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Cbeyond Reports First Quarter 2013 Results

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ATLANTA, May 1, 2013 (GLOBE NEWSWIRE) -- Cbeyond, Inc. (Nasdaq:CBEY), ("Cbeyond"), the technology ally for small and mid-sized businesses, today announced its results for the first quarter ended March 31, 2013.

Recent financial and operating highlights include:

  • First quarter 2013 total revenue of $119.9 million compared with $123.8 million in the first quarter of 2012 and $118.9 million in the fourth quarter of 2012;
  • Adjusted EBITDA of $20.8 million in the first quarter of 2013 compared with $23.0 million in the first quarter of 2012 and $18.8 million in the fourth quarter of 2012 (see reconciliation tables for reconciliation to net income);
  • Free cash flow (defined as adjusted EBITDA less cash capital expenditures) of $8.4 million in the first quarter of 2013 compared with $8.1 million in the first quarter of 2012 and $4.3 million in the fourth quarter of 2012;
  • Net loss of $0.6 million in the first quarter of 2013 compared with a net loss of $1.2 million in the first quarter of 2012 and a net loss of $5.8 million in the fourth quarter of 2012;
  • Cbeyond 2.0 revenue was 11.4% of total revenue in the first quarter of 2013, an increase from 9.5% last quarter; 2.0 revenue in the first quarter of 2013 increased 99.8% over the first quarter of 2012;
  • Average monthly revenue per customer (ARPU) of $656 during the first quarter of 2013 compared with $645 in the first quarter of 2012 and $638 in the fourth quarter of 2012 (see selected quarterly operating metrics table for an ARPU definition); and,
  • Reiterate annual guidance for 2013 of $475 million to $485 million of revenue, $75 million to $82 million of adjusted EBITDA, $60 million to $65 million of cash capital expenditures, and $15 million to $20 million of free cash flow.

Financial Overview and Key Operating Metrics

Financial and operating metrics, which include non-GAAP financial measures, for the three months ended March 31, 2013, include:

For the Three Months Ended March 31,
2012 2013 Change % Change
Selected Financial Data (dollars in thousands)
Revenue (total) $ 123,843 $ 119,946 $ (3,897) (3.1%)
Operating expenses $ 125,168 $ 120,164 $ (5,004) (4.0%)
Operating income (loss) $ (1,325) $ (218) $ 1,107 83.5%
Net income (loss) $ (1,194) $ (556) $ 638 53.4%
Capital expenditures (total) $ 17,236 $ 15,451 $ (1,785) (10.4%)
Key Operating Metrics and Non-GAAP Financial Measures
(dollars in thousands, except Average Monthly Revenue Per Network Access Customer)
Network Access Customers (At Period End) 62,465 58,434 (4,031) (6.5%)
Net Network Access Customer Additions 296 (1,258) (1,554) N/M
Average Monthly Churn Rate 1.5% 1.6% 0.1% 6.7%
Average Monthly Revenue Per Network Access Customer $ 645 $ 656 $ 11 1.7%
Adjusted EBITDA $ 22,974 $ 20,833 $ (2,141) (9.3%)
Cash capital expenditures $ 14,836 $ 12,434 $ (2,402) (16.2%)

Management Comments

"I am pleased with our progress in evolving our business model to provide services at the intersection of cloud, network and security," said Jim Geiger, chief executive officer of Cbeyond, Inc. "We have achieved several significant milestones over the past six months. We have continued to build capabilities of our TotalCloud Data CenterTM and TotalCloud Phone SystemTM products; reached the targeted staffing level for our 2.0 sales channels; launched our new offering that bundles cloud services with broadband; have lit dark fiber in over 250 buildings and significantly increased the size of our Metro Ethernet network footprint."

Geiger added, "We believe the combination of these four milestones provides a strong foundation for our future growth. As we move through the remainder of 2013, we expect to continue to build on these milestones, gain momentum in sales productivity and drive further refinement to our service delivery processes to fulfill the needs of our technology dependent customers."

Geiger continued, "Meeting our financial commitments is very important to us, so I am pleased to report that we are reiterating our 2013 guidance. We are very excited about our strategy as we continue to transform Cbeyond to become the technology ally for small and medium businesses. We believe the actions we have taken will enable us to improve ARPU and grow revenue in future periods."

