euNetworks Balances Churn, Higher Margins, Expansion Projects

February 24th, 2014 by · Leave a Comment

Over in Europe, the independent network operator euNetworks has reported its Q4 earnings, which is our quarterly window into the European metro markets.  Last quarter’s trends continued unabated through the end of 2013, with revenue pressure balanced by higher margins while cash was invested in expansion projects.

 in millions of €  Q4/12 Q1/13 Q2/13 Q3/13 Q4/13
Revenue 24.5 24.8 24.5 24.1 24.0
Gross margin 71.2% 72.4% 72.0% 72.9% 74.4%
Adj EBITDA 5.1 5.7 6.0 6.3 7.4
Adj EBITDA margin 20.8% 23.0% 24.5% 26.1% 30.8%
Capital Expenditures 5.0 3.6 4.9 8.7 10.7
Proxy Cash Flow (0.0) 2.1 1.1 (2.4) (3.3)
Churn 1.7% 1.2% 2.8% 2.2% 2.3%
On-net buildings 912 945 985 1,011 1,046

More churn from the legacy SONET/PDH stuff, a few large colo customers, and euTrade market shifts clearly kept the pressure on the top line, which has been the case all year.  The question for 2014 will be when that trend gets turned around.

Adjusted EBITDA for the quarter did include a one time  €0.9M “reduction in provisions for the costs of returning properties to their original condition at the end of their lease terms.”  But even without that non-cash help, EBITDA rose sequentially against the revenue trend, and margins continued to rise steadily.

In terms of network, during the quarter euNetworks invested in an expanded London metro fiber footprint while adding another 35 buildings on-net.  The pace of spending for future growth topped Q3 levels, which were themselves higher than recent quarters, which cut into the proxy cash flow numbers.

The company also bought back €4.6m worth of its own shares under the buyback program they introduced in October.  I’m still looking for more M&A to happen over in Europe, and euNetworks could easily be on either side of that table.

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Categories: Financials · Metro fiber

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