EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

Investor Contact:

Kurt Abkemeier

Cbeyond, Inc.

Vice President, Finance and Treasurer

(678) 370-2887

CBEYOND REPORTS FOURTH QUARTER 2007 RESULTS

Annual Revenues Grew Organically by 30.9% and Annual Adjusted EBITDA Increased 31.8%

ATLANTA (February 21, 2008) — Cbeyond, Inc. (NASDAQ: CBEY), (“Cbeyond”), a managed services provider that delivers integrated packages of voice, broadband, and mobile services to small businesses, today announced its results for the fourth quarter ended December 31, 2007.

Recent financial and operating highlights include the following:

 

 

Strong fourth quarter revenue growth with revenues of $76.9 million, up 30.6% over the fourth quarter of 2006;

 

 

Net income of $12.5 million in the fourth quarter of 2007 compared with $4.3 million in the fourth quarter of 2006, reflecting a benefit of $9.6 million in 2007 arising from the expected future realization of operating loss carryforwards;

 

 

Total adjusted EBITDA of $14.0 million during the fourth quarter of 2007, an increase of 13.2% from the fourth quarter of 2006 (see Schedule 1 for reconciliation to net income);

 

 

Total customers in Cbeyond’s nine operating markets of 35,041, reflecting net customer additions of 1,754 in the quarter;

 

 

Average monthly revenue per customer location (ARPU) of $750 during the fourth quarter of 2007 compared to $749 in the third quarter of 2007 and $742 in the fourth quarter of 2006; and

 

 

Increase in the number of applications used per customer to 6.3 in the fourth quarter of 2007 as compared to 6.1 at the end of the third quarter of 2007 and 5.6 in the fourth quarter of 2006, with mobile penetration at 24% of the customer base.

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, 2006 and 2007, include the following:

 

     For the Three Months Ended December 31,  
     2006     2007     Change     % Change  

Selected Financial Data (dollars in thousands)

        

Revenue

   $ 58,867     $ 76,877     $ 18,010     30.6 %

Operating expenses

   $ 54,846     $ 73,932     $ 19,086     34.8 %

Operating income

   $ 4,021     $ 2,945     $ (1,076 )   (26.8 )%

Net income

   $ 4,349     $ 12,493     $ 8,144     187.3 %

Capital expenditures

   $ 11,122     $ 18,117     $ 6,995     62.9 %

Key Operating Metrics and Non-GAAP Financial Measures

        

Customers

     27,343       35,041       7,698     28.2 %

Net additions

     1,822       1,754       (68 )   (3.7 )%

Average monthly churn rate

     1.0 %     1.4 %     0.4 %   40.0 %

Average monthly revenue per customer location

   $ 742     $ 750     $ 8     1.1 %

Adjusted EBITDA (in thousands)

   $ 12,349     $ 13,975     $ 1,626     13.2 %

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

     For the Twelve Months Ended December 31,  
     2006     2007     Change     % Change  

Selected Financial Data (dollars in thousands)

        

Revenue

   $ 213,886     $ 280,034     $ 66,148     30.9 %

Operating expenses

   $ 206,843     $ 268,723     $ 61,880     29.9 %

Operating income

   $ 7,043     $ 11,311     $ 4,268     60.6 %

Net income

   $ 7,780     $ 21,498     $ 13,718     176.3 %

Capital expenditures

   $ 43,867     $ 57,534     $ 13,667     31.2 %

Key Operating Metrics and Non-GAAP Financial Measures

        

Customers

     27,343       35,041       7,698     28.2 %

Net additions

     6,996       7,698       702     10.0 %

Average monthly churn rate

     1.0 %     1.2 %     0.2 %   20.0 %

Average monthly revenue per customer location

   $ 747     $ 748     $ 1     0.1 %

Adjusted EBITDA (in thousands)

   $ 39,539     $ 52,108     $ 12,569     31.8 %

Management Comments

“In the fourth quarter of 2007, we posted strong financial results that point to the continuing growth and health of our business,” said Jim Geiger, chief executive officer of Cbeyond. “Our gross customer additions were at a record high level for us in the quarter, testifying to the continued differentiation and attractiveness of our offering in the market, but the deteriorating economic environment has increased the number of our existing customers who are unable to pay us. In order to limit the growth in receivables, we have tightened our credit policies, which has resulted in our disconnecting approximately 300 more customers for non-payment in the fourth quarter than we typically see and caused an increase in monthly customer churn to 1.4 percent during the quarter. Currently, we expect that our customer churn will continue at this level through the first quarter of 2008 and view these two quarters as a transitory period of adjustment needed to filter out our weakest credit, non-paying customers and are not reflective of future results.”

