UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004,
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER 0-29375
SAVVIS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
| DELAWARE | 43-1809960 | |
| (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(I.R.S. EMPLOYER IDENTIFICATION NO.) |
1 SAVVIS PARKWAY
TOWN & COUNTRY, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(314-628-7000)
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x
COMMON STOCK, $0.01 PAR VALUE – 109,488,793 SHARES AS OF May 11, 2004
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
The Index of Exhibits appears on page 34.
SAVVIS COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
2
CONDENSED CONSOLIDATED BALANCE SHEETS
| (dollars in thousands, except share amounts) |
March 31, 2004 |
December 31, 2003 |
||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 108,229 | $ | 28,173 | ||||
| Trade accounts receivable, less allowance for doubtful accounts of $2,024 and $1,162 in 2004 and 2003, respectively |
44,835 | 11,305 | ||||||
| Prepaid expenses |
13,016 | 2,467 | ||||||
| Other current assets |
11,265 | 2,682 | ||||||
| TOTAL CURRENT ASSETS |
177,345 | 44,627 | ||||||
| Property and equipment, net |
283,453 | 59,357 | ||||||
| Restricted cash |
7,843 | 7,843 | ||||||
| Intangibles, net |
17,767 | 4,898 | ||||||
| Other non-current assets |
20,773 | 7,898 | ||||||
| TOTAL ASSETS |
$ | 507,181 | $ | 124,623 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIT) |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 45,728 | $ | 26,771 | ||||
| Capital lease obligations, current |
1,785 | 315 | ||||||
| Other accrued liabilities |
89,961 | 22,629 | ||||||
| TOTAL CURRENT LIABILITIES |
137,474 | 49,715 | ||||||
| Capital lease obligations, net of current portion |
111,047 | 56,587 | ||||||
| Long-term debt |
139,510 | — | ||||||
| Other accrued liabilities |
79,951 | 19,248 | ||||||
| TOTAL LIABILITIES |
467,982 | 125,550 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| STOCKHOLDERS’ EQUITY / (DEFICIT): |
||||||||
| Convertible Series A Preferred stock at accreted value; 210,000 shares authorized; 203,070 issued in 2004 and 2003; 202,490 and 203,070 shares outstanding in 2004 and 2003, respectively |
249,709 | 243,334 | ||||||
| Convertible Series B Preferred stock; $0.01 par value, 11,000,000 shares authorized; 6,552,886 shares issued and outstanding in 2004 |
66 | — | ||||||
| Common stock; $.01 par value, 900,000,000 shares authorized; 109,168,833 and 96,478,900 shares issued in 2004 and 2003; 109,137,532 and 96,447,599 shares outstanding in 2004 and 2003, respectively |
1,092 | 965 | ||||||
| Additional paid-in capital |
398,165 | 330,890 | ||||||
| Accumulated deficit |
(606,693 | ) | (572,465 | ) | ||||
| Deferred compensation |
(1,142 | ) | (1,438 | ) | ||||
| Treasury stock, at cost, 31,301 shares in 2004 and 2003, respectively |
(16 | ) | (16 | ) | ||||
| Accumulated other comprehensive loss: |
||||||||
| Cumulative foreign currency translation adjustment |
(1,982 | ) | (2,197 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY / (DEFICIT) |
39,199 | (927 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIT) |
$ | 507,181 | $ | 124,623 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended March 31, |
||||||||
| (dollars in thousands, except share and per share amounts) |
2004 |
2003 |
||||||
| TOTAL REVENUES(1) |
$ | 108,135 | $ | 55,201 | ||||
| Data communications and operations expenses(2) |
78,207 | 36,732 | ||||||
| GROSS MARGIN |
29,928 | 18,469 | ||||||
| Sales, general, and administrative expenses(3) |
32,515 | 22,537 | ||||||
| Integration costs |
4,906 | — | ||||||
| Depreciation, amortization and accretion |
11,976 | 15,747 | ||||||
| Non-cash equity-based compensation(4) |
6,838 | 2,657 | ||||||
| TOTAL OTHER OPERATING EXPENSES |
56,235 | 40,941 | ||||||
| LOSS FROM OPERATIONS |
(26,307 | ) | (22,472 | ) | ||||
| NON-OPERATING EXPENSES: |
||||||||
| Net interest expense and other |
(7,921 | ) | (1,978 | ) | ||||
| TOTAL NON-OPERATING EXPENSES |
(7,921 | ) | (1,978 | ) | ||||
| NET LOSS |
