It has been about a month since the last earnings report for Zayo Group (ZAYO). Shares were flat in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent trend continue leading up to its next earnings release, or is Zayo Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zayo Q1 Earnings & Revenues Miss Estimates, Fall Y/Y
Zayo reported lackluster first-quarter fiscal 2020 results, wherein both the bottom line and the top line missed the respective Zacks Consensus Estimate. Revenues and income declined year over year despite robust infrastructure capacity demand for webscale, content and cloud providers.
Net income for the September quarter was $17.9 million or 8 cents per share compared with $22.1 million or 9 cents per share a year ago. The year-over-year decline was primarily due to higher operating costs and lower revenues. The bottom line missed the Zacks Consensus Estimate by 10 cents.
Quarterly revenues were $638.6 million, down 0.4% from $641.1 million year over year. The top line lagged the consensus estimate of $647 million. While revenues from Zayo Networks segment totaled $483.2 million, the same from Allstream totaled $86.6 million. Revenues from zColo were $63.7 million.
Other Quarterly Details
Operating income improved to $128.9 million from $122.8 million in the prior-year quarter, primarily due to lower operating expenses. Adjusted EBITDA was $314.8 million compared with $319.4 million in the year-ago quarter with respective margins of 49% and 50%. Adjusted EBITDA from Zayo Networks was $277.5 million, $26.6 million from zColo and $9.3 million from Allstream. Capital expenditures were $217.1 million.
On a monthly recurring revenue and monthly amortized revenue basis, consolidated net installs were $0.9 million (excluding Allstream segment), which includes $1.1 million of net installs from the Zayo Networks segment and ($0.2) million from the zColo segment.
Update on Merger
With respect to its previously announced pending merger with affiliates of Digital Colony Partners and EQT Infrastructure IV fund, the company continues to make progress on all necessary approvals, and the transaction is expected to close in the first half of 2020. The closing is subject to customary conditions, including certain regulatory approvals.
Cash Flow & Liquidity
During the first fiscal quarter, Zayo generated $311.8 million of net cash from operating activities compared with $241.8 million in the year-ago quarter. Adjusted unlevered free cash flow was $138.8 million, up from $130.4 million.
As of Sep 30, 2019, the fiber optic bandwidth infrastructure company had $254.6 million in cash and equivalents compared with $353.9 million a year ago, and $5,696.1 million of long-term debt.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, Zayo Group has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Zayo Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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