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Cincinnati Bell Reports Second Quarter 2014 Results - Continued Progress on Strategic Initiatives


August 7, 2014

HIGHLIGHTS
  • Wireline revenue was $185 million, up 2 percent from a year ago
  • Revenue from strategic products was $107 million, up 23 percent over the prior year
  • Sold 16 million CyrusOne partnership units with proceeds totaling $356 million
  • Strong second quarter Adjusted EBITDA of $100 million
  • Net Income equaled $114 million, resulting in diluted EPS of $0.53


CINCINNATI, Ohio – Cincinnati Bell Inc. (NYSE:CBB) today announced financial results for the second quarter of 2014, highlighted by the sale of 16 million CyrusOne partnership units. Proceeds from the transaction totaled $356 million and will be used to repay debt, resulting in annual interest savings of $28 million. The Company also issued a separate press release today announcing it has reached a tentative agreement with the Communications Workers of America (CWA) on a new 27-month labor contract.

"The Company's strategic fiber investments continued to produce strong Wireline revenue, which totaled $185 million in the quarter, up 2 percent compared to the prior year. Year-to-date, Wireline revenue is up $7 million compared to a year ago. Revenue from strategic products increased 23 percent over the prior year totaling $107 million dollars for the quarter as demand for Fioptics and IT solutions remains high.

"The initial monetization of our investment in CyrusOne and the agreement to sell our wireless spectrum are essential steps in achieving our goal of transforming Cincinnati Bell into a growing fiber based entertainment, communications and IT solutions company," said Ted Torbeck, president and chief executive officer. "The completion of these transactions and the continued growth of our strategic products demonstrates this team's ability to execute on its objectives," added Torbeck.


CONSOLIDATED RESULTS1
Consolidated revenue for the second quarter of 2014 was $320 million, up $8 million from the prior year. Operating income for the quarter totaled $36 million and net income of $114 million resulted in diluted earnings per share ("EPS") of $0.53. Adjusted EBITDA2 for the quarter was $100 million, down $5 million due to declines from our wireless operations and $1 million of mark-to-market expenses on compensation plans indexed to changes in our stock price.

Year-to-date consolidated revenue totaled $642 million, up $20 million from a year ago. Adjusted EBITDA was $206 million, down $1 million after excluding mark-to-market changes totaling $7 million. Operating income totaled $93 million and net income totaled $121 million for the first half of 2014.


Wireline Segment
  • Wireline revenue for the quarter totaled $185 million, up $3 million compared to the prior year.
    • Fioptics revenue for the quarter was $34 million, up 45 percent from the prior year.
    • Strategic revenue for business customers totaled $42 million (including $2 million of Fioptics revenue) for the quarter, up 16 percent compared to the prior year.
  • Operating income was $51 million in the quarter, up 3 percent from a year ago.
  • Adjusted EBITDA totaled $83 million for the quarter, down 1 percent from the same period in 2013.
  • Fioptics video subscribers totaled 82,500 at the end of the second quarter, up 31 percent compared to the same period in 2013.
  • Fioptics internet subscribers totaled 98,300, adding 6,700 new Fioptics high-speed internet subscribers in the quarter.
  • In the second quarter of 2014, we passed an additional 19,100 units with Fioptics. The Fioptics suite of products is now available to 307,100 addresses, approximately 38 percent of Greater Cincinnati.

IT Services and Hardware Segment
  • Revenue of $102 million for the quarter was up 18 percent over the prior year.
    • Strategic managed and professional services revenue was $34 million in the quarter, up 16 percent compared to the prior year.
    • Hardware revenue was $66 million for the quarter, up 17 percent year-over-year.
  • Operating income totaled $3 million for the quarter.
  • Adjusted EBITDA was $6 million for the quarter, compared to $4 million in the second quarter of 2013.

Wireless Segment
  • Revenue was $41 million for the quarter, down 20 percent from the prior year.
  • Operating loss totaled $13 million in the quarter, compared to income of $11 million a year ago.
  • Adjusted EBITDA of $15 million in the quarter was down $4 million compared to the same period a year ago.
  • Wireless subscribers totaled 276,700 at the end of the quarter.

Investment in CyrusOne
  • Sold 16 million CyrusOne partnership units resulting in a gain of $193 million.
  • Cincinnati Bell now effectively owns 44 percent of CyrusOne as an equity method investment, valued at $709 million as of June 30, 2014.
  • CyrusOne reported strong second quarter 2014 revenue of $82 million and Adjusted EBITDA of $41 million.
  • CyrusOne increased its full-year 2014 revenue and Adjusted EBITDA guidance range as follows:
 
Category 2014 Guidance Range Revised 2014 Guidance Range
Revenue $305 - $315 million $325 - $330 million
Adjusted EBITDA $160 - $165 million $165 - $170 million


2014 Outlook
On April 7, 2014 the Company announced it had entered into arrangements to sell its wireless spectrum licenses and certain other assets related to its wireless business. Therefore, the Company is separating the components of its 2014 financial guidance as follows:
 
Category 2014 Guidance Wireless Segment 2014 Guidance (excluding Wireless)
Revenue $1.2 billion $0.2 billion $1.0 billion
Adjusted EBITDA $383 million* $50 million* $333 million*

*Plus or minus 2 percent


Conference Call/Webcast
Cincinnati Bell will host a conference call on August 7th at 10:00 a.m. (ET) to discuss its results for the second 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 (866) 863-7412. Callers located outside of the U.S. and Canada may dial (816) 581-1570. 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 August 21, 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 9755753. 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 forwardlooking 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 forwardlooking 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 six month period ended June 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 six month period ended June 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 (loss) income 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, loss on sale of receivables to affiliate, 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.

Adjusted 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 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.