Terremark: Strong Growth, But Shares Droop

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An aerial view of the NAP of the Capital Region, showing both completed data center buildings at the Terremark campus.

On Monday Terremark Worldwide (TMRK) reported strong growth in customers in the government and cloud computing sectors, and growing demand for its colocation and managed hosting services.

But Wall Street was keenly focused on the numbers, and the company's quarterly results and revenue guidance came in slightly below analysts' expectations. As a result, Terremark shares declined 16 percent in Tuesday's session, closing down $1.37 at $6.52 a share.

Terremark reported revenue of $74.3 million, and a loss of 13 cents per share, while the Wall Street consensus had been looking for $75.1 million and a loss of 8 cents. For fiscal; year 2011, the company projected revenue of $335 million to $340 million and EBITDA of $95 million to $100 million, while the Street had been looking for $348.6 million in revenue and $108.4 million in EBITDA.

Conservative Approach on Project Revenue
Terremark's guidance now reflects more conservative projections in one area of its business. It now expects that 5 percent of its revenue will come from non-recurring projects, which have historically accounted for about 10 percent of revenue. "It does not mean that we’re not going to focus on (non-recurring revenue)," said Terremark CEO Manuel Medina. "But trying to identify what those project revenues are going to be is very challenging, so I think that a 5 percent figure is a conservative figure."

Beyond the quarterly numbers, Terremark said the second phase of its NAP of the Capital Region in Culpeper, Va. opened last week, with the project coming in on time and on budget.

"We have commitments for approximately 50 percent of the facility and we continue to see a very strong pipeline consisting of government and commercial entities," Medina said of the Virginia expansion. Terremark is also expanding its Santa Clara, Calif. facility and Medina said he "expects the majority of the facility to be under contract by the time that we open."

Terremark executives said the company is positioned to benefit from growing interest in colocation and cloud computing.

Strength in Colocation
"We have never seen the kind of pipeline that we have today," said Medina. "It's as strong as it has ever been, across the product base but particularly in colocation. I think colocation is a very, very strong product offering today, and we don’t see any slowdown whatsoever in the foreseeable future. We don’t see any pricing pressure, so we do expect that to be a nice significant part of our business moving forward."

Terremark's cloud computing revenue grew 30 percent from the previous quarter, to an annualized run rate of $17.2 million. "We have already started this quarter with a bang with a very strong signup, so we expect to see some significant cloud momentum building up over the next year," said Medina.

The company also noted the addition of IBM as a customer of its Enterprise Cloud service. "The fact that our cloud platform was selected by IBM, the world’s second largest IT company, further validates our leadership position within the industry," said Medina.

Key Board Appointment
One of Terremark's strength is its expertise in information security (see Leading With Security from Jan. 2008). On Monday the company announced that Melissa Hathaway, who served as cybersecurity czar for the Obama administration, had joined Terremark's board of directors. Hathaway also served in the Bush administration, and brings a depth of experience with the federal defense and intelligence IT communities.

"During my time working in the Federal government, I became very impressed with Terremark's innovative solutions, its team of experts and its future prospects," said Hathaway. "In particular, I believe that providing security solutions as part of the cloud infrastructure is important to our future and Terremark is well positioned to lead industry with its services and world-class information security specialists."

"Our security expertise continues to be a major differentiator, particularly in our cloud computing offering and is a direct contributor in winning customers and attracting a talented board member like Melissa Hathaway," said Medina.