Another Quarter of Growth for Zayo

May 13th, 2011 by · Leave a Comment

Zayo Group (news, filings) continued to roll on forward according to its Fiscal Q3 earnings report, which came out last night.  While it is privately held, Zayo generally issues more public information on the state of its business than most (or perhaps all) private companies in the sector. This is one of those rare quarters where Zayo's numbers don't have to be read in the context of an acquisition, since the last one they did closed two quarters prior and they finished most of the integration work for AFS last quarter.  Here's a quick look at their numbers (to be updated later when the CC supplement comes out):

$ in millions Fiscal Q3/10 Fiscal Q4/10 Fiscal Q1/11 Fiscal Q2/11 Fiscal Q3/11
- Zayo Bandwidth 47.6 49.1 48.9 54.6 54.7
- Zayo Colo 7.3 7.5 7.6 7.7 9.1
- Zayo Fiber Solutions 0 0 7.8 11.4 11.9
Revenue 59.8 61.4 68.6 77.9 79.7
COS 19.5 19.8 19.9 20.7 21.0
Adj.EBITDA 21.4 22.8 28.6 32.2 33.8
Adj.EBITDA Margin 35.8% 37.1% 39.1% 41.3% 42.4%
Capital Expenditures 16.9 21.6 21.4 37.5 29.2
On-Net Buildings 2256 2418 3100 4041 4228
On-Net Towers 913 1045 1300 1681 1826

Revenues: Sequential growth of 2.3% (annualized 9%) was solid, if not blockbuster.  At $79.7M, the company's annualized revenues are just under $320M now.  After the quarter ended, they split up mot of the revenues of Zayo Enterprise amongst the fiber, bandwidth, and colo segments and spun off the rest like they did Onvoy before it.  On a segment basis, it's hard to tell much from the table directly as the restructuring isn't being propagated backwards, and thus Zayo Bandwidth revenues didn't grow as much in part due to the transfer of some revenues to ZColo, which saw an inorganic surge.  Annualized organic growth for the three segments was given in the earnings supplement as 8%, 3%, and 17% - meaning the dark fiber segment had the best quarter.

EBITDA & Margins: Adjusted EBITDA improved to $33.8M, which corresponds to a full percentage point increase in Adjusted EBITDA margins.  The increase came partly from improved gross margins (i.e. the growth in the dark fiber segment), and partly from the full effect of synergies from the integration of the AFS and AGL deals.  Annualized adjusted EBITDA is now at $135M.  If we were to take rumored pricing for various fiber assets recently of 10xEBITDA, that would value Zayo right now at over $1.3B - which would surely make their investors happy should a buyer emerge, although I still think Zayo is a buyer more than it is a seller.

Footprint expansion: Zayo added 187 buildings in all during the quarter, and 145 of those were towers.  That may look slower than in the recent past, but this time it was all organic.  They spent $29.2M in capex to do it, which amounts to 37% of revenue.  That's higher than anyone in the sector that I have data for, including AboveNet.

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Categories: Financials · Metro fiber

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