Thursday, February 16, 2012
Cbeyond Announces Preliminary Fourth Quarter and Fiscal Year 2011 Results, Updated Business Strategy and Outlook for 2012
ATLANTA--(BUSINESS WIRE)--
Cbeyond, Inc. (NASDAQ: CBEY), ("Cbeyond"), a managed services provider
delivering integrated packages of IT infrastructure and communications
services to small businesses, including network services, virtual and
dedicated servers and cloud PBX, today is announcing preliminary results
for the fourth quarter and fiscal year 2011. The Company is also
providing an update on the status of its strategic transition to a
business model focused on technology dependent customers.
As part of the transition, Cbeyond is refocusing its go-to-market
strategy to leverage its 2010 cloud services acquisitions and better
serve the growing number of technology dependent small and medium sized
businesses (SMBs). To better identify these higher revenue and margin
opportunity customers, Cbeyond is realigning its distribution channels
and establishing two new direct sales groups, including one that is
focused solely on cloud services opportunities and one that is focused
on selling secure networking and cloud based services to technology
dependent small businesses. At the same time, the Company is reducing
its entry level sales associates and re-purposing a portion of those
resources for its new focus.
Estimated Fourth Quarter and Full Fiscal Year 2011 Results
Cbeyond is providing estimated results for the fourth quarter and twelve
months ended December 31, 2011, in advance of its full financial
statements, which will be released at a later date in connection with
the completion of its annual audit.
Revenues and ARPU
Cbeyond expects to report revenues for the fourth quarter and fiscal
year 2011 in the estimated amounts of $123 million and $485 million
respectively, as compared with reported revenues of $116 million and
$452 million for the same periods in 2010. Cbeyond expects that its
average monthly revenue per Core Managed Services customer location
(ARPU) will be approximately $646 during the fourth quarter of 2011,
compared with $656 in the third quarter of 2011 (which included a $5 per
customer benefit related to a settlement of terminating access revenue)
and $680 in the fourth quarter of 2010.
Adjusted EBITDA
Cbeyond expects to report total adjusted EBITDA for the fourth quarter
and fiscal 2011 of approximately $23 million and $80 million
respectively. This compares with reported total adjusted EBITDA of
approximately $18 million and $73 million for the same periods in 2010.
The expected improvement in adjusted EBITDA for the fourth quarter of
2011 compared with the third quarter of 2011 was primarily due to lower
selling, general and administrative expenses resulting from cost
controls and the reduction to prior period levels of expenses that were
elevated in the third quarter.
"Our preliminary results for the fourth quarter of 2011 demonstrate the
financial strength of our business and the dedication of our team to
meet our commitments," said Jim Geiger, chief executive officer of
Cbeyond, Inc. "With the significant expected increase in adjusted EBITDA
over recent quarters, we anticipate that revenue, adjusted EBITDA and
capital expenditure results will be within the guidance we gave
investors at the beginning of 2011, and we look forward to further
growth in these numbers in 2012."
Capital Expenditures and Cash
Estimated capital expenditures were $18 million in the fourth quarter of
2011 and $78 million for fiscal 2011, as compared with reported capital
expenditures of approximately $18 million and $63 million in the prior
year periods. Capital expenditures related to Ethernet investment
totaled $2 million in the fourth quarter of 2011 and cumulative capital
expenditures relating to the entire Ethernet project totaled $26 million
as of December 31, 2011.
As previously reported, Cbeyond's Board of Directors has authorized up
to $15 million in repurchases of shares of Cbeyond, Inc. common stock
from time to time in open market purchases, privately negotiated
transactions or otherwise. Through December 31, 2011, Cbeyond has spent
$13 million on share repurchases. Overall, the Company had cash, cash
equivalents and marketable securities of approximately $9 million at
December 31, 2011, versus a balance of $8 million at September 30, 2011.
Customers
Cbeyond had total customers of 62,169 in Cbeyond's 14 Core Managed
Services operating markets as of December 31, 2011, reflecting net
customer additions of 1,044 in the fourth quarter of 2011, an increase
of 9.1% in total customers year-over-year. Monthly customer churn was
1.4% in the fourth quarter of 2011 as compared with 1.3% in the fourth
quarter of 2010 and 1.4% in the third quarter of 2011 for the Company's
Core Managed Services customers.
Business Strategy and Outlook for 2012
As originally discussed during the third quarter 2011 earnings
conference call, Cbeyond believes it can better differentiate itself by
offering its cloud services via its own managed broadband connections
and continues to expand its ability to provide higher bandwidth to
customers via Ethernet over copper and fiber solutions through
partnership arrangements. The Company expects that 50% of its capital
expenditures in 2012 will be spent on cloud and network capabilities and
has set a target of lighting fiber to 1,000 buildings by late 2013 via
agreements with its network partners. By the end of 2013, Cbeyond
believes approximately 25% of its revenues will be generated from its
cloud-only customers and its customers who buy both network and cloud
services.
