EARNINGS CALL PRESENTATION. Fiscal Year 2018 Q3 NYSE:

Transcription

1 EARNINGS CALL PRESENTATION Fiscal Year 2018 Q3 NYSE:

2 Safe Harbor Information contained in this supplemental presentation that is not historical by nature constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as believes, expects, plans, intends, estimates, projects, could, may, will, should, or anticipates or the negatives thereof, other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that future results expressed or implied by the forward-looking statements will be achieved and actual results may differ materially from those contemplated by the forward-looking statements. Such statements are based on management s current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, those relating to Zayo Group Holdings, Inc. s ( the Company or ZGH ) financial and operating prospects, current economic trends, future opportunities, ability to retain existing customers and attract new ones, outlook of customers, and strength of competition and pricing. In addition, there is risk and uncertainty in the Company s acquisition strategy including our ability to integrate acquired companies and assets. Specifically there is a risk associated with our recent acquisitions, and the benefits thereof, including financial and operating results and synergy benefits that may be realized from these acquisitions and the timeframe for realizing these benefits. Other factors and risks that may affect our business and future financial results are detailed in the Risk Factors section of our annual report on Form 10-K and most recent Form 10-Q filed with the Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after releasing this supplemental information or to reflect the occurrence of unanticipated events, except as required by law. In addition to this presentation and our filings with the SEC, the Company provides a glossary of terms used throughout and a supplemental earnings presentation, both of which are available under the investor section of the Company s website at The supplemental earnings presentation includes definitions and tables reconciling non-gaap measures used in this presentation, including the quantitative reconciliation of Adjusted EBITDA to net income/(loss) and quantitative reconciliations of adjusted unlevered free cash flow and levered free cash flow, each to net cash provided by operating activities. 2

3 DAN CARUSO Chairman & Chief Executive Officer

4 Mar18q Highlights Record $9.5M Net Bookings and record $8.1M Gross Installs Churn declined slightly to $5.8M / 1.1% Net Installs at $2.3M imply a 5% growth rate Revenue grew 7% annualized1 EBITDA declined $0.9M1 QoQ due to higher Dec17q one time items and seasonal factors EBITDA margin of 55%, and aufcf of 27% Recent high quality tuck-in M&A transactions: Spread Networks, Optic Zoo, Neutral Path Meaningful progress in evaluation of potential REIT conversion Planned Scott Rice divestiture demonstrates continued progress with Allstream separation Normalized for $7.4M one-time positive revenue impact, and $5M one-time positive adjusted EBITDA impact, from Ciber settlement in Dec17q 1 4

5 Nearing targeted 6-8% growth rate Net Installs Target Net Installs at $2.3M implied 5% growth rate 8% Growth = $3.4m 6% Growth = $2.7m $9.5M Net Bookings surpassed $8.5M target $8.1M Gross Installs was close to $8.5M target Churn at $5.8M (1.1%) remained elevated relative to $5.5M target 5

6 Transition to Verticals occurred during quarter Global Mega Verticals1 Carrier 48% Media, Content & Commerce 14% Finance & Professional Services 15% Cloud, Software & Infrastructure 13% Sales executive has global responsibility for and QBHC dedicated to each Vertical cluster Improved understanding of opportunities in each Vertical Increased credibility and better conversations with customers Public, Health & Utilities 10% 1 Percentages correspond to ending MRR & MAR by Vertical 6 66

7 Sales Channel investment baking in the oven QBHC Sales leadership short tenure, as ~50% are recently promoted or new to Zayo ~45% of QBHC are <6 months into roles Most costs in run rate, but full productivity requires additional quarters 7 77

8 Fiber Solutions momentum growing Fiber Solutions Net Installs at $1.5M imply a 9% growth rate Net Bookings of $3.8M surpassed Gross Installs of $2.6M, implying momentum to Gross Installs and Net Installs EBITDA margin of 78%, and aufcf of $106.2M Churn was 0.5% 8

9 Regional execution is enabling scaling of Fiber Solutions Jack Waters President, Fiber Solutions Central Mountain Each region led by business executive, with ownership of value creation Direct responsibility for product, engineering, construction, and operations East Business development assists Vertical team in exploiting opportunities in each fiber market Growing business development resources by ~40% West South Europe 9

10 Sales investments and strong market demand driving Bookings growth Net New Sales (Bookings) Record Bookings of $9.5M aided by large wireless deal and E-Rate wins Zayo is seeing broad-based demand from all customer Verticals Early signs of success for the sales investments and Vertical strategy 10

11 Record: Bookings <12 Month Payback Net New Sales (Bookings) Stratification $8.5m Record Positive IRR Bookings demonstrate leveraging of breadth and depth of fiber network 11 11

12 Large project wins with attractive return profiles drove longer payback Contract Value vs. CapEx on Bookings Total Bookings contract value 2.7x the associated committed capex Average payback of 20 months 12 12

13 Momentum in E-Rate solutions Selected by 20+ school districts for E-Rate solutions Markets of New E-Rate Wins1 Includes both dark- and lit-fiber solutions Provides schools and libraries with dedicated, high-bandwidth connectivity Double the 2017 E-Rate wins Significant win for Zayo s Public, Health & Utilities Vertical 1 Markets Inclusive of E-Rate wins announced 4/03/18 13

14 Large mobile infrastructure win Zayo to provide dark fiber backhaul in 30+ markets across 21 states Markets of Large Mobile Infrastructure Win Encompasses thousands of macro towers Deal exhibits second-tenant economics, but also provides for construction of hundreds of route miles of fiber 14

