Earnings Call Presentation Zayo Group Holdings, Inc. Fiscal Year - - PowerPoint PPT Presentation

Earnings Call Presentation

Zayo Group Holdings, Inc.

Fiscal Year 2017 Q3 NYSE: ZAYO @ZayoGroup

Safe Harbor

Information contained in this 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,

• utlook 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

• ur Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and updates to risk factors

as included in our Quarterly Report 10-Q filed with the SEC on February 9, 2017. We caution you not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. We undertake no

• bligation 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 supplemental earnings presentation and a glossary of terms used throughout. All of which can be found under the investor section of the Company’s website at http://www.zayo.com/investors.

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Dan Caruso Chairman & Chief Executive Officer

10,057,299 fiber miles 121,923 route miles 29,402 buildings 150 avg metro fiber count 44 zColo data centers >867k billable sf 3,899 employees 227 QBHC1 Products1 38% Fiber Solutions 11% Colocation 23% Transport 26% Enterprise Networks Customers1 7.5k customers 55% of rev from enterprise & content 45% of rev from carriers & wireless Leading Fiber & Data Center Consolidator 40 acquisitions to date 8 since Jan 2015 Financial2 Growth Value Creation ~$2.2B revenue ~$1.1B adjusted EBITDA 30 consecutive quarters of sequential revenue growth3 $1.1B invested equity since 2007 inception $8.0B equity value4 >7x return

Zayo at a Glance

Unique Metro Fiber International Network Datacenters People

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Electric Lightwave (ELI) acquisition closed on March 1, 2017 aggressive integration of ELI; in parallel, Canada and Europe snapping into a unified global structure the transition to a post-IPO executive team is largely complete March investor call established targets for Dec17q; update provided in this deck as previously indicated, the ELI close and integration create a challenge to produce a detailed earnings supplement for Mar17q; nonetheless, most info is provided the headwinds associated with these transformations are expected to ease going forward

Context

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continued consecutive quarter revenue & aEBITDA growth

3%1 pro forma annualized recurring revenue growth; 3%1 constant currency (CC)

net bookings of $6.9M1 representing recovery from $5.2M Dec16q bookings the payback period of 181 months, contract value of $320M1, and net capital of $113M1 associated with net bookings were strong relative to prior quarters gross installs of $7.1M1 churn of 1.2%1, resulting in net installs of $1.5M1 and implied organic growth rate of 4%1 record Adj UFCF of $116M, representing 21% of revenue unlike Dec16q, Mar17q metrics include Communications Infrastructure portion of Canada and ELI (for month of March)

FY 3Q17 Highlights

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Allstream Voice & SMB Shared Sales & Customer Service Transport Enterprise Networks Communications Infrastructure Colo Fiber Solutions

• range means

Segment

Zayo Group Segments

global Business Segment structure established in Mar17q

Zayo Group is a holding company of multiple portfolio businesses, with a Communications Infrastructure theme majority of alignment into new Segments completed in Mar17q management’s focus is on sum-of-the-parts value creation

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Dan Caruso, Chairman & CEO

Ken desGarennes CFO Matt Steinfort Corporate Strategy, Development, & Administration

Communications Infrastructure1

Executive Team

transition to post IPO team is largely complete

Jack Waters Fiber Solutions & CTO

Andrew Crouch, President & COO

TJ Karklins Colo Max Clauson Transport Mike Strople Enterprise Networks Sandi Mays CIO & Service Ed Morche Sales

substantially more experience across multiple dimensions: global management of large organizations product portfolio general management

blue means new to Zayo

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Mar17q includes Canadian CI business + 1 ELI month Fiber Solutions remains lower than earlier performance levels Colo on par with prior quarters combination of Enterprise Networks and Transport is higher than in past, due in part to inclusion of Canadian CI business

Bookings

9 Prior Segmentation New Segmentation

EXCLUDES ALLSTREAM

bookings rebounded nicely from Dec16q quarter

Net New Sales (Bookings) Stratification

47% of capital commitments

spent through Mar17q…

33% of installs realized

10

Major Network Expansion

no new >$20M projects signed in Mar17q

Mar17q includes Canadian CI business + 1 ELI month Zayo has ~50 customers that are defined as Very Large Customers1 that make up 46% of our recurring revenue, many of which are carriers bookings from Very Large Customers were stronger than Dec16q, but still lag historical performance bookings from All Other Customers rebounded beyond historical performance, accounting for greater portion of total

Customer Size

bookings diversified across a broader set of customers

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EXCLUDES ALLSTREAM Net New Sales (Bookings) to Very Large Customers1 Net New Sales (Bookings) to All Other Customers

