EARNINGS CALL PRESENTATION. Fiscal Year 2018 Q2 NYSE:

Transcription

1 EARNINGS CALL PRESENTATION Fiscal Year 2018 Q2 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 EXCLUDES ALLSTREAM Dec17q Highlights Communications Infrastructure (CI): EBITDA margin of 57%, and aufcf of 19%, driven by strong performance in Fiber Solutions and Colo record $7.9M net bookings and record $7.6M gross installs, showing progress toward >$8.5M goal churn remains elevated at $6.0M / 1.2%, expect to moderate throughout 2018 Net Installs at $1.6M imply a 4% growth rate, which remains below 6-8% target Dec17q aebitda in line with revised guidance from Sep17q earnings call several tuck-in acquisitions continue evaluation of potential REIT conversion; progressing Allstream separation 4

5 2017: good results despite challenging year weathered late 2016 industry pause rebuilt leadership team organized into 5 key business segments ramped Chief Revenue Officer organization, organized around 5 Vertical Clusters integrated ELI and Allstream acquired Spread Networks and 4 Colo facilities Continued to grow CI organically and generate equity IRR 5

6 EXCLUDES ALLSTREAM Vertical Sales Teams completed in January Global Vertical Clusters1 Carrier 48% Media, Content & Commerce 13% Finance & Professional Services 16% Cloud, Software & Infrastructure sales executive has global responsibility for each Vertical Cluster QBHC dedicated to each Vertical Cluster centralized strategic marketing has resources aligned to each Vertical Cluster 13% Public, Health & Utilities 10% 1 Percentages correspond to ending MRR by vertical 66

7 Customer Strategy focused on 2,000 accounts TAP Ranking Target Account Program ( TAP ) used to categorize customers based on criticality to Zayo basis is forward-looking revenue opportunity ranking is highly correlated with existing revenue, though many low revenue accounts have high rankings 77

8 Customer Strategy 50% of existing revenue is TAP 100 TAP Ranking % of Monthly Recurring Revenue / Cumulative 88

9 Customer Strategy revenue per customer materially higher by TAP rank category TAP Ranking 1 Only customers with revenue in current period included in average MRR per Customer Average Monthly Recurring Revenue per Customer ($000s)1 99

10 Customer Strategy Field Sales focused on TAP 2000; Inside on TAP Ranking QBHC = 243 average 8 accounts per QBHC Field QBHC TAP 1-50 often will have more than one QBHC, and span U.S., Canada, and Europe resources Inside QBHC 10 10

11 Customer Strategy top 10 includes Webscale and Carriers TAP TAP Average MRR: $4,2143 Average MRR: $7563 MRR Range: $229 - $2,1453 Customer Customer Webscale Global Carrier Global Carrier Global Carrier Webscale Cable Global Carrier Cable Global Carrier Global Carrier Webscale Content Webscale Global Carrier Global Carrier Content Global Carrier Cloud / Software Webscale Data Center Carrier Media, Content & Commerce Public, Health & Utilities Finance & Professional Services Cloud, Software & Infrastructure top 10 listed in random order listed based on MRR run rate 3 Revenue in $000s Global Carrier Commerce Cloud / Software Cloud / Software Cable

12 Customer Strategy reveals importance of Finance and Media TAP Average MRR: $5042 MRR Range: $26 - $2,3962 Customer Customer Regional Carrier Financial Regional Carrier Cloud / Software Regional Carrier Cloud / Software Regional Carrier (Europe) Regional Carrier (Europe) Financial Data Center Regional Carrier Financial Financial Content Financial Cable Financial Financial Cable Media Cable Media Financial Cloud / Software Commerce 1 2 listed based on MRR run rate Revenue in $000s Carrier Media, Content & Commerce Public, Health & Utilities Finance & Professional Services Cloud, Software & Infrastructure 12 12

13 Customer Strategy TAP has tech, datacenters, and foreign carriers, emerging media/content TAP customers have broad representation across all 5 mega-verticals Carrier Media, Content & Commerce Public, Health & Utilities Finance & Professional Services Cloud, Software & Infrastructure 13 13

