Cbeyond posts first profits

In its first-ever earnings call, Cbeyond was able to report its first positive operating profit and net profit, as well as record customer growth.

The company cautioned, however, that its plans to expand into Los Angeles and to launch a wireless MVNO service will likely prevent similar profits in 2006.

Revenues for the quarter were $41.4 million, with an operating profit of $1.38 million and net income of $928,000.

“We generated first positive net income, just shy of $1 million,” Chairman, CEO and President Jim Geiger said. “This is a glimpse of what may be possible as the bulk of our markets pass the new market stage. But for the near term, our focus will be on rapid growth and moderate EBITDA growth as we manage the negative EBITDA impact of new markets and our wireless efforts.”

Noting that many competitive carriers have yet to reach profitability, Cbeyond CFO Robert Fugate said, “Ours comes at a time when we are still growing rapidly and at a very early stage of our corporate life.”

The managed IP services company, currently operating in Atlanta, Chicago, Dallas, Denver and Houston, posted revenue of $41.4 million, up 39% over the third quarter of 2004, with positive net income of $0.9 million during the third quarter of 2005, compared to a loss of $1.8 million in the third quarter of 2004. Its adjusted EBITDA was $7.6 million, up 70% from the third quarter of 2004, and its adjusted EBITDA margin was 18%, up from 15% a year ago.

The company added 1462 customers, for a total of 18,897, which was up 41% from the previous year’s quarter-end total and up 8% over the second quarter of this year. The average monthly churn remained at one percent, with 60% of that coming from customers terminated from failing to pay their bill.

“We maintained stable ARPU at $760 for the quarter,” said Geiger. “Our ARPU has been at $760 to $764 for four quarters now, and we’ve been able to maintain that despite revenue growth. We are focusing our efforts on maintaining a strong ARPU. Additional new services will help us maintain that ARPU and our new wireless service will make a significant continuation to this effort.”

The money raised in Cbeyond’s successful $73.6 million IPO earlier this fall will be used to fund the company’s additional expansion into Los Angeles and five other markets that it is not yet naming, as well as the wireless MVNO, which will launch in 2006, Geiger said.

“We plan to continue to drive the penetration of managed services, and we have had good success recently with remote backup service,” he commented.