Geiger added, “While churn was one facet of our business that was challenging in the fourth quarter, I’m pleased to note that there were many other parts of the business that were stronger than ever. In addition to record gross customer additions, ARPU increased sequentially for its fourth consecutive quarter, applications used per customer increased to 6.3 versus 6.1 in the third quarter of 2007, and mobile penetration of our customer base reached 24 percent. All of our markets continue to operate as expected and our most recent market launches appear to be on track for future success. Our San Francisco Bay Area market installed its first customers during the fourth quarter, our Miami operation will launch service later in the first quarter of 2008, and we are announcing today that our eleventh market will be Minneapolis, which we expect to launch in the third quarter of 2008. These are green field growth opportunities, and we look forward to rolling out our service to these new markets with the excellence expected by our customers and investors.”

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

Fourth Quarter Financial and Business Summary

Revenues and ARPU

Cbeyond reported revenues of $76.9 million for the fourth quarter of 2007, an increase of 30.6% from the fourth quarter of 2006. ARPU, or average monthly revenue per customer location, was $750 in the fourth quarter of 2007, as compared to $749 in the third quarter of 2007.

Cost of Service and Gross Margin

Cbeyond’s gross margin was 69.1% in the fourth quarter of 2007 as compared with 71.8% in the fourth quarter of 2006. The fourth quarter of 2006 was favorably impacted by higher than usual recoveries of access costs billed to us in error.

Operating Income and Total Adjusted EBITDA

Cbeyond reported operating income of $2.9 million in the fourth quarter of 2007 compared with operating income of $4.0 million in the fourth quarter of 2006. The operating income of $2.9 million in the fourth quarter of 2007 includes $2.7 million in non-cash share-based compensation expense while the operating income of $4.0 million in the fourth quarter of 2006 includes $1.2 million in non-cash share-based compensation.

For the fourth quarter of 2007, total adjusted EBITDA was $14.0 million, an improvement of 13.2% over total adjusted EBITDA of $12.3 million in the fourth quarter of 2006.

Net Income

Cbeyond reported net income of $12.5 million for the fourth quarter of 2007 as compared to net income of $4.3 million for the fourth quarter of 2006. Net income of $12.5 million for the fourth quarter of 2007 includes a benefit of $9.6 million due to the expected utilization of prior operating loss carryforwards. Prior to the fourth quarter of 2007, under SFAS No. 109 Cbeyond fully reserved for its potential future tax benefits relating primarily to net operating loss carryforwards. During the fourth quarter of 2007, it was determined that there is sufficient confidence in achieving future income to warrant removal of a portion of this reserve.

Cash and Marketable Securities

Cash, cash equivalents and marketable securities amounted to $56.2 million at the end of the fourth quarter of 2007, as compared to $50.9 million at the end of the third quarter of 2007.

Capital Expenditures

Capital expenditures were $18.1 million during the fourth quarter of 2007, compared to $12.7 million in the third quarter of 2007 and $11.1 million in the fourth quarter of 2006. The increase in capital expenditures in the fourth quarter over the third quarter of 2007 is primarily related to network efficiency projects in our Atlanta and Denver markets, improvements in our operating and business support systems, new market expansion, and expansion of office space needed to support the growth of our customer base.

Business Outlook for 2008

Cbeyond provides the following annual guidance for 2008:

 

    

2008 Guidance

Revenues    $355 million to $360 million
Adjusted EBITDA    $60 million to $62 million
Capital expenditures    $65 million to $70 million

Cbeyond’s guidance for 2008 assumes a continued challenging economy during 2008 and the impact of negative adjusted EBITDA from early stage markets launched during 2007 and 2008.

Conference Call

Cbeyond will hold a conference call to discuss this press release Thursday, February 21, 2008, at 5:00 p.m. EST. A live broadcast of the conference call will be available on-line at www.cbeyond.net. 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) 604-9669 (for domestic U.S. callers) and (719) 325-4897 (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.