15 Pace of Gross Installs increased Gross Installations Pipeline & Bookings are sufficient to remain on upward trend $8.5m Attaining $8.5M threshold is a ~5% increase from Mar18q $8.1M Gross Installs 15 15

16 Modest churn improvement in Mar18q Churn1 Churn declined modestly to 1.1%, but still above target level 1 Mar17q includes only one month of ELI CI $5.5m 16 16

17 Net Installs on cusp of 6-8% growth Net Installations Net Installs were $2.3M Anticipate continued momentum in Jun18q $3.4m required for 8% implied growth $2.7m required for 6% implied growth Implied by the current quarter pace of net installs, calculated as Net Installs annualized ($2.3M*4 = $9.2M), divided by the beginning quarter run-rate $172.2M=5%) and excludes the impact of the Spread and Optic Zoo acquisitions

18 Revenue and EBITDA Revenue Revenue grew 7% QoQ annualized1; 5% organic Despite revenue growth, EBITDA was slightly down 1 Excludes $7.4M one-time revenue impact and $5M one-time EBITDA impact from Ciber bankruptcy settlement aebitda 18 18

19 Cash Flow Capital Expenditures Continued growth in aufcf and LFCF margin aufcf LFCF 19 19

20 Is 8-10% CI growth rate viable? Net Installs Viable? 10% Growth = $4.4m 8% Growth = $3.4m As Sales Channel and Fiber Business development investments mature, Net Bookings are expected to rise As Revenue Retention initiatives take root, churn rate is expected to decline 20 20

21 Requires continued momentum across leading indicators Net Installs Increase Bookings to $9.3M Sep17q-Mar18q averaged $8.4M Decrease Churn to $5.5M 21 21

22 Revenue Retention suggests churn upside Net Promoter Score launched in late 2017, current score is 23 Analytical assessment intensified over past few months, revealing: 40-60% of churn is addressable Customers generally positive about products and service level (with some gaps) Systematic engagement with customers, covering revenue retention in addition to new opportunities, is primary opportunity to reduce churn 22 22

23 Bookings assessment suggests upside Maturation of Sales leadership, QBHC, and Vertical Cluster approach Growing contributions of Inside Sales, Indirect/Agent Channel, and Global Reach Further investment in Fiber Business Development Contributions from Strategic Marketing 23

24 MATT STEINFORT CHIEF FINANCIAL OFFICER

25 Strong execution on high quality tuck-in acquisitions Spread Networks Material demand for low latency route Strong sales pipeline across Financial Services, Carrier and Webscale Verticals Surfacing broader opportunities in low latency Optic Zoo, Vancouver Canada Deep metro network with capacity for growth in attractive metro market Strong initial demand, especially in Media and Content Verticals

26 Strong execution on high quality tuck-in acquisitions Neutral Path Networks, Minneapolis to Omaha Minneapolis Unique, high-count fiber route from Minneapolis to Omaha Complementary to Zayo s Midwestern long haul dark fiber Sales traction between sign and close; expect seamless transition

27 Traction on Key Priorities Progress towards Allstream separation Operational separation1 90% complete Multiple options available to realize value from this business Timing of strategic options based on market factors Advancing Evaluation of REIT Conversion Believe it likely that a path to REIT conversion exists In direct conversations with IRS to obtain clarity and support for position Will begin to execute the administrative changes required to operate as a REIT Assessing what changes may be required to financial systems and reporting 1 Includes expectation for internal separation and readiness by Jun18q; actual separation will depend on market timing and other factors 27 27

28 Re-aligning Ethernet solution within Segments Transport Enterprise Networks Waves Wide Area Networks SONET Cloud & Cloudlink IP Transit Ethernet Transport Ethernet Transport PF Revenue: 30-35% of CI1 PF EBITDA: 20-25% of CI1 1 PF Revenue: 15-20% of CI1 PF EBITDA: 10-15% of CI1 Estimated impact only; restatements will be provided in subsequent disclosures Aligns all point-to-point private network solutions within Transport Segment Ethernet Transport represents approximately 25-30% of Enterprise Networks EBITDA today Change will be made for Jun18q, including restatement of prior quarters 28

29 Segments 29

30 Mar18q Financial Results 1 2 pro forma annualized growth for revenue and Adjusted EBITDA are calculated as if the acquisitions occurred on the first day of the quarter preceding the respective quarter in which the acquisitions closed Mar18q EPS is based on and million weighted average shares outstanding for basic and diluted, respectively, for the quarter 30

31 CI EBITDA Dec17q EBITDA benefited from several one-time items From the lower jump-off point, revenue growth and acquisitions resulted in 5% annualized EBITDA growth 31

32 Balance Sheet Ample liquidity including $442M of revolver capacity ~$1.7B of net operating loss carryforwards Debt Schedule1 Interest Rate Gross leverage of 4.6x $150M Term Loan add-on used to fund acquisitions 1 2 principal value; excludes capital lease obligations includes $41.6Mof PP&E from Scott Rice planned divestiture classified as held for sale 32

33 Stock-Based Comp performance oriented stock-based compensation Stock Based Compensation Consistent stock-based compensation expense with modest dilution 1 dilution represents the actual dilution for shares vested and delivered during the quarter 33

34 Q&A For detailed Supplement Earnings Information presentation, please visit: investors.zayo.com