Executives
James Ousley - Chairman, Chief Executive Officer and Member of Business Development Committee
William Fathers - Senior Vice President of Global Sales and Marketing
Peggy Tharp - Senior Director of Investor Relations
Gregory Freiberg - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
Analysts
Colby Synesael - Merriman Curhan Ford
David Nathan Barton
Gray Powell - Wells Fargo Securities, LLC
Jonathan Schildkraut - Evercore Partners Inc.
Unknown Speaker
Donna Jaegers - D.A. Davidson & Co.
Mark Kelleher - Dougherty & Company LLC
Michael Bowen - Guggenheim Securities, LLC
James Breen - William Blair & Company L.L.C.
Frank Louthan - Raymond James & Associates
Brian Thackray - Deutsche Bank AG
James Ratcliffe - Barclays Capital
Erik Suppiger - Signal Hill
Timothy Horan - Oppenheimer & Co. Inc.
Jonathan Atkin - RBC Capital Markets, LLC
Simon Flannery - Morgan Stanley
Scott Goldman - Bear Stearns
George Sutton - Craig-Hallum Capital Group LLC
Robert Dezego - SunTrust Robinson Humphrey Capital Markets
SAVVIS (SVVS) Q4 2010 Earnings Call February 8, 2011 10:00 AM ET
Operator
Good day, ladies and gentlemen, and welcome to Savvis Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Peggy Reilly Tharp, Senior Director of Investor Relations. You may begin.
Peggy Tharp
Thank you, Victoria. Good morning, and thank you, everyone, for participating in the Savvis Fourth 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 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 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, 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.
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 will begin with a strategic update from Jim, followed by a sales summary from Bill. We will wrap up with a financial review from Greg before turning the call back over to the moderator for Q&A.
I would now like to turn the call over to Jim.
James Ousley
Good morning, and thank you all for joining us today. It was about a year ago after I had been acting as interim CEO for about a month that I hosted my first quarterly earnings conference call with all of you. I shared our 2009 accomplishments and gave you some insight into what we were seeing on the horizon for 2010 and our strategy for the year. While it has been a very exciting year, a great deal has happened since then and Bill, Greg and I will each discuss 2010 in more detail throughout the call. For now, I'd like to take a few moments to talk about the changes I've personally seen and experienced during the past 12 months here at Savvis.
First of all, as I mentioned to many of you as I've talked to you over the year, it's amazing how much more you learn when you're the CEO versus the Chairman or a board member. But I am happy to say that almost all of it was very good. The major personal thing I've learned over the past year is how extremely dedicated, capable and committed the employees of Savvis really are. This, coupled with the clients, prospects and market segments that we work with, makes for an exciting experience for me as CEO and I believe for you as our loyal investors. So as I look forward to 2011, my goals are to leverage these two facets of Savvis to their fullest. And I commit to you that if we are successful in doing so, as I believe we can be as we were in 2010, it should be extremely rewarding for all of our constituents, you, our investors, our customers and our employees.
And 2011 is off to quite a start. As you know, two players in cloud and Managed Services space have already been acquired by companies outside of our immediate peer group. These acquisitions reaffirm the value of companies like Savvis. Savvis' ability to combine cloud, Managed Services, Colocation and Network into a seamless, integrated hybrid environment is what will help us be a market leader.
Now if you'll turn to Slide 4, I'd like to take a look back at the specific areas we discussed during this call last year and update you on how we performed in 2010. We pledged to grow the overall Hosting business in 2010, and we did so with an 11% year-over-year growth over 2009. We continued to direct our primary focus towards Managed Services, and this approach delivered, as we reported, growth of 18% in 2010. Colocation grew at 5% last year, which was in line with our expectations, given our investment levels. We expect faster growth in each of these segments in 2011.
We also worked to stabilize our Network business in 2010 by focusing on our Core Network. This portion of our Network business grew 24% over 2009, with each quarter of 2010 showing year-over-year revenue growth of 20% or more. While we did see unexpected growth in the overall Network business in the fourth quarter of 2010, we do anticipate declines in the sustaining portion of our Network should offset any overall Network growth in 2011, which is in line with our plan.
For our enterprise cloud offering, we were committed to demonstrating our market leadership in 2010. We also increased our cloud service offerings around the world by expanding the availability of our cloud infrastructure solutions into United Kingdom and into Asia. We also launched our Savvis Symphony Virtual Private Data Center in the United States and in the United Kingdom.
The results of these efforts are best seen in external accolades we received for our cloud offerings in 2010. In June, we received the best new European cloud service award at the sixth annual Data Centers Europe Conference. While in October, the U.S. General Service Administration selected Savvis to provide cloud computing to federal, state, local and tribal government organizations to apps.gov. Both of these speak to our leadership in the cloud and reflect our strong focus on security, reliability and innovation, particularly at the enterprise level.
Not only did we expand our global service offerings in 2010, we also expanded our data center footprint. We added three data centers in Canada through our acquisition of Fusepoint and also continued to reach new countries through our Thomson Reuters collaboration. For Fusepoint, this acquisition continues to track to our initial expectations, with $8 million of synergies to be fully achieved this year. For Thomson Reuters, Bill's going to provide an overall update a little bit later in the call.
Before wrapping up with this slide, I'd like to turn to the improvements we've made in the area of client service. In addition to the strong net promoter score we shared with you during our Investor Day, we've created a quality council, which is dedicated to improving all aspects of client service and making it easier to do business with Savvis. This has been a key priority for me since I came into the job.
While these results show significant progress against our 2010 plan, we also had a number of other achievements last year. If you'll turn to Slide 5, I'd like to highlight just a few of those.
We restructured our debt profile, resulting in a stronger balance sheet. We reduced the number of outstanding debt instruments and extended our overall terms, liquidity and flexibility. We accelerated our successful vertical approach by adding consumer brands and software to our already strong financial vertical. A particular note, we revamped our renewals effort. Our focus on renewing clients in advance of contract expiration helped contribute to improve annual churn of 1.4% in 2010. While we've made significant progress here, we remain committed to retaining our focus in this area in 2011.
In the financial vertical, we added six more exchange venues and dozens of new exchange feeds to our financial data centers as we continued to demonstrate our leadership in this vertical. For 2010, the financial vertical accounted for 27% of our overall revenue. For 2011, we expect to continue to grow in this vertical with strong partners like Thomson Reuters and through strong exchange relationships.
In 2010, we also added approximately 55,000 square feet of sellable data center space. We completed four expansions last year in Metro New York, Slough in the U.K., Washington, D.C. and downtown Chicago. All these are bolt-on expansions to existing locations. Thus, we had a low average cost of approximately $1,100 per square foot.
When it comes to our data centers, we also received a number of awards for our dedication to environmentally sound design and operational excellence. We won the prestigious Green Enterprise IT Award from the Uptime Institute, and we also were inducted into the Environmental Hall of Fame and recognized for our commitment to environmental stewardship, efficient power consumption and reduction of our carbon footprint.
In September, our network earned several Cisco-powered designations. And we also earned a top spot on InformationWeek's list of top technology innovators across America. We're very pleased with the progress we made in 2010, and we look forward to continuing this trajectory in 2011.
If you'll turn to Slide 6, I'd like to walk through some of our expectations for this year. Of course, it goes without saying that we will remain focused on our clients and dedicated to improving quality standards throughout the company for our customers.
We expect to continue to see double-digit hosting revenue growth, particularly in Managed Services. In fact, we expect to grow our Managed Services at 20% plus in 2011. While Core Network revenue is expected to be positive in 2011, we believe any growth will be offset by a decline in our sustaining Network revenue for our strategic plan.
For cloud, we continue with the global expansion of our platform to meet our clients' needs on a regional basis. And finally, we plan on growing our available data center space in three key ways, and I'd like to quickly walk through those now.
