Thursday, April 30, 2009

Cbeyond Reports First Quarter 2009 Results

ATLANTA, Apr 30, 2009 (BUSINESS WIRE) -- Cbeyond, Inc. (NASDAQ: CBEY), ("Cbeyond"), a managed services provider that delivers integrated packages of voice, broadband, and mobile services to small businesses, today announced its results for the first quarter ended March 31, 2009.

Recent financial and operating highlights include the following:

• Strong first quarter revenue growth with revenues of $98.3 million, up 22.1% over the first quarter of 2008;
• Total adjusted EBITDA of $15.0 million during the first quarter of 2009, an increase of 3.4% from the first quarter of 2008 (see page 9 for reconciliation to net income);
• Net income of $0.1 million in the first quarter of 2009 compared with $1.0 million in the first quarter of 2008;
• Total customers in Cbeyond's twelve operating markets of 44,342, reflecting net customer additions of 1,879 in the first quarter of 2009;
• Average monthly revenue per customer location (ARPU) of $755 during the first quarter of 2009, compared to $754 in the fourth quarter of 2008 and $748 in the first quarter of 2008; and
• Monthly customer churn of 1.5% in the first quarter of 2009 as compared to 1.4% in the fourth quarter of 2008.

Financial Overview and Key Operating Metrics

Financial and operating metrics, which include non-GAAP financial measures, for the three months ended March 31, 2008 and 2009, include the following:

Management Comments

"Cbeyond's consistent growth in sales and customer installs in the quarter was a continuing source of encouragement to us, especially in light of the difficult economic backdrop," said Jim Geiger, chief executive officer of Cbeyond. "Gross customer additions were 6% higher than our previous highest quarter, confirming the differentiation and value that customers perceive in Cbeyond's service package versus more limited competitive offerings. Furthermore, our applications used per customer grew to 7.1, a key metric that we believe to be well above the number available to customers from other service providers. We believe that our solid start to customer additions in the first quarter puts us on track to achieve our financial and operating goals for the year."

Geiger added, "We also reached significant milestones in some of our newer markets. During the first quarter, our San Diego market became self-supporting with its first quarter of free cash flow, defined as Adjusted EBITDA less market-level capital expenditures. Our Miami and Minneapolis markets made progress by passing through what we believe to be the trough points for Adjusted EBITDA. From here on out, we anticipate that these markets will consume less cash and eventually become cash flow positive. Lastly, I am pleased to note that we launched our new market serving the Greater Washington D.C. Area in the first quarter, and the initial signs there are very encouraging."

First Quarter Financial and Business Summary

Revenues and ARPU

Cbeyond reported revenues of $98.3 million for the first quarter of 2009, an increase of 22.1% from the first quarter of 2008. The sequential increase in revenue for the first quarter of 2009 was $4.4 million, as compared to a sequential increase of $3.6 million for the fourth quarter of 2008. Revenues in the first quarter of 2009 included a $0.6 million positive adjustment relating to customer promotional liabilities recorded in prior periods. These promotional obligations were recorded at their maximum amount in prior periods due to the lack of sufficient historical experience required under U.S. generally accepted accounting principles (GAAP) to estimate the amounts that would ultimately be claimed by customers.

ARPU, or average monthly revenue per customer location, was $755 in the first quarter of 2009, as compared to $748 in the first quarter of 2008 and $754 in the fourth quarter of 2008.

Cost of Service and Gross Margin

Cbeyond's gross margin was 67.6% in the first quarter of 2009 as compared with 67.6% in the fourth quarter of 2008 and 68.9% in the first quarter of 2008. Gross margin decreased as compared to the first quarter of 2008 due to lower access cost recoveries, which were generally at a lower level than in prior years, as well as the continuing growth in the sale of mobile handsets and services.

Operating Income (Loss), Adjusted EBITDA and Net Income

Cbeyond reported an operating loss of ($0.6) million in the first quarter of 2009 compared with operating income of $1.7 million in the first quarter of 2008. Total adjusted EBITDA for the first quarter of 2009 was $15.0 million, as compared to total adjusted EBITDA of $14.5 million in the first quarter of 2008. Total adjusted EBITDA for the first quarter of 2009 included $4.8 million of planned negative adjusted EBITDA from five early stage markets, while negative adjusted EBITDA for the first quarter of 2008 totaled $4.1 million from four early stage markets. Total adjusted EBITDA would have been significantly higher without the impact of negative results from these early stage markets, which were entered to drive longer term growth in the business (see Selected Quarterly Financial Data and Operating Metrics, pages 7-8). Cbeyond reported net income of $0.1 million for the first quarter of 2009 as compared to $1.0 million for the first quarter of 2008.

Cash and Cash Equivalents

Cash and cash equivalents, which are primarily invested in funds holding only U.S. Treasury securities, amounted to $31.3 million at the end of the first quarter of 2009, as compared to $37.0 million at the end of the fourth quarter of 2008. The decrease in cash and cash equivalents was anticipated and related to a number of factors, including the payment of outstanding 2008 bonuses and commissions and payments for significant purchases of capital expenditures recorded in the fourth quarter of 2008 but not paid until the current quarter.

Capital Expenditures

Capital expenditures were $17.3 million during the first quarter of 2009, compared to $22.4 million in the fourth quarter of 2008 and $15.6 million in the first quarter of 2008. Capital expenditures in the first quarter of 2009 decreased from the fourth quarter of 2008 due to heavier expenditures in the prior quarter relating to ongoing data center expansion to support customer growth and the cost of development and integration relating to our operating support systems.

