Terremark 'Evaluating Alternatives' for Growth

Shares of Terremark Worldwide (TWW) plunged Wednesday after the company posted a larger than expected loss and said it was consulting with an investment advisor to "evaluate alternatives" that would allow it to take advantage of market opportunities.

Terremark shares are trading at $3.74, down $2.37 (39 percent) from Tuesday's pre-earnings close on the NASDAQ exchange. The company's revenue and EBITDA results for the quarter ended March 31 were lower than expected due to a federal government contract that was postponed until next year. Meanwhile, Terremark said it plans to construct new data centers in Silicon Valley and the Washington, DC area to capitalize on growth in those markets - even as it struggles to fill space in its mammoth Technology Center of the Americas in Miami.

"Given the importance of this strategy to the growth of the Company going forward, the Company has engaged Credit Suisse Securities (USA) LLC to assist in evaluating its alternatives to pursue such growth," the company said in its statement. So what exactly does that mean?

Analysts on the company's quarterly earnings call pressed Chairman and CEO Manuel D. Medina about the plan for additional expansion, and seemed skeptical about the performance of the Miami NAP. Medina said the expansion plan was driven partially by demand from existing customers, and partly by "a significant imbalance in supply and demand" in those areas.

Medina said Terremark is scouting locations for "greenfield" projects to build 90,000 square foot data centers in both markets, with a price tag of $55 million to $60 million for each facility.

It's not clear what type of alternatives Credit Suisse will seek, and Medina said all options were open, refusing to narrow the possibilities. Terremark has a history of innovative deals to raise funding, often from outside the usual Wall Street suspects, so any speculation at this point would likely generate more heat than light.

As it has in past quarters, the Terremark team promised that pending contracts will boost the company's fortunes, and sought to deflect concerns about the fill rate for the Miami data center. Total colocation space utilization increased to 12.1% as of March 31, 2006 from 11.8% as of December 31, 2005. Utilization of built-out colocation space increased to 43.3% as of March 31, 2006 from 42.3% as of December 31, 2005.

"This past year marked a very important period for us as we achieved significant customer growth and continued to build on our managed services offerings," Medina said, summarizing the quarter. "Our goal is to leverage the success of 2006 into 2007. We are particularly excited about our opportunity as the market itself is showing growth and momentum."