14 ANDREW CROUCH President & Chief Operating Officer

15 EXCLUDES ALLSTREAM ~$3M of Net Installs required for 6-8% growth Net Installs Target 8% Growth = $3.4m requires >$8.5M Bookings which leads to >$8.5M of Gross Installs 6% Growth = $2.6m while churn at <$5.5M (1.1%) 15

16 EXCLUDES ALLSTREAM Ended 2017 with momentum 3rd consecutive quarter at record bookings level Net New Sales (Bookings) Stratification $8.5m $8.5M target is an 8% increase from $7.9M addressable market supports >>$8.5M 16 16

17 EXCLUDES ALLSTREAM Invested in QBHC & Sales Leadership QBHC1 Chief Revenue Officer and Europe Sales SVP joined in late 2017 business development resources in Fiber and Colo gaining traction sales channel investments scaled to deliver >$8.5M bookings goal Jun16q to Dec16q Avg as previously reported included Account Coverage; Mar17q as previously reported included Account Coverage and zcolo & Fiber Solutions Business Development teams 1 " 17 17

18 EXCLUDES ALLSTREAM Bookings quality remains high Contract Value vs. CapEx on Bookings Payback total bookings contract value 2.6x the associated committed capex average payback of 15 months 18 18

19 EXCLUDES ALLSTREAM Gross Installs momentum as well Gross Installations Gross Installs continue steady growth path $8.5m pipeline & Bookings are sufficient to remain on upward trend attaining $8.5M threshold is a 12% increase from Dec17q $7.6M Gross Installs 19 19

20 EXCLUDES ALLSTREAM Churn remains elevated Churn1,2 Churn remains elevated at 1.2%, anticipate gradual improvement in 2018 $5.5m 1 2 Previously reported churn for the Dec16q quarter excluded Zayo Canada Mar17q includes only one month of ELI CI 20 20

21 EXCLUDES ALLSTREAM Net Installs remain below 6-8% target growth Net Installations1 2 Net Installs were $1.6M ramping Net Installs will result from bookings momentum and decline of Churn $3.4m required for 8% implied growth $2.6m required for 6% implied growth Net installs used for Mar17q calculation excludes ELI Implied by the current quarter pace of net installs, calculated as Net Installs annualized ($1.55M*4 = $6.22M), divided by the beginning quarter run-rate $170.4M=4%) 21 21

22 EXCLUDES ALLSTREAM Trends suggest viable path to 6-8% growth Gross Installs increase Bookings by 8% to $8.5M grow Gross Installs to match current rate of Bookings decrease churn by 8% to $5.5M 22 22

23 EXCLUDES ALLSTREAM Cash Flow Capital Expenditures Capex and aufcf in line with prior quarters drop in LFCF due to Dec17q interest payments and changes in working capital aufcf LFCF 23 23

24 Fiber and Colo performing well, with upside potential Dec17q Financials Fiber Solutions HSD growth rate; potential to increase Colo MSD growth rate; potential to increase 1 % of ZGH aebitda Fiber Solutions Colo Revenue ($m) Implied Revenue Growth Rate 9% 5% Churn Rate 0.6% 1.0% aebitda Margin 80% 53% aufcf % 18% 11% % of Zayo s aebitda1 49% 10% 24 24

25 Target improvement within Transport and Enterprise Dec17q Financials Enterprise segment consists of Ethernet Transport, Enterprise WAN and Cloud/Cloudlink Ethernet Transport aligned more with Transport than WAN / Cloud anticipate shifting Ethernet Transport to Transport Segment for Mar18q reporting to improve alignment 1 % of ZGH aebitda Transport Enterprise Networks Revenue ($m) Implied Revenue Growth Rate -1% 0% Churn Rate 1.9% 1.6% aebitda Margin 42% 39% aufcf % 16% 25% % of Zayo s aebitda1 15% 17% 25 25

26 Cost Management & Synergy Realizations Segment structure and Measured Equity IRR drives focus on costs regional structure within Fiber Solutions and zcolo provides more granular focus gradual cost improvements in network operations, network expense and other opex execution improving as 2017 changes solidify 26 26

