Cincinnati Bell Reports Fourth Quarter and Full Year 2012 Results
Cincinnati Bell Reports Fourth Quarter and Full Year 2012 Results
- Achieved 2012 financial guidance for Revenue and Adjusted EBITDA
- Completed successful IPO of CyrusOne in January 2013 and retained 69 percent ongoing ownership of CyrusOne
- Passed 71,000 units with Fioptics in 2012 and achieved 28 percent customer penetration
Ted Torbeck, president and chief executive officer, stated, "In 2012, Cincinnati Bell delivered solid financial results while executing on a data center strategy that positions us to significantly reduce debt and fundamentally change Cincinnati Bell's future leverage profile."
"As the new CEO of Cincinnati Bell, I am honored to be leading a company with a very strong foundation from which to build. While challenges exist, our growth initiatives are clear. Our fiber investments are delivering strong results, and are approaching an inflection point. In 2013, we will increase capital investment to accelerate our fiber deployment to consumers and businesses in Cincinnati. As a result, we believe we can return our Wireline business to growth in 2014," Mr. Torbeck concluded.
Fourth Quarter and Full-Year Performance Highlights
- Revenue of $1.5 billion was in line with guidance and reflects a 1 percent increase over 2011. Fourth quarter 2012 revenue was $375 million, up $9 million from the same period in 2011. Full year earnings before interest, taxes, depreciation and amortization1 (Adjusted EBITDA) was $535 million for 2012, ahead of guidance of $530 million and down 2 percent compared to 2011.
- Wireline revenue for the quarter was $182 million, flat compared to the prior year when considering a one-time charge for credits recorded in the fourth quarter of 2011. Revenue for the full year of $731 million was down slightly compared to 2011, as the growth in Fioptics and data revenue from business customers continues to partially offset the impact of access line losses. Wireline Adjusted EBITDA for the full year was $344 million, resulting in an Adjusted EBITDA margin2 of 47 percent, down from 49 percent in the full year of 2011.
- CyrusOne revenue for the quarter increased 18 percent year-over-year to $58 million, and revenue for the full year of $221 million represents a 20 percent increase over 2011. CyrusOne Adjusted EBITDA for the full year was $115 million, an increase of 13 percent compared to 2011, resulting in an Adjusted EBITDA margin of 52 percent. During the fourth quarter, the company added 36,000 square feet of data center space and sold 41,000 square feet. For the year, the company constructed 199,000 square feet of additional data center space, increasing total capacity to 932,000 square feet, and sold 92,000 square feet of space. As a result, the segment's utilization at the end of 2012 was 78 percent.
- CyrusOne raised $525 million in 6.375% senior notes in the fourth quarter, and $480 million of the proceeds were used by the company to repay Cincinnati Bell corporate bonds and other debt. The company's net debt3, excluding CyrusOne, totaled $2.1 billion at the end of 2012.
Fourth Quarter and Full Year Review
For the year, revenue of $1.5 billion reflects a 1 percent increase over 2011, while fourth quarter revenue was 3 percent higher than the comparable period in 2011. Operating income for the full year of 2012 was $270 million, up 4 percent compared to 2011, with operating income from the quarter totaling $58 million. Net income for the year of $11 million was affected by a loss on extinguishment of debt of $14 million, asset impairments of $14 million and CyrusOne REIT formation and other transaction costs of $6 million. Net income excluding special items4 for the year was $34 million and resulted in 11 cents per diluted share, down from 24 cents in 2011 due primarily to additional depreciation associated with our CyrusOne capital expenditures. Full year 2012 Adjusted EBITDA was $535 million, which includes an $8 million mark-to-market charge on certain compensation plans as a result of the increase in the company's stock price in 2012, and was down from 2011 Adjusted EBITDA of $545 million.
"With the repayment of our 2015 bonds and other indebtedness in the fourth quarter, the company has no significant maturities until 2017," said Kurt Freyberger, chief financial officer. "We believe our current capital structure provides sufficient flexibility to support the growth of both our Fioptics suite of products and our business-class fiber product offerings."
For the quarter, Wireline revenue of $182 million was flat compared to the fourth quarter of 2011, after adjusting 2011 for one-time revenue credits, as the company's Fioptics and strategic business data and VoIP product lines continue their growth trend, offsetting the impact of access line losses. For the full year, Wireline revenue totaled $731 million compared to $732 million generated in 2011.
Operating income was $50 million in the quarter, up slightly compared to the same period in 2011, while the full year 2012 operating income was $213 million, down $16 million or 7 percent compared to 2011.
Adjusted EBITDA was $84 million in the fourth quarter of 2012 and $344 million for the full year, down 4 percent and 3 percent, respectively, from the same periods in 2011. Adjusted EBITDA margins of 46 percent for the quarter and 47 percent for the year were also down from 2011, driven largely by the continued loss of higher-margin access lines and the additional costs associated with Fioptics customer acquisition.
At the end of the fourth quarter, the company had a total of 205,000 homes and businesses passed with Fioptics, which represents approximately 26 percent of the Greater Cincinnati market. The segment attained an additional 4,000 Fioptics entertainment customers in the quarter and an additional 5,000 Fioptics high-speed internet subscribers, increasing the total number of such subscribers to 55,000 and 57,000, respectively. Total high-speed internet subscribers numbered 259,000 at the end of the fourth quarter, up from 257,000 at the end of 2011, as the increase in Fioptics subscribers continues to more than offset the decrease in DSL high-speed internet subscribers.
