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Terremark Faces Cash Crunch

Carrier Hotels Staff Posted Feb 17, 2004

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Terremark Worldwide is once again facing a cash crunch. Despite an increased customer count and stronger revenues, the company is no closer to breaking even than it was last August, when CEO Manny Medina confidently predicted the company would be cash-flow positive by the close of 2003.

Instead, Terremark is once again seeking financing. As of Jan. 31, the Miami data center services company had just $2.1 million in cash remaining, and is losing $1 million a month on its operations. More than $23 million in obligations will come due this year.

"Currently, we do not have the cash to meet these obligations," Terremark said in its SEC filing. "We further anticipate that revenues will not be sufficient to make principal payments on debt maturing within one year. ... We plan to fund our business by increasing revenues and cash collections from customers and selling additional debt or equity securities."

An immediate concern will be meeting scheduled payments totalling $3.8 million that come due April 1 on unsecured notes, payable to SBP Investments, Inc., Caerulea Ltd. and Slivovitz Design Limited.

Terremark has survived many previous funding challenges, displaying innovation and resiliency in attracting investment. The current cash crunch follows the most successful year yet for Terremark's NAP of the Americas in Miami, which grew from 63 to 133 customers, signing new data center clients including InterNap, Hostopia, SAVVIS and the Department of Defense's US Southern Command.

Last summer, Medina confidently predicted big changes in the bottom line by the end of 2003. "We've never been in a better position," Medina told CarrierHotels at the time. "We are projecting cash-flow positive by the end of the year."

The income numbers are moving in the right direction, as Terremark's quarterly data center revenue has grown from $2.9 million to $4.6 million in the past four quarters. But its monthly operating loss has shown little improvement, narrowing from $1.4 million in June to the current $1 million. Last June 30 Terremark said it needed at least $2 million a month in new revenue to break even. That gap is now $1.6 million a month.

The company's cash position would have been more difficult if not for an $800,000 sale of preferred stock on Jan. 20. As of Dec. 31, Terremark owed $566,000 related to a lease, and $792,000 on its 2002 property taxes, but has since negotiated structured payment plans on those debts. The company is also negotiating an extension with Total Bank, which it owes $367,000.

From an operational perspective, Terremark will need at least $3 million to build out the third floor of the Technology Center of the Americas, which it has leased to expand the NAP of the Americas.

Terremark's loss from operations was $4.9 million for the quarter ended Dec. 31, compared to a loss of $6.7 million for the previous quarter.

Those numbers might make it difficult to raise funds. But as Medina noted last year, Terremark has had strong support. "In our case, we forgot about Wall Street," said Medina. "We have an ability to attract investors who've been with us for a long time. With these investors, you can take the time to educate them about the opportunity, and have the confidence to share the financial information about your operation."