Atlanta, Georgia – (The Hosting News) – August 8, 2006 – Web hosting and managed integrated VoIP services provider, Cbeyond, has released financial results for the second quarter, reporting a net income of $1.4 million, including non-cash stock-based compensation expense of $1.3 million recorded under SFAS No. 123R, which was adopted during the first quarter of 2006.
Recent financial and operating highlights include the following:
— Strong second quarter revenue growth with revenues of $52.5 million, up 37.6% over the second quarter of 2005. The second quarter of 2006 included a $0.9 million positive adjustment relating to customer promotional liabilities recorded in prior periods;
— Adjusted EBITDA (a non-GAAP measure) of $9.4 million during the second quarter of 2006, an increase of 63.2% from the second quarter of 2005, or $8.5 million excluding the effect of the revenue adjustment;
— Rapid growth in customers with 1,805 net customer additions, bringing the total customers in Cbeyond’s six markets to 23,714; and
— An increase in average monthly revenue per customer location (ARPU) to $768, or $755 excluding the effect of the revenue adjustment, up from $751 in the prior quarter, driven by continued growth in application use per customer.
Jim Geiger, Chief Executive Officer of Cbeyond explained, ”We were pleased to report another solid quarter of financial results, but the real story was our rapid growth in customers and application usage, coupled with the continued strength in ARPU. We recorded strong sales across all our markets, including our earliest ones where we’ve been in business four to five years. And our applications used per customer climbed to 5.2, contributing to our positive trend in ARPU and high customer retention rate.”
Cbeyond reported revenues of $52.5 million for the second quarter of 2006, an increase of 37.6% from the second quarter of 2005. Revenues included a $0.9 million positive adjustment relating to customer promotional liabilities recorded in prior periods. These promotional obligations were recorded at their maximum amount in prior periods due to the lack of sufficient historical experience required under U.S. generally accepted accounting principles (GAAP) to estimate the amounts that would ultimately be claimed by customers. Going forward, revenues recorded in current periods will include estimates of breakage arising from each type of sales promotion for which the company has sufficient experience to make estimates under GAAP.
ARPU, or average revenue per customer location, was $768 in the second quarter, as compared to $751 in the first quarter of 2006. Excluding the $0.9 million revenue adjustment described above, ARPU was $755 in the second quarter, an increase of 0.5% from the first quarter of 2006. While Cbeyond had previously expected that ARPU would decline moderately through at least 2006, ARPU increased in the quarter due to added revenue from our mobile service and an acceleration in the use of other value-added applications.
Cbeyond’s gross margin was 69.1% in the second quarter of 2006 as compared with 70.2% in the second quarter of 2005. Excluding the revenue adjustment described above, gross margin in the second quarter of 2006 was 68.5%. Cost of service included $0.5 million in expenses associated with network changes relating to the Triennial Review Remand Order (TRRO), which were substantially completed in the quarter. In addition, gross margin was negatively impacted by mobile handset subsidies expensed in connection with sales of mobile service to our customers and historically typical early stage results in our newly opened Los Angeles market, which we believe is beginning to increase its revenue base to cover the early cost of service in the market.
Cbeyond reported income from operations of approximately $1.3 million in the second quarter of 2006 compared with a loss from operations of $0.3 million in the second quarter of 2005. As of January 1, 2006, Cbeyond adopted SFAS No. 123R. The income from operations of $1.3 million in the second quarter of 2006 includes $1.3 million in non-cash stock-based compensation expense as calculated using the fair value method under SFAS No. 123R, while the loss from operations of $0.3 million in the second quarter of 2005 includes $0.1 million in non-cash stock-based compensation as calculated using the intrinsic method under APB No. 25. As these are two different methodologies used for calculating non-cash stock-based compensation, they are not comparable.
For the second quarter of 2006, adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, was $9.4 million, an improvement of 63.2% over adjusted EBITDA of $5.8 million in the second quarter of 2005. Excluding the adjustment to revenue of $0.9 million described above, adjusted EBITDA for the second quarter of 2006 was $8.5 million. Adjusted EBITDA excludes the impact to EBITDA of non-cash stock-based compensation expense, loss on disposal of property and equipment, and gain on early retirement of debt.
Cbeyond reported net income of $1.4 million for the second quarter of 2006 as compared to a net loss of $0.9 million and a net loss available to common stockholders of $3.4 million for the second quarter of 2005. Cash, cash equivalents and marketable securities amounted to $32.0 million at the end of the second quarter of 2006, as compared to $29.5 million at the end of the first quarter of 2006. Capital expenditures were $11.5 million during the second quarter of 2006, compared to $11.0 million in the first quarter of 2006.
Cbeyond is an Atlanta-based managed services provider that delivers integrated packages of voice, mobile and broadband services to small businesses in Atlanta, Chicago, Dallas, Denver, Houston and Los Angeles. Cbeyond offers core communications services like local and long-distance voice, mobile and broadband Internet access along with enhanced applications, including voicemail, email, web hosting, fax-to-email, data backup, file-sharing and VPN. Cbeyond manages its services over a private, 100-percent Voice over Internet Protocol (VoIP) facilities-based network.
To learn more, please visit: www.cbeyond.net.