Zayo Group (NYSE: ZAYO) announced fiscal fourth-quarter 2017 results on Monday after the market closed, highlighting favorable bookings trends and largely reiterating forward guidance.
Let's take a closer look at what Zayo Group accomplished over the past few months, as well as what investors can expect from the communications infrastructure services specialist looking ahead.
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Zayo Group results: The raw numbers
What happened with Zayo Group this quarter?
- Adjusting for losses on extinguishment of debt, Zayo's earnings were $0.13 per share.
- Zayo doesn't typically provide quarterly financial guidance. But for perspective, analysts were estimating higher adjusted earnings of $0.15 per share on revenue of $639 million.
- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 20.6% to $310.8 million.
- This was the first quarter to include three fulls months of ELI Communications Infrastructure results.
- The communications infrastructure segment generated revenue of $509.1 million, net income of $11.3 million, and adjusted EBITDA of $280.8 million.
- The Allstream segment generated revenue of $128.9 million, net income of $11.9 million, and adjusted EBITDA of $30 million.
- The company generated bookings of $7.5 million (up from $6.9 million last quarter), gross installs of $7.3 million, churn of 1.2%, and net installs of $1.4 million.
- The company generated adjusted unlevered free cash flow of $117.2 million.
- The company acquired two Diego data centers from Castle Access for $11.9 million in cash on hand, totaling over 100,000 square feet and 2 megawatts of critical, IT power (with additional power available).
- The company closed private offerings with aggregate principal of $550 million in April and $300 million in July of 5.75% senior unsecured notes due 2027, with the net proceeds used to repay outstanding balances on Zayo's term loan facility maturing in early 2024.
- The company in July entered into a repricing amendment to its $1.1 billion term loan after the July repayment, reducing its interest rate by 50 basis points.
What management had to say
During the conference call, Zayo Group CEO Dan Caruso pointed out that not only was this the company's highest ever quarter in terms of bookings, but also that "the quality of the bookings was very high" -- namely in that while bookings were 15% higher than the the average of Zayo's previous four quarters, net capital (or capital expended minus upfront payments from customers) has declined 32%. This resulted in a materially faster payback period of 13 months, down from an average of 21 months over the previous four quarters.
To be fair, this is also partly a product of the fact that while many projects are relatively "large," it was the second straight quarter that none exceeded $20 million in capital expenditures, particularly given an absence of big mobile infrastructure deals. These smaller projects don't require as much capital, as they can increasingly leverage network resources that are already in place.
Zayo mostly reiterated the guidance it provided last quarter, calling for adjusted EBITDA for the December 2017 quarter to be roughly $1.33 billion and organic revenue growth in the mid-single-digit percent range excluding Allstream. But it also now believes that within that figure, enterprise networks organic growth will be roughly flat (compared to an expectation for low- to mid-single-digit growth before), offset primarily by a combination of 10% organic growth from Fiber Solutions and high-single-digit growth in the Colo segment. Finally, Zayo revised its expectation for adjusted unlevered free cash flow margin to be in the range of 20% to 25% (compared to 25% previously).
All things considered, this wasn't a bad quarter for Zayo Group. If anything, investors should be happy that Zayo's underlying bookings trends are encouraging and the company continues to shore up its balance sheet. But this performance wasn't exactly jaw-dropping and did little to quell concerns over an ongoing slowdown in winning major new business without the help of acquisitions.
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