WHITE PLAINS, N.Y.–AboveNet, Inc. (NYSE: ABVT – News), a leading provider of high-bandwidth connectivity solutions, announced results for the first quarter ended March 31, 2010.
“Our first quarter 2010 performance was solid and I’m encouraged by signs that customer interest in our value proposition is increasing,” said Bill LaPerch, Chief Executive Officer of AboveNet. “Improving economic conditions have allowed customers with pent-up bandwidth demand to resume buying activity. As customer demand for high-bandwidth connectivity continues to recover, AboveNet is well positioned to benefit with its world-class, high-speed, low-latency, scalable network solutions.”
First Quarter 2010 Highlights
- Revenue for the first quarter of 2010 was $97.2 million, a 13.8% increase from $85.4 million for the first quarter of 2009. Excluding contract termination revenue from each period, revenue would have been $96.2 million and $83.5 million, respectively, an increase of $12.7 million, or 15.2%.
- Revenue from domestic metro services for the first quarter of 2010 totaled $27.0 million, an increase of 26.2% from $21.4 million for the first quarter of 2009. Revenue from domestic WAN services for the first quarter of 2010 was $18.4 million, an increase of 15.0% from $16.0 million for the first quarter of 2009.
- Adjusted EBITDA for the first quarter of 2010 was $42.6 million, compared to $38.2 million for the first quarter of 2009.
- Cash used for capital expenditures for the first quarter of 2010 was $27.4 million, compared to $21.2 million for the first quarter of 2009.
- Cash and cash equivalents at March 31, 2010 were $166.7 million, compared to $165.3 million at December 31, 2009.
“Earnings per diluted share for the 2010 first quarter was $0.52, which reflects the effect of a provision for income taxes based upon our pre-tax book income. The current provision for income taxes was substantially offset by the utilization of deferred tax assets, and thus, almost all of this provision for income taxes is non-cash,” said Joe Ciavarella, Senior Vice President and Chief Financial Officer.
Stock Split
All share and per share information has been retroactively adjusted to reflect the two-for-one stock split, effective September 3, 2009.
First Quarter Financial Results
Revenue for the first quarter of 2010 was $97.2 million, a 13.8% increase from $85.4 million for the first quarter of 2009. Included in revenue was contract termination revenue of $1.0 million for the first quarter of 2010, compared to $1.9 million, for the first quarter of 2009. Excluding contract termination revenue from each period, revenue would have been $96.2 million and $83.5 million, respectively, an increase of $12.7 million, or 15.2%.
For the first quarter of 2010, revenue from domestic operations was $88.1 million, compared to $78.5 million for the first quarter of 2009. Revenue from domestic metro services for the first quarter of 2010 totaled $27.0 million, up 26.2% from $21.4 million for the first quarter of 2009. Revenue from domestic WAN services for the first quarter of 2010 was $18.4 million, an increase of 15.0% from $16.0 million for the first quarter of 2009. Revenue from domestic fiber infrastructure services for the first quarter of 2010 totaled $41.2 million, an increase of 7.6% from $38.3 million for the first quarter of 2009. Revenue from our foreign operations, primarily in the U.K., for the first quarter of 2010 was $9.1 million, an increase of 31.9% from $6.9 million for the first quarter of 2009. This increase is primarily due to the increase in revenue at the local level, aided by the strengthening of the British pound versus the U.S. dollar for the first quarter of 2010 compared to the first quarter of 2009.
Costs of revenue for the first quarter of 2010 was $33.1 million, an increase of 12.6% from $29.4 million for the first quarter of 2009. The increase in costs of revenue primarily reflects increased co-location and third party network costs. Selling, general and administrative expenses for the first quarter of 2010 were $23.6 million, an increase of 14.0% from $20.7 million for the first quarter of 2009. This increase is primarily a result of increases in commissions and the effect of headcount increases year over year. Depreciation and amortization expense for the first quarter of 2010 was $15.5 million, compared to $11.9 million for the first quarter of 2009. This increase is primarily due to depreciation on property and equipment acquired during 2009 and the effect of the reduction in estimated useful lives of certain assets effectuated subsequent to the 2009 quarter.
Operating income for the first quarter of 2010 was $25.0 million, a 6.8% increase from $23.4 million for the first quarter of 2009, reflecting the effect of the increases in components of operating income discussed above. Net income for the first quarter of 2010 was $13.6 million, or $0.52 per diluted share, compared to $27.4 million, or $1.11 per diluted share, for the first quarter of 2009. This decrease is due to the income tax provision for the first quarter of 2010 of $9.6 million, compared to an income tax benefit of $5.1 million for the first quarter of 2009. Substantially all of the income tax provision for the first quarter of 2010 is non-cash.
