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Terremark Worldwide, Inc. (NASDAQ:TMRK)

Q4 2008 Earnings Call

June 2, 2008 5:00 pm ET

Executives

Hunter Blankenbaker – VP Investor Relations

Jose Segrera – CFO

Manuel Medina – Chairman # CEO

Analysts

Tom Watts – SC Cowen & Co.

Jonathan Schildkraut – Jefferies & Company

Chris Larson – Credit Suisse

Sri Anantha – Oppenheimer

Colby Synesael – Merriman Curhan Ford

Ken Lee – Jefferies & Company

Operator

Good day ladies and gentlemen and welcome to the Terremark Worldwide fourth quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Hunter Blankenbaker, Vice President of Investor Relations; please proceed.

Hunter Blankenbaker

Good afternoon everyone, welcome to Terremark’s fourth quarter and year end fiscal 2008 earnings conference call. With us we have Manuel Medina, Terremark’s Chief Executive Officer and Jose Segrera, our Chief Financial Officer. Please note the slides related to today’s call are available on Terremark’s website at www.terremark.com under the Investor Relations link.

We will provide non-GAAP measures on today’s conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses those measures in today’s press release. Before we begin I’ll read the Safe Harbor Statement.

The following statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications we make certain statements that are forward-looking, such as statements regarding Terremark’s future results and plans and anticipated trends in the industry and the economies in which Terremark operates. These forward-looking statements are based on Terremark’s current expectations and are subject to a number of risks, uncertainties and assumptions including that our revenue may differ from that projected, that we may be further impacted by slowdowns, postponements, or cancellations in our clients’ businesses, or deterioration in our clients’ financial condition, that our targeted service markets may not expand as we expect, that we may experience delays in the awarding of customer contracts, that our reserves and allowances may be inadequate, or the carrying value of our assets may be impaired, that we may experience increased costs associated with the expanding of our business or may be unsuccessful in these efforts and any of the other risks in our Annual Report on Form 10-K.

Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results may differ significantly from the results expected or implied in those forward-looking statements made by the company in these communications. These and other risks and uncertainties and assumptions are detailed in documents filed by the company with the Securities and Exchange Commission. Terremark does not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances.

With that, I will turn the call over to Manuel.

Manuel Medina

Good afternoon and thank you for joining us today. We are very excited to discuss our results from an extraordinary fiscal year 2008 and provide updates on the many initiatives on the way at Terremark today.

Before digging into Q4 and fiscal 2008 results in detail, allow me to give you the highlights. First our fiscal 2008 results were exceptional. We met our guidance for the year. We were operating cash flow positive and expect to generate significant cash flow from operations in fiscal 2009. Our pipeline is very strong and our Q4 bookings were the best ever. In short, business is booming and based on our strong contract executions to date, we are raising guidance for fiscal year 2009.

Second, as announced a few weeks ago, we signed Computer Sciences Corporation or CSC as our anchor customer as the NAP of the capital region or NCR. As a result of initial NCR customer signings, we have well exceeded our goal of having 20% of the first 50,000 square foot data center sold prior to its scheduled opening which will occur on schedule and on budget later this month.

Finally but critically important, the market has validated the superiority of our uniquely differentiated business model. As customers, prospects and analysts have attested our world class carrier-neutral facilities, combined with our full suite of managed services including our infinistructured utility computing platform provides the best foundation in the world for running mission critical applications.

In fact, Gartner again placed our company in the coveted leaders’ quadrant of their 2008 North American World Hosting report positioning us at the very forefront of our industry with regard to strategic vision and ability to execute in the marketplace.

Focusing on Q4 ’08, I will like to address our NCR progress in greater detail. We believe that our initial customer contract signings and strong pipeline of federal and commercial customers validates our NCR strategic vision as outlined over a year ago. As our due diligence suggested their market will start for a world class, highly secured data center campus located outside of the 50-mile blast zone surrounding Washington, downtown Washington, DC. Our strategic vision also maintained that if we ramped up our collaboration with key federal government IT integrators, this would help spark strong initial demand from both the federal and commercial sectors.

We now have proven this to be the case as our initial customers have committed to a significant amount of space and will begin deploying in July with a continual ramp up over the coming quarters. We have also been pleased with the strong demand from government and enterprise customers for our disaster recovery and [coup] solutions. Looking specifically at CSC, if I had a blank sheet of paper and you asked me to script the best possible anchor customer, CSC would fit that billing.

