|By Business Wire||
|February 6, 2014 06:01 AM EST||
Zayo Group, LLC (“Zayo Group” or “the Company”), a leading provider of bandwidth infrastructure and network-neutral colocation and connectivity services, announced results for the three months ended December 31, 2013.
Second fiscal quarter revenue of $273.6 million grew 14% over the previous quarter on an annualized basis, largely a function of organic growth associated with positive net installations, and to a smaller extent, acquisition-related growth. Adjusted EBITDA of $161.5 million increased 16% over the previous quarter on an annualized basis.
During the three months ended December 31, 2013, capital expenditures were $88.3 million, which included adding 408 route miles and 519 buildings to the network. The Company had $201.7 million of cash and $243.6 million available under its revolving credit agreement as of December 31, 2013.
- Zayo Group generated quarterly revenue of $273.6 million; a $9.3 million sequential quarter increase representing 14% annualized sequential growth
- Gross profit for the quarter increased $9.1 million from the previous quarter reaching $238.6 million for a gross profit percentage of 87%
- Adjusted EBITDA for the second fiscal quarter was $161.5 million, which was $6.1 million higher than the prior quarter, representing 16% annualized sequential growth
- Quarterly revenue and Adjusted EBITDA increased by $28.3 million and $22.4 million, respectively over the second quarter of fiscal year 2013
- Net loss increased by $2.1 million from the second quarter of fiscal year 2013
As previously disclosed on a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (“SEC”) on July 2, 2012, the Company entered into a revolving credit facility and a term loan facility pursuant to a credit agreement, dated July 2, 2012 (as previously amended prior to the Fifth Amendment (as defined below), the “Original Credit Agreement”). On November 26, 2013, the Company and Zayo Capital Inc. entered into a Fifth Amendment to the Original Credit Agreement (the “Fifth Amendment”). Per the terms of the Fifth Amendment, the Company’s $1.6 billion term loan was increased by $150 million to $1.75 billion and the interest rate was adjusted to LIBOR plus 3.0 percent (the “Term Loan LIBOR Spread”) with a minimum LIBOR rate of 1.0 percent. The amended terms represent a downward adjustment of 50 basis points on the Term Loan LIBOR Spread from the Fourth Amendment to the Original Credit Agreement. The Company’s revolving credit facility will bear interest at LIBOR plus 2.75 percent (based on the Company’s current leverage ratio) (the “Revolving Loan LIBOR Spread”), which represents a downward adjustment of 25 basis points on the Revolving Loan LIBOR Spread from the Fourth Amendment to the Original Credit Agreement. In connection with the Fifth Amendment, the Company did not incur a re-pricing premium.
|Second Fiscal Quarter Financial Results|
Three Months Ended December 31, 2013 and September 30, 2013
|($ in millions)||Three months ended|
|December 31,||September 30,|
|Annualized revenue growth||14||%|
|Gross profit %||87||%||87||%|
|Loss from continuing operations before provision for income taxes||(28.6||)||(19.4||)|
|Provision for income taxes||7.7||8.5|
|Purchases of property and equipment, net||88.3||86.7|
|Unlevered free cash flow||$||73.2||$||68.7|
|Annualized Adjusted EBITDA growth||16||%|
|Adjusted EBITDA margin||59||%||59||%|
The sequential quarterly revenue increase of $9.3 million was the result of organic growth and to a smaller extent, acquisition-related growth. Acquisition-related growth represented approximately $3.6 million of the sequential quarterly revenue increase.
The Company’s gross profit percentage and Adjusted EBITDA margin remained consistent as compared to the prior quarter.
Net loss increased by $8.4 million in the quarter ended December 31, 2013 as compared to the previous quarter’s net loss of $27.9 million. The increase in net loss was primarily related to a $14.0 million increase in stock-based compensation expense for common unit grants that vested during the period and the re-measurement at fair value of the liability for vested common units.
Three Months Ended December 31, 2013 and December 31, 2012
|($ in millions)||Three months ended|
|December 31,||December 31,|
|Gross profit %||87||%||86||%|
|Loss from continuing operations before provision for income taxes||(28.6||)||(37.6||)|
|Provision/(benefit) for income taxes||7.7||(3.4||)|
|Purchases of property and equipment, net||88.3||58.9|
|Unlevered free cash flow||$||73.2||$||80.3|
|Adjusted EBITDA growth||16||%|
|Adjusted EBITDA margin||59||%||57||%|
Revenue increased $28.3 million over the second quarter of fiscal year 2013 principally as a result of organic growth related to sales efforts and expansion of the network, and acquisition-related activities during fiscal years 2013 and 2014.
