Zayo Group, LLC Reports Financial Results

The Company has experienced sequential quarter revenue and Adjusted EBITDA growth since inception. Second quarter growth was a function of both acquisition related and organic growth. The second quarter operating results of Zayo Group include the operating results of 360networks Holdings, Inc., a provider of bandwidth infrastructure which was acquired by the Company on December 1, 2011. As well contributing to the second quarter growth was the continued trend of positive net installations.

The three months ended December 31

During the three months ended December 31, 2011, the Company made net capital expenditures of $31.4 million, which included adding 553 route miles and 196 buildings to the network. The acquisition of 360networks resulted in an additional 19,879 route miles and 456 buildings. The Company had $25.9 million of cash and $63.6 million available in accordance with its revolving credit agreement on December 31, 2011.

On December 1, 2011, the Company acquired all of the outstanding equity interest in 360networks for a purchase price of $345.0 million, subject to post-closing adjustments. In connection with the agreement, the Company agreed to assume a net working capital deficit of in broad outline $26.0 million and acquired in broad outline $1.0 million in cash balances resulting in the net consideration paid for the transaction of $318.0 million. The acquisition was funded with proceeds from a $315.0 million senior secured term loan, which was entered into on December 1, 2011, and cash on hand. The term loan accrues interest at floating rates. The interest rate on the term loan as of December 31, 2011 was 7.0 percent.

The acquired 360networks business operated roughly 908,557 fiber miles of intercity and metro fiber network across 22 states and British Columbia. 360networks' intercity network interconnected over 70 markets across the central and western United States, including 23 Zayo fiber markets and a number of new markets just as Albuquerque, New Mexico; Bismarck, North Dakota; Des Moines, Iowa; San Francisco, California; San Diego, California and Tucson, Arizona. Just in case to its intercity network, 360networks operated over 800 route miles of metropolitan fiber networks across 26 markets, including Seattle, Washington; Denver, Colorado; Colorado Springs, Colorado; Omaha, Nebraska; Sacramento, California and Salt Lake City, Utah.

The purchase price

Included in the purchase price was VoIP360, Inc., a legal subsidiary of 360networks. The VoIP360, Inc. entity held substantially all of 360networks Voice over Internet Protocol and other voice product offerings. Concurrently with the close of the 360networks acquisition, the Company spun-off 360networks' VoIP operations to its parent Zayo Group Holdings, Inc. On the spin-off date, the Company estimated the fair value of the VoIP assets and liabilities which were distributed to Holdings to be $11.7 million.

The operating results of the acquired 360networks business are included in the Company's results of operations beginning on December 1, 2011.

The acquired MarquisNet business operates a single 28,000 square foot data center which provides colocation and interconnect services in Las Vegas, Nevada. With this acquisition, the Company's zColo business unit operates twelve interconnect-focused colocation facilities.

The acquisition

As the acquisition was consummated on December 31, 2011, the operating results of the acquired MarquisNet business are not included in the Company's results of operations while the three months ended December 31, 2011.

The sequential quarterly revenue increase of $10.5 million was affected by the inclusion of one month of operating results from the acquired 360networks business while the quarter ended December 31, 2011. The acquisition of 360networks accounted for in broad outline $7.0 million of the revenue increase. The Company generated additional monthly revenue of $2.0 million associated with gross installations accepted while the second quarter of fiscal year 2012. This increase in revenue related to organic growth was partially offset by total customer churn of $1.1 million in monthly revenue while the quarter. In broad outline 74% of churn processed was related to hard disconnects; 11% was related to negative price changes; and 16% was associated with upgrades.

Net revenues decreased by $4.2 million while the second quarter of fiscal 2012 as compared to the previous quarter. The decrease in net revenues is largely attributed to changes in the Company's quarterly stock-based compensation expense. The common units granted to employees and directors are classified as liabilities and are re-measured at each reporting date. The stock based compensation expense increased by $6.7 million while the quarter as compared to the prior quarter. As well contributing to the decreased net revenues was an additional $2.3 million in interest expense while the quarter associated with the $315.0 million term loan which was entered into on December 1, 2011 in connection with the 360networks acquisition. Offsetting these decreases to net income was a $1.6 million decrease in the provision for income taxes during the quarter as compared to the prior quarter, additional earnings associated with the 360networks acquisition and increased earnings from the positive net installations.

