Zayo gets ready to jump into the SD-WAN game

Zayo plans to start offering its own SD-WAN solution set next year to bolster its enterprise WAN offerings for business customers.

Andrew Crouch, president and COO of Zayo, told investors that it will begin offering SD-WAN next year, but did not provide a specific launch date.

Zayo's Crouch
Andrew Crouch

“We plan to launch our SD-WAN product in the first quarter 2018,” Crouch said during the earnings call, according to an earnings transcript.

Zayo certainly has a lot going for itself to take a role in the SD-WAN segment.

For one, the service provider has a broad base of fiber assets. The service provider has a total of 124,000-fiber miles and over 24,000 on-net buildings connected to its network. These assets will enable to Zayo to readily deliver an SD-WAN solution that can accommodate a large or medium enterprise with multiple sites.  

Crouch said that the service provider plans to use its growing set of fiber and related network holdings to better serve business customers.  

“Enterprise WAN is a key part of the solution set, which continues to leverage our broad base of fiber and infrastructure assets,” Crouch said. “Though this is relatively new to Zayo, we're focused on building momentum in the market.”

Ethernet drives enterprise growth

In its enterprise division, Ethernet services continues to be the shining star for Zayo. The interest in Ethernet is coming from customers that need more robust data center and cloud connectivity.

“For Enterprise Networks, Ethernet continues to grow and we remain optimistic about our ability to take advantage of this technology transition across our customer base, primarily driven by data center and cloud connectivity,” Crouch said.

However, the enterprise “churn was elevated for the cloud business in the September quarter driven by a customer bankruptcy.”

Despite these setbacks, Zayo is seeing growth in the financial vertical.

Dan Caruso, CEO of Zayo, said what’s driving growth in the financial segment for Zayo’s enterprise division is the aggressive consolidation of the banking industry.

Dan Caruso

“The consolidation of the banking industry put a lot of pressure on the financial vertical,” Caruso said. “With all the traffic, the heightened security, the need for performance, the focus on latency, we're starting to see that segment pick up momentum again in a pretty significant way.”

Focus on increasing net bookings, installs

A key metric for Zayo that continues to be the subject of intense investor interest is bookings and installs.

Zayo reported bookings for the quarter were $7.6 million, gross installs of $7.3 million, 1.2% in churn and $1.2 million in net installs. Excluding the Allstream segment, these metrics are on a monthly recurring revenue (MRR) and monthly amortized revenue (MAR) basis.

To enhance its sales potential, Zayo is reorganizing its sales structure around five main clusters: carrier; finance and professional services; media; content and commerce; and cloud software and infrastructure services.

“We believe some of the company’s recent investments are beginning to pay off, with Zayo highlighting traction from its sales realignment and new salesforce additions,” said Deutsche Bank in a research note. “That said, we still think we are in the early days, as sales reps typically take 6 to 9 months to fully ramp and Phase II of its sales realignment is still ongoing (set to be completed by January 2018).”

Here's a breakdown of Zayo’s other key metrics:

Fiber Solutions: Revenues for the quarter were $195.5 million, making up 30% of total revenue.

Colo: Segment revenues were $58.4 million or 9% of the company’s revenue for the quarter.

Transport: Revenues were $119 million, making up 19% of its revenue.  

Enterprise Networks: Revenues were $137.7 million for the quarter.

Financials: Total first fiscal quarter 2018 revenue was $643.5 million. This includes $515.8 million from the Communications Infrastructure segments and $127.7 million from the Allstream segment.