27 MATT STEINFORT CHIEF FINANCIAL OFFICER

28 Dec17q Results Dec17q Actual Dec17q Forecast as presented on 11/6/17 Dec17q Forecast as presented on 3/17/17 Fiber Solutions Colo Transport Enterprise Networks Allstream Total aebitda % of total 49% 49% 47% 10% 10% 10% 15% 16% 17% 17%3 16% 17% 9% 9% 9% $1.32B3 LQA ~$1.30B LQA ~$1.33B LQA Organic Revenue Growth Rate1,2 9% ~10% ~10% 5% HSD HSD -1% ~0% LSD ~0% ~0% L/MSD -12% Negative Negative 4% ex Allstream MSD ex Allstream MSD ex Allstream aebitda Margin 80% ~80% ~80% 53% 52-55% 50-55% 42% ~45% ~45% 39% % 35-40% 24% 20-25% 20-25% 50% ~50% ~50% 18% 25-30% 25-30% 11% ~15% 15-20% 16% ~20% 20-25% 25%3 ~20% ~20% 21% 15-20% 15-20% 19% 20-25% ~25% Adj. Unlevered Free Cash Flow Margin Communications Infrastructure: ~90% of EBITDA Organic Revenue Growth Rate is current quarter pace of Net Installs, calculated as Net Installs annualized, divided by the beginning of quarter MRR+MAR run-rate 2 HSD= High Single Digits, MSD=Mid Single Digits, LSD= Low Single Digits 3 Dec17q aebitda includes a $5M quarterly ($20M annualized) positive impact from the Ciber bankruptcy settlement 1 LFCF: ($6M) No change become consistently run-rate positive during calendar

29 Traction on Key Priorities Progress towards Allstream separation working to complete legal and operational separation1 Continue evaluation of potential REIT conversion material progress understanding options for potential conversion engaged leading law firm and investment bank to support internal analysis will provide more detailed update in first half of Includes expectation for internal separation and readiness by Jun18q; actual separation will depend on market timing and other factors 29 29

30 Segments 30

31 Dec17q 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 Dec17q EPS is based on and million weighted average shares outstanding for basic and diluted, respectively, for the quarter 31

32 Balance Sheet ample liquidity including $442M of revolver capacity >$1.7B of net operating loss carryforwards Debt Schedule1 gross leverage of 4.3x repriced revolver in December, lowering interest rate by 100 bps 1 principal value; excludes capital lease obligations 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

35 ADDITIONAL SLIDES

36 Commercial Highlights Private dedicated network provides diverse backhaul from cable landing station New Cross Pacific Cable Landing US Backhaul Group Selects Zayo for Dark Fiber 2,700 mile private dedicated, dark fiber network solution will diversely backhaul traffic from NCP s U.S. landing station to several key locations up and down the West Coast provides connectivity options throughout North America via access to Zayo s extensive network deal was enabled by Zayo s recent acquisition of Electric Lightwave 36 36

37 Commercial Highlights Cont. follow-on sales leverage organic expansions and acquired assets Leading Ad Tech Company Global Webscale Company Multinational Bank expanded colocation space in Oak Brook and Ashburn long haul dark fiber on strategic routes in UK & France connects several core data centers located in the UK 50+ cabinets 835+ miles of dark fiber 100G wavelengths <12 month payback 212 month term 60 month term Note: maps are shown for illustrative purposes 37 37

38 Spread Networks, a Zayo Business anticipate Mar18q close creating separately managed low-latency product group, branded Spread Networks by Zayo, with majority of revenue from Spread acquisition will keep majority of operations and team intact, ensuring customer and service continuity adding additional low-latency routes from core Zayo network goal is to expand Zayo s leadership position for the demanding low-latency customer set, including Finance and Webscale financials of Spread Networks product group will be reported in Fiber Solutions segment 38 38

39 Acquisition of Optic Zoo Networks Optic Zoo owns and operates 103 route miles of fiber in Vancouver deep network with capacity for growth, 270 average fiber count opportunity to broaden relationships across several key verticals and gain local market expertise CAD $31M purchase price CAD $1.9M Mar18qE annualized EBITDA CAD $0.5M annualized cost synergies expected by YE

40 Acquisition of Neutral Path Neutral Path will add 452 route miles of fiber plus additional leased route miles unique, high-count fiber route from Minneapolis to Omaha assets highly complementary to Zayo s Midwestern long haul dark fiber footprint ~$31.5M purchase price $2.1M Mar18qE annualized EBITDA $0.6M annualized cost synergies expected within four quarters of acquisition closing date 40 40