Gross profit increased $28.2 million over the second quarter of fiscal year 2013, primarily as a result of organic revenue growth. The gross profit percentage for the quarter ended December 31, 2013 increased 1% compared to the same quarter in the prior year, primarily as a result of synergies realized related to our previous acquisitions and gross profit on newly installed revenue continuing to exceed the gross profit on revenue churned. This gross profit profile is reflective of the Company’s strategy to deploy capital in network expansion and sell largely “on-net” services.
Net loss increased by $2.1 million for the second quarter of fiscal year 2014 as compared to the second quarter of fiscal year 2013. Revenue increased by $28.3 million for the second quarter of fiscal year 2014 as compared to the same period in fiscal year 2013 due to the Company’s fiscal year 2013 and 2014 acquisitions and organic growth. Further, other expense was $4.1 million lower in the second quarter of fiscal year 2014 than in the second quarter of fiscal year 2013 due to a decrease in loss on extinguishment of debt related to the Company’s debt refinancing activities. These were offset by income tax expense recorded in the second fiscal quarter of 2014 for $7.7 million as compared to an income tax benefit of $3.4 million recorded for the second quarter of fiscal year 2013. There was also a $23.2 million increase in stock-based compensation expense for common unit grants that vested during the period and the re-measurement at fair value of the liability for vested common units.
Adjusted EBITDA increased $22.4 million as compared to the second quarter of fiscal year 2013, due to the Adjusted EBITDA contribution from the fiscal year 2013 and 2014 acquisitions, synergies realized and organic revenue growth.
Zayo Group will hold a conference call to report fiscal year second quarter 2014 results at 11:00 a.m. EST, February 6, 2014. The dial in number for the call is (800) 743-4304. A live webcast of the call can be found in the investor relations section of Zayo’s website or can be accessed directly at https://cc.readytalk.com/r/oprfdq9fw1mc&eom. During the call, the Company will review an earnings supplement presentation that summarizes the financial results of the quarter, which can be found at http://www.zayo.com/investors/earnings-releases.
About Zayo Group
Based in Boulder, Colorado, privately owned Zayo Group (www.zayo.com) is a provider of fiber-based bandwidth infrastructure and network-neutral colocation and connectivity services. Zayo Group is organized into autonomous operating segments supporting customers who require lit and dark fiber services and carrier-neutral colocation. Zayo Group’s business units provide these services over international, national, regional, metro and fiber-to-the-tower networks.
Forward Looking Statements
Information contained or incorporated by reference in this earnings release, in other SEC filings by the Company, in press releases and in presentations by the Company or its management that are not historical by nature constitute “forward-looking statements” which can be identified by the use of forward-looking terminology such as “believes,” “expects,” “plans,” “intends,” “estimates,” “projects,” “could,” “may,” “will,” “should,” or “anticipates” or the negatives thereof, other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that future results expressed or implied by the forward-looking statements will be achieved and actual results may differ materially from those contemplated by the forward-looking statements. Such statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, those relating to the Company’s financial and operating prospects, current economic trends, future opportunities, ability to retain existing customers and attract new ones, outlook of customers, and strength of competition and pricing. In addition, there is risk and uncertainty in the Company’s acquisition strategy including its ability to integrate acquired companies and assets. Specifically there is a risk associated with the Company’s recent acquisition of Core NAP and the benefits thereof, including financial and operating results and synergy benefits that may be realized from these acquisitions and the timeframe for realizing these benefits. Other factors and risks that may affect the Company’s business and future financial results are detailed in the Company’s SEC filings, including, but not limited to, those described under “Risk Factors” within the Company’s Annual Report on Form 10-K. The Company cautions you not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. The Company undertakes no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events except as required by law.
This earnings release should be read together with the Company’s unaudited consolidated financial statements and notes thereto for the quarter ended December 31, 2013 included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 6, 2014.
