[May 03, 2012]

Cincinnati Bell Reports First Quarter 2012 Results

Cincinnati Bell Inc. (NYSE:CBB) today announced financial results for the first quarter of 2012. For the quarter, revenue was $363 million, up from $361 million in the first quarter of 2011. Operating income was $81 million in the quarter, and net income of $13 million resulted in diluted earnings per share of 5 cents, down from 8 cents in the first quarter of 2011. Adjusted earnings before interest, taxes, depreciation and amortization¹ (Adjusted EBITDA) generated in the first quarter of 2012 totaled $139 million, up from $132 million in the fourth quarter of 2011 but down slightly from $142 million in the first quarter of 2011 due largely to $2 million of mark-to-market charges on compensation plans associated with a 33 percent increase in the company's stock price during the quarter.

"We are off to a good start in 2012 with solid performance from both our teams which continue to execute extremely well. We are very encouraged by the revenue and Adjusted EBITDA growth in our data center business and the strong operating results of the communications business," said Jack Cassidy, president and chief executive officer.

Quarterly Highlights

• For the quarter, Data Center Colocation revenue increased to $53 million, up 21 percent from a year ago, while Adjusted EBITDA of $29 million reflects a 20 percent increase from the first quarter in 2011. The segment added 43,000 square feet of data center space during the quarter and sold 15,000 square feet. Total data center utilization was 85 percent at the end of the quarter, down slightly from 88 percent in the fourth quarter of 2011.
• Wireline revenue for the quarter was $182 million, up from $180 million in the fourth quarter of 2011 and down less than 1 percent from $184 million in the first quarter of 2011. Revenue growth from the company's Fioptics product suite and enterprise products mitigated the impact of access line losses. Adjusted EBITDA in the quarter was $89 million, compared to $88 million in the fourth quarter of 2011 and $90 million in the first quarter of 2011. Wireline Adjusted EBITDA margin² of 49 percent was comparable to both the fourth and first quarters of 2011.
• Wireless revenue for the quarter was $64 million and Adjusted EBITDA was $24 million, with an Adjusted EBITDA margin of 37 percent that represents the segment's highest margin since 2004.

Financial and Operations Review

"We invested $53 million in our data center facilities in the first quarter, our highest capital investment ever in this segment," said Kurt Freyberger, chief financial officer. "We expect to construct an additional 140,000 square feet of space in the remainder of the year which will provide the inventory necessary to continue the growth trajectory of CyrusOne."

Data Center Colocation Segment

For the quarter, revenue of $53 million represents an increase of $9 million, or 21 percent, compared to the same period a year ago, and the segment's operating income was $13 million, up $1 million compared to the first quarter in 2011. Adjusted EBITDA of $29 million reflects a 20 percent increase over the same period in 2011. During the quarter, the company completed construction on 43,000 square feet of new data center space, increasing capacity to 806,000 square feet. CyrusOne sold 15,000 square feet of space in the first quarter, resulting in quarter-end utilization of 85 percent, down from 88 percent at the end of the fourth quarter of 2011. The segment's Adjusted EBITDA margin in the quarter remained strong at 55 percent, comparable to both the first and fourth quarters in 2011.

Wireline Segment

For the quarter, Wireline revenue was $182 million, down less than 1 percent from $184 million in the first quarter of 2011 and improved from $180 million in the fourth quarter of 2011. Operating income of $57 million represents a 4 percent decrease from the same period in 2011 while Adjusted EBITDA totaled $89 million, slightly lower than $90 million in the first quarter of 2011 and improved from $88 million in the fourth quarter of 2011. The Adjusted EBITDA margin of 49 percent was comparable to both the first and fourth quarters of 2011. The growth of the company's entertainment, data and VoIP product lines, combined with its ongoing cost reduction efforts, continue to be instrumental in mitigating the impact of access line losses on revenue and Adjusted EBITDA.

The company passed 13,000 additional homes and businesses during the quarter with its Fioptics product suite, bringing the total number of units passed to 147,000. Wireline added 3,000 new Fioptics entertainment subscribers and 4,000 new Fioptics high-speed internet subscribers during the first quarter, bringing the totals to 43,000 entertainment and high-speed internet subscribers at the end of the quarter.

Wireless Segment

Wireless revenue was $64 million in the quarter, down from $71 million in the first quarter of 2011, as the segment continues to experience subscriber losses. Operating income in the quarter was $15 million, compared to $16 million in the same period a year ago, despite 11 percent fewer subscribers. The segment's Adjusted EBITDA decreased to $24 million in the quarter from $26 million in the first quarter of 2011, but reflects an improvement from $19 million in the fourth quarter of 2011 due to lower seasonal advertising and subsidy costs.

Total wireless subscribers decreased to 446,000 at the end of the first quarter, from 504,000 at the end of the first quarter in 2011 and 459,000 at the end of the fourth quarter in 2011. The segment continues to grow its smartphone subscriber base and had a total of 126,000 smartphone subscribers at the end of the quarter, up from 111,000 subscribers at the end of the first quarter in 2011. Postpaid smartphone subscribers now represent 35 percent of the total postpaid subscribers, up from 28 percent at the end of the first quarter in 2011.

The higher smartphone penetration continues to have a positive impact on postpaid data average revenue per user (ARPU), which increased by 21 percent over the first quarter of 2011 to $16.18. This increase in postpaid data ARPU more than offset the 3 percent year over year decline in postpaid voice ARPU. As a result, the segment's postpaid ARPU in the first quarter increased to $50.82, from $48.90 in the first quarter of 2011. Postpaid churn for the quarter was 2.2 percent compared to 2.1 percent in the first quarter of 2011, while prepaid churn was 6.4 percent compared to 5.5 percent in the same period a year ago.

Prepaid smartphone subscribers increased to 22,000 at the end of the quarter, up from 14,000 at the end of the first quarter in 2011, while prepaid ARPU in the quarter was $28.53, down from $29.52 in the first quarter of 2011.

IT Services and Hardware Segment

For the quarter, revenue increased to $73 million from $70 million in the first quarter of 2011, while Adjusted EBITDA was $4 million, down from $5 million in the first quarter of 2011. Adjusted EBITDA margin in the quarter was 6 percent, down from 8 percent in the first quarter of 2011.

2012 Outlook

Cincinnati Bell reaffirms its financial guidance for 2012:

*Plus or minus 2 percent

Conference Call/Webcast

Cincinnati Bell will host a conference call today at 5:00 p.m. (ET) to discuss its results for the first quarter 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) 581-1570. A taped replay of the conference call will be available one hour after the conclusion of the call until 5:00 p.m. on Thursday May 17, 2012. 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 4901049. 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, free cash flow, net income excluding special items, and net debt. 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.

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 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.

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.

About Cincinnati Bell Inc.

With headquarters in Cincinnati, Ohio, Cincinnati Bell (NYSE: CBB) provides integrated communications solutions-including local, long distance, data, 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, Cincinnati Bell provides best-in-class data center colocation services to its enterprise customers through its facilities with fully redundant power and cooling solutions that are currently located in the Midwest, Texas, London and Singapore. Complementing the colocation products, Cincinnati Bell also offers complex information technology solutions like managed services and technology staffing. For more information, visit www.cincinnatibell.com.

* Data center utilization is calculated by dividing data center square footage that is committed contractually to customers, if built, by total data center square footage. Some data center square footage that is committed contractually may not yet be billed to the customer.