Towers, Integration Dominate euNetworks’ Q4

Independent European metro fiber operator euNetworks (news) had a very busy fourth quarter, as detailed in their earnings release this morning.  After two acquisitions in 2012 (Lambdanet and TeraGate) that doubled the company’s size, they have been actively working through the integration yet still managed to greatly accelerate the buildout of their footprint.  Here’s a quick table of the company’s fourth quarter in some context:

in millions of €	Q4/10	Q1/11	Q2/11	Q3/11	Q4/11
– recurring	10.5	10.5	14.6	21.2	22.3
– non-recurring	3.2	0	0	2.9	1.5
Revenue	13.7	10.5	14.6	24.1	23.8
Adj EBITDA	1.8	0.4	1.1	4.3	0.1
Adj EBITDA margin	13%	4%	7.5%	17.8%	0.4%
Capital Expenditures	5.2	2.8	6.3	8.9	13.8
Churn		0.7%	0.8%	1.5%	0.9%
On-net buildings	365	394	489	530	633

Revenue:  Recurring revenue grew 5% sequentially while network revenues grew 8% sequentially.  That was a very nice organic increase despite the fact that the top line fell due to substantial termination revenues in Q3.  They did still have some non-recurring revenue in Q4 related to the sale of non-core network assets.  Churn dropped back below 1% again.

EBITDA & Integration:  Sequentially, EBITDA fell sharply but unsurprisingly to €0.1M.  They spent €2.6M on integration efforts, mostly in non-recurring activity on the opex side of things, while the third quarter also got a big boost from those termination revenues.  Not including integration costs, euNetworks’ EBITDA would have been €2.7M or about 11% of revenue.  As they gain scale and progress further on the integration, that should stabilize from here and start rising steadily.

Capex & Expansion: The company spent a whopping €13.8M on capex during the quarter, the most they have ever spent by quite some margin.  Much of that went into hooking up those 103 on-net buildings, the majority of which were wireless towers and masts and such.  They won a big Vodafone contract for tower backhaul last year, if you recall.  There are more coming this year, and hence it seems likely they will be pushing a thousand on-net buildings by year’s end.

Thoughts:  Like Zayo in the US, euNetworks seems to have found the tower backhaul business to be rather attractive, and while the metro fiber business in Europe lags that of the US in maturity, the wireless business does not.  The acquisitions have given them scale, and as the effects of the integration play out they will be looking like a very different company this year.  I think that they will be looking at further acquisitions in 2012 if opportunities arise and funding is available, as multiples in Europe are lower and the consolidation process seems to have much more room to run.

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Categories: Financials · Metro fiber