CBEY

Cbeyond, Inc. (CBEY)

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Cbeyond, Inc. (CBEY)

Q4 2008 Earnings Call

February 26, 2009 5:00 pm ET

Executives

Kurt J. Abkemeier – Vice President Finance & Treasurer

James F. Geiger – Chairman of the Board, President & Chief Executive Officer

J. Robert Fugate – Chief Financial Officer & Executive Vice President

Analysts

Robert Dezego – Suntrust Robinson Humphrey

George Sutton – Craig-Hallum Capital

James Breen – Thomas Weisel Partners

Frank Louthan – Raymond James

Eric Kainer – Thinkequity LLC

Dave Coleman – RBC Capital Markets

Barry McCarver – Stephens, Inc.

Jonathan Schildkraut – Jefferies & Co.

Presentation

Operator

Welcome to today’s Cbeyond fourth quarter 2008 results conference call and webcast. This call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Vice President of Finance and Treasurer, Mr. Kurt Abkemeier.

Kurt J. Abkemeier

I would like to begin today’s call by reminding you that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include but are not limited to statements identified by words such as expectations, guidance, believes, expects, anticipates, estimates, intends, plans, targets, projects and similar expressions.

Such statements are based on the current beliefs and expectations of Cbeyond’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that might cause future results to differ include but are not limited to the following: finalization of operating data, the significant reduction in economic activity which particular affects our target market of small businesses, the affects of natural disasters or extreme weather, the risk that we may be unable to continue experience revenue growth at historical or anticipated levels, the risk of unexpected increases in customer churn levels, changes in federal or state legislation or decision by regulatory bodies that affect Cbeyond.

Periods of economic downturn or unusual volatility in the capital markets or other negative macroeconomic conditions that can harm our business including the resulting inability of certain of our customers to meet their payment obligations, the timing of the initiation, progress or cancellation of significant contracts or arrangements, the mix and timing of services sold in a particular period, our ability to recruit and maintain experienced management and personnel, rapid technological change and the timing and amount of start up costs incurred in connection with the introduction of new services or the entrance in to new markets, our ability to maintain or attractive sufficient customers in existing or new markets, our ability to respond to increasing competition, our ability to manage the growth of our operations, changes in estimates of taxable income or utilization of deferred tax assets which could significant affect the company’s effective tax rate, external events outside our control including extreme weather, natural disasters or terrorists acts that could adversely affect our target markets and general economic business conditions.

You are advised to consult any further disclosure we may make on the related subject in the reports we file with the SEC including the risk factors in our most recent annual report on Form 10K together with updates that may incur in our quarterly reports on Form 10Q and current reports on Form 8K. Such disclosures covers certain risks, uncertainties and possibly inaccurate assumptions that could cause our actual results to differ materially from expected and historical results.

We undertake no obligation to correct or update any forward-looking statements whether as a result of new information, future events or otherwise. On the call today we have Jim Geiger, Chairman, President and CEO and Bob Fugate, Executive Vice President and CFO. With that said, I’ll turn it over to Jim Geiger.

James F. Geiger

As Kurt mentioned and the operator too we’re discussing the financial and operation results for the fourth quarter 2008. But, before I discuss the highlights for Q4 and what we’re currently seeing, I’d like to say a few words about the overall economic environment and our perspective in that. In preparing our remarks for today’s call we realized that the facts of Cbeyond’s business seems almost out of step with the broader news that describes one of the toughest economies since the Great Depression.

We read about the dire economic situation facing the world today and the serious situations that many businesses find themselves in. Cbeyond is certainly impacted as well but so far not nearly as much as many other businesses. We’ll try to explain why we think that’s the case but the important thing is that we’re reporting historical facts and trying to interpret them for you as best a we can. When we provide guidance about future results we’re tempering that guidance with the assumption that some of our business conditions will worsen in the short term.

Yet, for all of this Cbeyond’s business and prospects appear to us to be strong and we have no indications that will change. So, having said all that we are pleased to report another solid quarter of significant operational and financial achievements. In the fourth quarter we achieved record quarterly growth additions of customers of approximately 3,600 slightly higher than Q3 and our highest ever despite the fewer number of business days in Q4.

Net customer growth of approximately 21% year-over-year, revenue growth of approximately 22% year-over-year, growth in adjusted EBITDA of approximately 11% year-over-year and a relatively stable monthly customer churn rate of 1.4% in the quarter. And, all of this was achieved in a worsening economy. So, how is Cbeyond able to continue attracting and retaining customers in this economy?

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