Mar17q includes Canadian CI business + 1 ELI month bookings from large deals remain below the pre-Dec16q average bookings from smaller deals are above the pre-Dec16q average

Deal Size

bookings improvement driven by smaller deals

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EXCLUDES ALLSTREAM Net New Sales (Bookings) Large Deals >10k MRR Net New Sales (Bookings) Deals < 10k MRR

Capex & Upfront Expenditures are low relative to recent quarters total bookings contract value >2x the associated committed capex average payback of 18 months

EXCLUDES ALLSTREAM

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Contract Value vs. Capex on Bookings1

Bookings Profile

high quality bookings

Intensify Vertical Coverage Webscale Wireless Cable TV PTTs Finance Healthcare Media, Gaming & Adtech Datacenters, Cloud & Software Manufacturing / Transportation Federal / Public Sector

bolster leadership with strong sales and marketing backgrounds Andrew Crouch Ed Morche

Bookings Target Leverage Tranzact 3.0

Assumes 1.1% Churn

Increase QBHC

EXCLUDES ALLSTREAM

2017 Sales Execution Plan

establish sales and marketing as a core competency

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Jack Waters Fiber Solutions

North America Western Europe

Europe Annette Murphy West Dan Stoll Mountain Kay Henze South Brady Adams East Randy Dunbar Central Randy Brogle

maximize value creation of local fiber assets end-to-end ownership of product, service and customer lifecycle business development QBHC staffed in region

6 Geographic Fiber Regions

each run by a seasoned executive

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TJ Karklins Colo

edge colo for proximity to customers datacenter colo for enterprises “tuck-in” M&A customer deals enable expansions in attractive markets

110k square feet added over past 12 months 52k square feet in development

Colo

interplay between colo and network continues to be a focus

16 Existing Facility Existing Facility: Organic Expansion New Facility: Acquisition New Facility: Expansion

2% QoQ annualized pro forma recurring

adjusted EBITDA growth

3% QoQ annualized pro forma recurring

revenue growth

3% in constant currency

Revenue and Adj EBITDA1

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EXCLUDES ALLSTREAM

Revenue Adjusted EBITDA

PP&E in line with prior two quarters, even after inclusion of Canada and ELI CI

• Adj. Unlevered Free Cash of 20% of

revenue Levered FCF Positive

CAPEX and Cash Flow

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EXCLUDES ALLSTREAM

Purchases of Property & Equipment Adjusted Unlevered FCF Levered FCF

churn of 1.2% net installs imply 4% annualized recurring revenue growth rate1

Net Installs

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EXCLUDES ALLSTREAM Gross Installations Churn Processed Net Installations

Net Installs

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remain below Zayo’s aspirations

record gross installs aided by inclusion of Canada and ELI CI gross installs tempered by Dec16q low bookings churn of 1.2% was in line with 1.1% to 1.3% guidance, though higher than recent history prior to Dec16q; expected to remain at this level for minimum of one to two quarters Canada CI churn was $1.1M; Net Installs were -$0.4M internal distractions over prior year and heightened industry consolidation likely contributed to elevated churn service quality is strong and believed not to be a factor in higher churn

Segments

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Provided today

Update 1 Financial Targets for Dec17q (3/17/17) Update 3 Report Jun17q Results & update Dec17q Targets Update 4 Report Sep17q Results & update Dec17q Targets Update 5 Report Dec17q Results Update 2 Report Mar17q Results & update Dec17q Targets

Targets being updated today

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Dec17q LQA aEBITDA Target $M

Actual Forecast

no change to target shared in March visibility still limited given recent March 1 ELI close

Dec16q Zayo+ELI1 Mar17q ELI Full Quarter Impact Growth & Synergy 1,054 74 1,128 117 89 1,334 Dec17q

Guidance

projected Dec17q annualized aEBITDA remains ~$1.3B

Recap and update of Dec17q Targets

segment targets consistent with prior guidance

Communications Infrastructure: ~90% of EBITDA

Fiber Solutions Colo Transport Enterprise Networks Allstream Total aEBITDA % of total 47% No change 49% 10% No change 10% 17% No change 16% 17% No change 17% 9% No change 8% $1.33B LQA No change $1.13B LQA Organic Revenue Growth Rate1,2 ~10% No change 6% HSD No change 4% LSD No change

