Cbeyond Reports Fourth Quarter 2012 Results Introduction of 2.0 Cloud and Network Bundled Offering; Stabilizing ARPU Trends ATLANTA, Feb. 27, 2013 (GLOBE NEWSWIRE) -- Cbeyond, Inc. (Nasdaq:CBEY), ("Cbeyond"), the technology ally for small and mid-sized businesses, today announced its results for the fourth quarter ended December 31, 2012. Recent financial and operating highlights include: *Fourth quarter 2012 total revenue of $118.9 million compared with $123.3 million in the fourth quarter of 2011 and $121.5 million in the third quarter of 2012; *Adjusted EBITDA of $18.8 million in the fourth quarter of 2012 compared with $22.6 million in the fourth quarter of 2011, and $25.2 million in the third quarter of 2012 (see reconciliation tables for reconciliation to net income); *Free cash flow (defined as adjusted EBITDA less cash capital expenditures) of $4.3 million in the fourth quarter of 2012, compared with $4.2 million in the fourth quarter of 2011, and $7.7 million in the third quarter of 2012; *Net loss of $5.8 million in the fourth quarter of 2012, compared with a net loss of $5.0 million in the fourth quarter of 2011, and net income of $2.0 million in the third quarter of 2012; *Cbeyond 2.0 revenue was 9.5% of total revenue in the fourth quarter, an increase from 7.8% last quarter; *Average monthly revenue per customer (ARPU) of $638 during the fourth quarter of 2012 compared with $640 in the third quarter of 2012 and $650 in the fourth quarter of 2011 (see selected quarterly operating metrics table for an ARPU definition); and, *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 and twelve months ended December 31, 2012, include: For the Three Months Ended December 31, 2011 2012 Change % Change Selected Financial Data (dollars in thousands) Revenue (total) $123,321 $118,870 $(4,451) (3.6%) Operating expenses $123,293 $122,402 $(891) (0.7%) Operating income (loss) $28 $(3,532) $(3,560) N/M Net income (loss) $(5,026) $(5,775) $(749) (14.9%) Capital expenditures (total) $18,369 $19,464 $1,095 6.0% Key Operating Metrics and Non-GAAP Financial Measures (dollars in thousands, except Average Monthly Revenue Per Network Access Customer) Network Access Customers (At 62,169 59,692 (2,477) (4.0%) Period End) Net Network Access Customer 1,044 (1,184) (2,228) (213.4%) Additions Average Monthly Churn Rate 1.4% 1.6% 0.2% 14.3% Average Monthly Revenue Per $650 $638 $(12) (1.8%) Network Access Customer Adjusted EBITDA $22,559 $18,828 $(3,731) (16.5%) Cash capital expenditures $18,369 $14,488 $(3,881) (21.1%) For the Twelve Months Ended December 31, 2011 2012 Change % Change Selected Financial Data (dollars in thousands) Revenue (total) $485,422 $487,966 $2,544 0.5% Operating expenses $488,941 $483,120 $(5,821) (1.2%) Operating income (loss) $(3,519) $4,846 $8,365 N/M Net income (loss) $(7,984) $(2,322) $5,662 70.9% Capital expenditures (total) $77,691 $69,938 $(7,753) (10.0%) Key Operating Metrics and Non-GAAP Financial Measures (dollars in thousands, except Average Monthly Revenue Per Network Access Customer) Network Access Customers (At Period 62,169 59,692 (2,477) (4.0%) End) Net Network Access Customer 5,197 (2,477) (7,674) (147.7%) Additions Average Monthly Churn Rate 1.4% 1.6% 0.2% 14.3% Average Monthly Revenue Per Network $661 $649 $(12) (1.8%) Access Customer Adjusted EBITDA $80,163 $94,245 $14,082 17.6% Cash capital expenditures $77,604 $61,605 $(15,999) (20.6%) Management Comments "Over the past twelve months we made significant 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."In addition, I'm proud to note that we met or exceeded our public guidance while pursuing these important changes in our business. Going forward, we intend to build on last year's progress with a focus on improving sales productivity and driving further refinement to our service delivery processes to address the emerging needs of our technology dependent customers." Geiger added, "With the recent launch of our new offering that bundles cloud services with broadband, called Cloud Advantage, Cbeyond can now provide a full suite of cloud and communications services delivered over our privately managed network to small and mid-sized businesses, taking care of their IT infrastructure needs from their desktop and phone all the way to our cloud data center.We believe this provides us with a unique competitive advantage as compared to cloud providers operating without the benefit of a reliable and secure managed private network when hosting mission-critical applications." Geiger continued, "We are very excited about our new bundles and go-to market approach.We believe this will assist in accelerating cloud adoption in the small and mid-sized business market, enabling us to improve ARPU and return to growth in revenue in the coming periods." Fourth Quarter Financial and Business Summary Revenue and ARPU Cbeyond reported total revenue of $118.9 million for