EARNINGS CALL PRESENTATION Fiscal Year 2018 Q2 NYSE: ZAYO - - PowerPoint PPT Presentation

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EARNINGS CALL PRESENTATION Fiscal Year 2018 Q2 NYSE: ZAYO - - PowerPoint PPT Presentation

EARNINGS CALL PRESENTATION Fiscal Year 2018 Q2 NYSE: ZAYO @ZayoGroup Safe Harbor Information contained in this supplemental presentation that is not historical by nature constitutes forward-looking statements which can be identified by


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SLIDE 1

EARNINGS CALL PRESENTATION

Fiscal Year 2018 Q2 NYSE: ZAYO @ZayoGroup

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Safe Harbor

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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 http://www.zayo.com/investors. 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.

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DAN CARUSO

Chairman & Chief Executive Officer

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Dec17q Highlights

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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

EXCLUDES ALLSTREAM

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SLIDE 5

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2017: good results despite challenging year

weathered late 2016 industry pause rebuilt leadership team

  • rganized 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

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SLIDE 6 6

Vertical Sales Teams completed in January

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EXCLUDES ALLSTREAM

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

Carrier 48% Media, Content & Commerce 13% Cloud, Software & Infrastructure

13%

Public, Health & Utilities 10%

Global Vertical Clusters1

1 Percentages correspond to ending MRR by vertical

Finance & Professional Services

16%

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SLIDE 7

Customer Strategy

focused on 2,000 accounts

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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

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Customer Strategy

50% of existing revenue is TAP 100

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TAP Ranking % of Monthly Recurring Revenue / Cumulative

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SLIDE 9

Customer Strategy

revenue per customer materially higher by TAP rank category

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TAP Ranking Average Monthly Recurring Revenue per Customer ($000s)1

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1 Only customers with revenue in current period included in average MRR per Customer
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SLIDE 10

Customer Strategy

Field Sales focused on TAP 2000; Inside on 2000+

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TAP Ranking Field QBHC Inside QBHC

QBHC = 243 average 8 accounts per QBHC TAP 1 - 50 often will have more than one QBHC, and span U.S., Canada, and Europe resources

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Customer Strategy

top 10 includes Webscale and Carriers

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Carrier

Media, Content & Commerce Public, Health & Utilities Finance & Professional Services Cloud, Software & Infrastructure

1 top 10 listed in random order 2 listed based on MRR run rate 3 Revenue in $000s

TAP 1-101

Average MRR: $4,2143 Customer

Webscale Global Carrier Webscale Global Carrier Global Carrier Webscale Webscale Global Carrier Global Carrier Webscale

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TAP 11-252

Average MRR: $7563 MRR Range: $229 - $2,1453 Customer

Global Carrier Global Carrier Cable Cable Global Carrier Content Global Carrier Content Cloud / Software Data Center Global Carrier Commerce Cloud / Software Cloud / Software Cable

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SLIDE 12

Customer Strategy

26-50 reveals importance of Finance and Media

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TAP 26-501

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

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1 listed based on MRR run rate 2 Revenue in $000s

Carrier Media, Content & Commerce Public, Health & Utilities Finance & Professional Services Cloud, Software & Infrastructure

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SLIDE 13

Customer Strategy

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Carrier Media, Content & Commerce Public, Health & Utilities Finance & Professional Services Cloud, Software & Infrastructure

TAP 101-200

101 - 200 customers have broad representation across all 5 mega-verticals

TAP 51-100

51-100 has tech, datacenters, and foreign carriers, emerging media/content

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SLIDE 14

ANDREW CROUCH

President & Chief Operating Officer

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~$3M of Net Installs required for 6-8% growth

requires >$8.5M Bookings which leads to >$8.5M of Gross Installs while churn at <$5.5M (1.1%)

Net Installs Target

8% Growth = $3.4m 6% Growth = $2.6m

EXCLUDES ALLSTREAM

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Ended 2017 with momentum

Net New Sales (Bookings) Stratification

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EXCLUDES ALLSTREAM

$8.5m

3rd consecutive quarter at record

bookings level $8.5M target is an 8% increase from $7.9M addressable market supports >>$8.5M

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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

1 "Jun16q to Dec16q Avg” as previously reported included Account Coverage; “Mar17q” as previously reported included Account Coverage and zColo & Fiber Solutions Business Development teams
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Bookings quality remains high

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total bookings contract value 2.6x the associated committed capex average payback of 15 months

