Zayo Added 709 On-net Buildings in Q3, Passes 10K Milestone

November 16th, 2012 by · 13 Comments

The last fiber-fed word on the quarter goes to Zayo, which started its fiscal 2013 with an even more complex mix of organic and inorganic activity.  The AboveNet and FiberGate deals closed in Q3, US Carrier closed last month, and the new First Communications deal still has a few weeks left, which means following the numbers is a bit like taking a snapshot of a rail switchyard.  But it was the organic burst of 709 on-net building additions that caught my eye this morning, the majority of which are surely of the tower variety of course.  Here is a quick table of the numbers in context:

$ in millions Fiscal
 – Zayo Bandwidth 56.5 64.5 74.8 76.4 152.1
 – Zayo Fiber Solutions 13.2 15.3 19.6 22.7 65.9
 – zColo  9.7 10.2 11.8 11.7 15.3
Total Revenue 78.4  89.0 105.0  109.6 229.7
Adjusted EBITDA 38.0 45.1 53.9  57.5 122.6
Adj. EBITDA Margin  48.4% 50.6% 51.3% 52.4% 53.4%
Capex 28.6 31.4 42.7 21.4 66.7
Buildings on-net 4,542 5,193 5,431 6,055  10,258

Zayo has now officially joined the list of competitive metro fiber operators with greater than 10,000 on-net buildings (according to the Oct 3 list on their website), joining tw telecom, Level 3, the cable MSOs Cox and Time Warner, and Colt over in Europe.  Comcast probably makes that list too, but I don’t have the data.  Zayo’s 709 on-net buildings added this quarter exceeds even the rate that tw telecom has been putting up lately, although it’s not on a sustained basis yet and we’re talking about completely different types of buildings so it’s not so directly comparable.

Zayo’s revenue this quarter of $229.7 is hard to break down, as it includes not just inorganic contributions from Arialink, AboveNet and FiberGate, but the spinoff of Abovenet’s professional services division to the company’s shareholders since it was decided to be non-core.  Zayo has done this with various pieces of the various companies it has acquired over the past five years in order to keep the focus on bandwidth.  The CC presentation will no doubt have more information on the organic component of growth.  With US Carrier and First Communications plus a little growth, it appears that Zayo will likely top $1B in run-rate annualized revenue next spring.

The overall loss of $51.6M during the quarter included a one time charge of $65M from the debt extinguishment that went along with the financing of the AboveNet deal.  That means that going forward they’re solidly in positive earnings territory.  On the balance sheet, they finished the quarter with $214M in cash and $2.84B in long term debt.  That puts their Debt/EBITDA above five for the moment after the AboveNet deal.

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Categories: Financials · Metro fiber

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13 Comments So Far

  • CarlK says:

    Faster than a speeding thread of FIBER, more powerful than a BURLINGTON locomotive, and able to leap tall METRO BUILDINGS in a single bound, look! up in the sky, it’s a bird, it’s a plane, no, wait, “It’s SUPERDAN!” of ZAYO!

    SuperDan of Zayo is moving very quickly outside of and away from the dubious hands of WRONG STREET where foul play rules the roost. IMO

  • I can picture Dan in tights and a Cape with an Orange Z on his chest! The visual is Fantastic!

  • Anonymous says:

    that’s great…statistic is relevant, but not meaningful, sorry dan.

    Buildings don’t buy services, businesses do. Any idea how much idle capacity is sitting in telephone closets, manholes, etc? Lighting a building for a single customers in a building does not a business case make. So you need a lot of customers in that building to buy service or a really big customer in that building.

    Someone needs to develop a better statistic than on-net buildings!!

    Why should an investor get excited about inventory growth? If we read that a big box store had increased its inventory, we’d say, “so what”. More importantly, what big box store CEO would proudly broadcast that they grew their inventory? I don’t think many.

    So why is it that in telecom we’re trained to get excited and giddy about a growth in “inventory”? Inventory is great when it’s converted into revenue (or some other measure of value). Until it is, it’s a drag on your balance sheet, unless you’re in telecom in which case it’s magically more special even when there’s no service running on it.

    There needs to be an On-Net Building Value Metric (ONBVM). For illustrative purposes I’ll offer up a very very crude model.

    For example, if it cost $1m to light a building and the building generates $2m/yr in revenue (revenue is probably not be the best measure), we can say the building has an ONBVM of 2. If the annual revenue for same building is $500k, the ONBVM is .5. Now, when standing in front of investors a telecom CEO can say we have 500 buildings with a ONBVM of 10 (meaning the building generates annual revenue that is 10x what it cost to bring those buildings on-net), 1000 buildings with a ONBVM of 7.5, 4000 buildings with a ONBVM of 2, 1500 with ONBVM of .5 and 3000 with an ONBVM of .1.