First Quarter Financial and Business Summary

Revenue and ARPU

Cbeyond reported total revenue of $119.9 million for the first quarter of 2013, a decrease of 3.1% from the first quarter of 2012 and an increase of 0.9% from the fourth quarter of 2012. Managed Hosting and Cloud revenue was $6.6 million during the quarter, an increase of 14.6% year-over-year. ARPU was $656 in the first quarter of 2013, compared with $645 in the first quarter of 2012 and $638 in the fourth quarter of 2012. The most significant contributor to the quarter-over-quarter increase in revenue and the year-over-year and quarter-over-quarter increase in ARPU during the first quarter was the increase in fees we charged our customers to recover certain regulatory costs.

Cost of Service and Gross Margin

Cbeyond's gross margin was 67.7% in the first quarter of 2013, an increase of 40 basis points from the 67.3% level in the first quarter of 2012 and 70 basis point increase from the 67.0% in the fourth quarter of 2012. The sequential change in gross margin was the result of the higher total revenue and higher billing recoveries from network partners.

Adjusted EBITDA and Net Income

Adjusted EBITDA for the first quarter of 2013 was $20.8 million, as compared with adjusted EBITDA of $18.8 million in the fourth quarter of 2012 and $23.0 million in the first quarter of 2012. The quarter-over-quarter increase and year-over-year decline in adjusted EBITDA were the result of changes in revenues and gross margins for the respective periods.

Cbeyond reported a net loss of $0.6 million for the first quarter of 2013 compared with a net loss of $1.2 million in the first quarter of 2012 and a net loss of $5.8 million in the fourth quarter of 2012. The quarter-over-quarter change in net income was driven predominantly by the increase in Adjusted EBITDA as well as a $3.3 million impact to income tax expense in the fourth quarter of 2012 resulting from a write-down of deferred tax assets.

Cash, Cash Equivalents, and Borrowings

Cash and cash equivalents amounted to $23.8 million at the end of the first quarter of 2013, as compared with $30.6 million at the end of the fourth quarter of 2012. The Company currently has $2.0 million outstanding on its fiber loan while it does not have any outstanding borrowings under its $75.0 million revolving credit facility. The Company also had $9.0 million in outstanding capital lease obligations on its balance sheet as of March 31, 2013.

Capital Expenditures

Total capital expenditures were $15.5 million during the first quarter of 2013, of which $12.4 million were cash capital expenditures. The Company incurred $3.0 million in non-cash capital expenditures during the first quarter, consisting of capital lease obligations related to its fiber assets. In the fourth quarter of 2012, capital expenditures were $19.5 million, of which $14.5 million were cash capital expenditures.

Free Cash Flow

Free cash flow, defined as adjusted EBITDA less cash capital expenditures, was $8.4 million in the first quarter of 2013, compared with $4.3 million in the fourth quarter of 2012 and $8.1 million in the first quarter of 2012. The quarter-over-quarter increase was due to the increase in Adjusted EBITDA and lower cash capital expenditures.

Business Outlook for 2013

Cbeyond reiterates the following guidance for 2013:

  • Revenue of $475 million to $485 million
  • Adjusted EBITDA of $75 million to $82 million
  • Cash capital expenditures of $60 million to $65 million; and
  • Free cash flow of $15 million to $20 million

Regarding capital expenditures, it should be noted that the guidance range of $60 million to $65 million, as well as the resulting $15 million to $20 million of free cash flow (adjusted EBITDA less capital expenditures), relates to cash capital expenditures. Cbeyond has already and may continue to enter into agreements for fiber network assets and data center equipment involving long-term capital leases that will 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 the Company's definition of cash capital expenditures because they do not require upfront outlays of cash.

Conference Call

Cbeyond will hold a conference call to discuss this press release Wednesday, May 1, 2013, at 5:00 p.m. EDT. A live broadcast of the conference call will be available on-line at http://ir.cbeyond.net/events.cfm 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) 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), a cloud and communications services provider, is the technology ally for small and mid-sized business. Our private, proactively-managed IP network connects customers to voice, data and enterprise applications hosted in our award-winning cloud data centers. Since 1999, Cbeyond has served the unmet needs of businesses through technology and service innovation. We were the first company to build an all-IP network specifically for small businesses and among the few to offer consultative sales and service professionals onsite. Today, our expanded portfolio helps customers reduce the burden of outlaying capital and manpower to manage infrastructure. Creating an exceptional customer experience is in our DNA. It's why more than a third of our approximately 60,000 customers come from referrals. For more information on Cbeyond, visit www.cbeyond.com and follow Cbeyond on Twitter: www.twitter.com/cbeyond.