CSC is a widely recognized as one of the world’s leading IT services company with over $16 billion in revenues, 36% of those revenues come from federal business and 64% from global commercial enterprises. This is a perfect combination for Terremark as the initial catalyst for NCR was driven by federal demand; we are now seeing significant commercial demand as well. Another note on NCR, I would like to take this opportunity to congratulate our development and operations teams for completing a project of this magnitude on time and on budget. This is truly a great accomplishment.

Moving on to our financial results, as you saw from the press release, we reported very solid fourth quarter and fiscal 2008 revenues and EBITDA, in addition to record bookings reflective of the strong demand for our services. Total revenues were $187.4 million for fiscal year 2008, representing a 96% growth year-over-year of which 91% was recurring revenue. Our Q4 revenue was $56.8 million of which $48.9 million was recurring providing great momentum as we head into fiscal 2009.

EBITDA for fiscal 2008 was $39.2 million representing a 141% increase over the prior year. We ended the year with 983 customers including 61 new customers closed in Q4. We reported record Q4 bookings of $29.6 million, 70% of which were derived from existing customers. Of the new bookings $25 million came from our commercial sector and $4.6 million from the federal government sector.

New logos of note include Microsoft, AOL, The Library of Congress, and awareness, the company that built enterprise social networks for Hershey’s, McDonald’s, Motorola, and many other companies. Our pipeline is stronger then at any point in our history and continues to be populated with large enterprises as demand for IT infrastructure services continues to grow.

Focusing on our federal government business we continue to broaden our reach with customers in this sector resulting in further penetration of the civilian agencies and solidifying our relationships with the large federal integrators. As a result our federal government business delivered a 46% increase in fiscal year 2008 revenue and multiple new contract bookings. We experienced strong bookings of $4.6 million in the fourth quarter and are off to a great start in the June quarter.

Additionally we have begun delivering services under our previously announced $135 million multi year federal contract. As I stated at the outset, our fiscal 2008 results were outstanding. Our pipeline is stronger then ever and we met our guidance for the year. Looking at Q4 in particular, our bookings were the best in our corporate history. Based on our strong bookings and executed contracts we are raising fiscal 2009 guidance, we’re increasing our revenue guidance to a range of $255 million to $260 million and increasing EBITDA guidance to a range of $58 million to $60 million.

I will now turn the call over to Jose Segrera to provide Q4 details as well as additional detail on our guidance for fiscal year 2009.

Jose Segrera

Thanks Manuel, during my discussion today I will first cover quarter-over-quarter comparisons of our results and then provide detail on our guidance for the first quarter and full fiscal year 2009.

As Manuel alluded to, we continue to see strong demand and favorable pricing throughout the year and are very pleased with our results. Total revenue for the March, 2008 quarter was $66.8 million compared to $50 million the prior quarter and $30.7 million the prior year period representing increases of 14% and 85% respectively. Recurring revenue increased to $48.9 million from $46.3 million in the prior quarter and $24.5 million during the prior year period, increases of 5% and 98% respectively.

The revenue increase during the fourth quarter was impacted by a collocation space down grade at the beginning of the fourth quarter of approximately $200,000 of monthly recurring revenue. This space was immediately sold to a large new customer at a higher revenue yield but was not deployed until later in the fourth quarter minimizing its revenue contribution. Project type revenue was $8 million in Q4 versus $3.7 million in the prior quarter. The main components of project revenues during Q4 were equipment sales and a $2.9 million in project for a federal customer. Our federal government business remains strong and accounted for $11.6 million or 20% of our fourth quarter revenues, consistent with the third quarter.

In Q4 managed services represented 63% of revenues, collocations 31% and exchange point services 6%. We continue to see strong demand for our virtual platform as customers increasingly demand the performance redundancy flexibility and reduction in total cost of ownership that infinistructure delivers. During the quarter, utilization of total net collocation space increased to 23.3% from 21.9% the previous quarter. Utilization of built out collocation space increased to 73.9% from 69.4% last quarter.

We expect an additional approximately 8,000 square feet of space to come online in Miami during the first quarter of fiscal year 2009. Cross connects built to customers increased to 6,830 as of March 31, 2008 from 6,578 at the end of the previous quarter and 5,594 year earlier representing increases of 4% and 22% respectively. From a market demand perspective, we continue to see our collocation and managed services solutions resonating very well with perspective customers particularly as many of them focus on reducing their IT total cost of ownership.