First, through the expansion of existing and adjacent facilities. This year, we expect to spend approximately $69 million in cash CapEx for data center expansions. Current plans call for three buildouts of facilities associated with our existing data centers. In Piscataway, New Jersey, we plan to complete an expansion adjacent to our existing facility by the third quarter. Next up is a bolt-on expansion at our existing Atlanta data center, which is also expected to be operational by the third quarter. We're also adding space in Seattle, which should be available in the second quarter, and this location is adjacent to our existing Seattle data center. In addition to these expansions, we also expect to complete other data center buildouts in 2011 around the world.
Second, we'll continue providing Managed Services around the world as we develop additional global Thomson Reuters applications. Current plans call for us to add availability and potentially eight new financial hubs this year and in 2012.
And third, we expect to expand in conjunction with global marketing partners. Just yesterday, we announced a joint marketing agreement with Airtel to launch a major new strategic managed hosting and cloud computing initiative in India. We said we'd expand our global partnerships, and we did. As you may know, Airtel is India's leading integrated telecom company, with operations in 19 countries across Asia and Africa. Our agreement with them will give us access to a wide range of enterprises operating in or expanding into India. We will extend our infrastructure and service platforms into existing Airtel data centers throughout India and establish local operation teams there. We expect to begin rollout in Bangalore early this year, with future expansions into other Airtel data centers in major cities, including Mumbai and New Delhi. In addition, Airtel will be the exclusive reseller of Savvis Managed Hosting and cloud services to its India-based clients. India is a huge potential market that requires scale and local reach. Our global clients have been asking for us to have capabilities in India, and partnering with Airtel enables us to provide the quality facilities and support both our clients and theirs require.
Before I wrap up, I'd like to draw your attention to Slide 7 and one final accolade we received in 2010. Gartner Group has positioned Savvis in the Leaders Quadrant in the Magic Quadrant for Cloud Infrastructure-as-a-Service and Web Hosting. We believe our position in the Magic Quadrant as the leader is a testament to our overarching commitment delivering visionary enterprise-class solutions to our growing list of clients.
And now I'd like to turn the call over to the man responsible for meeting and exceeding Gartner's expectations, Bill Fathers.
William Fathers
Thank you, Jim, and good morning, everyone. I'm going to begin on Slide 9 with a brief overview of our overall fourth quarter trends. Coming in at 1.4% of revenue, fourth quarter churn was better than expected and was down 115 basis points over fourth quarter 2009. And our continued focus on renewals exceeded plan in the fourth quarter and helped us maintain quarterly churn rates at or around 1.5% in 2010, and we expect to see similar churn metrics in 2011.
In gross bookings, we hit our forecast a specific strength in EMEA and Asia. And EMEA was up 26% over fourth quarter plan, while Asia was up 24%. In addition, Canada was on plan for the quarter.
For the fourth quarter, our new client acquisition rate increased significantly over the third quarter with continued strong interest in cloud.
In Colocation, we saw stronger bookings in the quarter, as we're getting good traction in our recently expanded data centers. In the fourth quarter, we built great momentum and a strong pipeline for 2011, and this includes large deals. We continue to see good traction across our key verticals including early interest in government cloud verticals, with wins in the U.S. and a strong pipeline in EMEA and Asia.
We've expanded our Symphony Cloud Virtual Private Data Centers into our DC4 facility and already have clients on the platform. We're building a pipeline of government agencies around the world and making the investments in staffing and compliance that we need to successfully promote and execute our government cloud vertical in 2011.
Another shining star is our consumer brands vertical, with bookings up 138% quarter-over-quarter. Growth remains strong in this vertical due to the explosion of e-commerce and m-commerce. As more consumer products rely on their websites to promote their brand and as e-commerce volumes move past the billion per day level reached during 2010 holiday season, more companies are outsourcing this area of their business to companies like Savvis, which has already invested in the scale and security required. A number of major new consumer brand clients like the most global of all U.S.-based food companies turn to Savvis in the fourth quarter to help develop an outsourced IT solution. For this particular client, we'll be providing a solution based on our Symphony Open cloud platform. We are chosen based on our track record and solution set and our ability to provide multiple services, including an industry-leading solution to help protect against denial of service attacks. In addition to cloud, also helped win this client away from their existing provider.
Moving to Slide 10, as with this client, we find cloud is an increasingly integral part of new client wins. In addition, cloud is an excellent avenue for gaining the attention of new enterprise clients.
I'd like to review our recent cloud trends. Currently, nearly 45% of our hosting clients are now using our Savvis Symphony cloud. Even with this significant product crossover, we're not happy to rest on our laurels. And in the fourth quarter, we added new features to our cloud in response to continual feedback and discussions with our enterprise clients. As a result, we're now offering private cloud functionality and API enhancements. And I believe Bryan Doerr will talk more about this area during our quarterly technology update call later this month.
Through these and other client services, we're helping our enterprise cloud clients save more than 30%. Savvis cloud clients include enterprises like Procter & Gamble, Compuware, Dendreon, Carlson Marketing and Thomson Reuters.
Approximately 90% of our top 50 cloud clients, like these companies, are also buying traditional hosting services. Enterprises are turning to Savvis for cloud because they know the capabilities they need already exist and are available through our Symphony offerings. In addition, they're able to benefit from our data center and network offerings as part of the converged solution, and our ability to provide a complete solution including cloud helps differentiate Savvis.
If you'll turn to Slide 11, I'd like to talk a bit more about Thomson Reuters. And to date, the Thomson Reuters sales force is taking orders for Savvis solutions in 10 markets around the world. We have the Thomson Reuters Elektron Hosting solution available in six Savvis data centers, including Metro New York, Chicago, Singapore, Tokyo and two data centers in metro London. The Thomson Reuters Elektron Hosting solution is also being offered in four other global data center locations, including Hong Kong, Mumbai, Brazil and in Frankfurt. And in these instances, Savvis is taking space in existing data centers in order to provide Managed Services and support the Elektron platform.
In addition, as you can see, we've experienced a surge in the addition of financial services clients through this collaboration, with results far above our expectations. And to date, we have more than 100 global clients across four regions, providing approximately $2 million of monthly recurring revenue or nearly $25 million of annual revenue.
In the fourth quarter, we saw the number of collaboration clients increase nearly 875% over the fourth quarter of last year and grow 65% over the third quarter this year. At present, collaboration bookings are 200% ahead of plan, and we have more than 300 deals in the pipeline.
Turning to Slide 12 and further details on our overall channel partnerships, which are performing well. The fourth quarter was one of our highest quarters for new bookings from global alternative channels, with several new telcos, ISVs and systems integrators contributing to our success. In addition, we just entered into an agreement with Virgin Business Media to develop and market hosted-IT services to enterprise clients across the U.K. The agreement leverages Savvis' IT service leadership with Virgin Media business technically advanced nationwide fiber-optic network and will provide customers with integrated and secure end-to-end solutions, which we expect will launch later in 2011. We're excited about the potential of what we can deliver from this combination of the Virgin brand and Savvis' capabilities.
And with these stunning results, I'd like to hand things over to Greg for a wrap up of our financial results.
Gregory Freiberg
Thanks, Bill, and good morning, everyone. I'd like to start with the fourth quarter results, which are on Slide 14.
Total revenue was $253 million, up 4% over third quarter 2010 revenue of $242 million, and up 15% when compared to fourth quarter 2009 revenue of $220 million. For the fourth 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 fourth quarter, our Hosting and Network businesses both saw quarterly and annual revenue growth.
Starting first with Hosting. Revenue was $186 million in the fourth quarter and up 5% over third quarter 2010 hosting revenue of $177 million. When compared to fourth quarter 2009 Hosting revenue of $155 million, it was up 20%.
