Zayo net installs rise to $6.4M as provider narrows net losses to $10.8M

Zayo Group continues to see its fiber network builds throughout the United States and Europe pay off as a number of new customer wins drove fiscal second quarter gross installs to $6.4 million and net installs to a near-record $2.2 million.

Speaking to investors during its earnings call, Dan Caruso, CEO of Zayo, said that he expects net installs to continue to be strong in its upcoming quarters.

"We do expect gross installs to continue to set records as you look forward the next few quarters," Caruso said during the earnings call, according to a Seeking Alpha transcript. "Now, that's not every quarter, but we do expect this number to be going up based naturally on what we've been selling, what's been in our pipeline, and what's working its way through the system. So although we set a record here, we think we'll continue to kind of set a couple more high watermarks in the subsequent quarters."

Caruso pointed to a number of large fiber-based service deals it won with carrier and content provider customers in areas where the provider already had dedicated fiber for an existing fiber-to-the-tower contract.

One of its municipal government customers is going to be moving away from a legacy lit service to dark fiber, which leverages a fiber-to-the-tower build Zayo announced in a previous quarter.  

"They're migrating from a legacy lit service to Zayo dark fiber solution and this is a $121,000 a month contract for many years," Caruso said. "It's a greater than 12-month payback and a very profitable project because we're leveraging investment that's being made also for the fiber-to-the-tower build."

Meanwhile, an unnamed Internet services company is deploying 100G wavelengths that also leverage an existing network from another fiber-to-the-tower build. Caruso said the service it is providing to the content provider "is being used for their data center and headquarters' footprint" and provides "$75,000 a month" in revenue to Zayo.

While the net installs are positive, Jennifer Fritzsche, senior analyst for Wells Fargo, said in a research note Zayo needs to translate that sales pipeline into 8 percent revenue growth to satisfy investors.

"ZAYO's record-high service activation pipeline of $14.4MM is indicative of a strong sales funnel, but we believe investors will need to see that directly translate into 8%+ recurring revenue growth to become more comfortable with the story," Fritzsche said. "We do continue to expect record net installs at some point in CY2016, which should help ZAYO drive its revenues higher."

From an overall financial standpoint, Zayo reported that revenue rose 3 percent to $369.6 million, with adjusted EBITDA up 7 percent to $218.9 million.

Likewise, Zayo's operating profit rose by $6.6 million compared to fiscal year first quarter 2016. Capital expenditures were $172.4 million, which it used to add 7,905 route miles and 813 buildings to its network.

Zayo narrowed its net loss to $10.8 million, or 4 cents per share, in the latest quarter versus losses of $15.2 million in its fiscal first quarter of 2016. The company had $176.2 million of cash and another $440.8 million available under a revolving credit facility at the end of December 2015.

For more:
- see the earnings release
- see the Seeking Alpha transcript

Special Report: From Adtran to Zayo: Tracking wireline telecom earnings in Q4 2015

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Zayo upgrades Forth Worth, Texas municipal network with dark fiber
Zayo's Atlanta data center expansion driven by content provider customer win
Zayo eyes strong ROI as it inks new Tier 1 FTTT deal in Indiana
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