Cincinnati Bell Inc. Reports Third Quarter 2011 Results

• Highest quarterly revenues since 2003, driven by growth in Data Center Colocation and IT Services and Hardware
• Data Center Colocation Adjusted EBITDA increases 9 percent over the third quarter of 2010
• Net income increase of 21 percent over the third quarter of 2010
• Stock buyback of $10 million completed in the third quarter

CINCINNATI, Nov 03, 2011 (BUSINESS WIRE) --

Cincinnati Bell Inc. (NYSE:CBB) today announced financial results for the third quarter of 2011. For the quarter, revenues were $369 million, up 5 percent compared to the third quarter of 2010, driven primarily by a 26 percent increase in IT Services and Hardware sales and an 18 percent increase in Data Center Colocation revenue. Operating income was $86 million in the quarter, including an $8 million gain on the sale of the Company's home security business. Net income was $18 million in the quarter, a 21 percent increase over the same period a year ago. Diluted earnings per share in the quarter were 7 cents, up from 6 cents in the third quarter of 2010. Adjusted earnings before interest, taxes, depreciation and amortization¹ (Adjusted EBITDA) in the third quarter of 2011 totaled $133 million, down slightly from $135 million in the same period of 2010. Adjusted EBITDA excludes the gain on sale of assets and other special items shown in the accompanying tables.

In the first nine months of 2011, Cincinnati Bell generated revenues of $1.1 billion, up 8 percent compared to revenues of $1.0 billion in the same period in 2010. Operating income increased to $250 million, up $16 million, or 7 percent, over the comparable 2010 period. Adjusted EBITDA for the first nine months of this year was $413 million, up $21 million compared to 2010, primarily due to the acquisition of CyrusOne in June 2010. Net income for the year-to-date period was $49 million, up $2 million over the comparable 2010 period, resulting in diluted earnings per share of 21 cents.

"We delivered another strong performance in the third quarter, building on the solid results that we generated during the first half of the year," said Jack Cassidy, president and chief executive officer. "In particular, data center colocation growth continues to be robust, as we signed up customers for an additional 30,000 square feet of data center space in the third quarter. The company's results reflect the tremendous work of our team to deliver on our growth strategies and cost out initiatives, and we are well-positioned to deliver our 2011 earnings guidance."

Quarterly Highlights

• Data Center Colocation revenue of $47 million for the quarter represents a $7 million, or 18 percent, increase from a year ago, while Adjusted EBITDA of $25 million reflects a 9 percent increase. During the third quarter, the company added 67,000 square feet of data center space and sold 30,000 square feet, enabling the segment's utilization to remain high at 86 percent.
• Wireline revenues for the quarter were $183 million, representing only a one percent decrease from both the third quarter of 2010 and the second quarter of 2011. Revenues have remained stable despite continued access line losses, as the Company continues to attract customers to its Fioptics suite of products. Adjusted EBITDA for the quarter fell to $87 million, a 2 percent decrease from the third quarter of 2010, and the Wireline Adjusted EBITDA margin² of 48 percent was comparable to the same period in 2010.
• The IT Services and Hardware segment continued its growth trend, generating revenues of $79 million, a 26 percent increase from the third quarter of 2010 driven primarily by improved hardware sales. Increased spending by business customers on information technology equipment continues to drive growth in this business.
• In August 2011, Cincinnati Bell sold its home security business for approximately $12 million, resulting in a pre-tax gain of $8 million.
• Also during the third quarter, the company used $10 million to repurchase 3.2 million shares of its common stock.

Financial and Operations Review

"In the third quarter, we delivered our highest revenue in more than eight years and continued to see strong growth and high utilization in our data center colocation segment. The expansion of our data center operations continues, and we expect to finish construction on an additional 30,000 square feet of data center space in the fourth quarter," said Kurt Freyberger, chief financial officer. "We were also pleased to sell our non-core home security business during the third quarter for proceeds of more than $10 million, and to complete a shareholder-friendly buyback of our stock for $10 million."

