Continued consolidation in service provider/managed hosting space…CenturyLink paying $3.2b for Savvis. This deal is all about getting CenturyLink a deeper enterprise footprint right on the heels of the recent Qwest deal (closed 4/1). The combination of CenturyLink + Qwest + Savvis is a strong network and cloud story for the enterprise. All CenturyLink network customers were asking for cloud services and this brings it too them…”Cloud services all require massive network requiresments, this is an opportunity to mesh those together”. Savvis provides an imemdiate platform to address CentruyLink customer cloud need. The Centurylink hosting business will fall under the Savvis brand post-deal.

The financial backing of CenturyLink also allows Savvis to take business global (via existing footprint and cheaper cost of capital) and gives them much better leverage from a network standpoint. 90% of Savvis hosting customers took network services from them too. Now Savvis goes from a small networking player with good cloud story to a very big one with much greater economies, this lever is critical to cloud services down the road and a strategic control point in enterprise cloud adoption.

• next step in transformation, recently has expanded offering into enterprise business (via Qwest), Savvis is next logical step, enables them to capture growth in managed hosting, cloud computing and colo businesses with global scale
• Qwest + Savvis = more than 50% of revs comes from busienss customers
• immediately accretive to company financials
  • accretive in first year after closing
  • improves revs growth by 75 bps
  • immediately accretive to EBITDA growth
• cash and stock deal, total $3.2b value
  • implies 8.8x FY11 EBITDA
  • breakdown of payment = $30/shr cash + $10/shr of centurylink stock
• Savvis will be separate business unit, stays in St. Louis…can now extend services to much broader base of customers
• will operate Centurylink hosting business under Savvis brand
• Savvis
  • HQ’ed in St. Louis
  • has become global leader in cloud, managed hosting and network services
  • 2500 clients globally
  • 2450 heads
  • enterprise class managed serviced
    • dedicated hosting
    • dedicated/shared clouds
    • security & storage
    • total $1b in revs in FY11
      • 28% revs from networking
      • 34% from managed services
      • rest from colo
    • managed hosting business growth +25%
    • primarily north american business focus
  • Earnings report (co not doing regular earnings call b/c of transaction)
    • revs growth better across all regions, lower than expected turn
    • colo pricing stable, $50/sq ft
    • pipeline for large deals remains strong, cloud driving interest in this area
    • total revs +19% y/y
      • managed svcs 48% of hosting revs, +31% y/y
      • colo revs $100m, 52% of overall hosting revs, +21% y/y
      • Network services $65m, -3% q/q, network churn increased in qtr, revs +2% y/y

• customers increasingly demanding cloud services with network purchases

• migration to cloud services increasing rapidly
• Savvis provides imemdiate platform to address customer cloud need
• accelerating growth plans in this space

Q&A

• different business model than Terremark, 33% of business fro SVVS is network related, very different valuation approach here vs TMRK
• Qwest data center services will move under Savvis banner (16 Qwest data centers, none outside of US)

• will be cross selling with sales teams
• will attempt to have one point of contact for business customers
• will bring network and IP guys in to complete the sale with each customer

• one of major advantages of deal = increased scale for Savvis, market becoming very popular with major vendors, needed more scale and financial resources and backing to take this business globally
• believe they can better leverage Qwest asset than previous
• cheaper access to capital
• network business – “this gives us expansion that we could have never had before, largest customer wants to do a lot more business

• cloud services all require massive network requiresments, this is an opportunity to mesh those together

• Legacy qwest business…avg revs/sq foot is $80 in colo space, on a monthly basis
• 90% of hosting companies take network from us and we are very small player in this space, Centurylink gives them huge leverage here