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

About Cbeyond

Cbeyond, Inc. (NASDAQ: CBEY) is a leading IP-based managed services provider that delivers integrated packages of communications and IT services to more than 35,000 small businesses throughout the United States. Cbeyond offers more than 20 productivity-enhancing applications including local and long-distance voice, broadband Internet, mobile, BlackBerry®, broadband laptop access, voicemail, email, web hosting, fax-to-email, data backup, file-sharing and virtual private networking. Cbeyond manages these services over a private, 100-percent Voice over Internet Protocol (VoIP) facilities-based network. For more information on Cbeyond, visit www.cbeyond.net.

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

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 “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: the risk that we may be unable to continue to experience revenue growth at historical levels; changes in federal or state regulation or decisions by regulatory bodies that affect the Company; periods of economic downturn and the resulting inability of 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; 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. In Schedule I, the Company defines each of these metrics and provides a reconciliation of non-GAAP financial measures to the most directly comparable 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.

SCHEDULE I

Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities as determined in accordance with accounting principles generally accepted in the United States, or GAAP, as a measure of performance or liquidity. The Company defines adjusted EBITDA as net income before interest, income taxes, depreciation and amortization expenses, excluding non-cash share-based compensation, public offering expenses, loss on disposal of property and equipment and other non-operating income or expense. Information relating to total adjusted EBITDA is provided so that investors have the same data that management employs in assessing the overall operation of the Company’s business.

Total 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, total 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. The following information includes a reconciliation of total adjusted EBITDA to net income:

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

CBEYOND, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2006     2007     2006     2007  

Revenue:

        

Customer revenue

   $ 57,614     $ 75,267     $ 208,574     $ 273,907  

Terminating access revenue

     1,253       1,610       5,312       6,127  
                                

Total revenue

     58,867       76,877       213,886       280,034  

Operating expenses:

        

Cost of service

     16,583       23,729       64,294       84,459  

Selling, general and administrative

     31,159       41,837       114,408       153,456  

Public offering expenses

     286       —         945       2  

Depreciation and amortization

     6,818       8,366       27,196       30,806  
                                

Total operating expenses

     54,846       73,932       206,843       268,723  
                                

Operating income

     4,021       2,945       7,043       11,311  

Other income (expense):

        

Interest income

     602       688       1,919       2,700  

Interest expense

     (52 )     (59 )     (163 )     (252 )

Loss on disposal of property and equipment

     (67 )     (370 )     (601 )     (1,164 )

Other income (expense), net

     12       —         12       —    
                                

Total other income

     495       259       1,167       1,284  
                                

Income before income taxes

     4,516       3,204       8,210       12,595  

Income tax benefit (expense)

     (167 )     9,289       (430 )     8,903  
                                

Net income

   $ 4,349     $ 12,493     $ 7,780     $ 21,498  
                                

Earnings per common share

        

Basic

   $ 0.16     $ 0.44     $ 0.29     $ 0.77  

Weighted average number of common shares outstanding

        

Basic

     27,362       28,146       26,951       27,837  

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

CBEYOND, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

     December 31,
2006
    December 31,
2007
 

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 34,113     $ 56,174  

Marketable securities

     9,995       —    

Accounts receivable, gross

     21,181       26,149  

Less: Allowance for doubtful accounts

     (2,586 )     (2,983 )
                

Accounts receivable, net

     18,595       23,166  

Other assets

     5,825       12,180  
                

Total current assets

     68,528       91,520  

Property and equipment, gross

     181,938       236,254  

Less: Accumulated depreciation

     (109,148 )     (137,900 )
                

Property and equipment, net

     72,790       98,354  

Other assets

     3,075       8,488  
                

Total assets

   $ 144,393     $ 198,362  
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current Liabilities

    

Accounts payable

   $ 7,538     $ 12,983  

Other accrued liabilities

     44,989       57,467  

Current portion of capital lease obligations

     98       —    
                

Total current liabilities

     52,625       70,450  

Deferred installation revenue

     660       594  

Stockholders’ equity

    

