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| 8-K - CINCINNATI BELL INC. 8-K - CINCINNATI BELL INC | a8-kearningsreleaseshellq1.htm |
| EX-99.1 - Q1 2018 EARNINGS RELEASE - CINCINNATI BELL INC | earningsreleaseq12018.htm |
Cincinnati Bell First Quarter 2018 Results May 9, 2018
Safe Harbor This presentation may contain “forward‐looking” statements, as defined in federal securities laws including the Private Securities Litigation Reform Act of 1995, which are based on our current expectations, estimates, forecasts and projections. Statements that are not historical facts, including statements about the beliefs, expectations and future plans and strategies of the Company, are forward‐looking statements. Actual results may differ materially from those expressed in any forward‐looking statements. The following important factors, among other things, could cause or contribute to actual results being materially and adversely different from those described or implied by such forward‐looking statements including, but not limited to: those discussed in this release; we operate in highly competitive industries, and customers may not continue to purchase products or services, which would result in reduced revenue and loss of market share; we may be unable to grow our revenues and cash flows despite the initiatives we have implemented; failure to anticipate the need for and introduce new products and services or to compete with new technologies may compromise our success in the telecommunications industry; our access lines, which generate a significant portion of our cash flows and profits, are decreasing in number and if we continue to experience access line losses similar to the past several years, our revenues, earnings and cash flows from operations may be adversely impacted; our failure to meet performance standards under our agreements could result in customers terminating their relationships with us or customers being entitled to receive financial compensation, which would lead to reduced revenues and/or increased costs; we generate a substantial portion of our revenue by serving a limited geographic area; a large customer accounts for a significant portion of our revenues and accounts receivable and the loss or significant reduction in business from this customer would cause operating revenues to decline and could negatively impact profitability and cash flows; maintaining our telecommunications networks requires significant capital expenditures, and our inability or failure to maintain our telecommunications networks could have a material impact on our market share and ability to generate revenue; increases in broadband usage may cause network capacity limitations, resulting in service disruptions or reduced capacity for customers; we may be liable for material that content providers distribute on our networks; cyber attacks or other breaches of network or other information technology security could have an adverse effect on our business; natural disasters, terrorists acts or acts of war could cause damage to our infrastructure and result in significant disruptions to our operations; the regulation of our businesses by federal and state authorities may, among other things, place us at a competitive disadvantage, restrict our ability to price our products and services and threaten our operating licenses; we depend on a number of third party providers, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers; a failure of back‐office information technology systems could adversely affect our results of operations and financial condition; if we fail to extend or renegotiate our collective bargaining agreements with our labor union when they expire or if our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed; the loss of any of the senior management team or attrition among key sales associates could adversely affect our business, financial condition, results of operations and cash flows; our debt could limit our ability to fund operations, raise additional capital, and fulfill our obligations, which, in turn, would have a material adverse effect on our businesses and prospects generally; our indebtedness imposes significant restrictions on us; we depend on our loans and credit facilities to provide for our short‐term financing requirements in excess of amounts generated by operations, and the availability of those funds may be reduced or limited; the servicing of our indebtedness is dependent on our ability to generate cash, which could be impacted by many factors beyond our control; we depend on the receipt of dividends or other intercompany transfers from our subsidiaries and investments; the trading price of our common shares may be volatile, and the value of an investment in our common shares may decline; the uncertain economic environment, including uncertainty in the U.S. and world securities markets, could impact our business and