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EXCLUDES ALLSTREAM Contract Value vs. CapEx on Bookings

Payback

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SLIDE 19 19

Gross Installs momentum as well

Gross Installs continue steady growth path pipeline & Bookings are sufficient to remain on upward trend attaining $8.5M threshold is a 12% increase from Dec17q $7.6M Gross Installs

Gross Installations

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EXCLUDES ALLSTREAM

$8.5m

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SLIDE 20 20

Churn remains elevated

Churn remains elevated at 1.2%, anticipate gradual improvement in 2018

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1 Previously reported churn for the Dec16q quarter excluded Zayo Canada 2 Mar17q includes only one month of ELI CI

Churn1,2 EXCLUDES ALLSTREAM

$5.5m

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SLIDE 21 21

Net Installs remain below 6-8% target growth

Net Installations1

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EXCLUDES ALLSTREAM

1 Net installs used for Mar17q calculation excludes ELI 2 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%)

Net Installs were $1.6M ramping Net Installs will result from bookings momentum and decline of Churn

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  • ----------------------------------$3.4m required for 8% implied growth
  • ----------------------------------$2.6m required for 6% implied growth
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SLIDE 22 22

Trends suggest viable path to 6-8% growth

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grow Gross Installs to match current rate of Bookings decrease churn by 8% to $5.5M Gross Installs increase Bookings by 8% to $8.5M EXCLUDES ALLSTREAM

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Cash Flow

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Capex and aUFCF in line with prior quarters drop in LFCF due to Dec17q interest payments and changes in working capital

Capital Expenditures aUFCF LFCF

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EXCLUDES ALLSTREAM

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Fiber and Colo performing well, with upside potential

Dec17q Financials

Fiber Solutions Colo

Revenue ($m) 200.5 59.9 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%

Fiber Solutions HSD growth rate; potential to increase Colo MSD growth rate; potential to increase

1 % of ZGH aEBITDA
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Target improvement within Transport and Enterprise

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

Dec17q Financials

Transport Enterprise Networks

Revenue ($m) 117.3 145.9 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%

1 % of ZGH aEBITDA
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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

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MATT STEINFORT

CHIEF FINANCIAL OFFICER

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Dec17q Results

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Communications Infrastructure: ~90% of EBITDA

1 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

Dec17q Actual Dec17q Forecast as presented on 11/6/17 Dec17q Forecast as presented on 3/17/17 LFCF: ($6M) No change “become consistently run-rate positive during calendar 2017”

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%3 35-40% 35-40% 24% 20-25% 20-25% 50% ~50% ~50%

  • Adj. Unlevered

Free Cash Flow Margin 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%

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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 2018

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1 Includes expectation for internal separation and readiness by Jun18q; actual separation will depend on market timing and other factors
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Segments

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Dec17q Financial Results

1 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 2 Dec17q EPS is based on 247.4 and 249.2 million weighted average shares outstanding for basic and diluted, respectively, for the quarter
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ample liquidity including

$442M of revolver capacity >$1.7B of net operating loss

carryforwards

Balance Sheet

1 principal value; excludes capital lease obligations

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Debt Schedule1

gross leverage of 4.3x repriced revolver in December, lowering interest rate by 100 bps

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Stock-Based Comp

performance oriented stock-based compensation

1 dilution represents the actual dilution for shares vested and delivered during the quarter

Stock Based Compensation

consistent stock based compensation expense with modest dilution

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Q&A

For detailed Supplement Earnings Information presentation, please visit:

investors.zayo.com

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ADDITIONAL SLIDES

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Commercial Highlights

Private dedicated network provides diverse backhaul from cable landing station

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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

  • f Electric Lightwave

New Cross Pacific Cable Landing US Backhaul Group Selects Zayo for Dark Fiber

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follow-on sales leverage organic expansions and acquired assets

Commercial Highlights Cont.

expanded colocation space in Oak Brook and Ashburn

50+ cabinets <12 month payback

long haul dark fiber on strategic routes in UK & France

835+ miles of dark fiber 212 month term

connects several core data centers located in the UK

100G wavelengths 60 month term

Leading Ad Tech Company Global Webscale Company Multinational Bank

Note: maps are shown for illustrative purposes
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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

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Optic Zoo owns and operates 103 route miles of fiber in Vancouver deep network with capacity for growth, 270 average fiber count

  • pportunity 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

YE18

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Acquisition of Optic Zoo Networks

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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

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Acquisition of Neutral Path

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