Telecom services provider Cincinnati Bell Inc. (CBB) reported better-than-expected financial results for the third quarter of 2014. Both the top and the bottom line beat the respective Zacks Consensus Estimate.
On a GAAP basis, quarterly net loss was $29.9 million or 14 cents per share compared with a net income of $6.7 million or 3 cents per share in the year-ago quarter. However, adjusted (excluding special items) loss per share of 3 cents was a penny better than the Zacks Consensus Estimate.
Quarterly total revenue was $327.5 million, up 5% year over year and also surpassed the Zacks Consensus Estimate of $300.2 million. Operating income was $16 million, down 72% due to higher cost of services and higher depreciation and amortization charges. Adjusted EBITDA (earnings before interest, depreciation and amortization) decreased 7.4% year over year to $97.5 million in the reported quarter. EBITDA margin was 29%, down 400 basis points year over year.
Cash Flow
In the third quarter of 2014, Cincinnati Bell generated $17 million of cash from operations compared with $30.4 million in the prior-year quarter. Quarterly free cash flow was a negative $14.9 million against a negative $10.2 million in the year-ago quarter.
Liquidity
Cincinnati Bell ended the reported quarter with cash and cash equivalents of $181.5 million, substantially up from $4.6 million at the end of 2013. Net debt decreased to $1,717.4 million from $2,260.6 million at the end of 2013.
Segment Results
Wireline revenues grew 1% year over year to $184 million owing to a 35% increase in Entertainment revenues and 6% in Data revenues. The improvement was partially offset by 12% decline in voice revenues and 3% decline in Other revenues. Meanwhile, Long distance and VoIP revenue remained static. Investment in strategic fibre business continued to produce strong wireline revenues for the company.
Total local access lines deteriorated 8.9% from the previous quarter to 492,800 and comprised 246,800 residential and 246,100 business customers.
The company added 2,000 high-speed Internet customers (Fioptics) during the reported quarter, taking its total subscriber base to 270,500 (including 163,800 DSL broadband subscribers).
Cincinnati Bell continues to expand the availability of its Fioptics fibre-to-the-home product suite, which provides entertainment, high-speed Internet and voice services. Fioptics video subscribers totaled 87,800 at the end of the third quarter, up from 69,700 in the year-ago quarter.
IT Services and Hardware revenues moved up 37% year over year to $120 million. The upside was driven by 48% higher revenues in Telecom and IT equipment distribution and 18% revenue growth in Managed and professional services.
Wireless revenues declined 39% year over year to $30.1 million due to lower service revenues (down 34%) and equipment revenues (down 88%).
The company exited the third quarter with 176,800 wireless subscribers, including 101,300 and 75,500 post-paid and prepaid customers, respectively. This compares unfavourably with 355,200 wireless customers in the year-ago quarter and 276,700 in the previous quarter.
CyrusOne Results
CyrusOne reported strong third-quarter 2014 revenues of $85 million and adjusted EBITDA stood at $42 million. At present, Cincinnati Bell effectively controls 44% of CyrusOne as an equity method investment, valued at $685 million as of Sep 30, 2014.
Outlook
For fiscal 2014, Cincinnati Bell slightly raised its guidance. The company now expects revenues and adjusted EBITDA of approximately $1.1 billion and $333 million (plus or minus 2%), respectively, excluding the wireless segment.
Zacks Rank
Cincinnati Bell currently carries a Zacks Rank #5 (Strong Sell). However, there are several other companies that are performing well in the same industry. Some stocks that warrant a look are United States Cellular Corp. (USM), China Mobile Ltd. (CHL) and Chunghwa Telecom Co. Ltd. (CHT). All three stocks currently hold a Zacks Rank #2 (Buy).
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