financial condition; our future cash flows could be adversely affected if it is unable to fully realize our deferred tax assets; adverse changes in the value of assets or obligations associated with our employee benefit plans could negatively impact shareowners’ deficit and liquidity; third parties may claim that we are infringing upon their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products; third parties may infringe upon our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury; we could be subject to a significant amount of litigation, which could require us to pay significant damages or settlements; we could incur significant costs resulting from complying with, or potential violations of, environmental, health and human safety laws; the timing and likelihood of completing the merger with Hawaiian Telcom, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed transaction that could reduce anticipated benefits or cause the parties to abandon the transaction; the possibility that competing offers or acquisition proposals for Hawaiian Telcom will be made; the occurrence of any event, change or other circumstance that could give rise to the termination of the proposed transaction; the possibility that the expected synergies and value creation from the proposed transaction involving Hawaiian Telcom will not be realized or will not be realized within the expected time period; the risk that the businesses of the Company and Hawaiian Telcom and other acquired companies will not be integrated successfully; disruption from the proposed transaction involving Hawaiian Telcom making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; and the possibility that the proposed transaction involving Hawaiian Telcom does not close, including due to the failure to satisfy the closing conditions and the other risks and uncertainties detailed in our filings with the SEC, including our Form 10‐K report, Form 10‐Q reports and Form 8‐K reports, as well as Hawaiian Telcom’s filings with the SEC, including its Form 10‐K reports, Form 10‐Q reports and Form 8‐K reports. These forward‐looking statements are based on information, plans and estimates as of the date hereof and there may be other factors that may cause our actual results to differ materially from these forward‐looking statements. We assume no obligation to update the information contained in this release except as required by applicable law. 2
Non‐GAAP Financial Measures This presentation contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin, net debt, net income (loss) applicable to common shareholders 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 within the Investor Relations section. 3
Call Participants Leigh Fox President and CEO, Cincinnati Bell Andy Kaiser CFO, Cincinnati Bell Tom Simpson COO, Cincinnati Bell 4 Page 4
First Quarter 2018 Highlights Key Financial Metrics Total Revenue Adjusted EBITDA ($ in millions) ($ in millions) $79 $296 $73 $12 $7 $250 $128 $81 $68 $70 $175 $174 ‐$6 ‐$6 ‐$2 ‐$3 1Q17 1Q18 1Q17 1Q18 Entertainment & Communications IT Services & Hardware Intersegment Entertainment & Communications IT Services & Hardware Corporate Entertainment & Communications IT Services & Hardware Fioptics Communications Cloud Services Revenue of 580,800 Revenue of Revenue of $83M addresses $41M $23M +13% y/y +7% y/y +11% y/y +8% y/y 5 Page 5
Progress Towards Strategic Transformation in 1Q18 Entertainment & Communications IT Services & Hardware • Investments in fiber continue to differentiate • Launched nationwide SD‐WAN and Network Cincinnati Bell from traditional carriers as a Service (NaaS) during 2017 60% 3.0% • Expanded geographic footprint to accelerate Focus on 43% 40% 33% momentum in IT services Investing 2.0% Where We Are 20% • Attractive enterprise customer base adding Winning 0% 1.0% diversification and cross‐selling opportunities FTTP Non‐FTTP Internet Penetration Internet Churn Increased • Pending merger with Hawaiian Telcom expected to • Integration of OnX progressing well – adding 20 Scale close in the early second half of 2018 offices with access to +2,000 customers • Received approval from the Hawaii Public • OnX recognized as “Major Player” in IDC Utilities Commission MarketScape Report 1 • Regulatory approval underway from FCC Category Products Practice Products Design, Application Transformation, Fioptics High‐speed Internet, Video, Voice Cloud Services Implementation, Monitoring Increased UCaaS, SD‐Wan, NaaS, Commercial LD & Financial Metro‐Ethernet, Dedicated Internet Access, Communications Enterprise Fiber VoIP Transparency Wavelength Professional Services Program, Consulting Services Access Lines, Consumer Long Distance, Application Consulting Services Legacy Switched Access, Digital Trunking, DSL Infrastructure Hardware, Software, Maintenance Solutions 6 Page1. IDC MarketScape:6 Canadian Infrastructure as a Service 208 Vendor Assessment, Feb 2018.