Adjusted EBITDA for the first quarter of 2010 was $42.6 million, compared to $38.2 million for the first quarter of 2009. Adjusted EBITDA Margin for the first quarter of 2010 was 43.8%, compared to 44.7% for the first quarter of 2009.
Guidance
Based on the Company’s performance in the first quarter, management indicated that it expects the Company will meet the upper end of the $395 million – $400 million revenue guidance previously provided. The Company reaffirmed that Adjusted EBITDA Margin for 2010 is expected to be roughly in line with full year 2009 Adjusted EBITDA Margin, cash used for capital expenditures for 2010 is expected to be between $150 million and $160 million, and Adjusted EBITDA is expected to exceed cash used for capital expenditures in 2010.
Non-GAAP Financial Measures
“Adjusted EBITDA” is defined as net income before provision for (benefit from) income taxes, other income/expense, interest income/expense, gain on reversal of foreign currency translation adjustments from liquidation of subsidiaries, income/loss from discontinued operations, gain/loss on asset dispositions, depreciation and amortization, and non-cash based stock compensation. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA and Adjusted EBITDA Margin are not intended to replace operating income (loss), net income (loss), cash flow and other measures of financial performance and liquidity reported in accordance with accounting principles generally accepted in the United States. Rather, Adjusted EBITDA and Adjusted EBITDA Margin are measures of operating performance that investors may consider in addition to such measures. AboveNet’s management believes that adjusted or modified EBITDA and its related margin are measures of operating performance that are commonly reported and widely used by analysts, investors, and other interested parties in the telecommunications industry because they eliminate many differences in financial, capitalization, and tax structures, as well as certain non-cash and non-operating charges to earnings. AboveNet’s management currently uses Adjusted EBITDA and Adjusted EBITDA Margin for these purposes. AboveNet’s management believes that Adjusted EBITDA and Adjusted EBITDA Margin trends can be used as indicators of whether the Company’s operations are able to produce sufficient operating cash flow to fund working capital needs, service debt obligations and fund capital expenditures.
Adjusted EBITDA is also used by the Company for other purposes, including, management’s assessment of ongoing operations and as a measure for performance-based compensation. However, the definition of adjusted EBITDA for other purposes may differ from the definition of Adjusted EBITDA used herein. For example, for 2009 and 2010 the definition of adjusted EBITDA in the Company’s incentive cash bonus plan excludes certain customer termination fees. Additionally, Adjusted EBITDA as used in this press release may not be calculated identically to similarly titled measures reported by other companies.
The Company also reviews revenue, net of contract termination revenue as well as revenue in local currency. Revenue, net of contract termination revenue shows the change in the Company’s recurring revenue from period to period excluding the impact of non-recurring contract termination revenue. Revenue in local currency shows the changes of foreign subsidiary revenue without the impact of currency fluctuations. Management believes these non-GAAP metrics provide helpful insight into revenue trends.
Conference Call
AboveNet will hold a conference call to report first quarter 2010 results at 10:00 a.m. ET today, May 6, 2010. The dial in number for the call is 866-394-9472, conference ID is 69825759. The call is also being webcast with an accompanying presentation, which can be accessed through the investor relations section of AboveNet’s website at http://investors.above.net. Please allow time to download the presentation before the call starts. A replay of the call will be available from 1:00 p.m. ET on May 6 until 11:59 p.m. ET on May 13. To listen to the telephone replay in the U.S., please dial 800-642-1687 and for international callers, please dial 706-645-9291. The conference ID is the same as above. The webcast and the slide presentation will also be archived in the investor relations section of AboveNet’s website for 90 days.
About AboveNet, Inc.
AboveNet, Inc. provides high-bandwidth connectivity solutions for business and carriers. Its private optical network delivers key network and IP services in and among top U.S. metro markets and globally. AboveNet’s network is widely used in demanding markets such as financial services, media, health care, retail and government. For more information about AboveNet, please visit the Company’s website at www.above.net.