Additionally we are seeing a healthy pricing environment for both our collocation and managed services. Our bookings for the March quarter were evenly distributed between collocation and managed hosting deals and as we look out over the next quarter we continue to see strong demand for the two product lines.

Our annualized recurring revenue yield per square foot remains steady at $2,211 in the fourth quarter from $2,213 the prior quarter. Given the success of our collocation business in Miami and the opening of NCR this fiscal year, we expect our recurring revenue yield to remain steady over the next couple of quarters particularly as we ramp up our collocation revenue in the new facility.

Our churn remained low at approximately 1% for the quarter. Total cost of revenue was $30.3 million for the March, 2008 quarter compared to $26.4 million in the December quarter. These costs include approximately $5 million related to our project type revenue. Our fourth quarter gross profit margin was 47% consistent with the third quarter and a 400 basis point improvement over the prior year period.

For the first quarter of fiscal 2009 we expect our gross profit margin to remain steady or decrease slightly given the impact of initiating operations at NCR. Sales and marketing expenses for the March, 2008 quarter came in as expected at $5.9 million compared to $5.6 million in the third quarter. We expect sales and marketing to be in the $6.5 million to $7 million range for the first quarter of fiscal 2009, the increase being predominantly due to the NCR launch.

General and administrative expenses increased to $8.8 million for the March, 2008 quarter from $8.6 million in the December, 2007 quarter. We expect general and administrative expenses in the first quarter to increase slightly. Total SG&A was $14.7 million or 26% of revenue. This reflects a 300 basis point decrease from the December quarter as we focus on increased revenue while managing our costs. For fiscal year 2009 we expect SG&A to further decrease as a percentage of revenue to below 25% for the year.

For the quarter ended March, 2008 our adjusted EBITDA was $13.5 million or 24% of revenue and within the guidance that we provided. This reflects a 20% increase from the prior quarter and a 152% increase from the previous year. Recurring EBITDA was $10.5 million, a 9% increase over the prior quarter and a 144% increase from the previous year.

We are particularly pleased with our recurring EBITDA growth and the expansion of our EBITDA margin which illustrates that our model continues to gain traction and produce solid results. Including the impact of the collocation downgrade I mentioned earlier, the quarter-over-quarter flow through of our recurring EBITDA was approximately 40%. If you exclude this impact, our quarter-over-quarter flow through would have been consistent with the prior quarter exceeding 50%. As we had anticipated we are pleased to report operating cash flow for both the fourth quarter and fiscal year 2008. For fiscal year 2009 we expect our operating cash flow to be a significant source of liquidity for our business.

Moving on to the balance sheet, accounts receivable increased to $44 million at March 31, 2008 from $32.3 million at December 31. The increase in accounts receivable was directly related to the increased project type revenue during the quarter for a federal project and equipment sales that occurred near the end of the quarter. We expect our accounts receivable balance to decrease and to continue to maintain our DSOs for our commercial business in the 40 day range.

Capital expenditures for the March, 2008 quarter were $35.3 million approximately $25 million was for our construction of the NAP of the capital region and approximately $5 million related to power and space expansion in our Miami facility. With the opening of NCR this month our depreciation expense will increase by approximately $1 million per quarter. We will see a full quarter impact of this beginning in the September quarter of this year.

Our total debt remains at approximately $340 million consisting of the $250 million first and second lien notes and our $90 million in a convertible debt. After fixing the interest rate on our $250 million debt, our annual cash interest is approximately $24 million including exercising the pick option in our second lien notes. As we have discussed in the past our business plan is fully funded to continue our planned success base growth in Miami, Virginia and California.

Looking ahead to our first quarter guidance we expect revenue in the $54 million to $56 million range including approximately $4 million in project revenue mainly comprised of equipment sales. Total revenue for the first quarter is projected to remain steady compared to the first quarter of fiscal 2008 due to an approximately $4 million decrease in project revenues. For the June, 2008 quarter we expect EBITDA to range from $10.5 million to $11 million. The EBITDA trend from Q4 to Q1 is impacted by the decreased project EBITDA and the launching of NCR which drives incremental operating expenses in Q1.

