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Zayo Group Holdings, Inc. Reports Financial Results for the First Fiscal Quarter Ended September 30, 2018

November 7, 2018

BOULDER, Colo.--(BUSINESS WIRE)--Nov 7, 2018--Zayo Group Holdings, Inc. (“Zayo” or “the Company”) (NYSE: ZAYO), a global leader in Communications Infrastructure, announced results for the three months ended September 30, 2018.

First quarter operating income increased by $3.9 million and net income decreased by $20.7 million over the previous quarter. Basic and diluted net income per share during the first fiscal quarter was $0.09. During the three months ended September 30, 2018, capital expenditures were $182.5 million.

As of September 30, 2018, the Company had $353.9 million of cash and $441.9 million available under its revolving credit facility. Refer to “Recent Developments” below for information on borrowings subsequent to September 30, 2018.

Recent Developments

Scott-Rice Telephone Co

On July 31, 2018, the Company closed the sale of Scott-Rice Telephone Co (“SRT”) for $42.2 million to Nuvera (formerly New Ulm Telecom, Inc.). The Company recognized a pre-tax gain of $5.5 million on the sale. The Company acquired SRT as part of its March 2017 purchase of Electric Lightwave and it was reported as part of the Allstream segment. The Company concluded that SRT was not a significant disposal group and did not represent a strategic shift, and therefore was not classified as discontinued operations. Scott Rice had a net loss before taxes of $1.6 million for the year ended June 30, 2018.

Share Repurchases and Revolving Credit Facility Borrowings

Under the Company’s outstanding share repurchase authorization, during the three months ended September 30, 2018, the Company repurchased 6,229 shares of its outstanding common stock at an average price of $34.00, or $0.2 million. Subsequent to September 30, 2018 and through November 6, 2018 the Company repurchased 12,966,527 shares of its outstanding common stock at an average price of $31.02, or $402.3 million. This results in $4.0 million remaining under the $500.0 million share repurchase authorization which expires on November 7, 2018. The share repurchases were partially funded by an aggregate amount of $200.0 million of borrowings under the Company’s revolving credit facility during October and November resulting in $241.9 million in availability under the revolving credit facility.

Conference Call

Zayo will hold a conference call to report the first fiscal quarter 2019 results at 5:00 p.m. EST, November 7, 2018. To participate on the live call, listeners in the U.S. may dial 866-737-5498 and international listeners may dial 412-858-4607; please request to join the Zayo Group call. During the call, the Company will review an earnings presentation that summarizes the financial, operational and commercial highlights of the quarter. This earnings presentation, a live webcast of the conference call, and a supplemental earnings presentation will be made available through the Investor Relations section of the Company’s website at  investors.zayo.com.

About Zayo

Zayo Group Holdings, Inc. (NYSE: ZAYO) provides communications infrastructure solutions, including fiber and bandwidth connectivity, colocation and cloud infrastructure to the world’s leading businesses. Customers include wireless and wireline carriers, media and content companies and finance, healthcare and other large enterprises. Zayo’s 130,000-mile network in North America and Europe includes extensive metro connectivity to thousands of buildings and data centers. In addition to high-capacity dark fiber, wavelength, Ethernet and other connectivity solutions, Zayo offers colocation and cloud infrastructure in its carrier-neutral data centers. Zayo provides users with flexible, customized solutions and self-service through Tranzact, an innovative online platform for managing and purchasing bandwidth. For more information, visit zayo.com.

Forward Looking Statements

Information contained in this earnings release 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 the Company’s 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 filed on August 24, 2018 (as amended by the Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on September 20, 2018, our “Annual Report”). 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.

This earnings release should be read together with the Company’s unaudited condensed consolidated financial statements and notes thereto for the quarter ended September 30, 2018 included in the Company’s Quarterly Report on Form 10-Q to be filed with the SEC and the Company’s audited consolidated financial statements and notes thereto for the year ended June 30, 2018 included in the Company’s Annual Report.

Non-GAAP Financial Measures

The Company provides financial measures that are not defined under generally accepted accounting principles in the United States, or GAAP, including Adjusted EBITDA, Adjusted EBITDA Margin, adjusted unlevered free cash flow and levered free cash flow.

Adjusted EBITDA, as defined below and in Note 15 – Segment Reporting of our consolidated financial statements and notes thereto included in our Annual Report, is the primary measure used by our chief operating decision maker to evaluate segment operating performance.

Adjusted EBITDA is defined as earnings/(loss) from operations before interest, income taxes, depreciation and amortization (“EBITDA”) adjusted to exclude acquisition or disposal-related transaction costs, losses on extinguishment of debt, stock-based compensation, unrealized foreign currency gains/(losses) on intercompany loans, gains/(losses) on business dispositions and non-cash income/(loss) on equity and cost method investments. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue. Adjusted unlevered free cash flow is defined as Adjusted EBITDA less purchases of property and equipment, net of stimulus grants, plus additions to deferred revenue, less non-cash monthly amortized revenue. Levered free cash flow is defined as net cash provided by operating activities less purchases of property and equipment, net of stimulus grants. Adjusted unlevered free cash flow and levered free cash flow are not measurements of our financial performance under GAAP and should not be considered in isolation or as alternatives to net income, net cash flows provided by operating activities, total net cash flows or any other performance measures derived in accordance with GAAP or as alternatives to net cash flows from operating activities or total net cash flows as measures of our liquidity.