Entertainment & Communications Segment Results Segment Revenue Elements ($ in millions) 1Q18 Y/Y Legacy 40% Fioptics Revenue $174 ‐1% 48% Adj. EBITDA $70 2% Strategic Revenue Adj. EBITDA marginwith breakdown40% 100 bps Enterprise Fiber for 2 segments 12% Highlights • Strong and consistent performance in the fiber network ($ in millions) 1Q18 Y/Y business Fioptics $83 13% • Fioptics internet subscribers of 232,800, up 12% y/y • Fioptics video subscribers of 146,300, up 4% y/y Enterprise Fiber 21 6% • Internet subscriber net adds totaled 2,200 in 1Q18 Legacy 70 ‐14% • Pending merger with Hawaiian Telcom to add operational scale and expand the Company’s fiber‐centric footprint and Total $174 ‐1% commercial opportunity to Hawaii 7 Page 7
Continued Strong Demand for Fiber Total Fioptics Subscribers Fioptics Addresses Fioptics Penetration (y/y) (in thousands) (in thousands) Video 25% 581 545 Internet 40% Voice 18% = 233 207 441 404 141 146 Fioptics Monthly ARPU 100 107 141 140 Video $89 +4% y/y Internet $50 +3% y/y 1Q17 1Q18 1Q17 1Q18 FTTP (1) FTTN (2) Internet Video Voice Voice $29 +6% y/y • Fioptics is available to 580,800 addresses, reaching more than 70% of CBB continues to win with Greater Cincinnati – passed 9,200 new FTTP addresses in 1Q18 fiber in a very competitive environment 1. FTTP: fiber‐to‐the‐premise 2. FTTN: fiber‐to‐the‐node 8 Page 8
IT Services & Hardware Segment Results Segment Revenue Elements Infrastructure ($ in millions) 1Q18 Y/Y Solutions Cloud 21% 18% Revenue $128 58% Adj. EBITDA $12 63% Adj. EBITDA margin 9% 21 bps Communications Consulting 31% 30% Highlights ($ in millions) 1Q18 Y/Y • Hybrid IT solutions provider well positioned to capitalize on significant market opportunities presented by UCaaS, cloud, Consulting $38 n/m security, and infrastructure needs Cloud 23 8% • Year‐over‐year revenue growth across each product practice Communications 41 11% • Continued demand for Communications services– recent wins: Infrastructure 26 n/m • UCaaS contract to host 32,000 profiles across 96 locations Solutions • SD‐WAN project to provide service to 18 sites Total $128 58% 9 Page 9
Strong Momentum in Communications Communications Revenue Communications Metrics (q/q) Reporting Change ($ in millions) • Strength of growing $41 NaaS $37 564 UCaaS business Locations further highlighted by transferring SD‐WAN commercial CLEC 117 operations out of locations E&C into IT services Hosted UCaaS 178,457 Profiles 1Q17 1Q18 CBTS Trusted provider of Voice services for more than 100 years 10 Page 10
Capital Structure and Free Cash Flow Performance ($ in millions) Free Cash Flow Capital Structure Q1 Y/Y 2018 Change • Amended Credit Agreement facility to reduce Adjusted EBITDA (Non‐GAAP) $79 $6 the LIBOR interest rate spread by 50 basis points Interest Payments (27) (8) from the previous 3.75% to 3.25% per annum – Pension and OPEB Payments (3) ‐ Stock‐based Compensation 1(2) saving $3 million annually Restructuring & Severance related payments (7) 6 Transaction and Integration Costs (2) (2) Working Capital and Other 18 5 Cash Provided by Operating Activities (GAAP) $59 $5 Capital expenditures (33) 22 Net Debt Restructuring & severance related payments 7 (6) Preferred stock dividends (3) ‐ 4.1x 4.1x Net Leverage(1) Net Leverage(1) Transaction and Integration Costs 2 2 Other 1 ‐ Free Cash Flow (Non‐GAAP) $33 $23 $1,351 $1,333 • Strong FCF performance primarily due to timing interest payments and capital expenditures 4Q17 1Q18 1. Calculated as net debt divided by 2018 Adjusted EBITDA Guidance (mid‐point) 11 Page 11