As Manuel mentioned given our signing of the NCR anchor tenant, the strong bookings from the third and fourth quarter and our strong sales pipeline we are raising our guidance for fiscal year 2009. For the full fiscal year we are raising our revenue guidance from [inaudible] to $255 million to revenues between $255 million and $260 million, and increasing our EBITDA guidance from $55 million to $58 million to EBITDA between $58 million and $60 million.

Using the midpoint of our fiscal year 2009 guidance this represents 37% annual revenue growth and 51% annual EBITDA growth. Additionally based on the Q1 fiscal 2009 guidance we just provided our full year guidance implies a very reasonable Q2 to Q4 quarterly revenue growth rate of approximately 9% and quarterly EBITDA flow through of approximately 50%.

Capital expenditures for fiscal year 2009 are expected to range from $70 million to $80 million the main components are as follows: $25 million to complete the build out of the first pod at the NAP of the capital region; $15 million to continue building out space and power to Miami NAP; $15 million to $20 million related to the start up of our Silicon Valley expansion; $5 million to $10 million related to our technology and service delivery platforms; and $10 million of other success based items and maintenance CapEx.

Now let me turn the call back to Manuel so he can tell you more about our recent success and our expansion strategy.

Manuel Medina

Thank you Jose. As you can see, it was a very good year for Terremark and we have built a lot of momentum as we head into fiscal year 2009. This year’s success represents the culmination of the outstanding execution of a strategic vision that the market is embracing. The culmination of our world class, carrier-neutral facilities combined with our complete suite of managed services including our infinistructure utility computing platform provides the best foundation in the world for running mission critical applications.

It is important to note that we hear about this facility and technology differentiators from customers, prospects and industry analysts on a regular basis. Our customers also continue to look for ways to reduce their IT infrastructure costs. Indicators suggest that the broader economic environment will continue to be challenging this year and Terremark is particularly well positioned to capitalize on this dynamic. Outsourcing in general and in particular Terremark’s full suite of managed services represents a proven way for enterprises to reduce their operating costs while allowing them the opportunity to improve their computing capacity.

Furthermore the flexible, scalable architecture of our infinistructure platform allows customers to lower infrastructure total cost of ownership by leveraging virtualization technology to optimize server utilization and precisely shape their infrastructure to their business requirements. With server utilization raising corporate data centers averaging between 8% and 15% according to several leading research reports, infinistructure represents a particularly compelling value proposition in challenging economic times.

Another key reason for Terremark’s success this past quarter and over the prior year is due to our increased investment in product innovation and marketing. Our customers and industry analysts consistently highlight the infinistructure as well as Terremark’s continuing investment in proprietary service delivery and platform technologies as key to our growing market advantage and clear competitive differentiation. Later this week, we plan to announce a new managed computing product that will change the way enterprises acquire, deploy and manage computing infrastructure, bringing the agility and scalability of infinistructure to a broader range of customers then ever before.

On the marketing front, we have re-launched or global brand focused our messaging and clearly articulated our value proposition dramatically increasing our market visibility. These initiatives have produced great results demonstrated by our strong federal and commercial bookings and pipeline. Moving on to our expansion plans we’re targeting breaking ground in the second half of fiscal 2009 for our Silicon Valley expansion and we are currently finalizing the design stage of this project.

Based on the strength of the current demand, we expect to have executed contracts before ground breaking later this year. In fiscal 2008 13% of our revenues were from our European and Latin American operations. We continue to see robust demand and a strong pipeline in international locations driven primarily by large multinational companies requiring a presence in these key cities.

Our European and Latin American teams are both doing an outstanding job of executing in their respective regions. Driven by specific customer demand and a strategic offering for our large multinational customers we have opened a small data center in Bogota, Columbia. With our secure presence in Miami, a key gateway for North America, Latin America and European telecommunications networks, combined with our NAP to Brazil the largest piering point in Latin America we are a point of maximum connectivity for the region.

Brazil is one of the world’s largest growing economies and is showing no signs of slowing down. Although it is not a large part of our overall revenue we believe our presence here is important to our overall business.

In conclusion as we look ahead in 2009 we are very bullish about our prospects. Thank you very much for taking the time to join us today and we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Tom Watts – SC Cowen & Co.

Tom Watts – SC Cowen & Co.

In terms of the Virginia facility it seems like you have a wonderful anchor customer there with 20% utilization, what sort of level do you need to reach EBITDA breakeven in that facility and when do you think you’ll get there?

