Atlanta, Georgia – (The Hosting News) – November 6, 2008 – Web hosting and managed integrated VoIP, broadband and mobile small business services provider, Cbeyond, has reported its financial results for the period ending September 30, 2008, including revenues of $90.2 million, up 24.6% over the third quarter of 2007.
Jim Geiger, Chief Executive Officer of Cbeyond noted, ”I am pleased to report that Cbeyond recorded another quarter of significant growth and profitability, with approximately 25% year-over-year growth in revenue and 26% year-over-year growth in adjusted EBITDA. These strong financial results were supported by continued growth in ARPU, increased applications used per customer of 6.8 from 5.9 in the corresponding quarter of 2007, increased mobile penetration at 31% of our customer base, and reaching positive adjusted EBITDA in our San Diego market.”
Mr. Geiger added, ”Our monthly customer churn remained constant at 1.3% from the previous quarter, and we posted continued solid results in collections and receivables in the third quarter. Despite the declining economic picture and Hurricane Ike’s effect on our Houston market, we had record gross customer additions of nearly 3,600 in the third quarter. Looking forward to the fourth quarter, we expect increased pressure on both churn and collections due to the carryover effect of Hurricane Ike on our Houston market, as well as the overall economic conditions across the country.”
Other financial and operating highlights include the following:
- Strong second quarter revenue growth with revenues of $90.2 million, up 24.6% over the third quarter of 2007. The second quarter of 2006 included a $0.9 million positive adjustment relating to customer promotional liabilities recorded in prior periods. Excluding this benefit to second quarter 2006 revenue, growth over the second quarter of 2006 was 31.1%;
- Net income of $1.7 million in the third quarter of 2008 compared with $3.4 million in the third quarter of 2007 (see Net Income discussion for factors affecting the comparability of income tax expense between the periods);
- Total adjusted EBITDA of $16.9 million during the third quarter of 2008, an increase of 25.5% from the third quarter of 2007 (see Schedule 1 for reconciliation to net income), which includes a positive revenue adjustment of $0.4 million and higher than typical expense credits to Cost of Service in the amount of $3.5 million (see discussion of Revenue and ARPU and Cost of Service and Gross Margin);
- Average monthly revenue per customer location (ARPU) of $760 during the third quarter of 2008, or $756 excluding the effect of a positive revenue adjustment (see Revenue and ARPU discussion), compared to $754 in the second quarter of 2008 and $749 in the third quarter of 2007; and
- Monthly customer churn of 1.3% in the third quarter of 2008 as compared to 1.3% in the second quarter of 2008.
Cbeyond reported revenues of $90.2 million for the third quarter of 2008, an increase of 24.6% from the third quarter of 2007. The sequential increase in revenue for the third quarter of 2008 was $5.2 million, as compared to a sequential increase of $4.6 million for the second quarter of 2008. Revenues in the third quarter of 2008 included a $0.4 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.
Excluding this positive adjustment to third quarter 2008 revenue, growth over the third quarter of 2007 was 24.0%. ARPU, or average monthly revenue per customer location, was $760 in the third quarter of 2008, an increase of approximately $6, or 0.8%, as compared to $754 in the second quarter of 2008 and $749 in the third quarter of 2007. The majority of the increase in ARPU over the second quarter of 2008 was due to an increase in revenue from mobile handset and laptop card sales, growth in applications, additional mobile and landlines and the previously mentioned positive adjustment relating to customer promotional liabilities. Excluding the positive adjustment relating to customer promotional liabilities, ARPU for the third quarter of 2008 was $756.
Cbeyond’s gross margin was 70.1% in the third quarter of 2008 as compared with 68.0% in the second quarter of 2008 and 69.9% in the third quarter of 2007. Gross margin increased in the third quarter of 2008 primarily due to higher than typical recoveries of access costs previously billed in error in the amount of $3.5 million, the majority of which were recorded to the Atlanta, Dallas, and Houston segments.
Cbeyond reported operating income of $3.2 million in the third quarter of 2008 compared with operating income of $3.0 million in the third quarter of 2007. For the third quarter of 2008, total adjusted EBITDA was $16.9 million, an improvement of 25.5% over total adjusted EBITDA of $13.5 million in the third quarter of 2007.
Total adjusted EBITDA for the third quarter of 2008 included $4.8 million of negative adjusted EBITDA from the planned investment in five early stage markets, while negative adjusted EBITDA for the second quarter of 2008 totaled $5.2 million from five early stage markets and for the third quarter of 2007 totaled $3.1 million from three early stage markets. Cbeyond reported net income of $1.7 million for the third quarter of 2008 as compared to net income of $3.4 million for the third quarter of 2007. The decrease in net income versus the third quarter of 2007 is due to an increased level of depreciation and amortization expense, recording income taxes at the full corporate tax rate beginning in 2008 and an increase in the Texas state margin tax.
Cash and cash equivalents amounted to $42.7 million at the end of the third quarter of 2008, as compared to $42.8 million at the end of the second quarter of 2008. Capital Expenditures Capital expenditures were $13.8 million during the third quarter of 2008, compared to $18.2 million in the second quarter of 2008 and $12.7 million in the third quarter of 2007. Capital expenditures in the third quarter of 2008 decreased from the second quarter of 2008 primarily due to reduced spending on software investment, decreases in office buildout in new markets, and lower costs associated with data center expansion.
Updated guidance for 2008 and 2009 assumes a continued challenging economy, which is expected to impact sales results and the customer churn rate. Despite the economic environment, sales volumes are expected to increase due to the increasing number of personnel selling as new markets are launched; however, higher levels of sales productivity are not assumed. The customer churn rate is assumed to remain at or above current levels. The guidance also assumes that the launch of the Greater Washington, D.C. Area market will occur in the first quarter of 2009, and the launch of the 13th market will occur later in 2009.
Mr. Geiger concluded, ”Our long-term view remains very positive as we believe customers are looking for service providers that not only offer a smart solution for their needs, but also have the staying power they require in good times and bad. Cbeyond’s debt-free balance sheet, strong cash position, and market base of established, profitable cities provide assurance that we are well-situated to weather economic storms and credit crises from a position of strength and still grow our business.”
Cbeyond, Inc. (NASDAQ: CBEY – News) is a leading IP-based managed services provider that delivers integrated packages of communications and IT services to more than 40,000 small businesses throughout the United States. Cbeyond offers more than 30 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 about Cbeyond, please visit: www.cbeyond.net.