(34,228 | ) | (24,450 | ) | ||||
| Accreted and deemed dividend on Series A Preferred Stock |
(8,926 | ) | (7,980 | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
$ | (43,154 | ) | $ | (32,430 | ) | ||
| BASIC AND DILUTED LOSS PER COMMON SHARE |
$ | (0.44 | ) | $ | (0.35 | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING(5) |
97,832,782 | 93,766,068 | ||||||
| (1) | Includes $20.0 and $20.9 million from affiliates as defined in Note 11 for the three months ended March 31, 2004 and 2003, respectively. |
| (2) | Excludes $0.1 and $0.5 million of non-cash equity-based compensation for the three months ended March 31, 2004 and 2003, respectively, as well as exclusive of depreciation included below. |
| (3) | Excludes $6.8 and $2.2 million of non-cash equity-based compensation for the three months ended March 31, 2004 and 2003, respectively. |
| (4) | Includes $6.6 million of non-cash equity-based compensation relating to the vesting of certain Constellation Ventures performance warrants for the three months ended March 31, 2004 as discussed in Note 4. |
| (5) | As the effects of including the incremental shares associated with options, warrants, convertible Series A Preferred stock, and convertible Series B Preferred stock are anti-dilutive, they are not included in the weighted average common shares outstanding. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended March 31, |
||||||||
| (dollars in thousands) |
2004 |
2003 |
||||||
| OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (34,228 | ) | $ | (24,450 | ) | ||
| Reconciliation of net loss to net cash provided by / (used in) operating activities: |
||||||||
| Accrued interest |
8,230 | 1,742 | ||||||
| Depreciation, amortization, and accretion |
11,976 | 15,747 | ||||||
| Non-cash equity-based compensation |
6,838 | 2,657 | ||||||
| Net changes in operating assets and liabilities, net of acquisition: |
||||||||
| Trade accounts receivable |
(8,222 | ) | 572 | |||||
| Prepaid expenses and other current assets |
(726 | ) | (844 | ) | ||||
| Other non-current assets |
467 | 406 | ||||||
| Accounts payable |
8,056 | (2,926 | ) | |||||
| Other accrued liabilities |
10,093 | (24 | ) | |||||
| Net cash provided by / (used in) operating activities |
2,484 | (7,120 | ) | |||||
| INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(5,987 | ) | (2,965 | ) | ||||
| Acquisition, net of cash received |
(117,136 | ) | — | |||||
| Net cash used in investing activities |
(123,123 | ) | (2,965 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Payments under capital lease obligations |
(219 | ) | (575 | ) | ||||
| Issuance of subordinated debt and associated warrants |
200,000 | — | ||||||
| Deferred subordinated debt issuance costs |
(625 | ) | — | |||||
| Other |
1,430 | — | ||||||
| Net cash provided by / (used in) financing activities |
200,586 | (575 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
109 | 18 | ||||||
| NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS |
80,056 | (10,642 | ) | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
28,173 | 32,159 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 108,229 | $ | 21,517 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Cash paid for interest |
$ | 500 | $ | 136 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
| $ | — | |||||||
| Accrual of WAM!NET earn-out (Note 6) |
4,400 | — | ||||||
| Assets and obligations acquired under capital leases (Note 2) |
52,000 | — | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY / (DEFICIT)
| (dollars in thousands) |
CONVERTIBLE SERIES A PREFERRED STOCK |
CONVERTIBLE PREFERRED |
COMMON STOCK |
ADDITIONAL PAID-IN CAPITAL |
ACCUMULATED DEFICIT |
DEFERRED COMPENSATION |
TREASURY STOCK |
ACCUMULATED OTHER COMPREHENSIVE LOSS |
TOTAL |
|||||||||||||||||||||||||
| Balance at December 31, 2003 |
$ | 243,334 | $ | — | $ | 965 | $ | 330,890 | $ | (572,465 | ) | $ | (1,438 | ) | $ | (16 | ) | $ | (2,197 | ) | $ | (927 | ) | |||||||||||
| Net loss |
(34,228 | ) | (34,228 | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
215 | 215 | ||||||||||||||||||||||||||||||||