Forward Looking Statements
Statements made in this press release that are not historical in nature constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. We cannot assure you that the future results expressed or implied by the forward-looking statements will be achieved. Such statements are based on the current expectations and beliefs of the management of AboveNet, Inc. and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the Company’s financial and operating prospects, current economic trends, future opportunities, the Company’s exposure to the financial services industry, and strength of competition and pricing. The Company’s business could be materially adversely affected and the trading price of the Company’s common stock could decline if these risks and uncertainties develop into actual events. The Company cautions you not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. The Company undertakes no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events. A more detailed discussion of factors that may affect the Company’s business or future financial results is included in the Company’s SEC filings, including, but not limited to, those described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. We discuss certain non-GAAP financial measures in this press release and provide the GAAP financial measures that correspond to such non-GAAP measures, as well as the reconciliation between the two.
| ABOVENET, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (in millions, except share and per share information) | ||||||||
| March 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
| (Unaudited) | ||||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 166.7 | $ | 165.3 | ||||
| Restricted cash and cash equivalents | 3.7 | 3.7 | ||||||
| Accounts receivable, net of allowances of $1.8 and $2.0 at March 31, 2010 and | ||||||||
| December 31, 2009, respectively | 20.6 | 20.1 | ||||||
| Prepaid costs and other current assets | 14.0 | 13.5 | ||||||
| Total current assets | 205.0 | 202.6 | ||||||
| Property and equipment, net of accumulated depreciation and amortization of $249.6 and | ||||||||
| $236.5 at March 31, 2010 and December 31, 2009, respectively | 476.9 | 469.1 | ||||||
| Deferred tax assets | 173.5 | 183.0 | ||||||
| Other assets | 6.9 | 7.3 | ||||||
| Total assets | $ | 862.3 | $ | 862.0 | ||||
| LIABILITIES: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 6.6 | $ | 10.7 | ||||
| Accrued expenses | 60.7 | 68.4 | ||||||
| Deferred revenue – current portion | 26.3 | 27.3 | ||||||
| Note payable – current portion | 7.6 | 7.6 | ||||||
| Total current liabilities | 101.2 | 114.0 | ||||||
| Note payable | 47.9 | 49.7 | ||||||
| Deferred revenue | 92.3 | 93.8 | ||||||
| Other long-term liabilities | 10.3 | 10.3 | ||||||
| Total liabilities | 251.7 | 267.8 | ||||||
| Commitments and contingencies | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, 9,500,000 shares authorized, $0.01 par value, none issued or outstanding | — | — | ||||||
| Junior preferred stock, 500,000 shares authorized, $0.01 par value, none issued or | ||||||||
| outstanding | — | — | ||||||
| Common stock, 30,000,000 shares authorized, $0.01 par value, 25,710,998 issued and | ||||||||
| 25,122,617 outstanding at March 31, 2010 and 25,271,788 issued and 24,750,560 | ||||||||
| outstanding at December 31, 2009 | 0.3 | 0.3 | ||||||
| Additional paid-in capital | 315.4 | 308.2 | ||||||
| Treasury stock at cost, 588,381 and 521,228 shares at March 31, 2010 and | ||||||||
| December 31, 2009, respectively | (20.9 | ) | (16.7 | ) | ||||
| Accumulated other comprehensive loss | (9.2 | ) | (9.0 | ) | ||||
| Retained earnings | 325.0 | 311.4 | ||||||
| Total shareholders’ equity | 610.6 | 594.2 | ||||||
| Total liabilities and shareholders’ equity | $ | 862.3 | $ | 862.0 | ||||
| ABOVENET, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in millions, except share and per share information) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
| Revenue | $ | 97.2 | $ | 85.4 | ||||
| Costs of revenue (excluding depreciation and amortization, | ||||||||
| shown separately below) | 33.1 | 29.4 | ||||||
| Selling, general and administrative expenses | 23.6 | 20.7 | ||||||
| Depreciation and amortization | 15.5 | 11.9 | ||||||