Jose Segrera

EBITDA breakeven as we’ve talked about in the past is right at that 20% level.

Tom Watts – SC Cowen & Co.

So essential this facility will be breakeven upon opening?

Jose Segrera

Yes in terms of with what we’ve booked and obviously as you’re opening up a facility you’ll have a ramp up period of time where you get the customer deployed and they ramp up their space but in terms of what’s committed and what we have binding contracts for, we are above that point.

Tom Watts – SC Cowen & Co.

And what sort of scale-up time will it take for CSC to get up to that 20% level?

Manuel Medina

We haven’t really given those exact details but they begin ramping up right on the beginning of July and it keeps ramping up over the next few quarters. So basically it’s rather quickly.

Tom Watts – SC Cowen & Co.

And in terms of additional customers to add on to that, how does the pipeline look for Virginia?

Manuel Medina

I must tell you we are very pleased with our pipeline in Virginia. We’re obviously very pleased on the federal side because we always expected that to be the case. We are particularly pleased with the pipeline on the commercial side because we really have the pleasant surprise that the interest on a wider rate of enterprise customers particularly as it relates to disaster recovery and business continuity. So the pipeline is very, very robust.

Tom Watts – SC Cowen & Co.

You also talked about the large—the space that had been freed-up during the March quarter and then been resold, about how many weeks was that revenue generating and if it had been revenue generating the entire quarter, how much revenue would it have generated?

Jose Segrera

It was completely revenue generating during Q3 so—it was running about $200 K a month and then during Q4 between the time that the customer down-graded and we brought the new customer up it didn’t turn up until late in the quarter.

Tom Watts – SC Cowen & Co.

And then would it be higher then that $200 K run rate at a full rate?

Jose Segrera

Yes, once it’s fully ramped up and taken up it will be, yes.

Tom Watts – SC Cowen & Co.

Could it even be double that level?

Jose Segrera

No I wouldn’t say double, but it’s a significant up-take with the new customer.

Tom Watts – SC Cowen & Co.

Some of the other companies in the sector, virtually everybody has seen very strong demand for COLO but some companies have experienced a slowing of sales cycle for managed hosting, have you seen any impact of the economy in areas of your business?

Manuel Medina

We have not, basically our managed hosting pipeline is again very, very strong and we’ve signed a significant number of managed hosting deals. I think that again, as I said in my remarks earlier, the fact that you can actually save money and at the same time increase your computing capacity through our [inaudible] computing platform, it’s actually a very compelling value proposition so we have not seen any slowdown and we don’t expect to see any slowdown in the foreseeable future.

Operator

Your next question comes from the line of Jonathan Schildkraut – Jefferies & Company

Jonathan Schildkraut – Jefferies & Company

I just wanted to drive a little deeper on some of the expansion stuff and some of Tom’s questions. First could you tell us what the kind of normal timeframe is from when you book a deal to when it starts to bill to give us a little bit more sense as to how CSC will roll into that new data center and then also it appears from your guidance and I just want to confirm this, that following the Q1 of fiscal year 2009 you would expect the revenue contribution from the NAP of the capital regions to accelerate as we move through the course of the year.

Manuel Medina

In the first part the CSC transaction will ramp up—obviously it’s not a typical deal in the sense that it’s a large deal so it’s not like a typical deal from book to bill will be maybe 60 to 90 days or something like that. This one actually has a ramp schedule through the coming quarters because of the significant size of the deal. On a minimum basis, it’s a guaranteed ramp with a potential to increase at a substantially quicker pace. So basically that is actually the case.

We do expect after the first quarter NCR to be contributing to revenue, yes.

Jonathan Schildkraut – Jefferies & Company

Can we talk a little bit about the Silicon Valley NAP; I guess when we initially started to talk about this project in context of your overall expansion strategy we were looking for potential construction to complete at the very end of this year. It seems like last quarter’s commentary and coming into this quarter you may be taking a little bit more time to scout the right site to build it out, what is now the timeframe for the launch of that new facility?

Manuel Medina

It really is—as you may remember what happened also there was we actually ended up buying, it’s already closed the site nearly adjacent to our existing facility. The actual land was already closed. It’s also, in Silicon Valley things take a little bit longer then they do in [Culpepper]. Just basically by the processing and the permitting and everything else, not that there are any issues, it just takes longer itself and also we do expect to break ground on the project on the second half of this fiscal year and also as I stated in my remarks, we do expect to have executed contract before breaking ground because a lot of the demand is coming from existing customers in our current facility which again is immediately adjacent to the land where the project will be located.

