euNetworks Posts €18.5M Loss in H1

Revenue up but losses widen at Ethernet services firm

August 8, 2012

3 Min Read

LONDON -- euNetworks Group Limited (SGX: H23.SI), announced results for the three months ended 30 June 2012 and the first half of 2012. The Group reported improving results overall, with continued year on year recurring revenue growth and strengthening Adjusted1 EBITDA. Sequential revenue growth was impacted by churn in the quarter, but the Group continued to deliver a strong sales performance to drive recurring revenue growth in future quarters.

For the second quarter, recurring revenue was €23.2m, up from €14.6m in 2Q 2011 and €23.0m in 1Q 2012. All revenue was recurring in the quarter and the Group continued to benefit from the addition of revenue following 2011 acquisitions, albeit with lower gross margins. Following the Group’s strongest ever sales quarter in 1Q 2012, the value of total new sales order contracts declined slightly, from €23.2m to €21.1m for 2Q 2012. This was a significant increase year on year however, up 73% from 2Q 2011.

Gross profit in the quarter improved by 59%, from €10.7m in 2Q 2011 to €15.6m in 2Q 2012. Gross margin for the quarter was 67.1%, down from 73.3% in 2Q 2011, but improving from 66.5% in 1Q 2012. The decline in gross margin year on year largely reflected acquisitions completed in 2011. As previously stated, both acquired businesses were enterprise in nature, historically operating at lower gross margins. euNetworks expects gross margin to improve over time, with a strong focus on high margin new sales. In 2Q 2012 new sales had gross margins of 84%, up from ~80% in 4Q 2011 and ~83% in 1Q 2012.

Adjusted EBITDA was €2.5m in the quarter, up from €1.1m in 2Q 2011. For the half year, total revenue grew by 84% from 1H 2011 to €46.2m. Gross profit for 1H 2012 increased by 67% to €30.9m and gross margin was slightly lower, at 66.8% for reasons detailed above. Adjusted EBITDA was €4.5m, improving from €1.5m in 1H 2011.

“Churn has been higher in 2012 than previously seen,” said Brady Rafuse, Chief Executive Officer of euNetworks. “This is in part due to some LambdaNet contracts reaching the end of their term, as we knew would be the case when we acquired the business. This also reflects larger industry trends that are not limited to euNetworks − such as wholesale customers losing their end customers, and changing market strategies impacting for example, euTrade. We continue to believe that bandwidth demands are increasing and that high bandwidth services can provide a total cost benefit to many IT departments. The growth in distributed data such as cloud computing, and the mobility of data (with the ever-increasing ‘always-on’ connectivity trends we see today), are key drivers of bandwidth usage. Fibre based services such as those offered by euNetworks, are the best way to serve such bandwidth demand. Our view is that this increased demand will serve to offset our current churn performance.”

“We remain focused on optimising our systems and processes, enabling a lean production system and delivering a high standard of service to our customers to meet their bandwidth requirements both today and into the future,” said Rafuse. “There remains good momentum in our business as we head into 2H 2012 and our sales performance remains strong. We will be closely managing our key fundamentals and costs in the coming quarters, and remain focused on driving up long term recurring revenue.”

euNetworks Group Ltd.

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