Managed Services revenue was $89 million in the fourth quarter and accounted for 48% of Hosting revenue. When compared to third quarter 2010 revenue of $82 million, Managed Services was up 10% sequentially. When compared to fourth quarter 2009 revenue of $68 million, we saw a 32% year-over-year improvement in Managed Services. Colocation revenue in the fourth quarter was $96 million, and accounted for 52% of overall Hosting revenue. Colo [Colocation] revenue was up 1% over third quarter 2010 revenue of $95 million, and up 11% over fourth quarter 2009 revenue of $87 million.
Moving on to Network Services where we reported revenue of $67 million for the fourth quarter, Which was up 3% over fourth quarter 2009 revenue of $65 million. Third quarter 2010 Network revenue was also $65 million, for a 3% increase quarter-over-quarter. In the fourth quarter, Core Network, which is Network attached to our Hosting business, accounted for 57% of overall network revenue. Core Network revenue of $38 million was up 6% over third quarter 2010 revenue of $36 million, and up 22% when compared to fourth quarter 2009 revenue of $31 million.
Turning to gross profit. Savvis had gross profit of $123 million in the fourth quarter. On a quarterly basis, gross profit was up $13 million. And on an annual basis, it was up $24 million. Gross margin was 49% in the fourth quarter of 2010, up approximately 315 basis points over the third quarter, and up approximately 350 basis points over the fourth quarter of 2009. The improvement in gross margin was due to higher Managed Services revenue and lower seasonal utility cost. In addition, as our sustaining Network revenue declines, we are able to correspondingly reduce our network-related costs.
SG&A for the fourth quarter was $62 million or 24% of revenue. This included $4 million of non-cash equity-based compensation. On a quarterly basis, SG&A was up $5 million. And on an annual basis, it was up $11 million. SG&A, as a percent of revenue, was 24%, up approximately 110 basis points over the third quarter and up approximately 150 basis points over the fourth quarter of 2009.
Turning to adjusted EBITDA, which was $68 million for the fourth quarter and 27% of revenue. Adjusted EBITDA was up 14% over third quarter 2010 adjusted EBITDA of $60 million. When compared to fourth quarter 2009 adjusted EBITDA of $55 million, it was up 24%. Adjusted EBITDA margin was up approximately 215 basis points over the third quarters and up approximately 185 basis points over the fourth quarter of 2009.
If you'll now turn to Slide 15, I'd like to go over our full year financial results. Total revenue was $933 million, up 7% over 2009 revenue of $874 million. For overall Hosting, revenue was $673 million in 2010, up 11% compared to 2009 Hosting revenue of $607 million. Managed Services revenue was $315 million in 2010, up 18% when compared to 2009 revenue of $266 million. 2010 Colocation revenue was $358 million, up 5% over 2009 revenue of $341 million.
For Network Services, we reported revenue of $260 million in 2010, down 3% from 2009 Network revenue of $267 million. Savvis had gross profit of $432 million in 2010, up $38 million compared to 2009 gross profit of $394 million. Gross margin was 46% in 2010, up approximately 125 basis points over 2009.
Compared to 2009, SG&A was up $24 million at $227 million for the full year and included $20 million of non-cash equity-based compensation. SG&A margin was 24% in 2010, up approximately 110 basis points over 2009. SG&A spending increased in 2010 as we refocused our efforts around sales and marketing.
In 2010, adjusted EBITDA was $236 million, and 25% of revenue. Adjusted EBITDA was up 7% over 2009 adjusted EBITDA of $220 million. Adjusted EBITDA margin was up approximately 15 basis points over 2009.
Before closing with guidance, I would like to quickly review our liquidities and liabilities on Slide 16. Our total long-term debt position as of December 31 was $747 million, and our net debt was $627 million. In the fourth quarter, gross leverage was 3.2x, while net leverage was 2.7x. As of December 31, the company had $120 million in cash, an increase from the $88 million in cash as of September 30.
Now if you'll turn to Slide 17, I'd like to review our guidance for 2011, which was announced at our Investor Day on December 8. For revenue, we expect a range of $1.03 billion to $1.06 billion. For adjusted EBITDA, we expect a range of $265 million to $290 million. For cash interest expense, we expect this amount to be approximately $65 million. For cash CapEx, our guidance range is between $220 million and $240 million.
I'd now like to quickly turn the call back over to Peggy.
Peggy Tharp
Thank you, Greg. Before we begin the Q&A portion of today's call, I'd like to let everyone know that we will be having a quarterly technology update call with Bryan Doerr, our CTO, on Tuesday, February 22. Bryan will answer technology-specific questions at that time and a press release with the dial in, and other details will be available next week.
And with that, I'd like to thank you for your time today and turn the call back over to Latoria [ph] for today's Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Jonathan Atkin of RBC Capital Markets.
Jonathan Atkin - RBC Capital Markets, LLC
I had questions principally around India and wondered what the CapEx implications are for Savvis, given the partnership with Airtel and the use of their existing facilities. Also interested in kind of how headcount intensive this is going to be for Savvis. How many actual Savvis individuals and in what types of functions will be on-site in that market? And then at some point, does this lead to building out any of your own facilities?
James Ousley
This is Jim Ousley. I'll try and respond to that. It will not be as you suggested given that we're using their data centers, it will not be capital intensive. It'll be basically success base capital that we'll be installing, which will we be based on customer contracts. There'll be some upfront of Managed Services infrastructure, but it's not significant. As far as people, we're staffing that now, and we would not see a large increase in headcount. There again we'll be using some of their support staff. We'll be managing some of that activity, but we wouldn't see a large headcount increase in the near term to support those efforts. And as far as building our own data centers, we really -- this partnership, we believe solves the dilemma of trying to go over and do greenfield data center fields in foreign countries like that. We believe this partnership will definitely provide us enough capacity to meet our customers' needs and their customer needs.
Jonathan Atkin - RBC Capital Markets, LLC
And then if you can maybe elaborate a little bit on how you view the competitive environment there for enterprise-focused hosting. There's folks in that market maybe without as much reach but maybe a little bit more focus on the enterprise hosting and how do you view that? And what industry segments would you be looking to target initially?
James Ousley
Well, first and foremost, one of the reasons we expanded there and looking in China to do things and other places in Asia, South America and so on is our multinational customers are all going there in a big way. So they've asked us to provide services there. So first and foremost, our large multinationals want capacity there from a provider like ourselves. So that will be our first target. Specifically, the financial vertical will be a key target. Our partnership with Thomson Reuters has already developed opportunities there. So we would see the financial verticals as a first key step. And then, India has got a fair amount of capacity and so on, I would say, in the small to medium-size business segment. But for large enterprises, both internal to India, as well as large enterprises that are going to India, there isn't a lot of capability there today. So we think we fill that niche.
Operator
Our next question is from Jonathan Schildkraut of Evercore.
Jonathan Schildkraut - Evercore Partners Inc.
I'm wondering if you can give us some color as we look into Q1 and get a sense for kind of some seasonality maybe in the year. Some of the trends coming out of fourth quarter suggest that the guidance that you laid out at your Analyst Day may look conservative, and I'm wondering if there's particular impacts that are coming online, specifically if you could talk maybe about the Colo line. Historically, there had been some talk about Arca maybe rolling off in the first quarter and I think that, Jim, you have previously sized that at approximately $2 million a quarter. Secondly, there was obviously very strong flow-through margins in the quarter, and kind of if you can break that down, give us a sense as to what really have to do with seasonal power cost and other pieces, maybe efficiency gains, particularly around Fusepoint. That'd be very helpful.