Non-GAAP Financial Measures
The Company provides financial measures that are not defined under generally accepted accounting principles in the United States, or GAAP, including earnings before interest, taxes, depreciation and amortization (“EBITDA”), and Adjusted EBITDA. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered in isolation or as alternatives to net earnings or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities as measures of liquidity.
“Adjusted EBITDA” is defined as EBITDA from continuing operations adjusted to exclude transaction costs, stock-based compensation, and certain non-cash and non-recurring items. Management uses EBITDA and Adjusted EBITDA to evaluate operating performance, and these financial measures are among the primary measures used by management for planning and forecasting future periods. The Company further believes that the presentation of EBITDA and Adjusted EBITDA is relevant and useful for investors because it allows investors to view results in a manner similar to the method used by management and makes it easier to compare our results with the results of other companies that have different financing and capital structures.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation from, or as substitutes for, analysis of our results as reported under GAAP. For example, Adjusted EBITDA:
- does not reflect capital expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments;
- does not reflect changes in, or cash requirements for, our working capital needs;
- does not reflect the significant interest expense, or the cash requirements necessary to service the interest payments, on our debt; and
- does not reflect cash required to pay income taxes.
The Company’s computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.
Because the Company has acquired numerous entities since inception and incurred transaction costs in connection with each acquisition, has borrowed money in order to finance operations, has used capital and intangible assets in the business, and because the payment of income taxes is necessary if taxable income is generated, any measure that excludes these items has material limitations. As a result of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to invest in the growth of the business or as measures of liquidity.
In addition to Adjusted EBITDA, management uses Unlevered Free Cash Flow, which measures the ability of Adjusted EBITDA to cover capital expenditures. Adjusted EBITDA is a performance, rather than cash flow measure. Correlating our capital expenditures to our Adjusted EBITDA does not imply that we will be able to fund such capital expenditures solely with cash from operations. Gross profit, defined as revenue less operating costs, excluding depreciation and amortization, is used by management to assess profitability prior to selling, general and administrative expenses, stock-based compensation and depreciation and amortization.
Consolidated Financial Information - Unaudited
Consolidated Statements of Operations
|Three months ended||Six months ended|
|($ in thousands)||December 31,||December 31,|
|Operating costs and expenses|
|Operating costs, excluding depreciation and amortization||35,027||34,888||69,909||67,605|
|Selling, general and administrative expenses, excluding stock-based compensation||77,539||73,027||152,271||158,819|
|Selling, general and administrative expenses||134,224||106,472||251,639||202,745|
|Depreciation and amortization||81,257||83,467||161,831||163,016|
|Total operating costs and expenses||250,508||224,827||483,379||433,366|
|Loss on extinguishment of debt||(1,911||)||(5,707||)||(1,911||)||(70,682||)|
|Other income, net||480||224||1,140||809|
|Total other expense||(51,708||)||(58,118||)||(102,545||)||(185,063||)|
|Loss from continuing operations before provision for income taxes||(28,617||)||(37,680||)||(47,979||)||(141,662||)|
|Provision/(benefit) for income taxes||7,698||(3,438||)||16,232||(40,026||)|
|Loss from continuing operations||(36,315||)||(34,242||)||(64,211||)||(101,636||)|
|Earnings from discontinued operations, net of income taxes||-||-||-||1,808|
Consolidated Balance Sheets
|($ in thousands)|
|December 31,||June 30,|
|Cash and cash equivalents||$||201,714||$||88,148|
|Trade receivables, net||55,132||67,811|
|Due from related parties||968||622|
|Deferred income taxes||30,600||30,600|
|Total current assets||310,057||209,220|
|Property and equipment, net||2,508,215||2,411,220|
