Zayo Finishes Fiscal 2018 in Steady Form, Still Seeking Higher Growth

Zayo reported its fiscal Q4 2018 results yesterday after the bell.  The company posted revenues of $657.6M, adjusted EBITDA of $324.9M, and earnings per share of $0.18.  The markets may have wanted a bit more in the revenue department, but they don’t seem to have been surprised that they didn’t get it.  Here are a few of Zayo’s numbers in some context:

$ in millions	Fiscal Q4/17	Fiscal Q1/18	Fiscal Q2/18	Fiscal Q3/18	Fiscal Q4/18
Total Revenue	638.0	643.5	653.5	649.4	657.6
– Fiber	190.9	195.5	200.5	210.3	225.6
– Transport	117.4	119.1	117.3	117.2	169.9
– Enterprise	136.6	137.7	145.9	138.8	85.0
– Colo	56.7	58.4	59.9	59.6	60.3
– Allstream	128.9	127.7	123.5	117.7	111.0
Adjusted EBITDA	310.8	316.6	329.9	319.6	324.9
Adj. EBITDA Margin	48.7%	49.2%	50.5%	49.2%	49.4%
Capex	205.3	193.4	193.4	195.1	208.8
Buildings on-net	30,555	~31,600	32,793	33,954	34,901

Zayo returned to sequential revenue growth during the quarter, with Fiber leading the way.  The company reclassified Ethernet Transport from within Enterprise Networking over to Transport, while colo managed to eek out a sliver of growth.  Margins and capex were both where we have come to expect them, as were the company’s on-net building additions.  Gross installs were lighter than anticipated, still shy of the $8.5M threshold the company has been trying to reach to power higher growth rates going forward.

Three more corporate items are worth noting:

• Allstream slid further along the same trajectory as last quarter, but Zayo says it is making progress toward separating the Allstream business to sell or spin off.  They divested Scott-Rice during the quarter as part of that effort.
• The stock buyback that began in May led to the repurchase of $93.5M in Zayo common stock by the end of June, representing 2.7M shares.  That’s a pretty fast clip.
• The possible conversion to a REIT is still underway, and Zayo is seeking one of those private letter rulings from the IRS before formally deciding to make their move.

Zayo has been open about its desire for greater growth of the organic variety, as it seems as if fewer large inorganic targets remain in play in today’s marketplace.  But as with all small dynamic companies that achieve scale, finding that organic growth magic tends to be harder than it looks from the outside.

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Categories: Fiber Networks · Financials