Cincinnati Bell Reports Fourth Quarter and Full Year 2014 Results
HIGHLIGHTS
  • Generated Wireline revenue growth for the first time since 2007 - Fioptics annual revenue exceeded $140 million, up more than 40 percent year-over-year
  • Achieved financial guidance (excluding Wireless) - revenue totaled $1.1 billion and Adjusted EBITDA¹ was $335 million
  • Sold 16 million CyrusOne partnership units for $356 million of cash - proceeds were used to repay debt, increasing cash flow $15 million annually
  • Completed sale of wireless spectrum licenses for cash proceeds of $194 million
  • Produced positive Free cash flow² for the year totaling $12 million
CINCINNATI - February 19, 2015 - Cincinnati Bell Inc. (NYSE:CBB) today announced financial results for the full year and fourth quarter of 2014 highlighted by the successful execution of its key initiatives and achieving its full year financial guidance (excluding Wireless). For the first time since 2007, the company generated year-over-year Wireline revenue growth on continued demand for strategic fiber products. The company also succeeded in its goal of producing positive free cash flow for the year. In addition, Cincinnati Bell used proceeds from the sale of its wireless spectrum and the partial monetization of its investment in CyrusOne to reduce net debt³ by more than $500 million during the year.

"We have made remarkable strides towards transforming Cincinnati Bell into a growing fiber based entertainment, communications and IT solutions company," said Ted Torbeck, president and chief executive officer. "Our results demonstrate this team's ability to execute on its objectives and provide confidence to accelerate our fiber investments."

Torbeck also added, "Our efforts in 2015 will be focused on the efficient deployment of fiber with a renewed emphasis on enhancing customer experiences to capitalize on our unique market opportunity."


CONSOLIDATED RESULTS4

Year-to-date consolidated revenue was $1.3 billion, a 3 percent increase over the prior year as demand for strategic products and increased hardware sales more than offset declines in Wireless revenue and legacy products. Strategic revenue totaled $436 million for the year, up 21 percent compared to a year ago. Fourth quarter consolidated revenue totaled $308 million, consistent with the prior year. Adjusted EBITDA for the year was $379 million and $78 million in the fourth quarter. Operating income equaled $116 million and $7 million for the full year and fourth quarter of 2014, respectively. Adjusted EBITDA and operating income were down from a year ago primarily due to increased costs associated with preparing to shut-down wireless operations and accelerating our fiber investments. Net income for the year totaled $76 million, resulting in diluted earnings per share of $0.31.


SEGMENT RESULTS

Wireline Segment

Wireline strategic revenue totaled $311 million during 2014, up 23 percent over the prior year, as growth from these products outpaced legacy declines each quarter in 2014.
  • Wireline revenue totaled $188 million for the quarter and $741 million for the full year, up $6 million and $16 million, respectively, from the same periods in 2013.
    • Fioptics revenue increased 40 percent compared to a year ago, totaling $40 million for the quarter and $142 million for the year.
    • Strategic business revenue totaled $166 million (including $8 million of Fioptics revenue) for the full year, up 12 percent compared to the prior year. Fourth quarter strategic revenue for business customers totaled $42 million (including $2 million of Fioptics revenue).
  • Operating income for the quarter was $36 million, down from $43 million in the same period of 2013. Full year 2014 operating income was $183 million, down 4 percent compared to 2013.
  • Adjusted EBITDA totaled $74 million and $318 million, for the fourth quarter and full year of 2014, respectively. Adjusted EBITDA results were down from a year ago due to the following: loss of higher margin access lines, costs to support our fiber acceleration, projects aimed at streamlining operations and shared service functions, and other one-time expenses incurred during the fourth quarter.
  • Fioptics video subscribers increased by 3,600 in the quarter and 17,200 for the year. Fioptics video subscribers totaled 91,400, up 23 percent compared to the end of 2013.
  • Fioptics internet subscribers totaled 113,700, up more than 40 percent from a year ago. The company added 7,000 new Fioptics internet subscribers in the quarter, and 33,800 for the year.
  • In 2014, we passed 59,000 units with Fioptics. The Fioptics suite of products is now available to 335,000 residential and business customers, more than 40 percent of Greater Cincinnati.
IT Services and Hardware Segment

Strong enterprise demand for hardware and strategic products generated year-over-year revenue growth of $89 million and improved Adjusted EBITDA margins5.
  • Revenue for the quarter was $110 million, up $23 million from the fourth quarter of 2013. Full year revenue was $433 million, up 26 percent compared to the prior year.
    • Strategic managed and professional services revenue was $37 million in the quarter and $139 million for the full year, both up 17 percent compared to the prior year.
    • Hardware revenue was $71 million for the quarter, up 32 percent year-over-year. Full year hardware revenue was $288 million, up 29 percent compared to 2013.
  • Operating income totaled $4 million for the quarter and $20 million for the year, up $2 million and $11 million, respectively, compared to the prior year.
  • Adjusted EBITDA for the quarter was $7 million, up $2 million from a year ago. Full year Adjusted EBITDA totaled $32 million, up 63 percent from the prior year.
Wireless Segment

In the second quarter of 2014 we entered into agreements to sell our wireless spectrum licenses and certain other assets related to our wireless business. The agreement to sell our spectrum licenses closed in the third quarter for cash proceeds totaling $194 million. However, we plan to continue providing wireless service until no later than April 6, 2015 as we migrate subscribers to other carriers. At that time, we will transfer certain capital lease obligations and other assets valued at approximately $25 million.
  • Revenue was $17 million for the fourth quarter and $133 million for the full year.
  • Operating losses totaled $26 million and $66 million for the fourth quarter and full year of 2014, respectively.
  • Fourth quarter Adjusted EBITDA totaled $2 million and full year Adjusted EBITDA was $44 million.
  • At the end of the year we had 82,400 wireless subscribers.
Investment in CyrusOne

Cincinnati Bell effectively owns 44 percent of CyrusOne, which is reported as an equity method investment, valued at $785 million as of December 31, 2014.
  • Reported revenue of $87 million and Adjusted EBITDA of $45 million for the fourth quarter of 2014. For the full year, CyrusOne reported revenue of $331 million and Adjusted EBITDA of $169 million.
  • Announced a 50 percent increase in the quarterly dividend for the first quarter of 2015 ($0.315 per common share and equivalent).
  • CyrusOne provided 2015 guidance targets for Revenue and Adjusted EBITDA, indicating expected growth of 14 percent and 12 percent, respectively, at the mid-point of the range.
2015 Outlook
Cincinnati Bell is providing the following guidance for 2015:
 
Category 2015 Guidance
Revenue $1.1 billion
Adjusted EBITDA $297 million*
*Plus or minus 2 percent


Conference Call/Webcast
Cincinnati Bell will host a conference call on February 19 at 10:00 a.m. (ET) to discuss its results for the fourth quarter and full year 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) 287-5563. Callers located outside of the U.S. and Canada may dial (719) 325-2376. A taped replay of the conference call will be available one hour after the conclusion of the call until 10:00 a.m. on Thursday, March 5, 2015. 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 9905311. 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.

1Adjusted 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. 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.

2Free 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.

3Net 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.

4Consolidated Results for the twelve month period ended December 31, 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 twelve month period ended December 31, 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.

5Adjusted 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.


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 and video - 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 percent 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 665 customers, including 9 of the Fortune 20 and 144 of the Fortune 1000 companies. For more information, please visit www.cincinnatibell.com.