Gregory Freiberg
Let me start with that one, Jonathan. So color on the Q1 seasonality. Q4 was a strong quarter for us. One of the things we really want to be cautious is it's February, and we don't have a full view on the year yet, so we do expect that we would update our guidance as we progress deeper into the year. Another comment in terms of the performance, we mentioned that there's three expansions that we've outlined, Seattle, Atlanta and then NJ3. In Seattle and Atlanta, we actually have rent expense coming on right at the beginning of the year. So I wouldn't see any further gross margin expansion in the first half of this year as we pick up that expense. We are on track from what I said at the Analyst Day to have a 30% EBITDA margin by the end of year 2012. We had a great performance obviously in the fourth quarter of 2010, going up to almost 27% within the quarter. So we're still on track for that progression. We're balancing growth with the improvement. We want to do both at the same time.
James Ousley
As far as NYSE Arca is concerned, we would expect to see that come out sometime this year. That being said, as I've said, we continue to work with them to expand our business relationships with them in the areas of disaster recovery and so on. So we do not know what the impact could be, the magnitude of that impact. And we are not expecting that to affect the first quarter, and we'll know probably in the second or third quarter whether we're successful with our additional business opportunities there.
Jonathan Schildkraut - Evercore Partners Inc.
If I can ask one follow-up. It looks like your net sellable square footage came down sequentially as did your total raised floor, I'm wondering if you sold or decommissioned any space during the quarter. And sort of related to that, the amount of money that you generated from incremental square footage on the managed hosting side was in the neighborhood of $2,000 per square foot for the incremental and obviously it's a very positive number, and I'm wondering if that is reflecting greater service sell or just maybe an uptick in some of the services around your existing base.
Gregory Freiberg
Let me take the first part of that. We have -- why did the raised floor in the revenue space decline, really we've been -- you're constantly refining the space that we have across our inventory and larger space was divided into smaller spaces. So that results in some square foot loss when you add aisles, cages, et cetera. But the net-net is that it's incorporated as part of the $50 that we've always said around Colo ARPU, which we continue to believe is right place to put us.
William Fathers
And just to answer the question there on the revenue density around the Managed Services, you're right, it's a product mix shift that we're seeing a good trend there and it's towards storage and cloud. Those two things as we see our existing clients buy more storage and more cloud platform within the mix of course increases the revenue density.
Operator
Our next question is from Mark Kelleher of Dougherty & Company.
Mark Kelleher - Dougherty & Company LLC
Just a couple of quick ones. The Reuters, as a percent of revenue, can you give us that?
William Fathers
Yes. In the fourth quarter, Thomson Reuters was 9%.
Mark Kelleher - Dougherty & Company LLC
And how about cloud? What was the cloud revenue in the quarter?
William Fathers
So the run rate was $5 million for the fourth quarter.
Mark Kelleher - Dougherty & Company LLC
Now if we look at the Hosting, it picked up quite nicely in Q3 and Q4, back half of 2010. I'm trying to figure out what was driving that. Is that the building relationship with Reuters? Or is that renewed focus on sales or the economy? What's driving that nice pickup in Hosting?
William Fathers
Yes, all of the above. Yes, the vertical focus, so I think I call that obviously you can see with brands vertical we've been focusing on great growth there, and with e-commerce rate just going as high as they are, obviously the higher e-commerce transaction volumes, the more business for us. Financial vertical continues to be strong, and then channel sales are strong as well. So we put up a number of channel partners coming online, selling our hosting services, of which Thomson Reuters is clearly the largest contributor at this stage.
Mark Kelleher - Dougherty & Company LLC
What would you say is your second largest vertical behind financials? Would that be the government?
William Fathers
No. Consumer brands.
Operator
Our next question is from James Ratcliffe of Barclays Capital.
James Ratcliffe - Barclays Capital
Two, if I could. One, can you talk about where you are in terms of the balance of the focus in the sales force between new logos versus renewal expansion existing. And secondly, on Thomson Reuters, of those, I think about 110, 120 customers how much overlap is there between customers having existing relationship directly with Savvis?
William Fathers
It's different by region. So in the U.S., we would typically see a 25% of our effort and results oriented towards new logo or new customer acquisition. In Europe and Asia, where we have lower market share and an earlier-stage businesses it's probably as high as 50% in Europe and maybe as high as 75% in Asia focused on new client acquisition, and that reflects also the bookings balance in those regions as well where much higher percentage of our bookings comes from new clients rather than existing business. In terms of the Thomson Reuters client overlap, very little. This is something we look at pretty closely. I'll qualify it slightly. So we're at about 100 clients. I'd say, ballpark, we had existing relationships with, say, 20 of those clients and 80 are brand new. But if you drill a bit further into the 20, where we did have an existing relationship, what we're finding is it may be in a Swiss sell-side bank but we had a relationship within the United States already. But what this alliance relationship has done for us is made instruction to that self same sell-side bank in Europe and in Asia. So there it'll actually be even better than that, if that helps answer the question.
Operator
Our next question is from Donna Jaegers of D.A. Davidson.
Donna Jaegers - D.A. Davidson & Co.
Two questions for you. On the expansion in New Jersey 3X, given that you just brought New Jersey 2X online mid last year, can you give us sort of an update on what's happening with the fill rate there? And then second question, on Fusepoint, as far as the sales funnel when you acquire that, you were hoping that you could help multinationals grow into Canada, it doesn't seem like that's come through yet but just some color there on what you're seeing?
William Fathers
So NJ2X fill rate just ahead of plan, just slightly ahead of plan. And obviously, in no small part helped by BATS, acting as an ever-increasingly significant magnet in that center and the recent launch of their additional exchanges obviously all very helpful. So that's ahead of plan. NJ3 slightly different market. People seemed to be looking for less around Elektron host trading, more DR solutions and our existing NJ3 facilities reached capacity. And we've got a strong demand from a lot of the existing clients in NJ3 who want more capacity. So it's pretty straightforward in terms of the pipeline of business gains for that one. On Fusepoint, yes, so we signed up our first few U.S.-based clients into Canada in the fourth quarter. So a handful. The pipeline is actually looking good for other clients wanting to sell into Canada, it's not quite what we thought. It's actually European and Asian clients who want to get a footprint into Canada as opposed to U.S. But obviously, as that pipeline continues to grow, you'll probably see us put more and more of our product portfolio into that market. And we've spent a lot of time and effort in the fourth quarter bringing the Fusepoint sales team up to speed on our products and services. So that as we bring those services online in Q1 and Q2, we won't see a lag between cost and revenue.
Operator
Our next question is from Robert Dezego of SunTrust Robinson.
Robert Dezego - SunTrust Robinson Humphrey Capital Markets
Just had a couple of follow-ups here. The first is I wanted to hear your thoughts on how you think a Verizon Terremark combination may alter the competitive landscape in terms of pricing and competitive offerings and what do you think they might be able to do now that they have a much bigger balance sheet. And the second follow-up I would have is with the big effort on renewals that you've talked about, could you talk about any discounting or what you're seeing in terms of the pricing in the environment on renewal versus new customers?
James Ousley
This is Jim. As far as the Verizon Terremark deal, as I mentioned, that and the other transactions that have gone on I think are validating the marketplace. Clearly, it kind of validates our strategy, we believe. We believe that part of the whole formula here is to have a global presence and also have integrated services between cloud, hosting, network and so on. So it is a more formidable competitor. That being said, we've competed against Verizon and Verizon business for a long time. And so we think we know how to do that. Their balance sheet will provide additional capital for their expansion. That is a big market, and so we see it as an interesting competitor going forward. As far as the pricing on the renewals, as we've said pretty much all year, the renewal environment is always a customer never comes and says, "I want a price increase," when you're going for a contract renewal. So typically, what we've been successful at doing is if we have a discount, we get additional services and additional commitment out of that. And we still see that as happening pretty much across-the-board. There is pricing pressure on every renewal. I've never seen it in high tech that there wasn't. We don't see anymore at the end of the year than we did at the beginning of the year. Every renewal has it. But as I said, typically, we attempt to get a larger contract value and additional services.
