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Abovenet Inc. Reports Operating Results (10-K)

February 29, 2012 | About:
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10qk

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Abovenet Inc. (ABVT) filed Annual Report for the period ended 2011-12-31.

Abovenet Inc has a market cap of $1.83 billion; its shares were traded at around $71.27 with a P/E ratio of 29.8 and P/S ratio of 4.5.

Highlight of Business Operations:

Revenue. Consolidated revenue was $472.5 million for the year ended December 31, 2011, compared to $409.7 million for the year ended December 31, 2010, an increase of $62.8 million, or 15.3%. Revenue from our U.S. operations increased by $55.8 million, or 15.0%, from $371.8 million for the year ended December 31, 2010 to $427.6 million for the year ended December 31, 2011. The principal reason for this increase was the continued growth in each of our metro, fiber infrastructure and WAN services. This continued growth in revenue for each of these services is attributable principally to revenue from service installations exceeding reductions in revenue from contract terminations and any contractual price reductions. U.S. revenue from metro services increased by $15.1 million, or 13.2%, from $114.4 million for the year ended December 31, 2010 to $129.5 million for the year ended December 31, 2011, U.S. revenue from fiber infrastructure services increased by $11.5 million, or 6.7%, from $170.6 million for the year ended December 31, 2010 to $182.1 million for the year ended December 31, 2011 and U.S. revenue from WAN services increased by $22.1 million, or 27.4%, from $80.7 million for the year ended December 31, 2010 to $102.8 million for the year ended December 31, 2011. Additionally, other revenue, which includes domestic contract termination revenue and equipment sales, increased from $6.1 million for the year ended December 31, 2010 to $13.2 million for the year ended December 31, 2011. Revenue from our foreign operations, primarily in the U.K., increased by $7.0 million, or 18.5%, from $37.9 million for the year ended December 31, 2010 to $44.9 million for the year ended December 31, 2011. The primary reason for this increase was due to an increase in provisioning of services in the U.K. bolstered by a 3.7% increase in the translation rate due to the strengthening of the British pound compared to the U.S. dollar during the year ended December 31, 2011 compared to the year ended December 31, 2010.

Costs of revenue. Consolidated costs of revenue for the year ended December 31, 2011 was $162.7 million, compared to $142.8 million for the year ended December 31, 2010, an increase of $19.9 million, or 13.9%. Consolidated costs of revenue as a percentage of revenue was 34.4% for the year ended December 31, 2011, compared to 34.9% for the year ended December 31, 2010, resulting in consolidated gross profit margin of 65.6% and 65.1% for the years ended December 31, 2011 and 2010, respectively. The costs of revenue for our U.S. operations was $149.2 million and $129.6 million for the years ended December 31, 2011 and 2010, respectively, an increase of $19.6 million, or 15.1%. The increase in domestic costs of revenue for the year ended December 31, 2011 compared to the year ended December 31, 2010 was attributable principally to (i) an increase of $4.7 million in amounts rebilled to customers for equipment sales (for which there was a corresponding increase in related revenue); (ii) an increase of $4.6 million for expenses associated with third party network costs; (iii) an increase of $4.2 million in payroll-related expenses due to headcount added since the year ended December 31, 2010; (iv) an increase of $3.2 million in co-location expenses, to support our IP network services and increase our presence in third party data centers; (v) an increase of $1.6 million for right-of-way expenses; and (vi) an increase of $1.6 million for repairs and maintenance charges for our cable and transmission equipment. Additionally, the years ended December 31, 2011 and 2010 include provisions for equipment impairment with respect to domestic operations of $0.2 million and $2.0 million, respectively. The costs of revenue for our foreign operations was $13.5 million for the year ended December 31, 2011, compared to $13.2 million for the year ended December 31, 2010, an increase of $0.3 million, or 2.3%. This change was primarily due to increases in expenses required to support our European operations and the needs of our existing customers, payroll-related expenses needed to support our provisioning of services and repairs and maintenance charges, offset by the benefit from the reversal of accruals for certain business tax rates on installed fiber of $3.0 million. Additionally, the U.K. operating results for the year ended December 31, 2011included provisions for equipment impairment totaling $1.0 million. The results for the year ended December 31, 2011 compared to the year ended December 31, 2010 reflect a 3.7% increase in the translation rate of the British pound compared to the U.S. dollar.