Jonathan Schildkraut – Jefferies & Company

Okay so assuming that I think you’re going to break ground on November 15th of this year, how long would it take you to complete construction? Is that a six month cycle, is that a nine month cycle?

Manuel Medina

The way we’re looking at the project right now, is we’ll be actually in a [faced] environment because there is some existing structures on the property. That also—while we evaluated whether we kept some of the existing structures or [erased] them altogether, also took a little bit of time. The way we are evaluating it now, we’ll probably be able to contribute revenue like in six months after we start the ground breaking.

Operator

Your next question comes from the line of Chris Larson – Credit Suisse

Chris Larson – Credit Suisse

On the DC center is it fair to say that there’ll be very little impact to EBITDA in terms of dilution for the DC center in the June quarter and then Jose can you give us a sense for—given that it takes a certain amount of time for that new customer to come in what the sort of dilution in the September quarter will wind up being. And then Jose you talked a little bit about how you expect the revenue per square foot to be relatively flat, but can you talk a little bit about how pricing on both space and then pricing on the services are trending? Are they also flat or is there an up trend, down trend within the pricing?

Jose Segrera

On the first point in terms of the way we see NCR in the fiscal year and ramping up, it’s really pretty consistent with what we had talked about in the last call. We already have started to ramp up some of the operational delivery costs in anticipation of opening this month in June so for the June quarter and September quarter, you’ll have a hit on EBITDA and then seeing that turning on the next two quarters of the fiscal year. I think the fact that we came out and we were able to bump guidance up some in both the top line and on the EBITDA side just gives you a sense from where management, how we see the business and visibility and comfort with contracts that are signed in our pipeline. And then with regards to pricing and the revenue per square foot, so obviously initially as we’re starting to sign up customers at NCR the majority of the revenue initially is going to be collocation in nature and also with, we had real good success in Miami with those two factors, what we’re anticipating to seeing over the next couple of quarters is the yield which is, we’ve seen it come up significantly over the past three, four, five quarters in excess of $2,000 a foot a year, probably see that staying steady. From a pricing standpoint the pricing environment is really comparable to what we’ve seen over the past quarter or two, it’s strong. We’re not seeing any downward pressures. We’re seeing strong pricing as we’re very happy with the prices and the price points that we’re getting as we’re signing up customers now and NCR and we’re seeing the same trends on the managed services side. Aren’t really seeing any downward pressure, just the normal cycles but when we look at that revenue yield, its not that its staying flat or steady because we’re seeing pricing going down. It’s still a firm pricing environment.

Manuel Medina

It’s only affected because of the increased amount of collocation in the short-term.

Chris Larson – Credit Suisse

I just wanted to make sure that that pricing was still moving in the right direction.

Operator

Your next question comes from the line of Sri Anantha - Oppenheimer

Sri Anantha – Oppenheimer

Jose, could you talk about the visibility into your FY09 guidance because if I’m looking at your 1Q ’09 guidance it looks like you’re looking for a sharp acceleration as you go into the back half of ’09. The second question could you talk about the CSC contract, how much space have they occupied now and by when do you expect them to fully occupy the 20% space that seems to have been taken by them?

Jose Segrera

With regards to the progression during the fiscal year, we’re exiting the Q4 with—if you look at recurring revenues and recurring EBITDA with very strong in place run rates, and then we’re still—we’re coming off of quarters. Q3 was just about a record, Q4 was a record quarter for us in terms of bookings so when you talk about just the backlog and visibility on deals that are getting deployed now in the June quarter, September quarter there’s great visibility there. And then also we’re seeing we continued momentum in the sales funnel. So as we look at the progression of the year we feel very comfortable and as Manuel alluded to, with what we signed up for NCR including CSC it ramps up during the year so again that’s another, all it backlog that’s there that gives us comfort for the ramp during the remainder of the fiscal year.

Specifically on CSC we’re not disclosing any more details on the space or any more specifics on ramping, I think we’ve given a lot of color around that deal and haven’t exceeded our 20% target for the facility.

