financial firms turn to Savvis in the third quarter, and we expect this trend to continue. Regulatory changes are expected to drive increased investment in infrastructure, and we've already seen an increase in the compute, storage, security and transmission of financial data, including electronic trading.

Existing clients have been required to make big investments in Infrastructure, and we're also signing up new clients such as regulatory bodies in our data centers. At Savvis, we not only have a deep foundational relationship with many of the big and small firms in the financial industry, we also have the ability to create the solutions that will meet their new demands, thanks to our portfolio of Colo, network, managed and cloud, we're able to develop a solution that not only meets the needs of one client, but can be easily adapted to create demand from other existing and new clients.

To give you an idea of the kind of solutions we're creating for clients, I'd like you to turn to Slide 13, and I'll walk you through just a few of our large wins this quarter.

First up, a win from the financial vertical. This 10-year deal is for a financial regulatory body and has an initial total contract value of approximately $11 million. This is a new logo for Savvis, and we won the business away from a competitor. While the client's starting with customized colocation that includes some security services, they know they'll need to add major services such as cloud down the road. And thanks to our long-term focus on managed services, this client elected to move their service and co-locate with Savvis. Not surprisingly, our strong commitment to the financial vertical and existing ecosystem of clients certainly helped win this client over.

Next, a global maritime operator selected Savvis for all of their IT infrastructure operation outsourcing. This enterprise required guidance to help transform a disparate infrastructure, which has grown their acquisition into a consolidated, secure, scalable and unified infrastructure. This deal has a total contract value of $42 million, with a five-year term. And we'll be migrating, transforming, refreshing and collating [ph] (34:45) all of this client's infrastructure into two of our facilities through the use of our managed and network services, and of course our Symphony cloud platform. Over the life of the contract, this client will save over $10 million and will receive the benefits of a more flexible and resilient infrastructure, improved operational efficiencies and end-to-end service level agreements.

One final win for the quarter, an international media company who elected to expand their footprint with us. This existing client appreciated our service and support and added another $130,000 of monthly recurring revenue in the third quarter. And in addition, we just booked a renewal for this client for an additional 36 months at $750,000 a month.

With this expanded renewal, we'll be able to help the client reduce overall IT spend by about 5% by providing a truly converged solution, which includes managed, network services, storage, backup and security. In addition, this client is currently taking our Symphony open cloud offering and looking at expanding onto our Symphony VPDC platform.

You'll note the role our cloud capability played in these wins. The fourth area of our 2010 growth strategy was to exhibit a relentless drive to be the global source for enterprise cloud services. What we're seeing is even more rewarding. Clients are looking to use our cloud as part of a converged solution, which includes a variety of our other products and services and was able to meet the client's unique needs. More and more, large enterprises are looking to Savvis to provide services and to create a solution to meet their demands. To date, more than half of our Managed Services growth has come from large outsourcing deals, and we expect to see more and more of this in 2011.

Large outsourcing deals are generally more complex and have a number of moving parts. And these clients need more than just space and power, they need a complete solution that includes a broad portfolio of offerings from Colo, to cloud and managed services and, of course, includes consulting. It also takes proven debt [ph] (36:51) expertise in targeted verticals, and that's what Savvis brings to the table.

And with that, I'd like to thank you for your time today and turn the call back over to our operator for Q&A.

Operator

[Operator Instructions] Our first question or comment is from the line of Jonathan Atkin of RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets Corporation

So I take from your the comments that you're -- it's not even [ph] (37:25) kind of a larger deal. And I'm wondering to what degree you need to customize your offers for some of these larger clients and what ramifications that might have for your support infrastructure and costs related to customer care and technical support?

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!