Terremark comfortable with increasing leverage to fund growth

By Jennifer Lanning Drey

Portland, Ore., May 28 - Terremark Worldwide, Inc. is comfortable increasing its debt to support expansion in situations where the company can build datacenter facilities that it is highly confident will attract customers, Manuel D. Medina, chief executive officer of Terremark, said late Thursday during its earnings conference call for the fourth quarter of fiscal 2010.

"As we've demonstrated time and time again, if we raise [debt], it's because it drops like a lead balloon right afterward, because we have contracts with the best of credit at a substantially higher rate of return than we are paying for the debt," he said.

As previously reported, Terremark raised $56 million in April through a $50 million notes offering. Pro forma for the bond offering, the company's cash balance was approximately $110 million at March 31.

"We have no problem at all continuing to fund ourselves through debt. It's our preferred method to fund ourselves," Medina said, during the question-and-answer portion of the call.

The CEO said the company would be comfortable spiking its leverage ratio as high as 4 times or more to fund additional datacenters.

One particular growth opportunity highlighted by Medina during the call was Terremark's recently announced $5 million acquisition of 27 acres of land directly adjacent to its Network Access Point of the Capital Region datacenter campus. The land provides Terremark the ability to effectively double the campus.

"The $5 million land acquisition positions us to support the major growth that we anticipate taking place and create a meaningful competitive advantage going forward," he said.

Revenues, EBITDA improve

Terremark posted fourth-quarter revenues of $82.5 million, representing a 20% increase over the same period in 2009. Adjusted EBITDA was $26.5 million for the fourth quarter, also representing a 20% increase over the prior-year period.

"Our strong performance in fiscal 2010, combined with our record-breaking bookings in the fourth quarter, sets a solid foundation for fiscal 2011 and beyond," Medina said.

Terremark reported operating cash flow of $37.5 million for the fourth quarter. Full-year fiscal 2010 operating cash flow was $23 million, Jose Segrera, the company's chief financial officer, reported during the call.

"As we continue to have strong bookings and leverage infrastructure coming online in fiscal 2011, we expect to achieve free cash flow exiting fiscal 2011," Segrera noted.

Terremark is an information technology company based in Miami.

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