Data Center Colocation Segment

Revenue for the quarter totaled $47 million, an increase of $7 million or 18 percent from a year ago, primarily due to the data center capacity added since the acquisition of CyrusOne. During the quarter, the Company constructed 67,000 square feet of additional data center space, increasing capacity to 736,000 square feet, and sold an additional 30,000 square feet which resulted in quarter-end utilization of 86 percent. Operating income of $11 million in the quarter reflects a 3 percent increase from the third quarter of 2010 while Adjusted EBITDA of $25 million represents an increase of 9 percent. The segment's Adjusted EBITDA margin continues to be strong at 53 percent.

Wireline Segment

Wireline revenue for the quarter was $183 million, down only 1 percent, from both the third quarter of 2010 and the second quarter of 2011. Operating income for the quarter was $65 million, including an $8 million gain on the sale of the company's home security business, compared to $59 million in the third quarter of 2010. Adjusted EBITDA amounted to $87 million, a decrease of $2 million, or 2 percent, from a year ago. Adjusted EBITDA margin continued to be strong at 48 percent, comparable to a year ago. On-going access line losses continue to negatively impact Wireline's voice revenues. However, growth from the segment's entertainment, data and VoIP products, combined with the company's continuing cost reductions, have enabled Wireline to maintain its strong Adjusted EBITDA margin.

During the quarter, Wireline added 4,000 Fioptics entertainment subscribers, bringing the total to 38,000 customers. Driven primarily by its recently-launched IPTV platform, the company passed 25,000 additional homes and businesses with Fioptics during the quarter, bringing the total number of units passed to 115,000. Wireline expects to pass approximately 25,000 additional units during the fourth quarter.

Wireless Segment

Wireless revenue decreased by $5 million, or 6 percent, compared to the third quarter of 2010, driven largely by an 8 percent decrease in postpaid subscribers. Operating income for the quarter was $12 million, reflecting a decrease of $4 million from the third quarter of 2010, while Adjusted EBITDA decreased to $20 million from $24 million in the third quarter of 2010. Adjusted EBITDA margin decreased to 29 percent from the 33 percent attained a year ago, driven primarily by subscriber losses.

Total wireless subscribers decreased to 472,000 at the end of the quarter, from 501,000 at the end of the third quarter of 2010. Compared to a year ago, postpaid churn in the quarter improved slightly to 2.1 percent from 2.3 percent, while prepaid churn weakened to 7.3 percent from 6.3 percent. Postpaid average revenue per user (ARPU) in the third quarter was $50.36, comparable to both the third quarter of 2010 and the second quarter of 2011. Consistent with the trends noted in previous quarters, data ARPU increased by 23 percent compared to the third quarter of 2010, fully offsetting the 7 percent decline in voice ARPU over the comparable period.

The Company added 5,000 net postpaid smartphone subscribers during the quarter, bringing the total number of these subscribers to 103,000 at the end of the third quarter. Postpaid smartphone subscribers now represent 32 percent of the total postpaid subscribers, up from 25 percent a year ago. Prepaid smartphone subscribers numbered 17,000 at the end of the quarter, a 183 percent increase from a year ago while prepaid ARPU of $28.48 reflects a 3 percent increase from the second quarter of 2011 and a 5 percent decrease from the third quarter of 2010.

IT Services and Hardware Segment

Quarterly revenue was $79 million compared to $63 million in the third quarter of 2010, primarily as a result of an increase in hardware sales totaling $12 million, or 29 percent. Revenues from professional and managed services also increased by $4 million, or 20 percent, compared to the third quarter of last year. Operating income for the quarter was $4 million, double that of the third quarter of 2010, while Adjusted EBITDA of $6 million reflects a $2 million increase from the 2010 third quarter. Adjusted EBITDA margin was 8 percent, up from 6 percent a year ago, due to higher revenues and cost management initiatives.

2011 Outlook

Cincinnati Bell management reaffirms its 2011 financial guidance:

*Plus or minus 2 percent

Conference Call/Webcast

Cincinnati Bell will host a conference call today at 10:00 a.m. (ET) to discuss its results for the third quarter of 2011. 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) 581-1571. 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 November 17, 2011. 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 7824086. 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.

³Free 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 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 and London. 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.