| Operating income | 25.0 | 23.4 | ||||||
| Other income (expense): | ||||||||
| Interest income | — | 0.2 | ||||||
| Interest expense | (1.2 | ) | (1.2 | ) | ||||
| Other expense, net | (0.6 | ) | (0.1 | ) | ||||
| Income before income taxes | 23.2 | 22.3 | ||||||
| Provision for (benefit from) income taxes | 9.6 | (5.1 | ) | |||||
| Net income | $ | 13.6 | $ | 27.4 | ||||
| Income per share, basic: | ||||||||
| Basic net income per share | $ | 0.55 | $ | 1.19 | ||||
| Weighted average number of common shares | 24,944,514 | 22,922,284 | ||||||
| Income per share, diluted: | ||||||||
| Diluted net income per share | $ | 0.52 | $ | 1.11 | ||||
| Weighted average number of common shares | 26,218,755 | 24,613,712 | ||||||
| ABOVENET, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (in millions) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net income | $ | 13.6 | $ | 27.4 | ||||
| Adjustments to reconcile net income to net cash provided by operations: | ||||||||
| Depreciation and amortization | 15.5 | 11.9 | ||||||
| Provision for bad debts | 0.1 | 0.1 | ||||||
| Non-cash stock-based compensation expense | 2.1 | 2.9 | ||||||
| (Gain) loss on sale or disposition of property and equipment, net | (0.1 | ) | 0.2 | |||||
| Change in deferred tax assets | 9.5 | — | ||||||
| Changes in operating working capital: | ||||||||
| Accounts receivable | (0.9 | ) | 0.9 | |||||
| Prepaid costs and other current assets | (0.6 | ) | (2.4 | ) | ||||
| Accounts payable | (3.9 | ) | (5.2 | ) | ||||
| Accrued expenses | (3.7 | ) | (10.6 | ) | ||||
| Other assets | 0.2 | — | ||||||
| Deferred revenue and other long-term liabilities | (1.8 | ) | 10.6 | |||||
| Net cash provided by operating activities | 30.0 | 35.8 | ||||||
| Cash flows used in investing activities: | ||||||||
| Purchases of property and equipment | (27.4 | ) | (21.2 | ) | ||||
| Proceeds from sales of property and equipment | 0.2 | — | ||||||
| Net cash used in investing activities | (27.2 | ) | (21.2 | ) | ||||
| Cash flows used in financing activities: | ||||||||
| Proceeds from exercise of warrants | 1.2 | — | ||||||
| Proceeds from exercise of options to purchase shares of common stock | 0.1 | — | ||||||
| Principal payment – note payable | (1.9 | ) | — | |||||
| Principal payment – capital lease obligation | — | (0.2 | ) | |||||
| Purchase of treasury stock | (0.3 | ) | (0.1 | ) | ||||
| Net cash used in financing activities | (0.9 | ) | (0.3 | ) | ||||
| Effect of exchange rates on cash | (0.5 | ) | (0.1 | ) | ||||
| Net increase in cash and cash equivalents | 1.4 | 14.2 | ||||||
| Cash and cash equivalents, beginning of period | 165.3 | 87.1 | ||||||
| Cash and cash equivalents, end of period | $ | 166.7 | $ | 101.3 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | 0.8 | $ | 0.7 | ||||
| Cash paid for income taxes | $ | 0.3 | $ | 2.0 | ||||
| Supplemental non-cash financing activities: | ||||||||
| Issuance of shares of common stock in cashless exercise of stock purchase warrants | $ | 3.9 | $ | — | ||||
| Non-cash purchase of shares into treasury in cashless exercise of stock purchase warrants | $ | 3.9 | $ | — | ||||
| ABOVENET, INC. AND SUBSIDIARIES | ||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||
| (dollars in millions) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Reconciliation of Net Income to Adjusted EBITDA
|
||||||||
| NET INCOME | $ | 13.6 | $ | 27.4 | ||||
| Interest income | — | (0.2 | ) | |||||
| Interest expense | 1.2 | 1.2 | ||||||
| Other expense, net | 0.6 | 0.1 | ||||||
| Provision for (benefit from) for income taxes | 9.6 | (5.1 | ) | |||||
| OPERATING INCOME | 25.0 | 23.4 | ||||||
| Depreciation and amortization | 15.5 | 11.9 | ||||||
| Non-cash stock-based compensation | 2.1 | 2.9 | ||||||
| Adjusted EBITDA | $ | 42.6 | $ | 38.2 | ||||
|
Calculation of Adjusted EBITDA Margins
|
||||||||
| Adjusted EBITDA | $ | 42.6 | $ | 38.2 | ||||
| Revenue | $ | 97.2 | $ | 85.4 | ||||
| Adjusted EBITDA Margin | 43.8 | % | 44.7 | % | ||||
|
Reconciliation of Revenue to Revenue, Net of Contract Termination Revenue
|
||||||||
| Revenue | $ | 97.2 | $ | 85.4 | ||||
| Less: Contract Termination Revenue | (1.0 | ) | (1.9 | ) | ||||
| Revenue, Net of Contract Termination Revenue | $ | 96.2 | $ | 83.5 | ||||
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