Manuel Medina

I want to add a couple of points to that, first of all its not CSC alone that’s taking this 20% so as we’ve said, it’s our customers. Of course CSC is the anchor so I just want to make clear because again we don’t want to basically give too much detail. And as Jose said we had said to all of you that we were going to be at least 20% the day we open, we’re telling you a month before opening that we’ll well in excess of 20% already. I wanted to clear that up. I also want to highlight something on the guidance because I remember in the first quarter of last year having to really—and not only the first quarter, the first couple of quarters of last year, the ramp was substantially steeper then what we’re looking at this quarter and I remember a tremendous amount of skepticism, are you going to get there? And I will tell you that I’m very proud that having been in the process of a year where we acquired a significant company and at the same time, the business was ramping up organically so strong that we were able to hit our guidance right at the mid-point of the guidance so this is something that we’re very, very proud of, of our team and it kind of really exemplifies the tremendous visibility that we have in our business today.

Sri Anantha – Oppenheimer

On your federal contract you mentioned the $135 million, could you just give us color like you know, how much of that contract today is funded and what kind of a contribution are you actually factoring into your guidance for 2009?

Manuel Medina

One hundred percent of the contract is funded. It’s a multi year contract because of the nature of the contract, 100% is funded. It’s not a back-ended contract and it kind of goes fairly even and we don’t have specific amounts of what it will contribute but it’s an even contract over the 10-year terms. Where the possibility, actually a significant probability of substantial increase in both the floor amount is pretty much even over the next 10 years.

Operator

Your next question comes from the line of Colby Synesael – Merriman Curhan Ford

Colby Synesael – Merriman Curhan Ford

Just a few questions on the book to bill cycle, if you could talk about the difference in that cycle as it relates to COLO location versus managed hosting, just break out the difference between those two and then also in terms of the managed hosting revenue that you’re now getting, how much of that is coming from up selling pure COLO customers who are now taking the data return type solution versus getting new customers in the door for the first time?

Manuel Medina

As far as the book to bill cycle, on both the COLO and managed hosting, there really is, it really depends on the customer. It’s usually substantially sooner on the hosting side particularly if they’re coming into a structured platform. However having said that, some very complicated—if somebody’s migrating their entire platform into a combination of dedicated versus [a finished] structure could take a little longer. So you could see, I think the quickest one book to bill on the hosting side was two weeks and I think that you can typically see it somewhere in the 60 day range something like that.

On the COLO side it’s typically longer. It could be in the 90 to 120 days depending on the size of the customer. Of course if you’re planning migrating your entire data center out of either somebody else’s or your own data center then it could take six months. So that’s basically is kind of the range.

Colby Synesael – Merriman Curhan Ford

And then just pushing on the question, on the visibility side, do you have a specific percentage of your revenues that you look at for the guidance for the year and say we already know where those are coming from and there’s just another 10%, 20%, 15% where that’s not known but the difference in terms of visibility?

Jose Segrera

When we look at, even standing here today just even on the EBITDA side in terms of visibility and what’s locked in with the backlog and the signed contracts on the revenue side as well, we do look at that and its obviously a high percentage but what I can tell you is relative to where we’ve been in the past maybe last fiscal year and to where we are now, we’re seeing that increase as we’re coming into fiscal years and coming into quarters and obviously now we’ve got eight, nine, 10, 12 quarters of good execution behind us and so being able to manage and predict a business is getting a lot easier.

Operator

Your final question comes from the line of Ken Lee – Jefferies & Company

Ken Lee

I just wanted to get a little more clarity on the project revenue; I know you have $4 million in Q1. I was wondering what you thought could flow through for the rest of the year?

Jose Segrera

We were just under 10% for fiscal year 2008 of project revenues and for fiscal year 2008 would anticipate being right around just under 10% for the full fiscal year.

Operator

At this time we do not have any more questions in queue, and I would like to turn the presentation back to Mr. Manuel Medina, Chairman and CEO for closing remarks.

Manuel Medina

Again thank you very much and I appreciate your continued interest in Terremark and I look forward to talking to you very soon. By the way, I just wanted to comment that I want to congratulate our finance team even though again this was a very robust year and integration and everything else that we were actually able to report almost two weeks earlier then we did last year. So it really, I compliment the entire team that worked very hard to make sure that we could get these results to you as soon as possible. Thank you very much.

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Source: Terremark Worldwide, Inc. F4Q08 (Qtr End 03/31/08) Earnings Call Transcript
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