• 1%

L/MSD No change 1% Negative No change n/a3 MSD ex Allstream No change 3% ex Allstream aEBITDA Margin ~80% No change 77% 50-55% 52-55% 54% ~45% No change 41% 35-40% No change 38% 20-25% No change 28% ~50% No change 51%

• Adj. Unlevered

Free Cash Flow Margin 25-30% No change 30% 15-20% No change 15% 20-25% No change 3% ~20% No change 24% 15-20% No change 25% ~25% No change 21%

As presented on 3/17/17 Updated forecast for Dec17q Mar17q Actual 24

LFCF: “become consistently run-rate positive during calendar 2017” No change $54M

adds >17k square feet and 2MW of colo space and power success-based expansion anchored by large webscale customer total contract value ~$13M, includes

750kW of committed power >12 month payback

• n-net, tethered by Zayo to international

cable landing

Commercial Highlights

data center expansion driven by anchor customer deal

West Coast Data Center Expansion - Webscale Company

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Commercial Highlights Cont.

international solutions demonstrate flexibility to solve sophisticated challenges

U.S. / London / Singapore Global WAN - Multinational Retailer U.S. / trans-European / trans-Asian Global ELAN - International Law firm

solutions provide Transatlantic and Transpacific global connectivity highlights capabilities of Global Reach program Global Reach sales up 35%+ QoQ attractive economics despite off-net components both deals <12 month payback utilizes access to undersea cables

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nationwide 100G solution leverages breadth of network

90%+ on-net ~$72k MRR&MAR >12 month payback

high fiber count, diverse, multi-point ring topology

nominal capex invested ~$75k MRR&MAR <12 month payback

comprehensive solution includes IP connectivity & colocation

5 year term ~$47k MRR&MAR <12 month payback

Commercial Highlights Cont.

follow-on sales leverage organic expansions and acquired assets

Waves / Colocation Provider Dark Fiber / Webscale Cloud Provider IP & Colocation / IaaS Provider

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Observations

Operational Execution

post-IPO management team is more global and seasoned in operating a large scale platform sales and marketing competency increasingly important, as Zayo has opportunity to leverage more assets and products across more verticals re-energized geographic focus required to maximize value creation from deep and dense fiber networks

transformation of Zayo and industry is a source of challenges and opportunities

Industry Dynamics

active and potential consolidations are short term headwind but long term tailwind uncertain path to certain 5G requires thoughtful navigation cloud & datacenter strategies being developed by most enterprises edge and direct connect strategies prevalent across content, cloud, and SaaS

Ken desGarennes Chief Financial Officer

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Q3 Financial Results

gross leverage of 4.5x2 April refinancing activity reduced floating rate exposure on $570M of debt ample liquidity including $442M of revolver capacity including estimate of Electric Lightwave contribution, >$1.7B of net operating loss carryforwards

Balance Sheet

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Debt Schedule1

Interest Rate

32

pre-IPO plan vesting was completed in Dec16q

Stock-Based Comp

performance oriented stock-based compensation

Stock Based Compensation

Q&A

For detailed Supplement Earnings Information presentation, please visit:

investors.zayo.com

Appendix

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Stratification of Revenue

EXCLUDES ALLSTREAM

Revenue Stratification MRR & MAR on Last Day of Quarter1 Other Revenue MAR IRU & Upfront Charges

total bookings contract value >2x the associated committed capex average payback of 18 months bookings of $6.9M

$0.2M one month bookings contribution from

Electric Lightwave

Q3 Operational Highlights Cont.

EXCLUDES ALLSTREAM

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Net New Sales (Bookings) Stratification1 Contract Value vs. Capex on Bookings1

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Stratification of Net New Sales (Bookings)

EXCLUDES ALLSTREAM

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Net AFFO

EXCLUDES ALLSTREAM

AFFO Plus: <12 month payback net sales Less: Churn processed Less: CapEx from <12mo. payback net sales and Network Capacity Capex Plus: Upfront customer payments

• n <12 mo. payback net sales

Net AFFO

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Service Activation and Revenue Under Contract

EXCLUDES ALLSTREAM

Revenue Under Contract1 Service Activation Pipeline

40

Price Changes & Renewals

EXCLUDES ALLSTREAM & ELECTRIC LIGHTWAVE

Price Increases Renewals (where there is no price change) Price Decreases Net Contract Value Associated with Price Changes and Renewals Price Changes Net of Price Increases and Price Decreases

41

Mobile Infrastructure and Employee Data

EXCLUDES ALLSTREAM

Total FTT Towers & Small Cells1 Number of Employees2

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KIO Networks’ San Diego Datacenter Acquisition

On May 1, 2017, the Company completed the $12 million cash acquisition of KIO Networks’ San Diego data centers. The two data centers, located at 12270 World Trade Drive and 9606 Aero Drive, total more than 100,000 square feet of space and 2 megawatts (MW) of critical, IT power, with additional power available.