Capital Expenditures ($ in millions) Capital Expenditures • Invested $17 million in Fioptics in FY 2018 1Q18 Y/Y Q1 2018 Guidance Construction $6 ‐$9 $35 ‐ $45 • Passed an additional 8,600 Installation 7 ‐845 –50 addresses during the quarter Other 4 ‐215 Total Fioptics $17 ‐$19 $95 ‐ $110 • Remain on track to build Enterprise Fiber 5120 35,000 new addresses during Maintenance 6 ‐140 2018 Total Entertainment & Communications $28 ‐$19 $155‐ $170 • Enterprise Fiber and IT Services and Hardware capital represent success‐based projects Total IT Services & Hardware $5 ‐$3 $35 ‐ $40 Total $33 ‐$22 $190 ‐ $210 12 Page 12
2018 Outlook • Revenue guidance reflects adoption of new Reaffirms 2018 Guidance revenue recognition standard • Infrastructure Solutions sales recognized Revenue $1,200M – $1,275M net of product cost Adjusted EBITDA $320M – $330M • Guidance does not include contribution from the pending merger with Hawaiian Telcom Impact of New Revenue Standard Selected 2018 Free Cash Flow Items ($ in millions) 2018 (Guidance) Capital Expenditures $190M – $210M As currently presented $1,700 – $1,775 Interest payments $115M – $125M Impact of new revenue recognition ($500) Pension and OPEB payments $15M – $20M As Adjusted $1,200 – $1,275 13 Page 13
2018 and Beyond Enhanced Strategic Focus and Flexibility Entertainment & Communications IT Services & Hardware Two Distinct Businesses with Separate Reporting and Organizational Structures Fiber continues to differentiate Cincinnati Transform to become an international Bell from traditional carriers hybrid cloud solutions provider Focus on investing •Strong demand for our fiber suite of products • Strengthening North American platform 1 where we are •Fioptics revenue increased 13% year‐over‐year winning •Growth in Fioptics internet subscribers more •Growing UCAAS sales funnel –with wins nationwide than offset DSL declines •IT services business, combined with our network •The more fiber, the greater the market Why we win expertise, while being faster and more flexible than 2 penetration the competition • Continued investments in high speed, high • Enhanced scale and expanded portfolio of How we win bandwidth fiber network creates future‐ complementary IT offerings to win larger, multi‐ 3 proof asset that has a high barrier to entry faceted deals Significant market •Growth driven by IoT and 5G •Growth driven by UCaaS, cloud, and security 4 opportunity infrastructure spend 5 Multiple upside •Network peers trading at ~8‐11x •IT peers trading at ~8‐10x 14 Page 14
Appendix Page 15
Consolidated Results ($ in millions, except per share amounts) Three Months Ended March 31, 2018 2017 Revenue $ 295.7 $ 249.6 Costs and expenses Cost of services and products 149.4 124.1 Selling, general and administrative 68.4 55.3 Depreciation and amortization 51.2 45.8 Restructuring and severance related charges 0.3 25.6 Transaction and integration costs 2.2 0.6 Operating income (loss) 24.2 (1.8) Interest expense 30.8 18.0 Other components of pension and postretirement benefit plans expense 3.3 3.2 Gain on sale of Investment in CyrusOne — (117.7) Other income, net (0.4) (0.4) (Loss) income before income taxes (9.5) 95.1 Income tax (benefit) expense (1.2) 34.5 Net (loss) income (8.3) 60.6 Preferred stock dividends 2.6 2.6 Net (loss) income applicable to common shareowners $ (10.9) $ 58.0 Basic net (loss) earnings per common share $ (0.26) $ 1.38 Diluted net (loss) earnings per common share $ (0.26) $ 1.37 Weighted average common shares outstanding (in millions) – Basic 42.3 42.1 – Diluted 42.3 42.3 16 Page 16