    Is it ideal? Not even close, but it’s far more qualitative than “on-net buildings” which is completely meaningless.

    Can you imagine a big box CEO saying he grew his inventory but didn’t disclose exactly what inventory grew? But the rules don’t apply in telecom. In telecom, mums the word on anything but a raw number (e.g., we had 10k buildings last quarter but we now have 11k at the close of this quarter.) Good luck getting CEOs to disclose what new buildings (inventory) are on-net this quarter that weren’t last quarter.

    • CarlK says:

      Your ONBV metric is the start of something pretty damn good, Anonymous. One of SuperDan’s mentors, let’s just call him Jim Krowetonite for fun, overtime, has suggested using the “square feet of enterprise buildings” being served for a better means of “expecting” revenues………For whatever reasons continue to plague the industry during the midst of this great internet “video” traffic boom, it seems that the whole damn Telecom space including CLEC’s have been struck by Krowetonite.

    • For what it's worth says:

      1) Zayo does disclose the building types. 2) It also discloses the payback period for its success-based investments. Last Q, thee answer was 9 months, or a ONBVM of 1.33.

  • Anonymous says:

    Carlk, “expected (or potential) revenue or value” still falls way short. You need a metric that records captured (or realized) revenue or value.

    An expected value model would be ridiculous because it would permit carriers to assign a potential (arbitrary) value to a building. If you had 5 carriers in the same building first of all you’d have 5 different potential measures. Second, and more dangerously, you’d have, in this case quintuple counting. (Each carrier would count the value of the same potential customers.)

    The metric needs to be simple. Therefore, base the denominator on some agreed upon measure of cost and the numerator on some measure of value (e.g., revenue).

    I blame the analysts and investment bankers. It’s shameful analysts and I-bankers are still following the same meaningless metrics they were following 17 years ago when CLECs like TCG, MFS, Brooks Fiber, ICG, Intermedia, MCI Metro, etc. were fighting it out in this space.

    It’s time that analysts and investment bankers and investors insist on more meaningful data points. On-net buildings are about as meaningful as eyeballs.

    On-net buildings would be relevant if telecom services were provided over a closed network. But telecom networks are interconnected, meaning a service can be provided to a customer from carrier A for building y and carrier b for building z, all through carrier c.
    So it’s not relevant if a carrier has 5000 or 7000 on-net buildings.

    • CarlK says:

      Anonymous, I agree with you, and thank you for not hacking me anymore! 🙂 Your metric would make them accountable for citing these nebulous stats on “buildings.”

      • Parsad says:

        Connect the buildings to an all IP backbone – world class video network and I’ll show you the money. CEO Jim Crowe would put his square foot in CarlK’s mouth and show him where the money is. The eyeballs have the answer and demand — I demand that all content flow through the pipes of Level 3.

        Who was that masked man?

  • CarlK says:

    “CHEERS!” to that “MASKED MAN!” whose mentor may or may not be “The Buffett of the North!” who has been getting kicked around by hedge fund “IDIOTS” himself lately! 🙂

    For the record, I would be glad to be kicked in the teeth by Krowetonite with his own foot in my mouth including the loss of all of my TEETH subsequent to fifteen years of having lost most of my hair and pouring too much of my “hard earned” money into his SINKHOLE. In the end, that won’t be so bad!

    I hear that implants and “dental surgery” have come a long way over the years! Ain’t so bad!!!!!!!! 🙂

  • CarlK says:

    Parsad, or is it LEVEL(3) or maybe Walter Scott? Whomever that “MASKED MAN” is, never mind “DENTAL IMPLANTS” for the human species attaining “SUPERDAN” status “exponentially” as we progress, err, evolve towards “SINGULARITY.”

    Check this out instead! 🙂

  • CarlK says:

    In all truthfulness, LEVEL(3), or Ben Graham, or Parsad, or whomever you are, a good KICK/FOOT in the TEETH/MOUTH, or was it a PUNCH in the TEETH/MOUTH, would provide some long overdue and anticipated JUSTICE against THE world’s ELITE whom the globe’s citizens are more often than not, forced to be served by according to “THEIR RIGGED GAME” of business and politics. IMO

  • Anonymous says:

    Carlk, enough already with the responses to yourself! if no one responds to your post, let it die.

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