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Zayo (ZAYO) Trumps Q2 Earnings Estimates on Higher Revenues

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Zayo Group Holdings, Inc. reported solid second-quarter fiscal 2020 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate. In addition, both revenues and net income improved year over year on robust infrastructure capacity demand for webscale, content and cloud providers.

Net Income

Net income for the December quarter was $61.4 million or 26 cents per share compared with $30.2 million or 13 cents per share a year ago. The two-fold rise in earnings despite higher operating costs was primarily driven by higher revenues and favorable foreign currency impact. Also, the bottom line exceeded the Zacks Consensus Estimate by 8 cents. 

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


Quarterly revenues were $653.7 million, up 2.3% year over year on solid demand trends. Further, the top line beat the consensus estimate of $648 million. While revenues from Zayo Networks segment totaled $502.5 million, the same from Allstream and zColo was $82.3 million and $64.1 million, respectively.

Other Details of the Quarter

Operating income declined to $140.5 million from $144.7 million in the prior-year quarter, largely due to higher operating expenses. Adjusted EBITDA was $328.5 million compared with $321.2 million in the year-ago quarter with margins of 50.3% each. Adjusted EBITDA from Zayo Networks, zColo and Allstream was $291.9 million, $29.7 million and $5.7 million, respectively.

On a monthly recurring revenue and monthly amortized revenue basis, consolidated net installs were $1.3 million (excluding Allstream), including $1.9 million of net installs from the Zayo Networks segment and ($0.6) million from the zColo.

Merger Update

With respect to its previously announced pending merger with affiliates of Digital Colony Partners and EQT Infrastructure IV fund, the company continues to make steady progress to secure all necessary approvals. The transaction is expected to close in the first half of 2020, subject to the fulfillment of customary closing conditions and regulatory approvals.

Cash Flow & Liquidity

For the first six months of fiscal 2020, Zayo generated $568.2 million of net cash from operating activities, while adjusted unlevered free cash flow was $92.1 million.

As of Dec 31, 2019, the fiber optic bandwidth infrastructure company had $181.3 million in cash and equivalents with $5,697.6 million of long-term debt.

Zacks Rank & Stocks to Consider

Zayo currently carries a Zacks Rank #3 (Hold).

Few top-ranked stocks in the broader industry are Bandwidth Inc. BAND, ATN International, Inc. ATNI, and Calix, Inc CALX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bandwidth has long-term earnings growth expectation of 12.9%. It delivered positive earnings surprise of 67.6%, on average, in the trailing four quarters, beating estimates on each occasion.

ATN International surpassed earnings estimates twice in the trailing four quarters, the positive surprise being 143.9%, on average.

Calix has long-term earnings growth expectation of 6%. It delivered positive earnings surprise of 24%, on average, in the trailing four quarters, beating estimates thrice.

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