|Intangible assets, net||633,475||636,258|
|Debt issuance costs, net||93,308||99,098|
|Deferred tax assets, net||55,893||60,036|
|Liabilities and member's equity|
|Current portion of long-term debt||$||17,700||$||16,200|
|Capital lease obligations, current||2,697||6,600|
|Deferred revenue, current||56,344||35,977|
|Total current liabilities||254,937||263,234|
|Long-term debt, non-current||2,956,553||2,814,505|
|Capital lease obligations, non-current||16,895||6,567|
|Deferred revenue, non-current||385,062||326,180|
|Stock-based compensation liability||248,910||158,520|
|Deferred tax liabilities, net||8,863||5,560|
Other long term liabilities
|Accumulated other comprehensive income/(loss)||8,358||(4,755||)|
|Total member's equity||485,262||533,433|
|Total liabilities and member's equity||$||4,376,466||$||4,127,891|
Consolidated Statements of Cash Flows
|($ in thousands)|
|Six months ended|
|Cash flows from operating activities:|
|Earnings from discontinued operations||-||1,808|
|Loss from continuing operations||(64,211||)||(101,636||)|
|Adjustments to reconcile net earnings to net cash provided by operating activities|
|Depreciation and amortization||161,831||163,016|
|Loss on extinguishment of debt||1,911||70,682|
|Non-cash interest expense||10,468||13,973|
|Amortization of deferred revenue||(25,339||)||(19,518||)|
|Additions to deferred revenue||47,370||23,336|
|Provision for bad debts||826||1,385|
|Deferred income taxes||15,036||(40,803||)|
|Changes in operating assets and liabilities, net of acquisitions|
|Accounts payable and accrued liabilities||(16,632||)||50,260|
|Payables to related parties, net||(361||)||(3,660||)|
|Net cash provided by continuing operating activities||236,828||185,407|
|Cash flows from investing activities:|
|Purchases of property and equipment||(174,949||)||(132,459||)|
|Broadband stimulus grants received||-||6,894|
|Acquisition of Access Communications Inc., net of cash acquired||(43,000||)||-|
|Acquisition of Fiberlink, LLC, net of cash acquired||(40,068||)||-|
|Colocation Asset Purchase, net of cash acquired||(294||)||-|
|Core NAP purchase consideration paid||(50||)|
|Acquisition of Abovenet, Inc., net of cash acquired||-||(2,212,492||)|
|Acquisition of FiberGate, net of cash acquired||-||(118,335||)|
|Acquisition of USCarrier Telecom, LLC, net of cash acquired||-||(15,949||)|
|Acquisition of First Telecom Services, LLC, net of cash acquired||-||(110,420||)|
|Acquisition of Litecast/Balticore, LLC, net of cash acquired||-||(22,177||)|
|Arialink purchase consideration returned||-||797|
|Mercury Marquis Holdings, LLC purchase consideration returned||-||1,875|
|Proceeds from principal payments received on related party loans||-||3,000|
Net cash used in investing activities
|Cash flows from financing activities:|
|Distribution to Parent||(1,203||)||-|
|Principal repayments on capital lease obligations||(5,915||)||(581||)|
|Principal payments on long-term debt||(8,475||)||(886,846||)|
|Payments on revolving credit facility||(45,000||)||-|
|Payment of early redemption fees on debt extinguished||-||(55,997||)|
|Proceeds from issuance of long-term debt||150,000||3,024,417|
|Proceeds from revolving credit facility||45,000||-|
|Payment of debt issuance costs||(1,695||)||(83,404||)|
|Change in restricted cash, net||-||22,412|
|Cash contributed to ZPS||-||(7,218||)|
|Net cash provided by financing activities||134,893||2,354,266|
|Cash flows from discontinued operations:|
|Net cash provided by discontinued operations||-||6,338|
|Effect of changes in foreign exchange rates on cash||206||175|
|Net increase in cash and cash equivalents||113,566||(53,080||)|
|Cash and cash equivalents, beginning of period||88,148||150,693|
|Cash and cash equivalents, end of period||$||201,714||$||97,613|
Reconciliation of Non-GAAP Financial Measures
|($ in millions)||
Three months ended
Six months ended
|December 31,||September 30,||December 31,||December 31,||December 31,|
|Earnings from discontinued operations||-||-||-||-||(1.8||)|
|Benefit/(provision) for income taxes||7.7||8.5||(3.4||)||16.2||(40.0||)|
|Depreciation and amortization||81.3||80.6||83.5||161.9||163.0|
|Loss on extinguishment of debt||1.9||-||5.7||1.9||70.7|
|Foreign currency gain on intercompany loan||(0.2||)||(0.6||)||(0.1||)||(0.8||)||(0.7||)|
|Purchases of property and equipment, net||88.3||86.7||58.9||175.0||125.6|
|Unlevered Free Cash Flow, as defined||$||73.2||$||68.7||$||80.3||$||141.8||$||137.9|
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