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Zayo (ZAYO) Misses Q3 Earnings Estimates, Beats Revenues

Zacks Equity Research

Zayo Group Holdings, Inc. ZAYO reported mixed third-quarter fiscal 2019 results, wherein the bottom line increased year over year but missed the Zacks Consensus Estimate.

Net Income

Net income for the quarter was $34.7 million or 15 cents per share compared with $23.5 million or 9 cents per share in the year-ago quarter. The year-over-year increase in earnings, despite lower revenues, was attributable to lower operating expenses. The bottom line, however, missed the consensus estimate by 3 cents.

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

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

Revenues

Revenues decreased to $647.2 million from $649 million, however surpassed the Zacks Consensus Estimate of $640 million. While revenues from the Communications Infrastructure segments totaled $555.2 million, the same from the Allstream segment were $92 million.

Other Details

Total operating expenses decreased to $515.6 million year over year from $543.5 million, primarily due to lower depreciation and amortization charges. Operating income improved to $131.6 million from $105.5 million in the prior-year quarter owing to lower operating expenses. Adjusted EBITDA was $321.3 million compared with $319.4 million in the year-ago quarter.

Merger Deal

Concurrent with the quarterly results, Zayo announced that it has inked a merger agreement to be acquired by affiliates of Digital Colony Partners and the EQT Infrastructure IV fund. Upon close, Zayo will operate as a privately-held company. The Zayo team would continue to execute the company’s strategy and remain headquartered in Boulder, CO. The closing of the deal is subject to customary conditions, including regulatory clearance and Zayo’s shareholder approvals.

Per the deal, which was unanimously approved by Zayo’s board, shareholders will receive $35.00 in cash per share of the company’s stock, in a transaction valued at $14.3 billion, including the assumption of $5.9 billion of Zayo’s net debt obligations. Notably, the offer price represents a 32% premium to the volume-weighted price average of the last six months of $26.44. The transaction is expected to close in the first half of calendar year 2020.

Cash Flow & Liquidity

Net cash provided by operating activities for the first nine months of fiscal 2019 was $726 million compared with $719.5 million in the year-ago period. As of Mar 31, 2019, Zayo’s cash and cash equivalents were $179.7 million, with long-term debt of $5,864.1 million. As of the same date, the company had $271.5 million available under its revolving credit facility.

Zacks Rank & Stocks to Consider

Zayo currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are T-Mobile US, Inc. TMUS, Harris Corp. HRS and Juniper Networks, Inc. JNPR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

T-Mobile has long-term earnings growth expectation of 15.1%.

Harris has long-term earnings growth expectation of 8%.

Juniper has long-term earnings growth expectation of 6.2%.

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