This is the second in a series of posts that reflect on Zayo Group’s 2008 accomplishments and 2009 goals. I am approaching this in reverse, concentrating first on 2009.
The post that launched this series was Zayo Group’s 2008 Accomplishment and 2009 Goals. The post listed Zayo Group’s four priorities for 2009, with #1 being Demonstrating Financial Excellence.
Priority #1 comes with a Part A and a Part B. Part A is to demonstrate financial excellence through the actual results we achieve each quarter in 2009. Part B is to demonstrate financial excellence through providing reliable, meaningful, and thorough financial forecasts.
Part A–actual results–means that our goal is to deliver solid financial results in 2009. Many companies define their financial goals to be relative to a budget. If they meet or beat their budget, they conclude they have done well. This is NOT what I am focused on. Financial excellence is delivering results that are appropriate on an absolute basis. That is, our goal is to achieve financials each quarter that validate we are creating value for our investors. 2009 financial results should reassure investors that their Zayo investment is worth more than the dollars they’ve invested. We will not rely on the replacement cost or scarcity value of fiber to justify that our investors are in-the-money. We will not rely on synergies associated with future acquisitions or on hockey stick growth projections in years 2-5. Instead, we will focus on achieving financial results now.
To put some numbers behind these statements, Zayo Group’s 4Q08 revenue financial metrics are: Revenue =~$47M. EBITDA ~13M (30% of revenue ) and Operating Cash Flow (“OCF”) ~break even. Given the nature of Zayo’s business units, 30% EBITDA margin is respectable. OCF is calculated by subtracting Capital from EBITDA. Revenue growth rate is related to OCF performance–that is, if revenue growth is low, OCF should be high–perhaps at 20% of revenue for Zayo’s business. If revenue growth is high, say in the double digits, OCF could be in the vicinity of break-even as capital is being used to drive material top line growth.
As we look forward in 2009, ZG’s priority 1A is to grow revenue at a double digit rate while growing EBITDA% to 32-34%. OCF performance is more important than EBITDA performance in our capital intensive business. In the 1st half of 2009, our capital program is sizable due to completion of capital-intensive Fiber to the Tower projects. By 3Q09, we are targeting materially positive OCF. Again, actual OCF performance will be judged in the context of revenue growth.
In a subsequent post, I will talk about Priority #1B. For now, I encourage the Zayo team to reflect on the importance of delivering solid financial results each and every quarter. This is the foundation of a strong business. It is the source of job security. It ensures money is available to take care of customers. It allows a business to raise additional capital to accelerate growth. It is a source of pride for employees.
Football teams win by scoring touchdowns. Businesses win by delivering solid financial results. In 2009, delivering financial results will be our top priority.
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In the economic environment of instability and often mismanagement that encompasses most companies in telecom, as well as the slight despair of the world’s current economy–I feel a comfort that is assuring and empowering to go forth and sell with Zayo based on our financial management. I know we’ve all had the pleasure of working for companies in dire financial positions–many self inflicted, where being able to deliver services was questionable with equipment orders on hold and credit being evaluated at every turn. The thought that the company would be around to fulfill multi-year contracts wasn’t even on the wish list. Zayo’s position is pleasantly unique.
Zayo has come a long way in 2008–and still has a ways to go for 2009, as we mobilize to become more responsive to our customers; however, one of the greatest gifts we can give our customers is to operate a financially stable company that they can trust will exist in the future. (and it’s not a bad place to trust your own family’s financial future to boot.) It’s a formidable base to build upon…and certainly a strategic position from which to sell. And, I enjoyed the holidays a little more not having to worry personally about the impending layoffs faced by my friends throughout the industry.
So, although I’m not a financial guru like Matt/John/Dan–I can appreciate the uniqueness of our financial position and repeat the tidings of faith, comfort, confidence and appreciation discussed often by those of us in the ranks at Zayo on a regular basis (GO TEAM STEVE-O!!!).
In summary, all I have to say is “Cheers!”
T
How refreshing it is to see a telecom executive that understands the importance of a strong financial house. Very rare indeed!
Parkite–I appreciate the kind words. I do believe the telecom industry has a ways to go before it transforms from running itself as a “growth story” and realizes that there is no substitute for delivering financials in the near term. We are a mature industry–if we can’t deliver good economics now, why do we think 2 years from now will be much different? Thanks again for the commment and for reading the blog.
Teresa, you do not pose often but when you do, your comments are spot on and inspiring. You are one of the reasons why Zayo is doing well–thank you for all that you do. And thanks for commenting on the blog.
I am glad we are communictating broadly the importance of strong financial management. Too often financial management and financial literacy is not distributed deeply enough within an organization. If every employee, no matter the role, thinks like an investor the organization will be much better off, both financially AND operationally.