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Cincinnati Bell Reports Third Quarter 2014 Results


November 5, 2014

HIGHLIGHTS
  • Revenue from strategic products was $111 million, up 19 percent over the prior year
  • Fioptics revenue totaled $37 million, up 39 percent year-over-year
  • Strong third quarter Adjusted EBITDA of $96 million
  • Completed the wireless spectrum sale with cash proceeds totaling $194 million


CINCINNATI, Ohio – Cincinnati Bell Inc. (NYSE:CBB) today announced financial results for the third quarter of 2014, highlighted by the completion of the Wireless spectrum sale and continued revenue growth generated by its strategic investments. Revenue from strategic products totaled $111 million for the quarter, up 19 percent over the prior year.

Wireline revenue totaled $184 million in the third quarter, up $3 million compared to a year ago, as demand for Fioptics remains high. In the third quarter, the company added 8,400 high-speed internet subscribers and 5,300 new video subscribers. During the quarter we passed 15,900 homes with Fioptics and the product is now available to 40 percent of Greater Cincinnati. The company has also expanded the number of households capable of receiving at least 10 megabits of speed to 468,700, more than 55 percent of our market. The number of our internet customers subscribing to these speeds has grown 37 percent year-over-year and now accounts for 45 percent of our internet subscriber base.

"The completion of the Wireless spectrum sale and the initial monetization of our CyrusOne investment has created an opportunity to accelerate our fiber investments and capitalize on the growing demand for our strategic products," said Ted Torbeck, president and chief executive officer. "Our fiber investments have significantly changed the perception of Cincinnati Bell and are essential to creating a fiber based entertainment, communications, and IT solutions company with growing revenue, growing profits, and significant cash flows," added Torbeck.


CONSOLIDATED RESULTS1

Consolidated revenue for the third quarter of 2014 was $328 million, up $17 million from the prior year. Operating income for the quarter totaled $16 million and Adjusted EBITDA2 was $96 million, both down compared to third quarter of 2013, primarily due to declining Wireless results combined with increased Wireline costs associated with accelerating fiber investments and projects aimed at streamlining operations and shared service functions.

The 2014 third quarter net loss of $27 million included the following special items directly related to Wireless: restructuring charges of $9 million, asset impairments of $8 million and transaction costs of $3 million. During the quarter we also recorded a $19 million loss on extinguishment of debt related to the redemption of $325 million 8 ¾ percent Senior Subordinated Notes due 2018.

Year-to-date consolidated revenue totaled $970 million, up $21 million from a year ago. Operating income totaled $109 million and Adjusted EBITDA was $301 million. Net income for the first nine months of 2014 totaled $94 million due primarily to the gain resulting from the initial monetization of our CyrusOne investment, partially offset by initiating the wind-down of wireless operations and the loss on extinguishment of debt.


Wireline Segment
  • Wireline revenue for the quarter totaled $184 million, up $3 million compared to the prior year.
    • Fioptics revenue for the quarter was $37 million, up 39 percent from the prior year.
    • Strategic revenue for business customers totaled $42 million (including $2 million of Fioptics revenue) for the quarter, up 10 percent compared to the prior year.
  • Operating income was $44 million in the quarter and Adjusted EBITDA totaled $76 million.
  • Adjusted EBITDA margin3 for the third quarter was 41 percent.
    • Decrease from prior year resulted from additional costs to support our fiber acceleration and projects aimed at streamlining operations and shared service functions.
  • Fioptics video subscribers totaled 87,800 at the end of the third quarter, up 26 percent compared to the same period in 2013.
  • Fioptics internet subscribers totaled 106,700, adding 8,400 new Fioptics high-speed internet subscribers in the quarter.

IT Services and Hardware Segment
  • Revenue of $120 million for the quarter was up 37 percent over the prior year.
    • Strategic managed and professional services revenue was $35 million in the quarter, up 15 percent compared to the prior year.
    • Hardware revenue was $83 million for the quarter, up 48 percent year-over-year.
  • Operating income totaled $8 million for the quarter, up 84 percent compared to the prior year.
  • Adjusted EBITDA was $12 million for the quarter, up 70 percent compared to the third quarter of 2013.

Wireless Segment
  • Revenue was $30 million for the quarter, down 39 percent from the prior year.
  • Operating loss totaled $33 million in the quarter, compared to income of $7 million a year ago.
  • Adjusted EBITDA of $10 million in the quarter was down $4 million compared to the same period a year ago.
  • During the quarter we lost 99,900 subscribers, ending the quarter with 101,300 postpaid subscribers and 75,500 prepaid subscribers.

Investment in CyrusOne
  • Cincinnati Bell now effectively owns 44 percent of CyrusOne as an equity method investment, valued at $685 million as of September 30, 2014.
  • CyrusOne reported strong third quarter 2014 revenue of $85 million and Adjusted EBITDA of $42 million.