Selling, General and Administrative Expenses (“SG&A”). Consolidated SG&A for the year ended December 31, 2011 was $116.4 million, compared to $96.6 million for the year ended December 31, 2010, an increase of $19.8 million, or 20.5%. SG&A as a percentage of revenue was 24.6% for the year ended December 31, 2011, compared to 23.6% for the year ended December 31, 2010. In the U.S., SG&A was $102.2 million for the year ended December 31, 2011, compared to $85.6 million for the year ended December 31, 2010, an increase of $16.6 million, or 19.4%. SG&A for our U.S. operations for the year ended December 31, 2011 compared to the year ended December 31, 2010 increased primarily due to (i) an increase of $11.2 million in domestic non-cash stock-based compensation expense from $11.4 million for the year ended December 31, 2010 to $22.6 million for the year ended December 31, 2011; (ii) an increase of $2.1 million in domestic payroll and payroll-related expenses from $45.5 million for the year ended December 31, 2010 to $47.6 million for the year ended December 31, 2011, which is attributable principally to an increase in sales commissions paid to our sales force due to the year over year increase in sales; (iii) an increase of $0.7 million in transaction and ad valorem taxes; (iv) an increase of $0.5 million in occupancy-related expenses; and (v) an increase of $2.1 million in other operating expenses, which include increases in computer software and maintenance of $0.5 million, and commissions paid to third party sales agents of $1.3 million attributable to the increased revenue base generated by these sales agents. SG&A from our foreign operations was $14.2 million for the year ended December 31, 2011, compared to $11.0 million for the year ended December 31, 2010, an increase of $3.2 million, or 29.1%. Our foreign operations reported increases in payroll and payroll-related expenses of $1.0 million, non-cash stock-based compensation expense of $0.6 million, provision for bad debts of $0.5 million and occupancy costs of $0.4 million, primarily related to the relocation of our London office. In addition, the results for the year ended December 31, 2010 included the reversal of a prior year accrual of a VAT tax obligation totaling $0.6 million. Finally, the results for the year ended December 31, 2011 compared to the year ended December 31, 2010 reflect a 3.7% increase in the translation rate of the British pound compared to the U.S. dollar.

Revenue. Consolidated revenue was $409.7 million for the year ended December 31, 2010, compared to $360.1 million for the year ended December 31, 2009, an increase of $49.6 million, or 13.8%. Revenue from our U.S. operations increased by $44.5 million, or 13.6%, from $327.3 million for the year ended December 31, 2009 to $371.8 million for the year ended December 31, 2010. The principal reason for this increase was the continued growth in each of our metro, fiber infrastructure and WAN services. This continued growth in revenue for each of these services is attributable principally to revenue from service installations exceeding reductions in revenue from contract terminations and any contractual price reductions. U.S. revenue from metro services increased by $19.6 million, or 20.7%, from $94.8 million for the year ended December 31, 2009 to $114.4 million for the year ended December 31, 2010, U.S. revenue from fiber infrastructure services increased by $12.3 million, or 7.8%, from $158.3 million for the year ended December 31, 2009 to $170.6 million for the year ended December 31, 2010 and U.S. revenue from WAN services increased by $13.7 million, or 20.4%, from $67.0 million for the year ended December 31, 2009 to $80.7 million for the year ended December 31, 2010. These increases were partially offset by a decrease of $1.1 million, or 15.3%, in other revenue, which includes domestic contract termination revenue, from $3.9 million for the year ended December 31, 2009 to $2.5 million for the year ended December 31, 2010. Revenue from our foreign operations, primarily in the U.K., increased by $5.1 million, or 15.5%, from $32.8 million for the year ended December 31, 2009 to $37.9 million for the year ended December 31, 2010. The primary reason for this increase was due to an increase in provisioning of services in the U.K. Also contributing to this increase was $0.2 million of contract termination revenue earned during the year ended December 31, 2010. There was no contract termination revenue earned in the U.K. during the year ended December 31, 2009. The translation rate of the British pound to the U.S. dollar for each year was substantially the same.

Selling, General and Administrative Expenses (“SG&A”). Consolidated SG&A for the year ended December 31, 2010 was $96.6 million, compared to $82.5 million for the year ended December 31, 2009, an increase of $14.1 million, or 17.1%. SG&A as a percentage of revenue was 23.6% for the year ended December 31, 2010, compared to 22.9% for the year ended December 31, 2009. In the U.S., SG&A was $85.6 million for the year ended December 31, 2010, compared to $71.2 million for the year ended December 31, 2009, an increase of $14.4 million, or 20.2%. SG&A for our U.S. operations for the year ended December 31, 2010 compared to the year ended December 31, 2009 increased primarily due to (i) an increase of $5.8 million in domestic payroll and payroll-related expenses from $39.7 million for the year ended December 31, 2009 to $45.5 million for the year ended December 31, 2010 (which is attributable to an increase in annual merit increases for domestic employees effectuated on March 1, 2010, an increase in sales commissions due to an increase in year over year sales and a sales incentive program in effect in the first quarter of 2010); (ii) an increase of $2.6 million in domestic non-cash stock-based compensation expense from $8.8 million for the year ended December 31, 2009 to $11.4 million for the year ended December 31, 2010; (iii) an increase of $1.0 million for professional fees; (iv) an increase of $0.8 million in occupancy charges; (v) an increase of $0.7 million in transaction and ad valorem taxes; and (vi) an increase of $3.4 million in other operating expenses, primarily due to increases in computer software and maintenance of $0.8 million and commissions paid to third party sales agents and related marketing expenses of $1.4 million for the year ended December 31, 2010. SG&A from our foreign operations was $11.0 million for the year ended December 31, 2010, compared to $11.3 million for the year ended December 31, 2009, a net reduction of $0.3 million, or 2.7%. Our foreign operations reported increases in payroll related expenses of $0.8 million, professional fees of $0.4 million and non-cash stock-based compensation expense of $0.2 million. However, these increases were more than offset by the reversal of a December 31, 2009 accrual for a VAT tax obligation totaling $0.6 million, which was settled during the fourth quarter of the year and a reduction in other operating expenses.

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