Adjusted EBITDA is a performance rather than cash flow measure. In addition to Adjusted EBITDA, management uses adjusted unlevered free cash flow, which measures the ability of Adjusted EBITDA to cover capital expenditures. We use levered free cash flow as a measure to evaluate cash generated through normal operating activities. These metrics are among the primary measures used by management for planning and forecasting future periods. We believe the presentation of Adjusted EBITDA is relevant and useful for investors because it allows investors to view results in a manner similar to the method used by management and make it easier to compare our results with the results of other companies that have different financing and capital structures. We believe that the presentation of levered free cash flow is relevant and useful to investors because it provides a measure of cash available to pay the principal on our debt and pursue acquisitions of businesses or other strategic investments or uses of capital.

We also monitor Adjusted EBITDA because our subsidiaries have debt covenants that restrict their borrowing capacity that are based on a leverage ratio, which utilizes a modified EBITDA, as defined in our credit agreement and the indentures governing our notes. The modified EBITDA is consistent with our definition of Adjusted EBITDA; however, it includes the pro forma Adjusted EBITDA of and expected cost synergies from the companies acquired by us during the quarter for which the debt compliance certification is due. Adjusted EBITDA results, along with the quantitative and qualitative information, are also utilized by management and our Compensation Committee, as an input for determining incentive payments to employees.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results of operations and operating cash flows as reported under GAAP. For example, Adjusted EBITDA:

does not reflect capital expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; does not reflect changes in, or cash requirements for, our working capital needs; does not reflect the interest expense, or the cash requirements necessary to service the interest payments, on our debt; and does not reflect cash required to pay income taxes.

Adjusted unlevered free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. For example, adjusted unlevered free cash flow:

does not reflect changes in, or cash requirements for, our working capital needs; does not reflect the interest expense, or the cash requirements necessary to service the interest payments, on our debt; and does not reflect cash required to pay income taxes.

Levered free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. For example, levered free cash flow:

does not reflect principal payments on debt; does not reflect principal payments on capital lease obligations; does not reflect dividend payments, if any; and does not reflect the cost of acquisitions.

Our computation of Adjusted EBITDA, and levered free cash flow may not be comparable to other similarly titled measures computed by other companies because all companies do not calculate these measures in the same fashion.

Because we have acquired numerous entities since our inception and incurred transaction costs in connection with each acquisition, borrowed money in order to finance our operations and acquisitions, and used capital and intangible assets in our business, and because the payment of income taxes is necessary if we generate taxable income after the utilization of our net operating loss carry forwards, any measure that excludes these items has material limitations. As a result of these limitations, these measures should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of our liquidity. See “Reconciliation of Non-GAAP Financial Measures” for a quantitative reconciliation of Adjusted EBITDA to net income/(loss) and for quantitative reconciliations of adjusted unlevered free cash flow and levered free cash flow, each to net cash provided by operating activities.

Annualized revenue and annualized Adjusted EBITDA are derived by multiplying the total revenue and Adjusted EBITDA, respectively, for the most recent quarterly period by four. Our computations of annualized revenue and annualized Adjusted EBITDA may not be representative of our actual annual results.

Measures referred to as being calculated on a constant currency basis are intended to present the relevant information assuming a constant exchange rate between the two periods being compared. Such metrics are calculated by applying the currency exchange rates used in the preparation of the prior period financial results to the subsequent period results.

Tables reconciling non-GAAP measures are included in the Reconciliation of Non-GAAP Financial Measures section of this earnings release and in a supplemental earnings presentation. A glossary of terms used throughout and the supplemental earnings presentation are available under the investor section of the Company’s website at http://investors.zayo.com.

Effective July 1, 2018, the Company adopted the requirements of ASC 606 – Revenue from Contracts with Customers using the full retrospective transition method. The full retrospective transition method requires the Company to restate each prior reporting period presented. The impact of these changes to the reportable segments have been retrospectively presented in our Form 10-Q for the period ended September 30, 2018 and will be retrospectively presented in all future filings as shown below:

(1) These segments are included in Communications Infrastructure

View source version on businesswire.com:https://www.businesswire.com/news/home/20181107005826/en/

CONTACT: Zayo Group Holdings, Inc.

Investor Relations: 720-306-7556, IR@zayo.com

KEYWORD: UNITED STATES NORTH AMERICA COLORADO

INDUSTRY KEYWORD: TECHNOLOGY INTERNET NETWORKS TELECOMMUNICATIONS MOBILE/WIRELESS

SOURCE: Zayo Group Holdings, Inc.

Copyright Business Wire 2018.

PUB: 11/07/2018 04:06 PM/DISC: 11/07/2018 04:06 PM

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