"As we begin 2012, we are excited about the opportunity to transform and
grow our business by focusing our energies on meeting the needs of our
more technically demanding customers and prospects. By retooling our
sales force and investing in fiber, we believe the Company is taking the
steps needed to drive the results we expect; our transformation is well
underway," added Geiger.
To align the distribution channels with its evolving strategy, Cbeyond
is reducing its traditional entry level direct sales force by
approximately half while building a new direct sales group dedicated to
managing both existing and new technology dependent customers. In
addition, the Company is building a direct sales channel that is focused
solely on developing cloud services opportunities. Although Cbeyond
expects this migration away from its traditional business model to cause
a 30% to 40% reduction in gross customer additions from traditional
channels, the related expense savings are expected to positively benefit
free cash flow. Cbeyond will continue to supplement its direct sales
efforts with channel partners, its upselling group, and its wholesale
program for its cloud offerings. The net effect will be to slow growth
in its traditional BeyondVoice product suite, while increasing revenue
from higher ARPU, technology dependent customers.
As a result of the revised strategy, Cbeyond provides the following
guidance for 2012:
-
Revenue of $485 million to $490 million;
-
Adjusted EBITDA of $85 million to $90 million;
-
Capital expenditures of $55 million to $60 million; and
-
Free cash flow of $25 million to $35 million.
The flat-to-low growth in revenue we predict for this year is a function
primarily of the reduced staffing levels in our traditional
communications-centric sales force this year while Cbeyond ramps new
distribution channels focused on technology dependent customers
throughout the year. The staffing reduction in Cbeyond's traditional
entry level direct sales force and support group is expected to result
in a restructuring charge of approximately $1 million in the first
quarter of 2012 to cover the resulting transitional expenses; however,
there will be no impact to adjusted EBITDA from the restructuring
charge. Regarding capital expenditures, it should be noted that the
guidance range of $55 million to $60 million, as well as the resulting
$25 million to $35 million of free cash flow (Adjusted EBITDA less
capital expenditures), relates to cash capital expenditures. Cbeyond may
enter into agreements for fiber networks involving long-term commitments
that would create additional non-cash capital expenditures this year not
included in the guidance range provided above. The assets acquired under
these agreements are excluded from cash-based capital expenditures
because they do not require significant upfront outlays of cash.
Conference Call
Cbeyond will hold a conference call to discuss this press release and a
supplemental set of slides which provides further details on the steps
associated with implementing its strategic transition on Thursday,
February 16, 2012, at 5:00 p.m. EST. 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 set of slides that will be referenced on the conference
call is available on-line at http://ir.cbeyond.net/events.cfm
under "Events and Presentations". The conference call will also be
available by dialing (877) 303-9219 (for domestic U.S. callers) and
(760) 666-3559 (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 provider of IT and
communications services to more than 62,000 small and medium sized
businesses in the U.S. Combining industry-leading virtual and dedicated
servers hosted in a fully compliant data center, cloud PBX, secure MPLS
enterprise-class networks, robust security services, migration planning
and best-in-class real-time management, Cbeyond provides a technology
portfolio not generally available to the SMBs they serve. Winning the
2010 Microsoft Hyper-V Cloud Provider of the Year and Hosting Partner of
the Year in 2009 and 2010, Cbeyond is an industry leader in delivering
virtual and dedicated servers on Microsoft Windows Hyper-V technology.
For more information on Cbeyond, visit www.cbeyond.net and
follow Cbeyond on Twitter: www.twitter.com/Cbeyondinc.
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;
changes in business climate or other factors affecting our customer
base; the risk of unexpected increases in customer churn levels; our
ability to manage competitive pricing dynamics in our markets; 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 our access to capital markets and the
impact on 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; the risk that the
anticipated benefits, growth prospects and synergies expected from our
acquisitions may not be fully realized or may take longer to realize
than expected; the possibility that economic benefits of future
opportunities in an emerging industry may never materialize, including
unexpected variations in market growth and demand for the acquired
products and technologies; delays, disruptions, costs and challenges
associated with integrating acquired companies into our existing
business, including changing relationships with customers, employees or
suppliers; unfamiliarity with the economic characteristics of new
geographic markets; ongoing personnel and logistical challenges of
managing a larger organization; our ability to retain and motivate key
employees from the acquired companies;external events outside of
our control, including extreme weather, natural disasters, pandemics or
terrorist attacks that could adversely affect our target markets; our
ability to implement and execute successfully our new strategic focus;
our ability to expand fiber availability; the extent to which small and
medium sized businesses continue to spend on cloud, network and security
services; our ability to recruit and maintain a sales force focused
exclusively on our technology-dependent customers; our ability to
integrate new products into our existing infrastructure; 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. 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, or
acquisition-related transaction costs, purchase accounting adjustments,
loss on disposal of property and equipment and other non-operating
income or expense. On a less frequent basis, adjusted EBITDA may exclude
charges for employee severances, asset impairments, and other exit
activity costs associated with a management directed plan of
restructuring. 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
Cbeyond, Inc.
Kurt Abkemeier, 678-370-2887
Vice President,
Finance and Treasurer
Source: Cbeyond, Inc.
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