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Cbeyond Struggling To Gain Traction

|Includes:Cbeyond, Inc. (CBEY)

Cbeyond, Inc. (NASDAQ: CBEY) is a leading technology assistance company for small and mid-sized businesses. Cbeyond helps customers to concentrate on their core business activities by removing their burden of IT infrastructure management. The company delivers communications and connectivity through enterprise data centers, cloud services and a private IP enterprise network.

In the most recent quarter, the company's revenues declined substantially to $108.5 million as compared with the $119.9 million in the same quarter last year, and $111.5 million of the fourth quarter of 2013. Cbeyond's revenues increased by 78.1 percent year-over-year, and by 19 percent sequentially from Q4 2013. This was one of the bright spots in a quarter that saw a majority of the numbers pointing south from previous periods.

Another positive figure emerged from the average monthly revenue per user (ARPU). During the first quarter of 2014, the company reported $661 ARPU as compared with the $656 of the same quarter last year, and $658 of the fourth quarter of 2013. However, based on the reduction in the overall revenue, this could mean that the number of the company's average monthly users declined substantially, which could signal tough times ahead.

The company's adjusted EBITDA, which is a crucial measure of sustainable profitability, declined to $16.9 million compared with $20.8 million in the same quarter last year and $17.7 million in the fourth quarter of 2013. Again, this indicates a continuous decline which does not paint a pretty picture for the company's near-term outlook.

While free cash flow increased by $0.4 million from Q4 2013 to $4 million, there was a massive dip in the year-over-year figure. In Q1 of 2013, Cbeyond reported $8.4 million in free cash flow.

The bottom line from the recent results is that Cbeyond's net loss soared to a whopping $5.9 million compared to $0.6 million posted the same period in 2013. In Q4 2013, the company posted a net loss of $4.9, million, which again means that Cbeyond's loss is growing sequentially.

The company is also facing a series of legal challenges, which appear to have halted its advance following the proposed acquisition by Birch Communications. In a statement on April 21, 2014, Cbeyond announced that it had reached a definitive agreement in for a possible takeover by Birch Communications whereby Cbeyond shareholders would pocket $323.4 million, subject various conditions. The proposed sale has elicited criticism from some of the company's shareholders, with legal suits already in court challenging some of the actions taken by Cbeyond's board in connection with the sale of the company to Birch Communications.

Conclusion

Based on recent developments, it appears as though Cbeyond shareholders are unable to clearly see what lies beyond the current takeover proposition. The good news though is that since the announcement, the shares of the company rallied massively to price in the takeover valuation. This has created an unlikely profitable exit point for shareholders who may have doubts about the future of the company. Perhaps, under the new regime, Cbeyond might eventually find some light to clear the darkening cloud ahead of it.

Stocks: CBEY