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 dependence on third-party vendors who might increase prices or cause service disruptions beyond our control; 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 comply with our credit facility covenants; 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 possibility that economic benefits of future opportunities in an emerging industry may never materialize, including unexpected variations in market growth and demand for products and technologies; unfamiliarity with the economic characteristics of new geographic markets; ongoing personnel and logistical challenges of managing a larger organization; 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, maintain and grow a sales force focused exclusively on our technology-dependent customers; our ability to integrate new products into our existing infrastructure; the effects of realignment activities; the extent to which our customer mix becomes more technology-dependent; our ability to achieve future cost savings related to our capital expenditures and investment in Ethernet technology; 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 accepted 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 EBITDA as net income (loss) before interest, income taxes, depreciation and amortization. However, we use adjusted EBITDA, also a non-GAAP financial measure, to further exclude, when applicable, non-cash share-based compensation, public offering or acquisition-related transaction costs, purchase accounting adjustments, gain or loss on asset dispositions and non-operating income or expense. On a less frequent basis, adjusted EBITDA may exclude charges for employee severances, asset or facility impairments, and other exit activity costs associated with a management directed plan. Information relating to adjusted EBITDA is provided so that investors have the same data that management employs in assessing the overall operation of the Company's business.

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, 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.

Free cash flow represents the cash that a company is able to generate after cash expenses and capital expenditures necessary to maintain or expand its asset base. The Company defines free cash flow as adjusted EBITDA less cash capital expenditures. Cbeyond believes that free cash flow is an important metric for investors in evaluating how a company is currently using cash generated, and may indicate its ability to generate cash that can potentially be used by the business for capital investments, acquisitions, reduction of debt, payment of dividends or share repurchases. Internally, Cbeyond has also begun to focus on free cash flow as an important operating performance metric and has designed its corporate bonus compensation plan to utilize free cash flow as a component. However, free cash flow is not a measure of financial performance under GAAP and may not be comparable to similarly titled measures reported by other companies. Additionally, the Company does not present or manage free cash flow on a segment basis.

Historically, we have defined free cash flow as adjusted EBITDA less total capital expenditures. During the first quarter of 2012, we refined our definition of capital expenditures for purposes of calculating free cash flow to distinguish capital expenditures that require the up-front outlay of cash from those where payment is deferred on a longer-term basis. This distinction is primarily driven by the significant investments we are making to lease fiber network assets that have an expected useful life of 20 years, which is substantially longer than our typical asset lives. We believe this distinction is warranted and appropriate since these investments are expected to yield meaningful positive cash flows in future periods when the debt and lease payments occur. These favorable future cash flows will result from fiber infrastructure replacing a significant portion of the access and transport circuits we currently lease from incumbent local exchange carriers (or "ILECs"). We have recast all historical disclosures of capital expenditures as well as free cash flow for all periods presented in this Form 10-K to be consistent with this delineation between cash and non-cash capital expenditures.

