Zayo’s Caruso: Gross installs are 4% lower than we would like them to be

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Zayo Group's CEO and President Dan Caruso said that gross installs for its fiscal third quarter 2017 (PDF) did not live up to expectations, but he is confident that hiring new management members and beefing up the sales team could put the company back on a growth path. 

Caruso told investors that while Zayo was not able to meet its net install goals, it is making an effort to get back on track in future quarters.

“Net installs, the gross installs were $7.1 million and churn 1.2% and $5.6 million producing a net install of $1.5 million, which is a 4% annual growth rate lower than we would like it to be,” Caruso said during the earnings call. “We think the growth rate that should be supported by the business organically should be higher than this and there is a little bit of work to do to get it there.”

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At the same time, Zayo saw a rise in churn due to having to work through the process of purchasing Electric Lightwave and reorganizing the company.

Zayo saw 1.2% in churn, a figure it says was in line with 1.1% to 1.3% guidance, though higher than recent history prior to December 2016.

“Part of the elevated churn was caused through the distractions associated with industry consolidation as well as our own internal distractions,” Caruso said. “There's also been a couple of other factors such as Canada contributed about $1 million of churn and about negative 4 to net installs, so in the absence of those two our net installed performance—our churn performance would have been similar to prior quarters.”

Despite the near-term issues with net installs, Wells Fargo said that Zayo’s move to enhance its sales force by growing it to a total of 260 members and hiring former Level 3 executives like Andrew Crouch and Ed Morche could add necessary firepower to further the company’s transition.

“We believe ZAYO’s recent hires of senior executives from LVLT will be a positive influence in making this transition,” said Jennifer Fritzsche, senior analyst for Wells Fargo, in a research note.

Here’s a breakdown of Zayo’s key metrics:

Fiber Solutions: Revenue for fiber solutions, which makes up 33% of the company’s revenue, was $179.6 million for the quarter.

Transport: Transport, which consists of products like Waves, Ethernet and IP, was $110 million for the quarter and consists of 20% of its total revenue.

Enterprise: Enterprise, which is 22% of total revenues, was $121.7 million for the quarter.

Colo and Cloud: Zayo’s Colo and Cloud business was $53.6 million for the quarter. The service provider added 110,000 square feet added over past 12 months and it has an additional 52,000 square feet in development.  

Allstream: The service provider’s Canada revenue, which includes Allstream, was $79.3 million.

Financials: Fiscal third quarter revenue was $550 million, due to the acquisition of ELI on March 1. Zayo said the run rate revenue will be higher than the $550 million March quarter as it only included the one month of ELI.