Common stock

     274       282  

Deferred stock compensation

     (22 )     —    

Additional paid-in capital

     238,852       253,534  

Accumulated deficit

     (147,996 )     (126,498 )
                

Total stockholders’ equity

     91,108       127,318  
                

Total liabilities and stockholders’ equity

   $ 144,393     $ 198,362  
                

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

CBEYOND, INC. AND SUBSIDIARIES

Selected Operating Statistics

(Dollars in thousands, except for Other Operating Data)

(Unaudited)

 

     Dec. 31
2006
    Mar. 31
2007
    Jun. 30
2007
    Sept. 30
2007
    Dec. 31
2007
 

Revenues

          

Atlanta

   $ 16,661     $ 17,255     $ 17,957     $ 18,555     $ 19,044  

Dallas

     13,617       14,328       15,039       15,652       16,165  

Denver

     15,161       15,548       16,035       16,453       16,793  

Houston

     7,911       8,608       9,422       10,147       10,813  

Chicago

     4,428       5,373       6,319       7,143       7,913  

Los Angeles

     1,089       1,842       2,611       3,522       4,372  

San Diego

     —         72       332       818       1,288  

Detroit

     —         —         —         126       450  

San Francisco Bay Area

     —         —         —         —         39  
                                        

Total revenues

   $ 58,867     $ 63,026     $ 67,715     $ 72,416     $ 76,877  
                                        

Operating income (loss)

          

Atlanta

   $ 9,125     $ 8,859     $ 9,241     $ 9,723     $ 9,807  

Dallas

     5,815       5,804       6,097       6,575       7,242  

Denver

     7,411       7,739       7,893       7,945       7,777  

Houston

     2,252       2,558       3,098       3,658       3,718  

Chicago

     56       536       905       1,307       1,583  

Los Angeles

     (1,857 )     (1,188 )     (1,261 )     (682 )     (63 )

San Diego

     (604 )     (1,324 )     (1,671 )     (1,500 )     (1,330 )

Detroit

     —         (11 )     (762 )     (1,410 )     (1,657 )

San Francisco Bay Area

     —         —         (5 )     (328 )     (1,211 )

Miami

     —         —         —         (8 )     (63 )

Corporate

     (18,177 )     (20,141 )     (20,967 )     (22,314 )     (22,858 )
                                        

Total operating income

   $ 4,021     $ 2,832     $ 2,568     $ 2,966     $ 2,945  
                                        

Adjusted EBITDA

          

Atlanta

   $ 10,092     $ 9,959     $ 10,290     $ 10,779     $ 10,865  

Dallas

     6,916       6,888       7,181       7,683       8,283  

Denver

     8,503       8,811       8,900       8,823       8,646  

Houston

     3,018       3,375       3,965       4,513       4,634  

Chicago

     508       1,090       1,540       2,001       2,336  

Los Angeles

     (1,570 )     (877 )     (883 )     (283 )     432  

San Diego

     (603 )     (1,233 )     (1,537 )     (1,289 )     (1,182 )

Detroit

     —         (11 )     (743 )     (1,239 )     (1,451 )

San Francisco Bay Area

     —         —         (5 )     (322 )     (1,141 )

Miami

     —         —         —         (8 )     (58 )

Corporate

     (14,515 )     (15,943 )     (16,097 )     (17,195 )     (17,389 )
                                        

Total adjusted EBITDA

   $ 12,349     $ 12,059     $ 12,611     $ 13,463     $ 13,975  
                                        

Adjusted EBITDA margin (market-level)

          

Atlanta

     60.6 %     57.7 %     57.3 %     58.1 %     57.1 %

Dallas

     50.8 %     48.1 %     47.7 %     49.1 %     51.2 %

Denver

     56.1 %     56.7 %     55.5 %     53.6 %     51.5 %

Houston

     38.1 %     39.2 %     42.1 %     44.5 %     42.9 %

Chicago

     11.5 %     20.3 %     24.4 %     28.0 %     29.5 %

Los Angeles

     (144.2 )%     (47.6 )%     (33.8 )%     (8.0 )%     9.9 %

San Diego

     N/M       N/M       N/M       (157.6 )%     (91.8 )%

Detroit

     N/M       N/M       N/M       N/M       N/M  

San Francisco Bay Area

     N/M       N/M       N/M       N/M       N/M  

Miami

     N/M       N/M       N/M       N/M       N/M  

Adjusted EBITDA margin (as % of total revenue)

