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Cincinnati Bell Reports Third Quarter 2017 Results
• Increased video and internet subscribers during the quarter
– Video subscribers totaled 143,500, up 10,100 year-over-year
– Internet subscribers totaled 307,900, up 8,100 year-over-year
• Strategic revenue of $168 million, up 3% year-over-year with Fioptics revenue increasing 21%
• Cash provided by operating activities totaled $157 million year-to-date, up $15 million year-over-year
• Free cash flows1 totaled $37 million year-to-date, up $78 million compared to the prior year
• Completed acquisition of OnX Enterprise Solutions, creating a leading North American IT services provider.
CINCINNATI - November 2, 2017 - Cincinnati Bell Inc. (NYSE:CBB), today announced financial results for its third quarter, ended September 30, 2017, highlighted by strategic revenue increasing $5 million over the prior year. Fioptics internet subscribers totaled 221,200, up 19% compared to a year ago. Fioptics video subscribers were up 8% compared to the same period in 2016. In the third quarter of 2017, the Company passed an additional 8,000 addresses with Fioptics, which is now available to 564,700 homes and businesses, or approximately 70 percent of Greater Cincinnati.
Leigh Fox, President and Chief Executive Officer of Cincinnati Bell, commented, "We delivered another quarter of strong operational performance, demonstrating our ability to differentiate ourselves in the marketplace. Our success highlights that fiber investments provide us the best platform to capitalize on the ever-increasing demand for data capacity, which will continue creating value for both shareholders and customers.”
Mr. Fox continued, “We also recently completed the acquisition of OnX, which represents a significant milestone in the strategic development of our IT services business. We now have enhanced scale, a broader geographic footprint as well as an expanded portfolio of complementary IT offerings, which positions us well to tap into a $250 billion industry as a leading cloud integrator for unified communications and hybrid IT workloads.”
Consolidated revenue for the third quarter of 2017 was $289 million, down 7% from the prior year, as strategic revenue growth driven by strong demand for fiber-based products was offset by lower Telecom and IT hardware sales.
Operating income was $13 million in the third quarter of 2017, compared to $26 million in the prior year period. The decline was primarily driven by $12 million of transaction and integration costs incurred in the third quarter of 2017. Adjusted EBITDA2 totaled $76 million for the third quarter of 2017, compared to $78 million in the prior year period.
Net loss for the third quarter of 2017 totaled $11 million. Net income applicable to common shareholders, excluding special items was $1 million, or $0.03 per diluted share.
Entertainment and Communications Segment
• Entertainment and Communications revenue of $196 million, up $3 million year-over-year
• Fioptics revenue of $79 million, up 21% year-over-year
• Strategic business and carrier revenue of $53 million, up 6% year-over-year
• Adjusted EBITDA of $73 million, up 5% year-over-year
With its pending merger with Hawaiian Telcom, the leading integrated communications provider serving the state of Hawaii, Cincinnati Bell will continue to expand its portfolio of high density, next-generation fiber to capitalize on the growing demand for data capacity. The merger is expected to occur during the second half of 2018, pending regulatory and shareholder approval, and represents an important step toward building scale and locking in fiber density value for shareholders and customers.
Fiber density remains a key market differentiator in an increasingly competitive environment and Cincinnati Bell’s strategic investments in fiber allow the Company to offer higher bandwidth and faster internet speed than traditional carriers.
IT Services and Hardware Segment
• IT Services and Hardware revenue of $96 million, flat sequentially, and down $27 million year-over-year
– Strategic revenue of $41 million, down $9 million year-over-year, reflecting cost cutting initiatives by a large customer
– Telecom and IT hardware sales of $44 million, down 33% year-over-year
• Adjusted EBITDA of $8 million, up $2 million sequentially, and down $3 million year-over-year
Cincinnati Bell recently announced it has successfully completed the acquisition of OnX Enterprise Solutions in the beginning of the fourth quarter of 2017. The combination of CBTS and OnX brings meaningful scale, service and product offerings, free cash flow generation, and client diversification, supporting the transformation to a hybrid IT solutions provider. The combined company’s hosted and managed services portfolio coupled with its expanded footprint will uniquely position Cincinnati Bell to capitalize on significant market opportunities presented by UCaaS, cloud, security, and infrastructure needs. Integration of the business is progressing well, with access to additional sales offices and data centers in the U.S. and Canada strengthening the Company's North American platform.
Financial Position and Cash Flow
The Company reported cash provided by operating activities of $157 million in the first nine months of 2017, compared to $142 million in the same period last year. Free cash flow increased $78 million compared to the first nine months of 2016, totaling $37 million for the first nine months of 2017. Capital expenditures were $148 million in the first nine months of 2017, compared to $189 million in the same period last year. The Company is targeting full year 2017 capital expenditures at the high end of the $180 million to $210 million range.
On October 2, 2017, Cincinnati Bell entered into a new credit agreement, comprised of a seven-year $600 million senior secured term loan facility and a five-year $200 million senior secured revolving credit facility, in connection with the completion of the OnX transaction.
On October 6, 2017, Cincinnati Bell completed the issuance, in a private placement, of $350 million aggregate principal amount of 8.000% senior notes due 2025. The Company intends to use the net proceeds from the issuance, together with cash on hand and borrowings under the Company’s senior credit facilities and receivables facility, to fund the cash portion of its pending merger with Hawaiian Telcom, refinance existing Hawaiian Telcom indebtedness and pay fees and expenses in connection with the foregoing.
The updated 2017 guidance reflects contributions from OnX which is projected to generate revenue ranging between $150 million and $200 million and Adjusted EBITDA of approximately $10 million* in the fourth quarter of 2017.
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