the fourth quarter of 2012, a decrease of 3.6% from the fourth quarter of 2011 and a decrease of 2.2% from the third quarter of 2012.Managed Hosting and Cloud revenue was $6.5 million during the quarter, an increase of 15.8% year-over-year.The revenue trends in the quarter, which were in-line with Company guidance, reflect the current sales force transition, the ramp of 2.0 efforts and customer churn that was slightly higher than last year's period. ARPU was $638 in the fourth quarter of 2012, compared with $640 in the third quarter of 2012, and $650 in the fourth quarter of 2011.While ARPU appears to be stabilizing on a sequential basis, the most significant contributor to the year-over-year decline in ARPU during the fourth quarter was pricing pressure in our traditional base. Cost of Service and Gross Margin Cbeyond's gross margin was 67.0% in the fourth quarter of 2012, an increase of 30 basis points from the 66.7% level in the fourth quarter of 2011 and 120 basis point decrease from the 68.2% in the third quarter of 2012.The sequential change in gross margin was the result of lower cost recoveries from network partners and higher mobile costs, which were the result of a greater mix of smart phones. Adjusted EBITDA and Net Income Adjusted EBITDA for the fourth quarter of 2012 was $18.8 million, as compared with adjusted EBITDA of $25.2 million in the third quarter of 2012, and $22.6 million in the fourth quarter of 2011.The quarter-to-quarter and year-over-year declines in adjusted EBITDA were in-line with Company guidance and were the result of lower revenue and a higher SG&A expense, driven by hiring in new sales channels. Cbeyond reported a net loss of $5.8 million for the fourth quarter of 2012 compared with a net loss of $5.0 million in the fourth quarter of 2011 and net income of $2.0 million in the third quarter of 2012.The quarter-to-quarter change in net income was driven predominantly by the decrease in Adjusted EBITDA as well as a $3.3 million impact to income tax expense resulting from a write-down of deferred tax assets. Cash, Cash Equivalents, and Borrowings Cash and cash equivalents amounted to $30.6 million at the end of the fourth quarter of 2012, as compared with $23.9 million at the end of the third 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 $6.3 million in outstanding capital lease obligations on its balance sheet as of the end of 2012. Capital Expenditures Total capital expenditures were $19.5 million during the fourth quarter of 2012, of which $14.5 million were cash capital expenditures.The Company incurred $5.0 million in non-cash capital expenditures during the fourth quarter, consisting of $1.6 million from a lease of servers and computers at its data center and $3.4 million in capital lease obligations related to its fiber assets.The majority of the Company's non-cash capital expenditures represent Cbeyond's capital leases of fiber network assets. In the third quarter of 2012, capital expenditures were $17.5 million, all of which were cash capital expenditures. Free Cash Flow Free cash flow, defined as adjusted EBITDA less cash capital expenditures, was $4.3 million in the fourth quarter of 2012, compared with $7.7 million in the third quarter of 2012 and $4.2 million in the fourth quarter of 2011. The sequential change was in-line with expectations and was due to lower sequential revenue and higher SG&A, which were partially offset by lower capital expenditures. Business Outlook for 2013 Cbeyond provides 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 computer 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, February 27, 2013, at 5:00p.m.EST.A live broadcast of the conference call will be available on-line at www.cbeyond.com.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 (fordomestic 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/Cbeyondinc. The Cbeyond logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=16243 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, 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 aftercash 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 Twelve Months Ended December 31, December 31, 2011 2012 2011 2012 Revenue $123,321 $118,870 $485,422 $487,966 Operating expenses: Cost of revenue (excluding 41,045 39,259 161,306 158,582 depreciation and amortization) Selling, general and administrative (excluding 63,153 64,538 257,740 250,515 depreciation and amortization) Depreciation and amortization 19,095 18,605 69,895 74,023 Total operating expenses 123,293 122,402 488,941 483,120 Operating income (loss) 28 (3,532) (3,519) 4,846 Other income (expense): Interest expense, net (137) (168) (500) (577) Other income, net 1 - 1,211 - Total other income (expense) (136) (168) 711 (577) Income (loss) before income (108) (3,700) (2,808) 4,269 taxes Income tax expense (4,918) (2,075) (5,176) (6,591) Net income (loss) $(5,026) $(5,775) $(7,984) $(2,322) Net