          

Corporate

     (24.7 )%     (25.3 )%     (23.8 )%     (23.7 )%     (22.6 )%

Total

     21.0 %     19.1 %     18.6 %     18.6 %     18.2 %

 

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CBEY Reports Fourth Quarter 2007 Results

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February 21, 2008

 

CBEYOND, INC. AND SUBSIDIARIES

Selected Operating Statistics

(Dollars in thousands, except for Other Operating Data)

(Unaudited)

 

     Dec. 31
2006
    Mar. 31
2007
    Jun. 30
2007
    Sept. 30
2007
    Dec. 31
2007
 

Capital expenditures

          

Atlanta

   $ 1,064     $ 1,464     $ 916     $ 1,059     $ 2,163  

Dallas

     1,438       2,149       777       586       738  

Denver

     987       394       731       847       1,230  

Houston

     871       1,149       826       889       689  

Chicago

     956       1,166       792       907       947  

Los Angeles

     1,061       854       923       1,014       791  

San Diego

     530       1,067       205       653       609  

Detroit

     146       1,379       1,572       550       464  

San Francisco Bay Area

     —         36       408       1,363       1,301  

Miami

     —         —         —         54       1,095  

Minneapolis

     —         —         —         47       288  

Corporate

     4,069       4,224       5,652       4,764       7,802  
                                        

Total capital expenditures

   $ 11,122     $ 13,882     $ 12,802     $ 12,733     $ 18,117  
                                        

Other Operating Data

          

Customers (at period end)

     27,343       29,166       31,175       33,287       35,041  

Net additions

     1,822       1,823       2,009       2,112       1,754  

Average monthly churn rate

     1.0 %     1.0 %     1.0 %     1.1 %     1.4 %

Average monthly revenue per customer location

   $ 742     $ 744     $ 748     $ 749     $ 750  

 

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CBEY Reports Fourth Quarter 2007 Results

Page 10

February 21, 2008

 

CBEYOND, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

(In thousands)

(Unaudited)

 

     Dec. 31
2006
    Mar. 31
2007
    Jun. 30
2007
    Sept. 30
2007
    Dec. 31
2007
 

Reconciliation of Adjusted EBITDA to Net income:

          

Total Adjusted EBITDA for reportable segments

   $ 12,349     $ 12,059     $ 12,611     $ 13,463     $ 13,975  

Depreciation and amortization

     (6,818 )     (7,120 )     (7,557 )     (7,763 )     (8,366 )

Non-cash share-based compensation

     (1,224 )     (2,105 )     (2,486 )     (2,734 )     (2,664 )

Public offering expenses

     (286 )     (2 )     —         —         —    

Interest income

     602       608       655       749       688  

Interest expense

     (52 )     (45 )     (48 )     (100 )     (59 )

Loss on disposal of property and equipment

     (67 )     (332 )     (243 )     (219 )     (370 )

Other income, net

     12       —         —         —         —    

Income tax benefit (expense)

     (167 )     (330 )     (40 )     (16 )     9,289  
                                        

Net income

   $ 4,349     $ 2,733     $ 2,892     $ 3,380     $ 12,493  
                                        

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2006     2007     2006     2007  

Reconciliation of Adjusted EBITDA to Net income:

        

Total Adjusted EBITDA for reportable segments

   $ 12,349     $ 13,975     $ 39,539     $ 52,108  

Depreciation and amortization

     (6,818 )     (8,366 )     (27,196 )     (30,806 )

Non-cash share-based compensation

     (1,224 )     (2,664 )     (4,355 )     (9,989 )

Public offering expenses

     (286 )     —         (945 )     (2 )

Interest income

     602       688       1,919       2,700  

Interest expense

     (52 )     (59 )     (163 )     (252 )

Loss on disposal of property and equipment

     (67 )     (370 )     (601 )     (1,164 )

Other income, net

     12       —         12       —    

Income tax benefit (expense)

     (167 )     9,289       (430 )     8,903  
                                

Net income

   $ 4,349     $ 12,493     $ 7,780     $ 21,498  
                                

* * * * *

 

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