Robert Dezego - SunTrust Robinson Humphrey Capital Markets
And one last question would be on, if you look at your 2011 guidance, can you generally talk about what kind of pricing churn and booking expectations you have embedded into that guidance or as much as you can?
Gregory Freiberg
Right. So this is Greg, Rob. We forecasted -- pricing overall has been firm for us. And so as part of that guidance, we've kept on our current performance. We've not forecasted any changes from current.
James Ousley
And churn, as Bill mentioned, we would expect our churn to stay relatively at the same level as 2010.
Robert Dezego - SunTrust Robinson Humphrey Capital Markets
And on the bookings side?
James Ousley
Bookings, we have planned an increase in bookings.
Operator
Our next question is from David Barton of Bank of America.
David Nathan Barton
Just maybe a little bit more on the CapEx side. Could you kind of share the square footage and power assumptions for making for the $69 million that's going into the three-facility expansions that you've outlined for this year? That's about a third of the total CapEx that you've kind of outlined for the year. How much of the rest of it is being allocated to the managed side of the business, as opposed to maybe kind of a cushion for some of these other potentially "international expansions" that you guys are looking for?
Gregory Freiberg
Dave, it's Greg. Let me answer that. So we mentioned Seattle, Atlanta and NJ3X as the three facilities. Seattle would add about 16,700 sellable square feet coming online in the third quarter, and that would also have room for additional expansion. Atlanta, would add about 15,000 sellable square feet coming online in the third quarter. NJ3X, 15,600 sellable square feet, probably coming online in the fourth quarter. And if you added those three together, they would be about 60% of the midpoint of the expansion. So $69 million, 60%, they add up to about 60% of that number, $41 million. So that does leave us, the difference between those two, for other projects that we're evaluating but not yet ready to announce.
David Nathan Barton
And then just elaborating a little bit, if the data center expansions are the 70% of the kind of 220-ish that you're looking for the year, the balance is all on the Managed Services, server expansion or kind of how do we allocate the rest?
Gregory Freiberg
No, actually, expansion really speaks to the
data centers. When we grow on the managed, that comes through on the growth category. Success-based as opposed to expansion. On my Slide 17, it's that middle slice of light gray at $112 million at the midpoint. So the answer to your question is the balance would be available for expanding data centers.
Operator
Our next question is from Simon Flannery of Morgan Stanley.
Simon Flannery - Morgan Stanley
If we can come back to Reuters for a second. It continues very strong momentum there, and you talked about all the bookings in the channel. Just give us a sense of how far along we are in the opportunity with Reuters? Are those next 100, 200 customers going to be of a similar magnitude in terms of revenue dollars? Is there more to come with the existing customers that you have? And then is what you're seeing in the pipeline now, can that continue to grow into 2012, 2013? So in what inning are we in, I guess, of the Reuters relationship?
William Fathers
Simon, here's a quick analogy which not many people will follow, I guess, it's the first inning, probably a three-day test. So growth there is going to come from further geographic expansion as we make that platform available in more countries around the world. The second is as we add more and more customers and Thomson Reuters enterprise customer base, let's say, probably less than 2% of them are now on a hosting platform. And then the third area is going to be increasing wallet share of those clients as we come on board. So taking each of those in turn, in terms of geographic expansion, I think we said Jim mentioned adding another eight to 10 sites this year. That'll probably be it then. That'll be as many sites as we need to grow in to, we'll be in enough market. In terms of customer takeup, it looks like the momentum we've got there in the fourth quarter is sustainable and I'll expect we'll keep growing at that clip. and then thirdly, in terms of having secured relationship with a client new to us that's buying the hosted Reuters service offering, we probably think that it's sensible to wait a year or so to deliver them reliable service as part of the Reuters offering before approaching them to talk about perhaps hosting some of their back-office or middle-office systems. So I think that's the main answer. That's how is going to grow from here. And the second point, I think we mentioned at the end of last year, we are now in the process of bringing online a number of additional partnerships. And the Virgin Media one is pretty exciting as an example of three or four that we're going to close on this quarter, where we have a similar relationship now with a number of other potential channel customers or channel partners as well.
Simon Flannery - Morgan Stanley
I've been looking at your profitability. This Reuters business is coming in at pretty healthy profit margin?
William Fathers
Yes, it is. And that works with both us and Reuters of course. And I think the secret there is that we're wanting the offerings. So Reuters is bundling their content and applications with our hosting offering, and that's what gives us both the margin protection.
Operator
Our next question is from Jason Armstrong of Goldman Sachs.
Scott Goldman - Bear Stearns
Scott Goldman here. A couple of questions, I wanted to start on the revenue guidance. You guys beat 2010 expectations, had a good run rate exiting fourth quarter, and yet you maintained 2011 revenue guidance where it was. And I guess my question is you have India coming on at some point. You just talked about Virgin Media, any reason why we couldn't think that, that guidance could be conservative for 2011 on the top line, and then I have a follow-up after that.
James Ousley
This is Jim. We just gave the guidance here a month or two ago, and so we don't feel it's appropriate to update it yet. This business, I think all of us in this sector with the economic environment we're in, we really don't see out to the second half of the year yet. So we will just be more comfortable leaving it where it is for today. When we get to the end of the first quarter, if business remains the momentum we had coming out of the year, we'll know where we're at in the second quarter by then and we could take a look then, but we're really not ready to do that yet.
Scott Goldman - Bear Stearns
Is it fair to say that India and the Virgin Media would be relatively minimal revenues in 2011 then?
James Ousley
Yes. I think you wouldn't see big impact by either one of those. The key measurement there I would say is are we getting their people trained? Are they understanding our products and services? And that normally takes at least two to three quarters. But by the third or fourth quarter, we'd like to be talking about progress in both of those. It could give us great momentum going out of the year.
Scott Goldman - Bear Stearns
And then just on the EBITDA guidance side, full year, if I take the midpoint of where you guys are, it's about the same margins as where you came in at fourth quarter. I think you talked about Seattle and Atlanta rent expense coming online so maybe there could be some early pressure. Maybe you can just update us on some of the initiatives that you weighed out at the Analyst Day in terms of improving the margin profile and the gross margin profile and how they can offset some of these incremental expenses coming online.
James Ousley
It's a key initiative and as I mentioned at Investor Day, and Greg just said, the first quarter or two, we do have some planned expenses that will affect that. But we would hope that by the third or fourth quarter of this year, we would see margin expansion and could be impressive going out of the year if we can meet our targets and our programs that we have in place.
Operator
Our next question is from Shuree Annesa [ph], a private investor.
Unknown Speaker
Jim, I think you've clearly done a pretty good job here on stabilizing the operations and investing to accelerate growth. If an investor were to focus for the next two years, could you talk about what are some of your pre-strategic priorities here? And second, you've also talked about acquisitions in the past to drive additional revenue growth. In that context, should we look at more geographic-based acquisitions, something like what we saw with Fusepoint? Or are there opportunities to potentially partner with application service providers out there to essentially broaden your suite of products and services?
James Ousley
I think a couple of the key -- we continue to feel that we can get more mileage by really continuing to improve our sales and marketing programs. So Bill and his team are really still focused on that. We still have leverage to get there, so we'll continue that thrust on the sales. And one of the major ones, Bill brought up is we still do very small amount, let's say, 10% to 12% of our business through channels. Conceptually, we should be doing 30%-plus through channels. So when you talk about marketing programs and strategic initiatives, to us, that is a real key one. And I think you can measure us a bit quarter-to-quarter on how we're doing on that. Bill and his team and we've hired some new executive management there are really focused on it and doing a good job there. So I think that's a real key one. As far as acquisitions, right now, we're focused more on partnerships like the India partnership that we just talked about than doing acquisitions. And to be honest, the prices -- everybody has a very high opinion of themselves right now. So we would not want to make an acquisition that wasn't accretive. So I think you'll see us in 2011 more focused on partnerships. And we have several that we're exploring that could give us additional breadth geographic. So we still believe we need to expand geographically. One of our target areas is on the continent in Europe. We have a good presence in the U.K., but not a strong presence on the continent. So we're looking at either small acquisitions or partnerships there to leverage South America and the key financial markets in Brazil and so on is another area and China is still a big opportunity, and just like last year when we talked about where we really have to be, we said India and China. We feel we've got a presence in India now, so China is definitely on our radar. So I think you'll see partnerships, not big acquisitions this year for us.
