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
|- Allstream & Other||123.5||117.7||111.0||105.0||101.5|
|Adj. EBITDA Margin||50.5%||49.2%||49.4%||49.8%||50.3%|
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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