Income (loss) per common share: Basic $(0.17) $(0.19) $(0.27) $(0.08) Diluted $(0.17) $(0.19) $(0.27) $(0.08) Weighted average number of common shares outstanding: Basic 28,925 29,877 29,224 29,482 Diluted 28,925 29,877 29,224 29,482 CBEYOND, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited) December 31, December 31, 2011 2012 ASSETS Current assets Cash and cash equivalents $8,521 $30,620 Accounts receivable, net of allowance for doubtful 24,871 23,328 accounts Other assets 11,526 12,423 Total current assets 44,918 66,371 Property and equipment, net 160,470 157,624 Other non-current assets, net 35,684 31,053 Total assets $241,072 $255,048 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $14,467 $15,870 Other current liabilities 53,760 52,623 Total current liabilities 68,227 68,493 Non-current liabilities 8,858 7,722 Non-current portion of long-term debt - 6,947 Stockholders' equity Common stock 289 299 Additional paid-in capital 311,370 323,584 Accumulated deficit (147,672) (151,997) Total stockholders' equity 163,987 171,886 Total liabilities and stockholders' equity $241,072 $255,048 CBEYOND, INC. AND SUBSIDIARIES Selected Quarterly Financial Data and Operating Metrics (Dollars in thousands, except for Network Access Customer Data) (Unaudited) Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 2011 2012 2012 2012 2012 Revenues Network, Voice and $117,702 $118,087 $117,674 $115,164 $112,364 Data Managed Hosting and 5,619 5,756 6,088 6,327 6,506 Cloud Total Revenue $123,321 $123,843 $123,762 $121,491 $118,870 Adjusted EBITDA $22,559 $22,974 $27,236 $25,207 $18,828 Adjusted EBITDA margin 18.3% 18.6% 22.0% 20.7% 15.8% (As % of Total Revenue) Cash Capital $18,369 $14,836 $14,765 $17,516 $14,488 Expenditures Non-cash Capital Expenditures Capital Leases $- $2,400 $957 $- $4,976 Leasehold $- $- $- $- $- Improvements Total Capital $18,369 $17,236 $15,722 $17,516 $19,464 Expenditures Free cash flow $4,190 $8,138 $12,471 $7,691 $4,340 Network Access Customer Data Network Access Customers (At Period 62,169 62,465 62,015 60,876 59,692 End) Net Network Access 1,044 296 (450) (1,139) (1,184) Customer Additions Average Monthly Churn 1.4% 1.5% 1.5% 1.6% 1.6% Rate (1) Average Monthly Revenue Per Network $650 $645 $645 $640 $638 Access Customer (2) (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, Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 2011 2012 2012 2012 2012 Reconciliation of Free Cash Flow and Adjusted EBITDA to Net income (loss): Free Cash Flow $4,190 $8,138 $12,471 $7,691 $4,340 Cash capital expenditures 18,369 14,836 14,765 17,516 14,488 Adjusted EBITDA $22,559 $22,974 $27,236 $25,207 $18,828 Depreciation and (19,095) (18,876) (18,370) (18,172) (18,605) amortization Non-cash share-based (3,598) (3,783) (2,939) (2,975) (3,443) compensation MaximumASP purchase 162 - - - - accounting adjustments Transaction costs - - - - - Realignment costs - (1,640) (284) - (312) Interest expense, net (137) (127) (144) (138) (168) Other income, net 1 - - - - Income (loss) before (108) (1,452) 5,499 3,922 (3,700) income taxes Income tax (expense) (4,918) 258 (2,805) (1,969) (2,075) benefit Net income (loss) $(5,026) $(1,194) $2,694 $1,953 $(5,775) Twelve Months Ended Dec. 31, 2011 2012 Reconciliation of Free Cash Flow and Adjusted EBITDA to Net income (loss): Free Cash Flow $2,559 $32,640 Cash capital expenditures 77,604 61,605 Adjusted EBITDA $80,163 $94,245 Depreciation and (69,895) (74,023) amortization Non-cash share-based (14,149) (13,140) compensation MaximumASP purchase 516 - accounting adjustments Transaction costs (154) - Realignment costs - (2,236) Interest expense, net (500) (577) Other income, net 1,211 - Income (loss) before (2,808) 4,269 income taxes Income tax (expense) (5,176) (6,591) benefit Net income (loss) $(7,984) $(2,322) CBEYOND, INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure (Dollars in thousands, except for ARPU) (Unaudited) Three Months Ended, Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 2011 2012 2012 2012 2012 Calculation of ARPU: Total revenue $123,321 $123,843 $123,762 $121,491 $118,870 Cloud only revenue (3,186) (3,245) (3,367) (3,486) (3,483) (A) Network access $120,135 $120,598 $120,395 $118,005 $115,387 customer revenue (B) Average Network 61,647 62,317 62,240 61,446 60,284 access customers ARPU (A / B / number of $650 $645 $645 $640 $638 months in period) Twelve Months Ended Dec. 31, 2011 2012 Calculation of ARPU: Total revenue $485,422 $487,966 Cloud only revenue (12,793) (13,581) (A) Network access $472,629 $474,385 customer revenue (B) Average Network 59,571 60,931 access customers ARPU (A / B / number of $661 $649 months in period) CONTACT: Investor Contact: Cbeyond, Inc. T.C. Robillard Investor Relations (678) 486-8023 email@example.com Cbeyond, Inc. Logo
Cbeyond Reports Fourth Quarter 2012 Results
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