Terremark Reports, VMWare Buys a Stake

May 27th, 2009 by · 1 Comment

Terremark (news, filings) [a subsidiary of Verizon (NYSE:VZ, news, filings)] reported its fiscal Q4 earnings today.  Revenues of $68.9M were lower than expected, but EBITDA of $22.1M and earnings per share of $0.06 were quite good.  Overall, a familiar story of slower growth due to the recession but with cost containment more than keeping pace.  For fiscal 2010 the company offered guidance that reflects the economic slowdown, projecting revenues of $290-300M (which would be 18% growth) and adjusted EBITDA of $80-85M.  In other words, still growing nicely, just not as quickly as last year.

Perhaps more importantly though, virtualization specialist VMware has bought a $20M stake in Terremark, 4M shares at $5 and some 5% of the company.  The price is a slight premium to the stock price, which closed at $4.80 today.  Terremark has been pushing its young cloud offerings aggressively, and VMware has been one of their partners.  Terremark of course historically has been mainly a datacenter - providing colocation and technical support for it.  I've been somewhat skeptical of all entries into the 'cloud computing' space, if only because I distrust buzzword umbrellas and actual revenues are always farther away than the hype suggests.  But VMware's investment does lend some credibility to Terremark's plans in this space.

That said, the timing isn't random.  Terremark has some $31M in  converts coming due on June.  While their cash balance of $52M is enough to pay them off they still need to spend capex throughout 2010 to finish their 2nd datacenter at the NAP of the Capitol Region.  With this investment by VMware, they don't have to do it on a tightrope and that project remains on schedule for completion in 7-10 months.  Using equity to raise the capital does imply, however, that they were not able to find straight debt at an attractive price, the credit markets may be thawing at the edges but it's still darn cold out there.

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Categories: Datacenter · Financials

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  • Bill says:

    Not sure if you have access to this, or if TRMK burned through the cash already, but the Culpeper campus (virginia) is supposedly fully funded with $250m from Credit Suisse from 2007. A senior person with TMRK told me this last June and last month.

    I look at the VMWare investment as a commitment from both. As TMRK will most likely spend that much on VMW over the next 2-3 years, so Manny twisted their arm to give TMRK a little breathing room. Just a thought…
    Like your column, keep up the good analysis. thanks.

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