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Zayo (ZAYO) Beats on Q4 Earnings & Revenues, Updates Merger

Zacks Equity Research

Zayo Group Holdings, Inc. ZAYO reported better-than-expected fourth-quarter fiscal 2019 results, wherein both the bottom and the top line surpassed the Zacks Consensus Estimate.

Net Income

Net income for the June quarter was $63 million or 26 cents per share, beating the Zacks Consensus Estimate by 11 cents. Despite a year-over-year decline in revenues, the bottom line increased by $20.1 million mainly driven by higher income tax benefit. For fiscal 2019, net income was $150 million or 62 cents per share compared with $102.9 million or 41 cents per share in fiscal 2018.

Zayo Group Holdings, Inc. Price, Consensus and EPS Surprise

 

Zayo Group Holdings, Inc. Price, Consensus and EPS Surprise

Zayo Group Holdings, Inc. price-consensus-eps-surprise-chart | Zayo Group Holdings, Inc. Quote

Revenues

Quarterly revenues slipped to $650.6 million from $657.3 million a year ago. The top line, however, surpassed the consensus estimate of $647 million. While revenues from the Zayo Networks segment totaled $485.4 million, the same from the Allstream segment were $88 million. Revenues from the zColo segment equaled $66.1 million. For fiscal 2019, revenues were $2,578 million compared with $2,602.5 million in fiscal 2018.  

Other Quarterly Details

Operating income improved to $121.2 million from $119 million reported in the prior-year quarter primarily due to lower operating expenses. Adjusted EBITDA was $321.2 million compared with $323.6 million in the year-ago quarter. Capital expenditures came in at $195.8 million.

Consolidated net installs, on a monthly recurring revenue (MRR) and monthly amortized revenue (MAR) basis, were $1.1 million, excluding the Allstream segment. This includes $1.6 million of net installs from the Zayo Networks segment and a negative $0.4 million from the zColo segment.

Merger Update

Zayo had previously announced that it has inked a merger agreement under which it is to be acquired by affiliates of Digital Colony Partners and the EQT Infrastructure IV fund. Upon deal closure, Zayo will operate as a privately-held company. The Zayo team would continue to execute its strategy and remain headquartered in Boulder, CO.

On Jul 26, 2019, the company held a special meeting of stockholders where they approved the deal. On Jul 31, 2019, Zayo announced the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. The closing of the merger remains subject to customary conditions, including certain regulatory approvals. The transaction is expected to close in the first half of calendar year 2020.

Cash Flow & Liquidity

During fiscal 2019, Zayo generated $951.1 million of net cash from operating activities compared with $971.2 million in fiscal 2018. For fiscal 2019, adjusted unlevered free cash flow was $537.2 million compared with $574.9 million in fiscal 2018.

As of Jun 30, 2019, the fiber optic bandwidth infrastructure company had $186.1 million in cash and equivalents with $5,839.7 million of long-term debt compared with the respective tallies of $256.7 million and $5,690.1 million a year ago.

Zacks Rank & Stocks to Consider

Zayo currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Anterix Inc. ATEX, Superconductor Technologies Inc. SCON and Nokia Corp. NOK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anterix surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 7%.

Superconductor Technologies surpassed earnings estimates twice in the trailing four quarters, the average positive surprise being 12.7%.

Nokia surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 89.3%.

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