CBEYOND, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2012 2013
Revenue $ 123,843 $ 119,946
Operating expenses:
Cost of revenue (excluding depreciation and amortization) 40,484 38,788
Selling, general and administrative (excluding depreciation and amortization) 65,808 63,771
Depreciation and amortization 18,876 17,605
Total operating expenses 125,168 120,164
Operating income (loss) (1,325) (218)
Other income (expense):
Interest expense, net (127) (153)
Income (loss) before income taxes (1,452) (371)
Income tax (expense) benefit 258 (185)
Net income (loss) $ (1,194) $ (556)
Net Income (loss) per common share:
Basic $ (0.04) $ (0.02)
Diluted $ (0.04) $ (0.02)
Weighted average number of common shares outstanding:
Basic 29,066 30,175
Diluted 29,066 30,175
CBEYOND, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 31,
2012
March 31,
2013
ASSETS
Current assets
Cash and cash equivalents $ 30,620 $ 23,820
Accounts receivable, net of allowance for doubtful accounts 23,328 23,383
Other current assets 12,423 14,565
Total current assets 66,371 61,768
Property and equipment, net 157,624 155,850
Other non-current assets, net 31,053 30,078
Total assets $ 255,048 $ 247,696
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15,870 $ 12,203
Other current liabilities 52,623 45,068
Total current liabilities 68,493 57,271
Non-current portion of long-term debt 6,947 9,092
Other Non-current liabilities 7,722 7,431
Stockholders' equity
Common stock 299 306
Additional paid-in capital 323,584 326,149
Accumulated deficit (151,997) (152,553)
Total stockholders' equity 171,886 173,902
Total liabilities and stockholders' equity $ 255,048 $ 247,696
CBEYOND, INC. AND SUBSIDIARIES
Selected Quarterly Financial Data and Operating Metrics
(Dollars in thousands, except for Network Access Customer Data)
(Unaudited)
Mar. 31
2012
Jun. 30
2012
Sep. 30
2012
Dec. 31
2012
Mar. 31
2013
Revenues
Network, Voice and Data $ 118,087 $ 117,674 $ 115,164 $ 112,364 $ 113,352
Managed Hosting and Cloud 5,756 6,088 6,327 6,506 6,594
Total Revenue $ 123,843 $ 123,762 $ 121,491 $ 118,870 $ 119,946
Adjusted EBITDA $ 22,974 $ 27,236 $ 25,207 $ 18,828 $ 20,833
Adjusted EBITDA margin (As % of Total Revenue) 18.6% 22.0% 20.7% 15.8% 17.4%
Cash Capital Expenditures $ 14,836 $ 14,765 $ 17,516 $ 14,488 $ 12,434
Non-cash Capital Expenditures
Capital Leases $ 2,400 $ 957 $ -- $ 4,976 $ 3,017
Leasehold Improvements $ -- $ -- $ -- $ -- $ --
Total Capital Expenditures $ 17,236 $ 15,722 $ 17,516 $ 19,464 $ 15,451
Free cash flow $ 8,138 $ 12,471 $ 7,691 $ 4,340 $ 8,399
Network Access Customer Data
Network Access Customers (At Period End) 62,465 62,015 60,876 59,692 58,434
Net Network Access Customer Additions 296 (450) (1,139) (1,184) (1,258)
Average Monthly Churn Rate (1) 1.5% 1.5% 1.6% 1.6% 1.6%
Average Monthly Revenue Per Network Access Customer (2) $ 645 $ 645 $ 640 $ 638 $ 656

(1) Calculated for each period as the average of monthly churn, which is defined for a given month as the number of network access customers disconnected in that month divided by the number of network access customers on the Company's network at the beginning of that month.

(2) Calculated as the revenue for a period divided by the average of the number of network access customers at the beginning of the period and the number of network access customers at the end of the period, divided by the number of months in the period. Revenue used to calculate ARPU is defined as the revenue associated with customers where Cbeyond provides network access and includes all Network, Voice and Data revenue and the portion of Managed Hosting and Cloud revenue where Cbeyond provides network access.

CBEYOND, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
(In thousands)
(Unaudited)
Three Months Ended,
Mar. 31
2012
Jun. 30
2012
Sep. 30
2012
Dec. 31
2012
Mar. 31
2013
Reconciliation of Free Cash Flow and Adjusted EBITDA to Net income (loss):
Free Cash Flow $ 8,138 $ 12,471 $ 7,691 $ 4,340 $ 8,399
Cash capital expenditures 14,836 14,765 17,516 14,488 12,434
Adjusted EBITDA $ 22,974 $ 27,236 $ 25,207 $ 18,828 $ 20,833
Depreciation and amortization (18,876) (18,370) (18,172) (18,605) (17,605)
Non-cash share-based compensation (3,783) (2,939) (2,975) (3,443) (2,979)
Realignment costs (1,640) (284) -- (312) (467)
Interest expense, net (127) (144) (138) (168) (153)
Income (loss) before income taxes (1,452) 5,499 3,922 (3,700) (371)
Income tax (expense) benefit 258 (2,805) (1,969) (2,075) (185)
Net income (loss) $ (1,194) $ 2,694 $ 1,953 $ (5,775) $ (556)
CBEYOND, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
(Dollars in thousands, except for ARPU)
(Unaudited)
Three Months Ended,
Mar. 31
2012
Jun. 30
2012
Sep. 30
2012
Dec. 31
2012
Mar. 31
2013
Calculation of ARPU:
Total revenue $ 123,843 $ 123,762 $ 121,491 $ 118,870 $ 119,946
Cloud only revenue (3,245) (3,367) (3,486) (3,483) (3,650)
(A) Network access customer revenue $ 120,598 $ 120,395 $ 118,005 $ 115,387 $ 116,296
(B) Average Network access customers 62,317 62,240 61,446 60,284 59,063
ARPU (A / B / number of months in period) $ 645 $ 645 $ 640 $ 638 $ 656

CONTACT: Investor Contact: Cbeyond, Inc. Rob Clancy Vice President of Investor Relations 678-486-8023 rob.clancy@cbeyond.com

Source:Cbeyond, Inc.