Another Steady Quarter From Zayo, while 360 Awaits

With their acquisition of 360networks waiting in the wings, Zayo filed their fiscal first quarter earnings today.  They added another 740 route miles and 149 buildings to their network during the quarter.  As usual, most of those buildings were towers, which is still one of the fastest rates around although it has been slowing a bit in the last two quarters as some of their larger projects have been mostly completed.

$ in millions	Fiscal Q1/11	Fiscal Q2/11	Fiscal Q3/11	Fiscal Q4/11	Fiscal Q1/12
– Zayo Bandwidth	48.9	54.6	54.7	55.9	56.5
– Zayo Fiber Solutions	7.8	11.4	11.9	13.5	13.2
– zColo	7.6	7.7	9.1	9.5	9.7
Total Revenue	62.9	72.3	74.2	77.8	78.4
Adjusted EBITDA	25.6	31.1	32.7	37.2	38.0
Adj. EBITDA Margin	40.7%	43.0%	44.1%	47.8%	48.4%
Capex	21.1	37.4	29.1	24.9	28.6
Buildings on-net	3103	4041	4228	4393	4542

Revenue:  Total revenues grew by only 0.6M sequentially, due to higher than expected one time events in the prior quarter.  Zayo Fiber Solutions declined sequentially, as the one time event had been a big dark fiber sale in the prior quarter.  zColo and Zayo Bandwidth saw normal growth.  Gross new sales saw a boost during the quarter, boding well for the fourth quarter.

EBITDA & Margins:  Adjusted EBITDA rose faster than revenue as usual, reaching $38.0M during the quarter.  That’s enough for a 48.4% adjusted EBITDA margin, just a bit higher than that of AboveNet’s again this quarter.

No fireworks here, Zayo continues to do what it has been doing – or at least what it has been doing when it isn’t buying up fiber assets.  Now that they’ve gone and bought 360Networks, another evolution awaits.  This one nearly doubles their total fiber footprint, although mostly on the intercity front.  That intercity connectivity will dramatically change the company, I think.

For one thing, 360Networks was building an IP/Ethernet business, and I think that Zayo is going to take that and run with it.  The disconnected islands of fiber worked the best in the transport and fiber arena, but with a national backbone hooking them up now Zayo will look a whole lot more like a tw telecom or AboveNet.  They will be able to expand their product set to include more advanced services.

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Categories: Financials · Metro fiber