Zayo Stabilized in Fiscal Q2, Cools Previous Separation Plans

February 8th, 2019 by · 5 Comments

Zayo posted its fiscal Q2 2019 results yesterday, rebounding a bit from the prior quarter.  In addition, the plans announced last quarter to split the company into Infrastructure and Enterprise halves has evolved into something less dramatic.

$ in millions Fiscal
Q2/18
Fiscal
Q3/18
Fiscal
Q4/18
Fiscal
Q1/19
Fiscal
Q2/19
Total Revenue 653.5 649.4 657.6 641.1 639.1
 - Fiber 200.5 210.3 225.6 220.9 228.7
 - Transport 117.3 117.2 169.9 168.4 169.8
 - Enterprise 93.9 86.1 85.0 82.6 81.6
 - Colo 59.9 59.6 60.3 59.0 57.5
 - Allstream & Other 123.5 117.7 111.0  105.0 101.5
Adjusted EBITDA 329.9 319.6 324.9 319.4 321.2
Adj. EBITDA Margin 50.5% 49.2% 49.4% 49.8% 50.3%
Capex 193.4 195.1 208.8 182.5 202.2
Buildings on-net 32,793 33,954 34,901 35,639

While total revenues still fell slightly due to ongoing declines with the company's remaining Allstream business, the company's core fiber transport segments all returned to sequential growth.  The company's colo and enterprise businesses lagged that recovery a bit, but colo at least saw a large surge in bookings that suggest positive things in that direction.  EBITDA margins rose back above 50% for the first time since the same quarter last year.

Zayo's operational adjustments seem to have now shifted from a full blown separation into two public companies and into a more simplified operating structure.  That structure would combine the fiber, transport, and enterprise business into a broader 'network' segment, and will see zColo operated somewhat more independently and aggressively.  The Allstream segment still seems to be ready to spin off or sell if they can find a buyer.  REIT conversion is still on the table of course, but not until 2021/2022

The end result seems to be a return to stability at least, as Zayo takes further steps to put its operations back onto a growth track.  It won't stop the speculation about a buyout of course -- there was never much chance of that.  The disconnect between the company's public valuation and what private equity is likely to pay will ensure the rumor mill remains in place for some time.  However, it is not yet clear that the potential buyers out there are willing to meet Zayo's price.

For next quarter, Zayo is forecasting implied 4-6% annualized growth out of its Network division, and flat to low growth at zColo.

 

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Categories: Fiber Networks · Financials · Metro fiber

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5 Comments So Far


  • Say what... says:

    Does anyone still believe that Dan can effectively run this business. Zayo hasn’t had a stable org structure in years and it shows. Restructuring and reorganizing every 3-6 months is a huge impact on the customers, service delivery, operations, and sales teams. How can you be moving forward when you reset every quarter. There is no cohesive vision at the top.

  • Anonymous says:

    No doubt they’ll thank their staff for helping right the ship with some bonus funding and raises.

    lulzers just kidding. Hope no one spewed coffee out their nose onto the keyboard reading that.

  • So it goes says:

    What a wonder that Zayo’s dedication to customer experience hasn’t resulted in organic growth: https://www.telecomramblings.com/2018/12/industry-spotlight-zayos-sandi-mays-customer-experience/

  • Disgruntled Shareholder says:

    To this point they announced Phil Mottram’s departure today (was it even a year?), and (surprise surprise) Waters is now president/COO of this new Zayo Network org. Jack is so despised both internally and externally with customers this is a tough blow for employees. All hope has been lost internally. What a joke this management team is, and more this board. They are puppets of Dan, and clearly not acting on the behalf of shareholder interests. Only hope now is PE buyout with total house cleaning of Dan’s cronies.

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