Business Outlook for 2009

Cbeyond provides the following annual guidance for 2009:

As a result of its evaluation of key factors underlying revenue trends in the first quarter of 2009, such as customer additions, ARPU, and the customer churn rate, Cbeyond determined to narrow the range of revenue guidance. Based on its analysis of first quarter results, Cbeyond does not believe that any changes to guidance for adjusted EBITDA or capital expenditures are warranted. Guidance for 2009 assumes a continued challenging economy that will likely cause customer churn rates to differ from historical experience. Despite the economic environment, sales volumes are expected to continue to increase due to the increasing number of personnel selling as new markets are launched; however, higher levels of sales productivity are not assumed. The guidance also assumes that the launch of the 13^th market, Seattle, will occur later in 2009.

Conference Call

Cbeyond will hold a conference call to discuss this press release Thursday, April 30, 2009, at 5:00 p.m. EDT. A live broadcast of the conference call will be available on-line at www.cbeyond.net. To listen to the live call, please go to the web site at least 10 minutes early to register, download, and install any necessary audio software. The conference call will also be available by dialing (877) 795-3646 (for domestic U.S. callers) and (719) 325-4773 (for international callers). For those who cannot listen to the live broadcast, an on-line replay will be available shortly after the call and continue to be available for one year.

About Cbeyond

Cbeyond, Inc. (NASDAQ: CBEY) is a leading IP-based managed services provider that delivers integrated packages of communications and IT services to more than 44,000 small businesses throughout the United States. Cbeyond offers more than 30 productivity-enhancing applications including local and long-distance voice, broadband Internet, mobile, BlackBerry(R), broadband laptop access, voicemail, email, web hosting, fax-to-email, data backup, file-sharing and virtual private networking. Cbeyond manages these services over a private, 100-percent Voice over Internet Protocol (VoIP) facilities-based network. For more information on Cbeyond, visit www.cbeyond.net.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Such statements include, but are not limited to statements identified by words such as "expectations," "guidance," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "projects" and similar expressions.Such statements are based upon the current beliefs and expectations of Cbeyond's management and are subject to significant risks and uncertainties.Actual results may differ from those set forth in the forward-looking statements.Factors that might cause future results to differ include, but are not limited to, the following: finalization of operating data, the significant reduction in economic activity, which particularly affects our target market of small businesses; the risk that we may be unable to continue to experience revenue growth at historical or anticipated levels; the risk of unexpected increases in customer churn levels; changes in federal or state regulation or decisions by regulatory bodies that affect Cbeyond; periods of economic downturn or unusual volatility in the capital markets or other negative macroeconomic conditions that could harm our business, including the resulting inability of certain of our customers to meet their payment obligations; the timing of the initiation, progress or cancellation of significant contracts or arrangements; the mix and timing of services sold in a particular period; our ability to recruit and maintain experienced management and personnel; rapid technological change and the timing and amount of start-up costs incurred in connection with the introduction of new services or the entrance into new markets; our ability to maintain or attract sufficient customers in existing or new markets; our ability to respond to increasing competition; our ability to manage the growth of our operations; changes in estimates of taxable income or utilization of deferred tax assets which could significantly affect the Company's effective tax rate; pending regulatory action relating to our compliance with customer proprietary network information; external events outside of our control, including extreme weather, natural disasters, pandemics or terrorist attacks that could adversely affect our target markets; and general economic and business conditions.You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC, including the "Risk Factors" in our most recent annual report on Form 10-K, together with updates that may occur in our quarterly reports on Form 10-Q and Current Reports on Form 8-K.Such disclosure covers certain risks, uncertainties and possibly inaccurate assumptions that could cause our actual results to differ materially from expected and historical results.We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.

Key Operating Metrics and Non-GAAP Financial Measures

In this press release, the Company uses several key operating metrics and non-GAAP financial measures. The Company defines each of these metrics and provides a reconciliation of non-GAAP financial measures to the most directly comparable generally accepting accounting principles in the United States, or GAAP, financial measure. These financial measures and operating metrics are a supplement to GAAP financial information and should not be considered as an alternative to, or more meaningful than, net income, cash flow or operating income as determined in accordance with GAAP.

Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities as determined in accordance with GAAP, as a measure of performance or liquidity. The Company defines adjusted EBITDA as net income before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, non-cash share-based compensation, public offering expenses, loss on disposal of property and equipment and other non-operating income or expense. Information relating to total adjusted EBITDA is provided so that investors have the same data that management employs in assessing the overall operation of the Company's business.

Total adjusted EBITDA allows the chief operating decision maker to assess the performance of the Company's business on a consolidated basis that corresponds to the measure used to assess the ability of its operating segments to produce operating cash flow to fund working capital needs, to service debt obligations and to fund capital expenditures. In particular, total adjusted EBITDA permits a comparative assessment of the Company's operating performance, relative to a performance based on GAAP results, while isolating the effects of depreciation and amortization, which may vary among segments without any correlation to their underlying operating performance, and of non-cash share-based compensation, which is a non-cash expense that varies widely among similar companies.

CBEY-F CBEY-G

SOURCE: Cbeyond, Inc.

Cbeyond, Inc.
Investor Contact:
Kurt Abkemeier
Vice President, Finance and Treasurer
678-370-2887

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