Unknown Speaker
And Greg, just one question. I know you reiterated about 30% EBITDA margin goal. What are some of the moving parts that could result in that margin goal being achieved sooner than expected? If the Managed Services revenue growth which we have seen this year clearly accelerate, if that were to come in better than expected, is there a possibility that we could see that 30% margin goal coming sooner than expected?
Gregory Freiberg
There is. So the mix of Managed and Colo continuing to grow for us is a positive driver for us. Maintaining the reduced churn is actually a big positive for us as well. Keeping the customer who's already there and contributing as opposed to the acquisition costs for somebody new coming in. So those are the biggest items.
Operator
Our next question is from Colby Synesael of Cowen and Company.
Colby Synesael - Merriman Curhan Ford
The first one, just on the government, you mentioned that you saw some growth there, curious if you could just talk about what your current focus and strategy with the government is maybe how large as a percentage of revenue that is? And how has that been growing? Any color really I'm just getting some parameters around how big government is to you? And then the second question, just kind of touching back on what Shuree just asked in terms of EBITDA margin some of that puts and takes that could happen through the year, just curious what are your expectations for the Fusepoint synergy, I know you mentioned $8 million by year end, but are we going to see that fairly consistently throughout the year, maybe $2 million each quarter? Or is it going to be more back-end or front-end loaded? And then I know at the Analyst Day you mentioned that one of the things you've been doing is you increase the sales compensation to get the sales force to improve your renewals. Have we already seen that impacted in the SG&A number? Or are we going to see that actually going up?
William Fathers
I'll start on the government vertical question. It's probably about our fifth or sixth largest vertical today. We have an existing stream of business with a number of central government agencies in the United States and in the United Kingdom. We have recent wins in the U.S. and recent wins in the U.K. where we're adding more government agencies. In the U.S., our strategy now is to make an increased level of investment in getting the appropriate certifications and all the compliance, things like business standard. We just recently announced the launch of our cloud platform in our D.C. data center, which is specifically targeting government agencies. And we recently won an award there to be part of the GSA shortlist of [indiscernible] provided there. So in the U.S., we have an existing flow of business. We've deployed more footprint. We're getting the compliance certification and ramping up the appropriate resources to start increasing our exposure to some of the major agencies.
Colby Synesael - Merriman Curhan Ford
So if it's the fifth or sixth largest vertical, that would put it at roughly what, 5% of revenue?
William Fathers
Yes, that sort of range. Yes.
Gregory Freiberg
On the other part, Colby, pinning me down have EBITDA margin, some of the puts and the takes here, $8 million synergies for Fusepoint, we've largely locked that in. So you're going to see that roughly $2 million a quarter for this year, and that was the effort that has gotten us to the point we're in right now. Some of the other puts and takes in there. One of the things -- I'm going to bridge to it. On the capital, you may have noticed on Slide 17, the maintenance CapEx is a bit higher in 2011 versus '10. And we're doing general systems development. One of the things that Jim's highlighted for us making it easier to do business for Savvis, and we're investing in OSS, VFS systems. There's going to be some -- that's the reason why that maintenance capital has come up. But there's also some knock-on expenses related to that effort, which are ramping up in 2011 for getting our own back office and systems in place that is incorporated into the guidance. But then we expect to benefit from that as we exit this year. It's one of the drivers for making it easier to do business, making it easier to place additional orders with Savvis, improving the net motor ph] score and then scalability leverage for that growth rate going through the year. That's the other item I'd call out.
Operator
Our next question is from George Sutton from Craig-Hallum.
George Sutton - Craig-Hallum Capital Group LLC
Bill, I can honestly say that was the first cricket analogy I have ever heard. You mentioned the addition of eight financial hubs this year, and I was wondering if you could explain how those differ structurally and financially from a normal expansion.
William Fathers
Yes, the eight will span probably this year and into next year. And in the same way that we've deployed into Hong Kong and Mumbai and Brazil, the model we use is we take space in third-party data center, typically in the center that's physically housing the exchange in that market. And we provide a Managed Services part and in the same way Jim alluded to us deploying a Managed Services part into Airtel data centers in India. So that allows us to do a sort of low-capital entry into a market. And then from there on in, the capital deployed is success-based as we're successful in attracting more and more clients to that center through the TR [Thomson Reuters] partnership then obviously, we scale up on capital investment. And the other thing I'd add is in a number of these markets now, we've slightly opened it up so that, for example, in Hong Kong, and in a few others in Brazil, we not are only can service the needs of Thomson Reuters, but we're able to also open it up to the use of some of our multinationals. To Jim's point, it's a real step change in the second half of last year, where multinationals and consumer brands, media, financial are all looking to get more exposure now in the emerging markets. They certainly don't want to go and build their own data centers in these market. They just want to quickly deploy infrastructure on our cloud platform in each of these emerging markets. So it's a good low-cost entry way for them to do that.
George Sutton - Craig-Hallum Capital Group LLC
One other question, if I could. Relative to the very good booking results in the consumer brands vertical, could you discuss the breadth of that strength? Is it predominantly one large customer? Or is it broader than that?
William Fathers
In consumer brands, it's very broad. It's a real target area for us to continue to add more and more of those brands that are shifting more of their dollars away from conventional print advertising or shops and stores, physical brick-and-mortar stores into online transactions and interactive marketing and perhaps in the future, of course, we can probably give you a bit more color. We have hundreds and hundreds of consumer brand clients and are adding 20, 30 a quarter. It isn't about one or two majors, although we do continue to grow our wallet share in the sort of top five brands in the world, which our customers of ours. We do continue to increase our share of their wallet.
Operator
Our next question is from Tim Horan of Oppenheimer.
Timothy Horan - Oppenheimer & Co. Inc.
Could you give us a little color on what services of customers applying to your channel partners now. I know you were saying you expect them to buy additional services, value-added services, maybe where do you think the upside on those value-added services are? And then what you're thinking, I'm sure you've discussed this in the past, where do you think the longer-term EBITDA margins are that we should think about for the business model? I know you've given '12 guidance, but maybe four, five years out?
William Fathers
I'll start on the channel partner. So our three main types of channel partners, we have telcos, and I think the Verizon Terremark transaction kind of confirms that, so we have a number of telcos that are reselling our services. We have systems integrators and software companies. The majority of what they resell is hosting and enterprise, Most of them are targeting enterprise clients as opposed to SMB. They target enterprise clients with our hosting offering. We do have a tail of SIs who resell some of our network offerings, and they continue to do that. They're typically selling managed VPN services, but that's a very small piece of the jigsaw. The growth we're seeing is from telcos and there's obviously a surge of interest in telco is going to resell our hosting services of which cloud is a component.
Gregory Freiberg
Tim, it's Greg. In terms of the long-term EBITDA margin, I don't think -- I mentioned that we're on track to achieve 30% EBITDA margins by the end of '12. And I don't think we stop there. I put that out there as really a reference point of the next waypoint that we see because I always get a little skeptical if somebody gives a number that's way north of where you're currently at. So longer term, they're going to be better than 30%. That was just the next waypoint.
Operator
Our next question is from Brian Thackray of Deutsche Bank.
Brian Thackray - Deutsche Bank AG
First question, you'd mentioned the Magic Quadrant leader position within Gartner. Are you seeing any impact on your pipeline as a result of that survey in position? And a follow-up to that, cloud revenue doubled in 2010 versus 2009, what trajectory should we think about for 2011?