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Weighted Average Multiple = 9.1x Pre-Synergy and 6.6x Post Synergy

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Foreign Exchange Impact & Exposure

Reconciliations

Presentation of Certain Consolidated Pro-forma Financial Data

Acquisitions have been, and are expected to continue to be, a component of the Company’s strategy. In this presentation, the Company sets forth its pro-forma annualized revenue growth rate and pro-forma annualized Adjusted EBITDA growth rates for the current fiscal quarter. The adjustments reflected in our pro-forma amounts have not been prepared with a view towards complying with Article 11 of Regulation S-X. These pro-forma measures are intended to provide additional information regarding such rates of growth on a more comparable basis than would be provided without such pro-forma adjustments.

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, unlevered free cash flow, adjusted unlevered free cash flow, levered free cash flow, adjusted funds from operations, and net adjusted funds from

• perations.

Adjusted EBITDA, as defined below and in our Segment Reporting note to our consolidated financial statements and notes thereto, is the primary measure used by our Chief Operating decision maker to evaluate segment operating performance. Adjusted EBITDA is defined as earnings/(loss) from continuing 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, and non-cash income/(loss) on equity and cost method investments. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue. Unlevered free cash flow is defined as Adjusted EBITDA minus purchases of property and equipment, net of stimulus grants. Adjusted unlevered free cash flow is defined as Adjusted EBITDA minus 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 operating cash flow minus purchases of property and equipment, net of stimulus grants. Adjusted funds from

• perations (“AFFO”) is defined as earnings/(loss) from continuing operations before depreciation and amortization, unrealized foreign currency gains/(losses) on intercompany

loans, stock-based compensation, acquisition or disposal-related transaction costs, losses on extinguishment of debt, non-cash income/(loss) on equity and cost investments, non-cash monthly amortized revenue, less cash payments related to maintenance capital expenditures. Net AFFO is defined as AFFO plus upfront customer payments from less than twelve month payback on net new sales less cash payments related to capital expenditures for (i) less than twelve month payback on net new sales and (ii) network

• capacity. These measures 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

• perating activities or total net cash flows as measures of our liquidity.

We use Adjusted EBITDA to evaluate our operating performance. In addition to Adjusted EBITDA, management uses unlevered free cash flow, which measures the ability of Adjusted EBITDA to cover capital expenditures. Adjusted EBITDA is a performance rather than cash flow measure. Correlating our capital expenditures to our Adjusted EBITDA does not imply that we will be able to fund such capital expenditures solely with cash from operations. 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
• ur debt and pursue acquisitions of businesses or other strategic investments or uses of capital. We believe the presentation of AFFO and Net AFFO is useful to investors by

providing measures presented by certain datacenter and cellular tower REITs (and some non-REITs) with which we are sometimes compared.

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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.

Unlevered free cash flow and adjusted unlevered free cash flow have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, analysis

• f our results as reported under GAAP. For example, 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, AFFO, and Net AFFO have 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, AFFO, and Net AFFO:

• 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, unlevered free cash flow, adjusted unlevered free cash flow, levered free cash flow, AFFO, and Net AFFO 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

• perations 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 carryforwards, 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, AFFO, and Net AFFO to net income/(loss) and for a quantitative reconciliation of unlevered free cash flow, adjusted unlevered free cash flow and levered free cash flow to net cash flows 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 such non-GAAP measures are included in the Historical Financial Data & Reconciliations section of this presentation. A glossary of terms used throughout is available under the investor section of the Company’s website at http://www.zayo.com/investors.

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Consolidated Historical Reconciliations - Without Allstream Segment

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Reconciliation

Net (Loss)/Income to Adjusted EBITDA

49

Reconciliation

segment Net Income/(Loss) to Adjusted EBITDA

50

Reconciliation

cash from Operating Activities to UFCF, Adjusted UFCF & LFCF - without Allstream segment

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Reconciliation

AFFO & Net AFFO - without Allstream Segment

52

Reconciliation

Pro Forma Growth Reconciliations - December 2016 (Supporting FY17Q3 Pro Forma Growth including Allstream Segment)1,2

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Reconciliation

Pro Forma Growth Reconciliations - March 2017 (Supporting FY17Q3 Pro Forma Growth including Allstream Segment)1,2

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Thank You

investors.zayo.com