Cbeyond Making Headway in Cloud/IT Strategy

Cbeyond Inc. has demonstrated progress in moving its business to a more cloud and IT-centric model, Deutsche Bank Securities said this week in a research note.

In its first-quarter results, the communications company increased the number of tech-dependent customers with higher average revenues per user, improved productivity in its sales force, and inked two dark-fiber contracts that will boost the number of customers Cbeyond serves with metro Ethernet, wrote Brett Feldman, research analyst with Deutsche Bank Securities.

Cbeyond’s so-called 2.0 strategy to focus on tech-dependent customers buying more cloud and IT services is beginning to pay off, although the company isn’t changing its customer mix overnight.

At the end of the first quarter, 5.7 percent of Cbeyond’s revenues were generated from these tech-dependent customers, according to Deutsche Bank Securities. That’s up from 5.2 percent at the end of the fourth quarter, the firm said. Cbeyond anticipates these customers will contribute 10 percent of revenues by the end of the year, Feldman wrote.

In the quarter ending March 31, Cbeyond reported a net loss of $1.2 million on revenues of $123.8 million. Of the total revenues, $120 million derive from core managed services. Roughly $4 million are cloud services revenues, according to Cbeyond’s quarterly financial data.

The company reported the highest adjusted EBITDA ($23 million) and free cash flow ($8.1 million) in its history. The Atlanta-based carrier primarily credited improved adjusted EBITDA to higher gross margin (67.3 percent) and said its free cash flow partly benefitted from lower capital expenditures due to reduced levels of investment in Ethernet-over-copper technology.

Through its focus on tech-dependent clients, Cbeyond wants to reverse a trend in which its customers have been spending less money each month on its services.

“Our early Cbeyond 2.0 efforts have been rewarded as our sequential ARPU decline was the lowest it has been in the previous 12 quarters,” Cbeyond CEO Jim Geiger said last week. “We are confident that we are taking the necessary steps to drive ARPU higher in future periods, as we target accounts with more complex business needs.”

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