William Fathers
Yes, definitely, we started to capitalize on that Magic Quadrant announcement as soon as it came out. It came out just before Christmas, which is the holiday season, not ideal. And so we're really ramping up our efforts to capitalize on that now. Both in terms of direct sales but it is of course also triggering interest from a number of new channel partners as well who obviously are seeing that we've come on the top of that rating. The second area around cloud revenue, an acceleration. So yes, it's pleasing to see it sort of doubling '09 to '10. We think we can do better, so our projections are to do way better than that in 2011.
James Ousley
And to that point, I think one of the things that we're looking at is our cloud services, as we mentioned, a majority of our customers use cloud, use hosting, use a lot of services. The definition of cloud services is a little vague out there in the market, so we plan on really looking at that and making sure that we're comparing apples with apples for you guys in the investment community because we're seeing a lot of growth from our customers into cloud services that overlap hosting and cloud.
Operator
Our next question is from Gray Powell of Wells Fargo Securities.
Gray Powell - Wells Fargo Securities, LLC
Can you discuss the economics of the resell deal with Bharti in India? And then how should we think about margins there versus the existing business? Is there any near-term impact? And you may have mentioned this before, but are you going to be hiring any direct sales people in the region?
James Ousley
As far as the margins, we're not going to be doing Colo and that type of thing in India, and that's where you see some real competitive prices. It's in the Colo space in India. In the managed side, it's with our multinational customers that are really buying a level of service. So we would expect the margins to be relatively the same and, in some cases, even higher given that they want a global support or capability. So we don't see any impact there. As far as the marketing between the two, it's a traditional marketing where we will give a percentage and they will give a percentage, so which kind of offset each other. So I think net-net, we'll see the same margins out of there that we've seen across the board.
Gray Powell - Wells Fargo Securities, LLC
And then I think you may have touched on this before, but just how should we think about the financial services opportunity in India? Have any of your larger clients that could be sort of a magnet tenant expressed interest in expanding with you there?
William Fathers
Yes. It's Bill. So the Mumbai Stock Exchange has obviously recently upgraded itself on electronic -- or I should start by saying the interest is always driven by a desire to do electronic trading in a certain market. And as the Mumbai Stock Exchange has upgraded its platform recently, we have seen some interest, and we are now actually supporting three or four of our clients in Mumbai already who are trading on that. And then the National Stock Exchange recently announced that it's going to upgrade its platform. But while that's interesting, it's marginal, in terms of relative to our big buyers, the New York, London, Chicago. It's still pretty small.
James Ousley
The other question you asked was whether we'd have direct sales people over there. We are both transferring some people from the U.S. over there so we can get a quick start, as well as recruiting sales and support people directly there. So we will have direct employees to help support the Airtel capability.
Operator
Our next question is from James Breen of William Blair.
James Breen - William Blair & Company L.L.C.
Just a couple of things. One, I'd be interested in your thoughts, just in terms of technology migration within your business. Obviously, you're seeing more revenue moving to the Managed Hosting side, away from Colo. What are your views sort of over the next couple of years in terms of the demand for the actual space of Colo versus the computing power of the servers and virtualization becoming more of an impact in the business? And then with respect to that revenue shift, I think we've seen over the last couple of quarters your percent of revenue coming from Managed, been going up maybe 1% or 1.5% a quarter. Do you expect that to continue where we could expect maybe somewhere between 7% and 10% of your total revenue moving toward Managed Hosting, away from Colo on an annual basis?
James Ousley
As far as the technology migration, clearly, every enterprise customer is looking at how can they optimize through cloud services, virtualization services, et cetera. I think it's a wave linked kind of transition that's going on. So that's why there's all this hype around cloud services. But in reality, the opportunity is there. So the question is, can they realize it? One of the reasons we've been expanding our technical services organization is to help our clients and help them make that transition and that integration, so that they can realize the benefits of cloud. It's not a natural -- it doesn't come naturally, if you will. There's a lot of opportunity. The reason everybody is investing heavily in cloud services is the opportunity for efficiencies and so on is definitely there. It's as dramatic as anything we've seen in the IT industry in 20, 30, 40 years. We're seeing efficiency levels that can reach 20%, 30%, 40%, which is very dramatic. So the demand for virtualization services and capabilities is definitely there. Second question around...
Gregory Freiberg
I think you were talking about sustained managed growth rate or from our perspective, we think Managed will overtake Colo in the second quarter of this year, when we breakout the distinction between Managed and Colo and total Hosting. So it's growing faster than Colo for us.
James Ousley
We're growing 2x to 3x, and even more in Managed. So strategically in longer term, as we've said for a couple of years now, our investments will go towards Managed. We will continue to invest in Colo because we have a customer base that wants both Colo and Managed. But in general, our major investments will be in the Managed area going forward. To where I think it's probably reasonable to assume that in the not-too-distant future you'll probably see a spread of 70-30.
James Breen - William Blair & Company L.L.C.
And just as a follow-up to that, Greg, you gave a little bit of detail on the CapEx side. Of the $112 million of the growth CapEx, how much of that do you think is actual server equipment for the data centers?
Gregory Freiberg
Probably at 90% of that, so almost all of it is for the servers. One of the items as well you'll notice it's slightly below 10%, and one of the factors we've been working on is the capital intensity, which is what is that capital intensity for the bookings that are occurring. So we're starting to realize some of that efficiencies
Operator
Our next question is from Frank Louthan of Raymond James.
Frank Louthan - Raymond James & Associates
Looking at one of your slides, talking about moving into larger deals, can you give us an idea of the timing of some of those deals? And is your sales cycle lengthening in aggregate as you're moving upmarket? And what kind of confidence can you give us that you've got that -- if that's the case that there's a link in sales cycles sort of built into the guidance?
William Fathers
I'll take that question. So yes, we saw this trend start at the end of '09 and through '10. An increasing percentage of our bookings were coming from these larger deals. And yes, relative to our previous experiences in '08 and '09, these big deals do have a longer sales cycle. We haven't seen that lengthening though through '10. I think we gave indications at the end of last year that they're taking up an increasing percentage of our booking, and they are taking often two quarters to close those deals, slightly less predictable as to when they will close. So I don't see any lengthening from here, if that make sense. There's sort of sales run rate and the cycle length that we had towards the end of last year. I'd expect it to stay the same through this year. Does that answer the question?
Frank Louthan - Raymond James & Associates
Yes. And so looking at the bookings and what sort of -- do you feel you've built in adequate cushion for you turning the bookings into revenue and what was your experience last year with some of the delays versus what are your expectations are, just the concern would be there was, obviously, a big project that maybe got delayed a couple of months could have an impact on where you come in within the guidance range?
William Fathers
Yes, I think that's a fair comment and I think we obviously have three, four or five quarters under our belt now, so hopefully we're predicting this accurately. But you're right. As we have increasingly taking advantage of these larger deals, it's become slightly less predictable. But it's about timing, not win rates. So it's about when you close and not if you're going to close it, typically.
Frank Louthan - Raymond James & Associates
So you're not seeing any one backing out of the bookings, just a matter of getting the timing down?
William Fathers
Exactly.
Operator
Our next question is from Michael Bowen of Guggenheim Securities.
Michael Bowen - Guggenheim Securities, LLC
With regard to Colocation pricing, obviously, look like it turned down a little bit in the quarter. I'm sorry if I missed it, but if you could just touch base on that. And then more importantly, we've been pounding on a theme, and I think you guys have too, that you are going to see customers taking more managed and cloud services. But what I'm curious about is are you finding that Colocation customers migrating to managed and cloud is making up more of the growth in managed and cloud or are they brand new customers? And then final question is related to that, you talked about, I'm assuming 30% was an exit year run rate for adjusted EBITDA margin in 2012. And again, is that going to be driven more -- maybe a little bit more granularity, do you think that would be driven more by cloud or Managed Services?
