Zayo Marches Forward, Plans Further FTT Expansions

February 14th, 2012 by · 18 Comments

Zayo Group (news, filings) turned in its usual steady performance for its fiscal second quarter, boosted especially by one month's revenue from the 360Networks purchase.  Here's a quick table of some of the company's results in context:

$ in millions Fiscal
Q2/11
Fiscal
Q3/11
Fiscal
Q4/11
Fiscal
Q1/12
Fiscal
Q2/12
 - Zayo Bandwidth 54.6  54.7 55.9 56.5 64.5
 - Zayo Fiber Solutions  11.4  11.9 13.5 13.2 15.3
 - zColo  7.7 9.1  9.5  9.7 10.2
Total Revenue 72.3 74.2 77.8 78.4  89.0
Adjusted EBITDA 31.1 32.7 37.2 38.0 45.1
Adj. EBITDA Margin 43.0% 44.1% 47.8%  48.4% 50.6%
Capex 37.4 29.1 24.9 28.6 31.4
Buildings on-net 4041 4228 4393 4542 5194

Revenues:  Of the $10.6M increase, $7.0M came from the 360networks purchase, while some termination revenue helped boost the rest above usual levels.  With a full quarter of 360Networks revenue and some additional from the MarquisNet purchase as well, they will clearly be solidly above the $100M/quarter mark in the first quarter.

EBITDA: Adjusted EBITDA of $45.1M was up sharply from the third quarter even when the 360Networks results are backed out.  Some of that was from termination revenue,  but a fair amount came from synergies realized from past acquisitions.  Adjusted EBITDA margin of has now reached an altitude of 50.6%, and one wonders just where it will level off.  Overall earnings themselves dipped slightly into the red, pulled down by higher stock compensation expenses.

Expansions: Zayo is building on all fronts as usual, and during the quarter they added 553 route miles of fiber and 196 buildings to their network in addition to what they acquired from 360networks.  160 of those were towers, which is about the same as it has been in recent quarters.  But during the quarter they clearly took on some substantial additional fiber-to-the-tower business.  They began work on eight new FTT markets during the quarter and substantially raised the number of on-net towers they have under construction to 697.  Only two of the new markets were in 360networks territory up in the Pacific Northwest, while four are within the company's Mid-Atlantic footprint.

Zayo integrates its acquisitions very quickly compared with most other fiber operators, but not so quickly that Q4 has yet shown us what they will do with the 360networks assets that 360 itself was not doing.  Zayo has even more places to put capex to work in 2012, and it will be interesting to see where they put their focus.  On the inorganic front, it's hard not to wonder when they will add that one last piece of the puzzle - a substantial presence in the rest of the southeast and especially Florida.

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Categories: Financials · Metro fiber

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