Infrastructure Growth Drives Zayo’s Fiscal Q3

On Friday, Zayo posted its fiscal Q4 earnings report, which for once was mostly about the organic side of things.  The company saw steady growth as usual, with rather stronger numbers on the infrastructure side than on lit services.  Here are a few of the company’s numbers in some context (now with intracompany revenues excluded):

$ in millions	Fiscal Q3/13	Fiscal Q4/13	Fiscal Q1/14	Fiscal Q2/14	Fiscal Q3/14
– Wavelength	55.9	56.9	58.5	59.5	59.5
– Sonet	32.5	31.9	31.6	30.2	29.4
– Ethernet	33.8	35.3	36.1	37.6	37.8
– IP	23.0	23.1	23.8	24.7	25.6
– Mobile Infrastructure	17.5	19.0	18.9	19.8	20.4
– zColo	13.8	14.5	16.5	18.3	19.7
– Dark Fiber	74.9	77.1	78.9	83.6	85.5
Total Revenue	251.4	258.2	264.3	273.6	278.0
Adjusted EBITDA	146.1	141.7	155.4	161.5	165.0
Adj. EBITDA Margin	58.1%	54.9%	58.7%	59.0%	59.4%
Capex	95.7	101.9	86.7	88.3	90.9
Buildings on-net	11,740	12,222	13,242	14,196	14,490

Dark fiber, zColo, and mobile infrastructure revenue each clearly had a strong quarter.  On the lit side though it was the IP group leading the way, outpacing Ethernet and Waves as SONET continued its expected retreat.  Zayo’s IP business, a lot of which came with AboveNet, has been pretty healthy of late.

We also got further information on two acquisitions.  March’s CoreXchange deal brings in $8.0M and $2.2M of revenue and EBITDA, respectively, for a purchase price of $17.8M in cash.  I suspect Zayo’s colo/interconnection appetite may outpace its interest in US fiber for the near future now that they have filled in most of the holes in their fiber map.

In Europe though, Zayo’s entry into France with the purchase of Neo Telecoms surely won’t be their last.  The deal will cost them €58M in cash and bring in €31.5M and €7.4M in annualized revenue and EBITDA.    The €7.4M in annual EBITDA for Neo was higher than I had thought, and puts an EV/EBITDA multiple on the deal of 7.8.  Such a multiple makes more sense to me, as it is somewhat between where European infrastructure assets are trading at and the lofty valuations they have been selling for in the US.

Ok, so of the AboveNet European expansion cities, they’ve crossed off Paris.  Metro fiber in Amsterdam or Frankfurt would seem the next logical target if they can find something available.

 

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Categories: Financials · Mergers and Acquisitions · Metro fiber