James Ousley
I'll try and hit a couple of those. As far as Colo pricing, what we're seeing is in any given competitive market, there is pricing pressure. But overall, when you look at the whole, let's say, global footprint, we haven't seen dramatic pricing pressure on a global basis. In specific markets, real competitive markets, a bunch of new Colo space comes online. A competitor there makes a faux pas in a quarter. We'll see some competitive pricing pressures in the Colo space. But overall, we haven't seen dramatic global pricing pressure there. As far as the -- Greg, you probably should address the EBITDA as...
Gregory Freiberg
Yes, the EBITDA one. I mentioned 30%. Yes, that's an exit run rate at the end of '12. We're on track for that. I'd remind that we have a hybrid business, and so we offer lots of products together across our data center platform. But the biggest driver for the improvement is the managed product, and we're showing scale there. We're still carrying quite a bit of expense at the moment for product development in cloud, and those products are on the early stages of ramping, to Bill comments earlier, about future growth rates. So there's going to be a lot of scale for EBITDA margin improvement for Managed.
James Ousley
And as far as the moving from Colo to Managed, we're definitely seeing that transition, but we're also seeing a lot of new customer opportunities that just come in to Managed, particularly large outsourced deals of a application or of a department or of a whole company. And those don't come from the Colo base. Those come from new opportunities. So it still is a driver. Colo is still a driver to Managed, no question about it. But particularly around cloud, a lot of dedicated cloud environments. We're seeing totally new customer opportunities there.
Michael Bowen - Guggenheim Securities, LLC
And one last one, if I may. With regard to Terremark, effectively, they're no longer really a neutral Colo provider at this point. Verizon even indicated on the call that they were purchasing the company mainly for their Managed Services. So do you think you'll be able to pick up some Colo business? And have you already heard from some customers who may not be comfortable to stick with what effectively is a Verizon company now?
James Ousley
Well, I think our sales force sees it as a particularly a near-term opportunity. Long term, you'll never know what Verizon will do. They're a big company, et cetera, et cetera. But near term, it's an opportunity exactly in the areas that you just referenced.
Operator
Our next question is from Erik Suppiger of Signal Hill.
Erik Suppiger - Signal Hill
First off, just to be clear, did you say that the cloud revenue run rate was $5 million, or the cloud revenues in the quarter were $5 million?
William Fathers
Revenues in the quarter were $5 million.
Erik Suppiger - Signal Hill
You had talked about maybe doubling that or more than doubling that in 2011. Can you give us anymore milestones that we can use to track your success over the year?
William Fathers
I think probably what we're trying to do on the next call is start -- we talked about the high percentage of our managed hosting customer base that's starting to use the cloud platform. And what we typically see is that a managed customer will adopt it, put some of their infrastructure off on the web-facing infrastructure on the cloud. And then three or four months later, they suddenly move a lot more on it. So the metrics for us are how many clients do we have using it, and them how much are they spending with us as they continue to grow. So perhaps get better visibility not into just that revenue clip, but more indication of the number of clients and how much they're spending with us. Those trajectories are all going in the right direction right now.
James Ousley
And the two other areas that will be key benchmarks is we're seeing a lot of interest by large enterprises for dedicated cloud environments where we would run a dedicated cloud service for an enterprise or a government or whatever. Those are large. They need a lot of support. They're very enterprise-class. So as we announce those, that would a key benchmark to look at. And then the other is we're getting, particularly since the Magic Quadrant and more visibility around our cloud technology around enterprises, we're getting a lot of interest in either white labeling or partnering with whether it be telcos, other service providers, SIs and so on. So I think that would be a key benchmark as well. As we are able to assign those and announce those, that could bring real leverage to those numbers in the future.
Erik Suppiger - Signal Hill
And you had said that 45% of your Hosting clients are using your cloud service. That implies that the revenue per customer is pretty low. Can you give us a sense for how you're expecting the revenue per customer, average revenue per customer to grow during the year?
William Fathers
Yes, as I say, we've now been experiencing this for over a year and a half, so we see how it goes. The client will probably start maybe $4,000 or $5,000 a month as they probably put one or two web-facing properties or a back-office application. And then within three or four months, they'll say, "Well, this is pretty good, and it's running very reliably." And it's at a pretty much lower cost than they can do it themselves. And then increasingly, will ramp-up their spending to the sort of $30,000, $40,000, $50,000 month rate quite quickly. The biggest surge we've had in Q4, a lot of clients had -- we have hundreds of enterprise clients now on our cloud platform. Many of them have actually come from Amazon and in that they started out by experimenting, finding out that hasn't worked and are now migrating to us. They're finding that the lack of SLA and enterprise-grade features is obviously problematic if you're trying to run a serious web-facing infrastructure or back-office application. So again, that's been where a lot of these new clients have come from.
Erik Suppiger - Signal Hill
Do you feel like you have a growing portion of the customers that are kind of at the hockey stick point, where we'll start to see the average revenue per customer really accelerate?
William Fathers
I think we're cautiously optimistic, in that we are seeing the uptick rate and the number of new clients continue to grow and at enterprises that we've often had six-, seven-year relationships with these enterprises. So we want them to move at a rate they're comfortable with. If it takes a year or two, then so be it. That's really the way I put it.
James Ousley
Well, I think the other piece that we have to remember here and I mentioned it earlier is that the transformation and migration from legacy applications into an efficient cloud implementation and so on is not easy. And it's not a natural process. Almost you could equate it back to the early days of CRM systems, where everybody was going to revolutionize that environment. It takes some time, so there's small projects that test the environment, that evaluate the environment. And then to move the major applications does take time, and it takes technical support to make that happen. So that's what we're kind of in the midst of I think right now.
Erik Suppiger - Signal Hill
On the CapEx, your growth CapEx is declining from 2010 to '11. Given the success that you're seeing on the Managed Services side, that came as a bit of a surprise. What is the rationale for that?
Gregory Freiberg
Two parts there. One is we're getting the capital intensity down, which is the ratio of that servers to the bookings. And the other part is the innovation spending is down year-over-year. And add to my comment earlier, we've been carrying a lot of cost and even capital related to the product development innovation. And now we're ready to execute on that.
James Ousley
And also, I'll be even more impassioned because I mentioned this at the investor conference. We're paying much more attention to capital utilization and focusing on that throughout the organization now, down even into the sales performance area. Clearly, that's an area that we need to be sensitive to. And as we were growing so rapidly, we may not have been as sensitive to it as we should have been. So we've got much more focus on that. And I think, at least from a budgetary standpoint, I was happy to see we're making some progress there.
Erik Suppiger - Signal Hill
Is that capital intensity, is that a function of the cloud being more efficient? Or is that something else?
James Ousley
That is part of it, but also, just doing a better job of making sure we're getting paid the right amount and the right pricing around capital we deploy.
Gregory Freiberg
And the purchasing power.
James Ousley
Right, purchasing.
Erik Suppiger - Signal Hill
Last question, just on the interest, the cash interest expense for $65 million. What is the progression of that throughout the year? You were, I think, at $10-plus million this quarter. So how do you get to $65 million, if you're starting at a $10 million Q4 level?
Gregory Freiberg
Right. So we did the refinancing in 2010, and there was a $6 million payment that was delayed out of Q4 '10 and it falls into '11. So that makes it look a little lumpy when you look year-over-year.
Erik Suppiger - Signal Hill
Are the four quarters all equal? Or is there any variability in the cash outlay?
Gregory Freiberg
They're equal.
Erik Suppiger - Signal Hill
So it'll just be $15 million or call it, $16.5 million per quarter?
Gregory Freiberg
Correct.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.
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