Dec. 5, 2001 -- It's not sexy, perhaps. And it has a name so long that it requires an acronym to be used in conversation.
But as data center operators prune their networks, they are paying close attention to an accounting measure known as Earnings Before Interest, Taxes, Depreciation and Amortization - or "EBITDA" for short.
EBITDA's importance as a yardstick of data center performance has grown to the point where it's now co-starring in industry press releases. This week managed hosting provider Inflow, Inc. issued a release to announce the fact that its Internet data center in Austin, Texas, is now EBITDA-positive.
So what does that mean?
EBITDA provides a way for investors to track the cash flow and operating results of companies with large capital expenses. Companies that have spent heavily in infrastructure will generally report large losses in their earnings statements.
But are these companies making enough to repay their loans? Is that multi-million dollar data center making money each month, or losing even more?
That's where EBITDA comes in. By stripping away interest, taxes and capital expenses, it allows you to analyze whether the baseline business is profitable on a month-to-month basis.
As a result, many data center companies that have invested heavily in infrastructure use EBITDA as a reflection of their progress toward profitability.
That includes Inflow, a Denver-based provider that has raised more than $330 million to build and operate a chain of 18 Internet data centers in the U.S. and Europe. Inflow says it now has more than 60 customers housed in the 20,500 square foot Austin data center.
"The Austin IDC's EBITDA positive milestone is another step in Inflow's steady march toward profitability," said Jim McHose, Inflow chief financial officer. "This keeps us on our path to profitability in 2002 and is consistent with our overall business plan."
This emphasis on the bottom line is a major shift from the early days of the industry, when "speed to market" was the buzz. Many data center services and colocation providers focused on building national footprints, with facilities in all the major business centers and key second-tier markets as well.
Once they built it, the market collapsed and the customers never came. In today's rapid consolidation, providers are focusing on those facilities that can make money, and making tough decisions about those with no short-term path to profitability.
At the behest of lenders and investors, data center companies are closing or selling money-losing facilities and trying to rebuild around a core of centers that can make money. Providers marketing excess facilities include Exodus, Verado, Broadwing and Global Crossing, among others.