Revenue increased $16.7 million over the second quarter of fiscal year 2011 principally as a result of organic growth and additional revenue associated with the 360networks acquisition. As a result of internal sales efforts since December 31, 2010, the Company has entered into $482.0 million of gross new sales contracts which will represent an additional $7.1 million in monthly revenue once installation on those contracts is accepted. Since December 31, 2010, the amount of gross installations accepted resulted in additional monthly revenue of $6.5 million as of December 31, 2011. This increase in revenue related to our organic growth was partially offset by total customer churn of $4.1 million in monthly revenue since December 31, 2010.

Gross profit increased $15.3 million over the second quarter of fiscal year 2011, as a result of the 360networks acquisition and organic revenue growth. The gross profit percentage for the quarter ended December 31, 2011, was roughly three percentage points above the same period last year primarily as a result of a higher percentage of our newly installed revenue being on-net. The ratio as well benefited from synergies realized related to our previous acquisitions.

Adjusted EBITDA increased $14.0 million as compared to the second quarter of fiscal year 2011, due to the Adjusted EBITDA contribution from organic revenue growth, the 360networks acquisition, synergies realized, and cost savings initiatives, including reduced franchise fees resulting from favorable renegotiations on existing franchise agreements.

Net revenues from continuing operations decreased by $2.6 million on a year-over-year basis primarily due to an $8.5 million increase in stock-based compensation expense while the quarter and a $2.5 million increase to interest expense. Offsetting these decreases to net revenues was organic revenue growth, synergies realized from previous acquisitions and additional revenues from the acquired 360networks business.

Based in Louisville, Colorado, privately owned Zayo Group is a provider of fiber-based bandwidth infrastructure and network-neutral colocation and interconnection services. Zayo Group is organized into autonomous operating segments supporting clients who require lit and dark fiber services and carrier-neutral colocation. Zayo Group's business units provide these services over regional, metro, national and fiber-to-the-tower networks.

Information contained or incorporated by reference in this revenues release, in other SEC filings by the Company, in press releases and in presentations by the Company or its management that are not historical naturally constitute "forward-looking statements" which can be identified by the use of forward-looking terminology just 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, nevertheless are not limited to, those relating to the Company's financial and operating prospects, current economic trends, future opportunities, ability to retain existing clients and attract new ones, the Company's acquisition strategy and ability to integrate acquired companies and assets, outlook of clients and strength of competition and pricing. Other factors and risks that may affect the Company's business and future financial results are detailed in the Company's SEC filings, including, yet not limited to, those described pursuant to this agreement "Risk Factors" within the Company's Annual Report on Form 10-K. The Company cautions you not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. The Company undertakes no obligation to openly update or revise forward-looking statements to reflect events or circumstances afterwards the date of this presentation or to reflect the occurrence of unanticipated events, except as required by law.

"Adjusted EBITDA" is defined as EBITDA from continuing operations adjusted to exclude transaction costs, stock-based compensation, and certain non-cash and non-recurring items. Management uses EBITDA and Adjusted EBITDA to evaluate operating performance and liquidity, and these financial measures are among the primary measures used by management for planning and forecasting future periods. The Company believes Adjusted EBITDA is especially important in a capital-intensive industry just as telecommunications. The Company furthermore believes that the presentation of EBITDA and 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 makes it easier to compare our results with the results of other companies that have different financing and capital structures.

Because the Company has acquired numerous entities since inception and incurred transaction costs in connection with each acquisition, has borrowed money in order to finance operations, has used capital and intangible assets in the business, and because the payment of income taxes is necessary if taxable income is generated, any measure that excludes these items has material limitations. As a result of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to invest in the growth of the business or as measures of liquidity.

In addition to Adjusted EBITDA, management uses Unlevered Free Cash Flow, which measures the ability of Adjusted EBITDA to cover capital expenditures. While the current fiscal year, we expect that the level of our investment will be closely correlated to the amount of Adjusted EBITDA we generate. Adjusted EBITDA is a performance, in other words than a 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. Gross profit, defined as revenue less operating costs, excluding depreciation and amortization, is used by management to assess profitability prior to selling, general and administrative expenses, stock-based compensation and depreciation and amortization.

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