2014 Outlook

On September 30, 2014 the Company completed the sale of its wireless spectrum and has suspended guidance related to this segment. As such, excluding Wireless, the company is affirming the 2014 Adjusted EBITDA guidance and increasing its revenue guidance as follows:
 
Category 2014 Guidance (excluding Wireless) Revised 2014 Guidance (excluding Wireless)
Revenue $1.0 billion $1.1 billion
Adjusted EBITDA $333 million* $333 million

*Plus or minus 2 percent

Conference Call/Webcast
Cincinnati Bell will host a conference call on November 5 at 8:00 a.m. (ET) to discuss its results for the third quarter of 2014. A live webcast of the call will be available via the Investor Relations section of www.cincinnatibell.com. The conference call dial-in number is (888) 468-2440. Callers located outside of the U.S. and Canada may dial (719) 325-2435. A taped replay of the conference call will be available one hour after the conclusion of the call until 8:00 a.m. on Wednesday November 19, 2014. For U.S. callers, the replay will be available at (888) 203-1112. For callers outside of the U.S. and Canada, the replay will be available at (719) 457-0820. The replay reference number is 1882669. An archived version of the webcast will also be available in the Investor Relations section of www.cincinnatibell.com.

Safe Harbor Note
This release and the documents incorporated by reference herein contain forward-looking statements regarding future events and our future results that are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "predicts," "projects," "intends," "plans," "believes," "seeks," "estimates," "continues," "endeavors," "strives," "may," variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this release and those discussed in other documents we file with the Securities and Exchange Commission (SEC). More information on potential risks and uncertainties is available in our recent filings with the SEC, including Cincinnati Bell's Form 10-K report, Form 10-Q reports and Form 8-K reports. Actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Use of Non-GAAP Financial Measures.
This press release contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin, net debt, net income excluding special items, and free cash flow. These are non-GAAP financial measures used by Cincinnati Bell management when evaluating results of operations and cash flow. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations and cash flows with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of these non-GAAP financial measures to comparable GAAP financial measures have been included in the tables distributed with this release and are available in the Investor Relations section of www.cincinnatibell.com.

1Consolidated Results for the nine month period ended September 30, 2013 includes CyrusOne's results of operations from January 1, 2013 through January 23, 2013. On January 24, 2013, the Company successfully completed the initial public offering ("IPO") of CyrusOne and no longer consolidates its results, but accounts for CyrusOne as an equity method investment. Results referenced within the Consolidated Results section for the nine month period ended September 30, 2013 exclude the operations of CyrusOne for the period January 1, 2013 through January 23, 2013, to effectively provide comparative results to 2014. Excluding CyrusOne results for this period is not consistent with GAAP and should not be considered as an alternative to comparable GAAP measures of revenue, operating income, or profitability.

2Adjusted EBITDA provides a useful measure of operational performance. The company defines Adjusted EBITDA as GAAP operating income plus depreciation, amortization, transaction-related compensation, restructuring charges, (gain) loss on sale or disposal of assets, transaction costs, curtailment gain, asset impairments, components of pension and other retirement plan costs (including interest costs, asset returns, and amortization of actuarial gains and losses), and other special items. Adjusted EBITDA should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with the measure as defined by other companies.

CyrusOne defines Adjusted EBITDA as net income (loss) as defined by U.S. GAAP before noncontrolling interests plus interest expense, income tax (benefit) expense, depreciation and amortization, non-cash compensation, transaction costs and transaction-related compensation, including acquisition pursuit costs, restructuring costs, loss on extinguishment of debt, asset impairments, (gain) loss on sale of real estate improvements, and other special items. Other companies may not calculate Adjusted EBITDA in the same manner as CyrusOne. Accordingly, CyrusOne's Adjusted EBITDA as presented may not be comparable to others. Detailed reconciliations of CyrusOne's Adjusted EBITDA to the comparable GAAP financial measure are available in the Investor Relations section of www.cyrusone.com.

3Adjusted EBITDA margin provides a useful measure of operational performance. The company defines Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. Adjusted EBITDA margin should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with the measure as defined by other companies.

Net income excluding special items in total and per share provides a useful measure of operating performance. Net income excluding special items should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with net income excluding special items as defined by other companies.

Free cash flow provides a useful measure of operational performance, liquidity and financial health. The company defines free cash flow as cash provided by (used in) operating, financing and investing activities, adjusted for the issuance and repayment of debt, debt issuance costs, the repurchase of common stock, and the proceeds from the sale or the use of funds from the purchase of business operations, including transaction costs. Free cash flow should not be considered as an alternative to net income (loss), operating income (loss), cash flow from operating activities, or the change in cash on the balance sheet and may not be comparable with free cash flow as defined by other companies. Although the company feels that there is no comparable GAAP measure for free cash flow, the attached financial information reconciles free cash flow to the net increase (decrease) in cash and cash equivalents.

Net debt provides a useful measure of liquidity and financial health. The company defines net debt as the sum of the face amount of short-term and long-term debt and unamortized premium and/or discount, offset by cash and cash equivalents. Net debt should not be considered as an alternative to comparable GAAP measures of liquidity and may not be comparable with the measure as defined by other companies.

About Cincinnati Bell Inc.
With headquarters in Cincinnati, Ohio, Cincinnati Bell (NYSE: CBB) provides integrated communications solutions - including local and long distance voice, data, high-speed internet, video and wireless services - that keep residential and business customers in Greater Cincinnati and Dayton connected with each other and with the world. In addition, enterprise customers across the United States rely on CBTS, a wholly-owned subsidiary, for efficient, scalable office communications systems and end-to-end IT solutions. Cincinnati Bell owns approximately 44% of CyrusOne (NASDAQ: CONE), which specializes in highly reliable enterprise-class, carrier-neutral data center properties. CyrusOne provides mission-critical data center facilities that protect and ensure the continued operation of IT infrastructure for more than 655 customers, including 9 of the Fortune 20 and 141 of the Fortune 1000 companies. For more information, please visit www.cincinnatibell.com.