Wireless revenue was $57 million for the quarter, a decrease of 17 percent from the fourth quarter of 2011, and 2012 full year revenue of $242 million was down 13 percent compared to 2011 as postpaid subscriber losses continued. The segment generated operating income of $8 million in the quarter and $51 million for the year.
Adjusted EBITDA of $17 million in the quarter resulted in an Adjusted EBITDA margin of 30 percent. Adjusted EBITDA for the year totaled $85 million, which equated to a 35 percent Adjusted EBITDA margin.
Total wireless subscribers at the end of the quarter decreased to 398,000 compared to 459,000 at the end of 2011.
Data Center Colocation Segment
CyrusOne fourth quarter revenue was $58 million, an 18 percent increase over the fourth quarter in 2011, and annual revenues were $221 million, up 20 percent compared to 2011. The segment's operating income of $8 million in the quarter and $30 million for the year was down $2 million and $16 million, respectively, compared to the same periods in 2011.
Adjusted EBITDA for the quarter was $28 million compared to $27 million in the fourth quarter of 2011, reflecting higher revenue and additional overhead and other expenses as the company continued to prepare to operate as a stand-alone, publicly-traded real estate investment trust entity. As a result, the segment's Adjusted EBITDA margin in the quarter was 48 percent, down from 56 percent in the fourth quarter of 2011. For the year, Adjusted EBITDA of $115 million reflects a 13 percent increase over 2011. The company's 2012 Adjusted EBITDA margin was 52 percent compared to 55 percent in 2011.
CyrusOne added 36,000 square feet of new data center space during the quarter and 199,000 square feet for the full year, increasing total capacity to 932,000 square feet at the end of 2012. The company sold 41,000 square feet of new space during the fourth quarter, and 92,000 square feet for the full year.
IT Services and Hardware Segment
For the quarter, revenue was $87 million, a 15 percent increase over the fourth quarter in 2011, driven by strong hardware sales which were up 19 percent year-over-year. The segment's full-year revenue of $316 million was up 5 percent over 2011 due to a $17 million year-over-year increase in managed and professional services. Adjusted EBITDA in the quarter was $4 million, resulting in an Adjusted EBITDA margin of 5 percent. Adjusted EBITDA generated in the full year was $18 million, down $2 million from 2011.
Cincinnati Bell is providing the following guidance for 2013, which excludes CyrusOne results:
|Adjusted EBITDA||Approx. $390 million*|
*Plus or minus 2 percent
Cincinnati Bell will host a conference call on February 27, 2013 at 8:30 a.m. (ET) to discuss its results for the fourth quarter and full year of 2012. 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 (866) 780-1078. Callers located outside of the U.S. and Canada may dial (816) 581-1572. A taped replay of the conference call will be available one hour after the conclusion of the call until 8:30 a.m. on Wednesday March 13, 2013. 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 6508834. 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, restructuring charges, asset impairments, components of pension and other retirement plan costs related to interest costs, asset returns, and amortization of actuarial gains and losses, and other special items.
2Adjusted 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.
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.
4Net 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.
About Cincinnati Bell Inc.
With headquarters in Cincinnati, Ohio, Cincinnati Bell (NYS: CBB) provides integrated communications solutions - including local and long distance voice, data, high-speed internet, entertainment 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 Cincinnati Bell for efficient, scalable office communications systems and end-to-end IT solutions. Cincinnati Bell also is the majority owner of CyrusOne (NAS: CONE) , which provides best-in-class data center colocation services to enterprise customers through its facilities with fully redundant power and cooling solutions that are currently located in the Midwest, Texas, Arizona, London and Singapore. For more information, please visit www.cincinnatibell.com.
|Cincinnati Bell Inc.|
|Consolidated Statements of Operations|
|(Dollars in millions, except per share amounts)|
|Three Months Ended||Twelve Months Ended|
|December 31,||Change||December 31,||Change|
|Costs and expenses|
|Cost of services and products||184.8||174.5||10.3||6%||694.6||677.3||17.3||3%|
|Selling, general and administrative||69.9||65.4||4.5||7%||269.5||263.1||6.4||2%|
|Depreciation and amortization||57.2||53.2||4.0||8%||217.4||199.5||17.9||9%|
|Gain on sale or disposal of assets||(1.0||)||-||(1.0||)||n/m||(1.6||)||(8.4||)||6.8||81%|
|Impairment of goodwill and other assets||0.9||50.8||(49.9||)||(98)%||14.2||52.4||(38.2||)||(73)%|
|Loss on extinguishment of debt||13.6||-||13.6||n/m||13.6||-||13.6||n/m|
|Other expense, net||0.1||0.9||(0.8||)||(89)%||1.7||0.9||0.8||89%|
|Income (loss) before income taxes||(11.4||)||(45.5||)||34.1||75%||35.9||43.6||(7.7||)||(18)%|
|Income tax expense (benefit)||(1.6||)||(15.1||)||13.5||89%||24.7||25.0||(0.3||)||(1)%|
|Net income (loss)||(9.8||)||(30.4||)||20.6||68%||11.2||18.6||(7.4||)||(40)%|
|Preferred stock dividends||2.6||2.6||-||0%||10.4||10.4||-||0%|
|Net income (loss) applicable to common shareowners||$||(12.4||)||$||(33.0||)||$||20.6||62%||$||0.8||$||8.2||$||(7.4||)||(90)%|
|Basic earnings (loss) per common share||$||(0.06||)||$||(0.17||)||$||0.00||$||0.04|
|Diluted earnings (loss) per common share||$||(0.06||)||$||(0.17||)||$||0.00||$||0.04|
|Weighted average common shares outstanding|